As filed with the Securities and Exchange Commission on December 18, 2009.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
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o
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES
EXCHANGE ACT OF 1934
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or
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended August 31, 2009
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
or
or
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o
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
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Date of event requiring this shell company report
Commission file number: 333-11012
City Telecom (H.K.) Limited
(Exact name of registrant as Specified in its Charter)
Hong Kong Special Administrative Region,
The Peoples Republic of China
(Jurisdiction of Incorporation or Organization)
Level 39, Tower 1, Metroplaza
No. 223 Hing Fong Road
Kwai Chung, New Territories
Hong Kong
(Address of Principal Executive Offices)
Mr. Lai Ni Quiaque
12th Floor, Trans Asia Centre
No.18 Kin Hong Street
Kwai Chung, New Territories
Hong Kong
Telephone : (852) 3145 6068
Facsimile : (852) 2199 8445
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title Of Each Class
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Name Of Each Exchange On Which Registered
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American Depositary Shares, each representing 20 Ordinary Shares, par value HK$0.10 per share
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The Nasdaq Stock Market LLC
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Ordinary Shares, par value HK$0.10 per share*
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The Nasdaq Stock Market LLC*
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
8.75% Senior Notes due 2015
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as at the close of the period covered by the annual report:
664,179,970 Ordinary Shares, par
value HK$0.10 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes
o
No
þ
If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to section 13 or 15(d) of the Securities Exchange Act of
1934.
Yes
o
No
þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that registrant was required to submit and post such files.)
Yes
o
No
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
(Do not check if a smaller reporting
company)
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Smaller reporting company
o
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Indicate by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
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US GAAP
o
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International Financial Reporting Standards as issued by the International Accounting Standards Board
þ
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Other
o
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If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has selected to follow.
Item 17
o
Item 18
o
If this report is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
þ
*
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Not for trading, but only in connection with the registration of the American Depositary Shares
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Contents
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1
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1
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2
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3
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4
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4
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4-13
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13-27
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27-35
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36-43
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44-45
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45
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45-47
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47-54
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54-55
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55
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55
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55
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55
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56
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56
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56
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56
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57
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57
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57
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58
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58
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58
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EX-12.1
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EX-12.2
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EX-13
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Use of defined and technical terms
Except as otherwise indicated by the context, references in this annual report to:
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Hong Kong Companies Ordinance are to Chapter 32 of the laws of Hong Kong;
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City Telecom or the Company are to City Telecom (H.K.) Limited;
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fiscal year or fiscal are to the Companys fiscal year ended August 31 for the year referenced;
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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;
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FTNS Licenses are to the licenses issued by the Hong Kong regulatory authorities for
fixed telecommunications network services;
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GPON are to Gigabit Passive Optical Network;
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Group are to the Company and its subsidiaries;
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HKBN are to Hong Kong Broadband Network Limited, a wholly owned subsidiary of the Company;
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HKFRSs are to Hong Kong Financial Reporting Standards issued by the Hong Kong Institute
of Certified Public Accountants;
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IDD business are to our business segment in which we provide international
telecommunications services, including international long distance call services;
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IFRSs are to International Financial Reporting Standards, as issued by the International Accounting Standards Board;
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IP-TV services are to pay-television services through Internet Protocol;
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PNETS Licenses are to licenses issued by the Hong Kong regulatory authorities for the
public non-exclusive telecommunications services;
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UC License are to the Unified Carrier License issued by the Hong Kong regulatory
authorities for fixed and mobile telecommunication services;
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VoIP are to Voice over Internet Protocol.
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Currency translation
We publish our consolidated financial statements in Hong Kong dollars. In this annual report,
references to Hong Kong dollars or HK$ are to the currency of Hong Kong, and references to
U.S. dollars or US$ are to the currency of the United States. This annual report contains
translations of Hong Kong dollar amounts into U.S. dollar amounts, solely for your convenience.
Unless otherwise indicated, the translations have been made at US$1.00 = HK$7.7505, which was the
exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on August 31, 2009.
On December 14, 2009
the exchange rate was US$1.00 = HK$7.7515. You should not construe these translations as
representations that the Hong Kong dollar amounts actually represent such U.S. dollar amounts or
could have been or could be converted into U.S. dollars at the rates indicated or at any other
rates.
1
Note regarding forward-looking statements
This annual report contains forward-looking statements that are, by their nature, subject to
significant risks and uncertainties. These include statements with respect to City Telecom or the
Company and our plans, strategies and beliefs and other statements that are not historical facts.
These statements can be identified by the use of forward-looking terminology such as may, will,
expect, anticipate, intend, estimate, continue, plan, predict, project or other
similar words. The statements are based on managements assumptions and beliefs in light of the
information currently available to us.
These assumptions involve risks and uncertainties which may cause the actual results,
performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward looking statements. Potential risks and
uncertainties include, without limitation:
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technological changes;
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changes in our regulatory environment, including changes in rules and policies
promulgated by regulatory agencies from time to time;
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increasing competition in the telecommunications, Internet access, local VoIP,
pay-television and corporate data markets;
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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;
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our ability to maintain growth and successfully introduce new services;
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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
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changes in the local and global economic environment.
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When considering such forward-looking statements, you should keep in mind the factors
described in Item 3 Key information risk factors and other cautionary statements appearing in
Item 5 Operating and financial review and prospects of this annual report. Such risk factors and
statements describe circumstances that could cause actual results to differ materially from those
contained in any forward-looking statement.
2
Special note on our financial information presented in this annual report
Our consolidated financial statements as of and for the years ended August 31, 2008 and 2009
included in this annual report on Form 20-F have been prepared in accordance with International
Financial Reporting Standards, or IFRSs, as issued by the International Accounting Standards Board,
or the IASB. Pursuant to the requirement under IFRS 1: First-Time Adoption of International
Financial Reporting Standards, or IFRS 1, the date of our transition to IFRS was September 1, 2007,
which is the beginning of the earliest period for which we present full comparative information in
our consolidated financial statements. With due regard to our accounting policies in previous
periods and the requirements of IFRS 1, we have concluded that no adjustments were required to the
amounts reported under HKFRSs as at September 1, 2007 or in respect of the year ended August 31,
2008.
In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission, or
the SEC, which became effective on March 4, 2008, we are not required to provide a reconciliation
to generally accepted accounting principles in the United States, or U.S. GAAP. Furthermore,
pursuant to the transitional relief granted by the SEC in respect of the first-time application of
IFRS, no audited consolidated financial statements and financial information prepared under IFRSs
for the year ended August 31, 2007 have been included in this annual report on Form 20-F.
Our consolidated financial statements included in our annual reports on Form 20-F previously
filed with the SEC in respect of the year ended August 31, 2007 were prepared in accordance with
Hong Kong Financial Reporting Standards, or HKFRSs, which collective term includes all applicable
individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and
Interpretations issued by the Hong Kong Institute of Certified Public Accountants and accounting
principles generally accepted in Hong Kong, or Hong Kong GAAP. For additional information, please
refer to our annual reports on Form 20-F previously filed with the SEC.
3
PART I
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3 KEY INFORMATION
A. Selected financial data
City Telecoms historical financial information
The following table presents the selected consolidated financial data and operating data of
City Telecom as of and for the years ended August 31, 2008 and 2009. The selected financial data
should be read in conjunction with, and is qualified in its entirety by reference to, the
consolidated financial statements included elsewhere in this annual report, the accompanying
notes thereto and Item 5 Operating and financial review and prospects. As disclosed above
under Special note on our financial information presented in this annual report, our
consolidated financial statements as of and for the years ended August 31, 2008 and 2009 have
been prepared and presented in accordance with IFRSs.
Selected consolidated statement of operations data:
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As of and for the year ended August 31,
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2008
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2009
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2009
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HK$
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HK$
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US$
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(Amounts in thousands except per share data)
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Revenue:
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- FTNS business
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1,011,038
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1,230,880
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158,813
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- IDD business
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291,943
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247,359
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31,915
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Total operating revenue
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1,302,981
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1,478,239
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190,728
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Network costs:
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- FTNS business
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(103,524
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)
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(107,670
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(13,892
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- IDD business
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(74,843
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(67,459
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(8,704
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Total network costs
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(178,367
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(175,129
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(22,596
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Other operating expenses
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(966,094
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)
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(1,037,964
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(133,922
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Interest expense, net
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(59,541
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)
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(50,258
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)
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(6,484
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)
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Other income, net
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9,393
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36,671
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4,731
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Income taxes benefit/(expense)
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16,818
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(38,730
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)
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(4,997
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Net income
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125,190
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212,829
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27,460
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Basic earnings per share (HK cents)
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19.7
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32.4
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4.2
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Diluted earnings per share (HK cents) (note 1)
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19.0
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31.8
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4.1
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Dividends per share attributable to the year (HK cents)
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6.0
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19.0
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2.5
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Weighted average number of ordinary shares
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634,015
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657,201
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657,201
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Diluted weighted average number of ordinary shares (note 2)
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657,997
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668,384
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668,384
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4
Selected consolidated balance sheet data:
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As of the year ended August 31,
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2008
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2009
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2009
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HK$
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HK$
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US$
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(Amounts in thousands)
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Total assets
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2,080,416
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1,785,044
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230,313
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Long-term debt and other liabilities
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(683,242
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(162,586
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(20,977
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)
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Finance lease obligations
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(376
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)
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(732
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)
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(94
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Other liabilities
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(364,191
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)
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(393,199
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)
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(50,733
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)
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Total liabilities
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(1,047,809
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)
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(556,517
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)
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(71,804
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Net assets
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1,032,607
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1,228,527
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158,509
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Share capital
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65,062
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66,418
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8,570
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Share premium
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670,717
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681,208
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87,892
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Reserves
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296,828
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480,901
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62,047
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Total shareholders equity
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1,032,607
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|
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1,228,527
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158,509
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Other financial data:
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For the year ended August 31,
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2008
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2009
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2009
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HK$
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HK$
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US$
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(Amounts in thousands)
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EBITDA (note 3)
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377,964
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508,058
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65,551
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Net cash inflow from operating activities
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378,563
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535,886
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69,142
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Net cash outflow from investing activities
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(147,750
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)
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|
(176,488
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)
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(22,771
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)
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Net cash outflow from financing activities
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(342,550
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)
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(560,407
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)
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(72,306
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)
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Capital expenditures (note 4)
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211,684
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286,734
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36,996
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As a measure of our operating performance or liquidity, we believe that the most directly
comparable measure to EBITDA is net cash provided by operating activities. The following table
reconciles our net cash inflow from operating activities, the most directly comparable financial
measure calculated and presented in accordance with IFRSs, to our definition of EBITDA on a
consolidated basis for each of fiscal 2008 and 2009.
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For the year ended August 31,
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2008
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2009
|
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2009
|
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HK$
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HK$
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US$
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(Amounts in thousands)
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EBITDA
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377,964
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508,058
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65,551
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Depreciation and amortization
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(210,051
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)
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(206,241
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)
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(26,610
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)
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Interest expense, net
|
|
|
(59,541
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)
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|
(50,258
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)
|
|
|
(6,484
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)
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Income taxes benefit/(expense)
|
|
|
16,818
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|
|
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(38,730
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)
|
|
|
(4,997
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)
|
|
|
|
|
|
|
|
|
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Net income
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|
|
125,190
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|
|
|
212,829
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|
|
|
27,460
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Depreciation and amortization
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|
|
210,051
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|
|
|
206,241
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|
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|
26,610
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Amortization of deferred expenditure
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|
|
33,777
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|
|
|
53,160
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|
|
|
6,859
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|
Income taxes (benefit)/expense
|
|
|
(16,818
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)
|
|
|
38,730
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|
|
|
4,997
|
|
Interest income
|
|
|
(15,596
|
)
|
|
|
(4,869
|
)
|
|
|
(628
|
)
|
Interest element of finance lease
|
|
|
34
|
|
|
|
27
|
|
|
|
3
|
|
Interest, amortization and exchange difference on senior notes
|
|
|
72,640
|
|
|
|
49,214
|
|
|
|
6,350
|
|
Realized gain on long term bank deposit
|
|
|
(1,185
|
)
|
|
|
|
|
|
|
|
|
Loss on disposal of fixed assets
|
|
|
1,431
|
|
|
|
1,016
|
|
|
|
131
|
|
Equity settled share-based transaction
|
|
|
4,204
|
|
|
|
4,768
|
|
|
|
615
|
|
Realized loss on derivatives financial instruments
|
|
|
1,039
|
|
|
|
|
|
|
|
|
|
Realized and unrealized gain on other financial assets
|
|
|
(3,284
|
)
|
|
|
(189
|
)
|
|
|
(24
|
)
|
Gain on extinguishment of senior notes
|
|
|
(2,582
|
)
|
|
|
(31,371
|
)
|
|
|
(4,048
|
)
|
Taxation paid
|
|
|
(4,250
|
)
|
|
|
(1,732
|
)
|
|
|
(223
|
)
|
Change in long term receivable and prepayments
|
|
|
1,346
|
|
|
|
(505
|
)
|
|
|
(65
|
)
|
Change in working capital, net
|
|
|
(27,434
|
)
|
|
|
8,567
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities
|
|
|
378,563
|
|
|
|
535,886
|
|
|
|
69,142
|
|
|
|
|
|
|
|
|
|
|
|
5
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended August 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
FTNS subscriptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
- Broadband Internet access
|
|
|
247,000
|
|
|
|
316,000
|
|
|
|
391,000
|
|
- Local VoIP
|
|
|
308,000
|
|
|
|
329,000
|
|
|
|
382,000
|
|
- IP-TV
|
|
|
128,000
|
|
|
|
156,000
|
|
|
|
170,000
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
683,000
|
|
|
|
801,000
|
|
|
|
943,000
|
|
|
|
|
|
|
|
|
|
|
|
Registered international telecommunications
accounts (note 5)
|
|
|
2,331,000
|
|
|
|
2,336,000
|
|
|
|
2,383,000
|
|
|
|
|
|
|
|
|
|
|
|
IDD outgoing minutes (in thousands)
|
|
|
659,000
|
|
|
|
574,000
|
|
|
|
487,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 fiscal 2008 and 2009, 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
Exchange rate information
The Hong Kong dollar is freely convertible into other currencies (including the U.S. dollar).
Since 1983, the Hong Kong dollar has been officially linked to the U.S. dollar and the current rate
is US$1.00 to HK$7.80. Despite the efforts of the Hong Kong Monetary Authority, or HKMA, to keep
the official exchange rate stable, the market exchange rate of the Hong Kong dollar against the
U.S. dollar continues to be influenced by the forces of supply and demand in the foreign exchange
markets. Furthermore, the official exchange rate is itself subject to fluctuations and can be reset
in circumstances where the secondary foreign exchange markets move beyond the HKMAs ability to
back the official rate with foreign reserves.
Exchange rates between the Hong Kong dollar and other currencies are influenced by the rate
between the U.S. dollar and the Hong Kong dollar.
The
following table sets forth the average, high, low and period-end
exchange rate between
the Hong Kong dollar and the U.S. dollar (in Hong Kong dollars per U.S. dollar) for the fiscal
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
High
|
|
|
Low
|
|
|
Period-end
|
|
|
|
(note)
|
|
|
|
|
|
|
|
|
|
|
|
|
HK$
|
|
|
HK$
|
|
|
HK$
|
|
|
HK$
|
|
Fiscal 2005
|
|
|
7.7869
|
|
|
|
7.8002
|
|
|
|
7.7684
|
|
|
|
7.7718
|
|
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
|
|
July 2009
|
|
|
7.7500
|
|
|
|
7.7505
|
|
|
|
7.7495
|
|
|
|
7.7500
|
|
August 2009
|
|
|
7.7506
|
|
|
|
7.7516
|
|
|
|
7.7500
|
|
|
|
7.7505
|
|
September 2009
|
|
|
7.7503
|
|
|
|
7.7514
|
|
|
|
7.7498
|
|
|
|
7.7500
|
|
October 2009
|
|
|
7.7497
|
|
|
|
7.7502
|
|
|
|
7.7495
|
|
|
|
7.7497
|
|
November 2009
|
|
|
7.7497
|
|
|
|
7.7501
|
|
|
|
7.7495
|
|
|
|
7.7500
|
|
December 2009
(through December 14, 2009)
|
|
|
7.7501
|
|
|
|
7.7515
|
|
|
|
7.7495
|
|
|
|
7.7515
|
|
|
|
|
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.
|
B. Capitalization and indebtedness
Not applicable.
C. Reasons for the offer and use of proceeds
Not applicable
D. Risk factors
You should carefully consider the risks described below and other information contained in
this annual report before making an investment decision. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not presently known to us,
or that we currently deem immaterial, may also impair our business operations. We cannot assure you
that any of the events discussed in the risk factors below will not occur. If they do, our
business, financial condition or results of operations could be materially adversely affected.
Risks relating to our business and operations
In light of the intense competition in our target markets, we cannot assure you that our
revenues and net profit will continue to grow.
We derive our total revenues from our FTNS business and our IDD business. Our FTNS business
primarily consists of broadband Internet access, local VoIP, IP-TV and corporate data services,
while our IDD business primarily consists of direct dial, international calling cards and mobile
call forwarding services. Our total revenues increased by 13.4% to HK$1,478.2 million in fiscal
2009 from HK$1,303.0 million in fiscal 2008, and our net profit increased by 70.0% to HK$212.8
million in fiscal 2009 from HK$125.2 million in fiscal 2008. The increase in net profit in fiscal
2009 was mainly due to increased contribution from our FTNS business, which carries high
incremental margins than our IDD business, and a gain of HK$31.4 million on extinguishment of a
portion of our outstanding senior notes.
Although revenue from our FTNS business increased by 21.8% in fiscal 2009, we cannot assure
you that we will be able to maintain such revenue and profit growth. The increase in revenue of our
FTNS business was primarily due to an increase in our subscription base of 17.7%, driven by growing
demand for high bandwidth broadband Internet access service. Any further increase in such
subscription base will highly depend on our ability to continue expand our network coverage and
compete successfully in an intensely competitive market.
7
On November 1, 2009, we launched our Member-Get-Member series of marketing programs. Under
this series of programs, our existing customers may refer a new customer to use our broadband
Internet access services and both will enjoy access to our bb100 service for HK$99 per month under
a 24-month contract. In addition, new customers are also entitled to this new discounted rate. As
the results of such programs will highly depend on the response from the markets and our
competitors, we cannot assure you that our revenues and net profit will continue to grow due to
more intense competition and uncertain price elasticity.
Further, revenue from our IDD business decreased by 15.3% in fiscal 2009. The decrease was
primarily due to a decrease in the total number of airtime minutes by 15.2%, which reflected a
reduction in the scale of operations. On our IDD service, our strategy is to focus on cash flow and
profitability rather than market share. Due to increasing competition, we expect our IDD business
will continue to experience pressure on tariff rates and to contribute to a smaller portion of our
revenue and net profit over time.
Our ability to continue to grow our total revenues and net profit in the rapidly evolving
telecommunications industry depends on many factors, including our ability to accurately identify
and respond to demand for new services, success in developing new services on a timely basis,
quality and cost competitiveness of our services, effectiveness of our sales and marketing efforts,
and the number and nature of competitors in a given market segment. The global economic downturn
has resulted in decreased consumer confidence and overall slower economic activity, which may
dampen the demand for broadband services or affect our customers ability to continue with existing
services. We cannot assure you that we can maintain the current level of revenue growth and
profitability.
Given the pace of change in the telecommunications industry and the characteristics of our
target markets, we cannot assure you that our FTNS business will continue to be profitable.
The main target market for our FTNS business is Hong Kong. The Hong Kong telecommunications
industry is intensely competitive. The intense competition could result in price reductions,
reduced gross margins or loss of market share, any of which could adversely affect our future
growth and profitability. We expect competition to continue to increase for the following reasons:
|
|
|
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, 261 PNETS Licenses had been issued in Hong Kong as of
October 31, 2009 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 territorial
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 15, 2009, 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.
|
As some of our main competitors have longer operating histories and others are subsidiaries of
large business conglomerates, they may have greater financial, technical, marketing and other
resources; a more sophisticated infrastructure; better brand recognition; and a larger subscription
base and may be able to devote more human and financial resources to research and development,
network improvement and marketing than we can. Our competitive position varies significantly by
service type because each service is characterized by a different market. If we cannot compete
effectively in a major market, our business, operating results and financial condition could be
adversely affected.
Our services may become obsolete if we cannot address the changing needs of our customers.
The telecommunications industry is characterized by rapidly changing technology and industry
standards, evolving subscriber needs and the changing nature of services with increasingly short
life cycles. We cannot assure you that we will be able to respond successfully to technological
advances and stay ahead of the evolving industry standards, for the following reasons:
|
|
|
To compete successfully, we must constantly increase the diversity and sophistication of
the services we offered 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 or 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. Both may lead to a decline in our revenues from international
telecommunications services and local telephony services.
|
|
|
|
|
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.
|
If we cannot offer the new services demanded by our customers in a timely manner, our
business, operating results or financial condition could be adversely affected.
The development of our Next Generation Network requires significant capital expenditures,
which may not be available on terms satisfactory to us or may impose a burden on our other business
activities.
8
Our business is capital intensive. We need to continue to devote substantial resources in
infrastructure construction and upgrade to provide consistent and high quality services. In
particular, because we deliver our fixed telecommunications network services through our self-owned
Next Generation Network, we have made, and will continue to make, capital investments in the
expansion and upgrade of this network and the development of various telecommunications services.
We incurred total capital expenditures of approximately HK$286.7 million in fiscal 2009.
We
expect to incur capital expenditures of approximately
HK$300 million to HK$350 million per year in
fiscal 2010 and 2011, a large majority of which will be spent on the continued expansion and
upgrade of our network. While we intend to fund such expenditures by using our currently available
cash as well as cash flow from operations, we may not have adequate capital to fund our projected
capital expenditures. Our ability to fund operating and capital expenditures depends significantly
on our ability to generate cash from operations. In fiscal 2009, we generated cash from operations
of HK$535.9 million. However, we cannot assure you that we will be able to sustain our operations
in order to generate sufficient cash flows to meet our future requirements. Our ability to generate
cash from operations is subject to general economic, financial, industry, legal and other factors
and conditions, many of which are outside our control. In particular, our operations are subject to
price and demand volatility in the telecommunications industry.
If we cannot finance our operations and capital expenditure using cash generated from
operations, we may be required to, among other things, incur additional debt, reduce capital
expenditures, sell assets, or raise equity. The recent global economic crisis has caused a general
tightening in the credit markets, lower levels of liquidity, increases in the rates of default and
bankruptcy, and volatility in the capital markets. Although we have sufficient cash to meet our
anticipated cash needs for at least the next 12 months, the current market conditions may affect
our ability to obtain further financing to support our network expansion in the future. Any failure
to do so will negatively impact our business and slow down our network deployment, in that we may
not be able to continue expanding our network infrastructure to cover substantial area of the Hong
Kong territory. Additional debt or equity financing may not be available, and debt financing, if
available, may involve restrictions on our investing, financing and operating activities.
If any of our new services are not successful, our operating results could be adversely
affected.
New telecommunications services are introduced by our competitors from time to time. If we do
not anticipate these changes and rapidly adopt new and innovative services in response, we may not
be able to fully capture the opportunities in the market. Development of new services, however,
exposes us to the following risks:
|
|
|
Developing new telecommunications services can be complex. We may not be able to adapt
the new services effectively and economically to meet customer demand.
|
|
|
|
|
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 flow 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
and adversely affect our financial condition and the results of our operations.
|
Specifically, we cannot assure you that any services enabled by upgrading and expanding our
Next Generation Network will provide us with an acceptable rate of return. This would depend on our
ability to accurately identify and respond to emerging consumer trends and demand. We cannot assure
you that we can generate satisfactory investment returns on any new service.
We may need to improve our internal controls over financial reporting and our independent
auditors may not be able to attest to their effectiveness.
The United States Securities and Exchange Commission, or the SEC, as required by Section 404
of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a
management report on such companys internal controls over financial reporting in its annual
report, which contains managements assessment of the effectiveness of the companys internal
controls over financial reporting. In addition, an independent registered public accounting firm
must attest to and report on the effectiveness of the Companys internal controls over financial
reporting. As a non-accelerated filer, we are required to file managements report on internal
controls over financial reporting for fiscal 2009 and our first auditors report on the
effectiveness of our internal controls over financial reporting for fiscal 2010.
We have evaluated our internal controls surrounding the financial reporting process for the
current fiscal period so that management can attest to the effectiveness of these controls, as
required by Section 404 of the Sarbanes-Oxley Act of 2002. We have implemented appropriate steps to
strengthen the internal controls. However, we may identify conditions that could result in
significant deficiencies or material weaknesses in the future. As a result, we could experience a
negative reaction in the financial markets and incur additional costs in improving the condition of
our internal controls. For a detailed discussion of controls and procedures, see Item 15 Controls
and procedures.
Notwithstanding our efforts, our management may subsequently conclude that our internal
controls over financial reporting are not effective. Further, for fiscal 2010, even if our
management concludes that our internal controls over our financial reporting are effective, our
independent registered public accounting firm may conclude that our internal control over financial
reporting is not effective.
If we do not successfully design and implement changes to our internal controls and management
systems, or if we fail to maintain the adequacy of these controls as such standards are modified or
amended from time to time, we may not be able to comply with
Section 404 of the Sarbanes-Oxley Act
of 2002. This could subject us to regulatory scrutiny and penalties that may result in a loss of
public confidence in our management, which could, among other things, adversely affect our customer
and vendor confidence, stock price and our ability to raise additional capital and operate our
business as projected.
9
If we cannot manage the growth in our FTNS business, the quality of our services and our
operating results could be adversely affected.
We have been pursuing an aggressive strategy in growing our FTNS business. As part of this
strategy, we intend to continue to expand and invest in our Next Generation Network infrastructure
to support our range of broadband Internet access, local VoIP, IP-TV and corporate data services.
The deployment of these projects has resulted and will result in significant demands on our systems
and controls and may impact our administrative, operational and financial resources. These projects
will also place significant demands on us to maintain the quality of our services to ensure that
our brand does not suffer as a result of any deviations, whether actual or perceived, in the
quality of our services.
Our ability to manage the growth in our FTNS business will depend upon our ability to:
|
|
|
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.
|
Our failure to achieve any of the above in an efficient manner and at a pace consistent with
the growth of our FTNS business could have an adverse effect on the quality of our services and
increase our costs of operation.
We depend on certain key personnel, and our business and growth prospects may be disrupted by
the loss of their services.
Our future success is dependent upon the continued service of our key executives and
employees. While we have employment agreements with members of our senior management staff, we
cannot assure you that we will be able to retain these executives and employees. If one or more of
our key personnel were unable or unwilling to continue in their present positions, or if they
joined a competitor or formed a competing company, or if they shifted their focus away from Hong
Kong operations, we may not be able to replace them easily, our business may be significantly
disrupted and our financial condition and results of operations may be materially and adversely
affected. Furthermore, as our industry is characterized by high demand and increased competition
for talent, we may need to offer higher compensation and other benefits in order to attract and
retain key personnel in the future. We cannot assure you that we will be able to attract and retain
the key personnel that we will need to achieve our business objectives.
Our ability to further expand the coverage of our Next Generation Network may be limited by
the physical limitations or our ability to obtain access rights in certain buildings
.
Our Next Generation Network has the capability of providing value-added broadband services and
content that combine voice, data and images with increased efficiency and flexibility. As part of
our strategy to grow our FTNS business, we plan to increase the coverage of our Next Generation
Network from the current number of 1.6 million residential homes pass as of August 31, 2009 to our
target of 2.0 million residential homes pass by the end of 2011. To connect our Next Generation
Network to a new physical site, we need to install fiber-to-the-home or fiber-to-the-building with
Category-5e copper wiring, which we refer to as in-building wiring. Our expansion plan may be
hindered because the installation of in-building wiring is subject to the following constraints:
|
|
|
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.
|
|
|
|
|
Certain developers may have affiliations with our competitors and may attempt to delay
our wiring installations.
|
We may be unable to capitalize on any economy of scale benefits if we fail to expand our
network coverage in our projected rate. Our growth opportunities will also be limited as a result.
Internet security concerns could adversely affect our Internet access services.
To remain competitive, we must continue to upgrade our broadband Internet access, local VoIP,
IP-TV and corporate data services. Computer viruses, break-ins and other inappropriate or
unauthorized uses of our Next Generation Network could affect the provision of our full suite of
Internet Protocol services and have the following effects on our FTNS business:
|
|
|
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.
|
To protect our business from computer viruses and other harmful attacks, we may need to incur
significant costs to protect us against the threat of security breaches or to alleviate problems
caused by such breaches. We intend to continue to strengthen our network security to alleviate
these problems. Our efforts, however, may cause interruptions, delays
or cessations of our services,
and our customers may stop using our service or assert claims against us as a result.
10
We may be unable to further expand the scope of our Internet access services unless we obtain
additional network capacity.
Our ability to transition from time to time to more advanced technologies for faster Internet
access is critical to our sustained competitiveness. Because our Next Generation Network has
limited capacity, our ability to expand the network bandwidth on a timely basis is subject to the
following factors:
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the expansion and development of our own international telecommunications facilities;
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the availability of leased capacity from third party carriers at favorable rates; and
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the possible termination or cancellation of our existing contracts.
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If we fail to increase the capacity of our international bandwidth, our ability to increase
our market share and revenue in the Internet access market segment will be limited.
Natural disasters and other disruptive regional events could damage our network and adversely
affect our business and operating results.
Our network is vulnerable to damage or cessation of operations from fire, earthquakes, severe
storms, heavy rainfall, power loss, telecommunications failures, network software flaws, vandalism,
transmission cable cuts and other catastrophic events. We may experience failures or shut downs
relating to individual points of presence or even catastrophic failure of our entire network. Any
sustained failure of our network, our servers, or any link in the delivery chain, whether from
operational disruption, natural disaster or otherwise, could have a material adverse effect on our
business, financial condition and results of operations.
The loss of key suppliers or their failure to deliver equipment on a timely basis could
negatively impact our business.
We rely on third parties for the supply of network equipment. Further, because an IP
set-top-box must be installed in order to access our IP-TV services, we must have an adequate
supply of such installation equipment on hand for delivery to our customers in a timely manner.
We purchase all of our IP set-top boxes and other equipment from our suppliers on a purchase
order basis and have no long-term contracts. If our suppliers are unable to supply us with these
products in a timely manner or the costs of these products increase due to unforeseen causes, this
could negatively impact our operating results, especially if we are unable to spread the costs over
a larger subscription base or effectively pass the additional costs on to our subscribers.
Because we rely on third parties in delivering services through our Next Generation Network,
our operating results could be adversely affected if their services are not timely or do not meet
our standards.
We depend on third parties for the ongoing maintenance and repair of our Next Generation
Network. Further, although our Next Generation Network is operated essentially as an independent
network, a small portion of it is connected to the network of other providers under interconnection
agreements. We are also dependent on certain Hong Kong rail transport providers to maintain and
provide us with access to their infrastructure to support the proper functioning of our equipment
and fiber-based backbone. If these third parties fail to respond or are untimely in their response
to our maintenance and repair needs, our customers may experience interruptions or variations in
the quality of our fixed telecommunications network services. Any service interruptions or
variations could adversely affect our operating results and our ability to retain or add new customers.
Risks relating to the regulatory, political and economic environment
Regulatory reforms and currently contemplated regulatory initiatives in the telecommunications
industry may adversely affect us.
The Hong Kong telecommunications industry is undergoing continuous regulatory reform. Our
business and results of operations may be adversely affected by changes in the telecommunications
regulations, especially in the following areas:
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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 of 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.
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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.
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11
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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.
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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 program 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 program service license in the future.
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We require licenses from the Telecommunications Authority to provide our services. If one of
these licenses is revoked or not renewed or there are substantial changes in its terms and
conditions, we may be unable to deliver the services authorized by that license.
We require licenses from the Telecommunications Authority to provide our fixed
telecommunications network and international telecommunications services. Our business operations
therefore are susceptible to the following changes in the regulatory environment in particular:
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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.
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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.
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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 December 1, 2009, the PNETS License of City Telecom was replaced by a
Class 3 Modified Services-Based Operator License. It is expected that the PNETS License of
HKBN would also be replaced by a Class 3 Modified Services-Based Operator License on
January 1, 2010 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.
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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.
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Our international telecommunications revenues may be adversely affected by increases in
carrier charges in China.
In China, tariffs for all domestic and international long distance services offered through
public switched telephone networks, leased lines and data services are jointly set by the Ministry
of Information Industry and the State Development Planning Commission. Certain tariffs payable by
us to our carrier partners are based, among other things, on the tariffs set by these agencies with
respect to the calls our subscribers make to persons in China. In fiscal 2009, approximately 78%
of our international call traffic volume was to China. We cannot predict the timing, likelihood or
magnitude of any tariff adjustments that may be imposed by the Ministry of Information Industry and
the State Development Planning Commission, nor can we predict the extent or potential impact upon
our business of any future tariff increases. Such increases may lead to a decrease in traffic,
reduce our revenues and adversely affect our business and results of operations. In addition, if we
are unable to effectively manage the increased network costs, the profit margins of our IDD
business could be adversely affected.
As approximately 48% of our staff located in Guangzhou, China, changes in Chinese labor or
business laws may significantly affect our operations and our ability to serve our Hong Kong based
customers.
Our
call center in Guangzhou employs over 1,500 employees and is an
important resource to us.
We are therefore significantly affected by the laws and regulations governing foreign companies
with operations in China. As the Chinese legal system develops, changes in such laws and
regulations, their interpretation or their enforcement may lead to restrictions on our ability to
hire and retain our employees in China, which could impact our
ability to provide services to our
Hong Kong-based customers.
Currency fluctuations of the Hong Kong dollar, our functional currency, may increase our
operating costs and long term liability.
12
We are exposed to a certain amount of foreign exchange risk because our revenues are
predominantly denominated in Hong Kong dollars, while a major portion of our operating costs are
denominated in U.S. dollars, Renminbi or other foreign currencies. Our foreign currency-denominated
expenses primarily consist of the following:
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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.
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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.
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Payment of interest, principal and any other amounts due under the 10-year senior notes
due 2015 are made in U.S. dollars.
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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.
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Since October 17, 1983, the Hong Kong dollar has been linked to the U.S. dollar at the rate of
HK$7.80 per US$1.00. We, however, cannot assure you the link will be maintained in future. Any
depreciation of the Hong Kong dollar against the U.S. dollar, Renminbi or other currencies would
increase our operating costs, including our debt servicing costs, make our capital expenditure
plans more expensive, and adversely affect our profitability.
The Renminbi is presently pegged to a basket of currencies, and there remains significant
international pressure on the PRC government to further liberalize its currency policy. This could
result in a further and more significant appreciation in the value of the Renminbi against the Hong
Kong dollar, which would increase the cost of operating our call center.
Item 4 Information on the Company
A. History and development of the Company
The legal and commercial name of the Company is City Telecom (H.K.) Limited. The Company was
incorporated on May 19, 1992 under the Hong Kong Companies Ordinance and is a limited liability
company. Our registered office is located at Level 39, Tower 1, Metroplaza, No. 223 Hing Fong Road,
Kwai Chung, New Territories, Hong Kong, telephone (852) 3145-6888. Our agent for U.S. federal
securities laws purposes is CT Corporation System, 111 Eighth Avenue, New York, NY 10011.
We began offering international telecommunications services in September 1992. In our early
stage of development, we focused on increasing our subscription base and amount of international
traffic, and on building the CTI brand name as a low cost provider of international
telecommunications services. In addition to our operations in Hong Kong, we also provide
international telecommunications and Internet access services in Canada through two
telecommunications companies in Canada, City Telecom Inc. and City Telecom (B.C.) Inc. We acquired
our interests in these companies in December 1998 as part of our efforts to increase our market
share of the telecommunications traffic between Canada and Hong Kong.
In January 1999, we became the first company in Hong Kong to obtain the first PNETS License.
The license gives us the right to offer international telecommunications services using
international simple resale and has had a significant positive impact on our international
telecommunications revenues. We incorporated HKBN in Hong Kong in August 1999 and launched our
broadband Internet access services in March 2000. In addition, we began providing local VoIP
services in April 2002, IP-TV services in August 2003, and corporate data services in July 2004
using our Next Generation Network. The network has the capability of providing value-added
broadband services and content that combine voice, data and images with increased efficiency and
flexibility.
We believe that one of the cornerstones of our success has been our ability to quickly expand
our service offerings when changes in regulation or technology have provided us with an opportunity
to do so. Some of the key events in our history and development include the following:
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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.
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In February 2007, we launched our bb50 and bb200 symmetric residential broadband
service supported by SDU personalized customer care service.
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In June 2007, we were awarded Best Retention Strategies at the Hong Kong HR Awards
2007.
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In July 2007, we were awarded Integrated Support Team of the year at the Asia Pacific
Customer Service Consortium Customer Relationship Excellence Awards.
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In September 2007, we launched Fiber-To-The-Home residential broadband service,
FiberHome100, FiberHome200 and FiberHome1000. As the same time, we upgraded our entry
level service broadband Internet access from 10 Mbps to 25 Mbps.
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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.
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In February 2008, we were awarded contract for the provision of payphone service at the
Hong Kong International Airport.
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13
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In September 2008, we launched the National Geographic Channels first ever Interactive Channel.
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In June 2009, we launched the first Online Broadband Service Registration Platform in Hong Kong.
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In July 2009, we were awarded the 2009 Hong Kong Management Association Quality Award Bronze.
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In November 2009, we accepted the Innovation in Recruitment award and Champion of HR
award at the Hong Kong HRM Awards 2009.
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B. Business overview
Principal Activities
We are a Hong Kong-based provider of residential and corporate fixed telecommunications
network and international telecommunications services. We specialize in the residential mass market
and small-to-medium corporate and enterprise market segments. The majority of our revenues are
derived from business conducted in Hong Kong.
We derive our revenues from two business segments: FTNS and IDD. A breakdown of our revenues
is as follows:
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For the year ended August 31,
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2008
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2009
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HK$
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HK$
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(Amounts in thousands)
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Revenue
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FTNS business
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1,011,038
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1,230,880
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IDD business
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291,943
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247,359
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Total operating revenue
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1,302,981
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1,478,239
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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:
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high-speed broadband Internet access services at symmetric upstream and
downstream access speeds of 25 Mbps to 1,000 Mbps;
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fixed line local telephony services using VoIP technology;
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pay television services consisting of more than 80 channels, including
self-produced news, childrens programming, international drama, movies and
documentary and local interest programming, using our IP platform; and
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corporate data services, including the provision of dedicated bandwidth to
corporate customers.
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As of August 31, 2009, we had a total of approximately 943,000 subscriptions for our fixed
telecommunications network services, consisting of 391,000 broadband Internet access,
382,000 local VoIP and 170,000 IP-TV services subscriptions.
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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,
2009, the customer base for our total international telecommunications services consisted
of approximately 2.4 million registered accounts.
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Strategy and Competitive Strengths
Our strategy is to market multiple fixed telecommunications network services by capitalizing
on the new in-building blockwiring we have done on a mass scale for our Next Generation Network and
will focus on growing our market share, increasing our network coverage and introducing new
services through our IP platform. We believe that our success will continue to depend on our
ability to capitalize on our focus on the residential mass and small-to-medium corporate and
enterprise market segments, our leading-edge Next Generation Network, and our first mover advantage
in the fixed line telecommunications market, which have a high entry barrier.
We believe that our demonstrated success is primarily due to our ability to capitalize on the
following key strengths:
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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 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.
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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
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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 1,000 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 1,000Mbps on our existing passive
fiber infrastructure which existing technology cannot accomplish using legacy telephone
lines.
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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 1.6 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.
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Recent Development
Update on Fixed Mobile Interconnection Charge
On November 25, 2009, the TA issued a Preliminary Analysis (the 2009 PA) in relation to the
2008 Determination (see note 2(c) to our consolidated financial statements) for mobile
interconnection charges. TA
invited HKBN and the mobile operators covered by the 2008 Determination to make representations in
relation to the 2009 PA on or before December 25, 2009. As of December 15, 2009, the final level of
mobile interconnection charges for the period from April 1, 2002 to April 26, 2009 was still
subject to representations that could be made by HKBN and the mobile operators, and accordingly,
the related financial effect of the 2008 Determination to the consolidated financial statements cannot be
reasonably estimated.
Buyback of 10-year Senior Notes
Between September 1, 2009 and December 15, 2009, the Group repurchased the 10-year senior
notes with a cumulative principal value of US$1.5 million (equivalent to HK$11.6 million) in the
open market. The total consideration paid including accrued interest was approximately US$1.6
million (equivalent to HK$12.1 million). The loss on extinguishment was approximately US$41,000
(equivalent to HK$318,000) which is expected to be recorded in the consolidated income statement
for the year ending August 31, 2010. The principal value of the
10-year senior notes remaining in issue
after the repurchases is US$19,863,000 (equivalent to HK$153,948,000).
Our Services
Fixed telecommunications network services
We offer our fixed telecommunications network services through our Next Generation Network.
The high capacity of our fiber-based backbone has enabled us to offer a suite of services on a
single IP network platform. These services include our broadband Internet access, local VoIP, IP-TV
and corporate data services. Our strategy is to leverage our broadband subscription base to up-sell
our other fixed telecommunications network services such as local VoIP and IP-TV.
The table below shows the profile the subscriptions of our fixed telecommunications network
services over the past three years:
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As of August 31,
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2007
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2008
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2009
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Broadband Internet access
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247,000
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316,000
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391,000
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Local VoIP
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308,000
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329,000
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382,000
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IP-TV
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128,000
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156,000
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170,000
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Total FTNS subscriptions
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683,000
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801,000
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943,000
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Broadband Internet Access
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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 1,000 Mbps, but the majority of our customers currently
have access speeds between 25 Mbps and 100 Mbps. We also offer Fiber-to-the-Home, or
FTTH, broadband service for 100 Mbps, 200 Mbps and 1,000 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
bbDrive, an on-line virtual hard drive with up to 10Gb of storage; bbGuard, an
anti-spam and anti-virus package; and 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 getFAXEASY, a
service in which subscribers can simply receive fax by their email address in Hong Kong
and worldwide. A unique fax number is assigned to each subscriber. We frequently alter our
promotions in response to changing market conditions or as a way of attracting additional
subscribers.
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Pricing.
We currently offer broadband service for
bb25, bb50, bb100, FiberHome200 and FiberHome1000 at monthly fees ranging from HK$99 to HK$1,688 for
unlimited service access. On November 1, 2009, we launched our Member-Get-Member series
of marketing programs. Under this series, our existing customers may refer a new customer
to use our broadband Internet Access services and both will enjoy access to our bb100
services for HK$99 per month. Our strategy is to reduce the market price to a more
affordable level such that customers can focus on quality. When our broadband service
becomes more affordable, we believe that our customers will not change their provider
merely for a lower price.
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In addition to the residential packages described above, we have also developed broadband
promotions that target corporate customers. We offer prepackaged plans that provide access
at speeds of up to 1,000 Mbps. Corporate customers that subscribe to prepackaged plans pay
fixed monthly subscription fees ranging from HK$128 to HK$24,000. Our prepackaged plans
include on-site training, on-site maintenance support, high capacity data transfer and
e-mail services.
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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 1,000 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.
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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.
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Market share.
We had approximately 391,000 broadband Internet access subscriptions as
at August 31, 2009, which represented a market share of approximately 20% with respect to
the total number of broadband Internet access subscribers in Hong Kong.
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Local VoIP
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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.
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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.
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Pricing.
We currently charge HK$118 per month, on standalone basis, for our 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.
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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, 2009. 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.
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Market share.
As of August 31, 2009, we had 382,000 local VoIP subscriptions. Our market
share with respect to local residential telephony services was approximately 20% as of
August 31, 2009.
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IP-TV
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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 80 channels, including a self-produced
24-hour news channel and education and recreation channels (including childrens
programming) and channels whose content is obtained from other 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.
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Pricing.
We currently charge HK$168 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.
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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 English Premier League Football until June 2010, HBO,
Cinemax, ESPN and others. We target a different market than these competitors by offering
predominantly Chinese language contents 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 National Geographic, AXN, Bloomberg and other channels.
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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.
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Market share
. As of August 31, 2009, we had 170,000 subscriptions representing
approximately 7% of the total pay-television subscription base in Hong Kong
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International telecommunications services
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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.
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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:
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Service
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Description
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IDD 1666
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Provides subscribers with international
direct dial using the access code 1666 in
Hong Kong.
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IDD 0030
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Provides subscribers with international
direct dial using the access code 0030 in
Hong Kong.
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Mobile call forwarding services
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Allows call forwarding of Hong Kong mobile
numbers to any overseas telephone number
so that subscribers can receive calls
while in overseas.
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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.
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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 2009. This competition drove down the average tariff
rates per minute and we expect this price competition to continue in fiscal 2010.
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Further, technology substitution from global VoIP providers such as Skype, which offers
free PC-to-PC based international calls, is becoming more prevalent.
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Market share.
We experienced a reduction in total traffic volume of 12.9% to 574 million
minutes in fiscal 2008 and a further reduction of 15.2% to 487 million minutes in fiscal
2009. 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.
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Our network infrastructure
Fixed telecommunications network
Our fixed telecommunications network services are delivered over our self-owned Next
Generation Network, which allows us to deliver multiple services, including the triple play service
of voice, broadband and IP-TV. The coverage of our Next Generation Network is concentrated in Hong
Kongs most densely populated areas, characterized by high-rise apartment buildings with multiple
apartments on each floor. The network currently covers approximately 1.6 million residential homes
pass, representing
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approximately 70% of Hong Kongs population and also 1,230 commercial buildings. We plan to extend
the coverage of our Next Generation Network to 2.0 million residential homes pass, representing
approximately 90% of Hong Kongs population, and to 1,800 commercial buildings by the end of 2011.
As we expand the reach and coverage of our Next Generation Network, we plan to continue introducing
new services.
Our Next Generation Network is deployed using Metro Ethernet technology. Metro Ethernet
technology is highly cost-effective when access is to be provided to a large number of users in a
single building or cluster of buildings and is typically used in commercial buildings in
metropolitan areas in other geographical markets. Our Ethernet infrastructure is a system of
Category-5e copper wiring that connects our subscribers premises to our local area network, or
LAN, switches within a residential or commercial building. By keeping our Category-5e copper
distance to less than 100 meters we are able to deliver bandwidth of up to 1,000Mbps to our
subscribers.
The first step in expanding the reach of our fixed telecommunications network infrastructure
is to select buildings that we believe will provide sufficient economic returns to justify our
investment based on several factors, including population density, proximity of the building to our
existing fiber loop and our projected ability to sell services. We then perform a site visit to
analyze the feasibility of installing our Ethernet technology. Once we are satisfied with the
prospects of a particular building, we must obtain access rights from the buildings management,
which may take several weeks or months. After receiving the required access rights, we employ a
combination of our full-time staff and contractors to begin installation of our in-building
Ethernet. The length of time required for the installation process depends on the size and
structural features of the building and can be completed in as little as three weeks or take
several months. As we install our in-building Ethernet infrastructure we simultaneously connect the
building to our fiber-based backbone.
Unlike many of our competitors, which use multiple platforms to provide comparable services,
all of our fixed telecommunications network services are offered through a single IP platform. In
addition, unlike many new entrants to the industry, we operate an end-to-end network that extends
from our IP network hub sites and our switching centers in Hong Kong to our subscribers premises.
All the buildings covered by us are served by our self-owned infrastructure.
In November 2007, we have been collaborating with one of the largest network solution
providers for the deployment of our Next Generation Network using GPON technology. As the reach of
GPON is considerably more than 100 meters, it can be a more cost effective solution to expand our
Next Generation Network than our Ethernet setup for lower density deployments.
We incurred capital expenditures of approximately HK$211.7 million in fiscal 2008 and HK$286.7
million in fiscal 2009, substantially all of which were made in connection with the construction
and upgrade of our infrastructure for the provision of fixed telecommunications network services.
In fiscal 2010 and fiscal 2011, we plan to further incur total capital expenditures about HK$300 million
to HK$350 million per year to continue increasing the capacity of our existing network coverage
and extending the coverage of our Next Generation Network to 2.0 million residential homes pass and
1,800 commercial buildings.
International telecommunications network
Our international telecommunications network consists of a system of switches, self-owned and
leased backbone capacity, interconnection arrangements and undersea cables for the transmission of
long distance calls.
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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.
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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 140
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.
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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.
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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.
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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.
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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 Cisco Systems, Inc. and ECI Telecom Ltd. These
systems are programmed 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.
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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.
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Sales and marketing
We advertise our products and services through our Fibre Shops, on-the-street marketing
kiosks, telemarketing and direct mailing, as well as through Chinese language television, radio,
print media and on the Internet.
In fiscal 2009, we grew our retail presence to 14 Fibre Shops and a customer service center.
We have planned to open more shops in the future. We believe these shops can offer our customers
convenient access to our wide range of services.
We have an extensive sales network in Hong Kong. Our senior marketing personnel closely
oversee our sales network to ensure that a consistent image is presented by all of our sales
representatives in promoting City Telecom and HKBN. We provide commission based incentives to our
residential sales force for our fixed telecommunications network services and international
telecommunications services.
We have a sales division responsible for coordinating our corporate marketing and sales
efforts. We believe our dedicated corporate and small-to-medium enterprise sales force is one of
the largest sales forces targeted at corporate users of telecommunications and Internet services in
Hong Kong. In addition, our dedicated corporate staff designs marketing and sales promotions
specifically tailored to address the concerns of business users. This division also organizes
seminars for current and prospective customers to promote new products and services and to raise
the public awareness of our various corporate offerings.
Maintenance and monitoring
To ensure reliability of our fixed telecommunications network, we continue to maintain our
monitoring system, which involves:
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two separate network operation centers in two different locations operate 24 hours a
day, 7 days a week, network operation center providing real-time service monitoring and
maintenance services and supported by about 130 operational and field staff;
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individual self-reporting mechanisms and centralized performance monitoring systems for
our switches and equipment;
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an emergency self-reporting system that automatically contacts designated personnel; and
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back-up systems for our switches, critical software and hardware components.
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Once a network fault is detected by our control room, we will either rectify the problem
remotely or dispatch field staff to that location should physical interaction be required. After
the problem has been resolved, we will continue to monitor network performance as well as track
customer service feedback until we are assured of the fault being fully rectified.
Research and development activities
As of August 31, 2009, our research and development department in Hong Kong consisted of
approximately 21 staff members experienced in systems design, engineering, telecommunications and
computer programming. Our research and development department is primarily responsible for
assessing and adapting the technology that we employ in upgrading and expanding our Next Generation
Network. To identify and develop new market opportunities, our research and development department
evaluates new services offered by telecommunications and Internet companies in the United States
and elsewhere and works closely with our marketing department for product development. Our research
and development expenditures were approximately HK$9.6 million and HK$10.8 million for fiscal 2008
and 2009, respectively.
Customer service
We believe that excellent customer service and support is essential to our building and
retaining of a large and loyal subscription base. We therefore have committed considerable
personnel and financial resources to establishing a reliable and accessible customer service
system.
Our customer service department provides integrated support to subscribers of FTNS business
and IDD business. We provide a hotline to handle complaints, subscription applications and queries
relating to account balances, pricing, billing, service and technical information. Complaints and
in-depth queries from subscribers that cannot be immediately remedied or answered are forwarded to
a customer care team, which is responsible for answering such complaints and queries. We also have
a dedicated customer service team to provide service to our corporate subscribers, which includes
access to a highly skilled technical team that may go to the customer site for trouble shooting and
repairs.
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Our centralized customer service call center is located in Guangzhou, which provides our
customer service and back office support services at that location. This enables us to lower our
operating costs while continuing to increase our customer service capabilities. As of August 31,
2009, our Guangzhou customer service facility had 1,520 employees.
Billing and collection
Our credit and collection team is responsible for securing prompt payment from subscribers.
Invoices are issued on a monthly or quarterly basis with a specified payment due date. A variety of
payment methods are made available to our subscribers, including cash, check, credit card, payment
by telephone service, automatic transfer from subscribers bank accounts or through Internet
banking. Our bad debts expense represented approximately 1.1% and 0.8% of our revenue for each of
fiscal 2008 and 2009, respectively.
We maintain tight collection procedures, including periodic reminder notices, and impose a
charge of HK$10 or a fee of 1.5% per month on outstanding overdue amount for late payment. We have
the right to charge the outstanding overdue amount to the subscribers pre-registered credit card
account for any amount overdue or if applicable, deduct such amount from the subscribers
application deposit. Moreover, we generally suspend an account when amount overdue is not settled
within our prescribed period. If payment is still not settled after we suspend the account, further
recovery actions including court proceedings and/or the use of collection agencies will be taken.
Seasonality
Our operations are not subject to significant seasonal fluctuations generally. Our IDD
business typically experiences a slight decrease in revenue during the second quarter of each
fiscal year (i.e. December through February) in connection with the Christmas holiday and Chinese
New Year holiday. We do not believe that seasonality has had a material effect on our business,
financial condition or results of operations.
Environmental matters
Since our date of incorporation, we have not violated any environmental laws, ordinances or
regulations, and believe that all of our operations comply fully with applicable environmental
laws.
Intellectual property rights
We have registered our trademarks with the Trademarks Registry of the Intellectual Property
Department in Hong Kong. We have no other material intellectual property.
C. Regulatory framework
The following is a brief summary of the Hong Kong laws and regulations that currently
materially affect our business. This section does not purport to be a comprehensive summary of all
present and proposed regulations and legislation relating to the industries in which we operate.
As a provider of broadband Internet access, local VoIP, IP-TV and international
telecommunications services in Hong Kong, our operations are subject to the Telecommunications
Ordinance and the Broadcasting Ordinance and their respective subsidiary legislation, regulations
and codes of practice. The Telecommunications Ordinance provides the legislative and regulatory
framework for the provision of telecommunications services and facilities in Hong Kong. The
Broadcasting Ordinance governs the content and scope of television programming and the licensing of
television broadcasters.
Our primary regulator is the Telecommunications Authority, whose responsibility and
functions include regulating and licensing telecommunications network services and regulating the
telecommunications markets in Hong Kong, including the issuance of non-exclusive licenses; the
determination of terms of interconnection; promotion of fair competition in the telecommunications
sector; management of the frequency spectrum; development of technical standards and customer
equipment testing; protection of consumer interests; and the control and administration of the Hong
Kong numbering plans (including allocation of numbers or codes). The Telecommunications Authority
is also responsible for the administration of the Telecommunications Ordinance. We are also
regulated by the Broadcasting Authority, which administers the Broadcasting Ordinance and makes
recommendations to the Chief Executive-in-Council on applications for broadcasting licenses, as
well as on the renewal, suspension and revocation of licenses.
Telecommunications industry
Licensing
It is unlawful to establish or maintain any means of telecommunications, or possess, use
or deal with telecommunications apparatus in Hong Kong without a license. The Telecommunications
Authority has the authority to grant licenses for all means of telecommunications services and
facilities in Hong Kong, including the provision of fixed wireline, public mobile telephone,
Internet and satellite services. Furthermore, the Telecommunications Authority has the authority to
require a licensee to comply with the terms of its license and any applicable legislation or
regulations or codes of practice, and to suspend or revoke licenses to enforce the
Telecommunications Ordinance or other rules or regulations or codes of practice to protect the
public interest.
Prior to August 1, 2008 the operation of fixed and mobile services were regulated
separately under four types of carrier license. Further, a number of other types of licenses
permitted a licensee to establish facilities or services of a similar kind.
However, in recognition of the convergence of fixed and mobile services enabling voice,
data and multimedia applications to be provided over common core networks, delivered through a
range of wireline and wireless customer access networks and which will be accessible from common
end-user devices irrespective of whether the users are at fixed locations or on the move with the
result
that is becoming more difficult to classify a service as a fixed or mobile, amendment
legislation has been passed to create a single UC License encompassing both fixed and mobile
carrier services. The UC License regime came into operation on August 1, 2008. After that date the
Telecommunications Authority will not issue any further fixed or mobile carrier licenses (save for
a Mobile
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Carrier License which the Telecommunications Authority had already committed to grant to the
successful bidder of the spectrum in the 850 MHz band to provide CDMA2000 service). Instead the UC
License is the only carrier license to be issued for the provision of fixed, mobile and/or
converged services. In the meantime, existing fixed and mobile licenses continue to be
effective until their expiry date. License holders may convert existing fixed or mobile licenses
into UC Licenses before their expiry on a voluntary basis or apply for UC Licenses upon the expiry
of existing fixed or mobile licenses.
General Licensing Requirements
Generally, a licensee is required to be a company incorporated in Hong Kong (which can
be wholly owned by a foreign company) or a foreign company registered in Hong Kong. Currently,
there is no foreign ownership restriction on the holder of a telecommunications license under the
current regulatory regime.
Non-compliance with the Telecommunications Ordinance, any subsidiary legislation made
pursuant to it, any of the license conditions or any direction issued by the Telecommunications
Authority by a telecommunications licensee, could result in the revocation or suspension of the
relevant license. The Telecommunications Ordinance contains a set of provisions setting forth the
procedural steps which the Telecommunications Authority must adhere to prior to revoking or
suspending any telecommunications licenses. In addition, the Chief Executive in Council has the
authority, at the recommendation of the Telecommunications Authority, to revoke a
telecommunications license at any time if it is in the public interest to do so.
Public Non-Exclusive Telecommunications Services License
A PNETS License is used by the Telecommunications Authority to cover the provision of a
number of different telecommunications services where the service provider provides the service to
the public using the network of a licensed carrier or by establishing or maintaining transmission
facilities within the boundary of a building or property. In practice, the PNETS License is also
used as a sweep-up license category, where a license is required by virtue of the
Telecommunications Ordinance but none of the existing categories are applicable to the means of
telecommunications or telecommunications service for which the license is required. With effect
from November 30, 2009, the Telecommunications Authority no longer issue PNETS License to
service-based providers using the network of a licensed carrier. As a replacement, all PNETS
License will be gradually replaced by the modified Services-Based Operator License, i.e. Class 3
Services-Based Operator License. Holder of Class 1 & 2 Services-Based Operator License is allowed
to provide Internet Protocol based telephony services making use of Hong Kong telephone numbers,
while Class 3 Services-Based Operator is not allowed. Existing PNETS License will remain in force
until their next anniversary date when they would be replaced by the Class 3 Services-Based
Operator License.
A Class 3 Services-Based Operator License has a validity period of 12 months and is
renewable at the discretion of the Telecommunications Authority on an annual basis upon the payment
of a prescribed annual fee, which is currently set at HK$750. Where radio communications apparatus
is used, there is an additional variable component calculated by reference to the number of base
stations and mobile stations involved.
Since the expiry of PNETS License in December 2009, the Telecommunications Authority
granted us a Class 3 Services-Based operator License. The Class 3 Services-Based Operator License
presently gives us the right to provide calling card services, international simple resale services
for facsimile and data services, virtual private network services and external telecommunications
services over the external telecommunications facilities of other licensed external facilities
providers, the scope of service under the Class 3 Services-Based operator License is similar to the
PNETS License previously granted to us by the Telecommunications Authority. HKBN also holds a
PNETS IVANS License, which was issued to us in December 1993. This PNETS IVANS License allows us to
act as an Internet Service Provider.
Under the terms of the Class 3 Services-Based Operator License, PNETS ETS and PNETS
IVANS Licenses, we and IDD1600 Company Limited, or IDD1600, our wholly owned subsidiary, are
required to comply with certain license conditions relating to technical and reporting matters.
FTNS License
A FTNS License authorizes the licensee, among other things:
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to provide a public fixed telecommunications network service, covering internal services or external services, or both; and
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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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A FTNS License is valid for a period of 15 years and is renewable for a further period
of not exceeding 15 years at the Telecommunications Authoritys discretion. The amount of license fee
payable by a holder of a FTNS License comprises (i) a fixed annual amount of HK$1.0 million; (ii) a
variable amount calculated on the basis of the number of customer connections (which is currently
set at HK$700 for each 100 customer connections); and (iii) a variable fee calculated by reference
to the radio spectrum assigned and used by the license holder.
HKBN currently holds a FTNS License, which was issued to it in February 2000 initially
for the operation of a local fixed wireless network. This FTNS License has been subsequently
amended three times and presently, HKBN is authorized to operate both local fixed
telecommunications networks (wireline and wireless based) and external telecommunications
facilities.
Interconnection
The Telecommunications Authority divides interconnection into two main types. The first
type is Type I Interconnection, which is interconnection between network gateways, such as tandem
exchanges, local exchanges or dedicated interconnection gateways, which allow end users on
different networks to communicate with each other. The second type is Type II Interconnection,
which is a connection to a fixed carriers network at points of the customer access network level
(more often referred to as local access or local loop unbundling) allowing the end customer
requesting the interconnection to use the customer
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access network of the fixed carrier to obtain FTNS. The Telecommunications Authority introduced the
Type II interconnection policy in 1995 that the fixed carriers have obligation to provide Type II
interconnection at regulated terms and conditions.
On July 6, 2004 the Hong Kong Government announced that the mandatory Type II
Interconnection policy applicable to telephone exchanges for individual buildings covered by such
exchanges, would be gradually withdrawn on a building-by-building basis, applying to buildings
already connected to at least two self-built customer access networks, such withdrawal to be fully
implemented by a final sunset date of June 30, 2008. After that time, mandatory Type II
Interconnection will be maintained only in buildings for which it is technically not feasible or
economically not viable for an operator to roll out its customer access network.
On July 3, 2008, the Telecommunications Authority issued a statement to confirm that the
mandatory Type II Interconnection policy has been successfully withdrawn as from July 1, 2008 as
well as to set out the issues to be followed up after its withdrawal. After this date,
interconnection terms including charges will be determined by commercial negotiation between
carriers.
Competition provisions
Regulation of anti-competitive conduct
Although Hong Kong has never had a general competition code, historically, holders of
FTNS Licenses are prohibited from engaging in anti-competitive conduct, abusing its dominant
position in a telecommunications market, or engaging in any discriminatory conduct by certain
competition-related license conditions contained in the FTNS Licenses issued by the
Telecommunications Authority. In June 2000, the competition provisions of the Telecommunications
Ordinance became operational and, as from that time, anti-competitive conduct was prohibited by
legislation as well as under the relevant license conditions.
The Telecommunications Ordinance provides an appeal mechanism by the establishment of a
Telecommunications (Competition Provisions) Appeal Board. A person or a licensee aggrieved by a
decision made by the Telecommunications Authority relating to the competition provisions may appeal
to the Board. Additionally, a third party suffering loss or damage from breach of such competition
provisions may bring an action for damages or seek other appropriate remedies against the offending
licensee.
Control on mergers and acquisitions
If the Telecommunications Authority determines that the relevant merger and acquisition
activity has, or is likely to have, the effect of preventing or substantially lessening competition
in a telecommunications market, the Telecommunications Authority is empowered to direct a carrier
licensee to take such actions, such as the complete or partial divestiture of the relevant parties
interests in the merged entity, as the Telecommunications Authority considers necessary, to
eliminate or avoid any anti-competitive effect. However, the Telecommunications Authority may not
issue such a direction if it takes the view that the public benefit of the merger and acquisition
outweighs any detriment caused by a reduction in competition. Any decision made or direction issued
by the Telecommunications Authority under the merger and acquisition provision is subject to
appeal to the Telecommunications (Competition Provisions) Appeal Board.
The regulatory regime on mergers and acquisitions only applies to carrier licensees,
which includes HKBN as a holder of a FTNS License, which is regarded as a carrier license for the
purpose of the Telecommunications Ordinance.
Consumer protection
The Telecommunications Ordinance also contains a statutory provision that is primarily
aimed at protecting consumers. This provision prohibits a licensee from engaging in any misleading
or deceptive conduct.
The Telecommunications Authority has taken an active role in enforcing this prohibition
and has developed voluntary codes to assist in this respect. For instance, in November 2004, the
Telecommunications Authority issued a Code of Practice for the Service Contracts for the Provision
of Public Telecommunications Services which sets out guidelines on the preparation of service
contracts. The code states that important terms of a service contract (e.g. a compensation clause
for early termination by the customer) should be presented in a prominent place and should be
highlighted in the contract. The code is applicable to all service providers (except for mobile network
operators which are subject to a separate code of practice) including holders of FTNS Licenses,
such as HKBN, and holders of Class 3 Services-Based Operator License, PNETS ETS Licenses and IVANS
Licenses, such as ourselves and IDD1600. Although the guidelines are voluntary in nature, the
Telecommunications Authority has indicated that the extent of a licensees compliance with the
guidelines will be taken into account in assessing if a licensee has complied with the statutory
provision mentioned above.
Apart from the Telecommunications Ordinance, like any company carrying on business in
Hong Kong, telecommunications operators are required to comply with applicable Hong Kong consumer
protection laws, for example, the Sale of Goods Ordinance (Cap 26), Control of Exemption Ordinance
(Cap 71), Supply of Services (Implied Terms) Ordinance (Cap 457), the Unconscionable Contracts
Ordinance (Cap 458) , Personal Data (Privacy) Ordinance (Cap 486), and the Unsolicited Electronic
Messages Ordinance (Cap 593).
Regulation of pricing
Currently, the pricing of both FTNS and public non-exclusive external telecommunications
services in Hong Kong is regulated by license conditions. However, the regulatory frameworks of
each type of services are different.
All Services-Based Operator License and PNETS Licenses contain license conditions
requiring the licensees to publish their tariffs and to charge no more than the published tariffs.
Similarly, holders of FTNS Licenses are prohibited by license conditions from charging
more than their published tariffs for their services. The FTNS License conditions prohibit
licensees from offering discounts to their published tariffs and require the licensees to seek
approval from the Telecommunications Authority in connection with (i) any revision of published
tariffs, (ii) tariffs for any new services or products or (iii) tariffs for any trial services.
However, the Telecommunications Authority may grant a
22
waiver of the application of any or all of these restrictions in relation to a relevant
telecommunications market if, in the opinion of the Telecommunications Authority, the licensee is
not dominant in such market. This is known as an ex ante regime.
HKBN has been granted a waiver from all the tariff revision prohibitions contained in
its FTNS License and is able to provide discounts and revise its tariffs in all the FTNS markets.
Universal service contribution and local access charge
Under the current regulatory regime, PCCW-HKT has a universal service obligation to
provide good, efficient and continuous basic telecommunications services at reasonable cost on a
non-discriminatory basis to all persons in Hong Kong. To compensate PCCW-HKT for the expenses of
this obligation, certain licensees are required to contribute to such cost, which is referred to as
the universal service contribution.
On June 8, 2007, the Telecommunications Authority issued a Statement entitled Review of
the Regulatory Framework for Universal Service Arrangement, which announced the new universal
service contribution arrangement for funding the cost of Universal Service Obligation. Commencing
from May 1, 2009, the USC sharing arrangement based on external traffic volume has been migrated to that
based on the number of all telephone numbers allocated which may be assigned to customer for voice services, non-voice services or both
voice and non-voice services. Under the new arrangement, local fixed carrier
license, local fixed telecommunications network service licensee, mobile carrier licensee, unified
carrier licensee authorized to provide local fixed or mobile services, mobile virtual network
operator licensee and services-based operator licensee authorized to provide Class 1 or 2 services
are the USC contributing parties. In respect of the above, HKBN as a local fixed telecommunications
network service licensee is classified as a USC contributing party and is required to pay USC under the new regime.
The level of USC is determined by the Telecommunications Authority and is reviewed
periodically based on actual cost and revenue and on a customer-by-customer basis. The average rate
has declined over the past several years. In accordance with a statement dated April 8, 2009 issued
by the Telecommunications Authority, the level for the period from
July 1, 2007 to June 30, 2008 is
confirmed to be zero cent per minute. The level of USC from July 1, 2008 onwards to be
determined by the Telecommunications Authority.
Additionally, providers of external telecommunications services, such as holders of
Class 3 Services-Based Operator License and PNETS ETS Licenses, including ourselves and IDD1600,
are required to pay a local access charge, or LAC, to the local network operators whose network
facilities holders of PNETS ETS Licenses use to transmit calls to and from their customers sites.
The level of the LAC is calculated on a per-minute basis and its arrangement is based on the
statement dated November 25, 1998 issued by the Telecommunications Authority. Recently, based on
the conclusion from the statement dated April 27, 2007 issued by the Telecommunications Authority,
the Telecommunications Authority will not, for the time being, proceed with the complete
deregulation of LAC.
Fixed mobile interconnection charge
Fixed Mobile Interconnection Charge, or FMIC, is an interconnection charge for
circuit-switched traffic between a Fixed Network Operator and a Mobile Network Operator. The
Telecommunications Authority has indicated in its statement published on April 27, 2007, that it
will de-regulate the existing FMIC arrangement with effect from April 27, 2009. When this occurs
the Fixed and Mobile Network Operators would have to adopt a more market driven approach in that
parties are expected bilaterally to negotiate a commercially agreed FMIC without the
Telecommunications Authoritys intervention.
Since the deregulation of FMIC arrangement on April 27, 2009, HKBN reached agreements
with some of the mobile operators on the settlement arrangements of FMIC. As of December 15, 2009,
the discussion with remaining mobile operators on FMIC is still in progress.
In June 2007, the Telecommunications Authority determined the FMIC rates for HKBN, which is a Fixed Network Operator, with one of its Mobile Network
Operators, China Resources Peoples Telephone Company Limited, or Peoples, at a rate of HK4.8 cents
per occupancy minute for interconnection from April 1, 2002 to August 31, 2002, HK4.22 cents per
occupancy minute for interconnection from September 1, 2002 to August 31, 2003 and HK2.89 cents
per occupancy minute for interconnection from September 1, 2004 to August 31, 2004. In February
2008, HKBN requested Telecommunication Authority to make a new determination with four Mobile
Network Operators on the rate of FMIC payable by these Mobile Network Operators for mobile
interconnection service In September 2008 the Telecommunications Authority indicated that it
accepted HKBNs request for determination. On November 25, 2009, the Telecommunications Authority
sent its Preliminary Analysis to parties for response. As of December 15, 2009, the new
determination is still in process.
Television broadcasting industry
At present, Hong Kong has two licensed domestic terrestrial broadcasters, TVB and ATV,
providing free-to-air broadcasting services. In addition, there are also three licensed domestic
pay-TV broadcasters, namely Hong Kong Cable Television Limited, PCCW Media Limited and TVB Pay
Vision Limited (formerly known as Galaxy Satellite Broadcasting Limited). HKBN provides TV services
over the Internet under its FTNS License, while Star TV continues to provide its services through
satellite means under its satellite television uplink and downlink license.
Licensing
It is unlawful to offer any television program service in Hong Kong without a license.
Television program service is broadly defined to mean the provision of television programs for
transmission by telecommunications that are readily accessible to the general public in or outside
Hong Kong or to persons in 2 or more specified premises simultaneously or on demand, whether on a
23
point-to-point or a point-to-multipoint basis. The Broadcasting Ordinance exempts certain
categories of television program services from the current licensing regime, including television
program services provided on the service commonly known as the Internet. The Broadcasting
Ordinance itself, however, does not contain a definition of Internet.
The Secretary for Commerce, Industry and Technology has indicated that on the condition
that HKBN continues to provide its service on the platform currently deployed by HKBN, the
Government does not dispute that HKBNs service is provided on the Internet and is thus exempt.
On this basis, HKBN has not obtained a pay-television broadcasting license and provides IP-TV
services under its FTNS License.
Cross media ownership restrictions
As with other television regulatory regimes, there are detailed cross-media ownership
restrictions in the Broadcasting Ordinance. The restrictions are only applicable to domestic free
and domestic pay television program service licenses.
The Broadcasting Ordinance essentially provides that a company which is either a
disqualified person or has a disqualified person exercising control over it will not be
eligible to be granted a broadcasting license unless it discloses the disqualification in its
license application. Disqualified person includes, for example, a company which is an existing
domestic free or domestic pay television program licensee; an advertising agent; a sound
broadcasting licensee; or a proprietor of newspaper printed or produced in Hong Kong.
Generally, a disqualified person who has complied with the disclosure requirement may
apply for a broadcasting license. The Broadcasting Ordinance provides that the Chief Executive in
Council may grant a broadcasting license to a company, including a disqualified person or to a
company which has a disqualified person exercising control, over it or to a disqualified person in
which another disqualified person exercises control subject to such conditions as the Chief
Executive in Council sees fit.
Foreign ownership restrictions
In addition to the cross-media ownership restrictions outlined above, the Broadcasting
Ordinance also imposes restrictions on foreign ownership of a holder of a domestic free television
program service license. The restrictions do not prohibit the ownership of any voting shares in a
domestic free television program service licensee but rather take the form of prohibiting the
exercise of any voting rights attached to such voting shares.
Competition provisions
The Broadcasting Ordinance also contains competition provisions, which are aimed at
prohibiting a licensee from engaging in anti-competitive conduct and a licensee who is in a
dominant position from abusing its position. Anti-competitive conduct is defined as conduct that
has the purpose or effect of preventing, distorting or substantially restricting competition in a
television program service market.
The Broadcasting Ordinance provides that a breach of any of the competition statutory
provisions may lead to the relevant contractual provisions in an agreement being regarded as void.
Unlike the regulatory regime for the telecommunications industry, there is no equivalent
of a specialized competition appeal board for the television broadcasting industry. A licensee
aggrieved by a decision made by the Broadcasting Authority however may lodge an appeal to the Chief
Executive in Council.
Program standards and advertising standards
A broadcasting licensee is required to comply with the program standards and the
advertising standards published by the Broadcasting Authority. The latest program standards and the
advertising standards were both issued on December 12, 2008.
24
D. Organizational structure
The following chart sets forth our principal subsidiaries as of December 15, 2009:
City Telecom (H.K.) Limited
(1)
(Hong Kong)
CTI Guangzhou Customer
Services Company Limited
(2)
(Peoples Republic of China)
Automedia Holdings Limited
(3)
(British Virgin Islands)
City Telecom
International Limited
(British Virgin Islands)
Hong Kong Broadband
Network Limited
(4)
(Hong Kong)
Credibility Holdings Limited
(British Virgin Islands)
IDD1600 Company Limited
(Hong Kong)
CTI Marketing Company Limited
(Hong Kong)
City Telecom (Canada) Inc.
(Canada)
963673 Ontario Limited
(Canada)
City Telecom Inc.
(Canada)
City Telecom (B.C.) Inc.
(Canada)
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Notes:
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(1)
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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.
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(2)
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The Company has only registered its Chinese name. The English name is an unregistered
translation.
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(3)
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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.
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(4)
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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.
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25
The jurisdiction of incorporation and our ownership percentage of each these subsidiaries as of
December 15, 2009 were as follows:
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Percentage of interest
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held by City Telecom
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Jurisdiction of
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Direct
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Indirect
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Name
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incorporation
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%
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|
%
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963673 Ontario Limited
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Canada
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|
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|
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100
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Attitude Holdings Limited
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British Virgin Islands
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|
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|
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100
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Automedia Holdings Limited
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British Virgin Islands
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100
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BBTV Company Limited
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Hong Kong
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100
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City Telecom (B.C.) Inc.
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Canada
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|
|
|
|
|
100
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City Telecom (Canada) Inc.
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Canada
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|
|
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|
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100
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City Telecom (Toronto) Inc.
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Canada
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100
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City Telecom (U.S.A.) Inc.
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United States
of America
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100
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City Telecom (Vancouver) Inc.
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Canada
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100
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City Telecom Inc.
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Canada
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100
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City Telecom International Limited
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British Virgin Islands
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100
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Credibility Holdings Limited
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British Virgin Islands
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100
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CTI Guangzhou Customer
Services Company Limited (note)
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Peoples
Republic of China
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100
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CTI International Limited
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Hong Kong
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100
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CTI Marketing Company Limited
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Hong Kong
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|
|
100
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Excel Billion Profits Limited
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Hong Kong
|
|
|
|
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100
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Global Courier Company Limited
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Hong Kong
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100
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Golden Trinity Holdings Limited
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British Virgin Islands
|
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100
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Hong Kong Broadband Digital TV Limited
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Hong Kong
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100
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Hong Kong Broadband Network Limited
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Hong Kong
|
|
|
|
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|
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100
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Hong Kong Broadband Phone Limited
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Hong Kong
|
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|
|
|
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100
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Hong Kong Broadband Television Company Limited
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Hong Kong
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100
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Hong Kong Television Network Limited
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Hong Kong
|
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100
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IDD1600 Company Limited
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Hong Kong
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100
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SGBN Singapore Broadband Network Pte. Limited
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Singapore
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100
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Warwick Gold Enterprises Limited
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Hong Kong
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100
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Note: The Company has only registered its Chinese name. The English name is an unregistered
translation.
26
E. Property, plant and equipment
For the provision of fixed telecommunication network services, we own, or control through
long-term leases, equipment consisting of switching, transmission and power equipment and
connecting lines comprised of in-building wiring, fiber-based backbone, wireless and leased
wire-line backbone and other support structures, conduits and similar items that comprise our Next
Generation Network. The majority of the fiber-based backbone connecting our services are under
public road, highways and streets. In Hong Kong, we owned an aggregate of 160,300 square feet
predominately for self use as of August 31, 2009.
For the provision of international telecommunications services, we own three switching systems
in Hong Kong and two in Canada (one in Vancouver and the other in Toronto). We have invested and
have rights to dedicated capacity in two undersea cables, the Japan-U.S. cable and the APCN 2
cable, for use as international transmission facilities, both of which were completed and have been
operational since May 2002.
In addition, we have leased properties in Hong Kong for 14 retail shops and for a 3,500
square feet customer service center in Mongkok, Kowloon, Hong Kong.
We rely on suppliers to provide equipment, underground cables and other necessary components
for the construction and upgrade of our Next Generation Network, and for our VoIP equipment. In
order for new subscribers to be able to access our IP-TV services, we must install an IP
set-top-box in their homes. We must have an adequate supply of such installation equipment on hand
to respond to new customer subscriptions in a timely manner. We purchase all of our IP set-top
boxes and other equipment from our suppliers on a purchase order basis and have no long-term
contracts. If our suppliers are unable to supply us with these products in a timely manner or the
costs of these products increase due to unforeseen causes, this could negatively impact our
operating results, especially if we are unable to acquire new subscribers or effectively
appropriate our costs on to our customers.
Item 5 Operating and financial review and prospects
You should read the following discussion together with the rest of this annual report,
including the consolidated financial statements and related notes included elsewhere in this annual
report. The results discussed below are not necessarily indicative of the results to be expected in
any future periods. Since these are our first consolidated financial statements prepared in
accordance with IFRSs, pursuant to the transitional relief granted by the SEC in respect of the
first-time application of IFRSs, the following is limited to a discussion of our financial condition
and results of operations for the years ended August 31, 2009 and 2008, and no comparative
information for the year ended August 31, 2007 have been included. For further details, please see
Special Note on Our Financial Information Presented in This Annual Report above.
Overview
We are a provider of residential and corporate fixed telecommunications network services in
Hong Kong. We offer our customers an integrated suite of broadband Internet access, local VoIP,
IP-TV and corporate data services through our self-owned Next Generation Network. Our network
covered 1.6 million residential homes pass as of August 31, 2009, representing approximately 70% of
the population in Hong Kong, and is concentrated in Hong Kongs most densely populated areas, which
reduces our cost of network deployment per home pass. As of August 31, 2009, our FTNS business had
a subscription base of approximately 943,000 subscriptions. In addition, we offer a variety of
international telecommunications services, including direct dial services, international calling
cards and mobile call forwarding services, in Hong Kong. As of August 31, 2009, our IDD business
had a subscription base of approximately 2.4 million registered accounts.
A. Factors affecting our results of operations
Our revenues
Our revenues are derived from two business segments: our FTNS business and our IDD business.
Our FTNS business primarily consists of broadband Internet access, local VoIP, IP-TV and corporate
data services, while our IDD business primarily consists of direct dial services, international
calling cards and mobile call forwarding services.
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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.
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-
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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 391,000 as of August
31, 2009 and the scalability of our Next Generation Network.
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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. Because
certain local mobile network operators disagreed with the level of interconnection
charges computed by us, certain amount of these charges had not been collected as of
August 31, 2009.
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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 day or day of the week when the call is placed.
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27
Our operating expenses
Our operating expenses consist of network costs and other operating expenses.
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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.
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Other operating expenses
.
Other operating expenses mainly consist of staff costs,
advertising and marketing expenses, depreciation of owned fixed assets.
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-
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Staff costs
. Salaries and related costs incurred for services rendered by
employees.
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-
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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.
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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.
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Critical accounting policies
The following discussion and analysis is based on our consolidated financial statements, which
have been prepared in accordance with IFRSs for the fiscal years ended August 31, 2008 and 2009.
Our significant accounting policies are more fully described in note 1 to our consolidated
financial statements.
The preparation of our consolidated financial statements in conformity with IFRSs requires
management to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities. We continually
evaluate our estimates and judgments including those related to fixed assets, provision for
doubtful accounts, deferred taxes, USC charges and certain revenue items. We base our estimates and
judgments on historical experience and on various other factors we believe to be reasonable under
the circumstances. This forms the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates as facts, circumstances and conditions change. The estimates and underlying
assumptions are reviewed on an ongoing basis. Changes to accounting estimates are recognized in the
period in which the estimate is changed if the change affects only that period or in the period of
the change and future periods if the change affects both current and future periods.
Our accounting policies have been developed over many years as the telecommunications industry
and generally accepted accounting principles have evolved. As our financial statements are prepared
under IFRSs, our accounting policies are necessarily compliant with all aspects of IFRSs. IFRSs are
based on a substance over form conceptual framework that requires us to look through the legal
interpretation of an arrangement or transaction to its underlying purpose and to reflect it in our
consolidated financial statements on that basis.
The following are the most significant accounting estimates and judgments we apply in
producing our consolidated financial statements.
Revenue recognition
Revenue for the provision of telecommunications services is recognized when an arrangement
exists, service is rendered, fee is fixed or determinable and collectability is probable. Revenue
received in advance is deferred and recognized as revenue on a straight-line basis over the stated
period of time in the subscriber agreement.
A portion of revenue from our FTNS business is derived from network interconnection charges.
Network interconnection charges are recorded as revenue based on usage of our fixed
telecommunications network by mobile and other fixed telecommunications network operators. The
determination of the rates on mobile interconnection charges at which revenue is recognized
involved significant estimates by management. Significant changes in management estimates may
result in material revenue adjustments.
Prior to April 27, 2009, mobile network operators were obliged to pay interconnection charges
to us in accordance with the charging principles promulgated by the Telecommunications Authority.
Because certain local mobile network operators disagreed with the level of charges computed by us,
certain amount of the mobile interconnection charges billed by us had not been collected as of
August 31, 2009. We recognize revenue related to mobile interconnection charges at amounts we
believe to be realizable after consideration of the uncertainty regarding the timing and amount of
the ultimate collection of amounts due. Specifically:
28
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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.
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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.
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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.
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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.
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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.
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The amount recognized in fiscal 2009 was based also on the 2004 Determination issued by
the Telecommunications Authority in June 2007. 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. As of December 15, 2009, the 2008 Determination is still in process.
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For a discussion of our revenue recognition of mobile interconnection charges, please refer to
note 2(c) to our consolidated financial statements. Actual amounts realized could be different from
our estimate.
Useful lives of fixed assets
We estimate the useful lives of fixed assets in order to determine the amount of depreciation
expense to be recorded. The useful life of an asset is estimated at the time the asset is acquired
based on historical experience, the expected usage, wear and tear of the asset, as well as
technical obsolescence arising from changes in the market demands or service output of the asset.
Changes in technology or industry conditions may cause the estimated period of use or the value of
these assets to change. We perform periodic reviews to confirm the appropriateness of estimated
economic useful lives for each class of fixed assets. For the two years ended August 31, 2009, no
changes in assets useful lives have been recorded.
29
Impairment of fixed assets
Under IFRSs, if a triggering event occurs indicating that the carrying amount of an asset may
not be recoverable, a new assessment of the carrying amount of that asset is required. Triggering
events include significant adverse changes in the market value of an asset, changes in the business
or regulatory environment, or certain legal events. The interpretation of such events requires
judgment from the management with respect to whether such an event has occurred and whether
management feels that reassessment of the carrying value of the asset is required. If an event
occurs that could affect the carrying value of the asset and management does not identify it as a
triggering event and identify the asset as impaired, future operations could be adversely affected
if this asset is subsequently written off or sold for less than its carrying value due to sudden
downturns in the business environment.
Upon the occurrence of triggering events, the carrying amounts of fixed assets are reviewed to
assess whether their recoverable amounts have declined below their carrying amounts. Under IFRSs,
the recoverable amount is the present value of estimated net future cash flows which we expect to
recover from the future use of the asset, plus the assets residual value on disposal, discounted
at the financial assets original effective interest rate. Where the recoverable amount of fixed
and other long-lived assets is less than their carrying value, an impairment loss is recognized to
write down the assets to their recoverable amount, which is based on the fair value or discounted
estimated cash flows.
Estimation of cash flows arising from future use of the asset requires careful analysis
regarding what we expect to recover from its future use. This includes consideration of our target
market share and subscription base, market competition, future changes to our cost structure and
technological change. In addition, the residual value of the asset on disposal requires judgment,
as the estimated fair value of the asset at the time of disposal could change in response to market
conditions and changes in expected use of the asset prior to disposal. Changes in the estimate of
cash flows arising from expected future use of the asset or its residual value on disposal based
on changes in market conditions, changes in the use of assets, management plan, foreseeable
technological changes or otherwise could significantly change the calculation of the fair value
or recoverable amount of the asset and the resulting impairment loss. This in turn could
significantly affect the results of our operations.
For the two years ended August 31, 2009, no impairment fixed assets have been recognized.
Accounts receivable
Under IFRSs, provision is made against accounts receivable to the extent they are considered
to be doubtful. This provision requires judgment regarding the collectability of certain
receivables both as they are incurred and as they age. We assess bad debt provision by type of
customers, namely residential, corporate and carrier, based on past experience of recovery of old
receivables, the aging of the accounts receivable balance and historical write-off experience.
Certain receivables may be initially identified as collectible, yet subsequently become
uncollectible and result in a subsequent write-off of the related receivable to the consolidated
statement of operations. Changes in the collectability of accounts receivable for which provisions
are not made could affect our future results of operations.
Included in the accounts receivable balance (net of allowance for doubtful debts) were
receivables for mobile interconnection charges of HK$71.9 million and HK$68.8 million as of
August 31, 2008 and 2009 respectively. The balance represented mobile interconnection charges we
billed to the local mobile network operators, and some of these charges had not been collected.
Changes in the allowance for doubtful debts consist of:
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
HK$
|
|
|
HK$
|
|
|
|
(Amounts in thousands)
|
|
Balance at beginning of the year
|
|
|
22,392
|
|
|
|
11,944
|
|
Additions charged to expense
|
|
|
14,293
|
|
|
|
12,103
|
|
Write-off
|
|
|
(24,741
|
)
|
|
|
(20,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
11,944
|
|
|
|
3,160
|
|
|
|
|
|
|
|
|
Deferred taxation
We recognized deferred tax assets for all deductible temporary differences and operating loss
carry forwards to the extent it is probable that future taxable profits will be available against
which the asset can be utilized. In assessing whether a deferred tax asset is expected to be
utilized in the foreseeable future, our management considers all available evidence, including
projected future taxable profit by taking into consideration of the effect of our capital
expenditures and other plans, such as the existing network capacity, technological changes, future
market trends and projected fixed network coverage.
30
The recognition of deferred tax assets requires judgment regarding the results of future
operations, including the assumption that there will be sufficient future operations to allow us to
utilize the related deferred tax asset. Our 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 August 31, 2008, taking into consideration of the
current results of operations, our management assessed that it was probable that sufficient future
taxable profits would be generated to utilize the unused tax losses of HK$159.6 million, which
resulted in the recognition of deferred tax assets of HK$26.3 million. As at August 31, 2008 and
2009, we had not recognized deferred tax assets in respect of unused tax losses of HK$8.2 million
and HK$9.5 million respectively, because it was not probable that future taxable profits could be
generated to utilize the tax losses. All tax losses are subject to agreement with local tax
authorities. Any changes in the estimate of future operations could change the recognition of our
deferred tax assets, which could significantly affect our results of operations.
USC charges
Our management makes their best estimates for the universal service contribution charges, or
USC, payable to PCCW-HKT in order to fund the network development costs incurred by PCCW-HKT in
remote areas in Hong Kong. Such estimated costs are included as part of our costs of rendering
services. The estimate is made based on the provisional rates announced by the Telecommunications
Authority and is effective up to the date of the release of our consolidated financial statements.
The Telecommunications Authority periodically reviews the actual costs incurred by PCCW-HKT in the
development and adjusts the amounts owed to PCCW-HKT, or to be refunded by it, to the respective
USC contributing parties, including us. Accordingly, the estimate made by our management for a
financial year is subject to changes based on the revisions published by the Telecommunications
Authority up to the date prior to the release of our consolidated financial statements. We adjust
such differences as an addition to, or reduction of, the corresponding costs of services in that
particular reporting period.
Any sum received in advance from PCCW-HKT as an estimated refund of USC on a provisional
basis, which is subject to the final confirmation and determination of the Telecommunications
Authority, is recorded in other payables and accrued charges in our balance sheet.
Operating Results
The following table sets forth, for the years indicated, a summary of our results of
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
HK$
|
|
|
HK$
|
|
|
US$
|
|
|
|
(Amounts in thousands)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
FTNS business
|
|
|
1,011,038
|
|
|
|
1,230,880
|
|
|
|
158,813
|
|
IDD business
|
|
|
291,943
|
|
|
|
247,359
|
|
|
|
31,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,302,981
|
|
|
|
1,478,239
|
|
|
|
190,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network costs
|
|
|
(178,367
|
)
|
|
|
(175,129
|
)
|
|
|
(22,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses
|
|
|
(966,094
|
)
|
|
|
(1,037,964
|
)
|
|
|
(133,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
24,989
|
|
|
|
41,540
|
|
|
|
5,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
(75,137
|
)
|
|
|
(55,127
|
)
|
|
|
(7,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before taxation
|
|
|
108,372
|
|
|
|
251,559
|
|
|
|
32,457
|
|
Income taxes benefit/(expense)
|
|
|
16,818
|
|
|
|
(38,730
|
)
|
|
|
(4,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
125,190
|
|
|
|
212,829
|
|
|
|
27,460
|
|
|
|
|
|
|
|
|
|
|
|
31
Fiscal 2009 Compared to Fiscal 2008
Revenues.
Revenues increased by 13.4% to HK$1,478.2 million in fiscal 2009 from HK$1,303.0 in
fiscal 2008, reflecting an increase in revenue from our FTNS business, the effects of which were
partially offset by a decrease in revenue from our IDD business. Revenue contribution from our FTNS
business increased to 83.3% in fiscal 2009 from 77.6% in fiscal 2008.
|
|
|
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.
|
|
o
|
|
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.
|
|
|
o
|
|
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.
|
|
|
o
|
|
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.
|
Network costs.
Network costs decreased by 1.8% to HK$175.1 million in fiscal 2009 from
HK$178.4 million in fiscal 2008 mainly due to a reduction in carrier costs as IDD traffic
decreased. The effects of the foregoing, however, were partially offset by the recovery of
HK$7.6 million universal services contribution charges from PCCW-HK in fiscal 2008 pursuant to the
TA Statement issued by the Telecommunications Authority on December 28, 2007. No similar recovery
was recorded in fiscal 2009.
Other operating expenses.
Other operating expenses increased by 7.4% to HK$1,038.0 million in
fiscal 2009 from HK$966.1 million in fiscal 2008 mainly due to the following:
Set forth below is a table summarizing the details of our other operating expenses in fiscal
2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
HK$
|
|
|
HK$
|
|
|
US$
|
|
|
|
(Amounts in thousands)
|
|
Staff 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff costs.
Staff costs increased by 22.1% to HK$302.3 million in fiscal 2009 from
HK$247.5 in fiscal 2008. We increased our total work force by 4.0% to 3,173 employees
as of August 31, 2009 from 3,051 employees 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 staff 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
|
32
|
|
|
employees were increased by
HK$19.5 million due to increases in total contract sum from substantial growth in
subscription base. Moreover, our opening of more new shops caused shop related
operating costs increased 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.
|
Other revenues.
Other revenues increased to HK$41.5 million in fiscal 2009 from HK$25.0
million in fiscal 2008. The increase was mainly contributed by the gain on extinguishment of our
10-year senior notes of HK$31.4 million, the effects of which were partially offset by a decrease
in interest income from HK$15.6 million in fiscal 2008 to HK$4.8 million in fiscal 2009 as a result
of the decrease in our average cash balance in fiscal 2009 mainly due to senior notes buyback
actions.
Finance costs.
Finance costs decreased by 26.6% to HK$55.1 million in fiscal 2009 from
HK$75.1 million in fiscal 2008 as a result of the redemption and cancellation of an aggregate
principal amount of US$68.0 million of our 10-year senior notes from the market in fiscal 2009.
Income tax benefit/(expense).
We recorded an income tax expense of HK$38.8 million in fiscal
2009, compared to an income tax benefit of HK$16.8 million in fiscal 2008. Included in the income
tax benefit in fiscal 2008 was a tax credit of HK$26.3 million related to the deferred tax assets
recognized in respect of the tax loss carryforwards of our major operating subsidiary as at August
31, 2008. Based on the results of operations of our major operating subsidiary in recent years and
our forecast for future years, we concluded it was probable that the subsidiary would generate
sufficient taxable income to utilize the tax loss carryforwards. If such effect was excluded, the
income tax expenses increase by HK$29.3 million, which was primarily caused by the increase of our
income before taxation.
Net income.
For the foregoing reasons, net income increased to HK$212.8 million in fiscal 2009
from HK$125.2 million in fiscal 2008. Net margin increased to 14.4% in fiscal 2009 from 9.6% in
fiscal 2008. The increase in net margin was primarily due to higher revenue contribution from our
FTNS business and the better margin achieved in our IDD business as a result of the phasing out of
lower margin customers.
Recent accounting pronouncements
Recent issued and adopted accounting pronouncements under IFRSs have been included in note 31
to our consolidated financial statements.
B. Liquidity and capital resources
We expect cash flow from operating activities to continue to be our principal source of
liquidity. As of August 31, 2009, we had cash and bank balance of HK$221.1 million and pledged bank
deposits of HK$15.0 million. Our day-to-day operations are also supported by HK$205.0 million
banking facilities, of which only HK$7.8 million was utilized as at August 31, 2009.
We believe that our current cash and cash equivalents and cash flow from operations will be
sufficient to meet our anticipated cash needs, including working capital requirements, capital
expenditures, repayment of our indebtedness when fall due and various contractual obligations, for
at least the next 12 months. Our cash flows from operations, however, may decrease due to lower
customer demand resulting from rapid technological changes, increasing competition resulting from
new local and foreign entrants into the market, or our failure to obtain or renew the necessary
telecommunication licenses. A decrease in our operating cash flow could adversely affect our
ability to make planned capital expenditures, to comply with our obligations under various
operating and capital leases and to repay amounts due under banking facilities.
Cash flow
The following table summarizes our cash flows for each of fiscal 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
HK$
|
|
|
HK$
|
|
|
US$
|
|
|
|
(Amounts in thousands)
|
|
Net cash inflow from operating activities
|
|
|
378,563
|
|
|
|
535,886
|
|
|
|
69,142
|
|
Net cash outflow from investing activities
|
|
|
(147,750
|
)
|
|
|
(176,488
|
)
|
|
|
(22,771
|
)
|
Net cash outflow from financing activities
|
|
|
(342,550
|
)
|
|
|
(560,407
|
)
|
|
|
(72,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and bank balances
|
|
|
(111,737
|
)
|
|
|
(201,009
|
)
|
|
|
(25,935
|
)
|
Cash at bank and in hand, at the beginning of year
|
|
|
532,894
|
|
|
|
421,610
|
|
|
|
54,398
|
|
Effect of foreign exchange rate changes on cash
|
|
|
453
|
|
|
|
451
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank and in hand, at the end of the year
|
|
|
421,610
|
|
|
|
221,052
|
|
|
|
28,521
|
|
|
|
|
|
|
|
|
|
|
|
33
Operating activities
Our principal source of cash was cash generated from our FTNS business. Net cash inflow from operating
activities increased to HK$535.9 million in fiscal 2009 from HK$378.6 million in fiscal 2008. The
net increase in operating cash flow was primarily due to the increased revenue from our FTNS
business because of the increase in the subscription base.
Investing activities
Net cash outflow from investing activities in fiscal 2009 was HK$176.5 million. The net cash
outflow was mainly due to our purchase of fixed assets of HK$289.9 million, the effect of which
were partially offset by an decrease in pledged bank deposits of HK$72.3 million and net proceeds
from maturity of investment in debt securities of HK$28.1 million.
Net cash outflow from investing activities in fiscal 2008 was HK$147.8 million. The net cash
outflow was mainly due to the purchase of fixed assets of HK$189.9 million for the development of
our Next Generation Network.
Financing activities
Net cash outflow from financing activities in fiscal 2009 was HK$560.4 million. The net cash
outflow was mainly due to our repurchase of 10-year senior notes for an aggregate consideration of
HK$485.8 million (including transaction cost), payment of interest on the 10-year senior notes of
HK$52.7 million and payment of cash dividends of HK$23.0 million.
Net cash outflow from financing activities in fiscal 2008 was HK$342.6 million. The net cash
outflow was mainly due to our repurchase of 10-year senior notes for an aggregate consideration of
HK$269.4 million, payment of interest on the 10-year senior notes of HK$70.0 million and payment of
cash dividends of HK$17.3 million.
Indebtedness
As of August 31, 2009, we had outstanding debt of HK$163.3 million, most of which consisting
of our 10-year senior notes due 2015, which amounted to HK$162.6 million stated at amortized cost
and were classified as non-current debt.
10-year senior notes
On January 20, 2005 we issued unsecured 10-year senior fixed rate notes in the aggregate
principle amount of US$125 million at par value and received net proceeds in the amount of US$121.0
million after deduction of expenses and commissions. The 10-year senior notes were rated BB-
(stable) by Standard & Poors Rating Services and Ba3 (stable) by Moodys Investors Services. A
significant portion of the net proceeds were used to repay in full an existing bank loan in the
outstanding amount of HK$196.7 million and to finance capital expenditures, including costs
incurred in expanding and upgrading our Next Generation Network. As of August 31, 2009, the 10-year
senior notes were stated at the amortized cost of US$21.0 million (HK$162.6 million), compared with
the amortized costs of US$87.5 million (HK$683.2 million) as of August 31, 2008.
The notes mature on February 1, 2015 and bear interest at the fixed rate of 8.75% per annum.
Interest on the notes are payable semi-annually in arrears on February 1 and August 1 of each year.
The notes are irrevocably and unconditionally guaranteed, jointly and severally, on a senior
unsecured basis by all of our existing and future subsidiaries (other than, as of the issue date of
the notes, CTI Guangzhou and, subsequently, any other subsidiary prohibited by applicable law,
regulation or order from issuing a guarantee of the notes).
On June 17, 2009, as a result of our tender offer and consent for amendments to the indenture,
substantially all of the restrictive covenants in the indenture have been eliminated. Consequently,
certain events that would have constituted a violation of such covenants in the past will no longer
constitute event of default. We also repurchased an aggregate principal amount of US$68.0 million
of the 10-year senior notes from the market for an aggregate consideration (including transaction
cost and accrued interest) of US$65.1 million. As of December 15, 2009, an aggregate principal
amount of US$21.4 million of the 10-year senior notes remained outstanding.
On or after February 1, 2010, we may redeem the notes, in whole or in part, at the redemption
prices set forth in the indenture governing the notes. In all cases of optional redemption, we will
pay principal at the redemption price specified plus accrued and unpaid interest, additional
amounts, if any, thereon to, but not including, the date of redemption.
Banking facilities
As of August 31, 2009, we had available banking facilities of HK$205.0 million of which HK$7.8
million was utilized.
Capital expenditures
In order to further develop our Next Generation Network and continue to increase the scale of
operations of our FTNS business, we plan to make total capital expenditures of approximately
HK$300 million to HK$350 million per year in fiscal 2010 and 2011 to increase the coverage of our Next
Generation Network from 1.6 million residential homes pass to 2.0 million residential homes pass
and from 1,230 commercial buildings to 1,800 commercial buildings. The budgeted capital
expenditures will be financed by our internally generated cash flow in the respective years.
34
C. Research and development, patents and licenses
We commit considerable resources to our research and development department in order to
continuously improve our services and improve our market position. As of August 31, 2009, our
research and development team consisted of approximately 21 staff members experienced in systems
design, engineering, telecommunications and computer programming. Our research and development
department is primarily responsible for assessing and adapting the technology that we employ in
upgrading and expanding our Next Generation Network. To identify and develop new market
opportunities, the research and development team assesses new services offered by
telecommunications and Internet companies in the United States and elsewhere and works closely with
our marketing department. Our research and development expenditures were approximately HK$9.6
million and HK$10.8 million for fiscal 2008 and 2009, respectively.
D. Trend information
Revenue 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 principal reason for this decrease was the intense
competition, as our key competitors introduced highly aggressive price cuts. Partly as a result,
the traffic volume of our IDD business decreased by 15.2% to 487.0 million minutes in fiscal 2009
from 574.0 million minutes in fiscal 2008. We expect competition will continue to increase in the
future, creating further pressure on our volume and also pricing.
Revenue from our FTNS business grew by 21.8% to HK$1,230.9 million in fiscal 2009 from
HK$1,011.0 million in fiscal 2008. The principal reason for this increase was due to subscription
growth of 17.7% to 943,000 accounts as of August 31, 2009 from 801,000 subscription accounts as of
August 31, 2008 and, to a lesser extent, an increase in average revenue per subscription account.
The global economic downturn has had a dampening effect on consumer sentiment and business
activities across the globe. We believe that the impact of the downturn on our operations has been
limited because our FTNS and IDD services are regarded as semi-utility services. However, if the
global economic downturn continues for a long period of time, demand for our services may decrease.
E. Off-balance sheet arrangements
We have not entered into any
off-balance-sheet arrangements with any entities or individuals.
F. Tabular disclosure of contractual obligations
The following table sets forth information regarding our aggregate payment obligations in
future years of the contractual obligations and commercial commitments that we had as of August
31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year
|
|
|
3 years
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
but within
|
|
|
but within
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
3 years
|
|
|
5 years
|
|
|
5 years
|
|
Contractual obligations
|
|
HK$
|
|
|
HK$
|
|
|
HK$
|
|
|
HK$
|
|
|
HK$
|
|
|
|
(Amounts in thousands)
|
|
Capital expenditure items
|
|
|
150,099
|
|
|
|
150,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
96,381
|
|
|
|
66,708
|
|
|
|
19,284
|
|
|
|
4,118
|
|
|
|
6,271
|
|
10-year senior notes
|
|
|
244,117
|
|
|
|
14,489
|
|
|
|
28,978
|
|
|
|
28,978
|
|
|
|
171,672
|
|
Obligation under finance leases
|
|
|
820
|
|
|
|
237
|
|
|
|
320
|
|
|
|
192
|
|
|
|
71
|
|
Other current liabilities
|
|
|
262,420
|
|
|
|
262,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming fees (IP-TV)
|
|
|
15,332
|
|
|
|
9,094
|
|
|
|
6,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
769,169
|
|
|
|
503,047
|
|
|
|
54,820
|
|
|
|
33,288
|
|
|
|
178,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Safe Harbor
See Note regarding forward-looking statements.
35
Item 6 Directors, senior management and employees
A. Directors and senior management
Our board of directors consists of eight directors, three of whom, Mr. Lee Hon Ying, John, Dr.
Chan Kin Man and Mr. Peh Jefferson Tun Lu, are independent non-executive directors and one of whom,
Dr. Cheung Mo Chi, Moses, is a non-executive director. The remaining four, Mr. Wong Wai Kay, Ricky,
Mr. Cheung Chi Kin, Paul, Mr. Yeung Chu Kwong, William and Mr. Lai Ni Quiaque, are executive
directors.
The following table sets forth certain information concerning our directors and senior
management as of December 15, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
joined City
|
Name
|
|
Age
|
|
Position
|
|
Telecom
|
Board of directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WONG Wai Kay, Ricky
|
|
|
48
|
|
|
Chairman
|
|
|
1992
|
|
|
|
|
|
|
|
|
|
|
|
|
CHEUNG Chi Kin, Paul
|
|
|
52
|
|
|
Vice Chairman
|
|
|
1992
|
|
|
|
|
|
|
|
|
|
|
|
|
YEUNG Chu Kwong, William
|
|
|
49
|
|
|
Executive Director and Chief Executive Officer
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
LAI Ni Quiaque
|
|
|
40
|
|
|
Executive Director, Chief Financial Officer,
Company Secretary and Head of Talent Engagement
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
CHENG Mo Chi, Moses
|
|
|
59
|
|
|
Non-Executive Director
|
|
|
1997
|
|
|
|
|
|
|
|
|
|
|
|
|
LEE Hon Ying, John
|
|
|
63
|
|
|
Independent Non-Executive Director
|
|
|
1997
|
|
|
|
|
|
|
|
|
|
|
|
|
CHAN Kin Man
|
|
|
50
|
|
|
Independent Non-Executive Director
|
|
|
1997
|
|
|
|
|
|
|
|
|
|
|
|
|
PEH Jefferson Tun Lu
|
|
|
50
|
|
|
Independent Non-Executive Director
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior management:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHONG Kin Chun, John
|
|
|
47
|
|
|
Managing Director of Corporate Division
|
|
|
1996
|
|
|
|
|
|
|
|
|
|
|
|
|
LO Sui Lun
|
|
|
45
|
|
|
Director of Corporate Affairs Department
|
|
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
TAM Ming Chit
|
|
|
44
|
|
|
Chief Technology Officer
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
TO Wai Bing
|
|
|
47
|
|
|
Managing Director of Business Development
|
|
|
2007
|
|
Executive directors
Mr. WONG Wai Kay, Ricky, aged 48, is the co-founder and Chairman of the Group. He is
responsible for our overall strategic planning and management. Mr. Wong has over 20 years
experience in the telecommunications and computer industries. He had worked at a major US-listed
computer company as a marketing representative and was responsible for marketing and distribution
of computer products in Hong Kong from 1985 to 1989. He was also a co-founder and director of a
company principally engaged in import and distribution of computer systems in Canada prior to
co-founding of the Group. Mr. Wong holds a Bachelors Degree in Science and a Master of Business
Administration Degree (Executive MBA Program) from The Chinese University of Hong Kong. He is a
first cousin of Mr. Cheung Chi Kin, Paul, the Vice Chairman of the Group. Currently, Mr. Wong is a
member of Zhejiang Committee, Chinese Peoples Political Consultative Conference, a member of the
Board of Trustees, United College, The Chinese University of Hong Kong and a member of the
executive committee of the Digital Solidarity Fund of Hong Kong Council of Social Service.
Mr. CHEUNG Chi Kin, Paul, aged 52, is the co-founder and Vice Chairman of the Group. Mr.
Cheung is responsible for overall strategic planning and management of the Group. Prior to that,
Mr. Cheung was appointed as the Chief Executive Officer and was responsible for our day-to-day
operations and technological research, development and support activities. Mr. Cheung has more than
28 years experience in the telecommunications and computer industries. He had worked in companies
engaged in application software development and computer consultancy prior to co-founding of the
Group. Mr. Cheung graduated with a Diploma of Advanced Programming and System Concepts Design from
Herzing Institute, Canada. Mr. Cheung is a first cousin of Mr. Wong Wai Kay, Ricky, the Chairman of
the Group.
36
Mr. YEUNG Chu Kwong, William, aged 49, was appointed as the Executive Director and Chief
Executive Officer of the Group in November 2008 with the responsibilities for developing corporate
strategies and overseeing the operations of the entire Group. Before that, Mr. Yeung joined the
Group as Chief Operating Officer in October 2005. He was in charge of our Customer Engagement
Department overseeing customer relationship management and was also in charge of our Network
Development Department. Mr. Yeung has more than 18 years experience in the telecommunications
industry. Prior to joining the Group, Mr. Yeung was the Director of Customers Division in
Smartone-Vodafone, the General Manager of Personal Communications and Retail Division in Tricom
Telecom Limited, and was also an Inspector of Police in the Hong Kong Police Force. Mr. Yeung holds
a Bachelor of Arts Degree from Hong Kong Baptist University, a Master of Business Administration
Degree from University of Strathclyde, UK and a Master of Science Degree in Electronic Commerce and
Internet Computing from The University of Hong Kong. He is also a graduate of the Senior Executive
Program of the Columbia University Graduate School of Business in New York.
Mr. LAI Ni Quiaque, aged 40, is Chief Financial Officer, Company Secretary and Head of Talent
Engagement. Mr. Lai joined the Group in May 2004. Mr. Lai has extensive experience in
telecommunications industry, research and finance, being highly rated in this field. Prior to
joining the Group, Mr. Lai was a Director and Head of Asia Telecom Research for Credit Suisse and
was involved in global fund raisings for a wide range of Asian Telecom carriers such as China
Mobile, China Telecom, China Unicom, China Netcom, SK Telecom, PCCW, Telekom Malaysia, etc. Before
that, Mr. Lai held positions with Hongkong Telecom and Kleinwort Benson Securities (Asia). Mr. Lai
holds a Bachelor of Commerce degree from the University of Western Australia and an Executive
Master of Business Administration Degree from Kellogg-HKUST. Mr. Lai is a Fellow member of HKICPA
and CPA Australia and is a Member of the Hong Kong Institute of Directors. Mr. Lai has also been
appointed as a member of the Remuneration Committee of the Company.
Non-executive director
Dr. Cheng Mo Chi, Moses, aged 59, was appointed as an Independent Non-executive Director of
the Group since June 17, 1997 and has been re-designated as a Non-executive Director of the Group
with effect from September 30, 2004. Dr. Cheng has also been appointed as a member of the
Remuneration Committee of the Company. Dr. Cheng is a practicing solicitor and the senior partner
of Messrs. P.C. Woo & Co.. Dr. Cheng was, a member of the Legislative Council of Hong Kong. He is
the Founder Chairman of the Hong Kong Institute of Directors of which he is now the Honorary
President and Chairman Emeritus. Dr. Cheng currently holds directorships in K. Wah International
Holdings Limited, China COSCO Holdings Company Limited, China Mobile Limited, China Resources
Enterprise, Limited, Towngas China Company Limited, Hong Kong Exchanges and Clearing Limited, Kader
Holdings Company Limited, Liu Chong Hing Investment Limited, Guangdong Investment Limited and Tian
An China Investments Company Limited, all being public listed companies in Hong Kong. His other
directorships in public listed companies in the last 3 years include Beijing Capital International
Airport Company Limited, Galaxy Entertainment Group Limited and Shui On Construction and Materials
Limited, all being public listed companies in Hong Kong. He is also an independent non-executive
director of ARA Assets Management Limited, a company whose shares are listed on Singapore Exchange
Limited, and an independent director of ARA Assets Management (Singapore) Limited, which manages
Fortune Real Estate Investment Trust, a real estate investment trust listed on Singapore Exchange
Limited.
Independent non-executive directors
Mr. LEE Hon Ying, John, aged 63, is the managing director of Cyber Networks Consultants
Company in Hong Kong. He was the Regional Director, Asia Pacific of Northrop Grumman-Canada, Ltd.
He was previously the director of network services of Digital Equipment (HK) Limited and prior to
that, worked for Cable and Wireless (HK) Limited and Hong Kong Telecom. He is a chartered engineer
and a member of each of Institution of Engineering and Technology, the United Kingdom, and the Hong
Kong Institution of Engineers and the Hong Kong Computer Society. He received a Masters Degree in
Information System from The Hong Kong Polytechnic University in 1992. In addition, he is the
Territory Vice-president of the Society of St. Vincent de Paul of Asia and Oceania, which is an
international charity body. He is the Commission member of Catholic Diocese of Hong Kong Diocesan
for Hospital Pastoral Care. Mr. Lee has been a Director of the Group since June 1997. Mr. Lee is
also the chairman of the Audit Committee and Remuneration Committee of the Company.
Dr. CHAN Kin Man, aged 50, is Director of Centre for Civil Society Studies and Associate
Professor of the Department of Sociology of The Chinese University of Hong Kong. He received a
Bachelor of Social Science Degree from The Chinese University of Hong Kong in 1983 and a Doctor of
Philosophy Degree from Yale University in the U.S. in 1995. Dr. Chan has been a Director of the
Group since June 1997. Dr. Chan has also been appointed as a member of the Audit Committee and
Remuneration Committee of the Company.
Mr. PEH Jefferson Tun Lu, aged 50, is a Certified Public Accountant of the Hong Kong Institute
of Certified Public Accountants and a Certified Practicing Accountant of CPA Australia. Mr. Peh
holds a Master Degree in Business from the University of Technology, Sydney. He has over 27 years
of experience in finance, accounting and management from listed and private companies in Hong Kong
and Australia. Mr. Peh has been a Director of the Group since September 2004. Mr. Peh has also been
appointed as a member of the Audit Committee and Remuneration Committee of the Company.
Senior management
Mr. CHONG Kin Chun, John, aged 47, is the Managing Director of the Corporate Division of the
Group. He is responsible for sales, servicing and network expansion development of the Groups
international telecommunications services and fixed telecommunications network services for
business and corporate customers. Mr. Chong joined the Group in February 1996 and holds a
Bachelors Degree in Arts from The University of Hong Kong. Mr. Chong worked as a general manager
overseeing product management and the sales force of a listed telecommunications products company
in Hong Kong from 1987 to 1996.
37
Mr. LO Sui Lun, aged 45, is the Director of Corporate Affairs Department of the Group. He is
primarily responsible for regulatory and carrier relations matters of the Group. In addition, Mr.
Lo is also responsible for overseeing the legal and company secretarial functions of the Group.
Before taking up his current position, Mr. Lo was in charge of regulatory, carrier business,
international business, network operation and network development for Hong Kong Broadband Network
Limited, the wholly-owned subsidiary of the Company. Mr. Lo joined the Group in September 1998.
Prior to that, Mr. Lo worked for PCCW (formerly known as Hong Kong Telecom) for 9 years, gaining
experience in network planning and undersea cable investment. Mr. Lo holds a Bachelors Degree in
Sciences in Electronics from The Chinese University of Hong Kong and a Masters Degree in Business
Administration from the University of Strathclyde, U.K.
Dr. TAM Ming Chit, aged 44, is Chief Technology Officer of the Group. He is responsible for
the Groups network, information system development and operations including broadband networking,
IPTV, wireless applications, as well as VoIP networks. Prior to joining the Group in 2008, Dr. Tam
held various technical positions in various institutions in Hong Kong and overseas, such as
Alcatel-Lucent, Citibank and SRA. He has over 16 years of operational experience in the information
technologies and telecom industry. Dr. Tam holds a Bachelor of Science (Hons) in Computer Science
from Imperial College, University of London, U.K. and a Doctor of Philosophy in Computer Science
from the University of Pennsylvania, U.S.A.
Ms. TO Wai Bing, aged 47, is the Managing Director of Business Development of the Group. Ms.
To is also in charge of International Business Department, Carrier Business Department and Pay TV
Department. She is responsible for the control of cost of services, sales of carrier business,
development of Pay TV business, explore and secure business partnerships to strengthen the Groups
business operations and development. Before joining the Group, Ms. To had worked in the Hong Kong
Telecom Group for 16 years after graduating from The Hong Kong Polytechnic University with a
Diploma in Electronic Engineering and subsequently a Higher Certificate in Electronic Engineering.
Ms. To rejoined the Group in May 2007 after her previous service with the Group from September 1998
to July 2006.
B. Compensation
Directors and senior managements compensation
Our directors and senior management receive compensation in the form of salaries, housing
allowances, discretionary bonuses, other allowances and benefits in kind, including our
contribution to the pension schemes for such individuals. We also granted share options to various
directors and members of our senior management. For more information regarding share options
granted to directors and members of our senior management, see Item 6 Directors, senior management
and employees Share ownership below in this annual report.
Our senior management and employees are entitled to receive an annual discretionary bonus
based on their individual performance and our financial performance during the year in question.
The aggregate amount of salaries or other compensation, housing allowances, other allowances
and benefits in kind paid by us to our directors and senior management was approximately
HK$38.8 million for fiscal 2009, compared with HK$32.5 million for fiscal 2008. The aggregate
amount of contribution that we made to the retirement or similar benefits for our directors and
members of our senior management was HK$2.6 million for fiscal 2009, compared with HK$2.4 million
for fiscal 2008.
Except as discussed herein, no other payments have been paid or are payable, in respect of
fiscal 2009, by us or any of our subsidiaries to our directors and senior management.
C. Board practices
Service contracts
We entered into service agreements with our four executive directors, Messrs Wong Wai Kay,
Ricky, Cheung Chi Kin, Paul, Yeung Chu Kwong, William and Lai Ni Quiaque, respectively. These
service agreements include non-competition clauses under which our executive directors agree not to
compete with us in accordance with the terms and conditions therein and shall continue to be
effective unless and until terminated by either party of the respective service agreements. None of
the agreements provide for any benefits or compensation upon termination of employment.
Controlled company exemption
We are a controlled company within the meaning of the NASDAQ Marketplace Rules, since Top
Group International Limited holds more than 50% of our voting power. As such, we are exempt from
the NASDAQ Marketplace Rules requirement that a majority of a companys board of directors must
qualify as independent directors within the meaning of the NASDAQ Marketplace Rules. We are also
exempt from the NASDAQ Marketplace Rules requirement regarding nominations and remuneration. In
accordance with the laws of Hong Kong, the nomination and remuneration of our directors are governed by our
Articles of Association. Pursuant to our Articles of Association, our directors are appointed by
our shareholders in general meeting, and our directors fees are recommended by the remuneration
committee of our board of directors and determined by our shareholders at the annual general
meeting
Audit committee
Our board of directors established an audit committee in March 1999 to ensure the impartial
supervision of our accounting and business operations. The audit committee is comprised of 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. Mr. Peh was appointed to the audit
committee on September 1, 2004 and is a financial expert within the meaning of, and as required
by the U.S. Sarbanes-Oxley Act of 2002.
38
The audit committee is governed by an audit committee charter, which was adopted by our board
of directors at a meeting held in August 2004. It is responsible for the following:
|
|
|
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.
|
As provided in our audit committee charter, the audit committee is required to meet in person
or telephonically at least twice a year and has the resources and authority appropriate to
discharge its responsibilities as required by law, including the authority to engage independent
counsel and other advisors as the audit committee deems necessary to carry out its duties.
The audit committee met four times in fiscal 2009. The major works performed by the committee
from September 1, 2008 to August 31, 2009 included the following:
-
|
|
Reviewed the Companys consolidated financial statements for the year ended August 31, 2008
and for the six months ended February 28, 2009;
|
-
|
|
Reviewed the internal audit progress, including the procedures required for the compliance
with the Sarbanes-Oxley Act;
|
-
|
|
Reviewed the external auditors report on the review of the Companys interim financial
report for the six months ended February 28, 2009 and the Companys audited consolidated
financial statements for the year ended August 31, 2008; and
|
-
|
|
Pre-approved the audit and non-audit services provided by KPMG, the Companys external
auditor.
|
Remuneration committee
Our board of directors established a remuneration committee in August 2001 to oversee the
Companys remuneration packages for executive directors. Among others, each of our executive
directors is entitled to receive an annual discretionary bonus of such amount as determined by the
board of directors upon recommendation and approval by the remuneration committee. The remuneration
committee is comprised of six members with three independent non-executive directors, Mr. Lee Hon
Ying, John, Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu, the non-executive director, Dr. Cheng Mo
Chi, Moses, Mr. Lai Ni Quiaque, the executive director, Chief Financial Officer, Company Secretary
and Head of Talent Engagement and our director of Talent Management. The remuneration committees
objectives are set out as follows:
-
|
|
Establish formal, fair and transparent procedures for developing policy and structure of all
remuneration of directors and senior management.
|
-
|
|
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).
|
The remuneration committee held one meeting during fiscal 2009. The major works performed by
the committee from September 1, 2008 to August 31, 2009 included the following:
-
|
|
Reviewed and approved the proposed discretionary performance bonus for the management committee members;
|
|
-
|
|
Reviewed and approved the remuneration packages for management committee members; and
|
|
-
|
|
Reviewed and approved the remuneration for the directors.
|
D. Employees
The following table sets forth the number of our employees by functional area as of August 31,
2009.
|
|
|
|
|
|
|
Employees
|
|
Information technology and engineering
|
|
|
437
|
|
Sales and marketing, customer service
and Special Duty Unit, or SDU
|
|
|
2,433
|
|
General administration and others
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,173
|
|
|
|
|
|
The following table sets forth the number of our employees by geographical region as of August 31,
2009.
|
|
|
|
|
|
|
Employees
|
|
Hong Kong
|
|
|
1,633
|
|
Guangzhou
|
|
|
1,520
|
|
Canada
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,173
|
|
|
|
|
|
39
As of August 31, 2008 and 2009, we had 3,051 and 3,173 employees, respectively. The increase
in our total number of employees in fiscal 2009 was mainly due to the expansion in our FTNS
business.
E. Share ownership
Share ownership
The following table sets forth the share ownership of our directors and senior management as
of December 15, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
of shares
|
|
|
of shares
|
|
|
Outstanding
|
|
|
|
Identity of person
|
|
beneficially
|
|
|
beneficially
|
|
|
share
|
|
Title of class
|
|
or Group
|
|
owned
|
|
|
owned
|
|
|
options
|
|
|
|
|
|
(note 4)
|
|
|
(note 3)
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
Ordinary shares
|
|
Wong Wai Kay, Ricky
|
|
346,959,573
(note 1)
|
|
|
|
51.05
|
|
|
|
8,091,604
|
|
|
|
|
|
|
Ordinary shares
|
|
Cheung Chi Kin, Paul
|
|
382,100,443
(note 2)
|
|
|
|
56.22
|
|
|
|
8,091,604
|
|
|
|
|
|
|
Ordinary shares
|
|
Yeung Chu Kwong, William
|
|
|
3,000,000
|
|
|
Less than 1.0
|
|
|
|
7,062,956
|
|
|
|
|
|
|
Ordinary shares
|
|
Lai Ni Quiaque
|
|
|
10,392,506
|
|
|
|
1.53
|
|
|
|
8,067,690
|
|
|
|
|
|
|
Ordinary shares
|
|
Chong Kin Chun, John
|
|
|
2,777,089
|
|
|
Less than 1.0
|
|
|
|
2,022,900
|
|
|
|
|
|
|
Ordinary shares
|
|
Lo Sui Lun
|
|
Nil
|
|
|
Nil
|
|
|
|
2,022,901
|
|
|
|
|
|
|
Ordinary shares
|
|
Tam Ming Chit
|
|
Nil
|
|
|
Nil
|
|
|
|
1,007,465
|
|
|
|
|
|
|
Ordinary shares
|
|
To Wai Bing
|
|
Nil
|
|
|
Nil
|
|
|
|
1,007,465
|
|
|
|
|
Notes:
|
|
(1)
|
|
Of the 346,959,573 shares, 339,814,284 shares are beneficially owned through Mr Wongs
42.12 % interest in Top Group International Limited, or Top Group, and 7,145,289 shares are
owned directly by Mr Wong.
|
|
(2)
|
|
Of the 382,100,443 shares, 339,814,284 shares are beneficially owned through Mr Cheungs
27.06% interest in Top Group, 17,361,820 shares are owned directly by Mr. Cheung and
24,924,339 shares are beneficially owned through Mr. Cheungs 50% interest in Worship Limited.
|
|
(3)
|
|
Percentage ownership is based on 679,594,047 shares issued as of December 15, 2009.
|
|
(4)
|
|
Beneficial ownership is determined in accordance with the rules of the SEC.
|
40
Item 6 Directors, senior management and employees (continued)
Share ownership (continued)
The following table sets forth the share options for the details of the share options held by
the directors and senior management of the Company as at December 15, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
to number
|
|
|
Options
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
granted
|
|
|
|
of options
|
|
|
exercised
|
|
|
cancelled/
|
|
Balance
|
|
|
|
|
|
|
|
as at
|
|
|
during
|
|
|
|
for 2008
|
|
|
during
|
|
|
lapsed
|
|
as at
|
|
|
|
Date of
|
|
Exercise
|
|
January 9,
|
|
|
the
|
|
Exercise
|
|
Final
|
|
|
the
|
|
|
during
|
|
December 15,
|
|
|
|
grant
|
|
price
|
|
2009
|
|
|
period
|
|
period
|
|
dividend
|
|
|
period
|
|
|
the period
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HK$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Wong Wai
Kay, Ricky
|
|
January 5,
2005
|
|
1.5224
(note 4)
|
|
|
8,053,478
|
|
|
|
|
January 5,
2005 to
October 20,
2014
|
|
|
38,126
|
|
|
|
|
|
|
|
|
|
8,091,604
|
|
|
|
|
|
|
|
|
May 22,
2006
|
|
0.6523
(note 5)
|
|
|
6,040,108
|
|
|
|
|
May 22,
2007 to
May 21,
2016
|
|
|
28,593
|
|
|
|
6,068,701
|
|
|
|
|
|
|
|
|
|
|
Mr. Cheung Chi
Kin, Paul
|
|
January 5,
2005
|
|
1.5224
(note 4)
|
|
|
8,053,478
|
|
|
|
|
January 5,
2005 to
October 20,
2014
|
|
|
38,126
|
|
|
|
|
|
|
|
|
|
8,091,604
|
|
|
|
|
|
|
|
|
May 22,
2006
|
|
0.6523
(note 5)
|
|
|
6,040,108
|
|
|
|
|
May 22,
2007 to
May 21,
2016
|
|
|
28,593
|
|
|
|
6,068,701
|
|
|
|
|
|
|
|
|
|
|
Mr. Yeung Chu
Kwong, William
|
|
May 22,
2006
|
|
0.6523
(note 5)
|
|
|
1,013,369
|
|
|
|
|
May 22,
2007 to
May 21,
2016
|
|
|
4,796
|
|
|
|
|
|
|
|
|
|
1,018,165
|
|
|
|
|
|
|
|
|
February 6,
2008
|
|
1.7568
(note 6)
|
|
|
6,016,309
|
|
|
|
|
(note 2)
|
|
|
28,482
|
|
|
|
|
|
|
|
|
|
6,044,791
|
|
|
|
|
|
|
Mr. Lai Ni
Quiaque
|
|
May 22,
2006
|
|
0.6523
(note 5)
|
|
|
2,013,369
|
|
|
|
|
May 22,
2007 to
May 21,
2016
|
|
|
9,530
|
|
|
|
|
|
|
|
|
|
2,022,899
|
|
|
|
|
|
|
|
|
February 11,
2008
|
|
1.8660
(note 7)
|
|
|
6,016,309
|
|
|
|
|
(note 3)
|
|
|
28,482
|
|
|
|
|
|
|
|
|
|
6,044,791
|
|
|
|
|
|
|
Senior management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Chong Kin
Chun, John
|
|
October 21,
2004
|
|
1.5224
(note 4)
|
|
|
2,013,368
|
|
|
|
|
January 1,
2005 to
October 20,
2014
|
|
|
9,532
|
|
|
|
|
|
|
|
|
|
2,022,900
|
|
|
|
|
|
|
|
|
May 22,
2006
|
|
0.6523
(note 5)
|
|
|
503,342
|
|
|
|
|
May 22,
2007 to
May 21,
2016
|
|
|
2,383
|
|
|
|
505,725
|
|
|
|
|
|
|
|
|
|
|
Mr. Lo Sui Lun
|
|
October 21,
2004
|
|
1.5224
(note 4)
|
|
|
503,343
|
|
|
|
|
January 1,
2005 to
October 20,
2014
|
|
|
2,383
|
|
|
|
|
|
|
|
|
|
505,726
|
|
|
|
|
|
|
|
|
May 22,
2006
|
|
0.6523
(note 5)
|
|
|
1,510,026
|
|
|
|
|
May 22,
2007 to
May 21,
2016
|
|
|
7,149
|
|
|
|
|
|
|
|
|
|
1,517,175
|
|
|
|
|
|
|
Dr. Tam Ming Chit
|
|
May 2,
2008
|
|
1.7866
(note 8)
|
|
|
1,002,718
|
|
|
|
|
(note 2)
|
|
|
4,747
|
|
|
|
|
|
|
|
|
|
1,007,465
|
|
|
|
|
|
|
Ms. To Wai Bing
|
|
February 15,
2008
|
|
1.7568
(note 6)
|
|
|
1,002,718
|
|
|
|
|
(note 2)
|
|
|
4,747
|
|
|
|
|
|
|
|
|
|
1,007,465
|
|
|
|
|
|
|
41
Item 6 Directors, senior management and employees (continued)
Share ownership (continued)
|
|
|
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 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 share immediately before the date of the grant of the Options was HK$0.88.
|
|
(2)
|
|
The exercise of the Options is subject to certain conditions that must be achieved by the
grantees. The Options shall be exercised not later than December 23, 2012.
|
|
(3)
|
|
The exercise of the Options is subject to the performance of the Companys share. The Options
shall be exercised not later than December 23, 2012.
|
|
(4)
|
|
Exercise price of the share options was adjusted from HK$1.5297 to HK$1.5224 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).
|
|
(5)
|
|
Exercise price of the share options was adjusted from HK$0.6554 to HK$0.6523 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).
|
|
(6)
|
|
Exercise price of the share options was adjusted from HK$1.7652 to HK$1.7568 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).
|
|
(7)
|
|
Exercise price of the share options was adjusted from HK$1.8749 to HK$1.8660 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).
|
|
(8)
|
|
Exercise price of the share options was adjusted from HK$1.7951 to HK$1.7866 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).
|
All shareholders own ordinary shares and enjoy the same voting rights with respect to each
share.
Share Option Schemes
We adopted a second share option scheme, which we refer to as the 2002 Share Option Scheme, on
December 23, 2002 and terminated the share option scheme adopted on July 12, 1997, which we refer
to as the 1997 Share Option Scheme. Upon termination of the 1997 Share Option Scheme, no further
options can be granted under the 1997 Share Option Scheme. Options granted under the 1997 Share
Option Scheme that are not exercised lapsed automatically on July 12, 2007. Under the terms of the
2002 Share Option Scheme, our board of directors may, in its discretion from time to time, and
subject to such conditions as the board may determine, within ten years beginning on December 23,
2002, grant any employee or executive or officer of the Company or any of its subsidiaries
(including executive, non-executive and independent non-executive directors of each of the
abovementioned companies) and any suppliers or professional advisers who will or have provided
services to the Company and/or its subsidiaries to subscribe for our ordinary shares.
The maximum number of ordinary shares which may be issued upon exercise of all options to be
granted under our 2002 Share Option Scheme and any of our other share option scheme(s) must not
exceed 10% of the ordinary shares in issue as of the date of approval or adoption of the scheme by
the shareholders on December 23, 2002. Ordinary shares which would have been issuable pursuant to
options which have lapsed in accordance with the terms of such share option schemes will not be
counted for the purpose of the 10% limit. Such limit may be refreshed upon approval by shareholders
and compliance with all requirements under the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited, which we refer to as the Listing Rules. Pursuant thereto, such
limit was refreshed with the approval of our shareholders in our annual general meeting held on
December 24, 2007 up to a maximum limit equal to 10% of our total number of issued shares as at
December 24, 2007. Notwithstanding the foregoing, the number of ordinary shares which may be issued
upon exercise of all outstanding options granted and yet to be exercised under our 2002 Share
Option Scheme and any of our other share option scheme(s) at any time shall not exceed 30% of the
total number of ordinary shares in issue from time to time.
The total number of ordinary shares issued and which may be issued upon exercise in full of
the options granted under our 2002 Share Option Scheme and any of our other share option scheme(s)
(including exercised, cancelled and outstanding options) to each eligible participant in any
12-month period up to and including the date of grant shall not exceed 1% of the outstanding
ordinary shares as at the date of grant. Any further grant of options in excess of this 1% limit
must be approved by shareholders.
The subscription price for an ordinary share payable by a participant upon the exercise of any
option granted under the 2002 Share Option Scheme will be determined by the Board in its absolute
discretion, except that such price will not be less than the highest of (a) the closing price of
the ordinary shares as stated in The Stock Exchange of Hong Kong Limiteds daily quotations sheet
on the date of grant, which must be a business day; (b) the average of the closing prices of the
ordinary shares as stated in The Stock Exchange of Hong Kong Limiteds daily quotations sheets for
the 5 business days immediately preceding the date of grant; and (c) the nominal value of an
ordinary share.
42
Any grant of options to any of our directors, chief executives or substantial shareholders or
any of their respective associates (as defined in the Listing Rules) is required to be approved by
our non-grantee independent non-executive directors. If we propose to grant options to a
substantial shareholder or any of its independent non-executive directors, or their respective
associates, which will result in the number of ordinary shares issued and to be issued upon
exercise of options granted and to be granted under our 2002 Share Option Scheme and any of our
other share option scheme(s) (including options exercised, cancelled and outstanding) to such
person in the 12-month period up to and including the date of such grant (a) representing in
aggregate over 0.1% of the outstanding ordinary shares; and (b) having an aggregate value in excess
of HK$5 million, based on the closing price of the ordinary shares at the date of each grant, such
further grant of options will be subject to approval by shareholders and all requirements under the
Listing Rules.
A grant of options may not be made after a price sensitive event has occurred or a price
sensitive matter has been the subject of a decision until such price sensitive information,
including annual and interim results, has been made public.
The period during which an option may be exercised will be determined by our board of
directors in its absolute discretion, except that no option may be exercised later than ten years
from the date of grant. No option may be granted more than ten years after December 23, 2002.
Subject to our earlier termination, the 2002 Share Option Scheme shall be valid and effective for a
period of ten years after the date of adoption, that is, until December 23, 2012. In addition and
to the extent not already exercised, an option will automatically lapse and not be exercisable upon
the occurrence of any of the following events:
(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;
|
|
(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-employee 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 favour of any third party
over or in relation to any of his or her options or attempt to do so.
|
As of December 15, 2009, a total number of 90,247,857 options were granted, 32,792,350 options
were exercised, 13,902,353 options were lapsed and 43,553,154 options remain outstanding and
unexercised. Total number of 50,619,336 options are available for issue as of December 15, 2009.
43
Item 7 Major shareholders and related party transactions
A. Major shareholders
The following table sets forth certain information regarding ownership of our ordinary shares
as of December 15, 2009 by all persons who are known to us to own beneficially 5% or more of our
ordinary shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages
|
|
|
|
|
|
|
|
|
|
|
|
of shares
|
|
|
|
Identity of person
|
|
|
Beneficially
|
|
|
beneficially
|
|
Title of class
|
|
or Group
|
|
|
owned
|
|
|
owned
|
|
|
|
|
|
|
|
(note 5)
|
|
|
(note 1)
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
Ordinary shares
|
|
Wong Wai Kay, Ricky
|
|
|
346,959,573
(note 2)
|
|
|
|
51.05
|
|
|
|
|
|
|
Ordinary shares
|
|
Cheung Chi Kin, Paul
|
|
|
382,100,443
(note 3)
|
|
|
|
56.22
|
|
|
|
|
|
|
Ordinary shares
|
|
Top Group International Limited
|
|
|
339,814,284
|
|
|
|
50.00
|
|
|
|
|
|
|
Ordinary shares
|
|
Leung Ka Pak
|
|
|
339,814,284
(note 4)
|
|
|
|
50.00
|
|
|
|
|
|
|
Ordinary shares
|
|
Yau Ming Yan, Andrew
|
|
|
339,814,284
(note 4)
|
|
|
|
50.00
|
|
|
|
|
Notes:
|
|
(1)
|
|
Percentage ownership is based on 679,594,047 shares issued as of December 15, 2009.
|
|
(2)
|
|
Of the 346,959,573 shares, 339,814,284 shares are beneficially owned through Mr. Wongs
42.12 % interest in Top Group International Limited or Top Group, and 7,145,289 shares are
owned directly by him. Top Group International Limited, Top Group is a holding company
incorporated in British Virgin Islands with no active operations. Top Group has two directors,
Mr. Wong Wai Kay, Ricky and Mr. Cheung Chi Kin, Paul, who are our chairman and vice chairman
respectively. They are two of shareholders of Top Group. Mr. Leung Ka Pak and Mr. Yau Ming
Yan, Andrew are the two other shareholders of Top Group.
|
|
(3)
|
|
Of the 382,100,443 shares, 339,814,284 shares are beneficially owned through Mr. Cheungs
27.06% interest in Top Group, 17,361,820 shares are owned directly by Mr. Cheung and
24,924,339 shares are beneficially owned through Mr. Cheungs 50% interest in Worship
Limited.
|
|
(4)
|
|
The 339,814,284 shares are beneficially owned through Mr. Leungs 21.00% and Mr. Yaus 9.82%
interest in Top Group. Mr. Leung Ka Pak was a director and the president of all of the
Companys subsidiaries in Canada (other than City Telecom (Canada) Inc.). He resigned as a
director and president in October 2005. After Mr. Leung resigned, Mr. Yau Ying Yan, Andrew was
a director and the president of all subsidiaries in Canada (other than City Telecom (Canada)
Inc.). He resigned as a director and president in July 2006.
|
|
(5)
|
|
Beneficial ownership is determined in accordance with the rules of the SEC.
|
As of December 15, 2009, there were 13 registered holders of 3,295,700 American
Depositary Shares in the United States, consisting of 9.70% of our outstanding shares.
All shareholders own ordinary shares and enjoy the same voting rights with respect to each
share.
Except as disclosed above, we are not directly or indirectly owned or controlled by any other
person, corporation or foreign government.
We are not aware of any arrangement the operation of which may at a subsequent date result in
a change of control of City Telecom.
B. Related party transactions
For the period since the beginning of our preceding three financial years up to the date of
this document, we were a party to the following related party transactions.
Contracts with our directors and senior management
All of our directors and senior management have employment service agreements with us. Certain
of our directors and senior management receive housing allowances, pensions, bonuses and
commissions. In addition, some of our directors are also senior management of City Telecom and
these persons may also have the ability to make significant business decisions effecting our
operations. See Item 6 Directors and senior management above of this annual report for details
concerning these arrangements.
44
C. Interests of experts and counsel
Not applicable.
Item 8 Financial information
A. Consolidated statements and other financial information
Financial statements
See pages
F-1 F-51 following Item 19.
Legal and regulatory proceedings
We are currently involved in a material legal or regulatory proceeding relating to Fixed
Mobile Interconnection Charges, or FMIC, as described below:
In February 2008, our wholly owned subsidiary, HKBN, requested the Telecommunications
Authority to make a determination, pursuant to section 36A of the Telecommunications Ordinance (Cap
106), in respect of the level of fixed-mobile interconnection charge, or FMIC, to be paid by four
mobile operators including China Mobile Hong Kong Company Limited, CSL Limited, Hutchison Telephone
Company Limited, and SmarTone Mobile Communications Limited on the rate of FMIC and the interest
thereon. This FMIC is paid by a mobile network operator to the interconnecting fixed network
operator for telephony traffic both from a fixed line to a mobile phone and from a mobile phone to
a fixed line. In September 2008, the Telecommunications Authority indicated that it accepted
HKBNs request for determination and on November 25, 2009 issued its Preliminary Analysis for the
parties comments. The determination proceedings will progress into 2010.
Dividends
Unless the relevant provisions of the Hong Kong Companies Ordinance require otherwise, we may
by ordinary resolution (being a resolution passed by a majority of our shareholders who attend and
vote at a meeting of shareholders) from time to time declare dividends, but no dividend shall
exceed the amount recommended by our board of directors. Our Articles contain provisions on
apportioning dividends where shares are not or were not fully paid for during the period covered by
the dividend.
Unless the relevant provisions of the Hong Kong Companies Ordinance require otherwise, our
board of directors may pay such interim dividends as appears to them to be justified by our
financial position and pay any dividend payable at a fixed rate at intervals decided upon by our
board of directors, whatever our financial position, if the board of directors feels that this
payment is justified.
Any dividend not claimed by a shareholder after a period of six years from the date when it
was first due to be paid shall be forfeited and shall revert to us. The payment by our board of
directors of any unclaimed dividend, interest or other sum payable on or in respect of a share into
a separate account shall not make us responsible as a trustee for such sums.
For fiscal 2009, an interim dividend was declared at HK3 cents per ordinary share. The total
amount of HK$19,904,437.98 was paid as cash dividend on June 26, 2009.
A final dividend of HK16 cents per ordinary share was proposed on November 5, 2009, which was
subsequently approved by shareholders in the annual general meeting held on December 18, 2009. The
2009 Final Dividend will be paid on or about December 30, 2009.
B. Significant changes
None.
Item 9 The offer and listing
A. Offer and listing details
Our ordinary shares have been listed under the number 1137 on The Stock Exchange of Hong
Kong Limited, or the HKSE, since August 4, 1997. Our American depositary shares, each representing
20 ordinary shares, have been listed under the symbol CTEL on Nasdaq since November 3, 1999. Our
10-year senior notes were listed under the ISIN codes of US178677AA87 and USY16599AA30 on the
Singapore Exchange Securities Trading Limited, or SGX-ST, on January 24, 2005. The 10-year senior
notes were subsequently exchanged for registered notes with ISIN code US178677AB60 pursuant to a
registration statement under the U.S. Securities Act of 1933 on June 24, 2005.
The price of our ordinary shares on the HKSE as of its close of trading on December 15, 2009
was HK$3.590 per share. The table below shows the high and low closing prices of the shares on the
HKSE since listing.
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|
|
|
|
|
|
|
|
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Price
|
|
|
|
High
|
|
|
Low
|
|
|
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(In HK$)
|
|
2004
|
|
|
2.975
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|
|
|
1.310
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2005
|
|
|
1.530
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|
|
|
0.550
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2006
|
|
|
0.830
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|
|
|
0.570
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2007
|
|
|
3.670
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|
|
|
0.830
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45
|
|
|
|
|
|
|
|
|
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Price
|
|
|
|
High
|
|
|
Low
|
|
|
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(In HK$)
|
|
2008
|
|
|
2.170
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|
|
|
0.750
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|
|
|
|
|
|
|
|
|
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2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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January to March
|
|
|
1.560
|
|
|
|
0.830
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April to June
|
|
|
2.200
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|
|
|
1.250
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July to September
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|
|
2.120
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|
|
|
1.780
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October to December
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|
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3.670
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|
|
|
1.930
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|
|
|
|
|
|
|
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2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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January to March
|
|
|
2.170
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|
|
|
1.620
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April to June
|
|
|
2.090
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|
|
|
1.670
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July to September
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|
|
1.950
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|
|
|
1.340
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October to December
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|
|
1.360
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|
|
|
0.750
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|
|
|
|
|
|
|
|
|
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2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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January to March
|
|
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1.140
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|
|
|
0.840
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April to June
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|
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1.780
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|
|
|
1.100
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July to September
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|
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2.630
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|
|
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1.630
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October to December (through December 15, 2009)
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3.950
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|
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2.500
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|
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|
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|
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|
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2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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June
|
|
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1.780
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|
|
|
1.610
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July
|
|
|
1.860
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|
|
|
1.630
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August
|
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2.070
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|
|
|
1.850
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September
|
|
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2.630
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|
|
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2.030
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October
|
|
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2.880
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|
|
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2.550
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November
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3.920
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2.500
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December (through December 15, 2009)
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3.950
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3.440
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The price of our American depositary shares on Nasdaq as of its close of trading on December
15, 2009 was US$9.249 per American depositary share. The table below shows the high and low closing
prices of the American depositary shares on Nasdaq since listing.
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|
|
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Price
|
|
|
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High
|
|
|
Low
|
|
|
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(In US$)
|
|
2004
|
|
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7.720
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|
|
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3.320
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|
2005
|
|
|
3.980
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|
|
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1.370
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2006
|
|
|
2.009
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|
|
|
1.380
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2007
|
|
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10.750
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|
|
|
2.010
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|
2008
|
|
|
5.750
|
|
|
|
1.915
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|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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January to March
|
|
|
4.350
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|
|
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2.010
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April to June
|
|
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5.830
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|
|
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3.100
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July to September
|
|
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5.600
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|
|
|
4,050
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October to December
|
|
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10.750
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|
|
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4.830
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|
|
|
|
|
|
|
|
|
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2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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January to March
|
|
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5.580
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|
|
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4.250
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April to June
|
|
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5.750
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|
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4.370
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July to September
|
|
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4.910
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|
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2.950
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October to December
|
|
|
3.380
|
|
|
|
1.915
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January to March
|
|
|
2.870
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|
|
|
2.000
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April to June
|
|
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4.650
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2.870
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July to September
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|
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7.023
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4.050
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October to December (through December 15, 2009)
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10.300
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6.610
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|
|
|
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|
|
|
|
|
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2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
|
|
|
4.650
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|
|
|
4.010
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July
|
|
|
4.830
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|
|
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4.050
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46
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
|
High
|
|
|
Low
|
|
|
|
(In US$)
|
|
August
|
|
|
5.240
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|
|
|
4.560
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September
|
|
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7.023
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|
|
|
5.290
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|
October
|
|
|
7.750
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|
|
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6.750
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November
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10.000
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6.610
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December (through December 15, 2009)
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10.300
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8.800
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B. Plan of distribution
Not applicable.
C. Markets
See Item 9A above.
D. Selling shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the issue
Not applicable.
Item 10 Additional information
A. Share capital
Not applicable.
B. Memorandum and Articles of Association
Described below is a summary of certain provisions of our existing Memorandum and Articles of
Association (the Articles) and, where relevant, the Hong Kong Companies Ordinance. As this is a
summary, it does not contain all the information that may be important to you. You should therefore
read our complete Articles if you would like additional information, which were filed with the U.S.
Securities and Exchange Commission as an exhibit 1 to the annual report on Form 20-F for fiscal
2005 and is incorporated by reference herein.
General
City Telecom was incorporated in Hong Kong on May 19, 1992 under the Hong Kong Companies
Ordinance. Clause 3 of the Memorandum of Association states that the Companys objects are to carry
on the business of telecommunications services in addition to various other related and unrelated
business activities.
Directors interests
A director shall not vote on, or be counted in the quorum in relation to, any resolution of
our board of directors in respect of any contract in which the director or any of his associate(s)
(within the meaning of the Listing Rules) has a material interest. This prohibition shall not apply
to the following:
(a)
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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;
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(b)
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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;
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(c)
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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;
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(d)
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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;
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(e)
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any proposal or arrangement concerning the benefit of employees of the Company or its
subsidiaries, including the adoption, modification or operation of any employees share scheme
or any share incentive or share option scheme under which the director or his associate(s) may
benefit;
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47
(f)
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any proposal or arrangement concerning the benefit of employees 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 employees 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
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(g)
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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.
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Additionally, there is no shareholding qualification required to be a director.
Dividends
In accordance with our Articles, we may by ordinary resolution (being a resolution passed by a
majority of those votes cast by the shareholders who attend and vote at a general meeting) from
time to time declare dividends, but no dividend shall exceed the amount recommended by our board of
directors. Our Articles contain provisions on apportioning dividends according to the amounts paid
up on the shares in respect of which dividend is paid under pro rata basis during the period
covered by the dividend.
In accordance with our Articles, our board of directors may pay such interim dividends that
appear to be justified by our financial position and may also pay any dividend payable at a fixed
rate at intervals decided upon by our board of directors, whenever our financial position, in the
opinion of our board of directors, justifies the payment.
In respect of any dividend proposed to be paid or declared, our board of directors may further
propose and announce prior to or at the same time as the payment or declaration of such dividend
either that:
(a)
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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
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(b)
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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.
|
Any general meeting declaring a dividend may, upon the recommendation of our board of
directors, by ordinary resolution, direct that the dividend shall be met, wholly or partly, by the
distribution of our assets.
Any dividend not claimed by a shareholder after a period of six years from the date when it
was first due to be paid shall be forfeited and shall revert to us. The payment by our board of
directors of any unclaimed dividend, interest or other sum payable on or in respect of a share into
a separate account shall not create any trustee relationship in respect of such sums.
Liquidation
Subject to the requirements under the Hong Kong Companies Ordinance, in the event of a
members winding up, the liquidator may, with the sanction of a special resolution of the Company:
(a)
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|
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)
|
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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,
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|
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but no shareholder shall be compelled to accept any shares or other assets upon which there is
any liability.
|
Annual and extraordinary general meeting of shareholders
The Hong Kong Companies Ordinance requires our board of directors to hold an annual general
meeting of our shareholders once every year and not more than 15 months after our previous annual
general meeting. The annual general meeting and any other general meeting of our shareholder held
for the passing of a special resolution (being a resolution passed by not less than 75% of those
votes cast by the shareholders who attend and vote at a general meeting) should be convened by not
less than 21 clear days notice in writing. The notice shall specify the place, date and time of
meeting and the general nature of the business to be transacted. An annual general meeting may be
called by not less than 20 clear business days notice if it is agreed by all shareholders entitled
to attend and vote at the meeting. The business of the annual general meeting will include:
(a)
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the declaration and sanctioning of dividends;
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|
(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;
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(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.
|
Our board of directors may convene an extraordinary general meeting (which is any general
meeting of the shareholders other than the annual general meeting) whenever it thinks fit and must
do so upon the request in writing of shareholders holding not less than one-twentieth of our
paid-up capital carrying the right to vote at a general meeting. All extraordinary general meetings
(other than those convened for the passing of a special resolution referred to above) should be
convened by at not less than 10 clear business days notice in writing. Extraordinary general
meetings may be called by less than 10 clear business days notice by a
48
majority in number of the shareholders having the right to attend and vote at the meeting, being a
majority together holding not less than 95% in nominal value of the shares giving that right.
Except as otherwise provided by our Articles, two shareholders present in person or by proxy
and entitled to vote shall be a quorum for all purposes. Whilst no business shall be transacted at
any general meeting unless a quorum is present when the meeting proceeds to business, the absence
of a quorum shall not preclude the choice or appointment of a chairman which shall not be treated
as part of the business of the meeting.
The Nasdaq marketplace rules also provide that a foreign private issuer such as ourselves may
be granted an exemption from such requirements if it follows the practice of its home country.
Restrictions on ownership of shares
There are no restrictions, either pursuant to our Articles or to the laws of Hong Kong, on the
rights of non-residents of Hong Kong or foreign persons to hold or exercise voting rights with
respect to our ordinary shares.
Voting rights
Any decisions that are made by the shareholders in a general meeting require the passing of
either an ordinary or a special resolution at such meeting. The type of resolution required to be
passed depends upon the provisions of the Hong Kong Companies Ordinance and our Articles as certain
matters may only be decided by the passing of a special resolutions.
Unless any shares have special terms as to voting, on a show of hands every shareholder who is
present in person at a general meeting, shall have one vote irrespective of the number of shares he
holds and on a poll every shareholder who is present in person or by proxy shall have one vote for
every share of which he is the holder. Our Articles set out the circumstances in which a poll can
be demanded.
Pursuant to Rule 13.39(4) of the Listing Rules which became effective on January 1, 2009, any
votes of the Shareholders at a general meeting must be taken by poll.
Any shareholder that is a recognized clearing house within the meaning of the Securities and
Futures Ordinance of Hong Kong may authorize such person or persons as it thinks fit to act as its
representative (or representatives) at any general meeting or at any separate meeting of any class
of shareholders (if relevant). However, if more than one person is authorized, the authorization
must specify the number and class of shares in respect of which each person is in fact authorized.
The authorized person will be entitled to exercise the same power on behalf of the recognized
clearing house as that clearing house (or its nominees) could exercise if it were an individual
shareholder of the Company.
Issue of shares
Under the Companies Ordinance, our board of directors may, without the prior approval of the
shareholders, offer to issue new shares to existing shareholders in proportion to their current
shareholdings. Our board of directors may not issue new shares in any other way without the prior
approval of the shareholders. Any such approval given in a general meeting shall continue in force
until the earlier of: (1) the conclusion of the next annual general meeting; or (2) the expiration
of the period within which the next annual general meeting is required by law to be held; or (3)
when revoked or varied by an ordinary resolution of the shareholders in a general meeting. Where
such shareholders approval is given, subject to the Listing Rules and any conditions attached to
such approval, our unissued shares may be at the disposal of our board of directors, which may
offer, allot, grant options over or otherwise dispose of them to such persons, at such times and
for such consideration and upon such terms and conditions as the directors may decide.
Subject to the provisions of our Articles, any shareholder may transfer all or any of his
shares by an instrument of transfer in the usual or common form or in such other form as our board
of directors may accept and may approve. Such instrument may be signed by hand or, if the buyer or
seller is a clearing house or its nominee(s), signed by hand or by a machine imprinted signature or
by such other manner as our board of directors may approve from time to time.
The instrument of transfer of a share shall be executed by or on behalf of both the buyer and
the seller of that share provided that our board of directors may dispense with the signing of the
instrument of transfer by the buyer in any case which it thinks fit in its discretion to do so.
Except as provided in the paragraph above, our board of directors may also decide, either generally
or in any particular case, upon request by either the buyer or seller of shares to accept
mechanically signed transfers. The seller shall be deemed to remain the holder of the share until
the name of the buyer is entered into our register in respect of that share. All instruments of
transfer, when registered, may be retained by us. Nothing in our Articles prevents our board of
directors from recognizing a renunciation of the allotment or provisional allotment of any share by
the person to whom the shares were to be allotted in favor of some other person.
Our board of directors may in its absolute discretion and without giving any reason, decline
to register any transfer of any share which is not a fully paid share.
Our board of directors may also decline to register any transfer unless:
(a)
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|
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;
|
49
(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.
|
If our board of directors declines to register a transfer of any share, it shall, within two
months after the date on which the instrument of transfer was lodged, send to the buyer notice of
the refusal.
Shareholders
In accordance with our Articles, only persons who are registered in our register of members
are recognized by us as shareholders and absolute owners of the shares. The register of members may
be closed by our board of directors at such times and for such periods as it may from time to time
decide by giving notice by advertisement in a newspaper circulating generally in Hong Kong, but the
register shall be closed in any year for more than 30 days (excluding Sundays and public holidays)
unless extended by ordinary resolution.
C. Material contracts
Other than such contracts as are described in our disclosure in Item 7 Major shareholders and
related party transactions related party transactions, we have not entered into any material
contracts outside the ordinary course of our business within the two years preceding the date of
this annual report.
50
D. Exchange controls
The Basic Law of Hong Kong provides that the Hong Kong dollar will remain the legal tender in
Hong Kong after July 1, 1997. The Basic Law also provides that no foreign exchange control policies
will be applied in Hong Kong and that the Hong Kong dollar will be freely convertible. During the
Asia regional economic crisis in 1998, however, the Hong Kong Government intervened on several
occasions in the foreign exchange market by purchasing the Hong Kong dollar and selling the U.S.
dollar to support the value of the Hong Kong dollar.
There are no restrictions, either pursuant to our Articles, or pursuant to the laws of Hong
Kong, on the rights of non-residents of Hong Kong or foreign persons to hold or exercise voting
rights with respect to our ordinary shares, or export or import capital.
E. Taxation
The following provides a general outline of the material tax considerations that may be
relevant to a decision to own or dispose of our American depositary shares or shares but does not
purport to deal with the tax consequences applicable to all categories of investors. Prospective
investors should consult their own professional advisers on the Hong Kong, United States and
overall tax implications of investing, holding or disposing the American depositary shares or
shares under the laws of the countries in which they are liable to taxation. The discussion below
is applicable to both U.S. and non-U.S. citizens as an investor.
Hong Kong Taxation
Tax on dividends
No tax is payable in Hong Kong by withholding or otherwise in respect of dividends paid by
City Telecom.
Profits tax
No tax is imposed in Hong Kong in respect of gains from the sale of our shares and American
depositary shares, unless all the following factors are present:
(i)
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such profits are derived from or arise in Hong Kong;
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(ii)
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such profits are attributable to a trade, profession or business carried on in Hong Kong; and
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(iii)
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the property in question, such as shares and American depositary shares, are not capital
assets of that trade, profession or business.
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Taxable profits are subject to Hong Kong profits tax on corporations at the rate of 16.5% and
on unincorporated businesses or individuals at the rate of 15%.
Profits from the sales of our shares, which are effected on the Hong Kong Stock Exchange, will
be considered to be derived from or arising in Hong Kong. Such profits are taxable if the shares
are not held as capital assets and the profits are attributable to a business, trade or profession
carried out in Hong Kong.
Profits from the sales of our American depositary shares will be considered to be derived from
or arising in Hong Kong if the relevant purchase or sales contracts are effected in Hong Kong. In
the event that those persons dealing or trading in the American depositary shares are doing so as
part of their trade, profession or business that is being carried out in Hong Kong and the shares
are not capital assets of such trade of business, then such profits will be subject to Hong Kong
profits tax. In any case of an exchange of any American depositary receipts evidencing American
depositary shares for certificates representing shares, any profit gained on subsequent disposition
of such shares will be the difference between the initial price of American depositary shares and
the market value of such shares at the date of disposition.
Stamp duty
The sale and purchase of shares is subject to Hong Kong stamp duty which is payable by both
the seller and purchase. Both seller and purchaser must pay stamp duty at a rate of 0.1% each,
totaling 0.2%, of the total value of the greater of (i) the consideration paid or (ii) the market
value of the shares on the Hong Kong Stock Exchange, or otherwise, on the date the contract note
for the sale or purchase is executed. If, in the case of a sale or purchase of shares effected by a
person who is not resident in Hong Kong, the stamp duty on either or both of the contract notes is
not paid, the transferee will be liable to stamp the instrument of transfer and pay stamp duty on
the instrument in an amount equal to the unpaid duty. If the instrument is not stamped before or
within the time for stamping such instrument, a penalty of up to ten times the duty payable may be
imposed. In addition, a fixed duty of HK$5.00 is currently payable on any instrument of transfer of
shares.
In addition to the depositarys charges, if any, the withdrawal of the shares upon the
surrender of American depositary receipts evidencing American depositary shares, and the issuance
of American depositary receipts evidencing American depositary shares upon the deposit of the
shares, will be subject to Hong Kong stamp duty at the rate described above for sale and purchase
transactions. In the event the withdrawal or deposit does not result in a change in the beneficial
ownership of the shares under Hong Kong law, only the nominal fixed duty of HK$5.00 will be
payable. Investors are not liable for stamp duty on the issuance of the American depositary shares
upon the initial deposit of shares issued directly to the depositary or for the account of the
depositary. No Hong Kong stamp duty is payable upon the transfer of American depositary receipts
evidencing our American depositary shares if such American depositary receipts are not maintained
on a register in Hong Kong.
Tax treaty
There is currently no reciprocal tax treaty between Hong Kong and the U.S. regarding
withholding.
51
United States Taxation
Certain U.S. Federal Income Tax Considerations
The following is a summary of certain United States federal income tax considerations that are
anticipated to be material to the purchase, ownership, and disposition of our shares or American
depositary shares by U.S. Holders, as defined below. This summary is based on the U.S. Internal
Revenue Code of 1986, as amended (the Code), its legislative history, existing and proposed U.S.
Treasury regulations, published rulings and court decisions, all as in effect on the date hereof.
These laws are all subject to change or different interpretation, possibly on a retroactive basis.
This summary does not discuss all aspects of United States federal income taxation which may be
important to particular investors in light of their individual investment circumstances, such as
investors subject to special tax rules including: partnerships, financial institutions, insurance
companies, regulated investment companies, real estate investment trusts, broker-dealers,
tax-exempt organizations, and, except as described below, non-U.S. Holders, or to persons that will
hold our shares or American depositary shares as part of a straddle, hedge, conversion, or
constructive sale transaction for United States federal income tax purposes or that have a
functional currency other than the United States dollar, all of whom may be subject to tax rules
that differ significantly from those summarized below. In addition, this summary does not discuss
any foreign, state, or local tax considerations. This summary assumes that investors will hold our
shares or American depositary shares as capital assets (generally, property held for investment)
under the Code.
Each prospective investor is urged to consult its own tax advisor regarding the United States
federal, state, local, and foreign income and other tax considerations of the purchase, ownership,
and disposition of our shares or American depositary shares.
For purposes of this summary, a U.S. Holder is a beneficial owner of shares or American
depositary shares that is for United States federal income tax purposes:
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an individual who is a citizen or resident of the United States;
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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;
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an estate the income of which is includible in gross income for United States federal income
tax purposes regardless of its source;
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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
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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.
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If a partnership or other entity or arrangement treated as a partnership for United States
federal income tax purposes holds our shares or American depositary receipts, the tax treatment of
a partner will generally depend upon the status of the partner and the activities of the
partnership. A U.S. Holder that is a partner in a partnership holding our shares or American
depositary receipts is urged to consult its own tax advisor concerning the United States federal
income tax consequences of purchasing, owning and disposing of our shares or American depositary
receipts by the partnership.
A beneficial owner of our shares or American depositary shares that is not a U.S. Holder is
referred to herein as a Non-U.S. Holder.
A foreign corporation will be treated as a passive foreign investment company or PFIC, for
United States federal income tax purposes, if 75% or more of its gross income consists of certain
types of passive income or 50% or more of the fair market value of its assets are passive for
any taxable year. Based on our current and projected income, assets, and activities, we presently
believe that we are not a PFIC in the current taxable year and do not anticipate becoming a PFIC in
the future. The PFIC status of a foreign corporation for any taxable year, however, will not be
determinable until after the end of that taxable year. Because the classification of certain of our
assets for United States federal income tax purposes is uncertain, the PFIC rules are subject to
administrative interpretation, and the relevant facts may change in the future, however, no
assurance can be given that we are not or will not be treated as a PFIC. The discussion below under
U.S. Holders-Dividends and U.S. Holders-Sale or Other Disposition of Shares or American
depositary shares, assumes that we will not be subject to treatment as a PFIC for United States
federal income tax purposes. If we were currently or were to become a PFIC, U.S. Holders would be
subject to special rules and a variety of potentially adverse tax consequences under the Code. See
PFIC Considerations below.
U.S. Holders
For United States federal income tax purposes, a U.S. Holder of an American depositary share
will be treated as the owner of the proportionate interest of the shares held by the depositary
that is represented by an American depositary share and evidenced by such American depositary
share. Accordingly, no gain or loss will be recognized upon the exchange of an American depositary
share for the holders proportionate interest in the shares. A U.S. Holders tax basis in the
withdrawn shares will be the same as the tax basis in the American depositary share surrendered
therefore, and the holding period in the withdrawn shares will include the period during which the
holder held the surrendered American depositary share.
Dividends.
Any cash distributions paid by us out of our earnings and profits, as determined
under United States federal income tax rules, will be subject to tax as ordinary dividend income
and will be includible in the gross income of a U.S. Holder upon actual or constructive receipt.
Cash distributions paid by us in excess of our earnings and profits will be treated first as a
tax-free return of capital to the extent of the U.S. Holders adjusted tax basis in our shares or
American depositary shares, and thereafter as gain from the sale or exchange of a capital asset.
Dividends paid in Hong Kong dollars will be includible in income in a United States dollar amount
based on the United States dollar to Hong Kong dollar spot exchange rate prevailing at the time
of receipt of such dividends by the depositary, in the case of American depositary shares, or by
the U.S. Holder, in the case of shares held directly by
52
such U.S. Holder. U.S. Holders should consult their own tax advisors regarding the United States
federal income tax treatment of any foreign currency gain or loss recognized on the subsequent
conversion of Hong Kong dollars received as dividends to United States dollars. Dividends received
on shares or American depositary shares will not be eligible for the dividends received deduction
allowed to corporations.
Under current law, qualified dividend income received by an individual prior to January 1,
2011 is subject to United States federal income tax rates lower than those applicable to ordinary
income. The maximum federal income tax rate on such qualifying dividends received by an individual
is 15%, or 5% for those individuals whose incomes fall in the 10% or 15% tax brackets. Based upon
our existing and anticipated future operations and current assets, and the anticipation that our
American depository shares are and will be listed on the NASDAQ, we believe that we are a
qualified foreign corporation and that our dividends paid to U.S. Holders who are individuals
will be eligible to be treated as qualified dividend income, provided that such Holders satisfy
applicable holding period requirements with respect to the American depositary shares and other
application requirements. Dividends paid by foreign corporations that are classified as PFICs are
not qualified dividend income. See PFIC Considerations below.
Dividends received on shares or American depositary shares generally will be treated, for
United States federal income tax purposes, as income from non-U.S. sources. Such non-U.S. source
income generally will be passive category income, or in certain cases general category income,
which is treated separately from other types of income for purposes of computing the U.S. foreign
tax credit. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a
foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on
shares or American depositary shares. U.S. Holders who do not elect to claim a U.S. foreign tax
credit for foreign income tax withheld may instead claim a deduction, for United States federal
income tax purposes, in respect of such withholdings, but only for a year in which the U.S. Holder
elects to do so for all creditable foreign income taxes.
In addition, the United States Treasury has expressed concerns that parties to whom depositary
shares are pre-released may be taking actions that are inconsistent with the claiming of U.S.
foreign tax credits by the holders of American depositary shares. The analysis of the creditability
of foreign withholding taxes could be affected by future actions that may be taken by the United
States Treasury.
Sale or Other Disposition of Shares or American depositary shares. A U.S. Holder will
recognize capital gain or loss upon the sale or other disposition of shares or American depositary
shares in an amount equal to the difference between the amount realized upon the disposition and
the U.S. Holders adjusted tax basis in such shares or American depositary shares, as each is
determined in U.S. dollars. Any such capital gain or loss will be long-term if the shares or
American depositary shares have been held for more than one year and will generally be United
States source gain or loss. Certain non-corporate U.S. Holders (including individuals) may qualify
for preferential rates of United States federal income taxation in respect of long-term capital
gains for taxable years beginning before January 1, 2011. The claim of a deduction in respect of a
capital loss, for United States federal income tax purposes, may be subject to limitations. If a
U.S. Holder receives Hong Kong dollars for any such disposition, such U.S. Holder should consult
its own tax advisor regarding the United States federal income tax treatment of any foreign
currency gain or loss recognized on the subsequent conversion of the Hong Kong dollars to United
States dollars.
PFIC considerations
If we were to be classified as a PFIC for any taxable year, a U.S. Holder would be subject to
special rules generally intended to reduce or eliminate any benefits from the deferral of United
States federal income tax that a U.S. Holder could derive from investing in a foreign company that
does not distribute all of its earnings on a current basis. In such event, a U.S. Holder of the
shares or American depositary shares may be subject to tax at ordinary income tax rates on (i) any
gain recognized on the sales of the shares or American depositary shares and (ii) any excess
distribution paid on the shares or American depositary shares (generally, a distribution in excess
of 125% of the average annual distributions paid by us in the three preceding taxable years). In
addition, a U.S. Holder may be subject to an interest charge on such gain or excess distribution.
Prospective investors are urged to consult their own tax advisors regarding the potential tax
consequences to them if we are or do become a PFIC, as well as certain elections that may be
available to them to mitigate such consequences.
Non-U.S. Holders
An investment in shares or American depositary shares by a Non-U.S. Holder will not give rise
to any United States federal income tax consequences unless:
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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
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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.
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Backup withholding and information reporting
In general, information reporting requirements will apply to dividends on or the proceeds
received on the sale, exchange or redemption of shares or American depositary shares paid within
the United States (and, in certain cases, outside the United States) to U.S. Holders other than
certain exempt recipients, such as corporations, and backup withholding tax may apply to such
amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (or
otherwise establishes, in the manner provided by law,
53
an exemption from backup withholding) or to report dividends required to be shown on the U.S.
Holders United States federal income tax returns.
Backup withholding is not an additional income tax, and the amount of any backup withholding
from a payment to a U.S. Holder will be allowed as credit against the U.S. Holders United States
federal income tax liability provided that the appropriate returns are filed.
A non-U.S. Holder generally may eliminate the requirement for information reporting and backup
withholding by providing certification of its foreign status to the payer, under penalties of
perjury, on IRS Form W-8BEN.
THE ABOVE DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL
INFORMATION ONLY, DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE POTENTIAL TAX CONSIDERATIONS
RELATING TO OUR SHARES OR AMERICAN DEPOSITARY RECEIPTS AND IS NOT INTENDED TO BE CONSTRUED AS TAX
ADVICE. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF PURCHASING, OWNING AND DISPOSING OF OUR SHARES OR AMERICAN
DEPOSITARY RECEIPTS, INCLUDING THE APPLICABILITY AND EFFECT OF ANY UNITED STATES FEDERAL, STATE,
LOCAL OR NON-UNITED STATES TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAW.
F. Dividends and paying agents
Not applicable.
G. Statement by experts
Not applicable.
H. Documents on display
We filed with Securities and Exchange Commission in Washington, D.C. a registration statement
on Form F-1 (Registration No. 333-11012) under the Securities Act in connection with our global
offering of American depositary shares in November 1999. The registration statement contains
exhibits and schedules. For further information with respect to City Telecom and the American
depositary shares, please refer to the registration statement and to the exhibits and schedules
filed with the registration statement. In addition, whenever a reference is made in this annual
report to a contract or other document of City Telecom, you should be aware that such reference is
not necessarily complete and that you should refer to the exhibits and schedules that are a part of
the registration statement for a copy of the contract or other document.
The Companys registration statements may be inspected and copied, including exhibits and
schedules, and the reports and other information as filed with the Securities and Exchange
Commission in accordance with the Securities Exchange Act of 1934 at the public reference
facilities maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth
Street, Room 1024, N.W., Washington, D.C. 20549. Copies of such material may also be obtained from
the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Information may be obtained regarding the Washington
D.C. Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330 or
by contacting the Securities and Exchange Commission over the Internet at its website at
http://www.sec.gov.
I. Subsidiary information
Not applicable.
Item 11 Quantitative and qualitative disclosures about market risk
Quantitative
and qualitative disclosures about market risk have been included in
note 24 to our consolidated financial statements.
54
Item 12 Description of securities other than equity securities
Not applicable.
PART II
Item 13 Defaults, dividend arrearages and delinquencies
None.
Item 14 Material modifications to the rights of security holders and use of proceeds
None.
Item 15 Controls and procedures
A. Disclosure controls and procedures
An evaluation was carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures. As of the end of the period covered by this annual
report, based on that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective to provide reasonable assurance
that information the Company is required to disclose in reports that the Company files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms, and that such information is accumulated and
communicated to the Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource constraints and that
management is required to apply its judgment in evaluating the benefits of possible controls and
procedures relative to their costs. Subsequent to the date of their evaluation, there have been
no significant changes in our internal controls or in other factors that could significantly affect
these controls.
B. Managements report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company, as defined in Rules 13a-15(f) under the Securities Exchange
Act of 1934, as amended. The Companys internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of consolidated financial statements for external purpose in accordance with generally accepted
accounting principles. Under Section 404(a) of the Sarbanes-Oxley Act of 2002, our
management is required to include its assessment of the effectiveness of our internal control
procedures over financial reporting in our annual report on Form 20-F beginning in the fiscal year
ended August 31, 2009. With the assistance of Companys internal audit department and external
consultants, our management organized and conducted a comprehensive assessment of internal control
over financial reporting based on the control criteria in COSO framework. As of the date of this
annual report, our management is not aware of any instances of material weaknesses on our internal
control over financial reporting and our internal control over financing reporting is effective.
C. Changes in internal control over financial reporting
During fiscal 2009, the period covered by this annual report, no change has occurred in our
internal controls over financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
55
Item 16A Audit committee financial expert
Our board of directors established an audit committee to ensure the impartial supervision of
our accounting and business operations. The audit committee is comprised of three independent
non-executive directors, namely, Mr. Lee Hon Ying, John, Dr. Chan Kin Man and Mr. Peh Jefferson Tun
Lu. Mr. Peh was appointed to the audit committee on September 1, 2004 and is a financial expert
within the meaning of, and as required by, the U.S. Sarbanes-Oxley Act of 2002.
Item 16B Code of ethics
All of our employees, officers and directors are bound by our code of business ethics and
conduct. We adopted our code of ethics and modified it following the passage of, and to comply
with, the U.S. Sarbanes Oxley Act of 2002. Copies of our code of ethics are available for viewing
on our website at http://www.ctigroup.com.hk and free of charge upon request made to our company
secretary. We have not made any amendment to our code of ethics since our most recently completed
fiscal year. We have never granted a waiver for non-compliance with the policies and procedures set
forth in the code of ethics for any employee of our Company or any of our subsidiaries.
Item 16C Principal accountant fees and services
The following table sets forth the remuneration that we paid to KPMG, our independent auditor in
each of our previous two fiscal years.
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2008
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2009
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Nature of the service
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HK$ million
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HK$ million
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Audit fees
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2.8
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2.6
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Audit-related fees
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0.4
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0.4
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Total
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3.2
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3.0
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Audit fees
Audit fees are the aggregate fees billed by our independent auditors for the annual financial
statement audit, subsidiary audits and other procedures required to be performed for the auditors
to form an opinion on our consolidated financial statements.
Audit-related fees
Audit-related fees are the aggregate fees billed by our independent auditors for the review of
our interim financial statements and review of reports for compliance with telecommunications
regulations and debt obligations.
Pre-approval polices
The engagement of KPMG and the services provided pursuant to such engagement were approved by
our audit committee in accordance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X. The fees
for all such services have been pre-approved by our audit committee. Our audit committee has
satisfied itself that the provision of the above-stated non-audit services has not impaired the
independence of KPMG.
Item 16D Exemptions from the listing standards for audit committees
Not applicable.
56
Item 16E Purchase of equity securities by the issuer and affiliated purchasers
By way of a general mandate granted to our directors, the maximum aggregate nominal amount of
shares that may be purchased pursuant to a mandate corresponds to 10% of the aggregate nominal
amount of our issued share capital at the date the mandate was granted. During the year ended
August 31, 2009, we had repurchased 70,000 ordinary shares on the HKSE, details of which are as
follows:-
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Highest price
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Lowest price
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Total
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Number of
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paid per
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paid per
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consideration
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Date of repurchase
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Ordinary Shares
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Ordinary Share
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Ordinary Share
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paid
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HK$
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HK$
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HK$
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August 11, 2009
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70,000
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1.92
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1.91
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134,197
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Item 16F Change in Registrants Certifying Accountant
Not applicable.
Item 16G Corporate Governance
As our ordinary shares are listed on the HKSE and American depositary shares representing our
ordinary shares are listed on the Nasdaq Global Market, we are subject to applicable Hong Kong laws
and regulations, including the HKSE Listing Rules, and the Hong Kong Companies Ordinance, as well
as applicable U.S. federal securities laws, including the Exchange Act and the Sarbanes-Oxley Act.
In addition, we are subject to the corporate governance requirements imposed by Nasdaq to the
extent they apply to foreign private issuers. Under Nasdaq Stock Market Rule 5615(a)(3), a foreign
private issuer such as us may follow its home country corporate governance practices in lieu of
certain of the Nasdaq Stock Market Rules corporate governance requirements. Our current corporate
governance practices differ from Nasdaq corporate governance requirements for U.S. companies in
certain respects, as summarized below:
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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 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.
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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.
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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.
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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.
|
Other than the above, we have followed and intend to continue to follow the applicable Nasdaq
corporate governance standards.
57
PART III
Item 17 Financial statements
We have selected to provide the financial statements and related information specified in Item 18
in lieu of Item 17.
Item 18 Financial statements
See pages F-1 to F-51 following Item 19.
Item 19 Exhibits
(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.
|
58
Index to Consolidated Financial Statements
|
|
|
|
|
Audited Consolidated Financial Statements
|
|
Pages
|
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
City Telecom (H.K.) Limited
We have audited the accompanying consolidated balance sheets of City Telecom (H.K.) Limited and its
subsidiaries as of August 31, 2008 and 2009, and the related consolidated income statements, the
consolidated statements of changes in equity and the consolidated cash flow statements for the years
ended August 31, 2008 and 2009. These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of City Telecom (H.K.) Limited and its subsidiaries as of
August 31, 2008 and 2009, and the results of their operations and their cash flows for the years
ended August 31, 2008 and 2009, in conformity with the International Financial Reporting Standards
as issued by the International Accounting Standards Board.
/s/ KPMG
Hong Kong, China
November 5, 2009
F-1
City Telecom (H.K.) Limited and its subsidiaries
Consolidated income statements
(Expressed in Hong Kong dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31,
|
|
|
|
Note
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
HK$000
|
|
|
HK $000
|
|
Revenue
|
|
|
2
|
|
|
|
1,478,239
|
|
|
|
1,302,981
|
|
Network costs
|
|
|
3
|
|
|
|
(175,129
|
)
|
|
|
(178,367
|
)
|
Other operating expenses
|
|
|
4
|
(a)
|
|
|
(1,037,964
|
)
|
|
|
(966,094
|
)
|
Other revenues
|
|
|
4
|
(b)
|
|
|
41,540
|
|
|
|
24,989
|
|
Finance costs
|
|
|
4
|
(c)
|
|
|
(55,127
|
)
|
|
|
(75,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Profit before taxation
|
|
|
4
|
|
|
|
251,559
|
|
|
|
108,372
|
|
Income tax (expense)/ benefit
|
|
|
5
|
|
|
|
(38,730
|
)
|
|
|
16,818
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to shareholders
|
|
|
|
|
|
|
212,829
|
|
|
|
125,190
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
6
|
|
|
|
126,173
|
|
|
|
38,614
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
7
|
|
|
HK32.4 cents
|
|
|
HK19.7 cents
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
7
|
|
|
HK31.8 cents
|
|
|
HK19.0 cents
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are integral part of these consolidated financial statements.
F-2
City Telecom (H.K.) Limited and its subsidiaries
Consolidated balance sheets
(Expressed in Hong Kong dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at August 31,
|
|
|
|
Note
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
11
|
|
|
|
1,066
|
|
|
|
1,066
|
|
Fixed assets
|
|
|
12
|
|
|
|
1,302,380
|
|
|
|
1,231,399
|
|
Long term receivable and
prepayment
|
|
|
|
|
|
|
6,091
|
|
|
|
5,586
|
|
Deferred expenditure
|
|
|
15
|
|
|
|
12,786
|
|
|
|
15,391
|
|
Deferred tax assets
|
|
|
21
|
|
|
|
|
|
|
|
26,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,322,323
|
|
|
|
1,279,777
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
16
|
|
|
|
120,192
|
|
|
|
140,283
|
|
Other receivables, deposits
and prepayments
|
|
|
16
|
|
|
|
69,765
|
|
|
|
82,726
|
|
Deferred expenditure
|
|
|
15
|
|
|
|
36,674
|
|
|
|
40,704
|
|
Other financial assets
|
|
|
14
|
|
|
|
|
|
|
|
27,997
|
|
Pledged bank deposits
|
|
|
27
|
|
|
|
15,038
|
|
|
|
87,319
|
|
Cash at bank and in hand
|
|
|
17
|
|
|
|
221,052
|
|
|
|
421,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462,721
|
|
|
|
800,639
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
18
|
|
|
|
37,555
|
|
|
|
52,324
|
|
Other payables and accrued
charges
|
|
|
18
|
|
|
|
206,487
|
|
|
|
178,114
|
|
Deposits received
|
|
|
|
|
|
|
16,385
|
|
|
|
16,264
|
|
Deferred service revenue
|
|
|
19
|
|
|
|
115,070
|
|
|
|
110,449
|
|
Tax payable
|
|
|
|
|
|
|
1,993
|
|
|
|
2,103
|
|
Current portion obligations under
finance leases
|
|
|
22
|
|
|
|
202
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
377,692
|
|
|
|
359,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current assets
|
|
|
|
|
|
|
85,029
|
|
|
|
441,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets less current liabilities
|
|
|
|
|
|
|
1,407,352
|
|
|
|
1,721,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
21
|
|
|
|
15,709
|
|
|
|
4,937
|
|
Long-term debt and other liabilities
|
|
|
22
|
|
|
|
163,116
|
|
|
|
683,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,825
|
|
|
|
688,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
|
|
|
|
1,228,527
|
|
|
|
1,032,607
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
20
|
|
|
|
66,418
|
|
|
|
65,062
|
|
Reserves
|
|
|
20
|
|
|
|
1,162,109
|
|
|
|
967,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity attributable to
equity shareholders of the
Company
|
|
|
|
|
|
|
1,228,527
|
|
|
|
1,032,607
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are integral part of these consolidated financial statements.
F-3
City Telecom (H.K.) Limited and its subsidiaries
Consolidated statements of changes in equity
(Expressed in Hong Kong dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31,
|
|
|
|
Note
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Total equity as at beginning of the year
|
|
|
|
|
|
|
1,032,607
|
|
|
|
903,882
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit recognized directly in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange adjustments on translation of
the financial statements of subsidiaries
|
|
|
|
|
|
|
70
|
|
|
|
1,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit for the year
|
|
|
|
|
|
|
212,829
|
|
|
|
125,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized profit for the year
|
|
|
|
|
|
|
212,899
|
|
|
|
126,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared and paid in respect of the
current year
|
|
|
|
|
|
|
(19,904
|
)
|
|
|
(11,371
|
)
|
Dividends declared and paid in respect of the
previous year
|
|
|
|
|
|
|
(3,108
|
)
|
|
|
(5,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,012
|
)
|
|
|
(17,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Movements in equity arising from
capital transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase and cancellation of ordinary shares
|
|
|
|
|
|
|
(134
|
)
|
|
|
|
|
Equity settled share-based transactions
|
|
|
10
|
|
|
|
4,768
|
|
|
|
4,204
|
|
Shares issued upon exercise of options
|
|
|
|
|
|
|
1,399
|
|
|
|
14,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,033
|
|
|
|
19,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity as at the end of the year
|
|
|
|
|
|
|
1,228,527
|
|
|
|
1,032,607
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are integral part of these consolidated financial statements.
F-4
City Telecom (H.K.) Limited and its subsidiaries
Consolidated cash flow statements
(Expressed in Hong Kong dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31,
|
|
|
|
Note
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Net cash inflow from operations
|
|
|
23
|
(a)
|
|
|
537,618
|
|
|
|
382,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong profits tax recovered
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Overseas tax paid
|
|
|
|
|
|
|
(1,732
|
)
|
|
|
(4,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities
|
|
|
|
|
|
|
535,886
|
|
|
|
378,563
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in pledged bank deposits
|
|
|
|
|
|
|
72,281
|
|
|
|
|
|
Interest received
|
|
|
|
|
|
|
4,869
|
|
|
|
15,596
|
|
Purchases of fixed assets
|
|
|
|
|
|
|
(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
|
|
|
|
|
|
|
8,249
|
|
|
|
7,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow from investing activities
|
|
|
|
|
|
|
(176,488
|
)
|
|
|
(147,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow before financing
activities
|
|
|
|
|
|
|
359,398
|
|
|
|
230,813
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of ordinary shares
|
|
|
|
|
|
|
(134
|
)
|
|
|
|
|
Proceeds from issuance of new shares
|
|
|
23
|
(b)
|
|
|
1,399
|
|
|
|
14,998
|
|
Repayment of capital element of
finance leases
|
|
|
23
|
(b)
|
|
|
(138
|
)
|
|
|
(834
|
)
|
Interest element of finance leases
|
|
|
|
|
|
|
(27
|
)
|
|
|
(34
|
)
|
Interest paid on 10-year senior notes
|
|
|
|
|
|
|
(52,670
|
)
|
|
|
(70,010
|
)
|
Repurchase of 10-year senior notes
|
|
|
23
|
(b)
|
|
|
(485,829
|
)
|
|
|
(269,399
|
)
|
Dividends paid
|
|
|
|
|
|
|
(23,008
|
)
|
|
|
(17,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow from financing activities
|
|
|
|
|
|
|
(560,407
|
)
|
|
|
(342,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash at bank
and in hand
|
|
|
|
|
|
|
(201,009
|
)
|
|
|
(111,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank and in hand at
September 1
|
|
|
|
|
|
|
421,610
|
|
|
|
532,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes
|
|
|
|
|
|
|
451
|
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank and in hand at
August 31
|
|
|
|
|
|
|
221,052
|
|
|
|
421,610
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are integral part of these consolidated financial statements.
F-5
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.
|
|
|
|
In prior periods, the Company prepared its consolidated financial statements in accordance with
Hong Kong Financial Reporting Standards (HKFRSs), which collective term includes all applicable
individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKASs) and
Interpretations issued by the Hong Kong Institute of Certified Public Accountants (HKICPA) and
accounting principles generally accepted in Hong Kong. Although HKFRSs have been fully converged
with IFRSs in all material respects since January 1, 2005, the accompanying consolidated financial
statements are the first published financial statements in which the Company makes an explicit and
unreserved statement of compliance with IFRSs. Therefore, in preparing these financial statements
management has given due consideration to the requirements of IFRS 1, First-time Adoption of
International Financial Reporting Standards. The date of the Companys transition to IFRSs was
determined to be September 1, 2007, being the beginning of the earliest period for which the
Company presents full comparative information in these financial statements.
|
|
|
|
With due regard to the Companys accounting policies in previous periods and the requirements of
IFRS 1, management has concluded that no adjustments to the amounts reported under HKFRSs as at
the date of transition to IFRSs, or in respect of the year ended August 31, 2008, were required in
order to enable the Company to make an explicit and unreserved statement of compliance with IFRSs
in the first IFRS financial statements which included these amounts as comparatives.
|
|
|
|
The IASB has issued a number of new or revised IFRSs that are first effective or available for
early adoption for the current accounting period of the Company. However, none of these
developments are relevant to the Companys operations.
|
|
|
|
The Group has not applied any new standard or interpretation that is not yet effective for the
current accounting period (see note 31).
|
|
|
|
The consolidated financial statements were authorized for issue by the Board of Directors on
November 5, 2009.
|
|
(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(k) 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 30.
|
|
(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.
|
F-6
1
|
|
Significant accounting policies (continued)
|
|
(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 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 Companys functional currency. All financial information have been rounded to the nearest
thousand.
|
|
(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 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(t)(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.
|
F-7
1
|
|
Significant accounting policies (continued)
|
|
(g)
|
|
Fixed assets (continued)
|
|
|
|
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.
|
|
(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 receivable and other
receivables
|
|
|
|
Investments in debt and equity securities that
are stated at cost or amortized cost or are classified as
available-for-sale securities, and other current and non-current receivables that
are stated at cost or amortized cost 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.
|
|
|
If any such evidence exists, any impairment loss is determined and recognized as follows:
|
|
-
|
|
For unquoted equity securities and current and non-current receivables that are carried at
cost, the impairment loss is measured as the difference between the carrying amount of the
financial asset and the estimated future cash flows, discounted at the current market rate of
return for a similar financial asset where the effect of discounting is material. Impairment
losses for current and non-current receivables that are carried at cost are reversed if in a
subsequent period the amount of the impairment loss decreases. Impairment losses for equity
securities are not reversed.
|
|
|
-
|
|
For 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.
|
F-8
1
|
|
Significant accounting policies (continued)
|
|
(i)
|
|
Impairment of assets (continued)
|
|
(i)
|
|
Impairment of investments in debt and equity securities and accounts receivable and other
receivables (continued)
|
|
|
|
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.
|
|
|
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.
|
F-9
1
|
|
Significant accounting policies (continued)
|
|
(j)
|
|
Other financial assets
|
|
|
|
The Group accounts for investments in debt and equity securities are as follows:
|
|
|
|
Financial assets held for trading and those designated as at fair value through profit or loss at
inception are accounted for at fair value. Such financial assets are initially stated at fair
value and are classified as current assets, if they are expected to be realized within 12 months.
At each balance sheet date the fair value of the financial assets is remeasured, with any
resultant gain or loss being recognized in profit or loss. The net gain or loss recognized in
profit or loss does not include any interest earned on these investments. Interest income is
recognized in accordance with the policies set out in note 1(t)(iv).
|
|
|
|
Held-to-maturity securities are dated debt securities that the Group has the positive ability and
intent to hold to maturity. Such securities are initially recognized in the balance sheet at fair
value plus transaction costs. Subsequently, they are stated in the balance sheet at amortized
cost less impairment losses (see note 1(i)(i)).
|
|
|
|
Financial assets that are not classified as held for trading, financial assets at fair value
through profit or loss or, held-to-maturity securities, are classified as available-for-sale
securities. Available-for-sale securities are initially recognized at fair value plus transaction
costs. At each balance sheet date the fair value of the assets is remeasured, with any resultant
gain or loss recognized directly in equity, except for impairment losses (see note 1(i)(i)) and
foreign exchange gains and losses, which are recognized directly in profit or loss. Where these
investments are interest-bearing, interest calculated using the effective interest method is
recognized in profit or loss. When these investments are derecognized, the cumulative gain or
loss previously recognized directly in equity is recognized in profit or loss.
|
|
|
|
Investments are recognized on the date the Group commits to purchase the investments. Investments
are derecognized when:
|
|
(i)
|
|
the contractual rights to the cash flows from the investment securities expire; or
|
|
|
(ii)
|
|
the Group transfers the contractual rights to receive the cash flows of the investment
securities.
|
(k)
|
|
Derivative financial instruments
|
|
|
|
Derivative financial instruments that are not designated or do not qualify as hedges are
recognized initially at fair value. At each balance sheet date the fair value of the derivative
financial instruments is remeasured. The gain or loss on remeasurement to fair value is charged
immediately to profit or loss.
|
|
(l)
|
|
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.
|
|
(m)
|
|
Accounts receivable
|
|
|
|
Accounts receivable 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)).
|
|
(n)
|
|
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).
|
|
(o)
|
|
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.
|
F-10
1
|
|
Significant accounting policies (continued)
|
|
(o)
|
|
Financial guarantees issued, provisions and contingent liabilities (continued)
|
|
(i)
|
|
Financial guarantees issued (continued)
|
|
|
|
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(o)(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.
|
|
(p)
|
|
Employee benefits
|
|
(i)
|
|
Employee leave entitlements
|
|
|
|
Employee entitlements to annual leave and long service leave are recognized when they accrue to
employees. A provision is made for the estimated liability for annual leave and long-service
leave as a result of services rendered by employees up to the balance sheet date.
|
|
|
|
Employee 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 employees 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
employees. Contributions to the schemes by the Group are calculated as a percentage of employees
basic salaries and charged to profit or loss. The Groups contributions are reduced by
contributions forfeited by those employees 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 employees is recognized as an employee 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 employees 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 employee 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.
|
F-11
1
|
|
Significant accounting policies (continued)
|
|
(q)
|
|
Deferred taxation
|
|
|
|
Deferred taxation is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the
financial statements. 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 profit
will be available against which the temporary differences can be utilized.
|
|
|
|
Deferred taxation is provided on temporary differences arising on investments in subsidiaries
except where the timing of the reversal of the temporary difference can be controlled and it is
probable that the temporary difference will not be reversed in the foreseeable future.
|
|
(r)
|
|
Senior notes
|
|
|
|
Long-term debt, representing senior notes, is recognized initially at fair value less incidental
costs of issuance. Subsequent to initial recognition, the senior notes 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.
|
|
(s)
|
|
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(o), 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.
|
|
(t)
|
|
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(t)(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.
|
|
(u)
|
|
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.
|
|
(v)
|
|
Segment reporting
|
|
|
|
In accordance with the Groups internal financial reporting, the Group has determined that the
primary reporting format is business segment and secondary reporting format is geographical
segment.
|
|
|
|
Segment assets consist primarily of goodwill, fixed assets, receivables and cash. Segment
liabilities comprise operating liabilities and exclude items such as taxation and certain
corporate borrowings. Capital expenditure comprises additions to fixed assets.
|
|
|
|
In respect of geographical segment reporting, sales are reported based on the country in which the
customer is located. Total assets and capital expenditure are reported based on where the assets
are located.
|
F-12
1
|
|
Significant accounting policies (continued)
|
|
(w)
|
|
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.
|
|
(x)
|
|
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 employees 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.
|
|
2
|
|
Revenue 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:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International telecommunications services
|
|
|
247,359
|
|
|
|
291,943
|
|
Fixed telecommunications network
services (note 2(c))
|
|
|
1,230,880
|
|
|
|
1,011,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
F-13
2
|
|
Revenue and segment information (continued)
|
|
(a)
|
|
Primary reporting format business segments (continued)
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
International
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
tele-
|
|
|
tele-
|
|
|
|
|
|
|
|
|
|
communications
|
|
|
communications
|
|
|
|
|
|
|
|
|
|
services
|
|
|
network services
|
|
|
Elimination
|
|
|
Group
|
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 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 revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 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 revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,989
|
|
Finance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before taxation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,372
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
2
|
|
Revenue and segment information (continued)
|
|
(a)
|
|
Primary reporting format business segments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
International
|
|
|
Fixed
|
|
|
|
|
|
|
tele-
|
|
|
tele-
|
|
|
|
|
|
|
communications
|
|
|
communications
|
|
|
|
|
|
|
services
|
|
|
network services
|
|
|
Group
|
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
Segment assets
|
|
|
297,516
|
|
|
|
1,487,528
|
|
|
|
1,785,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities
|
|
|
81,194
|
|
|
|
295,035
|
|
|
|
376,229
|
|
Unallocated liabilities
|
|
|
|
|
|
|
|
|
|
|
180,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
|
|
|
|
556,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure incurred during the year
|
|
|
1,820
|
|
|
|
284,914
|
|
|
|
286,734
|
|
Depreciation for the year
|
|
|
15,154
|
|
|
|
191,087
|
|
|
|
206,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
International
|
|
|
Fixed
|
|
|
|
|
|
|
tele-
|
|
|
tele-
|
|
|
|
|
|
|
communications
|
|
|
communications
|
|
|
|
|
|
|
services
|
|
|
network services
|
|
|
Group
|
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
Segment assets
|
|
|
426,781
|
|
|
|
1,627,300
|
|
|
|
2,054,081
|
|
Unallocated assets
|
|
|
|
|
|
|
|
|
|
|
26,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
2,080,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities
|
|
|
80,756
|
|
|
|
276,771
|
|
|
|
357,527
|
|
Unallocated liabilities
|
|
|
|
|
|
|
|
|
|
|
690,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
|
|
|
|
1,047,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure incurred during the year
|
|
|
4,293
|
|
|
|
207,391
|
|
|
|
211,684
|
|
Depreciation for the year
|
|
|
19,587
|
|
|
|
190,464
|
|
|
|
210,051
|
|
F-15
2
|
|
Revenue 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, revenue and segment results are
disclosed based on the geographical location of customers. Total assets and capital expenditure
are disclosed based on the geographical location of the assets.
|
|
|
There were no sales between the geographical segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
Segment
|
|
|
Total
|
|
|
Capital
|
|
|
|
Revenue
|
|
|
results
|
|
|
assets
|
|
|
expenditure
|
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
Hong Kong
|
|
|
1,461,715
|
|
|
|
264,859
|
|
|
|
1,768,643
|
|
|
|
286,193
|
|
Canada
|
|
|
16,524
|
|
|
|
287
|
|
|
|
16,401
|
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,478,239
|
|
|
|
265,146
|
|
|
|
1,785,044
|
|
|
|
286,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Segment
|
|
|
Total
|
|
|
Capital
|
|
|
|
Revenue
|
|
|
results
|
|
|
assets
|
|
|
expenditure
|
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
Hong Kong
|
|
|
1,281,069
|
|
|
|
157,485
|
|
|
|
2,040,496
|
|
|
|
211,482
|
|
Canada
|
|
|
21,912
|
|
|
|
1,035
|
|
|
|
13,585
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,302,981
|
|
|
|
158,520
|
|
|
|
2,054,081
|
|
|
|
211,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated assets
|
|
|
|
|
|
|
|
|
|
|
26,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
2,080,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
2
|
|
Revenue and segment information (continued)
|
|
(c)
|
|
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 those
operators.
|
|
|
|
In September 2008, TA indicated that it 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). As at August 31, 2009, the 2008 Determination was still in progress.
|
|
|
|
For the year ended August 31, 2009, the Group recognized revenue related to mobile interconnection
charges of HK$20,558,000 (2008: HK$29,568,000) representing the amount of mobile interconnection
charges management expects to collect.
|
|
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 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 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.
|
|
|
|
The actual contribution level for the period subsequent to June 30, 2008 has not yet been confirmed
by TA.
|
F-17
4
|
|
Profit before taxation
|
|
|
|
Profit before taxation is arrived at after charging/(crediting) the following:
|
|
(a)
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Advertising and marketing expenses
|
|
|
299,794
|
|
|
|
307,743
|
|
Amortization of deferred expenditure (note 15)
|
|
|
53,160
|
|
|
|
33,777
|
|
Auditors remuneration
|
|
|
3,455
|
|
|
|
3,687
|
|
Depreciation of owned fixed assets
|
|
|
205,624
|
|
|
|
209,464
|
|
Depreciation of fixed assets held under finance
lease
|
|
|
617
|
|
|
|
587
|
|
Operating lease charges in respect of land and
buildings
|
|
|
17,010
|
|
|
|
13,296
|
|
Operating lease charges in respect of equipment
|
|
|
42
|
|
|
|
50
|
|
Provision for doubtful debts (note 16(b))
|
|
|
12,103
|
|
|
|
14,293
|
|
Loss on disposal of fixed assets
|
|
|
1,016
|
|
|
|
1,431
|
|
Staff costs (note 4(d))
|
|
|
302,279
|
|
|
|
247,460
|
|
Others
|
|
|
142,864
|
|
|
|
134,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,037,964
|
|
|
|
966,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Interest income
|
|
|
(4,869
|
)
|
|
|
(15,596
|
)
|
Other income (note)
|
|
|
(36,671
|
)
|
|
|
(9,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,540
|
)
|
|
|
(24,989
|
)
|
|
|
|
|
|
|
|
|
|
|
Note:
|
|
Included in other income was the gain on extinguishment of the 10-year senior
notes of HK$31,371,000 (2008: HK$2,582,000) for the year ended August 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Interest element of finance leases
|
|
|
27
|
|
|
|
34
|
|
Interest on 10-year senior notes
|
|
|
52,670
|
|
|
|
70,010
|
|
Amortization of incidental issuance costs
|
|
|
1,545
|
|
|
|
1,665
|
|
Other borrowing cost
|
|
|
885
|
|
|
|
3,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,127
|
|
|
|
75,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Wages and salaries
|
|
|
278,905
|
|
|
|
226,097
|
|
Provision for annual leave
|
|
|
613
|
|
|
|
2,642
|
|
Equity settled share-based transaction
|
|
|
4,768
|
|
|
|
4,114
|
|
Retirement benefit costs defined contribution
plans (note 8)
|
|
|
34,614
|
|
|
|
29,738
|
|
Less: staff costs capitalized as fixed assets
|
|
|
(16,621
|
)
|
|
|
(15,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302,279
|
|
|
|
247,460
|
|
|
|
|
|
|
|
|
|
|
|
Staff costs include directors emoluments and research and development cost of HK$10,824,000
(2008: HK$9,593,000) but exclude staff costs of HK$13,461,000 (2008: HK$14,482,000) recorded
in network costs and HK$214,272,000 (2008: HK$194,724,000) recorded in advertising and
marketing expenses.
|
F-18
4
|
|
Profit before taxation (continued)
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Gain on extinguishment of 10-year
senior notes (note 22(a))
|
|
|
(31,371
|
)
|
|
|
(2,582
|
)
|
Net exchange gain
|
|
|
(3,038
|
)
|
|
|
(1,923
|
)
|
Realized and unrealized gain on other
financial assets
|
|
|
(189
|
)
|
|
|
(3,284
|
)
|
Realized loss on derivative financial instruments
|
|
|
|
|
|
|
1,039
|
|
Realized gain on long-term bank deposit
|
|
|
|
|
|
|
(1,185
|
)
|
|
|
|
|
|
|
|
5
|
|
Income tax (expense)/ benefit
|
|
|
|
Hong Kong profits tax has been provided at the rate of 16.5% (2008: 16.5%) on the estimated
assessable profit for the year. Taxation on overseas profits has been calculated on the estimated
assessable profit for the year at the income tax rates prevailing in the overseas countries in
which the Group operates.
|
|
|
|
The amount of income tax (expense)/ benefit in the consolidated income statement represents:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Current taxation:
|
|
|
|
|
|
|
|
|
- Hong Kong profits tax
|
|
|
|
|
|
|
(391
|
)
|
- Overseas taxation
|
|
|
(1,622
|
)
|
|
|
(1,929
|
)
|
- Under-provision of overseas taxation in prior years
|
|
|
|
|
|
|
(2,552
|
)
|
Deferred taxation:
|
|
|
|
|
|
|
|
|
- Origination and reversal of temporary differences (note 21)
|
|
|
(37,108
|
)
|
|
|
(4,645
|
)
|
- Recognition of previously unrecognized tax losses (note 21)
|
|
|
|
|
|
|
26,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense)/ benefit
|
|
|
(38,730
|
)
|
|
|
16,818
|
|
|
|
|
|
|
|
|
|
|
The Groups income tax (expense)/ benefit differs from the theoretical amount that would arise
using profits before taxation at applicable tax rates as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Profit before taxation
|
|
|
251,559
|
|
|
|
108,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional tax on profit before taxation, calculated
at the prevailing tax rates applicable to profit
in the countries concerned
|
|
|
(42,240
|
)
|
|
|
(18,927
|
)
|
Effect of gain on extinguishment of 10-year
senior notes not subject to taxation
|
|
|
5,176
|
|
|
|
426
|
|
Effect of non-taxable income
|
|
|
1,466
|
|
|
|
3,452
|
|
Effect of non-deductible expenses
|
|
|
(3,648
|
)
|
|
|
(6,353
|
)
|
Effect of recognition of prior year unrecognized
tax losses (note)
|
|
|
|
|
|
|
26,335
|
|
Effect of utilization of prior year unrecognized
tax losses
|
|
|
518
|
|
|
|
12,013
|
|
Under-provision in prior years
|
|
|
|
|
|
|
(2,552
|
)
|
Effect of share based payment
|
|
|
|
|
|
|
2,324
|
|
Effect of tax losses not recognized
|
|
|
|
|
|
|
(74
|
)
|
Others
|
|
|
(2
|
)
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense)/ benefit
|
|
|
(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-19
6
|
|
Dividends
|
|
(a)
|
|
Dividends payable to equity shareholders of the Company attributable to the year
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Interim dividend declared and paid of HK3 cents per
ordinary share (2008: HK4 cents per ordinary share)
|
|
|
19,904
|
|
|
|
25,602
|
|
Final dividend proposed after the balance sheet date,
of 16 cents per ordinary share (2008: HK2 cents
per ordinary share)
|
|
|
106,269
|
|
|
|
13,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,173
|
|
|
|
38,614
|
|
|
|
|
|
|
|
|
|
|
The final dividend proposed after the balance sheet date has not been recognized as a liability at
the balance sheet date.
|
|
(b)
|
|
Dividends attributable to the previous financial year, approved and paid during the year:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Final dividend in respect of the financial year ended August 31, 2008,
approved and paid of HK2 cents per ordinary share (2008: HK4 cents
per ordinary share in respect of financial year ended August 31, 2007)
|
|
|
13,014
|
|
|
|
25,082
|
|
|
|
|
|
|
|
|
|
|
During the year ended August 31, 2009, 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 August 31, 2008. 12,212,142 shares were issued
during the year ended August 31, 2009 to the shareholders who
had elected to receive all or part
of their entitlement to dividends in the form of scrip.
|
|
7
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Profit attributable to shareholders
|
|
|
212,829
|
|
|
|
125,190
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Number
|
|
|
Number
|
|
|
|
of shares
|
|
|
of shares
|
|
|
|
000
|
|
|
000
|
|
Issued ordinary shares at the beginning of the year
|
|
|
650,622
|
|
|
|
616,503
|
|
Effect of scrip dividend issued
|
|
|
6,256
|
|
|
|
7,353
|
|
Effect of share options exercised
|
|
|
329
|
|
|
|
10,159
|
|
Effect of shares repurchased and cancelled
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares
at the end of the year (basic)
|
|
|
657,201
|
|
|
|
634,015
|
|
Incremental shares from assumed exercise
of share options
|
|
|
11,183
|
|
|
|
23,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares
at the end of the year (diluted)
|
|
|
668,384
|
|
|
|
657,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
HK32.4
|
cents
|
|
HK19.7
|
cents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
HK31.8
|
cents
|
|
HK19.0
|
cents
|
|
|
|
|
|
|
|
F-20
8
|
|
Retirement benefit costs
|
|
|
|
The Group contributes to an Occupational Retirement Scheme (the ORSO Scheme), a defined
contribution retirement scheme, which is available to some of its employees in Hong Kong. Under
the ORSO Scheme, the employees are required to contribute 5% of their monthly salaries, while the
Groups contributions are calculated at 10% and 5% of the monthly salaries of senior management
staff and all other staff respectively. The employees are entitled to 100% of the employers
contributions after 10 years of completed service, or at a reduced scale after completion of 3 to
9 years service. Contributions to the ORSO Scheme are reduced by contributions forfeited by
those employees who leave the ORSO Scheme prior to vesting fully in the Groups contributions.
|
|
|
|
A mandatory provident fund scheme (the MPF Scheme) has been established under the Hong Kong
Mandatory Provident Fund Scheme Ordinance in December 2000. The then existing employees of the
Group in Hong Kong could elect to join the MPF Scheme, while all new employees joining the Group
in Hong Kong from then onwards are required to join the MPF Scheme. Both the Group and the
employees are required to contribute 5% of each individuals relevant income with a maximum amount
of HK$1,000 per month as a mandatory contribution. Employers mandatory contributions are 100%
vested in the employees as soon as they are paid to the MPF Scheme. Senior employees may also
elect to join a Mutual Voluntary Plan (the Mutual Plan) in which both the Group and the
employee, on top of the MPF Scheme mandatory contributions, make a voluntary contribution to the
extent of contributions that would have been made under the ORSO Scheme.
|
|
|
|
Pursuant to the relevant regulations in Peoples Republic of China (the PRC), the Group
contributes to a defined contribution retirement scheme organized by the local social security
bureau for each employee of the subsidiary in PRC at the rate of 20% of a standard salary base as
determined by the local social security bureau. The Group has no other obligation to make
payments in respect of retirement benefits of these employees.
|
|
|
|
The retirement schemes for staff of the Group in other countries follow the local statutory
requirements of the respective countries.
|
|
|
|
The aggregate employers contributions, net of forfeited contributions, which have been dealt with
in the consolidated income statement during the year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Gross contributions
|
|
|
34,614
|
|
|
|
29,738
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2009, there was no forfeited contribution available to offset future contributions
by the Group to the ORSO Scheme (2008: Nil).
|
|
9
|
|
Directors and senior managements emoluments
|
|
(a)
|
|
Directors remuneration
|
|
|
|
The remuneration of each director for the year ended August 31, 2009 is set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to defined
|
|
|
|
|
|
|
|
|
|
|
Discretionary
|
|
|
Share-based
|
|
|
contribution
|
|
|
|
|
Name of director
|
|
Fee
|
|
|
Salary
|
|
|
bonuses
|
|
|
payment
|
|
|
scheme
|
|
|
Total
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
9
|
|
Directors and senior managements emoluments (continued)
|
|
(a)
|
|
Directors remuneration (continued)
|
|
|
|
The remuneration of each director for the year ended August 31, 2008 is set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to defined
|
|
|
|
|
|
|
|
|
|
|
Discretionary
|
|
|
Share-based
|
|
|
contribution
|
|
|
|
|
Name of director
|
|
Fee
|
|
|
Salary
|
|
|
bonuses
|
|
|
payment
|
|
|
scheme
|
|
|
Total
|
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
Wong Wai Kay, Ricky
|
|
|
|
|
|
|
6,482
|
|
|
|
1,054
|
|
|
|
558
|
|
|
|
648
|
|
|
|
8,742
|
|
Cheung Chi Kin, Paul
|
|
|
|
|
|
|
6,482
|
|
|
|
1,054
|
|
|
|
558
|
|
|
|
648
|
|
|
|
8,742
|
|
Lai Ni Quiaque
|
|
|
|
|
|
|
2,250
|
|
|
|
225
|
|
|
|
809
|
|
|
|
225
|
|
|
|
3,509
|
|
Cheng Mo Chi, Moses
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
Lee Hon Ying, John
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
Chan Kin Man
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
Peh Jefferson Tun Lu
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
636
|
|
|
|
15,214
|
|
|
|
2,333
|
|
|
|
1,925
|
|
|
|
1,521
|
|
|
|
21,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No director waived any emoluments in respect of the years ended August 31, 2008 and 2009.
|
|
|
|
The share-based payment represents the expenses determined based on the fair value of share
options granted to certain directors under the Companys share option scheme. Fair value of share
options is estimated in accordance with the Groups significant accounting policies in note 1. The
details of the benefits in kind are disclosed in note 10.
|
|
(b)
|
|
Five highest paid individuals
|
|
|
|
The five individuals whose emoluments were the highest in the Group for the year include four
(2008: three) directors whose emoluments are reflected in the analysis presented above. The
emoluments payable to the remaining one (2008: two) individual during the year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Basic salaries, other allowances and
benefits in kind
|
|
|
2,515
|
|
|
|
8,512
|
|
Discretionary bonuses
|
|
|
150
|
|
|
|
1,137
|
|
Share-based payments
|
|
|
332
|
|
|
|
1,316
|
|
Retirement benefit costs defined
contribution plans
|
|
|
106
|
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,103
|
|
|
|
11,554
|
|
|
|
|
|
|
|
|
|
|
The emoluments fell within the following band:
|
|
|
|
|
|
|
|
|
|
|
|
Number of individual
|
|
|
|
2009
|
|
|
2008
|
|
HK$2,500,001 HK$3,000,000
|
|
|
|
|
|
|
1
|
|
HK$3,000,001 HK$4,000,000
|
|
|
1
|
|
|
|
|
|
HK$9,000,001 HK$10,000,000
|
|
|
|
|
|
|
1
|
|
F-22
10
|
|
Equity settled share-based transactions
|
|
|
|
The Company operates a share option scheme (the 2002 Share Option Scheme) which was adopted by
shareholders of the Company on December 23, 2002 whereby the directors may, at their discretion,
invite eligible participants to receive options to subscribe for shares subject to the terms and
conditions stipulated therein.
|
|
|
|
Under the 2002 Share Option Scheme, the Company may grant options to employees (including
executive, non-executive and independent non-executive directors), suppliers and professional
advisers to subscribe for shares of the Company. The maximum number of options authorized under
the 2002 Share Option Scheme may not, when aggregated with any shares subject to any other
executive and employee share option scheme, exceed 10% of the Companys issued share capital on
the date of adoption. The exercise price of the option is determined by the Companys board of
directors at a price not less than the highest of (a) the par value of a share; (b) the average
closing price of the Companys shares for five trading days preceding the grant date; and (c) the
closing price of the Companys shares on the date of grant. The 2002 Share Option Scheme is valid
and effective for a ten year period up to December 22, 2012 subject to earlier termination by the
Company by resolution in general meeting or by the board of directors. The period during which the
option may be exercised will be determined by the board of directors at its discretion, save that
no option may be exercised after more than ten years from the date of grant.
|
|
(a)
|
|
The terms and conditions of the options
|
|
|
|
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 employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-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 3
|
|
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 3
|
|
On or prior to December 23, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share options
|
|
|
60,866,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
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, 2008 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-June 3, 2004
|
|
|
6,000,000
|
|
|
Condition 1
|
|
On or prior to June 2, 2014
|
-January 5, 2005
|
|
|
16,106,956
|
|
|
Condition 1
|
|
On or prior to October 20, 2014
|
-May 22, 2006
|
|
|
15,093,585
|
|
|
Condition 1
|
|
On or prior to May 21, 2016
|
-February 11, 2008
|
|
|
6,016,309
|
|
|
Condition 2
|
|
On or prior to December 23, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted to employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-October 21, 2004
|
|
|
8,393,399
|
|
|
Condition 1
|
|
On or prior to October 20, 2014
|
-October 3, 2005
|
|
|
1,000,000
|
|
|
Condition 1
|
|
On or prior to September 30, 2015
|
-May 22, 2006
|
|
|
14,012,937
|
|
|
Condition 1
|
|
On or prior to May 21, 2016
|
-July 3, 2006
|
|
|
702,769
|
|
|
Condition 1
|
|
On or prior to July 2, 2016
|
-August 3, 2006
|
|
|
70,468
|
|
|
Condition 1
|
|
On or prior to August 2, 2016
|
-November 22, 2006
|
|
|
200,902
|
|
|
Condition 1
|
|
On or prior to November 14, 2016
|
-May 23, 2007
|
|
|
100,396
|
|
|
Condition 1
|
|
On or prior to June 11, 2017
|
-December 12, 2007
|
|
|
1,003,956
|
|
|
Condition 1
|
|
On or prior to December 23, 2012
|
-February 6, 2008
|
|
|
6,016,309
|
|
|
Condition 3
|
|
On or prior to December 23, 2012
|
-February 15, 2008
|
|
|
4,010,873
|
|
|
Condition 3
|
|
On or prior to December 23, 2012
|
-March 11, 2008
|
|
|
300,816
|
|
|
Condition 1
|
|
On or prior to December 23, 2012
|
-May 2, 2008
|
|
|
1,002,718
|
|
|
Condition 3
|
|
On or prior to December 23, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share options
|
|
|
80,032,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 market price
of the Companys shares reaching a target level over the
period from the close of trading in Hong Kong on November 22, 2007 to November 21, 2010. Options
granted are vested immediately or evenly over a period of three years from the date of fulfillment
of the market condition.
|
|
|
|
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 the performance
condition.
|
F-24
10
|
|
Equity settled share-based transactions (continued)
|
|
(b)
|
|
The number and weighted average exercise prices of share options are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
exercise
|
|
|
Number of
|
|
|
exercise
|
|
|
Number of
|
|
|
|
price
|
|
|
options
|
|
|
price
|
|
|
options
|
|
|
|
HK$
|
|
|
|
|
|
|
HK$
|
|
|
|
|
|
2002 Share Option Scheme
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the beginning
of the year
|
|
|
1.27
|
|
|
|
60,581,214
|
|
|
|
1.09
|
|
|
|
61,350,000
|
|
Adjustment to number of options
for 2007 Final Dividend (note (i))
|
|
|
|
|
|
|
|
|
|
|
1.10
|
|
|
|
204,922
|
|
Adjustment to number of options
for 2008 Interim Dividend (note (ii))
|
|
|
|
|
|
|
|
|
|
|
1.28
|
|
|
|
177,471
|
|
Adjustment to number of options
for 2008 Final Dividend (note (iii))
|
|
|
1.27
|
|
|
|
285,464
|
|
|
|
|
|
|
|
|
|
Granted during the year
|
|
|
|
|
|
|
|
|
|
|
1.84
|
|
|
|
18,300,000
|
|
Exercised during the year
|
|
|
0.99
|
|
|
|
(1,416,005
|
)
|
|
|
1.07
|
|
|
|
(14,052,268
|
)
|
Lapsed during the year
|
|
|
1.65
|
|
|
|
(483,442
|
)
|
|
|
1.63
|
|
|
|
(5,398,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
1.27
|
|
|
|
58,967,231
|
|
|
|
1.27
|
|
|
|
60,581,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
|
|
|
1.12
|
|
|
|
45,849,756
|
|
|
|
1.22
|
|
|
|
36,463,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average share price at the date of exercise for the share options exercised during the
year was HK$0.99 (2008: HK$1.07).
|
|
|
|
The options outstanding at August 31, 2009 had a weighted exercise price of HK$1.27 (2008: HK$1.27)
and a weighted average remaining contractual life of 5 years (2008: 7 years).
|
Notes:
|
|
|
(i)
|
|
As a result of allotment of 11,227,213 new shares to shareholders who elected to receive the
2007 Final Dividend in shares on February 4, 2008, the exercise price of and the number of
share subject to the 51,805,000 share options outstanding on December 21, 2007 (being the
Record Date for determining the entitlement of 2007 Final Dividend) were adjusted pursuant to
the 2002 Share Option Scheme with effect from February 4, 2008.
|
|
(ii)
|
|
As a result of allotment of 8,838,938 new shares to shareholders who elected to receive the
2008 Interim Dividend in shares on July 23, 2008, the exercise price of and the number of
share subject to the 65,296,047 share options outstanding on June 6, 2008 (being the Record
Date for determining the entitlement of 2008 Interim Dividend) were adjusted pursuant to the
2002 Share Option Scheme with effect from July 23, 2008.
|
|
(iii)
|
|
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.
|
(c)
|
|
Fair value of share options and assumptions
|
|
|
|
In determining the value of the share options granted, the Black-Scholes Model has been used except
for the option granted on February 11, 2008 which has adopted the Monte Carlo Model. Both models
are one of the most generally accepted methodologies used to calculate the value of options. The
variables of the models include expected life of the options, risk-free interest rate, expected
volatility and expected dividend of the shares of the Company.
|
|
|
|
Both models require input of highly subjective assumptions, including the expected stock
volatility. Since 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-25
|
|
|
|
|
|
|
HK$000
|
|
Cost and carrying amount:
|
|
|
|
|
At August 31, 2009/2008
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Fixed telecommunications network service segment
|
|
|
1,066
|
|
|
|
1,066
|
|
|
|
|
|
|
|
|
|
|
The recoverable amount of the CGU exceeds its carrying amount. 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
18%. 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 telecommunication services segment.
|
|
|
|
Any adverse change in the key assumption could reduce the recoverable amount below carrying
amount.
|
F-26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 1, 2007
|
|
|
5,197
|
|
|
|
79,598
|
|
|
|
80,638
|
|
|
|
17,419
|
|
|
|
2,475,775
|
|
|
|
6,818
|
|
|
|
2,665,445
|
|
Additions
|
|
|
|
|
|
|
4,646
|
|
|
|
2,469
|
|
|
|
2,189
|
|
|
|
196,230
|
|
|
|
6,150
|
|
|
|
211,684
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(478
|
)
|
|
|
(30,564
|
)
|
|
|
(344
|
)
|
|
|
(31,386
|
)
|
Exchange adjustments
|
|
|
|
|
|
|
|
|
|
|
1,470
|
|
|
|
445
|
|
|
|
2,840
|
|
|
|
|
|
|
|
4,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2008
|
|
|
5,197
|
|
|
|
84,244
|
|
|
|
84,577
|
|
|
|
19,575
|
|
|
|
2,644,281
|
|
|
|
12,624
|
|
|
|
2,850,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 1, 2007
|
|
|
2,101
|
|
|
|
9,123
|
|
|
|
50,309
|
|
|
|
13,952
|
|
|
|
1,346,854
|
|
|
|
5,883
|
|
|
|
1,428,222
|
|
Charge for the year
|
|
|
104
|
|
|
|
1,604
|
|
|
|
9,626
|
|
|
|
1,617
|
|
|
|
196,198
|
|
|
|
902
|
|
|
|
210,051
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(286
|
)
|
|
|
(22,390
|
)
|
|
|
(222
|
)
|
|
|
(22,898
|
)
|
Exchange adjustments
|
|
|
|
|
|
|
|
|
|
|
1,334
|
|
|
|
313
|
|
|
|
2,077
|
|
|
|
|
|
|
|
3,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2008
|
|
|
2,205
|
|
|
|
10,727
|
|
|
|
61,269
|
|
|
|
15,596
|
|
|
|
1,522,739
|
|
|
|
6,563
|
|
|
|
1,619,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2008
|
|
|
2,992
|
|
|
|
73,517
|
|
|
|
23,308
|
|
|
|
3,979
|
|
|
|
1,121,542
|
|
|
|
6,061
|
|
|
|
1,231,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
12
|
|
Fixed assets (continued)
|
|
(a)
|
|
The Groups total future aggregate lease income receivable under non-cancellable operating
lease are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
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
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
516
|
|
|
|
|
|
|
|
|
Leases in respect of telecommunications facilities and
computer equipment which are receivable:
|
|
|
|
|
|
|
|
|
- Within 1 year
|
|
|
1,566
|
|
|
|
979
|
|
- After 1 year but within 5 years
|
|
|
1,071
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,637
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,895
|
|
|
|
1,787
|
|
|
|
|
|
|
|
|
(b)
|
|
At August 31, 2009, the fair value of the investment property approximates its carrying
value. 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:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Leases of between 10 to 50 years
|
|
|
81,333
|
|
|
|
76,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Leasehold land and building carried
at cost
|
|
|
78,445
|
|
|
|
73,517
|
|
Investment property carried at cost
less impairment loss
|
|
|
2,888
|
|
|
|
2,992
|
|
|
|
|
|
|
|
|
|
|
|
81,333
|
|
|
|
76,509
|
|
|
|
|
|
|
|
|
(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 six 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, 2009, the net book value of telecommunications, computer and office equipment under
finance lease held by the Group amounted to HK$1,289,000 (2008: HK$1,411,000).
|
F-28
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, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-29
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, 2009: (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
|
|
|
|
|
|
|
|
|
|
|
|
|
IDD 1600 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.
|
F-30
14
|
|
Other financial assets
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Debt securities, at fair value
and unlisted outside
Hong Kong
|
|
|
|
|
|
|
27,997
|
|
|
|
|
|
|
|
|
|
|
Note:
|
|
|
|
The balance as at August 31, 2008 was an investment in debt security with principal
amount of US$3,000,000. During the year ended August 31, 2009, the debt security matured.
|
|
15
|
|
Deferred expenditure
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Balance as at the beginning of the year
|
|
|
56,095
|
|
|
|
21,367
|
|
Additions during the year
|
|
|
46,525
|
|
|
|
68,505
|
|
Less: amortization charge for the year (note 4(a))
|
|
|
(53,160
|
)
|
|
|
(33,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,460
|
|
|
|
56,095
|
|
Current portion
|
|
|
(36,674
|
)
|
|
|
(40,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at the end of the year
|
|
|
12,786
|
|
|
|
15,391
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
16
|
|
Accounts receivable, other receivables, deposits and prepayments
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Accounts receivable
|
|
|
123,352
|
|
|
|
152,227
|
|
Less: Allowance for doubtful
debts
|
|
|
(3,160
|
)
|
|
|
(11,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,192
|
|
|
|
140,283
|
|
Other receivables, deposits
and prepayments
|
|
|
69,765
|
|
|
|
82,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,957
|
|
|
|
223,009
|
|
|
|
|
|
|
|
|
F-31
16
|
|
Accounts receivable, other receivables, deposits and prepayments (continued)
|
|
(a)
|
|
Aging analysis
|
|
|
|
The aging analysis of accounts receivable is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Current - 30 days
|
|
|
32,427
|
|
|
|
45,462
|
|
31 - 60 days
|
|
|
13,663
|
|
|
|
17,507
|
|
61 - 90 days
|
|
|
3,953
|
|
|
|
7,249
|
|
Over 90 days
|
|
|
73,309
|
|
|
|
82,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,352
|
|
|
|
152,227
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Balance as at the beginning
of the year
|
|
|
11,944
|
|
|
|
22,392
|
|
Impairment loss recognized
|
|
|
12,103
|
|
|
|
14,293
|
|
Uncollectible amounts
written off
|
|
|
(20,887
|
)
|
|
|
(24,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at the end of
the year
|
|
|
3,160
|
|
|
|
11,944
|
|
|
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Neither past due nor impaired
|
|
|
32,427
|
|
|
|
45,462
|
|
0 - 30 past due
|
|
|
13,663
|
|
|
|
17,507
|
|
31 - 60 past due
|
|
|
3,953
|
|
|
|
7,249
|
|
Over 60 past due
|
|
|
70,149
|
|
|
|
70,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,192
|
|
|
|
140,283
|
|
|
|
|
|
|
|
|
|
|
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$68,802,000 as at August 31, 2009 (August 31, 2008:
HK$64,407,000) (see note 2(c)).
|
F-32
16
|
|
Accounts receivable, other receivables, deposits and prepayments (continued)
|
|
(c)
|
|
Accounts receivable that are not impaired (continued)
|
|
|
|
Other accounts receivable that were past due but not impaired relate to a number of
independent customers that have a good track record with the Group. 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.
|
|
17
|
|
Cash at bank and in hand
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Time deposits with banks and
other financial institutions
|
|
|
77,500
|
|
|
|
264,943
|
|
Cash at bank and in hand
|
|
|
143,552
|
|
|
|
156,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank and in hand in
the balance sheet
|
|
|
221,052
|
|
|
|
421,610
|
|
|
|
|
|
|
|
|
18
|
|
Accounts payable, other payables and accrued charges
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Accounts payable
|
|
|
37,555
|
|
|
|
52,324
|
|
Other payables and accrued
charges
|
|
|
206,487
|
|
|
|
178,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,042
|
|
|
|
230,438
|
|
|
|
|
|
|
|
|
(a)
|
|
The aging analysis of the accounts payable was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Current - 30 days
|
|
|
12,621
|
|
|
|
18,802
|
|
31 - 60 days
|
|
|
1,778
|
|
|
|
4,025
|
|
61 - 90 days
|
|
|
189
|
|
|
|
8,334
|
|
Over 90 days
|
|
|
22,967
|
|
|
|
21,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,555
|
|
|
|
52,324
|
|
|
|
|
|
|
|
|
(b)
|
|
Other payables and accrued charges
|
|
|
|
Other payables and accrued charges primarily consist of accrual for staff salaries and
bonus, carrier fees and charges, payable for purchase of fixed assets, advertising and
promotional expenses as well as interest payable in respect of the 10-year senior notes.
|
|
19
|
|
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-33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Profit attributable to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,829
|
|
|
|
|
|
|
|
212,829
|
|
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
|
|
Exchange adjustments on translation
of the financial statements of
subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
70
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Profit attributable to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,190
|
|
|
|
|
|
|
|
125,190
|
|
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
|
|
Exchange adjustments on translation
of the financial statements of
subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,619
|
|
|
|
1,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2008
|
|
|
65,062
|
|
|
|
670,717
|
|
|
|
19,013
|
|
|
|
275,025
|
|
|
|
2,790
|
|
|
|
1,032,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
20
|
|
Capital and reserves (continued)
|
|
|
|
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 employees of the Group that was recognized in accordance with the
accounting policy adopted for share based payment in note 1(p).
|
|
(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, 2009, CTI Guangzhou Customer Services Co Ltd (CTIGZ), a
wholly-owned subsidiary of the Group, made appropriation to the statutory reserve of RMB510,000
(2008: RMB324,000). The accumulated balance of the statutory reserve maintained at the CTIGZ as
at August 31, 2009 was RMB1,415,000 (2008: RMB905,000). 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).
|
|
(a)
|
|
Share capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
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
|
|
|
650,621,823
|
|
|
|
65,062
|
|
|
|
616,503,404
|
|
|
|
61,650
|
|
Shares issued in respect of
scrip dividend of the
previous year (note (i))
|
|
|
12,212,142
|
|
|
|
1,221
|
|
|
|
11,227,213
|
|
|
|
1,123
|
|
Shares issued in respect of
scrip dividend of the
current year (note (ii))
|
|
|
|
|
|
|
|
|
|
|
8,838,938
|
|
|
|
884
|
|
Shares issued upon
exercise of share
options (note (iii))
|
|
|
1,416,005
|
|
|
|
142
|
|
|
|
14,052,268
|
|
|
|
1,405
|
|
Repurchase and cancellation of
ordinary shares
|
|
|
(70,000
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the end of the year
|
|
|
664,179,970
|
|
|
|
66,418
|
|
|
|
650,621,823
|
|
|
|
65,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The holders of ordinary shares are entitled to receive dividends as declared from time to time and
are entitled to one vote per ordinary share at meetings of the Company. All ordinary shares rank
equally with regard to the Companys residual assets.
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.
|
|
|
|
On February 4, 2008, the Company issued and allotted 11,227,213 ordinary shares to
shareholders who elected to receive, the 2007 final dividend in shares pursuant to the scrip
dividend scheme announced by the Company on January 4, 2008. These shares rank pari passu
with the existing shares of the Company in all respects.
|
F-35
20
|
|
Capital and reserves (continued)
|
|
(a)
|
|
Share capital (continued)
|
|
|
|
Notes: (continued)
|
|
(ii)
|
|
On July 23, 2008, the Company issued and allotted 8,838,938 ordinary shares to shareholder,
who elected to receive the 2008 interim dividend in shares pursuant to the scrip dividend
scheme announced by the Company on June 19, 2008. These shares rank pari passu with the
existing shares of the Company in all respects.
|
|
|
(iii)
|
|
During the year ended August 31, 2009, 1,416,005 ordinary shares (2008: 14,052,268 ordinary shares) were issued at a weighted average price of HK$0.99 per ordinary share (2008: HK$1.07
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.
|
|
|
(iv)
|
|
The movement of outstanding share options during the year was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
to number
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
of share
|
|
|
|
|
|
|
of options
|
|
|
|
|
|
|
|
|
|
|
of share
|
|
|
|
|
|
|
|
options
|
|
|
|
|
|
|
for 2008
|
|
|
|
|
|
|
|
|
|
|
options
|
|
|
|
Exercise
|
|
|
outstanding at
|
|
|
|
|
|
|
final
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
|
price
|
|
|
September 1,
|
|
|
|
|
|
|
dividend
|
|
|
|
|
|
|
|
|
|
|
at August 31,
|
|
Date of grant
|
|
per share
|
|
|
2008
|
|
|
Granted
|
|
|
(note (i))
|
|
|
Exercised
|
|
|
Lapsed
|
|
|
2009
|
|
October 21, 2004
|
|
HK$1.5224
|
|
|
7,571,582
|
|
|
|
|
|
|
|
35,130
|
|
|
|
546,184
|
|
|
|
151,001
|
|
|
|
6,909,527
|
|
January 5, 2005
|
|
HK$1.5224
|
|
|
16,106,956
|
|
|
|
|
|
|
|
76,252
|
|
|
|
|
|
|
|
|
|
|
|
16,183,208
|
|
May 22, 2006
|
|
HK$0.6523
|
|
|
22,387,555
|
|
|
|
|
|
|
|
105,366
|
|
|
|
869,821
|
|
|
|
30,201
|
|
|
|
21,592,899
|
|
August 3, 2006
|
|
HK$0.7018
|
|
|
40,349
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
40,540
|
|
November 22, 2006
|
|
HK$0.7216
|
|
|
135,902
|
|
|
|
|
|
|
|
643
|
|
|
|
|
|
|
|
|
|
|
|
136,545
|
|
February 6, 2008
|
|
HK$1.7568
|
|
|
6,016,309
|
|
|
|
|
|
|
|
28,482
|
|
|
|
|
|
|
|
|
|
|
|
6,044,791
|
|
February 11, 2008
|
|
HK$1.8660
|
|
|
6,016,309
|
|
|
|
|
|
|
|
28,482
|
|
|
|
|
|
|
|
|
|
|
|
6,044,791
|
|
February 15, 2008
|
|
HK$1.7568
|
|
|
1,002,718
|
|
|
|
|
|
|
|
4,747
|
|
|
|
|
|
|
|
|
|
|
|
1,007,465
|
|
March 11, 2008
|
|
HK$1.8164
|
|
|
300,816
|
|
|
|
|
|
|
|
1,424
|
|
|
|
|
|
|
|
302,240
|
|
|
|
|
|
May 2, 2008
|
|
HK$1.7866
|
|
|
1,002,718
|
|
|
|
|
|
|
|
4,747
|
|
|
|
|
|
|
|
|
|
|
|
1,007,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,581,214
|
|
|
|
|
|
|
|
285,464
|
|
|
|
1,416,005
|
|
|
|
483,442
|
|
|
|
58,967,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended August 31, 2009, no options were granted under the 2002 Share Option
Scheme.
|
|
|
|
Each option entitles the holder to subscribe for one share of HK$0.10 each in the Company at a
predetermined exercise price.
|
F-36
20
|
|
Capital and reserves (continued)
|
|
(b)
|
|
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, 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Unsecured
|
|
|
|
|
|
|
|
|
- 10-year senior notes due 2015
|
|
|
162,586
|
|
|
|
683,242
|
|
- Obligation under finance lease
|
|
|
732
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
163,318
|
|
|
|
683,618
|
|
Less: Cash and bank balances
|
|
|
(221,052
|
)
|
|
|
(421,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (cash)/debt
|
|
|
(57,734
|
)
|
|
|
262,008
|
|
Net asset
|
|
|
1,228,527
|
|
|
|
1,032,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt to net asset gearing ratio
|
|
|
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
The decrease in net debt to net asset gearing ratio is mainly due to the repurchase
of the 10-year senior notes (see note 22(a)).
|
|
|
|
Neither the Company nor any of its subsidiaries are currently subject to externally
imposed capital requirements.
|
|
21
|
|
Deferred taxation
|
|
|
|
Deferred tax assets are recognized to the extent it is probable that future taxable
profits will be generated against which the temporary differences can be utilized.
|
|
|
|
The components of deferred tax assets/(liabilities) recognized in the balance sheet
and the movements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Balance as at the beginning
of the year
|
|
|
21,398
|
|
|
|
(291
|
)
|
Exchange differences
|
|
|
1
|
|
|
|
(1
|
)
|
Deferred taxation (charged)/credited
to income statement
|
|
|
|
|
|
|
|
|
- relating to the origination and
reversal of temporary
differences (note 5)
|
|
|
(37,108
|
)
|
|
|
(4,645
|
)
|
- relating to the recognition of
unrecognized tax losses in
prior years (note 5)
|
|
|
|
|
|
|
26,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at the end of the year
|
|
|
(15,709
|
)
|
|
|
21,398
|
|
|
|
|
|
|
|
|
F-37
21
|
|
Deferred taxation (continued)
|
|
|
|
As at August 31, 2009, the Group has not recognized deferred tax assets in respect of unused tax
losses of HK$8,154,000 (2008: HK$9,518,000) because it is not probable that future taxable
profits can be generated to utilize the tax losses. All tax losses are subject to agreement with
local tax authorities.
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
After 5 years
|
|
|
2,455
|
|
|
|
3,810
|
|
No expiry date
|
|
|
5,699
|
|
|
|
5,708
|
|
|
|
|
|
|
|
|
|
|
|
8,154
|
|
|
|
9,518
|
|
|
|
|
|
|
|
|
|
|
The movement in deferred tax assets and liabilities (prior to offsetting of balances within the
same taxation jurisdiction) during the year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation allowance
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year
|
|
|
(126,447
|
)
|
|
|
(134,910
|
)
|
(Charged)/credited to consolidated income statement
|
|
|
(5,326
|
)
|
|
|
8,463
|
|
Exchange differences
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the end of the year
|
|
|
(131,766
|
)
|
|
|
(126,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax losses
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year
|
|
|
147,845
|
|
|
|
134,619
|
|
(Charged)/credited to consolidated income statement
|
|
|
(31,782
|
)
|
|
|
13,227
|
|
Exchange differences
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
At the end of the year
|
|
|
116,057
|
|
|
|
147,845
|
|
|
|
|
|
|
|
|
|
|
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. The following amounts, determined after appropriate
offsetting, are shown in the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Deferred tax assets
|
|
|
|
|
|
|
26,335
|
|
Deferred tax liabilities
|
|
|
(15,709
|
)
|
|
|
(4,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,709
|
)
|
|
|
21,398
|
|
|
|
|
|
|
|
|
F-38
22
|
|
Long-term debt and other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
10-year senior notes due 2015
(note (a))
|
|
|
162,586
|
|
|
|
683,242
|
|
Obligation under finance lease
(note (b))
|
|
|
732
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,318
|
|
|
|
683,618
|
|
|
|
|
|
|
|
|
|
|
Current portion of
- obligation under finance lease
|
|
|
(202
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,116
|
|
|
|
683,497
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2009, the Groups long-term debt and other liabilities were repayable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Long-term debt and other liabilities,
repayable:
|
|
|
|
|
|
|
|
|
- 10-year senior notes due 2015
|
|
|
|
|
|
|
|
|
- after the fifth year
|
|
|
162,586
|
|
|
|
683,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under finance lease
|
|
|
|
|
|
|
|
|
- Within 1 year
|
|
|
202
|
|
|
|
121
|
|
- After 1 year but within 2 years
|
|
|
197
|
|
|
|
129
|
|
- After 2 years but within 5 years
|
|
|
263
|
|
|
|
126
|
|
- After 5 years
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
732
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion of obligations
under finance lease
|
|
|
(202
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
530
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,116
|
|
|
|
683,497
|
|
|
|
|
|
|
|
|
Notes:
(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 mature 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
Company Limited) as subsidiary guarantors.
|
|
|
|
During the year ended August 31, 2009, the Group repurchased a portion of the 10-year senior
notes with a cumulative principal value of US$67,990,000 through tender offers in April 2009
and July 2009. The total consideration paid including transaction cost and accrued interest
was approximately US$65,139,000. The gain on extinguishment of the 10-year senior notes was
US$4,048,000 (equivalent to HK$31,371,000) which has been recorded in other revenues of the
consolidated income statement.
|
|
|
|
As at August 31, 2009, the principal amount of the 10-year senior notes remaining in issue
after the repurchase was US$21,363,000 (equivalent to HK$165,563,000). The amortized cost
of the 10-year senior notes was US$20,979,000 (equivalent to HK$162,586,000) as at August
31, 2009.
|
|
|
|
The effective interest rate of the 10-year senior notes for the year ended August 31, 2009
is 9.2% (2008: 9.2%) per annum.
|
F-39
22
|
|
Long-term debt and other liabilities (continued)
|
|
|
|
Notes: (continued)
|
|
(b)
|
|
At August 31, 2009, the Group had obligations under finance leases repayable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
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
|
|
|
202
|
|
|
|
35
|
|
|
|
237
|
|
|
|
121
|
|
|
|
21
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 year but
within 2 years
|
|
|
197
|
|
|
|
22
|
|
|
|
219
|
|
|
|
129
|
|
|
|
13
|
|
|
|
142
|
|
After 2 years but
within 5 years
|
|
|
263
|
|
|
|
30
|
|
|
|
293
|
|
|
|
126
|
|
|
|
4
|
|
|
|
130
|
|
After 5 years
|
|
|
70
|
|
|
|
1
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
530
|
|
|
|
53
|
|
|
|
583
|
|
|
|
255
|
|
|
|
17
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
732
|
|
|
|
88
|
|
|
|
820
|
|
|
|
376
|
|
|
|
38
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Notes to the consolidated cash flow statement
|
|
(a)
|
|
Reconciliation of profit before taxation to net cash inflow from operations
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Profit before taxation
|
|
|
251,559
|
|
|
|
108,372
|
|
Depreciation of owned fixed assets
|
|
|
205,624
|
|
|
|
209,464
|
|
Depreciation of fixed assets held under finance lease
|
|
|
617
|
|
|
|
587
|
|
Amortization of deferred expenditure
|
|
|
53,160
|
|
|
|
33,777
|
|
Interest income
|
|
|
(4,869
|
)
|
|
|
(15,596
|
)
|
Interest element of finance lease
|
|
|
27
|
|
|
|
34
|
|
Loss on disposal of fixed assets
|
|
|
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
|
|
|
4,768
|
|
|
|
4,204
|
|
Gain on extinguishment of 10-year senior notes
|
|
|
(31,371
|
)
|
|
|
(2,582
|
)
|
Interest, amortization and exchange difference
on 10-year senior notes
|
|
|
49,214
|
|
|
|
72,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow before working capital changes
|
|
|
529,556
|
|
|
|
408,901
|
|
(Increase)/ decrease in long-term receivable and
prepayment
|
|
|
(505
|
)
|
|
|
1,346
|
|
Decrease in accounts receivable, other
receivables, deposits and prepayments
|
|
|
33,052
|
|
|
|
6,914
|
|
Decrease in inventories
|
|
|
|
|
|
|
477
|
|
Increase in deferred expenditure
|
|
|
(46,525
|
)
|
|
|
(68,505
|
)
|
Increase/ (decrease) in accounts payable, other payables,
accrued charges and deposits received
|
|
|
17,419
|
|
|
|
(12,567
|
)
|
Increase in deferred service revenue
|
|
|
4,621
|
|
|
|
46,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operations
|
|
|
537,618
|
|
|
|
382,813
|
|
|
|
|
|
|
|
|
F-40
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)
|
|
|
lease
|
|
|
senior notes
|
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
Balance at September 1, 2007
|
|
|
702,192
|
|
|
|
1,210
|
|
|
|
952,593
|
|
Issue of new shares
|
|
|
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
|
|
Issue of new shares
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
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,
and debt investments. 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 16.
|
|
|
|
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 16.
|
F-41
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
37,555
|
|
|
|
37,555
|
|
|
|
37,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,324
|
|
|
|
52,324
|
|
|
|
52,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables and
accrued charges
|
|
|
206,487
|
|
|
|
206,487
|
|
|
|
206,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,114
|
|
|
|
178,114
|
|
|
|
178,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits received
|
|
|
16,385
|
|
|
|
16,385
|
|
|
|
16,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,264
|
|
|
|
16,264
|
|
|
|
16,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under
finance leases
|
|
|
202
|
|
|
|
237
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
142
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax payable
|
|
|
1,993
|
|
|
|
1,993
|
|
|
|
1,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,103
|
|
|
|
2,103
|
|
|
|
2,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-year senior notes
|
|
|
162,586
|
|
|
|
244,117
|
|
|
|
14,489
|
|
|
|
14,489
|
|
|
|
43,467
|
|
|
|
171,672
|
|
|
|
683,242
|
|
|
|
1,093,852
|
|
|
|
61,012
|
|
|
|
61,012
|
|
|
|
183,036
|
|
|
|
788,792
|
|
Obligation under
finance leases
|
|
|
530
|
|
|
|
583
|
|
|
|
|
|
|
|
219
|
|
|
|
293
|
|
|
|
71
|
|
|
|
255
|
|
|
|
272
|
|
|
|
|
|
|
|
142
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425,738
|
|
|
|
507,357
|
|
|
|
277,146
|
|
|
|
14,708
|
|
|
|
43,760
|
|
|
|
171,743
|
|
|
|
932,423
|
|
|
|
1,343,071
|
|
|
|
309,959
|
|
|
|
61,154
|
|
|
|
183,166
|
|
|
|
788,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
24
|
|
Financial instruments (continued)
|
|
(c)
|
|
Interest rate risk
|
|
|
|
The Groups interest-rate risk arises mainly from its 10-year senior notes which bear interest at
the fixed rate of 8.75% per annum. Borrowings issued at fixed rate expose the Group to fair value
interest-rate risk.
|
|
(i)
|
|
Interest rate profile
|
|
|
|
The following table details the interest rate profile of the Groups borrowings at the balance
sheet date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Effective
|
|
|
|
|
|
|
Effective
|
|
|
|
|
|
|
interest
|
|
|
|
|
|
|
interest
|
|
|
|
|
|
|
rate
|
|
|
|
|
|
|
rate
|
|
|
|
|
|
|
%
|
|
|
HK$000
|
|
|
%
|
|
|
HK$000
|
|
Fixed rate
borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-year senior notes
|
|
|
9.2
|
|
|
|
162,586
|
|
|
|
9.2
|
|
|
|
683,242
|
|
Obligations under
finance lease
|
|
|
5.6
|
|
|
|
732
|
|
|
|
6.8
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,318
|
|
|
|
|
|
|
|
683,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii)
|
|
Sensitivity analysis
|
|
|
|
Management determines that the Groups exposure of interest rate risk was not significant and hence
no sensitivity analysis is prepared.
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
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
|
|
|
11,599
|
|
|
|
696
|
|
|
|
282
|
|
|
|
22,330
|
|
|
|
1,099
|
|
|
|
176
|
|
Accounts payable
|
|
|
(3,183
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
Other payables and
accrued charges
|
|
|
(390
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,390
|
)
|
|
|
|
|
|
|
|
|
10-year senior notes
|
|
|
(20,979
|
)
|
|
|
|
|
|
|
|
|
|
|
(87,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall net exposure
|
|
|
(12,953
|
)
|
|
|
696
|
|
|
|
282
|
|
|
|
(71,043
|
)
|
|
|
1,099
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii)
|
|
Sensitivity analysis
|
|
|
|
Management determines that the Groups exposure of foreign currency risk was not significant and
hence no sensitivity analysis is prepared.
|
F-43
24
|
|
Financial instruments (continued)
|
|
(e)
|
|
Fair values
|
|
|
|
Except for the following instruments, all financial instruments are carried at amounts not
materially different from their fair values as at August 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
amount
|
|
|
Fair value
|
|
|
amount
|
|
|
Fair value
|
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
10-year senior notes
|
|
|
162,586
|
|
|
|
157,285
|
|
|
|
683,242
|
|
|
|
672,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f)
|
|
Estimation of fair values
|
|
|
|
Fair value of financial instruments is estimated as follows:
|
|
(i)
|
|
The fair value of the 10-year senior notes is determined based on quoted market price.
|
|
|
(ii)
|
|
Accounts receivable, other receivables, deposits and prepayments, pledged bank deposit, cash
at bank and in hand, accounts payable, and other payables and accrued charges are assumed to
approximate their fair values as they can be realized or settled within twelve months after
the balance sheet date.
|
25
|
|
Contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Bank guarantees provided
to suppliers (notes 27(i) and (ii))
|
|
|
2,490
|
|
|
|
24,671
|
|
Bank guarantee in lieu of payment
of utility deposits (note 27(iii))
|
|
|
5,272
|
|
|
|
5,272
|
|
|
|
|
|
|
|
|
|
|
|
7,762
|
|
|
|
29,943
|
|
|
|
|
|
|
|
|
26
|
|
Commitments
|
|
(a)
|
|
Capital commitments
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Purchase of telecommunications,
computer and office equipment
|
|
|
|
|
|
|
|
|
- contracted but not provided for
|
|
|
150,099
|
|
|
|
143,888
|
|
|
|
|
|
|
|
|
(b)
|
|
Commitments under operating leases
|
|
|
|
At August 31, 2009 and 2008, the Group has future aggregate minimum lease payments under
non-cancellable operating leases as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Leases in respect of land and
buildings which are payable:
|
|
|
|
|
|
|
|
|
- Within 1 year
|
|
|
21,387
|
|
|
|
16,472
|
|
- After 1 year but within 5 years
|
|
|
13,802
|
|
|
|
11,645
|
|
|
|
|
|
|
|
|
|
|
|
35,189
|
|
|
|
28,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases in respect of
telecommunications facilities
and computer equipment which are payable
|
|
|
|
|
|
|
|
|
- Within 1 year
|
|
|
45,321
|
|
|
|
38,623
|
|
- After
1 year but within 5 years
|
|
|
9,600
|
|
|
|
12,876
|
|
- After 5 years
|
|
|
6,271
|
|
|
|
7,384
|
|
|
|
|
|
|
|
|
|
|
|
61,192
|
|
|
|
58,883
|
|
|
|
|
|
|
|
|
|
|
|
96,381
|
|
|
|
87,000
|
|
|
|
|
|
|
|
|
F-44
26
|
|
Commitments (continued)
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Program fee in respect of program rights
which are payable:
|
|
|
|
|
|
|
|
|
- Within 1 year
|
|
|
9,094
|
|
|
|
6,583
|
|
- After 1 year but within 5 years
|
|
|
6,238
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,332
|
|
|
|
6,862
|
|
|
|
|
|
|
|
|
27
|
|
Pledge of assets
|
|
|
|
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 (2008: HK$20,371,000);
|
|
|
(ii)
|
|
bank guarantees of HK$1,990,000 (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 (2008: HK$5,272,000) issued by the bank to certain utility
vendors of the Group in lieu of payment of utility deposits.
|
|
|
As at August 31, 2008, the Group had pledged bank deposits of US$9,900,000 (equivalent of
HK$77,319,000) and HK$10,000,000 as security of the above significant banking facilities.
|
|
28
|
|
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 employees as disclosed in note 9(b), is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Short-term employee benefits
|
|
|
34,687
|
|
|
|
28,850
|
|
Post-employment benefits
|
|
|
2,614
|
|
|
|
2,425
|
|
Equity compensation benefits
|
|
|
4,071
|
|
|
|
3,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,372
|
|
|
|
34,939
|
|
|
|
|
|
|
|
|
29
|
|
Comparative figure
|
|
|
|
Certain comparative figures have been reclassified to conform with the current years presentation.
|
F-45
30
|
|
Accounting estimates and judgments
|
|
|
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:
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
Deferred tax
|
|
|
|
At August 31, 2009, the Group has recognized a deferred tax asset in relation to tax losses carry
forward as set out in note 21. The realisability of the deferred tax asset depends on whether it
is probable that future taxable profits will be available against which the asset can be utilized.
In assessing the need to recognize a deferred tax asset, management consider all available
evidence, including projected future taxable income, tax planning strategies, historical taxable
income, and the expiration periods of the tax losses. In cases where the actual future taxable
profits are less than expected, a reversal of deferred tax asset may arise, which will be
recognized in the income statement for the period in which such a reversal takes place.
|
31
|
|
Possible impact of amendments, new standards and interpretations issued but not yet
effective for the year ended August 31, 2009
|
|
|
Up to the date of issue of these financial statements, the IASB has issued a number of amendments,
new standards and interpretations which are not yet effective for the year ended August 31, 2009
and which have not been adopted in these financial statements.
|
|
|
|
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
it has concluded that the adoption of the following developments is unlikely to have significant
impact on the Groups results of operations and financial position.
|
|
|
|
|
|
|
|
|
|
Effective for
|
|
|
|
|
accounting periods
|
|
|
|
|
beginning on or after
|
IAS 1 (Revised)
|
|
Presentation of financial statements
|
|
January 1, 2009
|
|
|
|
|
|
IAS 23 (Revised)
|
|
Borrowing costs
|
|
January 1, 2009
|
|
|
|
|
|
IFRS 8
|
|
Operating segments
|
|
January 1, 2009
|
F-46
32
|
|
Supplemental guarantors consolidated financial information
|
|
|
|
The 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.
|
|
|
|
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-47
32
|
|
Supplemental guarantors consolidated financial information (continued)
|
|
|
|
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
|
|
|
119,419
|
|
|
|
74,197
|
|
|
|
27,436
|
|
|
|
|
|
|
|
221,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,070
|
|
|
|
289,427
|
|
|
|
29,928
|
|
|
|
|
|
|
|
462,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,127
|
|
|
|
1,212,115
|
|
|
|
15,849
|
|
|
|
|
|
|
|
377,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current assets/ (liabilities)
|
|
|
72,943
|
|
|
|
(922,688
|
)
|
|
|
14,079
|
|
|
|
|
|
|
|
85,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-48
32
|
|
Supplemental guarantors consolidated financial information (continued)
|
|
|
|
Consolidated balance sheet as of 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
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries (note)
|
|
|
1,499,437
|
|
|
|
260,399
|
|
|
|
|
|
|
|
(1,759,836
|
)
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,066
|
|
|
|
1,066
|
|
Fixed assets
|
|
|
87,483
|
|
|
|
1,135,394
|
|
|
|
8,522
|
|
|
|
|
|
|
|
1,231,399
|
|
Long term receivable and prepayment
|
|
|
|
|
|
|
19,773
|
|
|
|
|
|
|
|
(14,187
|
)
|
|
|
5,586
|
|
Deferred expenditure
|
|
|
|
|
|
|
15,391
|
|
|
|
|
|
|
|
|
|
|
|
15,391
|
|
Deferred tax assets
|
|
|
|
|
|
|
26,335
|
|
|
|
|
|
|
|
|
|
|
|
26,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,586,920
|
|
|
|
1,457,292
|
|
|
|
8,522
|
|
|
|
|
|
|
|
1,279,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
11,418
|
|
|
|
128,865
|
|
|
|
|
|
|
|
|
|
|
|
140,283
|
|
Other receivables, deposits and prepayments
|
|
|
3,378
|
|
|
|
80,293
|
|
|
|
2,759
|
|
|
|
(3,704
|
)
|
|
|
82,726
|
|
Deferred expenditure
|
|
|
|
|
|
|
40,704
|
|
|
|
|
|
|
|
|
|
|
|
40,704
|
|
Other financial assets
|
|
|
27,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,997
|
|
Pledged bank deposits
|
|
|
87,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,319
|
|
Cash at bank and in hand
|
|
|
90,386
|
|
|
|
263,386
|
|
|
|
67,838
|
|
|
|
|
|
|
|
421,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,498
|
|
|
|
513,248
|
|
|
|
70,597
|
|
|
|
|
|
|
|
800,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to subsidiaries/ fellow subsidiaries
|
|
|
10,830
|
|
|
|
1,316,410
|
|
|
|
51,059
|
|
|
|
(1,378,299
|
)
|
|
|
|
|
Accounts payable
|
|
|
26,440
|
|
|
|
25,884
|
|
|
|
|
|
|
|
|
|
|
|
52,324
|
|
Other payables and accrued charges
|
|
|
17,831
|
|
|
|
149,548
|
|
|
|
10,735
|
|
|
|
|
|
|
|
178,114
|
|
Deposits received
|
|
|
7,943
|
|
|
|
8,321
|
|
|
|
|
|
|
|
|
|
|
|
16,264
|
|
Deferred service revenue
|
|
|
11,172
|
|
|
|
102,678
|
|
|
|
|
|
|
|
(3,401
|
)
|
|
|
110,449
|
|
Tax payable
|
|
|
356
|
|
|
|
496
|
|
|
|
1,251
|
|
|
|
|
|
|
|
2,103
|
|
Current portion obligation under finance leases
|
|
|
112
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,684
|
|
|
|
1,603,346
|
|
|
|
63,045
|
|
|
|
|
|
|
|
359,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current assets/ (liabilities)
|
|
|
145,814
|
|
|
|
(1,090,098
|
)
|
|
|
7,552
|
|
|
|
|
|
|
|
441,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets less current liabilities
|
|
|
1,732,734
|
|
|
|
367,194
|
|
|
|
16,074
|
|
|
|
|
|
|
|
1,721,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
4,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,937
|
|
Long-term deferred service revenue
|
|
|
14,500
|
|
|
|
|
|
|
|
|
|
|
|
(14,500
|
)
|
|
|
|
|
Long-term debt and other liabilities
|
|
|
683,480
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
683,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702,917
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
688,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
1,029,817
|
|
|
|
367,177
|
|
|
|
16,074
|
|
|
|
|
|
|
|
1,032,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
65,062
|
|
|
|
15,485
|
|
|
|
8,131
|
|
|
|
(23,616
|
)
|
|
|
65,062
|
|
Reserves
|
|
|
964,755
|
|
|
|
351,692
|
|
|
|
7,943
|
|
|
|
(356,845
|
)
|
|
|
967,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity attributable to equity shareholders of the Company
|
|
|
1,029,817
|
|
|
|
367,177
|
|
|
|
16,074
|
|
|
|
|
|
|
|
1,032,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-49
32
|
|
Supplemental guarantors consolidated financial information (continued)
|
|
|
|
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 revenues
|
|
|
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 revenues
|
|
|
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-50
32
|
|
Supplemental guarantors consolidated financial information (continued)
|
|
|
|
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
|
|
|
|
87,358
|
|
|
|
(38,930
|
)
|
|
|
(233
|
)
|
|
|
535,886
|
|
Net cash inflow/(outflow) from investing
activities
|
|
|
101,605
|
|
|
|
(276,843
|
)
|
|
|
(1,250
|
)
|
|
|
|
|
|
|
(176,488
|
)
|
Net cash outflow from financing activities
|
|
|
(560,397
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(560,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
125,511
|
|
|
|
59,866
|
|
|
|
158
|
|
|
|
378,563
|
|
Net cash inflow/(outflow) from investing
activities
|
|
|
18,775
|
|
|
|
(164,222
|
)
|
|
|
(2,303
|
)
|
|
|
|
|
|
|
(147,750
|
)
|
Net cash outflow from financing activities
|
|
|
(341,813
|
)
|
|
|
(737
|
)
|
|
|
|
|
|
|
|
|
|
|
(342,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.
|
|
|
|
|
|
|
|
|
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
|
|
|
Date: December 18, 2009
Hong Kong Television Network Ltd. (MM) (NASDAQ:CTEL)
過去 株価チャート
から 6 2024 まで 7 2024
Hong Kong Television Network Ltd. (MM) (NASDAQ:CTEL)
過去 株価チャート
から 7 2023 まで 7 2024