SIGNATURE
Pursuant to the requirements of section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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CITY TELECOM (H.K.) LIMITED
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By:
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/s/ Tai Kwok Hung
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Name:
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Tai Kwok Hung
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Title:
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Company Secretary
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Dated: November 22
nd
, 2007
(incorporated in Hong Kong with limited liability under the Companies Ordinance)
(Stock Code: 1137)
ANNUAL RESULTS
ANNOUNCEMENT
FOR THE YEAR ENDED 31 AUGUST 2007
KEY HIGHLIGHTS
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Return to profitability with HK$28.9 million profit attributable to shareholders
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|
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Strong year-on-year improvement in EBITDA margin from 21.1% to 31.0%, delivering 44.3% growth in EBITDA to HK$353.8 million
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Revenue composition now 71.6% majority by higher quality FTNS rather than competitive IDD business
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Well capitalised with HK$634.5 million gross cash resources
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Basic earnings per share amounted to HK4.7 cents
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Declared a final dividend of HK4 cents per share with a scrip dividend option
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1
The Board of Directors (the Board) of City Telecom (H.K.) Limited (the Company or
CTI) is pleased to announce the audited consolidated results of the Company and its subsidiaries (the Group) for the year ended 31 August 2007 together with the comparative figures for the previous year as follows:
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year
ended 31 August 2007
(Expressed in Hong Kong dollars)
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|
|
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|
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2007
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2006
|
|
|
|
Note
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HK$000
|
|
|
HK$000
|
|
Turnover
|
|
2
|
|
1,141,270
|
|
|
1,159,579
|
|
Other revenues
|
|
2
|
|
25,820
|
|
|
24,843
|
|
Network costs and cost of inventories
|
|
|
|
(214,591
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)
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|
(300,593
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)
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Other operating expenses
|
|
3(a)
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|
(834,104
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)
|
|
(894,677
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)
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss)
|
|
|
|
118,395
|
|
|
(10,848
|
)
|
Finance costs
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|
3(b)
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|
(87,504
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)
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|
(88,637
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)
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before taxation
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|
3
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30,891
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(99,485
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)
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Income tax (expense)/benefit
|
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4
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|
(2,026
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)
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7,244
|
|
|
|
|
|
|
|
|
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Profit/(loss) attributable to shareholders
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|
28,865
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(92,241
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)
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|
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|
|
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Dividends
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5
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49,295
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|
|
|
|
|
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|
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Basic earnings/(loss) per share
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6
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4.7 cents
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(15.0) cents
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|
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|
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Diluted earnings/(loss) per share
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6
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4.6 cents
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(15.0) cents
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2
BALANCE SHEET AS AT 31 AUGUST 2007
(Expressed in Hong Kong dollars)
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|
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2007
|
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2006
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Note
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HK$000
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|
HK$000
|
Non-current assets
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|
|
|
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Goodwill
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1,066
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|
1,066
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Fixed assets
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|
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1,237,223
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|
1,367,234
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Other financial assets
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39,213
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40,274
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Derivative financial instrument
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1,039
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1,845
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Long term receivable and prepayment
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|
6,932
|
|
12,532
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Deferred expenditure
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|
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7,783
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1,637
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|
|
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|
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|
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1,293,256
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1,424,588
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Current assets
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|
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Accounts receivable
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|
7
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|
170,551
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|
140,598
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Other receivables, deposits and prepayments
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59,372
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|
77,583
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Inventories
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|
|
|
477
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|
856
|
Deferred expenditure
|
|
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|
13,584
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10,808
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Tax recoverable
|
|
|
|
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|
347
|
Other financial assets
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3,779
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Pledged bank deposits
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87,220
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|
87,022
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Term deposits
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237,496
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Cash at bank and in hand
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532,894
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144,917
|
|
|
|
|
|
|
|
|
|
|
|
867,877
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|
699,627
|
|
|
|
|
|
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Current liabilities
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|
|
|
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|
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Accounts payable
|
|
8
|
|
76,019
|
|
86,385
|
Other payables and accrued charges
|
|
|
|
145,267
|
|
143,486
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Deposits received
|
|
|
|
16,188
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|
16,230
|
Deferred services revenue
|
|
|
|
64,202
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|
33,743
|
Taxation payable
|
|
|
|
1,481
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|
1,964
|
Current portion obligations under finance leases
|
|
|
|
835
|
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
303,992
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|
283,105
|
|
|
|
|
|
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Net current assets
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|
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|
563,885
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|
416,522
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|
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Total assets less current liabilities
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|
1,857,141
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1,841,110
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|
|
|
|
|
|
|
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Non-current liabilities
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|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
291
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|
353
|
Long-term debt and other liabilities
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|
952,968
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949,103
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|
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|
|
|
|
|
|
|
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|
953,259
|
|
949,456
|
|
|
|
|
|
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Net assets
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|
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|
903,882
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|
891,654
|
|
|
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|
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Capital and reserves
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|
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|
|
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Share capital
|
|
9
|
|
61,650
|
|
61,417
|
Reserves
|
|
9
|
|
842,232
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|
830,237
|
|
|
|
|
|
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Total equity attributable to equity shareholders of the Company
|
|
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|
903,882
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891,654
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|
|
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3
Notes
These financial statements
have been prepared in accordance with all applicable 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), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These
financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (Listing Rules).
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 amortised costs.
The preparation of financial statements in conformity with HKFRSs requires management to make
judgements, 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 judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates.
Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments, new standards and
interpretations which are not yet effective for the year ended 31 August 2007 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 may result in new or amended disclosure in the financial statements.
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|
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Effective for accounting periods
beginning on or after
|
Amendments to HKAS 1
|
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Presentation of financial statements: capital disclosures
|
|
1 January 2007
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HKFRS 7
|
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Financial instruments: disclosures
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|
1 January 2007
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HKFRS 8
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Operating segments
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1 January 2009
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In respect of other amendments, new standards and new interpretations, the Group is not yet in a
position to state whether they would have a significant impact on the Groups results of operations and financial position.
4
2
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TURNOVER, REVENUES 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 recognised during the year are as follows:
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|
|
|
|
|
2007
|
|
2006
|
|
|
HK$000
|
|
HK$000
|
Turnover
|
|
|
|
|
International telecommunications services
|
|
324,470
|
|
418,276
|
Fixed telecommunications network services
(note 2(c))
|
|
816,800
|
|
741,303
|
|
|
|
|
|
|
|
1,141,270
|
|
1,159,579
|
|
|
|
|
|
Other revenues
|
|
|
|
|
Interest income
|
|
22,671
|
|
20,378
|
Other income
|
|
3,149
|
|
4,465
|
|
|
|
|
|
|
|
25,820
|
|
24,843
|
|
|
|
|
|
Total revenues
|
|
1,167,090
|
|
1,184,422
|
|
|
|
|
|
|
(a)
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Primary reporting format business segments
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The Group is organised on a worldwide basis into two business segments:
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International telecommunications
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|
:
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|
provision of international long distance calls services
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|
|
Fixed telecommunications network
|
|
:
|
|
provision of dial up and broadband Internet access services, local voice-over-IP services and IP-TV services
|
5
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
International
telecommunications
services
|
|
Fixed
telecommunications
network services
|
|
|
Elimination
|
|
|
Group
|
|
|
|
HK$000
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
Turnover
|
|
|
|
|
|
|
|
|
|
|
|
External sales
|
|
324,470
|
|
816,800
|
|
|
|
|
|
1,141,270
|
|
Inter-segment sales
|
|
5,699
|
|
27,633
|
|
|
(33,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,169
|
|
844,433
|
|
|
(33,332
|
)
|
|
1,141,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment results
|
|
68,705
|
|
49,690
|
|
|
|
|
|
118,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
|
|
|
|
|
|
|
(87,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before taxation
|
|
|
|
|
|
|
|
|
|
30,891
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
(2,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit
|
|
|
|
|
|
|
|
|
|
28,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
International
telecommunications
services
|
|
Fixed
telecommunications
network services
|
|
|
Elimination
|
|
|
Group
|
|
|
|
HK$000
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
Turnover
|
|
|
|
|
|
|
|
|
|
|
|
External sales
|
|
418,276
|
|
741,303
|
|
|
|
|
|
1,159,579
|
|
Inter-segment sales
|
|
5,670
|
|
31,275
|
|
|
(36,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423,946
|
|
772,578
|
|
|
(36,945
|
)
|
|
1,159,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment results
|
|
43,405
|
|
(54,253
|
)
|
|
|
|
|
(10,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
|
|
|
|
|
|
|
(88,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxation
|
|
|
|
|
|
|
|
|
|
(99,485
|
)
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
7,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(92,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
(b)
|
Secondary reporting format geographical segments
|
Although the Groups two business segments are managed on a worldwide basis, they operate in two main geographical areas:
|
|
|
|
|
|
|
|
|
Hong Kong
|
|
:
|
|
international telecommunications and fixed telecommunications network services
|
|
|
Canada
|
|
:
|
|
international telecommunications and fixed telecommunications network services
|
In presenting information on the basis of geographical segments, turnover and segment results are
presented based on the geographical location of customers. Total assets and capital expenditure are presented based on the geographical location of the assets.
There were no sales between the geographical segments.
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Turnover
|
|
Segment results
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
HK$000
|
|
HK$000
|
|
HK$000
|
|
HK$000
|
|
Hong Kong
|
|
1,120,538
|
|
1,139,155
|
|
118,260
|
|
(6,177
|
)
|
Canada
|
|
20,732
|
|
20,424
|
|
135
|
|
(4,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,141,270
|
|
1,159,579
|
|
118,395
|
|
(10,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
Hong Kong Broadband Network Limited (HKBN), a wholly-owned subsidiary of the Group, as a Fixed Telecommunications Network Services (FTNS) licensee, provides
interconnection services to enable delivery of telecommunications service to customers of different operators. Since the FTNS license was granted by the Telecommunication Authority (TA) and interconnection services have been provided,
HKBN has been billing mobile operators for the interconnection services provided to them and recognizing revenue (mobile interconnection charges) based on managements best estimate of the amounts it expected to collect. A majority
of the mobile operators, however, rejected HKBNs demand for payment. As a result of non-payment by certain mobile operators, in 2004, the Company asked the TA to make a determination (the Determination) on the level of mobile and
fixed interconnection charges payable by one of the mobile operators to HKBN; and the effective date of the determined interconnection charges.
|
In November 2005, HKBN entered into a contractual agreement with one of the mobile operators, which agreed to pay mobile interconnection charges at an interim rate. The final rate to be paid by this mobile operator
will be adjusted based on the Determination issued by TA.
In March 2006, TA issued a preliminary analysis (the 2006 PA) on the
Determination with respect to the rates of mobile interconnection charges payable by the mobile operator under dispute and the timing of the Determination. The final level of mobile interconnection charges was still subject to the Determination to
be issued by TA as of 31 August 2006.
For the year ended 31 August 2006, the Company recognized revenue related to mobile
interconnection charges of HK$46,740,000 which included mobile interconnection charges for the year ended 31 August 2005 previously not recognized due to the uncertainties existed at that time and charges for the year ended 31 August 2006,
both of which were measured based on the 2006 PA.
In March 2007, TA issued a revised preliminary analysis (the 2007 PA) which
superseded the 2006 PA. The 2007 PA set out the rates of mobile interconnection charges, which are different from those rates stated in the 2006 PA.
In June 2007, TA issued a final determination (the Final Determination) which set out the rates of mobile interconnection charges payable by the mobile operator under dispute, which approximate the rates stated in the 2007 PA.
7
Based on the Final Determination, the Group recorded revenue related to mobile interconnection charges of
HK$40,877,000 for the year ended 31 August 2007 which includes charges for the current year and additional charges for the years ended 31 August 2005 and 2006 previously measured based on the 2006 PA. The Group has also written back bad
debt provision for mobile interconnection charges receivables of HK$9,404,000 to profit and loss account (note 3(a)(ii)) based on the amount it expected to collect for billings outstanding through that date.
3
|
PROFIT/(LOSS) BEFORE TAXATION
|
Profit/(loss) before
taxation is arrived at after charging/(crediting):
|
(a)
|
Other operating expenses
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
HK$000
|
|
HK$000
|
|
Advertising and marketing expenses
(note (i))
|
|
203,673
|
|
204,952
|
|
Amortisation of deferred expenditure
|
|
15,580
|
|
13,973
|
|
Auditors remuneration
|
|
2,933
|
|
2,990
|
|
Depreciation of owned fixed assets
|
|
257,052
|
|
275,538
|
|
Depreciation of fixed assets held under finance lease
|
|
1,051
|
|
926
|
|
Impairment loss investment property
|
|
|
|
1,131
|
|
Operating lease charges in respect of land and buildings
|
|
13,879
|
|
17,556
|
|
Operating lease charges in respect of equipment
|
|
32
|
|
840
|
|
Provision/(write-back of provision) for doubtful debts
(note (ii))
|
|
6,569
|
|
(7,668
|
)
|
Loss on disposal of fixed assets
|
|
1,714
|
|
9,621
|
|
Staff costs
(note 3(c))
|
|
221,102
|
|
256,721
|
|
Others
|
|
110,519
|
|
118,097
|
|
|
|
|
|
|
|
|
|
834,104
|
|
894,677
|
|
|
|
|
|
|
|
Notes:
(i)
|
Included in the advertising and marketing expenses is expense in respect of equity settled share-based transaction of HK$361,000 (2006: HK$143,000).
|
(ii)
|
The amount for the year ended 31 August 2007 included write-back of provision for mobile interconnection charges receivables of HK$9,404,000 (2006: HK$23,808,000) (note 2(c)).
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
HK$000
|
|
HK$000
|
Interest element of finance leases
|
|
62
|
|
54
|
Interest on 10-year senior notes
|
|
85,313
|
|
85,235
|
Amortisation of incidental issuance costs
|
|
2,129
|
|
1,429
|
Other borrowing cost
|
|
|
|
1,919
|
|
|
|
|
|
|
|
87,504
|
|
88,637
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Wages and salaries
|
|
201,057
|
|
|
244,337
|
|
Unutilised annual leave
|
|
213
|
|
|
(312
|
)
|
Equity settled share-based transaction
|
|
5,366
|
|
|
6,680
|
|
Retirement benefit costs defined contribution plans
|
|
23,933
|
|
|
27,956
|
|
Less:
staff costs capitalised as fixed assets
|
|
(9,467
|
)
|
|
(21,940
|
)
|
|
|
|
|
|
|
|
|
|
221,102
|
|
|
256,721
|
|
|
|
|
|
|
|
|
Staff costs include directors emoluments and research and development cost of HK$4,977,000
(2006: HK$9,605,000) but exclude staff costs of HK$14,478,000 (2006: HK$19,949,000) recorded in network costs and HK$138,728,000 (2006: HK$121,883,000) recorded in advertising and marketing expenses.
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Net exchange loss/(gains)
|
|
114
|
|
|
(1,044
|
)
|
Unrealised gains on other financial assets
|
|
(1,887
|
)
|
|
(668
|
)
|
Realised and unrealised loss on derivative financial instruments
|
|
806
|
|
|
125
|
|
Cost of inventories
|
|
331
|
|
|
21,249
|
|
|
|
|
|
|
|
|
Hong Kong profits tax has been provided
at the rate of 17.5% (2006: 17.5%) 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) to the consolidated profit and loss account represents:
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Current taxation:
|
|
|
|
|
|
|
Hong Kong profits tax
|
|
121
|
|
|
24
|
|
Overseas taxation
|
|
1,964
|
|
|
2,367
|
|
Under-provision in prior years
|
|
|
|
|
552
|
|
Deferred taxation relating to the origination and reversal of temporary differences
|
|
(59
|
)
|
|
(10,187
|
)
|
|
|
|
|
|
|
|
Income tax expense/(benefit)
|
|
2,026
|
|
|
(7,244
|
)
|
|
|
|
|
|
|
|
9
Dividends payable to equity shareholders
of the Company attributable to the year:
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
HK$000
|
|
HK$000
|
Interim dividend declared and paid of HK4 cents per ordinary share (2006: Nil)
|
|
24,635
|
|
|
Final dividend proposed after the balance sheet date of HK4 cents per ordinary share (2006: Nil)
|
|
24,660
|
|
|
|
|
|
|
|
|
|
49,295
|
|
|
|
|
|
|
|
The final dividend proposed after the balance sheet date has not been recognised as a liability at
the balance sheet date.
6
|
EARNINGS/(LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
HK$000
|
|
HK$000
|
|
Profit/(loss) attributable to shareholders
|
|
28,865
|
|
(92,241
|
)
|
|
|
|
|
|
|
Weighted average number of ordinary shares
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
No of shares
in thousand
|
|
No of shares in
thousand
|
Issued ordinary shares at 1 September
|
|
614,175
|
|
614,125
|
Effect of share options exercised
|
|
665
|
|
9
|
|
|
|
|
|
Weighted average number of ordinary shares
|
|
614,840
|
|
614,134
|
Incremental shares from assumed exercise of share options
|
|
16,479
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares (diluted)
|
|
631,319
|
|
614,134
|
|
|
|
|
|
Basic earnings/(loss) per share
|
|
HK4.7 cents
|
|
HK(15.0) cents
|
|
|
|
|
|
Diluted earnings/(loss) per share
|
|
HK4.6 cents
|
|
HK(15.0) cents
|
|
|
|
|
|
The number of shares used in the calculation of diluted loss per share for the year ended
31 August 2006 is equal to the number of shares used to calculate basic loss per share as the incremental effect of share options would be anti- dilutive in a loss-making year.
10
The majority of the
Groups accounts receivables are due within 30 days from the date of billings. Subscribers with receivables that are more than 3 months overdue are requested to settle all outstanding balances before any further credit is granted.
The aging analysis of the accounts receivable is as follows:
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
HK$000
|
|
|
HK$000
|
|
Current 30 days
|
|
50,282
|
|
|
58,700
|
|
31 60 days
|
|
15,619
|
|
|
13,277
|
|
61 90 days
|
|
8,876
|
|
|
9,442
|
|
Over 90 days
(note (i))
|
|
118,166
|
|
|
114,924
|
|
|
|
|
|
|
|
|
Less:
provision for doubtful debts
(note (ii))
|
|
192,943
|
|
|
196,343
|
|
|
|
(22,392
|
)
|
|
(55,745
|
)
|
|
|
|
|
|
|
|
|
|
170,551
|
|
|
140,598
|
|
|
|
|
|
|
|
|
Notes:
(i)
|
The amounts over 90 days for the Group included receivables relating to mobile interconnection charges of HK$103,847,000 for the year ended 31 August 2007 (31 August 2006:
HK$82,864,000).
|
(ii)
|
Provision for doubtful debts as at 31 August 2006 includes provision for mobile interconnection charges receivables of HK$20,809,000. Following TAs Final Determination (note
2(c)), the Group has written back HK$9,404,000 of the provision for mobile interconnection charges to the profit and loss account (note 3(a)(ii)) and written off the remaining balance of the provision of HK$11,405,000 against the accounts receivable
relating to mobile interconnection charges.
|
The aging analysis of the
accounts payable is as follows:
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
HK$000
|
|
HK$000
|
Current 30 days
|
|
18,025
|
|
15,395
|
31 60 days
|
|
11,097
|
|
8,284
|
61 90 days
|
|
3,655
|
|
6,874
|
Over 90 days
|
|
43,242
|
|
55,832
|
|
|
|
|
|
|
|
76,019
|
|
86,385
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
Share
premium
|
|
Capital
reserve
|
|
|
Retained
profits
|
|
|
Exchange
reserve
|
|
|
Total
|
|
|
|
HK$000
|
|
HK$000
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
|
HK$000
|
|
At 1 September 2006
|
|
61,417
|
|
620,298
|
|
12,993
|
|
|
196,289
|
|
|
657
|
|
|
891,654
|
|
Profit attributable to shareholders
|
|
|
|
|
|
|
|
|
28,865
|
|
|
|
|
|
28,865
|
|
Dividend declared and approved during the year
|
|
|
|
|
|
|
|
|
(24,635
|
)
|
|
|
|
|
(24,635
|
)
|
Share issued upon exercise of share option
|
|
233
|
|
2,135
|
|
(611
|
)
|
|
|
|
|
|
|
|
1,757
|
|
Equity settled share-based transaction
|
|
|
|
|
|
5,727
|
|
|
|
|
|
|
|
|
5,727
|
|
Exchange adjustments on translation of the financial statements of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
514
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 August 2007
|
|
61,650
|
|
622,433
|
|
18,109
|
|
|
200,519
|
|
|
1,171
|
|
|
903,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 September 2005
|
|
61,412
|
|
619,408
|
|
7,052
|
|
|
288,530
|
|
|
840
|
|
|
977,242
|
|
Loss attributable to shareholders
|
|
|
|
|
|
|
|
|
(92,241
|
)
|
|
|
|
|
(92,241
|
)
|
Share issued upon exercise of share option
|
|
5
|
|
8
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Equity settled share-based transaction
|
|
|
|
882
|
|
5,941
|
|
|
|
|
|
|
|
|
6,823
|
|
Exchange adjustments on translation of the financial statements of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
(183
|
)
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 August 2006
|
|
61,417
|
|
620,298
|
|
12,993
|
|
|
196,289
|
|
|
657
|
|
|
891,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL REVIEW
The Groups consolidated turnover for the 12 months ended 31 August 2007 decreased by 1.6% to HK$1,141.3 million. FTNS turnover increased by 10.2% to HK$816.8 million but was insufficient to cover the decrease in International
Telecommunications Services (IDD) turnover of 22.4% to HK$324.5 million. FTNS now contributes 71.6% of our total turnover.
Despite of the slight decrease
in turnover, the Groups EBITDA grew strongly by 44.3% to HK$353.8 million driven by EBITDA margin expansion from 21.1% in FY06 to 31.0% in FY07. The significant improvement is a result of our focus on increasing average revenue per user (ARPU)
on FTNS business and also from enhancing operating efficiency over the last 18 months. Furthermore, the shift in the revenue composition from IDD to FTNS also represents a transition to a higher EBITDA margin business profile.
The Group recorded a profit attributable to our shareholders of HK$28.9 million in FY07, compared with a loss of HK$92.2 million in FY06. Basic earnings per share
reached HK4.7 cents in FY07, a turnaround from basic loss per share of HK15 cents in FY06.
12
LIQUIDITY AND CAPITAL RESOURCES
As at 31 August 2007, the Group had total cash position of HK$634.5 million (2006: HK$483.0 million) and outstanding borrowings of HK$953.8 million (2006: HK$950.4 million). Our long term liability consists
mainly of our 8.75% 10-year senior notes which amounted to HK$952.6 million (2006: HK$948.0 million). Our total cash position of HK$634.5 million, consisted of HK$532.9 million cash and bank balances, HK$87.2 million pledged bank deposits and
HK$14.4 million long term bank deposits.
Our capital expenditure for this year was HK$132.2 million, lower than the HK$322.9 million incurred for last
year. We are well within our stated intent to keep capital expenditure to below our EBITDA, hence driving up our gross cash balance. For FY07, the Group has generated a positive free cash flow of HK$221.6 million (2006: negative free cash flow of
HK$77.7 million).
The requirement of on-going capital expenditure on our network development will be met by internally generated cash flow and the
proceeds from senior notes issued in January 2005. We intend to limit our capital expenditure to below our EBITDA generation.
The debt maturity profiles
of the Group as at 31 August 2007 and 31 August 2006 were as follows:
|
|
|
|
|
|
|
31 August
2007
|
|
31 August
2006
|
|
|
|
|
HK$000
|
|
HK$000
|
Repayable within one year
|
|
835
|
|
1,297
|
Repayable in the second year
|
|
121
|
|
806
|
Repayable in the third to fifth year
|
|
254
|
|
270
|
Repayable after the fifth year
|
|
952,593
|
|
948,027
|
|
|
|
|
|
Total
|
|
953,803
|
|
950,400
|
|
|
|
|
|
At 31 August 2007, all outstanding borrowings are on fixed interest rate and the currency denomination
for the borrowings was as follows:
|
|
|
|
|
|
|
31 August
2007
|
|
31 August
2006
|
|
|
|
|
HK$000
|
|
HK$000
|
United States Dollars
|
|
|
|
|
Unsecured
|
|
952,593
|
|
948,027
|
Hong Kong Dollars
|
|
|
|
|
Unsecured
|
|
1,210
|
|
2,373
|
|
|
|
|
|
Total
|
|
953,803
|
|
950,400
|
|
|
|
|
|
13
The net debt to net asset gearing ratio of the Group for this year is 0.35 times which is calculated as below:
|
|
|
|
|
|
|
31 August
2007
|
|
31 August
2006
|
|
|
HK$000
|
|
HK$000
|
Net Debt
(note (a))
|
|
319,274
|
|
467,324
|
Net Asset
|
|
903,882
|
|
891,654
|
Gearing (times)
|
|
0.35
|
|
0.52
|
note (a):
Net of cash and bank balances, long
term bank deposits, term deposits and pledged bank deposits
CHARGE ON GROUP ASSETS
As at 31 August 2007, the Group had bank facilities of US$9.0 million which was secured by a pledged deposit of US$9.9 million. In addition, certain bank guarantees provided to suppliers and to utility vendors in
lieu of payment of utility deposits were secured by a pledged deposits of HK$10.0 million (compared to pledged deposits of US$9.9 million and HK$10.0 million as at 31 August 2006).
EXCHANGE RATES
The Groups foreign currency exposures mainly arise from its borrowings denominated in foreign
currency and from purchase of goods and services of its overseas operations. The Group periodically reviews the potential costs and benefits of hedging, and when necessary, the Group mainly uses forward foreign exchange contracts to manage the
currency exposure.
CONTINGENT LIABILITIES
As at
31 August 2007, the Group had total contingent liabilities in respect of guarantees provided to suppliers of HK$5.9 million (31 August 2006: HK$6.3 million) and to utility vendors in lieu of payment of utility deposits of HK$5.3 million
(31 August 2006: HK$5.3 million).
BUSINESS REVIEW
Fixed Telecom Network Services (FTNS)
FTNS is the core business of the Group, generating 71.6% of our total revenues. Total FTNS
subscription
base, including all registered paid and free, on-net and off-net subscriptions, increased by 66,000 to 683,000 as of 31 August 2007. Of
the total 66,000 net additions, 42,000 was achieved in the second half of the financial year. We believe this return to growth is an indicator that the market has now accepted a premium pricing positioning.
Broadband remains our core service. We are the market leaders in terms of symmetric bandwidth. During the year we raised our entry service level from 10Mbps to 25Mbps,
such that our range of offerings now consist of bb25, bb50, bb100, bb200 and bb1000. As such, our entry level service of symmetric 25Mbps is already beyond mass capability of our competitors.
14
During the year, we formally launched Special Duty Unit (SDU) single point of contact customer
care system, whereby every residential broadband customer is assigned a personal account executive, similar to the services offered by premium banks. In this process, we are upgrading our talents mindset from transaction based to customer
ownership.
Due to our technology and customer service differentiation, we continue to push up our broadband ARPU. For new and renewal contracts, our
monthly ARPU increased to HK$175/month in August 2007 versus HK$148/month in August 2006.
Following the previously established pool of word-of-mouth
referrals in August 2007, we started to drive a strategy of promoting the brand to a wider audience. A series of 1 minute mini program was broadcasted on television with the aim to educate the masses on why we need high bandwidth and why only
HKBNs network, not the incumbent network, can provide this bandwidth. The branding strategy will carry on to reinforce the needs on bandwidth of our existing subscribers and to change the mindset of potential subscribers.
International Telecom Services (IDD)
Our IDD business continued to
decline over the year as a result of continued competition on pricing and lower traffic volume. This trend is mainly influenced by the other available calling options driven by the growth of Voice-Over-IP (VOIP) in the market place and also, the
bundling of IDD minutes with other product offerings which continued to reduce its standalone profitability.
Our IDD traffic volume fell from
788.0 million minutes in FY06 to 659.0 million minutes in FY07 which partially due to our proactive migration from sunset IDD service to our long term sustainable FTNS international VOIP service, branded as 2b.
Costs
Embraced by our next generation network foundation, last
years operational efficiency plan and decentralization of authority to department heads, our operating costs declined from HK$1,195.3 million in FY2006 to HK$1,048.7 million in FY2007, representing a drop of 12.3%. Majority of the cost savings
came from reduced Network costs and cost of inventories and Staff costs. As the bulk of the network costs of FTNS business is fixed up to a certain scale, the savings from this cost component has helped profit margin
considerably. In addition, due to the change in accounting estimate on estimated useful lives of certain telecommunications equipments, depreciation expense for the year decreased by HK$15.9 million. Such change has been accounted for prospectively
from 1 June 2007.
PROSPECTS
The market is
polarizing with different business strategies being embraced by the incumbent and ourselves. Whereas the incumbent in investing heavily in exclusive contents, we continue to invest in our Metro Ethernet infrastructure. In September 2007, we launch
our Fiber-To-The-Home service at commercially attractive rates to further extend our technology differentiation relative to the incumbent and other competitors. Even prior to us dropping the bb10 service offered to new customers, the fact that more
than 60% of our current subscriptions were bb25 or above services confirmed that there is market demand for ultra-high bandwidth services, i.e. customers feel the need for speed.
15
Our strategy is to commoditise bandwidth, i.e. make symmetric 100 Mbps broadband service as the standard in the territory
over time. With this in mind, we have set a 3-year target to expand from our current home pass of 1.4 million to 2.0 million home pass (approximately 90% population coverage) by 2010. We expect that with increased economies of scale, we
aim to push our profit margins north.
FINAL DIVIDEND
The Board has recommended to pay a final dividend of HK4 cents per share. The Company proposes that a scrip dividend option will be offered to all shareholders excluding shareholders with registered addresses outside Hong Kong (whom the
Company upon proper enquiries considers such exclusion necessary or expedient on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place).
Subject to the approval of the shareholders at the forthcoming Annual General Meeting, the final dividend will be distributed on or about 4 February 2008 to shareholders whose names appear on the register of members of the Company as at the
close of business on 21 December 2007.
EMPLOYEE RELATIONS
As of 31 August 2007, the Group had 2,692 permanent full-time employees versus 2,565 as of 31 August 2006, the total staff related cost was HK$383.8 million for FY07 versus HK$420.5 million in FY06 which mainly benefited from
streamlining the work force last year. We upgraded our focus from human resources to talent management with the objective of hiring only the best people those who have common passion in the Group vision.
The Group offers remuneration packages consisting of basic salary, bonus and other benefits. Bonus payments are discretionary and dependent on performance of both the
Group and the individual employee. In addition to the comprehensive medical and life insurance coverage, the Group provides share options as well as competitive retirement benefits.
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES
The Company has not redeemed any of its listed securities during
the year. Neither the Company nor any of its subsidiaries has purchased or sold any of the Companys listed securities during the year.
COMPLIANCE
WITH CODE ON CORPORATE GOVERNANCE PRACTICES
For the year ended 31 August 2007, the Company has complied with the code provisions of the Code on
Corporate Governance Practices as set out in Appendix 14 of the Listing Rules except that Mr. Wong Wai Kay, Ricky (as Chairman of the Board and executive director) did not attend the last Annual General Meeting on 29 December 2006 due to other
engagements. Mr. Lai Ni Quiaque (as executive director, Chief Financial Officer and member of the Remuneration Committee) and Mr. Lee Hon Ying, John (as independent non-executive director, Chairman of both the Audit Committee and Remuneration
Committee) attended that Annual General Meeting.
16
CLOSURE OF REGISTER OF MEMBERS
The register of members of the Company will be closed from 19 December 2007 to 21 December 2007, both dates inclusive. In order to qualify for the proposed final dividend, all transfer documents accompanied
by the relevant share certificates, must be lodged with the Companys Share Registrar, Computershare Hong Kong Investor Services Limited at Shops 17121716, 17th Floor, Hopewell Centre, 183 Queens Road East, Hong Kong for
registration not later than 4:30 pm on 18 December 2007. The final dividend will be paid on or about 4 February 2008.
AUDIT COMMITTEE
The Audit Committee has reviewed with management the accounting principles and practices adopted by the Group and discussed auditing, internal controls and
financial reporting matters including a review of the full year financial statements and reports for the year ended 31 August 2007. The Audit Committee comprises Mr. Lee Hon Ying, John (the Chairman of the Audit Committee and independent
non-executive director), Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu who are the independent non-executive directors of the Company.
GENERAL
INFORMATION
The unqualified auditors report will be included in the annual report to shareholders.
PUBLICATION OF DETAILED ANNUAL RESULTS ON THE WEBSITE OF THE STOCK EXCHANGE OF HONG KONG LIMITED
Detailed annual results containing the information required by Appendix 16 of the Listing Rules will be
published on the
website of The Stock Exchange of Hong Kong Limited in due course.
ANNUAL GENERAL MEETING
It is proposed that the Annual General Meeting of the Company will be held on 24 December 2007. Notice of the Annual General Meeting will be published and issued to
shareholders on or about 29 November 2007.
As at the date of this announcement, the executive directors of the Company are Mr. Wong Wai Kay,
Ricky (Chairman), Mr. Cheung Chi Kin, Paul (Chief Executive Officer), Mr. Lai Ni Quiaque (Chief Financial Officer); the non-executive director is Mr. Cheng Mo Chi, Moses; and the independent non- executive directors are Mr. Lee Hon Ying, John,
Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu.
By Order of the Board
Lai Ni Quiaque
Chief Financial Officer and Executive Director
Hong Kong, 22 November 2007
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