UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF
1934
November 17, 2010
CITY TELECOM (H.K.) LIMITED
(Translation of registrants name into English)
Level 39
Tower I, Metroplaza
No. 223 Hing Fong Road
Kwai Chung
New Territories
Hong Kong
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
x
Form
20-F
¨
Form 40-F
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934:
¨
Yes
x
No
If Yes is marked, indicate below the file number
assigned to the registrant in connection with Rule 12g3-2(b):
n/a
City Telecom (H.K.) Limited (the
Company) is furnishing under cover of Form 6-K the Companys annual report and audited consolidated financial statements for the year ended August 31, 2010.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
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CITY TELECOM (H.K.) LIMITED
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By:
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S
/ L
AI
N
I
Q
UIAQUE
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Name:
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Lai Ni Quiaque
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Title:
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Executive Director, Chief Financial Officer and
Company Secretary
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Dated: November 17, 2010
CTI
City Telecom (H.K.) Limited
Stock Code HKEX: 1137;
NASDAQ: CTEL
: 1137;
: CTEL
ANNUAL REPORT 2010
Fibre-Wonderland:
Network for
Our Next Generation
Models: Zoie, Poon Hiu Tung and Wong Hei Lam
Fibre
Wonderland: Network for Our Next Generation
In the classic 1865 novel Alice in Wonderland by
Lewis Carroll, Alice falls down a rabbit hole and enters a world of fantasy where amazing things happen. Today Hong Kong enjoys a Fibre Wonderland with some the Worlds most compelling broadband service offerings.
At City Telecom, we have rolled out our Fibre based network with our Next Generation in mind, to help them fulfill their
dreams and full potential.
The story of Fibre Wonderland unfolds as Zoie and Hei Lam jump through
a manhole and discover a colorful and playful world that is filled with fun and infinite possibilities enabled by Fibre. All the beautiful children featured in this years report are Next Generation of our Talents.
Financial
Highlights
1 2 3 4
26 27 28 Chairmans Statement 30
25 49 50 51
52
24 Talent Engagement Supplement 64 65 Fib
47 63 Our
62 Financial Information 60
23 46 45 44 43 42
22 Products at a Glance 20 19
5 6 7 8
Statistical Review
31 32 33 34 10
53 Profile of Directors and Senior Management 55 35 11
re-Wonderland: Network for Next Generation 56 Managements Discussion and Analysis
59 58 57 37 12
Marketing Campaigns 40 39 38 13
18 17 16 15 Major Milestones and Events
contents
Financial Highlights 2
Statistical Review 4
Major Milestones and Events
6
Products at a Glance 8
Chairmans Statement 12
Managements
Discussion and Analysis 16
Marketing Campaigns 22
Talent Engagement Supplement 24
Profile of Directors and Senior Management 32
Financial Information
Corporate Governance Report 37
Report of the
Directors 48
Independent Auditors Report 58
Consolidated Income Statement 59
Consolidated Statement of Comprehensive Income 60
Balance Sheet 61
Consolidated Statement of Changes in Equity 63
Consolidated Cash Flow Statement 64
Notes to the Financial Statements 65
Five-Year
Financial Summary 123
Corporate Information 124
Established in 1992, City Telecom (H.K.) Limited (SEHK : 1137, NASDAQ : CTEL) is a fast growing and innovative provider of
residential and corporate fixed telecommunications network and international telecommunications services in Hong Kong. Its wholly-owned subsidiary, Hong Kong Broadband Network Limited, is a major fixed telecommunications network services operator,
providing broadband Internet access up to 1 Gbps, telephony, IPTV, corporate data services with its self-built Metro Ethernet IP network and fibre network. In addition to the operations in Hong Kong, the Group also has branch offices in Canada and
Guangzhou, China.
Financial
Highlights
2 City Telecom (H.K.) Limited Annual Report 2010
In thousands of
Hong Kong dollars except for per share amounts and ratios
For the year ended
31 August 2010 31 August 2009
Turnover 1,574,687 1,478,239
Earnings before
interest, tax, depreciation and amortization (EBITDA1) 469,437 508,058
EBITDA margin 29.8% 34.4%
Core EBITDA2 479,087 476,687
Core EBITDA margin 30.4% 32.2%
Profit
attributable to shareholders 216,866 212,829
Earnings per share
Basic (HK cents) 30.7 29.4 32.4 31.8
Diluted (HK cents) 20.0 19.0
Total
dividend declared per share (HK cents)
Interim 6.5 3.0
Final 13.5 16.0
Capital Expenditures 344,844 286,734
Adjusted
free cash flow3 113,730 171,066
As at 31 August 2010 As at 31 August 2009
Cash at bank and in hand 588,665 226,416
Total outstanding borrowings 134,662 168,682
Total equity attributable to equity shareholders 1,688,539 1,228,527
Shares in issue (in thousands) 764,997 664,180
Net asset per share (HK$) 2.21 1.85
Net gearing
ratio (net debt/net assets)4 N/A N/A
1 EBITDA for any period means, without duplication, net income/(loss) for
such period, plus the following to the extent deducted in calculating such net income/(loss): interest expense/(income), income taxes, depreciation and amortization expense (excluding any such non cash charge to the extent it represents an accrual
of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation).
2 Core EBITDA represents the EBITDA for any period plus or deduct any net (loss) or gain from extinguishment of 10-year senior notes.
3 Adjusted free cash flow means EBITDA minus capital expenditure and net finance costs (finance costs minus interest
income).
4 As the Group was in net cash position as at 31 August 2009 and 31 August 2010, no net gearing
ratio was presented.
City Telecom (H.K.) Limited Annual Report 2010 3
Statistical
Review
Turnover
HK$000
06 1,159,579
07 1,141,270
08 1,302,981
09 1,478,239
10 1,574,687
Number of Registered Broadband Subscriptions
06
220,000
07 247,000
08 316,000
09 319,000
10 526,000
Number of Registered Voice-Over-IP Subscriptions
06 281,000
07 308,000
08 329,000
09 382,000
10 431,000
Number of Registered IP-TV
Subscriptions
06 116,000
07 128,000
08 156,000
09 170,000
10 153,000
4 City Telecom (H.K.) Limited Annual
Report 2010
Number of
Registered International Telecommunications Accounts
06 2,202,000
07 2,331,000
08 2,336,000
09 2,383,000
10 2,445,000
International Telecommunications Traffic Volume Million Minutes
06 788
07 659
08 574
09 487
10 464
Turnover by Principal Activities In 2010
Fixed Telecommunications Network Services
86.1%
International Telecommunications Services
13.9%
City Telecom (H.K.) Limited Annual Report 2010 5
Major
Milestones and Events
2009 Nov
AWESOME SPEED. FOR EVERYONE with Member-Get-Member plan, offering 100Mbps broadband at HK$99/month (US$13)
2010 Mar
City Telecom celebrated 10 Years on NASDAQ
HKBN
launched bb100 + WiFi services at Hong Kong International Airport
1992 May
City Telecom (H.K.) Limited
(City Telecom) was incorporated in Hong Kong
1997 Jan
Launch of IDD300 Calling Service
Mar
Set up INC (the Specialized IDD Network for Corporations) for corporate sector
Aug
City Telecom was listed on The Stock Exchange
of Hong Kong Limited
1998 Nov
The first company to receive the license
of
International Simple Resale voice service in Hong Kong
1999 Jan
Launch of IDD 1666 Direct Calling Service
Nov
ADR listing on the NASDAQ National Market of
USA
2000 Feb
Hong Kong Broadband Network Limited (HKBN), a subsidiary of City Telecom obtained the local wireless FTNS license
Mar
Launch of Broadband Internet services by HKBN
2001 May
CTI International Limited was awarded the Satellite-based Fixed Carrier license
2002 Apr
HKBN officially launched local on-net
VoIP
telephony service, and upgraded to become a wireline-based FTNS licensee
Jun
Launch of HKBN IDD0030 service
2003 Aug
HKBN officially launched IP-TV service
6 City Telecom (H.K.) Limited Annual Report 2010
1000M Singapore
Tour
Apr
HKBN launched 1 Gbps broadband at HK$199/month (US$26)
Jun
AWESOME Management Offsite in Germany for 71
executives
Sep
PHENOMENAL Singapore Experience for our Top 350 Front Line Talents
2004
Jul HKBN launched corporate data services
Aug HKBN launched off-net residential VoIP service, namely, the Broadband Phone Service
Nov HKBN announced the launch of bb100, Hong Kongs first 100Mbps residential broadband service
2005
Apr HKBN launched bb1000 Fibre-To-The-Home 1Gbps residential broadband service
Oct HKBN launched 2b Broadband Phone Service, providing VoIP service to local and overseas users via software version broadband phone
2006
Sep City Telecom enhanced Work-Life Balance
with
the launch of eight employee-beneficial measures
2007
Mar HKBN enhanced Digital TV Platform and launched new application bbBOX
2008
Jan HKBN launched Dual Mode High Definition
Terrestrial TV Receiver and IPTV Set-Top-Box
HKBN launched free WiFi service at public rental housing estates
Feb HKBN awarded contract for the provision of payphone service at the Hong Kong International Airport
2009
Feb City Telecom launched Talent upgrade
program: Next Station: University
Nov City Telecom received Innovation in
Recruitment and Champion of HR awards at the HRM Awards 2009
Dec HKBN shattered the one-millionth mark for Fixed Telecommunications Network Services subscriptions
2010
Feb HKBN took on climate change with expedition to the Antarctica
City Telecom (H.K.) Limited Annual Report 2010 7
Products at a
Glance
IDD
CTI 1666 IDD 0030
With advanced technology, CTI
and HKBN endeavor to provide good quality of international direct calling services to destinations around the world.
Broadband Services
bb100 Mbps FibreHome1000
With Fiber-To-The-Home (FTTH) and Fiber-To-The-Building (FTTB) technologies and our
network coverage throughout 18 districts in Hong Kong, we offer amazingly fast and stable broadband services.
IP TV Service
bbTV HK BROADBAND
bbTV service now delivers
around 110 TV channels, including 24-hour news channel, movies, animation, Chinese opera, financial news, international news and entertainment as well as interactive channels, such as stock quote, ringtone download and interactive quiz.
8 City Telecom (H.K.) Limited Annual Report 2010
Value Added
Services
bbMAX Maximize The Power Of bb
bbMAX includes:
bbWI-FI
bbWI-FI
With more than 2,000 hotspots located conveniently at major shopping centres & dining districts, bbWI-FI provides
high-speed and reliable mobile broadband access throughout the territory.
bbGUARD
bbGUARD
Filter away problematic and spam virus emails at the server before reaching email in-box.
getFAXEASY FAX
getFAXEASY
Receive fax without a fax machine. Simply converts all faxes into e-mails.
bbDRIVE
bbDRIVE
Provide online virtual storage up to
10GB, user-friendly interface and limitless volume file transfer; Users can also back-up their important documents/files safely with bbDRIVE.
bbWATCH
bbWATCH
Allow users to enjoy a variety of informative and entertaining TV programs via computer. No more time and geographical
constraint.
Telephony Service
HOMETEL
With number portability and option of 14
different value-added services to users.
City Telecom (H.K.) Limited Annual Report 2010 9
MMORPG Game
Store
Online Massively Multiplayer Online Role Playing (MMORPG) Game stores with exclusive virtual
goodies
Online Game Credits Platform
game.hkbn.net
HKBN continues to nurture our
partnerships with the leading Massively Multiplayer Online Role Playing Game developers in the Greater China Region during the year. With the launch of brand-new online game credit store, HKBN users can now purchase game points online at discounted
prices, with premium of fascinating virtual goodies, whilst they are playing in the convenience of their homes.
Stepping forward, HKBN is striving to further expand partnerships with prime entertainment suppliers, aiming to provide
all-round entertaining experience to our customers.
10 City Telecom (H.K.) Limited Annual Report 2010
Online Gaming
Partners
alta multimedia
ba bi
CS SOFT CENTURYSOFT INTERNATIONAL LIMITED
egame Company Ltd.
www.funtown.com.hk
gamania www.gamania.com.hk
gameone
MEGA TREND
MOCHA
NC TAIWAN In Partnership with Gamania
RUNUP RUN UP GAME DISTRIBUTION LTD
UBISOFT
YOOP GAME
City Telecom (H.K.) Limited Annual Report 2010 11
Chairmans
Statement
Dear Fellow Shareholders,
Key performance indicators for the Groups results for 12 months to 31 August 2010 (FY2010), in terms of record net growth of broadband subscription, flat core EBITDA and
assertive network coverage expansion have all met our targets set one year ago.
Firstly, we achieved record
broadband net subscription additions of 135,000 to 526,000 as of 31 August 2010, i.e. 34.5% year on year growth, mainly by taking market share in a saturated market. From being the smallest of four major carriers in Hong Kong three years ago,
we believe we are now the second largest and the only carrier to consistently gain market share over the past three years.
Secondly, we have maintained core EBITDA essentially flat at HK$479.1 million (HK$469.4 million add back HK$9.7 million loss on extinguishment of 10-year senior notes). Lastly, our network
coverage has been extended by 150,000 to 1.77 million home passes as of 31 August 2010, according to our plan.
In the next two financial years, FY2011 and FY2012, we will be shifting our focus of development on raw subscription growth to harvesting our established scale. Since our broadband
subscription base has already exceeded 500,000, which we estimate to be bigger than the combined total number of subscriptions for the next two carriers, we expect to pace our subscription growth to about 70,000 to 80,000 per year and focus on
harvesting profitability. For FY2011, we expect a better performance on our turnover and profitability, targeting EBITDA of HK$580 million.
We are also planning to extend our network coverage towards 2.0 million home passes by 31 December 2011, after which, we expect our capital expenditure on our fixed
telecommunications network infrastructure will be reduced significantly from around 20.0% of turnover currently to approximately 10.0% of turnover. With anticipated growth in turnover and reduction in capital expenditure, fixed telecommunications
network business shall deliver robust free cash flow (EBITDA less capital expenditure) growth after calendar year 2011.
12 City Telecom (H.K.) Limited Annual Report 2010
Whilst we are
well on track four years into our 10-year Big, Hairy, Audacious Goal (BHAG) of becoming the largest Internet Protocol service provider in Hong Kong by 2016, we are already looking for new incremental business prospects to drive our next 10-year BHAG
to 2026. One opportunity we see is the domestic free TV market. Whether it is Internet TV, free TV, or Pay-TV, we are studying thoroughly the convergence trends globally and locally. The market is changing drastically, and we see exciting
opportunities to leverage our fiber infrastructure as well as our accumulated intellectual wealth having been in the IP-TV business since 2003.
City Telecom (H.K.) Limited Annual Report 2010 13
Chairmans
Statement
New technological developments, changes of business models for sporting channels and evolving
audiences taste as living standards rise, will bring dynamic new business opportunities. Of course, we also anticipated fierce competition in the free TV market, especially with two other potential new entrants into the market. We shall
proactively keep a close watch on the associated investment opportunities and development projects, and base our decisions on the long term interests of our shareholders.
Internally, the Groups management will focus even more on internal audit and Talent development. We believe, although vigorous internal auditing might increase paperwork and hence
place additional burden on our Talents, in order to make the company more systematic, optimise risk management and to ensure long term and sustainable development, enhancing internal audit function is paramount.
14 City Telecom (H.K.) Limited Annual Report 2010
We will also
continue to place heavy emphasis on Talent learning and development. As an 18 years old company, we are relatively green compared to other sizable corporations, with a management team of average age still in the 30s. The knowledge, execution
capability and vision of our team needs to be nurtured to evolve into a mature and impeccable management team.
Lastly, we propose to update our dividend payout policy. Until now, our dividend payout policy has been based on 50-75% of
adjusted free cash flow, defined as EBITDA less, capital expenditure and net finance costs. However, as our balance sheet situation has now improved to net cash position and our core capital expenditure should peak in FY2011, we now propose to
update our dividend payout policy to 60-90% of net profits to tally with the practice of our industry peers.
With this change in policy, we are proposing a full year FY2010 dividend totalling HK20 cents (HK6.5 cents for interim
dividend and HK13.5 cents for final dividend), consistent with FY2009 dividend totalling HK19 cents (HK3 cents for interim dividend and HK16 cents for final dividend). For FY2011, we aim to maintain our dividend payout at 60-90% of net profits. This
more relaxing policy shall be maintained until the next major investment opportunity appears, and we shall consider further review then.
Wong Wai Kay, Ricky
Chairman
9 November 2010
City Telecom (H.K.) Limited Annual Report 2010 15
Managements Discussion And Analysis
BUSINESS REVIEW
City Telecom executed within our
guidance for FY2010, meeting the financial and operational targets we set at the beginning of the financial year. The record subscription growth that we achieved during the year, despite our competitors matching our prices, is reflective of our
Fibre bandwidth advantage and expanding network coverage. We have been free cash flow positive since FY2007 and ended FY2010 with a strong net cash position.
Overall, we delivered what we promised to the financial community at the beginning of the financial year:
record 135,000 net additions to 526,000 broadband subscriptions by 31 August 2010, compared with guidance to exceed 510,000 broadband subscriptions
core EBITDA of HK$479.1 million (HK$469.4 million add back HK$9.7 million loss on extinguishment of 10-year senior
notes), in line with FY2009 core EBITDA figure
capital expenditure HK$344.8 million, within the
announced range of HK$300 million to HK$350 million.
For FY2010, our strategic focus was to grab broadband
market share, and build a base camp for our push towards our 10-year Big, Hairy, Audacious Goal (BHAG) of becoming the largest Internet Protocol service provider in Hong Kong by 2016. To achieve our BHAG, we need to add about 70,000 to
80,000 net additions every year, for 10 years; in FY2009 we added 75,000 net additions to 391,000 and in FY2010, we added record growth of 135,000 net additions to 526,000 broadband subscriptions as at 31 August 2010.
16 City Telecom (H.K.) Limited Annual Report 2010
In November
2009, we launched our HK$99/month AWESOME SPEED. FOR EVERYONE Member-Get-Member marketing campaign, assertively cutting the headline rate of our 100Mbps broadband service by half. Despite this price cut which impacts both acquisition and
retention pricing, we were still able to achieve moderate growth in our turnover by 6.5% year-on-year to HK$1,574.7 million, comprised 10.2% to HK$1,356.1 million for our Fixed Telecom Network Services (FTNS) business which more than offset the
11.6% decline to HK$218.6 million for International Telecommunications Service (IDD) business. Our FTNS business now contributes 86.1% of the Groups turnover and this uptrend should continue while phasing down our IDD business.
Despite the record growth and the fact that majority of the associated acquisition cost is expensed as incurred, we
managed to maintain a stable core EBITDA of HK$479.1 million in FY2010 versus core EBITDA of HK$476.7 million in FY2009. Core EBITDA is defined as EBITDA minus/plus the gain/(loss) on extinguishment of 10-year senior notes in FY2009 and FY2010,
which is considered as non-operating in nature, and is summarised as below:
2010 2009
HK$ million HK$ million
EBITDA 469.4 508.1
Loss/(gain) on
extinguishment of 10-year
senior notes 9.7(31.4)
Core EBITDA 479.1 476.7
EBITDA margin 29.8% 34.4%
Core EBITDA margin 30.4% 32.2%
For FY2010, we
incurred capital expenditure of HK$344.8 million which is within our guidance of HK$300 million to HK$350 million. The bulk of the capital expenditure was for expansion of our homes pass by 150,000 to 1.77 million as of 31 August 2010, such that we
remain on track to approach 2.0 million homes pass by 31 December 2011.
During FY2010, we benefited from the
buy-back and full redemption of our 10-year senior notes, leading to net finance costs falling from HK$50.3 million in FY2009 to HK$10.9 million in FY2010. We take an extremely conservative stance to financing, hence we have entered into a 5-year
interest rate swap arrangement to match our gross debt profile, which resulted in a non-cash unrealized finance cost of HK$11.3 million due to the change in fair value of the interest rate swap contract.
City Telecom (H.K.) Limited Annual Report 2010 17
Managements Discussion And Analysis
After deducting HK$42.7 million income tax expenses which included HK$40.1 million non-cash deferred taxation, the net profit attributable to shareholders for FY2010 reached HK$216.9
million, compared to HK$212.8 million in FY2009.
Fixed Telecommunications Network Services (FTNS)
At the beginning of FY2010, we set out strategy to grow our broadband customer base assertively. 12-month has now passed
and we delivered what we have promised - a record growth of 135,000 net additions to 526,000 broadband subscriptions representing approximately 25% market share in the broadband subscription market. This record high gain in broadband subscriptions
in FY2010 was driven by the success of our AWESOME SPEED. FOR EVERYONE promotion, which lasted for 10 months between November 2009 to August 2010. This promotion included a Member-Get-Member marketing campaign which halved
the headline price of our symmetric 100 Mbps broadband service to HK$99/month if you bring in an additional friend at HK$99/month, i.e. we were essentially trading up one subscriber at broadband bundle blended ARPU in August 2009 of HK$182/month for
two subscriptions at basic rate of HK$99/month. When we launched the campaign in November 2009, our competitors quickly copied or even priced below HK$99/month, but we nonetheless, was able to dominate the market share gains due to our superior
bandwidth and network coverage. We estimate that during the year to 31 August 2010, the whole broadband market grew by 145,000 subscribers ((2,093,038 as of 31 July 2010 less 1,960,118 as 31 August 2009) x 12/11) of which we added 93% or 135,000.
On 14 April 2010, we started to pave the way for an ARPU increase with the launch of our 1000 Mbps broadband
service at HK$199/month which we will aim to upgrade our 100 Mbps customer base over time. Furthermore, effective from 1 September 2010, we raised our basic bb100 standalone price by 70.7% to HK$169/month and also introduced our triple-play package
of 100Mbps broadband, home telephone and IP-TV services for HK$199/month, which we expect to position as our new mainstream package.
Our very low churn rate of below 1.0% per month suggests us that we are under-pricing our service, which was necessitated by our desire to grow market share. We believe that once customers
have become addicted to our higher bandwidth Fibre-based services, it will be very difficult for them to return to legacy copper based xDSL services. Our bandwidth advantage is becoming more and more apparent with the proliferation of high
definition video and multiple internet-enabled devices at home such as smartphones, tablets and WiFi TV etc.
On local telephony, we added 49,000 net additions to 431,000 subscriptions in an overall market that is already matured.
On IP-TV, we had 17,000 net declines to 153,000 subscriptions, as we proactively churned off free or low
paying IP-TV subscribers and redeployed the set-top-boxes to higher yielding customers. We continue to enhance our channel variety so as to increase the content value to our customers. We are now offering around 110 channels with selective additions
throughout the year, including Disney Channel, Discovery Channel, Hallmark, SCI FI, TRACE music channel, Anyplex Video-On-Demand service for latest Hollywood blockbusters and a bilingual KidsCo Channel.
18 City Telecom (H.K.) Limited Annual Report 2010
International
Telecommunications Services (IDD)
IDD revenue was down 11.6% to HK$218.6 million, contributed only 13.9% of
the Groups turnover. This segment continues to face intensive competition from traditional IDD as well as other Voice-Over-IP (VoIP) calling options, many of whom are offered free of charge plans on PC to PC platforms. Our IDD traffic volume
fell by 4.7% from 487 million minutes in FY2009 to 464 million minutes in FY2010. On IDD, our strategy is to focus on cash flow and profitability rather than market share.
LIQUIDITY AND CAPITAL RESOURCES
The Group
strengthened our financial position during the year under review. As of 31 August 2010, the Group had total cash and cash equivalents amounting to HK$588.7 million (31 August 2009: HK$226.5 million) and outstanding borrowing of HK$134.7 million (31
August 2009: HK$168.7 million), which led to a net cash position of HK$454.0 million (31 August 2009: HK$57.8 million). As of 31 August 2010, the Group had total unutilised banking facility and revolving loan facility of HK$220.5 million (31 August
2009: HK$197.2 million), of which HK$190 million revolving loan facility was cancelled in September 2010 to avoid incurring unnecessary finance costs.
Our long-term liability consists mainly of our outstanding 5-year bank loan which amounted to HK$123.6 million (31 August 2009: Our long term liability consists mainly of our outstanding
10-year senior notes of HK$162.6 million). There is no pledged bank deposit as at 31 August 2010 (31 August 2009: HK$15.0 million). During the year, the Group entered into a 5-year interest rate swap contract with a HK$175 million notional amount to
hedge against interest rate risk which is recognised initially at fair value and is remeasured at each balance sheet date.
During the year, given the growth of our high cash generating FTNS business and our strong cash balance, the Group fully repaid the then outstanding 10-year senior notes with principle
value of US$21.4 million (equivalent to approximately HK$165.6 million) through repurchase in the open market and early redemption at price equal to 104.375% of the principle amount. The repurchase and redemption were partially supported by a HK$125
million 5-year bank loan to take advantage of the low interest rate environment and also to maintain funding and capital structure flexibility.
The debt maturity profiles of the Group as of 31 August 2010 and 31 August 2009 were as follows:
2010 2009
HK$000 HK$000
Repayable within one year 10,702 5,566
Repayable in the second year 105 197
Repayable in
the third to
fifth year 123,855 263
Repayable after the fifth year - 162,656
Total
134,662 168,682
As of 31 August 2010, our outstanding borrowings bear fixed or floating interest rate and are
all denominated in Hong Kong dollars. As the Group was in net cash position for both FY2010 and FY2009, no gearing ratio is presented.
On 28 April 2010, we completed a placement of 80,500,000 new ordinary shares of the Company in the form of 4,025,000 American Depositary Shares (ADSs) (1 ADS = 20 ordinary
shares) and raised gross proceeds of US$52.3 million (equivalent to approximately HK$406.2 million). After deducting the underwriters fees and aggregate offering expenses paid by us, we intend to use the net proceeds to launch our new domestic
free television services in Hong Kong subject to license award, and the remainder of the proceeds for general corporate purposes.
One of our growth factors is to expand our fibre network coverage to reach 2.0 million residential homes pass by the end of calendar year 2011. We had a good progress in FY2010 with
150,000 homes pass additions to 1.77 million as of 31 August 2010, versus 140,000 homes pass addition to 1.62 million as of 31 August 2009. Our capital expenditure for this year was HK$344.8 million, higher than the same period
City Telecom (H.K.) Limited Annual Report 2010 19
Managements Discussion And Analysis
last year of
HK$286.7 million mainly for expanding our network coverage and customer-base. Although we are aggressively expanding our network, our policy to manage capital expenditure incurred below our EBITDA continues. During the year, the Group has generated
an adjusted free cash flow of HK$113.8 million, which is defined as EBITDA less capital expenditure and less net finance costs (2009: HK$171.1 million).
The on-going capital expenditure to complete our network coverage target will be mainly funded by internally generated cash flow. Our capital expenditure outlook for FY2011 is expected to
be about HK$320 million to HK$350 million. After we achieve our 2.0 million homes pass target by 31 December 2011, we expect our core capital expenditure to turnover ratios to approximately halve to 10% of turnover. Overall, the Groups
financial position remains sounded for continuous business and network expansion.
Charge on Groups
Assets
As of 31 August 2010, the Group has not been required for any pledged deposits to secure its banking
facilities (31 August 2009: HK$15.0 million for securing bank facilities of equivalent amount for issuing bank guarantees, letter of credits, hedging arrangements, bank loan and overdraft facilities).
Exchange Rates
All the Groups monetary assets and liabilities are primarily denominated in either Hong Kong dollars or United States dollars. Given the exchange rate of the Hong Kong dollar to the
United States dollar has remained close to the current pegged rate of HKD7.80 = USD1.00 since 1983, management does not expect significant foreign exchange gains or losses between the two currencies.
The Group is also exposed to a certain amount of foreign exchange risk based on fluctuations between the Hong Kong dollars
and the Renminbi arising from its operation in the Peoples Republic of China. In order to limit this foreign currency risk exposure, the Group maintained Renminbi cash balance that approximates two to three months of operating Renminbi
cash flows requirements.
Contingent Liabilities
As of 31 August 2010, the Group had total contingent liabilities in respect of guarantees provided to suppliers of HK$2.7
million (31 August 2009: HK$2.5 million) and to utility vendors in lieu of payment of utility deposits of HK$5.6 million (31 August 2009: HK$5.3 million).
Save as disclosed above, there are no material contingent liabilities or off-balance-sheet obligations.
PROSPECTS
Our primary focus in FY2010 was
assertive growth in our subscription base, while stepping into FY2011, we shift our focus from seed-planting to harvesting, i.e. from subscriber maximisation to profit maximisation. With our 526,000
broadband subscription base, widen distribution channels, together with our expanding 1.77 million residential homes pass fibre network, we have set the base camp for us to drive towards our 10-year BHAG of becoming the largest Internet Protocol
service provider by 2016.
Hence, for FY2011, our guidance on the key metrics is as below:
- broadband subscriptions growth from 526,000 as of 31 August 2010 to exceed 600,000 subscriptions by 31 August 2011
- EBITDA to exceed HK$580 million
20 City Telecom (H.K.) Limited Annual Report 2010
- capital
expenditure on telecommunications business of HK$320 million to HK$350 million
With these challenging key
performance targets being set, a clear message on this years direction was fully communicated to all Talents internally and stakeholders externally at the beginning of FY2011 - this year, we will move beyond subscribers, and focus on
profitability. We shall attack this goal through two pillars - grow revenues and enhance cost efficiency.
On
revenue side, a series of actions is undergoing to advance our top-line and bottom-line growth, including the below:
- On 19 August 2010, we announced to the public that effective from 1 September 2010, we ended the HK$99/month for symmetric 100Mbps broadband marketing offer towards either
HK$199/ month for 100Mbps triple play service or HK$199/ month for 1000Mbps broadband only service.
- During
FY2010, we have strengthened our exposure in the corporate market by extending our fibre network coverage to Grade A office buildings in locations such as International Finance Centre (IFC), International Commerce Centre (ICC), Pacific Place, The
Lee Gardens, Cyberport, One Island East, etc. This has paved the way for our corporate business growth from small-to-medium enterprises (SMEs) to large multinational corporations (MNCs).
On the cost side, do more with less is the way how we drive change and innovation within the Group - and we do
this by more than streamlining business processes - we change the way we do business:
- Instead of solely
relying on our sales executives for customer acquisition and contract renewal, we introduced on-line registration platform in late FY2009 and we used FY2010 to build the public awareness. This year, we will proactively and aggressively push this
channel to be one of our key distribution channels.
- With scaled subscription base of over half a million, we
have a gradual margin expansion from shifting our cost mix from customer acquisition cost at about 30% of contract sum to customer retention cost at about 10% of contract sum.
Whilst we are on a cost conscious mode, there is always one critical item that we do not hesitate for continuous investments - our Talents. We truly believe that our Talents are our future
who will lead the Group to attain our next 10-year BHAG in 2026.
DIVIDEND
In view of the strong balance sheet position and controllable CAPEX from FY2011 onwards, instead of relying on the
adjusted free cash flow, defined as EBITDA less capital expenditure less net finance costs, as the base for our dividend payout, we now consider that net profits is a better base to determine the dividend payout. While the cash generating capacity
of our FTNS business is continuously improving, to better return to our shareholders, we decided to further enhance our dividend payout policy to 60-90% of net profits. As such, the Board recommends a final dividend of HK13.5 cents per ordinary
share in respect of the year ended 31 August 2010 and this will bring the total dividend in respect of FY2010 to HK20 cents per ordinary share (FY2009: HK19 cents per ordinary share), representing a payout of approximately 65% of this
years net profits.
TALENT REMUNERATION
Including the directors of the Group, as at 31 August 2010, the Group had 3,232 permanent full-time Talents versus
3,173 as of 31 August 2009. The total Talent related cost was HK$563.1 million in FY2010 versus HK$546.6 million in FY2009 which was mainly due to resources increased for network expansion and for sales forces, and also for discretionary
performance reward for top-performing Talents.
The Group provides remuneration package consisting of basic
salary, bonus and other benefits. Bonus payments are discretionary and dependent on both the Groups and individual performances. The Group also provides comprehensive medical insurance coverage, competitive retirement benefits schemes, Talent
training programs and operates share option scheme.
City Telecom (H.K.) Limited Annual Report 2010 21
Marketing
Campaigns
To embrace the Support from our fans and to leverage the superiority of our ultra-high bandwidth
broadband services, HKBN has launched some victorious marketing campaigns within the year. With overwhelming market response brought by the campaigns, HKBN successfully shattered the millionth mark for Fixed Telecom Network Services subscriptions by
the end of 2009.
AWESOME SPEED. FOR EVERYONE
100Mbps broadband service at HK$99/month (US$13).
Bb100|$99/
Handbill
Mr. William Yeung, Chief Executive Officer at the Press Conference
22 City Telecom(H.K.) Limited Annual Report 2010
1 Gbps
Broadband
Symmetric 1Gbps broadband service at HK$199/month (US$26).
Printed advertisement
Billboards at prominent locations
bb100 Broadband
Combo
100Mbps broadband service with
HomeTel and bbTV selected pack at HK$199/month (US$26).
Printed advertisement
City Telecom (H.K.) Limited
Annual Report 2010 23
Talent
Engagement Supplement
To fulfill the desire of Self-Actualization and to become everything that one is
capable of becoming
City Telecom Vison Statement, Nov 2006
A reality of life is that during our working careers, we spend the majority of our awake time at the office. At City
Telecom, we want to make the most of this time, and look to offer a platform for our Talents to achieve Self-Actualization, as depicted by Maslows Hierarchy of Needs.
Carrot and Stick Approach
We use a carrot and
stick approach to developing our Talents. Whilst we offer lots of optional carrots, we will not hesitate to use sticks as needed. For example, whilst many companies have a stated objective to improve their English for better global communications,
we take concrete actions to make this happen. This is because we consider English to be a basic hygiene factor for our management grade that is essential for continuous learning, irrespective of the language that we conduct business in.
As such, we conducted a Language Check-up and made it mandatory for all our management grade Talents (100 Paxs), from the newly promoted managers to our Chairman to take the International English Language Testing System (IELTS) exam. We then set a
minimum standard of 6.5 out of 9.0 score for future management promotions and for this IELTS score to be integrated into our performance reviews.
To work towards Self-actualization, our Talents need to look beyond their daily operational requirements. This is why our Talent Engagement policies are designed to provide a wide range of
exposures for our Talents. Through the year, we offered wide range of activities and learning, a sample of which is listed in right:
Self-actualization
Esteem
Love/Belonging
Safety
Physiological
Maslows Hierarchy of Needs
morality, creativity, spontaneity, problem solving, lack of prejudice, acceptance of facts
self-esteem, confidence, achievement, respect of others, respect by others
friendship, family sexual intimacy
security of
body, of employment, of resources, of morality, of the family, of health and of property
breathing, food
water, sex, sleep, homeostasis, excretion
24 City Telecom (H.K.) Limited Annual Report 2010
Month in 2010
Functions
Number of our Talents involved
January
Lunar New Year & Valentines Day Cooking Class
82
January - April
Caring Program Evening Massage by Blind Massagist
578
February
Standard Chartered Hong Kong Marathon
2010
243
May
Organic Farm Visit with Underprivileged
Families
10
May
Green Program Hong Kong Geopark Tour
80
May
Volunteer Week Ronald McDonald House
Visit
16
May
Volunteer Week Fun Day with the
Elderly
37
May
Volunteer Week Voluntary Work in
Crossroads Foundation
20
July
Premiere of Disney-Pixars Toy
Story 3 with Orphans
100
July
35th Hong Kong International Dragon Boat
Races Media Cup
25
August
Hong Kong Museum of History Visit with New
Immigrant Children
8
August
Noahs Ark Visit with Underprivileged
Children
15
August
Make-up Class
60
September
Moon Cake Donation for the Elderly in
Kwai Chung
/
October
Star Gazing Camp for All & the Blind
23
October
Orbis Flying Eye Hospital Tour
8
October
Cleaning Teams Benchmark Visit to
Four Seasons Hotel
8
October
Afternoon Tai-Chi Class
18
October
PayTV Visit for the Elderly
5
October
International Coastal Cleanup 2010 50
Lunar New Year & Valentines Day Cooking Class
City Telecom (H.K.) Limited Annual Report 2010 25
Talent
Engagement Supplement
Standard Chartered Hong Kong Marathon 2010
Hong Kong Museum of History Visit with New Immigrant Children
26 City Telecom(H.K.) Limited Annual Report 2010
35th Hong Kong
International Dragon Boat Races - Championship - Media Cup
Star Gazing Camp for All & the Blind
City Telecom (H.K.) Limited Annual Report 2010
27
Talent
Engagement Supplement
Next Station University - Stage 2 Graduation, October 2010
In October 2010, we held our Stage 2 Graduation Celebration for Next Station University. Next Station
University is our four stage, four year, HK$110,000/Talent (US$14,000) partnership between City Telecom and 49 of our Talents for a 2nd chance at achieving their dream of a World Class University Degree. The partnership is based on Talents
investing their sweat equity of balancing family, full time career and studying, whilst City Telecom invests 80-90% of the course fees and arranges World Class lecturers to teach at our offices in Hong Kong and Guangzhou. This program is jointly
organized with the Hong Kong Management Association (HKMA) and our Talents will earn a Bachelor of Arts Degree in Business Management by University of Wales (UK) upon finishing the whole program.
We know we are likely to lose money on these 49 Talents, but we believe that they will act as catalysts and be an
inspiration to the rest of our 3,000 plus Talents. Each of them is an evangelist of CTIs learning culture and theyll inspire the people around them to much greater heights, both career and personal wise, Christy Wang, Assistant
Manager, Learning & Development.
For a video testimonial, by Mr Lam Lui, Customer Relations, Sales
Promoter - I didnt take advantage of my 1st chance provided by my parents. Now with my 2nd chance, I must complete it as there may not be a 3rd or 4th chance.
Video testimonial:
http://www.youtube.com/watch?v=nd_aC5yGvyY
Next Station University - Stage 2 Graduation Celebration
Lam Lui, Sales Promoter and Family
28 City
Telecom (H.K.) Limited Annual Report 2010
PHENOMENAL
Singapore Trip for TOP
Front Line Talents, September 2010
Whilst many companies in the service industry tend to outsource their customer contact points due to the labor intensive
nature of this business, we look to keep the far majority of our customer contact points in-house, hence our pool of over 3,000 full time Talents spread between Hong Kong and Guangzhou.
Whilst our Talent development policies are extremely tough, for example, we terminate the bottom 5% of our headcount
annually. Once they are identified to be the bottom 5%, they have 3-6 months to improve; otherwise, they know they will lose their jobs. This allows us to concentrate on nurturing and rewarding our top 95% performers. Given that we set very
aggressive performance targets a year ago and we have since achieved them, this PHENOMENAL Singapore Experience is a reward trip for our top 350 non-management grade front line Talents, who have shown exceptional customer service, be it external or
internal.
Approximately half of the total participants were from our Guangzhou call centre, and for many, this
was their first international trip. The full trip album can be downloaded at http://reg.hkbn.net/ctigroup_admin/files_upload/201009_ Trip_Summary_Singapore.pdf
Chan Kwok Ching, Senior Sales Executive, Hong Kong, Corporate feel - not stand-alone individual!
Zhang Xiao Long, Telesales Executive, Guangzhou, A great opportunity to meet HK teammates, and facilitate the networking thereafter
Mak Chiu Lai, Office Cleaner, Hong Kong,
Very excited - its the first time for me to go overseas
Singapore Trip
City Telecom (H.K.) Limited Annual
Report 2010 29
Talent
Engagement Supplement
AWESOME Germany Trip for Management, June 2010
We took our top 71 executives for an AWESOME management offsite in Germany, which is in line with our decade old tradition
of using offsites to develop our management teamwork.
This AWESOME management offsite was designed
specifically to deliver out-of-the-box experiences, including visit to Porsche factory in Leipzig, hiking and camping at Black Forest in Titisee, wine tasting at a vineyard in Rudesheim, etc. We hope that by widening our life experiences, we will be
more open to implementing out-of-the-box experiences in our work environment.
During the trip, the most
inspiring insight that we gained actually came from visiting a small farm that had been in the same family for 500 years. During the visit, the farmer talked about cutting 80-year old trees that his grandfather planted and then seeding new trees for
his grandchildren to harvest. This really brought home the need for us, that a company needs to think long term rather than the typical quarterly mindset that dominates the mindset of many listed companies.
The full trip album can be downloaded at http://ctigroup.hkbn.com.hk/hr/Germany_Photo.htm Life Program
Exploration Program
To help Talents exploring life and live their dreams, we have been striving
continuously with different approaches through the year. In the past 12 months, there are a total of 1,022 individual conversations with the psychological counseling consultant, with an average of 9 Talents initiated to join the program in each
month.
Mr. Chong Chan Yau, President of Hong Kong Blind Union sharing on How to overcome challenges in
life
Germany Trip
30 City Telecom (H.K.) Limited Annual Report 2010
CUSTOMER
ENGAGEMENT SUPPLEMENT
In the past three years, we have worked to structurally improve the way we engage our
customers. For service, we benchmark beyond our Telecom Industry, and look at the Service Industries such as private banking, 5-star hotels, elite credit card providers etc.
Traditionally, a hotline approach is considered the most efficient way to service a large telecom customer base. At City Telecom, we are breaking away this legacy approach and have
upgraded to Account Management, similar to private banking, such that a dedicated account manager is assigned to service our customers for all aspects, from service installation, to service charges and even to service termination. Customers can then
engage their account manager via a direct line, rather than a service Hotline. In short, this is the level of service expected in the private banking industry, but we are delivering this to our customers generating HK$199/month. For the month of
October 2010, 100% of our customer contact points have been done via a dedicated account manager, rather than via hotline.
HK Call Centre Association Awards - Best Contact Centre in Quality Assurance
Be the Largest IP Provider in Hong Kong by 2016 is our companys Big, Hairy, Audacious Goal. Be the largest means customers think we are the best.
To achieve this goal, a systematic quality assurance policy has been implemented to ensure service quality consistency.
With the close co-ordination and co-operation among various departments and the support from Top Management, HKBN has been awarded the Best Contact Centre in Quality Assurance -
Silver by the Hong Kong Call Centre Association (HKCCA), celebrating HKBNs outstanding success of serving customers.
Quality Assurance Team
City Telecom (H.K.)
Limited Annual Report 2010 31
Profile of
Directors and Senior Management
Executive Directors
Mr. WONG Wai Kay, Ricky
Chairman
Mr. CHEUNG Chi Kin, Paul
Vice Chairman
Mr. YEUNG Chu Kwong, William
Chief Executive
Officer
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 25 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 Programme) 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 53, 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 29 years experience in the telecommunications and computer industries. He had worked in several 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.
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 Group. Before that, Mr. Yeung joined the Group as Chief Operating Officer in October 2005. He was in charge of the Customer Engagement
Department overseeing customer relationship management and was also in charge of the Network Development Department. Mr. Yeung has more than 19 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.
32 City Telecom (H.K.) Limited Annual Report 2010
Executive
Directors
Mr. LAI Ni Quiaque
Chief Financial Officer, Company Secretary & Head of Talent Engagement
Non-Executive Director
Dr. CHENG Mo Chi, Moses
Yeung holds a Bachelor of Arts Degree from Hong Kong Baptist University, a Master of Business Administration
Degree from University of Strathclyde, U.K. and a Master of Science Degree in Electronic Commerce and Internet Computing from The University of Hong Kong. Mr. Yeung 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 60, was appointed as an Independent Non-executive Director of the Group since 17 June 1997 and has been re-designated as a Non-executive Director of the Group
with effect from 30 September 2004. Dr. Cheng has also been appointed as a member of the Remuneration Committee of the Company. Dr. Cheng is a practising solicitor and the senior partner of Messrs. P.C. Woo & Co. and 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 and the President of International Association of Practising Lawyers. 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. Dr. Cheng is also an independent nonexecutive director of ARA
Asset Management Limited, a company whose shares are listed on Singapore Exchange Limited. 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, and ARA Asset Management (Fortune) Limited (formerly known as ARA Asset Management (Singapore) Limited), as the manager of Fortune Real
Estate Investment Trust, a real estate investment trust listed on Singapore Exchange Limited.
City Telecom
(H.K.) Limited Annual Report 2010 33
Profile of
Directors and Senior Management
Independent non-executive Directors
Mr. LEE Hon Ying, John
Dr. CHAN Kin Man
Mr. PEH Jefferson Tun Lu
Independent non-executive Directors
Mr. LEE Hon Ying, John, aged 64, 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 Institution of Engineering and
Technology, the United Kingdom, the Hong Kong Institution of Engineers and the Hong Kong Computer Society. He received a Master's Degree in Information System from The Hong Kong Polytechnic University in 1992. In addition, he is the Vice President
and Board Member of the Society of St. Vincent de Paul, Council General, which is an international charity body with its head office in Paris, France. 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 51, 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 51, 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 28 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.
34 City Telecom (H.K.) Limited Annual Report 2010
Senior
Management
Mr. CHONG Kin Chun,John
Managing Director of Corporate Division
Mr. LO
Sui Lun
Director of Corporate Affairs Department
Dr. TAM Ming Chit
Chief Technology Officer
Ms. TO Wai Bing
Managing Director of Business Development
Senior Management
Mr. CHONG Kin Chun, John, aged 48, is the Managing Director of 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.
Mr. LO Sui Lun, aged 46, 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 17 years of operational experience in the information technologies and telecommunications industries. 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 48, 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.
City Telecom (H.K.) Limited Annual Report 2010 35
Financial
Information
We are on the right track
for achieving our
Big, Hairy, Audacious Goal even
though the road ahead is tough.
Financial Information
37 Corporate Governance
Report
48 Report of the Directors
58 Independent Auditors Report
59
Consolidated Income Statement
60 Consolidated Statement of Comprehensive Income
61 Balance Sheet
63 Consolidated Statement of Changes in Equity
64
Consolidated Cash Flow Statement
65 Notes to the Financial Statements
123 Five-Year Financial Summary
124 Corporate Information
36 City Telecom (H.K.)
Limited Annual Report 2010
Corporate
Governance Report
CORPORATE GOVERNANCE PRACTICES
The Board recognises the importance of corporate governance and is committed to the maintenance of good corporate
governance practices.
The Company has complied with all code provisions of the Code on Corporate Governance
Practices (the Code) contained in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules) throughout the year ended 31 August 2010.
DIRECTORS SECURITIES TRANSACTIONS
The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code) contained in Appendix 10 to the Listing Rules as the code of
conduct for securities transactions by Directors of the Company (the Company Code).
Having made
specific enquiry with the Directors, all of the Directors confirmed that they had complied with the required standard set out in the Model Code and the Company Code throughout the year ended 31 August 2010.
THE BOARD
(i) Responsibilities
The Board steers and
oversees the management of the Company including, establishing the strategic direction of the Company, setting the long-term objectives of the Company, monitoring the performance of management, protecting and maximizing the interests of the Company
and its shareholders, reviewing, considering and approving the annual budget, management results and performance update against annual budget, together with business reports from the management.
The Board has delegated an executive committee comprising all Executive Directors, with authority and responsibility for
day-to-day operations and administration of the Company.
All Directors have full and timely access to all
relevant information as well as advice and services of the Company Secretary, with a view to ensuring that Board procedures and all applicable rules and regulations, are followed. Upon making request to the Board, all Directors may obtain
independent professional advice at the Companys expense for carrying out their functions.
City Telecom
(H.K.) Limited Annual Report 2010 37
Corporate
Governance Report
(ii) Board Composition
The Board currently comprises a total of 8 Directors, with 4 Executive Directors, 1 Non-executive Director and 3
Independent Non-executive Directors. The Board believes that the balance between Executive and Non-Executive Directors is reasonable and adequate to provide sufficient checks and balances that safeguard the interests of shareholders and the Company.
The composition of the Board is set out as follows:-
Executive Directors
Mr. Wong Wai Kay, Ricky (Chairman)
Mr. Cheung Chi Kin, Paul (Vice Chairman)
Mr.
Yeung Chu Kwong, William (Chief Executive Officer)
Mr. Lai Ni Quiaque (Chief Financial Officer)
Non-executive Director Dr. Cheng Mo Chi, Moses
Independent Non-executive Directors
Mr. Lee Hon
Ying, John
Dr. Chan Kin Man
Mr. Peh Jefferson Tun Lu
Mr. Wong Wai Kay, Ricky
is a first cousin of Mr. Cheung Chi Kin, Paul. Save as disclosed above, there are no financial, business, family, other material and relevant relationships among members of the Board as at the date of this annual report.
The biographical information of the Directors is set out in the section of Profile of Directors and Senior
Management on pages 32 to 35 of this annual report.
(iii) Appointment, Re-election and Removal of
Directors
Nominations for members to the Board result from consultations among the Chairman, Chief Executive
Officer and other Directors as the Board considers appropriate.
Under the Companys Articles of
Association, the Board may from time to time appoint a director either to fill a casual vacancy or as an addition to the existing Board. Any such new director shall hold office only until the next following general meeting of the Company (in the
case of filling a casual vacancy) or until the following annual general meeting of the Company (in the case of an addition to the existing Board), and shall then be eligible for re-election. Every director, including non-executive and independent
non-executive directors, are subject to retirement by rotation at least once every three years. One-third of the directors must retire from office at each annual general meeting and their re-election is subject to the approval of shareholders of the
Company.
In compliance with the provisions of the Companys Articles of Association, Mr. Lee Hon Ying,
John and Mr. Peh Jefferson Tun Lu shall retire by rotation at the coming 2010 Annual General Meeting and, being eligible, will offer themselves for re-election.
(iv) Chairman and Chief Executive Officer
The
Chairman of the Board is an Executive Director who is responsible for the leadership and effective running of the Board. The Chief Executive Officer is an Executive Director who is responsible for the Companys operations and business
development under the direction of the Board. The positions of the Chairman of the Board and the Chief Executive Officer are currently held by separate individuals for the purpose of ensuring an effective segregation of duties and a balance of power
and authority.
38 City Telecom (H.K.) Limited Annual Report 2010
Corporate
Governance Report
(v) Non-executive Director and Independent Non-executive Directors
The term of office of all Non-executive Directors (including the Independent Non-executive Directors) has been fixed for a
specific term of one year. They are subject to retirement by rotation and re-election at the Companys annual general meeting at least once every three years in accordance with the Companys Articles and Association.
During the year ended 31 August 2010, the Board at all times met the requirements under Rule 3.10 of the Listing
Rules relating to the appointment of at least three Independent Non-executive Directors with at least one of them possessing appropriate professional qualifications or accounting or related financial management expertise.
The Board has received written confirmation of independence from each of the Independent Non-executive Directors and
considers them to be independent and free of any relationship that could materially interfere with the exercise of their independent judgment.
(vi) Number of Meetings and Directors Attendance
The Board meets from time to time, a no less than four times a year, to discuss and exchange ideas on the Companys affairs. During the year ended 31 August 2010, the Board held
8 meetings to deliberate the interim and final results announcements, financial reports, to recommend or declare dividends and to discuss significant issues and general operation of the Company. Individual attendance records of each Director at the
respective Board and committee meetings are set out in the table on page 42 of this annual report.
(vii)
Practices and Conduct of Meetings
Notices of regular Board meetings together with all relevant information and
reports prepared by management are given to all Directors at least 14 days before the meetings. For other Board meetings and meetings of Board committee, reasonable notice is generally given. The Company Secretary is responsible to keep minutes of
all Board and committee meetings. Draft minutes are circulated to all Directors for comment within a reasonable time after each meeting and the final version of which is sent to all Directors for records. Board and Board committee minutes/
resolutions are open for inspection by Directors.
(viii) Training and Support for Directors
In case there is any newly appointed Director, he/she will be provided with an induction course so as to ensure that
he/she has appropriate understanding of the business and operations of the Company and that he/she is fully aware of his/her responsibilities and obligations under the Listing Rules and the other applicable regulatory requirements.
There are also arrangements in place for providing continuing briefing and professional development to Directors as when
necessary.
To assist their continuous professional development, the Company Secretary recommends Directors to
attend relevant seminars and courses. The costs for such training are borne by the Company.
City Telecom
(H.K.) Limited Annual Report 2010 39
Corporate
Governance Report
BOARD COMMITTEES
The Board has set up 2 board committees, namely, Audit Committee and Remuneration Committee (collectively the Board Committees), for overseeing the respective aspects of the
Companys affairs.
Members of the Board Committees have been advised that they may seek independent
professional advice at the Companys expenses in appropriate circumstances.
(i) Audit Committee
The Board established its Audit Committee in March 1999 with specific terms of reference setting out the
committees authority and duties.
The Audit Committee comprises 3 members, namely, Mr. Lee Hon Ying
John, Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu, who are Independent Non-executive Directors and one of whom possess the appropriate professional qualifications or accounting or related financial management expertise as required under
Rule 3.10(2) of the Listing Rules. Mr. Lee Hon Ying, John is the Chairman for the Audit Committee. The Audit Committee is provided with sufficient resources to discharge its duties.
The major roles and functions of the Audit Committee are set out in the Audit Committee Charter are made available on the
website of the Company at www.ctigroup.com.hk. The Audit Committee is responsible for, inter alia, the appointment, compensation, retention and oversight overseeing the accounting and financial reporting processes of the Group and the audits of the
Groups financial statements on behalf of the Board, and reviewing and discussing the internal audit plans and reports of the audit activities, examinations and results thereof of the Internal Audit Department of the Company.
The Audit Committee held 4 meetings during the year ended 31 August 2010. Executive Directors, representative from
the Internal Audit Department of the Company and the external auditors of the Company were invited to join the discussions at the relevant meetings.
Following is a summary of works performed by the Audit Committee during the year ended 31 August 2010:-
(i) Review of the Companys financial statements for the year ended 31 August 2009 and for the six months ended 28 February 2010;
(ii) Review of the internal audit progress, especially on the compliance of the Sarbanes-Oxley Act;
(iii) Review of the external auditors report on the review of the Companys interim financial report for the
six months ended 28 February 2010 and the Companys audited consolidated financial statements for the year ended 31 August 2009; and
(iv) Pre-approval of the audit and non-audit services provided by the Companys external auditors.
40 City Telecom (H.K.) Limited Annual Report 2010
Corporate
Governance Report
(ii) Remuneration Committee
The Board established its Remuneration Committee in August 2001 with specific terms of reference setting out the
committees authority and duties.
The Remuneration Committee comprises 6 members, namely, Mr. Lee
Hon Ying John, Dr. Chan Kin Man, Mr. Peh Jefferson Tun Lu, Dr. Cheng Mo Chi Moses, Mr. Lai Ni Quiaque and Ms. Choy Mei Yuk, Mimi. Mr. Lee Hon Ying, John is the Chairman for the Remuneration Committee. The Remuneration
Committee is provided with sufficient resources to discharge its duties. The Remuneration Committees objectives are as follows:
(i) Establish a formal, fair and transparent procedures for developing policy and structure of all remuneration of directors and senior management;
(ii) Review and consider the Companys policy for remuneration of directors and senior management; and
(iii) Recommend the remuneration packages of non-executive directors (including independent non-executive directors).
The role and authorities of the Remuneration Committee, including those set out in code provision B.1.3 of the
Code, were set out in its terms of reference which are available at the Companys website at www.ctigroup.com.hk. The Remuneration Committee is responsible to review and determine the remuneration policy and packages of the Executive Directors
and senior management.
The Remuneration Committee held 1 meeting during the year ended 31 August 2010.
Following is a summary of works performed by the Remuneration Committee during the year ended 31 August 2010:-
(i) Review and approval of the discretionary performance bonus for the management committee members;
(ii) Review and approval of the remuneration packages of management committee members; and
(iii) Review and approval of the remuneration packages of the Directors.
City Telecom (H.K.) Limited Annual Report 2010 41
Corporate
Governance Report
ATTENDANCE RECORDS AT THE BOARD AND COMMITTEES MEETINGS
The attendance records of the individual Directors at the Board, Audit Committee and Remuneration Committee meetings for
the year ended 31 August 2010 are set out as follows:
Number of Meetings Attended/Held
Board Audit
Committee Remuneration
Committee
Executive Directors
Mr. Wong Wai Kay, Ricky (Chairman) 7/8 N/A N/A
Mr. Cheung Chi Kin, Paul (Vice Chairman) 8/8 N/A N/A
Mr. Yeung Chu Kwong, William (Chief Executive Officer) 7/8 N/A N/A
Mr. Lai Ni Quiaque# (Chief Financial Officer) 7/8 N/A 1/1
Non-Executive Director
Dr. Cheng Mo Chi, Moses# 7/8 N/A 1/1
Independent Non-Executive Directors
Mr. Lee Hon Ying, John *# 8/8 4/4 1/1
Dr. Chan Kin Man *# 8/8 4/4 1/1
Mr. Peh Jefferson Tun Lu *# 8/8 4/4 1/1
Director, Talent Management
Ms. Choy Mei Yuk, Mimi# N/A N/A 1/1
* Audit
Committee Member
# Remuneration Committee Member
DIRECTORS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The Directors acknowledged their responsibility, with the support from the Finance Department of the Company, for
preparing the financial statements of the Group for the year ended 31 August 2010. The Board must ensure that the financial statements of the Group are prepared as to give a true and fair view and on a going concern basis in accordance with the
statutory requirements and applicable financial reporting standards.
The statement of the auditor of the
Company about their reporting responsibilities and opinion on the financial statements of the Group for the year ended 31 August 2010 is set out in the Independent Auditors Report on page 58 of this annual report.
DIRECTORS AND OFFICERS LIABILITY INSURANCE AND INDEMNITY
The Company has arranged appropriate Directors and Officers Liability Insurance for its Directors and officers
of the Company for insurance coverage against any legal liability arising from the performance of their duties. The insurance policy contains the following separate insurance contracts, including Directors and Officers Liability
Contract; Company Reimbursement Contract; and Legal Representation Expenses Contract. Throughout the year ended 31 August 2010, no claim has been made against the Directors and officers of the Company.
42 City Telecom (H.K.) Limited Annual Report 2010
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Governance Report
AUDITORS REMUNERATION
KPMG has been re-appointed as the independent auditors of the Company by the shareholders of the Company at the 2009
Annual General Meeting.
For the year ended 31 August 2010, the auditors of the Company received
approximately HK$2,530,000 for audit services (2009: HK$2,980,000) and HK$300,000 for non-audit services (2009: Nil).
INTERNAL CONTROL FRAMEWORK
Internal Controls
The Board is entrusted with the overall responsibility to maintain sound and effective internal controls to
safeguard the shareholders investment and the Groups assets. The Board adopts a top-down risk-based approach to continuously improve its internal control system in an effective and timely manner. Internal control system comprises a
comprehensive organizational structure, appropriate delegation of authorities and control policies and procedures.
Control policies and procedures include safeguarding assets against unauthorized use or disposition; ensuring the reliability and integrity of financial, operating and managerial
information for internal use or for publication; complying with applicable laws, rules and regulations; and managing resources in an economical, efficient and effective manner. Such policies and procedures are designed to manage rather than
eliminate risk of failure to achieve business objectives and to provide a reasonable, but not absolute, assurance against material misstatement, loss or fraud.
Internal Audit Function
To strengthen the
internal control of the Group, Internal Audit Department plays an impartial role which is independent to the Groups management in assessing and monitoring of the internal controls. Internal Audit Departments reviews provide a reasonable
assurance that the internal control system continues to operate satisfactorily and effectively, which aims to increase corporate value, improve operation, promote sustainable and healthy development, and achieve strategic objectives.
Major tasks of the Internal Audit Department include:
to review the managements control regarding reliability of financial information, operations and procedures
of various departments on a regular basis;
to access unrestrictedly to the Groups personnel,
books and records, governance process to ensure internal controls are effective and in compliance with applicable laws, rules and regulations; and
to conduct independent reviews and investigations on a regular and ad hoc basis as directed by the Board or Audit Committee.
The annual audit plan is prepared based on a risk and control methodology and approved by the Audit Committee. Upon
completion of audit, key control deficiencies and corresponding recommendations are discussed and agreed with related department heads. Managements responses are documented in the internal audit reports and follow-up procedures are then
performed in due course to ensure the corresponding remedial actions are properly implemented. To preserve independence, Internal Audit Department reports directly to the Chairman and Audit Committee. Significant audit findings and corrective action
plans are reported on a regular basis. Copies of internal audit reports are sent to the Chief Executive Officer, Chief Financial Officer and external auditor for attention.
City Telecom (H.K.) Limited Annual Report 2010 43
Corporate
Governance Report
Internal Control Integrated Framework
The Group aims to continuously enhance its internal control system and risk management regime with reference to the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework, which consists of five interrelated components, namely, Control Environment, Risk Assessment, Control Activities, Information and Communications and Monitoring. Under
this framework, management is delegated primarily the responsibility for the design, implementation, and maintenance of day-to-day operation procedures, while the Board and Audit Committee oversee the actions of management and monitor the
effectiveness of the controls that have been put in place.
Control Environment
Members of the Board and Management Committee, and Talents who have access to price-sensitive and specific
information are bound by the Model Code for Securities Transactions by Directors of Listed Issuers. They are also obliged to handle price-sensitive information with reference to the Guide on disclosure of price-sensitive information
issued by the Stock Exchange.
Code of Business Conduct and Ethics, which is applicable to the
Directors, management and all Talents of the Group, is adopted to promote honest and ethical conducts. Employee handbook is made available on the Intranet which is accessible to all Talents of the Group at any time.
Corruption and Conflicts of Interest policy is established to ensure reputation of the Group is not tarnished by
Talents dishonesty or corruption, and to maintain integrity and effectiveness of the Group as a whole. All Talents are required to complete a Declaration of Conflicts of Interest form when they join the Group. Senior management and
Talents who are engaged in procurement decisions are required to declare interest annually. Other Talents are required on a needed basis.
Whistleblower policy is established to achieve high standards of ethical, moral and legal business conduct. This policy also aims to provide a platform for Talents to raise concerns
on any suspected fraud, unlawful activities, questionable accounting or improper internal control procedures.
Corporate Social Responsibility Report was launched in 2008 to demonstrate the Groups active embracement of
Corporate Citizenship. During the year, various functions are held to support community services. The Group was awarded the Caring Company logo by The Hong Kong Council of Social Service for three consecutive years.
The Group highly invests in Talent development which covers all Talent levels. Programs held include
EMBA/MBA/university degree sponsorship, reward trip to top performers, corporate site visits, education partnership and PowerBar program which was launched in 2009. The PowerBar program aims to provide an opportunity for outstanding Talents, who
serve the Group for at least three years, to work in different departments temporarily. This can unlock their unidentified potential, broaden their career exposures, as well as infuse new insights and energy into other departments.
Company-wide examination program is held annually for all Talents except Management Committee members. The
examination covers three papers: company knowledge, job-related and generic subjects. All Talents are required to pass the examination in order to ensure that they are appropriately skilled with job knowledge and understand the Groups
business.
Company policies and procedures are established to be followed by Talents to ensure
compliance with all relevant statutory and regulatory requirements and provision of quality service to customers.
44 City Telecom (H.K.) Limited Annual Report 2010
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Governance Report
Risk Assessment
Regular meetings are held among departments with the involvement of senior management to discuss potential risks regarding changes in market conditions, regulations or customer
needs. Proper reactions to the identified risks will be canvassed in order to avoid or mitigate loss. Moreover, for any foreseeable risks identified, which may undermine the interest of the Group, will be escalated to the Board for deliberation.
Self-assessment questionnaires are issued to all business units for completion as a basis for
evaluating the general system control environment and risks.
Control Activities
Work Improvement Team program was launched in 2009 to motivate all Talents to generate new ideas on
improving existing work efficiency and cost effectiveness. This helps to foster the Groups core value of continuous changes and improvements.
In-house Safety Officer promotes awareness in occupational safety and health issues within the Group. Through risk assessment, inspection and trainings, reasonable practical
measures are placed for ensuring job duties are carried out in a safe and efficient manner and comply with statutory requirements. Moreover, in-house occupational safety and health rules are uploaded to the Intranet for reference.
Remuneration Committee is established to ensure that there are fair and transparent procedures for developing
policy and structure of all remuneration of the Directors and senior management.
Engagement of
independent professionals and provision of appropriate trainings are used to ensure compliance with applicable laws, rules and regulations. During the year, the Group invited Equal Opportunities Commission to conduct training on Sex Discrimination
Ordinance, which aims to enhance the awareness on sexual harassment in workplace, its impacts and liabilities as well as preventive measures. Apart from seminars conducted by external professionals, the Corporate Affairs Department has periodically
conducted in-house seminars on Personal Data (Privacy) Ordinance and Unsolicited Electronic Messages Ordinance with a view to raising Talents awareness and understanding of the relevant rules and regulations.
External consultants are engaged to provide advisory services as the Directors consider appropriate.
Information and Communication
Talent meeting is arranged every year to review and summarize the Groups performance and communicate managements forward looking objectives regarding the Groups
future development.
Monthly management meeting is live broadcast to all Talents of the Group and
uploaded to the Intranet for sharing.
Round table meeting provides a platform for all levels of Talents
to have a face-to-face communication with senior management. Moreover, Talents can express their opinions and provide feedbacks freely on the Groups internal forum.
Information technology is used to build automatic controls in the Groups computer systems.
Telco Update is announced by Learning and Development Department to provide the latest updates and new achievements of the Group.
City Telecom (H.K.) Limited Annual Report 2010 45
Corporate
Governance Report
Monitoring
Capital and operating expenditures are under overall budget control. The annual budget and business plan are prepared by the respective departments and submitted to the Management
Committee for approval before adoption.
A quarterly review of the Groups financial performance is
conducted by the Board.
Monthly management reports on the financial results and key operating
statistics of each business segment are reviewed by the Executive Directors. Regular meetings are held with senior management for each business unit to review the actual performance against budget. Corrective actions will be taken if any significant
variance is identified.
Control Effectiveness
The Company has complied with the code provisions on internal controls as set out in the Code on Corporate Governance. The
Directors have conducted an annual review on the effectiveness of the Groups internal control system. The review covers all material controls including financial, operational and compliance controls and risk management functions. The Directors
consider that the internal control system is reasonably effective and adequate and have not identified any significant control deficiencies that would cast a material impact on the financial performance. The Board has also considered the resources,
qualifications and experience of accounting and financial reporting function as adequate. Sufficient training and budget are provided for the continuous development of this function.
Compliance with Sarbanes-Oxley Act of 2002
As the Company is listed on the Nasdaq Stock Market in the U.S., it is required to comply with the provisions of the U.S. Sarbanes-Oxley Act of 2002 (the SOX Act), which is a
legislation seeking to enhance the transparency and accountability of the companies in the areas of corporate governance and financial reporting. Under Section 404(a) of the SOX Act, the Groups management is responsible for carrying out
assessment on the effectiveness of the Groups internal control procedures over financial reporting. With the assistance of Internal Audit Department and external consultants, management of the Group organized and conducted a comprehensive
assessment of internal control over financial reporting based on control criteria as set out in the COSO framework. Based on this assessment, the Directors believe that, as at 31 August 2010, the internal control over financial reporting is
effective.
Under Section 404(b) of the SOX Act, the Group also engaged the external auditors to perform an
annual SOX audit and received an unqualified opinion on the effectiveness of its internal control in relation to financial reporting as at 31 August 2010. The Groups assessment report and the report of its external auditors will be contained
in Form 20-F submitted to the U.S. Securities and Exchanges Commission.
Company Policies
The Group has adopted a number of company policies, including Company Policies and Procedures, Code of Business Conduct
and Ethics and individual departmental charters to ensure good corporate governance practices and high standard of business conducts and ethics of the Group. The Group will review regularly the effectiveness of these Company policies.
Communication with Shareholders
The Board and the Company maintain an on-going dialogue with the Companys shareholders and investors through various communication channels including, annual general meeting, press
conferences and publication of announcements, circulars, interim and annual reports. The Company also maintains on its website the updated corporate information, announcements, circulars, interim and annual reports, and corporate governance
practices.
46 City Telecom (H.K.) Limited Annual Report 2010
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Governance Report
INVESTOR ENGAGEMENT Investor Engagement Supplement
As an Entrepreneurial start-up, City Telecom would not be here today, without the support of the Global Capital Markets.
We proactively engage our investors from around the World with at least 2-3 global road shows and conferences, and also make extensive use of conference calls and webcasts throughout the year. Whilst we welcome all investors, we hope to attract long
term investors that want to partner with us in our 10-year Big, Hairy, Audacious Goal to become the largest Internet Protocol provider in Hong Kong by 2016. We are now seeing results from our revamped Investor Engagement efforts started about a year
ago. Based on US Form 13 filings by Institutional Investors, we estimate that Institutional holders of our free float have increased from 10% as of June 2009 to 51% as of June 2010.
Date Activities Speaker Position Venue
2010
OCT CFO Luncheon by Michael Page Finance
Capital Raising as a Competitive Advantage NiQ Lai CFO Hong Kong
Investor Engagement Tour Alice Wong
Financial Controller USA & Europe Cities
AUG Oppenheimer Telco, Media &Tech Conference NiQ Lai CFO
Boston, USA
JUN Investor Conference Call Hosted by Bay Crest Partners NiQ Lai CFO New York, USA
MAY Post-Results Luncheon by Goldman Sachs William Yeung & NiQ Lai CEO & CFO Hong Kong
Oppenheimer-4th Annual China Dragon Call Conference NiQ Lai CFO New York, USA
APR Investor Engagement Tour Ricky Wong & William Yeung & NiQ Lai & Alice Wong Chairman & CEO & CFO
& Financial Controller USA and Singapore
MAR Rodman & Renshaw Annual China Investment Conference NiQ
Lai CFO Beijing, China
Investor Engagement Tour Alice Wong Financial Controller Europe Cities
City Telecom (H.K.) Limited Annual Report 2010 47
Report of the
Directors
The Directors have pleasure in submitting their annual report together with the audited financial
statements for the year ended 31 August 2010.
PRINCIPAL ACTIVITIES AND ANALYSIS OF OPERATIONS
The principal activities of City Telecom (H.K.) Limited (the Company) and its subsidiaries (collectively
referred to as the Group) are the provision of international telecommunications services and fixed telecommunications network services to customers in Hong Kong and Canada.
An analysis of the Groups performance for the year by business segments is set out in note 2 to the financial
statements. RESULTS AND APPROPRIATIONS
The results of the Group for the year is set out in the consolidated
income statement on page 59 of this annual report. RESERVES
Movements in the reserves of the Group during the
year are set out in the consolidated statement of changes in equity. Movements in the reserves of the Company during the year are set out in note 20 to the financial statements.
An interim dividend of HK6.5 cents per ordinary share in cash (2009: HK3 cents per ordinary share in cash) and a final
dividend in respect of the previous financial year of HK16 cents per ordinary share in cash were paid on 25 June 2010 and 30 December 2009 respectively.
At a board meeting held on 9 November 2010, the Directors have recommended to pay a final dividend of HK13.5 cents per ordinary share in cash. Subject to the approval of the shareholders
at the forthcoming Annual General Meeting, the final dividend will be distributed on or about 5 January 2011 to shareholders whose names appear on the register of members of the Company as at the close of business on 21 December 2010.
The Register of Members of ordinary shares of the Company will be closed from 17 December 2010 to 21 December 2010 both
days inclusive, during which period, no transfers of ordinary shares will be registered. In order to qualify for the proposed final dividend, all properly completed transfer forms accompanied by the relevant share certificates must be lodged with
the Companys share registrar not later than 4:30 p.m. on 16 December 2010.
DONATIONS
Charitable and other donations made by the Group during the year amounted to HK$100,000 (2009: HK$547,000).
FIXED ASSETS
Details of the movements in fixed assets of the Group are set out in note 13 to the financial statements.
SHARE CAPITAL AND SHARE OPTIONS
Details of the
movements in share capital and share options of the Company are set out in note 20 to the financial statements.
DISTRIBUTABLE RESERVES
Distributable reserves of the Company as at 31 August 2010, calculated in accordance with section 79B of the Hong Kong Companies Ordinance, amounted to approximately HK$153,176,000 (2009:
HK$153,788,000).
48 City Telecom (H.K.) Limited Annual Report 2010
Report of the
Directors
FIVE-YEAR FINANCIAL SUMMARY
A summary of the results of the assets and liabilities of the Group for the last five financial years is set out on page 123 of this annual report.
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES
Save as disclosed below, neither the Company nor any of its subsidiaries has purchased, sold nor redeemed any of the Companys listed securities during the year ended 31 August
2010.
On 4 December 2009, the Company repurchased a portion of the 10-year senior notes with a cumulative
principal value of US$1,500,000 (equivalent to HK$11,625,000) in the open market. The total consideration paid including accrued interest was approximately US$1,562,000 (equivalent to HK$12,103,000).
On 1 February 2010, the Company redeemed the then outstanding 10-year senior notes with principle value of
US$19,863,000 (equivalent to HK$153,948,000) at the redemption price equal to 104.375% of the principal amount. The total consideration paid including accrued interest was approximately US$21,601,000 (equivalent to HK$167,624,000).
GROUPS BORROWINGS
The Groups borrowings as at 31 August 2010 are repayable in the following periods:
2010 HK$000 2009 HK$000
On demand or
not exceeding one year 10,702 5,566
More than one year but not exceeding two years 105 197
More than two years 123,855 162,919
134,662 168,682
DIRECTORS
The Directors during the year and up to the date of this annual report were:
Executive Directors
Mr. Wong Wai Kay, Ricky (Chairman)
Mr. Cheung Chi Kin, Paul (Vice Chairman)
Mr. Yeung Chu Kwong, William (Chief Executive Officer)
Mr. Lai Ni Quiaque * (Chief Financial Officer)
Non-executive Director
Dr. Cheng Mo Chi, Moses *
Independent
non-executive Directors
Mr. Lee Hon Ying, John #*
Dr. Chan Kin Man #*
Mr. Peh Jefferson Tun Lu #*
# Audit
Committee members
* Remuneration Committee members
City Telecom (H.K.) Limited Annual Report 2010 49
Report of the
Directors
In accordance with Articles 96 and 99 of the Companys Articles of Association, Mr. Lee
Hon Ying, John and Mr. Peh Jefferson Tun Lu shall retire by rotation and, being eligible, offer themselves for re-election at the forthcoming annual general meeting.
The Company received confirmation of independence from each of the independent non-executive directors pursuant to Rule 3.13 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the Listing Rules) and the Company still considers the independent non-executive directors to be independent.
DIRECTORS SERVICE CONTRACTS
None of the
Directors has a service contract with the Company or any of its subsidiaries which is not determinable by the employing company within one year without payment of compensation, other than statutory compensation.
DIRECTORS INTERESTS IN CONTRACTS OF SIGNIFICANCE
No contract of significance in relation to the Groups business to which the Company or any of its subsidiaries was a
party and in which a Director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.
BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
Brief biographical details of the Directors and senior management are set out on pages 32 to 35 of this annual report. CHANGES OF DIRECTORS INFORMATION
Pursuant to Rule 13.51B(1) of the Listing Rules, the changes of information on Directors are as follows:
1. Mr. Wong Wai Kay, Ricky, Chairman of the Group, has resigned as an independent non-executive director of Bossini
International Holdings Limited (a company listed on the Main Board of the Stock Exchange) with effect from 30 November 2009.
2. Dr. Cheng Mo Chi, Moses, a non-executive director of the Company, has resigned as an independent non-executive director of ARA Asset Management (Fortune) Limited (formerly known as
ARA Asset Management (Singapore) Limited), as the manager of Fortune Real Estate Investment Trust, a real estate investment trust listed on Singapore Exchange Limited with effect from 1 September 2010.
3. Changes in Directors emoluments during the year are set out in note 10 to the Financial Statements.
50 City Telecom (H.K.) Limited Annual Report 2010
Report of the
Directors
DIRECTORS INTERESTS IN SHARES AND UNDERLYING SHARES Directors interests or short
positions in shares and in share options
At 31 August 2010, the interests or short positions of the
Companys Directors, chief executive and their associates in the shares and underlying shares of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the SFO)), as
recorded in the register maintained by the Company required to be kept under Section 352 of the SFO or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the Stock Exchange) pursuant to the Model Code
were as follows:
Long position in ordinary shares and underlying shares of the Company
Interest in shares Name of Director Personal interests Corporate interests Family interests Total interests in shares
Interests in underlying shares pursuant to share options Aggregate interests Approximate percentage interests in the Companys issued share capital
Note (1)
Mr. Wong Wai Kay, Ricky 7,145,289
339,814,284 Note (2)(i) 346,959,573 8,091,604 355,051,177 46.41%
Mr. Cheung Chi Kin, Paul
17,361,820 24,924,339 Note (2)(ii) 42,286,159 8,091,604 50,377,763 6.59%
Mr. Yeung Chu Kwong,
William 2,306,000 2,306,000 11,542,956 13,848,956 1.81%
Mr. Lai Ni Quiaque
10,392,506 Note (3) 10,392,506 8,067,690 18,460,196 2.41%
Notes:
(1) This percentage is based on 764,997,344 ordinary shares of the Company issued as at 31 August 2010.
(2) The corporate interests of Mr. Wong Wai Kay, Ricky and Mr. Cheung Chi Kin, Paul arise through their
respective interests in the following companies:
(i) 339,814,284 shares are held by Top Group International
Limited (Top Group) which is 42.12% owned by Mr. Wong Wai Kay, Ricky; the interests of Top Group in the Company is also disclosed under the section Substantial Shareholders of the annual report.
(ii) 24,924,339 shares are held by Worship Limited which is 50% owned by Mr. Cheung Chi Kin, Paul.
(3) 10,392,506 shares are jointly owned by Mr. Lai Ni Quiaque and his spouse.
Details of the Directors interests in share options granted by the Company are set out on page 53 of this annual
report.
Save as disclosed above, as at 31 August 2010, none of the Directors or chief executive
(including their spouse and children under 18 years of age) of the Company had any interests or short positions in the shares, underlying shares and derivative to ordinary shares of the Company and its associated corporations (within the meaning of
Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.
City Telecom (H.K.) Limited Annual Report 2010 51
Report of the
Directors
SHARE OPTION SCHEMES
The Company operates a share option scheme (the 2002 Share Option Scheme) which was adopted by shareholders of the Company on 23 December 2002 which the directors may, at
their discretion, invite eligible participants to take up options to subscribe for shares subject to the terms and conditions stipulated therein.
A summary of the 2002 Share Option Scheme operated by the Company is as follows:
(1) Purpose
To grant share options to the
eligible participants as incentives and rewards for their contribution to the Company or its subsidiaries.
(2)
Eligible participants
Eligible participants include Talents, executives or officers (including executive,
non-executive and independent non-executive directors) of the Company or any of its subsidiaries, suppliers and professional advisers of the Group.
(3) The total number of shares available for issue
The total number of shares which may be issued upon exercise of options to be granted under the scheme shall not exceed
10% of the shares in issue as at the date of adoption of the 2002 Share Option Scheme on 23 December 2002 (i.e. 50,302,066 shares). Such limit was refreshed by the shareholders in the general meeting held on 29 December 2004 and
24 December 2007 respectively so that the total number of shares which may be issued shall be 10% of the shares in issue as at the date of the said general meeting (i.e. 61,407,340 shares and 62,704,840 shares respectively). As at the date of
this annual report, the number of shares available for issue in respect thereof is 44,619,336 shares, representing approximately 5.83% of the issued share capital of the Company as at the date of this annual report.
The shares which may be issued upon exercise of all outstanding options to be granted and yet to be exercised under the
2002 Share Option Scheme and any other share option scheme(s) of the Company at any time shall not exceed 30% of the shares in issue from time to time. No options shall be granted under any scheme(s) of the Company or any of its subsidiaries if this
will result in the 30% limit being exceeded.
(4) The maximum entitlement of each participant under the 2002
Share Option Scheme
The total number of shares shall be issued upon exercise of the options granted under the
2002 Share Option Scheme and any other share option scheme(s) of the Company (including exercised, cancelled and outstanding options) to each participant in any 12-month period up to and including the date of grant shall not exceed 1% of the shares
in issue as at the date of grant.
Any further grant of options in excess of this 1% limit shall be subject to
the issue of a circular by the Company and the approval of the shareholders of the Company in general meeting with such grantee and his associates abstaining from voting and/or other requirements prescribed under the Listing Rules from time to time.
(5) The period within which the shares must be taken up under an option
The period during which an option may be exercised will be determined by the board of directors at its absolute discretion
and no option may be exercised more than 10 years from the date of grant.
(6) The minimum period for which an
option must be held before it can be exercised
The board of directors is empowered to impose, at its
discretion, any minimum period that an option must be held at the time of grant of any particular option.
52
City Telecom (H.K.) Limited Annual Report 2010
Report of the
Directors
(7) The amount payable on application or acceptance of the option and the period within which
payments or calls must or may be made or loans for such purposes must be paid
Acceptance of the option must be
made within 30 days after the date of offer and HK$1.00 must be paid as a consideration for the grant of option.
(8) The basis of determining the exercise price
The board of directors shall determine the exercise price of each option offered but in any event shall not be less than the highest of: (a) the official closing price of the shares
of the Company on the date of offer as quoted in the Stock Exchange quotation sheet; (b) the average of the closing price of the shares of the Company for the 5 business days immediately preceding the date of offer as quoted in the Stock
Exchange quotation sheet; and (c) the nominal value of the shares of the Company.
(9) The remaining life
of the 2002 Share Option Scheme
The 2002 Share Option Scheme is valid and effective from 23 December
2002, being the date of adoption, and shall end on the tenth anniversary of such date (both days inclusive).
(10) Details of the share options granted under the 2002 Share Option Scheme as at 31 August 2010 are as follows:
Date of grant Exercise price
HK$ Balance as at 1 September 2009 Options granted during the year Vesting period Exercise period Options exercised during the year
(Note 1) Options cancelled/ lapsed during the year (Note 6) Balance as at 31 August 2010 Closing price immediately
before the date on which the options were granted HK$
Directors
Mr. Wong Wai Kay, 5 January 2005 1.5224 8,091,604 - 5 January 2005 to 5 January 2005 to - - 8,091,604
1.53
Ricky 31 December 2006 20 October 2014
22 May 2006 0.6523 6,068,701 - 22 May 2006 to 21 May 2009 22 May 2007 to 21 May 2016 6,068,701 - - 0.64
Mr. Cheung Chi Kin, 5 January 2005 1.5224 8,091,604 - 5 January 2005 to 5 January 2005 to
- - 8,091,604 1.53
Paul 31 December 2006 20 October 2014
22 May 2006 0.6523 6,068,701 - 22 May 2006 to 21 May 2009 22 May 2007 to 21 May 2016 6,068,701 - - 0.64
Mr. Yeung Chu Kwong, 22 May 2006 0.6523 1,018,165 - 22 May 2006 to 22 May 2007 to 1,018,000 -
165 0.64
William (Mr Yeung) 21 May 2009 21 May 2016
6 February 2008 1.7568 6,044,791 - Note 2 Note 2 502,000 - 5,542,791 1.99
5 February 2010 4.2400 - 6,000,000 Note 3 Note 3 - - 6,000,000 4.34
Mr. Lai Ni Quiaque 22 May 2006 0.6523 2,022,899 - 22 May 2006 to 21 May 2009 22 May 2007 to 21 May
2016 - - 2,022,899 0.64
11 February 2008 1.8660 6,044,791 - Note 4 Note 4 - - 6,044,791 1.86
City Telecom (H.K.) Limited Annual Report 2010 53
Report of the
Directors
Date of grant Exercise price HK$ Balance as at 1 September 2009 Options granted during the year
Vesting period Exercise period Options exercised during the year (Note 1) Options cancelled/ lapsed during the year (Note 6) Balance as at 31 August 2010 Closing price immediately before the date on which the options were granted HK$
Talents under continuous employment contacts
Talents 21 October 2004 1.5224 6,909,527 - 21 October 2004 to 31 December 2006 1 January 2005 to
20 October 2014 2,750,847 - 4,158,680 1.53
22 May 2006 0.6523 6,414,433 - 22 May 2006 to 21 May 2009
22 May 2007 to 21 May 2016 3,254,054 - 3,160,379 0.64
3 August 2006 0.7018 40,540 - 3 August
2006 to 2 August 2009 3 August 2007 to 2 August 2016 40,540 - - 0.69
22 November 2006
0.7216 136,545 - 22 November 2006 to 14 November 2009 15 November 2007 to 14 November 2016 136,545 - - 0.75
15 February 2008 1.7568 1,007,465 - Note 5 Note 5 402,986 - 604,479 1.79
2 May 2008 1.7866 1,007,465 - Note 5 Note 5 75,000 - 932,465 1.72
Total 58,967,231 6,000,000 20,317,374 - 44,649,857
Notes:
1. During the year ended 31 August 2010, 20,317,374 share options were exercised and the weighted average closing price of shares of the Company immediately before the dates of
exercise was HK$0.82 per ordinary share.
2. The exercise of the share options is subject to certain conditions
that must be achieved by the grantee. During the year ended 31 August 2010, one of the clauses in the option agreement have been modified. The share options shall be exercised not later than 23 December 2012.
3. The exercise of the share options is subject to certain conditions that must be achieved by Mr. Yeung. The options
shall be exercised not later than 4 February 2020.
4. The exercise of the share options is subject to the
performance of the Companys shares and certain conditions that must be achieved by the grantee. During the year ended 31 August 2010, one of the clauses in the option agreement has been modified. The options shall be exercised not later
than 23 December 2012.
5. The exercise of the share options is subject to certain conditions that must be
advanced by the grantee. The share options shall be exercised not later than 23 December 2012.
6. During
the year ended 31 August 2010, no share options were lapsed and cancelled.
54 City Telecom (H.K.) Limited
Annual Report 2010
Report of the
Directors
(11) In determining the value of the share options granted during the year ended 31 August
2010, the Black-Scholes option pricing model (the Black-Scholes Model) has been used. The Black-Scholes Model is one of the most generally accepted methodologies used to calculate the value of options. The variables of the Black-Scholes
Model includes expected life of the options, risk-free interest rate, expected volatility and expected dividend yield of the shares of the Company.
In determining the value of the share options granted during the year, the following variables have been applied to the Black-Scholes Model:
Measurement date 5 February 2010
Variables
Expected life 8 years
Risk-free rate 2.33%
Expected volatility 61.49%
Expected
dividend yield 2.99%
The above variables were determined as follows:
(i) The expected life is estimated to be 8 years from the date of grant (the Measurement Date)
(ii) The risk-free rate represents the yield of the Hong Kong Exchange Fund Notes corresponding to the expected life of
the options as at the Measurement Date.
(iii) The expected volatility represents the annualised standard
deviation of the return on the daily share price of the Company over the period commensurate to the expected life of the options (taking into account the remaining contractual life of the options and the effect of the expected early exercise of the
option).
(iv) The expected dividend yield is based on the historical dividend yield over the last eight years.
The fair value of the options granted during the year is estimated as below:
Date of grant 5 February 2010
Fair value per share option HK$1.94
The Group
recognises the fair value of share options as an expense in the income statement over the vesting period, or as an asset, if the cost qualifies for recognition as an asset. The fair value of the share options is measured at the date of grant.
The Black-Scholes Model applied for the determination of the estimated value of the options granted under the
2002 Share Option Scheme require input of highly subjective assumptions, including the expected stock volatility. As the Companys share options have characteristics significantly different from those of traded options, changes in subjective
inputs may materially affect the estimated fair value of the options granted.
City Telecom (H.K.) Limited
Annual Report 2010 55
Report of the
Directors
DIRECTORS RIGHTS TO ACQUIRE SHARES OR DEBENTURES
Save as disclosed under the section Share Option Schemes in this annual report, at no time during the year was
the Company or any of its subsidiaries a party to any arrangements to enable the directors and/or the chief executive of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body
corporate.
SUBSTANTIAL SHAREHOLDERS
At 31 August 2010, the interests or short positions of the persons, other than the directors or chief executive of the Company, in the shares and underlying shares of the Company as
recorded in the register maintained by the Company required to be kept under Section 336 of the SFO were as follows:
Interests in shares Percentage
Name in long
positions interests
(Note)
Top Group International Limited 339,814,284 44.42%
Note: This percentage is based on 764,997,344 shares of the Company issued as at 31 August 2010.
Save as disclosed above, as at 31 August 2010, the Company had not been notified of any persons (other than directors
and chief executive of the Company) having any interest or short positions in the shares and underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO.
MANAGEMENT CONTRACTS
No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year.
MAJOR CUSTOMERS AND SUPPLIERS
The aggregate percentage of turnover for the year attributable to the Groups five largest customers is less than 30% of total turnover for the year and therefore no disclosures with
regard to major customers are made. The percentages of purchases for the year attributable to the Groups major suppliers are as follows:
2010 2009
%%
Purchases
The largest supplier 18 24
Five largest suppliers
combined 53 57
None of the directors, their associates or any shareholder (which to the knowledge of the
directors own more than 5% of the Companys issued share capital) had an interest in the major suppliers noted above.
SUFFICIENCY OF PUBLIC FLOAT
On the basis of
information that is publicly available to the Company and within the knowledge of the directors of the Company, as at the date of this annual report, the Company has maintained a sufficient public float of more than 25 percent of the Companys
issued shares as required under the Listing Rules during the year ended 31 August 2010.
56 City Telecom
(H.K.) Limited Annual Report 2010
Report of the
Directors
CORPORATE GOVERNANCE
Corporate Governance practices adopted by the Company are set out in the Corporate Governance Report on pages 37 to 47 of this annual report.
AUDITORS
The financial statements have been audited by KPMG who shall retire, and being eligible, offer themselves for reappointment at the forthcoming annual general meeting of the Company.
On behalf of the Board
Wong Wai Kay, Ricky
Chairman
Hong Kong, 9 November 2010
City Telecom (H.K.) Limited Annual Report 2010 57
Independent
Auditors Report
KPMG
Independent auditors report to the shareholders of City Telecom (H.K.) Limited
(Incorporated in Hong Kong with limited liability)
We have audited the consolidated financial statements of City Telecom (H.K.) Limited (the Company) set out on
pages 59 to 122, which comprise the consolidated and Company balance sheets as at 31 August 2010, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the
consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
DIRECTORS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in accordance with International Financial Reporting
Standards issued by the International Accounting Standards Board, Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance. This responsibility includes
designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
AUDITORS RESPONSIBILITY
Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, in accordance with section 141 of the Hong Kong
Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors
judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation
and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion. OPINION
In our opinion, the consolidated financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 August 2010 and of the Groups profit and cash flows for the year then ended in accordance with International Financial Reporting Standards and Hong Kong Financial Reporting Standards and
have been properly prepared in accordance with the Hong Kong Companies Ordinance.
KPMG
Certified Public Accountants
8th Floor, Princes Building
10 Chater Road
Central, Hong Kong
9 November 2010
58 City Telecom (H.K.)
Limited Annual Report 2010
Consolidated Income Statement
For the year ended 31 August 2010 (Expressed in Hong Kong dollars)
Note
2010 HK$000
2009 HK$000
Turnover
2
1,574,687
1,478,239
Network costs
3
(195,292)
(175,129)
Other operating expenses
4(a)
(1,105,604)
(1,037,964)
Other income, net
4(b)
7,989
41,540
Finance costs
4(c)
(22,235)
(55,127)
Profit before taxation
4
259,545
251,559
Income tax expense
5
(42,679)
(38,730)
Profit attributable to shareholders
6
216,866
212,829
Basic earnings per share
8
HK30.7 cents
HK32.4 cents
Diluted earnings per share
8
HK29.4 cents
HK31.8 cents
The notes on pages 65 to 122 form part of these financial statements.
City Telecom (H.K.) Limited Annual Report 2010
59
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2010 (Expressed in Hong Kong dollars)
2010 HK$000
2009 HK$000
Profit for the year
216,866
212,829
Other comprehensive income
Exchange differences on translation of financial statements of overseas subsidiaries
(97)
70
Total comprehensive income for the year
216,769
212,899
The notes on pages 65 to 122 form part of
these financial statements.
60
City Telecom (H.K.) Limited Annual Report 2010
Balance Sheet
As at 31 August 2010 (Expressed in Hong Kong dollars)
The Group
The Company
Note
2010 HK$000
2009 HK$000
2010 HK$000
2009 HK$000
Non-current assets Goodwill
12
1,066
1,066
Fixed assets
13
1,431,813
1,302,380
65,763
74,688
Investments in subsidiaries
14
1,035,835
957,712
Long term receivable and prepayment
5,174
6,091
Deferred expenditure
15
6,626
12,786
1,444,679
1,322,323
1,101,598
1,032,400
Current assets Accounts receivable
16
99,729
120,192
7,968
9,220
Other receivables, deposits and Prepayments
16
89,490
69,765
5,317
3,393
Deferred expenditure
15
28,986
36,674
Pledged bank deposits
28
15,038
15,038
Cash at bank and in hand
17
588,665
226,416
431,281
120,315
806,870
468,085
444,566
147,966
Current liabilities Bank overdraftsunsecured
10,490
5,364
900
896
Amounts due to subsidiaries
10,830
10,830
Accounts payable
18
35,128
37,555
17,877
20,484
Other payables and accrued charges
18
195,931
206,487
24,605
23,530
Deposits received
21,822
16,385
7,954
7,886
Current portiondeferred services
revenue
19
106,798
115,070
9,647
10,848
Tax payable
1,533
1,993
356
356
Current portionobligations under finance leases
23
212
202
189
193
371,914
383,056
72,358
75,023
Net current assets
434,956
85,029
372,208
72,943
Total assets less current liabilities
1,879,635
1,407,352
1,473,806
1,105,343
City Telecom (H.K.) Limited Annual
Report 2010
61
Balance Sheet
As at 31 August 2010
(Expressed in Hong Kong
dollars)
Note
The Group 2010
2009 HK$000
HK$000
2010 HK$000
The Company
2009 HK$000
Non-current liabilities Deferred tax liabilities
21
55,843
15,709
6,098
7,047
Long-term deferred services revenue
19
6,772
10,535
Derivative financial instrument
22
11,293
11,293
Long-term debt and other liabilities
23
123,960
163,116
123,899 163,108
191,096
178,825
148,062
180,690
Net assets
1,688,539
1,228,527
1,325,744
924,653
Capital and reserves Share capital
20
76,500
66,418
76,500
66,418
Reserves
20
1,612,039
1,162,109
1,249,244
858,235
Total equity attributable to equity shareholders of the Company
1,688,539
1,228,527
1,325,744
924,653
Approved and authorised for issue by the
board of directors on 9 November 2010.
Wong Wai Kay, Ricky
Director
Cheung Chi Kin, Paul
Director
The notes on pages 65 to 122 form part of these financial statements.
62
City Telecom (H.K.) Limited Annual Report 2010
Consolidated Statement of Changes in Equity
For the year ended 31 August 2010
(Expressed in Hong Kong dollars)
Share capital
Share premium
Capital reserve
Capital redemption reserve
Retained profits
Exchange reserve
Total
Note
HK$000
HK$000
HK$000
HK$000
HK$000
HK$000
HK$000
At 1 September 2009
66,418
681,208
23,232
7
454,802
2,860
1,228,527
Total comprehensive income for the year
216,866
(97)
216,769
Dividend paid in respect of previous year
7
(108,735)
(108,735)
Dividend paid in respect of current year
7
(49,725)
(49,725)
Shares issued upon exercise of share option
2,032
22,227
(7,515)
16,744
Equity settled share-based transactions
5,347
5,347
Shares issued upon placement
8,050
371,562
379,612
At 31 August 2010
76,500
1,074,997
21,064
7
513,208
2,763
1,688,539
At 1 September 2008
65,062
670,717
19,013
275,025
2,790
1,032,607
Total comprehensive income for the year
212,829
70
212,899
Dividend paid in respect of previous year
7
(3,108)
(3,108)
Shares issued in respect of scrip
dividend of previous year
7
1,221
8,685
(9,906)
Dividend paid in respect of current year
7
(19,904)
(19,904)
Shares issued upon exercise of share
option
142
1,806
(549)
1,399
Equity settled share-based transactions
4,768
4,768
Repurchase and cancellation of ordinary shares
(7)
7
(134)
(134)
At 31 August 2009
66,418
681,208
23,232
7
454,802
2,860
1,228,527
The notes on pages 65 to 122 form part of these financial statements.
City Telecom (H.K.) Limited Annual Report 2010
63
Consolidated Cash Flow Statement
Consolidated Cash flow Statement
For the year ended 31 August 2010
(Expressed in Hong Kong dollars)
Note 2010
HK$000
2009 HK$000
Net cash inflow from operations
24(a)
488,353
538,503
Hong Kong profits tax paid Overseas tax
paid
(456)
(2,557)
(1,732)
Net cash inflow from operating activities
485,340
536,771
Investing activities Decrease in pledged bank deposits
15,038
72,281
Interest received
11,372
4,869
Purchases of fixed assets
(349,076)
(289,938)
Net proceeds from maturity of
investment in debt securities
28,051
Proceeds from disposal of fixed assets
16,412
8,249
Net cash outflow from investing activities
(306,254)
(176,488)
Net cash inflow before financing
activities
179,086
360,283
Financing activities Repurchase of
ordinary shares
(134)
Proceeds from issuance of new shares
24(b)
396,356
1,399
Proceeds from new bank loans
163,375
Repayment of bank loan
(40,000)
_Repayment of capital element of finance leases
24(b)
(217)
(138)
Interest element of finance leases
(42)
(27)
Interest paid on bank loans
(1,166)
Other borrowing costs paid
(3,260)
(885)
Interest paid on 10-year senior notes
(5,881)
(52,670)
Repurchase and redemption of 10-year senior notes
24(b)
(172,423)
(485,829)
Dividends paid
(158,435)
(23,008)
Net cash inflow/(outflow) from financing activities
178,307
(561,292)
Increase/ (decrease) in cash at bank
and in hand
357,393
(201,009)
Cash at bank and in hand at
1 September
221,052
421,610
Effect of foreign exchange rate changes
(270)
451
Cash at bank and in hand at 31 August
578,175
221,052
Analysis of the balances of cash and cash
equivalents Cash at bank and in hand
588,665
226,416
Bank overdraftsunsecured
(10,490)
(5,364)
578,175
221,052
The notes on pages 65 to 122 form part of these financial statements.
64
City Telecom (H.K.) Limited Annual Report 2010
Notes to the Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES
(a) Statement
of compliance
These 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 (lASs) and Interpretations issued by the IASB. As 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, are derived from and consistent with
IFRSs, these financial statements also comply with HKFRSs. 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 and the
requirements of the Hong Kong Companies Ordinance. A summary of the significant accounting policies adopted by the Group is set out below.
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 Group and the Company. The equivalent
new or revised HKFRSs consequently issued by HKICPA as a result of these developments have the same effective date as those issued by the IASB and are in all material respects identical to the pronouncements issued by the IASB. Of these, the
following developments are relevant to the Groups financial statements:
IFRS/HKFRS 8, Operating
segments
IAS/HKAS 1 (revised 2007), Presentation of financial statements
Amendments to IFRS/HKFRS 7, Financial instruments: disclosureimproving disclosures about financial
instruments
The impact of these developments is as follows:
IFRS/HKFRS 8 requires segment disclosure to be based on the way that the Groups chief operating decision-maker
regards and manages the Group, with the amounts reported for each reportable segment being the measures reported to the Groups chief operating decision-maker for the purposes of assessing segment performance and making decisions about
operating matters. The new requirement under IFRS/ HKFRS 8 is consistent with the Groups segment information presented in prior years. The adoption of HKFRS 8 had no material impact on the reportable segments being identified and disclosed.
As a result of the adoption of IAS/HKAS 1 (revised 2007), details of changes in equity during the period
arising from transactions with equity shareholders in their capacity as such have been presented separately from all other income and expenses in a revised consolidated statement of changes in equity. All other items of income and expense are
presented in the consolidated income statement, if they are recognised as part of profit or loss for the period, or otherwise in a new primary statement, the consolidated statement of comprehensive income. Corresponding amounts have been restated to
conform to the new presentation. This change in presentation has no effect on reported profit or loss, total income and expense or net assets for any period presented.
As a result of the adoption of the amendments to IFRS/HKFRS 7, the financial statements include expanded disclosure in note 25(e)(i) about the fair value measurement of the Groups
financial instruments, categorising these fair value measurements into a three-level fair value hierarchy according to the extent to which they are based on observable market data.
City Telecom (H.K.) Limited Annual Report 2010
65
Notes to the Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a)
Statement of compliance (continued)
The group has taken advantage of the transitional provisions set out in
the amendments to IFRS/HKFRS 7, under which comparative information for the newly required disclosures about the fair value measurements of financial instruments has not been provided.
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period
(see note 33).
(b) Basis of preparation of the financial statements
The consolidated financial statements for the year ended 31 August 2010 comprise City Telecom (H.K.) Limited (the
Company) and its subsidiaries (collectively referred to as the Group).
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 as explained in the accounting policies set out below (see notes 1(j),
1(l) and 1(r)).
The preparation of financial statements in conformity with IFRSs and 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 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 recognised 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.
Judgements made by management in the application of IFRSs and HKFRSs 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 32.
(c) Subsidiaries and controlled entities
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.
(d) Group accounting
(i) Consolidation
An investment in a subsidiary
is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases.
Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised
losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.
In the Companys balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see note 1(i)), unless the investment is classified as held for sale or
included in a disposal group that is classified as held for sale.
66
City Telecom (H.K.) Limited Annual Report 2010
Notes to the Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d)
Group accounting (continued)
(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 subsidiaries denominated in foreign currencies are translated at the
rates of exchange ruling at the balance sheet date whilst the income statement is translated at an average rate for the year. Exchange differences are dealt with as a movement in reserves.
(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 recognised immediately in
profit or loss.
On disposal of a cash generating unit, an associate or a jointly controlled entity during the
year, any attributable amount of goodwill is included in the calculation of the profit or loss on disposal.
(f) Investment property
Investment properties are land and/or buildings which are owned and held to earn rental income and/or for capital appreciation.
Investment properties are stated in the balance sheet at cost less accumulated depreciation (see note 1(g)) and impairment
losses (see note 1(i)) if any. Any gain or loss arising from the retirement or disposal of an investment property is recognised in the income statement. Rental income from investment property is accounted for in accordance with the accounting policy
as set out in note 1(s)(v).
(g) Fixed assets
Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual
value, if any, using the straight-line method over their estimated useful lives as follows:
Buildings
situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives of 50 years
Furniture, fixtures and fittings
4 years
Telecommunications, computer and office equipment
4 years20 years
Motor vehicles
4 years
Leasehold improvements are depreciated over the shorter of the unexpired term of the leases and their estimated
useful lives.
City Telecom (H.K.) Limited Annual Report 2010
67
Notes to the Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)
Fixed assets (continued)
Where the parts of an item of property, plant and equipment have different useful
lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.
Major costs incurred in restoring fixed assets to their normal working condition are charged to profit or loss. Major
improvements are capitalised 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 recognised 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.
68
City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Impairment of assets
(i) Impairment of
investments in debt and equity securities and accounts and other receivables
Investments in debt and equity
securities and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at each balance sheet date to determine whether there is objective evidence of
impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:
- significant financial difficulty of the debtor;
- a breach of contract, such as a default or delinquency in interest or principal payments;
- it becoming probable that a debtor will enter bankruptcy or other financial reorganisation; 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 recognised as follows:
- For trade and other current receivables and other financial assets carried at amortised 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 amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash
flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.
If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an
event occurring after the impairment loss was recognised, 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 recognised in prior years.
- For available-for-sale securities, the cumulative loss that
has been recognised directly in equity is removed from equity and is recognised in profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment
and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.
Impairment losses recognised 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 recognised directly in equity.
City Telecom (H.K.) Limited Annual Report 2010 69
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Impairment of assets (continued)
(i)
Impairment of investments in debt and equity securities and accounts and other receivables (continued)
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 recognised. Reversals of impairment losses in such circumstances are recognised in profit and loss.
Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in
respect of trade debtors, 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 trade debtors 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 recognised 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 recognised no longer exists or may have
decreased:
- fixed assets;
- investment property;
- investments in
subsidiaries; 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 recognised 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 recognised 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.
70 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Impairment of assets (continued)
(ii)
Impairment of other assets (continued)
- Reversals of impairment losses
In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable 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 recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.
(j) Derivative financial instruments
Derivative
financial instruments are recognised initially at fair value. At each balance sheet date, the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss, except where the derivatives qualify
for cash flow hedge accounting or hedge of a net investment in a foreign operation, in which case recognition of any resultant gain or loss depends on the nature of the item being hedged. For the years presented in the consolidated financial
statements, none of the Groups derivative financial instruments qualify as hedges or hedge accounting.
(k) Deferred expenditure
Deferred expenditure represents customer acquisition costs incurred for successful acquisition or origination of a service subscription agreement with a customer. Such costs are deferred
and amortised on a straight-line basis over the period of the underlying service subscription agreements.
(l)
Accounts receivables
Trade and other receivables are initially recognised at fair value and thereafter stated
at amortised cost less allowance for impairment of doubtful debts (see note 1(i)(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In
such cases, the receivables are stated at cost less impairment of doubtful debts (see note 1(i)(i)).
(m) Cash,
bank balances and pledged bank deposits
Cash and bank balances consist of cash on hand, cash in bank accounts
and interest-bearing savings accounts. Cash that is restricted for use or pledged as security is disclosed separately on the face of the balance sheet, and is not included in the cash and bank balances total in the consolidated statements of cash
flows. The pledged bank deposits represent cash maintained at a bank as security for bank facility and bank guarantees issued by the bank to third party suppliers and utility vendors (see note 28).
(n) Financial guarantees issued, provisions and contingent liabilities
(I) Financial guarantees issued
Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss
the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially
recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Groups policies applicable to that category
of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income.
City Telecom (H.K.) Limited Annual Report 2010 71
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Financial guarantees issued, provisions and contingent liabilities (continued)
(i) Financial guarantees issued (continued)
The
amount of the guarantee initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognised in accordance with note l(n)(ii) if and
when (i) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in
respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation.
(ii) Other
provisions and contingent liabilities
Provisions are recognised for other liabilities of uncertain timing or
amount when the Group or the Company 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.
(o) Talent benefits
(i) Leave entitlements
Entitlements to annual leave and long service leave are recognised when they accrue to individuals employed by the Group hereinafter (referred to as Talents), including
directors of the Company. A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by Talents up to the balance sheet date.
Entitlements to sick leave and maternity or paternity leave are not recognised until the time of leave.
(ii) Profit sharing and bonus plans
Provisions for profit sharing and bonus plans are recognised when the Group has a present legal or constructive obligation as a result of services rendered by Talents and a reliable
estimate of the obligation can be made.
(iii) Retirement benefit costs
The Group contributes to defined contribution retirement schemes which are available to certain Talents. Contributions to
the schemes by the Group are calculated as a percentage of Talents basic salaries and charged to profit or loss. The Groups contributions are reduced by contributions forfeited by those Talents who leave the scheme prior to vesting fully
in the contributions.
The assets of the scheme are held in an independently administered fund that is
separated from the Groups assets.
72 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Talent benefits (continued)
(iv) Share-based
payments
The fair value of share options granted to Talents or directors is recognised as Talent cost with a
corresponding increase in capital reserve within equity. The fair value is measured at grant date using the Black-Scholes option pricing model or Monte Carlo model, taking into account the terms and conditions upon which the options were granted.
Where the Talents have to meet vesting conditions before becoming unconditionally entitled to the share options, the total estimated fair value of the share options is spread over the vesting period, taking into account the probability that the
options will vest.
During the vesting period, the number of share options that is expected to vest is
reviewed. Any adjustment to the cumulative fair value recognised in prior years is charged/credited to profit or loss, unless the original Talent expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve.
On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions
that relate to the market price of the Companys shares. The amount related to share options expense is recorded in the capital reserve until either the option is exercised or the option expires.
(p) Deferred taxation
Deferred taxation is provided, using the balance sheet liability method, on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the
financial statements. Deferred tax assets also arise from unused tax losses. Taxation rates enacted or substantively enacted at the balance sheet date are used to measure deferred tax assets and liabilities.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against
which the temporary differences can be utilised.
The following temporary differences, of which deferred taxes
are not provided for: initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to
investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the temporary differences will not be reversed in the foreseeable future, or in the case of
deductible differences, unless it is probable that they will reverse in the future.
Deferred tax assets and
deferred tax liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same
taxation authority on the same taxable entity.
(q) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to
initial recognition, the interest-bearing borrowings are stated at amortised cost with the difference between amortised cost and redemption value recognised in profit or loss over the period of borrowings using the effective interest method.
(r) Trade and other payables
Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in accordance with note l(n), trade and other payables are subsequently
stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.
City Telecom (H.K.) Limited Annual Report 2010 73
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) Revenue recognition
(i) Revenue for the
provision of international telecommunications and fixed telecommunications network services is recognised, 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 recognised in profit or
loss rateably over the term of the service subscription agreement. Unbilled revenue represents revenue recognised in accordance with the requirement in note l(s)(i) that has not been billed to the subscriber.
(iii) Amount received in advance for the provision of fixed telecommunications network services is deferred and included
under deferred services income, and subsequently recognised as revenue on a straight-line basis over the related service period.
(iv) Interest income is recognised as it accrues using the effective interest method.
(v) Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term. Lease incentives granted are recognised
in profit or loss as an integral part of the aggregate net lease payments receivable.
(t) Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised 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, (u) Segment reporting
Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the
financial information provided regularly to the Groups most senior executive management for the purposes of allocating resources to, and assessing the performance of, the groups two lines of business.
Geographical information is not presented as the majority of the Groups revenue is attributed to customers in Hong
Kong and the majority of the assets are located in Hong Kong.
(v) Accounting for barter transactions
When goods or services are exchanged for goods or services which are of a similar nature and value, the
exchange is not regarded as a revenue generating transaction.
When goods are sold or services are rendered in
exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents
transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services rendered, adjusted by the amount of any cash or cash equivalents transferred.
74 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(w) Related parties
For the purposes of these
financial statements, a party is considered to be related to the Group if:
(i) the party has the ability,
directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;
(iv) the party is a member of key management personnel of the Group or the Groups parent, or a close family member
of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of Talents of the Group or of any entity that is
a related party of the Group.
Close family members of an individual are those family members who may be
expected to influence, or be influenced by, that individual in their dealings with the entity.
2 TURNOVER AND
SEGMENT INFORMATION
The Group is principally engaged in the provision of international telecommunications
services and fixed telecommunications network services to customers in Hong Kong and Canada. Revenues recognised during the year are as follows:
2010 HK$000 2009 HK$000
Turnover
International telecommunications services
Fixed telecommunications network services (note 2(b)) 218,589 1,356,098 247,359 1,230,880
1,574,687 1,478,239
(a) Primary reporting format - business segments
The Group is organised 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
City Telecom (H.K.) Limited Annual Report 2010 75
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
2 TURNOVER 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.
2010
International Fixed
tele- tele-
communications communications
services network services Elimination Group
HK$000 HK$000 HK$000 HK$000
Turnover
- External sales 218,589 1,356,098 - 1,574,687
-
Inter-segment sales 5,673 16,673 (22,346) -
224,262 1,372,771 (22,346) 1,574,687
Segment results 54,173 219,618 273,791
Other income, net 7,989
Finance costs (22,235)
Profit before taxation 259,545
Income tax expense (42,679)
Net profit 216,866
2009
International Fixed
tele- tele-
communications communications
services network services Elimination Group
HK$000 HK$000 HK$000 HK$000
Turnover
- External sales 247,359 1,230,880 - 1,478,239
-
Inter-segment sales 5,669 19,784 (25,453) -
253,028 1,250,664 (25,453) 1,478,239
Segment results 61,631 203,515 265,146
Other income, net 41,540
Finance costs (55,127)
Profit before taxation 251,559
Income tax expense (38,730)
Net profit 212,829
76 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
2 TURNOVER AND SEGMENT INFORMATION (CONTINUED) (a) Primary reporting format business segments (continued)
2010
International Fixed
tele- tele-
communications communications
services network services Group
HK$'000 HK$'000
HK$'000
Segment assets 590,888 1,660,661 2,551,549
Segment liabilities 92,982 289,085 382,067
Unallocated liabilities 180,943
Total liabilities
563,010
Capital expenditure incurred during the year 5,223 339,621 344,844
Depreciation for the year 12,637 186,392 199,029
2009
International Fixed
tele- tele-
communications communications
services network
services Group
HK$'000 HK$'000 HK$'000
Segment assets 298,412 1,491,996 1,790,408
Segment liabilities 82,090 299,503 381,593
Unallocated liabilities 180,288
Total liabilities 561,881
Capital expenditure
incurred during the year 1,820 284,914 286,734
Depreciation for the year 15,154 191,087 206,241
City Telecom (H.K.) Limited Annual Report 2010 77
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
2 TURNOVER AND SEGMENT INFORMATION (CONTINUED)
(b) Hong Kong Broadband Network Limited (HKBN), a wholly-owned subsidiary of the Company, is a Fixed Telecommunications Network Services (FTNS) licensee and
provides interconnection services to enable delivery of telecommunications service to customers of different operators. Since the FTNS license was granted by the Telecommunication Authority (TA) and interconnection services have been
provided, HKBN has been billing mobile operators for the interconnection services provided to them and recognising 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 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 1 April 2002 to 31 August 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 1 April 2002 to 31 August 2004 and with respect to the period after 31 August 2004 at the interim rate stated in the contractual agreements. The interim rate was subject to
adjustment based on further determination to be issued by TA.
In February 2008, since certain mobile operators
had still not yet settled their mobile interconnection charges for interconnection services provided by HKBN, HKBN requested TA to make a new determination on the rate of mobile interconnection charge and interest thereon with the four mobile
operators.
In September 2008, TA accepted HKBNs request for determination on the rate of mobile
interconnection charges for the period from 1 April 2002 to 26 April 2009 payable by the mobile operators that have not reached contractual agreements with HKBN, and the rate for the period from 1 September 2004 to 26 April 2009 payable by
those mobile operators that have reached contractual agreements with HKBN, and the interest rate thereon (the 2008 Determination).
In May 2010, TA issued its decision on the 2008 Determination which set out the rates of mobile interconnection charges payable by the mobile operators under dispute.
Based on the 2008 Determination, the Group reversed approximately HK$19,706,000 revenue related to mobile interconnection
charges and recognised approximately HK$10,053,000 interest income during the year ended 31 August 2010.
Included in the accounts receivable balance as at 31 August 2010 were receivable relating to mobile interconnection
charges of HK$39,763,000 (31 August 2009: HK$68,802,000) representing the amount of mobile interconnection charges management expects to collect.
78 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
3 NETWORK COSTS
Network costs mainly include interconnection charges paid to local and overseas carriers, leased line rentals, program fees, and production costs for the IP-TV service, and do not include
depreciation charge which is included in other operating expenses.
The Group estimates the Universal Services
Contributions (USC) payable to PCCW-HKT to fund the costs of network development in remote areas in Hong Kong and includes such estimated costs as part of the network costs. TA periodically reviews the actual costs of such developments
and revises the amounts owed to PCCW-HKT or to be refunded by PCCW-HKT to the USC contributing parties.
On 8
April 2009, TA issued a statement (the 2009 TA Statement) on the USC and confirmed the actual contribution level for the period from 1 July 2007 to 30 June 2008. Based on the 2009 TA Statement, no additional payment or refund of USC from
PCCW-HKT was required.
On 27 April 2010, TA issued a statement (the 2010 TA Statement) on the USC
and confirmed the actual contribution level for the period from 1 July 2008 to 30 April 2009. Based on the 2010 TA Statement, no additional payment or refund of USC from PCCW-HKT was required.
Based on the 2010 TA Statement, TA decided that USC contributing parties are not required to pay provisional USC from
1 May 2009 onwards until a further review of the USC.
4 PROFIT BEFORE TAXATION
Profit before taxation is arrived at after charging/(crediting) the following: (a) Other operating expenses
2010 2009
HK$'000 HK$'000
Advertising and marketing
expenses 372,727 299,794
Amortisation of deferred expenditure (note 15) 48,621 53,160
Auditors remuneration 2,910 3,455
Depreciation of owned fixed assets 198,323 205,624
Depreciation of fixed assets held under finance lease 706 617
Operating lease charges in respect of land and buildings 22,669 17,010
Operating lease charges in respect of equipment 39 42
Provision for doubtful debts (note 16(b)) 14,742 12,103
(Gain)/loss on disposal of fixed assets (1,375) 1,016
Talent costs (note 4(d)) 301,760 302,279
Others 144,482 142,864
1,105,604 1,037,964
City Telecom (H.K.) Limited Annual Report 2010 79
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
4 PROFIT BEFORE TAXATION (CONTINUED) (b) Other income, net
2010 HK$000 2009 HK$000
Interest income
Loss/(gain) on extinguishment of
10-year senior notes (note 23(a))
Net exchange gain
Others (11,372) 9,650 (324) (5,943) (4,869) (31,371) (3,038) (2,262)
(7,989) (41,540)
(c) Finance costs
2010 HK$'000 2009 HK$'000
Interest element of finance leases
Interest on 10-year senior notes
Amortisation of
incidental issuance costs
Interest on bank borrowings
Amortisation of upfront costs on bank borrowings
Change in fair value of derivative financial instrument
Other borrowing costs 42 5,881 188 1,379 192 11,293 3,260 27 52,670 1,545
- - - 885
22,235 55,127
(d) Talent costs
2010 HK$000 2009 HK$000
Wages and
salaries
Provision for annual leave
Equity settled share-based transaction
Retirement
benefit costs - defined contribution plans (note 9)
Less: Talent costs capitalised as fixed assets 277,883 561
5,347 38,820 (20,851) 278,905 613 4,768 34,614 (16,621)
301,760 302,279
Talent costs include directors emoluments and research and development cost of HK$11,169,000 (2009: HK$10,824,000)
but exclude Talent costs of HK$11,098,000 (2009: HK$13,461,000) recorded in network costs and HK$229,399,000 (2009: HK$214,272,000) recorded in advertising and marketing expenses.
Talent costs include all compensation and benefits paid to and accrued for all individuals employed by the Group,
including directors.
80 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
4 PROFIT BEFORE TAXATION (CONTINUED) (e) Other item
2010 HK$'000
2009 HK$'000
Realised gain on other financial
assets
_
(189)
5 INCOME TAX EXPENSE
Hong Kong profits tax has been provided at the rate of 16.5% (2009: 16.5%) on the estimated assessable profits for the
year. Taxation on other jurisdictions has been calculated on the estimated assessable profits for the year at the income tax rates prevailing in the other tax jurisdictions in which the Group operates.
The amount of income tax expense in the consolidated income statement represents:
2010 HK$'000
2009 HK$'000
Current taxation
Hong Kong
- Over-provision in prior years Non-Hong Kong
-
Provision for the year
-
40
(2,585)
(1,622)
Deferred taxation
Origination and reversal of
temporary differences
(40,134)
(37,108)
Income tax expense
(42,679)
(38,730)
The Groups income tax expense
differs from the theoretical amount that would arise using the profits before taxation at applicable tax rates as follows:
2010 HK$'000
2009 HK$'000
Profit before taxation
259,545
251,559
Notional tax on profit before taxation, calculated at the prevailing tax
rates applicable to profit in the jurisdictions concerned Effect of non-taxable income
Effect of (loss)/gain on extinguishment of 10-year senior
notes not subject to taxation Effect of non-deductible expenses Over-provision in prior years Others
(43,781) 4,692
(1,592) (2,367) 40 329
(42,240) 1,466
5,176 (3,648)
516
Income tax expense
(42,679)
(38,730)
City Telecom (H.K.) Limited Annual
Report 2010 81
Notes to the
Financial Statements
(Expressed in Hong Kong Dollars)
6 PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The profit attributable to shareholders is dealt with in the financial statements of the Company to the extent of HK$157,848,000 (2009: HK$27,440,000).
7 DIVIDENDS
(a) Dividends payable to equity shareholders of the Company attributable to the year:
2010 2009
HK$000 HK000
Interim dividend declared and paid of HK6.5 cents per ordinary share (2009: HK3 cents per ordinary share)
49,725 19,904
Final dividend proposed after the balance sheet date, of HK13.5 cents per ordinary share (2009: HK16 cents per ordinary share) 103,275 106,269
153,000 126,173
The final dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date.
(b) Dividends attributable to the previous financial year, approved and paid during the year:
2010 2009
HK$000 HK$000
Final dividend in
respect of the financial year ended 31 August 2009, approved and paid of HK16 cents per
ordinary share
(2009: HK2 cents per ordinary share in respect of the financial year ended 31 August 2008)
108,735 13,014
During the year ended 31 August 2009, a scrip dividend option was offered to all shareholders of the
Company, excluding shareholders with registered addresses outside Hong Kong, who were entitled to the final dividend in respect of the financial year ended 31 August 2008. 12,212,142 shares were issued during the year ended 31 August 2009
to the shareholders of the Company who had elected to receive all or part of their entitlement to dividends in the form of scrip.
82 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong Dollars)
8 EARNINGS PER SHARE
2010 HK$000 2009 HK$000
Profit
attributable to shareholders
216,866 212,829
Weighted average number of ordinary shares
2010 Number of shares 000
2009 Number of
shares 000
Issued ordinary shares at the beginning of the year
Effect of scrip dividend issued
Effect of share options exercised
Effect of
placement
Effect of shares repurchased and cancelled
664,180 650,622
- 6,256
14,856 329
27,569 -
- (6)
Weighted average number of ordinary shares
at the end of the year (basic) Incremental shares from assumed exercise of share options 706,605 657,201
30,011 11,183
Weighted average number of ordinary shares at the end of the year (diluted)
736,616 668,384
Basic earnings per share
HK30.7 cents HK32.4 cents
Diluted earnings per share
HK29.4 cents HK31.8
cents
9 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 Talents in Hong Kong. Under the
ORSO Scheme, the Talents are required to contribute 5% of their monthly salaries, while the Group's contributions are calculated at 10% and 5% of the monthly salaries of senior management Talents and all other Talents respectively. The Talents are
entitled to 100% of the employer's 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 Talents who leave
the ORSO Scheme prior to vesting fully in the Group's 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 Talents of the Group in Hong Kong could elect to join the MPF Scheme, while all new Talents joining the Group in
Hong Kong from then onwards are required to join the MPF Scheme. Both the Group and the Talents are required to contribute 5% of each individual's relevant income with a maximum amount of HK$1,000 per month as a mandatory contribution. Employer's
mandatory contributions are 100% vested in the Talents as soon as they are paid to the MPF Schemes. Senior Talents may also elect to join a Mutual Voluntary Plan (the "Mutual Plan") in which both the Group and the Talents, 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.
City Telecom (H.K.) Limited Annual Report 2010 83
Notes to the
Financial Statements
(Expressed in Hong Kong Dollars)
9 RETIREMENT BENEFIT COSTS (CONTINUED)
Pursuant to the relevant regulations in Peoples Republic of China (the PRC), the Group contributes to a defined contribution retirement scheme organised by the local
social security bureau for each Talent 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 Talents.
The retirement schemes for Talents 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:
2010 HK$000
2009 HK$000
Gross contributions
38,820
34,614
At 31 August 2010, there was no
forfeited contribution available to offset future contributions by the Group to the ORSO Scheme (2009: Nil).
10 DIRECTORS AND SENIOR MANAGEMENTS EMOLUMENTS
(a) Directors remuneration
The remuneration of each director for the year ended 31 August 2010 is set out below:
Name of director
Fee HK$000
Salary HK$000
Discretionary bonuses HK$000
Share-based
payment HK$000
Employers contribution to defined contribution scheme HK$000
Total HK$000
Wong Wai Kay, Ricky
- 6,707 1,800 - 670 9,177
Cheung Chi Kin, Paul
- 6,709 1,800 - 670 9,179
Yeung Chu Kwong,
William
- 8,264 2,400 2,526 456 13,646
Lai Ni Quiaque
- 2,642 750 2,455 264 6,111
Cheng Mo Chi, Moses
168 - - - - 168
Lee Hon Ying, John
185 - - - - 185
Chan Kin Man
174 - - - - 174
Peh Jefferson Tun Lu
174 - - - - 174
Total
701 24,322 6,750 4,981 2,060 38,814
84 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
10 DIRECTORS AND SENIOR MANAGEMENTS EMOLUMENTS (CONTINUED)
(a) Directors remuneration (continued)
The remuneration of each director for the year ended 31 August 2009 is set out below:
Name of director
Free HK$000
Salary HK$000
Discretionary bonuses HK$000
Share-based
payment HK$000
Employers contribution to defined contribution scheme HK$000
Total 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
No director waived any emoluments in respect of the years ended 31 August
2009 and 2010.
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 Group's significant accounting policies in note 1. The details of the share-based payment are
disclosed in note 11.
(b) Five highest paid individuals
The five individuals whose emoluments were the highest in the Group for the year include four (2009: four) directors whose
emoluments are reflected in the analysis presented above. The emoluments payable to the remaining one (2009: one) individual during the year are as follows:
2010 HK$000
2009 HK$000
Basic salaries, other allowances and benefits in kind
Discretionary bonuses
Share-based payments
Retirement benefit costs -
defined contribution plans
2,492 2,515
300 150
- 332
181 3,103
The emoluments fell within the following band:
Number of individual
2010 2009
HK$2,500,001 - HK$3,000,000 HK$3,000,001 - HK$3,500,000
1 -
- 1
City Telecom (H.K.) Limited Annual Report
2010 85
Notes to the
Financial Statements
(Expressed in Hong Kong Dollars)
11 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 23 December 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 Talents (including executive, nonexecutive and independent non-executive directors), suppliers and professional
advisers to subscribe for shares of the Company. The maximum number of options authorised under the 2002 Share Option Scheme may not, when aggregated with any shares subject to any other executive and Talent 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 22 December 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 31 August 2010 are as follows,
whereby all options are settled by physical delivery of shares:
Number of options
Vesting conditions
Exercisable period
2002 Share Option Scheme
Options granted to directors:
- 5 January 2005 16,183,208 Condition 1 On or prior to 20 October 2014
- 22 May 2006 15,178,466 Condition 1 On or prior to 21 May 2016
- 6 February 2008 6,044,791 Condition 3 On or prior to 23 December 2012
- 11 February 2008 6,044,791 Condition 2 On or prior to 23 December 2012
- 5 February 2010 6,000,000 Condition 4 On or prior to 4 February 2020
Options granted to Talents:
- 21 October 2004
6,909,527 Condition 1 On or prior to 20 October 2014
- 22 May 2006 6,414,433 Condition 1 On or prior
to 21 May 2016
- 3 August 2006 40,540 Condition 1 On or prior to 2 August 2016
- 22 November 2006 136,545 Condition 1 On or prior to 14 November 2016
- 15 February 2008 1,007,465 Condition 5 On or prior to 23 December 2012
- 2 May 2008 1,007,465 Condition 5 On or prior to 23 December 2012
Total share options 64,967,231
86 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
11 EQUITY SETTLED SHARE-BASED TRANSACTIONS (CONTINUED)
(a) The terms and conditions of the options (continued)
Options that existed during the year ended 31 August 2009 are as follows, whereby all options are settled by physical
delivery of shares:
Number Vesting Exercisable
of options conditions period
2002 Share Option Scheme
Options granted to
directors:
5 January 2005 16,183,208 Condition 1 On or prior to 20 October 2014
22 May 2006 15,178,466 Condition 1 On or prior to 21 May 2016
6 February 2008 6,044,791 Condition 3 On or prior to 23 December 2012
11 February 2008 6,044,791 Condition 2 On or prior to 23 December 2012
Options granted to Talents:
21 October 2004 7,606,712 Condition 1 On or prior to 20 October 2014
22 May 2006 7,314,455 Condition 1 On or prior to 21 May 2016
3 August 2006 40,540 Condition 1 On or prior to 2 August 2016
22 November 2006 136,545 Condition 1 On or prior to 14 November 2016
15 February 2008 1,007,465 Condition 5 On or prior to 23 December 2012
11 March 2008 302,240 Condition 1 On or prior to 23 December 2012
2 May 2008 1,007,465 Condition 5 On or prior to 23 December 2012
Total share options 60,866,678
The vesting
conditions of the respective share option grant are as follows:
Condition 1
Options granted are vested in one year or evenly vested over a period of two to three years. Options are awarded without
performance conditions and are exercisable provided the participants have remained employed by the end of respective vesting periods.
Condition 2
Vesting of the options is conditional
upon the performance of the Companys shares over the period from the close of trading in Hong Kong on 22 November 2007 to 21 November 2010.
Upon fulfilment of the market conditions, certain options granted vest immediately, while other options affected by the same market conditions vest evenly over a period of three years.
During the year ended 31 August 2010, one of the clauses in the option agreement has been modified. As a
result of this modification, vesting of certain options is now conditional upon the Company reaching a non-market performance condition. Upon fulfilment of this non-market performance condition, a portion of the options affected by this condition
vest immediately, while other options affected by this condition vest evenly over a period of three years.
The
Group has accounted for the modification in accordance with IFRS/HKFRS 2 Share-based payment by measuring the incremental fair value which is the difference between the fair value of the modified share options and that of the original
share options, both estimated as at the date of the modification, and recognising the incremental fair value over the period from the modification date until the date when the modified share options vest. The balance of the original grant-date fair
value as at the date of modification continues to be recognised over the remaining original vesting period. For the year ended 31 August 2010, the amount of incremental fair value recognised in respect of the modification was HK$1,977,000.
City Telecom (H.K.) Limited Annual Report 2010 87
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
11 EQUITY SETTLED SHARE-BASED TRANSACTIONS (CONTINUED)
(a) The terms and conditions of the options (continued)
Condition 3
Vesting of the options is conditional upon the performance of the participants. Options granted are vested over a period of three to four years from the date of fulfilment of certain key
performance indicators.
During the year 31 August 2010, one of the performance conditions has been modified.
Such modification does not result in any incremental fair value, and therefore, there is no financial impact in the financial statements.
Condition 4
Vesting of the options is conditional
upon the performance of the participants. Options granted are vested immediately from the date of fulfilment of the certain key performance indicators.
Condition 5
Vesting of the options is conditional
upon the performance of the participants. Options granted are vested over a period of three to four years from the date of fulfilment of certain key performance indicators.
(b) The number and weighted average exercise prices of share options are as follows:
2010 2009
Weighted Weighted
average average
exercise Number of exercise Number of
price
options price options
2002 Share Option Scheme
Outstanding at the beginning of the year 1.27 58,967,231 1.27 60,581,214
Adjustment to number of options for 2008
Final Dividend (note) 1.27 285,464
Granted during the year 4.24 6,000,000
Exercised during the year 0.82 (20,317,374) 0.99 (1,416,005)
Lapsed during the year 1.65 (483,442)
Outstanding at the end of the year 1.87 44,649,857 1.27 58,967,231
Exercisable at the end of the year 1.35 25,603,183 1.12 45,849,756
The weighted average share price at the date of exercise for the share options exercised during the year was HK$3.85
(2009: HK$1.82).
The options outstanding at 31 August 2010 had a weighted average exercise price of HK$1.87
(2009: HK$1.27) and a weighted average remaining contractual life of 4 years (2009: 5 years).
Note: As a
result of allotment of 12,212,142 new shares to shareholders who elected to receive the 2008 Final Dividend in shares on 25 February 2009, the exercise price of and the number of share subject to the 60,299,426 share options outstanding on 19
December 2008 (being the Record Date for determining the entitlement of 2008 Final Dividend) were adjusted pursuant to the 2002 Share Option Scheme with effect from 25 February 2009. The closing price per ordinary share immediately before the date
of the grant of the options was HK$0.88.
88 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
11 EQUITY SETTLED SHARE-BASED TRANSACTIONS (CONTINUED)
(c) Fair value of share options and assumptions
In determining the value of the share options granted during the year ended 31 August 2010, the Black-Scholes option pricing model (the Black-Scholes Model) has been used.
The Black-Scholes Model is one of the most generally accepted methodologies used to calculate the value of options. The variables of the Black-Scholes Model includes expected life of the options, risk-free interest rate, expected volatility and
expected dividend yield of the shares of the Company.
In determining the value of the share options granted
during the year, the following variables have been applied to the Black-Scholes Model:
Measurement date
5 February 2010
Variables
Expected life 8 years
Risk-free
rate 2.33%
Expected volatility 61.49%
Expected dividend yield 2.99%
The above variables were determined as follows:
(i) The expected life is estimated to be 8 years from the date of grant (the Measurement Date)
(ii) The risk-free rate represents the yield of the Hong Kong Exchange Fund Notes corresponding to the expected life of
the options as at the Measurement Date.
(iii) The expected volatility represents the annualized standard
deviation of the return on the daily share price of the Company over the period commensurate to the expected life of the options (taking into account the remaining contractual life of the option and the effect of the expected early exercise of the
option).
(iv) The expected dividend yield is based on the historical dividend yield over the last eight years.
The fair value of the options granted during the year is estimated as below:
Date of grant 5 February 2010
Fair value per share option HK$1.94
The Group
recognises the fair value of share options as an expense in the income statement over the vesting period, or as an asset, if the cost qualifies for recognition as an asset. The fair value of the share options is measured at the date of grant.
The Black-Scholes Model applied for the determination of the estimated value of the options granted under 2002
Share Option Scheme require input of highly subjective assumptions, including the expected stock volatility. As the Companys share options have characteristics significantly different from those of traded options, changes in subjective inputs
may materially affect the estimated fair value of the options granted.
City Telecom (H.K.) Limited Annual
Report 2010 89
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
12 GOODWILL GROUP
The Group
HK$000
Cost and carrying amount:
At 31 August 2010/2009 1,066
Impairment tests for
cash-generating units containing goodwill
Goodwill is allocated to the Groups cash-generating units
(CGU) identified according to business segment as follows:
2010 HK$000 2009 HK$000
Fixed telecommunication network service segment 1,066 1,066
The recoverable amount of the CGU is determined based on value-in-use calculations. These calculations use cash flow
projections based on financial budgets approved by management covering a five-year period. Cash flows for the five-year period are estimated based on average growth rates of 15% and a pre-tax discount rate of 16%. Cash flows beyond the five-year
period are assumed to remain constant. The estimated growth rates used are comparable to the growth rate for the industry.
The key assumption used in the value-in-use calculation is the annual growth rate of the turnover of the fixed telecommunications network services, which are 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 assumptions could reduce the recoverable amount below carrying amount.
90 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
13 FIXED ASSETS Group
Investment property
HK$000 Leasehold land
and buildings
HK$000 Leasehold improvements
HK$000 Furniture, fixtures and fittings
HK$000 Telecommunications, computer and office equipment HK$000 Motor vehicles
HK$000 Total
HK$000
Cost:
At 1 September 2009
Additions
Disposals
Exchange adjustments 5,197 90,911 100,447 12,885 (212) 166 19,885 1,343 (109) 72 2,850,444 330,441 (51,906) 1,230 12,773 175
3,079,657 344,844 (52,227) 1,468
At 31 August 2010 5,197 90,911 113,286 21,191 3,130,209 12,948 3,373,742
Accumulated depreciation:
At 1 September 2009 Charge for the year Disposals
Exchange adjustments 2,309 104 12,466 1,818 69,102 11,270 (212) 156 17,017 1,166 (109) 58
1,668,160 183,052 (35,344) 1,074 8,223 1,619 1,777,277 199,029 (35,665) 1,288
At 31 August
2010 2,413 14,284 80,316 18,132 1,816,942 9,842 1,941,929
Net book value:
At 31 August 2010 2,784 76,627 32,970 3,059 1,313,267 3,106 1,431,813
Cost:
At 1 September 2008
Additions
Disposals
Exchange adjustments 5,197 84,244 6,667 84,577 16,663 (630) (163) 19,575 416 (30) (76) 2,644,281 262,796 (55,118) (1,515) 12,624 192 (43)
2,850,498 286,734 (55,821) (1,754)
At 31 August 2009 5,197 90,911 100,447 19,885 2,850,444 12,773 3,079,657
Accumulated depreciation:
At 1 September 2008 Charge for the year Disposals
Exchange adjustments 2,205 104 10,727 1,739 61,269 8,286 (294) (159) 15,596 1,508 (29) (58)
1,522,739 192,925 (46,214) (1,290) 6,563 1,679 (19) 1,619,099 206,241 (46,556) (1,507)
At 31 August
2009 2,309 12,466 69,102 17,017 1,668,160 8,223 1,777,277
Net book value:
At 31 August 2009 2,888 78,445 31,345 2,868 1,182,284 4,550 1,302,380
City Telecom (H.K.) Limited Annual Report 2010 91
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
13 FIXED ASSETS (CONTINUED) Company
Telecommunications,
Furniture, computer
Investment Leasehold fixtures and and office Motor
property improvements fittings equipment vehicles Total
HK$000 HK$000 HK$000 HK$000 HK$000 HK$000
Cost:
At 1 September 2009 5,197 8,332 9,451 308,176 4,901 336,057
Additions 1,387 12 1,338 2,737
Disposals (261) (261)
At 31 August 2010 5,197 9,719 9,463 309,253 4,901 338,533
Accumulated depreciation:
At 1 September 2009
2,309 7,663 7,735 239,756 3,906 261,369
Charge for the year 104 710 573 9,966 309 11,662
Disposals (261) (261)
At 31 August 2010 2,413 8,373 8,308 249,461 4,215 272,770
Net book value:
At 31 August 2010 2,784 1,346
1,155 59,792 686 65,763
Cost:
At 1 September 2008 5,197 8,332 9,223 312,387 4,901 340,040
Additions 228 1,052 1,280
Disposals (5,263) (5,263)
At 31 August 2009 5,197 8,332 9,451 308,176 4,901 336,057
Accumulated depreciation:
At 1 September 2008 2,205 6,925 7,148 232,682 3,597 252,557
Charge for the year 104 738 587 12,333 309 14,071
Disposals (5,259) (5,259)
At 31 August 2009 2,309 7,663 7,735 239,756 3,906 261,369
Net book value:
At 31 August 2009 2,888 669 1,716 68,420 995 74,688
92 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
13 FIXED ASSETS (CONTINUED)
(a) The Groups and the Companys total future aggregate lease income receivable under non-cancellable operating lease are as follows:
The Group 2010 2009 HK$000 HK$000 The Company 2010 2009 HK$000 HK$000
Leases in respect of investment property which are receivable:
Within 1 year 108 258 108 258
After 1 year but within 5 years
108 258 108 258
Leases in respect of
telecommunications facilities and computer equipment which are receivable:
Within 1 year 2,335 1,566
After 1 year but within 5 years 607 1,071
2,942 2,637
3,050 2,895 108 258
(b) At 31 August 2010,
the fair value of the investment property is HK$5,300,000. Management estimated the fair value of the investment property based on its open market value.
(c) The net book value of interests in leasehold land and buildings and investment property situated in Hong Kong are analysed as follows:
The Group The Company 2010 2009 2010 2009 HK$000 HK$000 HK$000 HK$000
Leases of between 10 to 50 years 79,411 81,333 2,784 2,888
Representing:
Leasehold land and building carried at cost
Investment property carried at cost less impairment loss 76,627 2,784 78,445 2,888 2,784 2,888
79,411 81,333 2,784 2,888
City Telecom (H.K.) Limited Annual Report 2010 93
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
13 FIXED ASSETS (CONTINUED)
(d) In addition to the leasehold land and buildings classified as being held under a finance lease, the Group leases telecommunications, computer and office equipment under finance leases
expiring from one to five years. At the end of the lease term the Group has the option to purchase the equipment at a price deemed to be a bargain purchase option. None of the leases included contingent rental.
At 31 August 2010, the net book value of telecommunications, computer and office equipment under finance lease held
by the Group amounted to HK$674,000 (2009: HK$1,289,000).
14 INVESTMENTS IN SUBSIDIARIES
The Company 2010 HK$000
2009 HK$000
Unlisted investments, at cost
(note (a)) Amounts due from subsidiaries (note (b)) 51,791 994,228 51,791 916,105
Less: Impairment loss
1,046,019 (10,184) 967,896 (10,184)
1,035,835 957,712
Notes:
(a) The following is a list of the principal subsidiaries which principally affected the results, assets or liabilities of the Group at 31 August 2010:
Name
Place of incorporation Principal activities and place of operations Particulars of issued share capital Percentage of 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
94 City
Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
14 INVESTMENTS IN SUBSIDIARIES (CONTINUED)
Notes: (continued) (a) (continued)
Name
Place of incorporation Principal activities and place of operations Particulars of issued share capital Percentage of interest held
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
CTI Guangzhou Customer Services Co. Ltd. (translated from the registered name in Chinese)# PRC Provision of
administrative support services in the PRC Paid in capital of HK$8,000,000 *100
CTI Marketing Company Limited
Hong Kong Inactive Ordinary HK$10,000 100
Golden Trinity Holdings Limited British Virgin Islands Investment
holding in Hong Kong Ordinary US$1 *100
Hong Kong Broadband Network Limited Hong Kong Provision of
international telecommunications and fixed telecommunications network services in Hong Kong Ordinary HK$383,049 100
IDD1600 Company Limited Hong Kong Provision of international telecommunications services in Hong Kong Ordinary HK$2 100
SGBN Singapore Broadband Network Pte. Limited Singapore Inactive Ordinary Singapore dollar (SG$)1 *100
* Shares held directly by the Company.
# Subsidiaries not audited by KPMG.
(b) Except for a loan to a subsidiary of HK$625,860,000 (2009: HK$753,860,000) which bears fixed interest of 9% per annum, all the amounts due from subsidiaries are unsecured,
interest-free and have no fixed terms of repayment.
City Telecom (H.K.) Limited Annual Report 2010 95
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
15 DEFERRED EXPENDITURE
The Group 2010 2009 HK$000 HK$000
Balance as at the beginning of the year 49,460 56,095
Additions during the year 34,773 46,525
Less: amortisation charge for the year (note 4(a))(48,621)(53,160)
35,612 49,460
Current portion (28,986) (36,674)
Balance as at the end of the year 6,626 12,786
Deferred expenditure represents costs incurred to acquire subscribers of the services offered by the Group, which are
treated as customer acquisition costs and are amortised over the period of the underlying service subscription agreements.
16 ACCOUNTS RECEIVABLE, OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS
The Group 2010 HK$000 2009 HK$000 The Company 2010 HK$000 2009 HK$000
Accounts receivable
Less: Allowance for doubtful
debts 105,552 (5,823) 123,352 (3,160) 8,527 (559) 10,063 (843)
Other receivables, deposits and
prepayments 99,729 89,490 120,192 69,765 7,968 5,317 9,220 3,393
189,219 189,957 13,285 12,613
96 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
16 ACCOUNTS RECEIVABLE, OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS (CONTINUED)
(a) Aging analysis
The aging analysis of accounts receivable is as follows:
The Group The Company
2010 2009 2010 2009
HK$000 HK$000 HK$000 HK$000
Current 30 days 41,244 32,427 2,290 3,065
31 60 days 9,024 13,663 3,214 3,885
61
90 days 5,245 3,953 710 773
Over 90 days 50,039 73,309 2,313 2,340
105,552 123,352 8,527 10,063
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 l(i)(i)).
The movement in the allowance for doubtful debts during the year including both specific and collective loss components is as follows:
The Group 2010 HK$000 2009 HK$000 The Company 2010 HK$000 2009 HK$000
Balance as at the beginning of the year Impairment loss recognised Uncollectible amounts written off 3,160 14,742
(12,079) 11,944 12,103 (20,887) 843 618 (902) 978 935 (1,070)
Balance as at the end of the year
5,823 3,160 559 843
City Telecom (H.K.) Limited Annual Report 2010 97
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
16 ACCOUNTS RECEIVABLE, OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS (CONTINUED)
(c) Accounts receivable that are not impaired
The aging analysis of accounts receivable that are neither individually nor collectively considered to be impaired are as follows:
The Group The Company
2010 2009 2010 2009
HK$000 HK$000
HK$000 HK$000
Neither past due nor impaired 41,244 32,427 2,290 3,065
0 30 past due 9,024 13,663 3,214 3,885
31 60 past due 5,245 3,953 710 773
Over 60
past due 44,216 70,149 1,754 1,497
99,729 120,192 7,968 9,220
Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent
history of default.
The amounts over 60 days past due for the Group included receivable relating to mobile
interconnection charges of HK$39,763,000 as at 31 August 2010 (2009: HK$68,802,000) (see note 2(b)).
Other accounts receivable that were past due but not impaired relate to a number of independent customers that have a good
track record of payment. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully
recoverable. The Group does not hold collateral over these balances.
(d) Other receivables, deposits and
prepayments
Other receivables, deposits and prepayments consist of deposits for purchase of fixed assets,
rental deposit, interest receivable, unbilled revenue, prepayment and other receivables. All of the other receivables, except rental deposits are expected to be recovered within one year.
17 CASH AT BANK AND IN HAND
The Group 2010 HK$000 2009 HK$000 The Company 2010 HK$000 2009 HK$000
Time deposits with banks and other
financial
institutions Cash at bank and in hand 262,280 326,385 77,500 148,916 262,280 169,001 77,500 42,815
Cash at
bank and in hand in the balance sheet 588,665 226,416 431,281 120,315
98 City Telecom (H.K.) Limited Annual
Report 2010
Notes to the Financial Statements
(Expressed in Hong Kong dollars)
18 ACCOUNTS PAYABLE, OTHER PAYABLES AND ACCRUED CHARGES
The Group The Company
2010 HK$000
2009 HK$000
2010 HK$000
2009 HK$000
Accounts Payable
35,128
37,555
17,877
20,484
Other payables and accrued charges
195,931
206,487
24,605
23,530
231,059
244,042
42,482
44,014
(a) The aging analysis of the accounts
payable was as follows:
The Group
The Company
2010 HK$000
2009 HK$000
2010 HK$000
2009 HK$000
Current 30 days
6,838
12,621
4,212
3,096
31 - 60 days
1,982
1,778
1,027
756
61 - 90 days
1,647
189
865
47
Over 90 days
24,661
22,967
11,773
16,585
35,128
37,555
17,877
20,484
(b) Other payables and accrued charges
Other payables primarily consist of accrual for Talent salaries and bonus, carrier fees and charges, payable for purchase of fixed assets, advertising and promotional expenses as well as
interest payable.
19 DEFERRED SERVICES REVENUE
Deferred services revenue primarily includes service fees received from customers in advance for the companys 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.
City Telecom (H.K.) Limited Annual Report 2010 99
Notes to the Financial Statements
(Expressed in Hong Kong dollars)
20 CAPITAL AND RESERVES
Movements in components
of equity
The reconciliation between the opening and closing balances of each component of the groups
consolidated equity is set out in the consolidated statement of changes in equity. Details of the changes in the companys individual components of equity between the beginning and the end of the year are set out below:
The Company
Share
capital
HK$000
Share
premium
HK$000
Capital
reserve
HK$000
Capital
redemption
reserve
HK$000
Retained
profits
HK$000
Total HK$000
At 1 September 2009
66,418
681,208
23,232
7
153,788
924,653
Profit attributable to shareholders
-
-
-
-
157,848
157,848
Dividend paid in respect of previous year
-
-
-
-
(108,735)
(108,735)
Dividend paid in respect of current year
-
-
-
-
(49,725)
(49,725)
Shares issued upon exercise of share option
2,032
22,227
(7,515)
-
-
16,744
Equity settled share-based transactions
-
-
5,347
-
-
5,347
Shares issued upon placement
8,050
371,562
-
-
-
379,612
At 31 August 2010
76,500
1,074,997
21,064
7
153,176
1,325,744
At 1 September 2008
65,062
670,717
19,013
-
159,400
914,192
Profit attributable to shareholders
-
-
-
-
27,440
27,440
Dividend paid in respect of previous year
-
-
-
-
(3,108)
(3,108)
Shares issued in respect of scrip
dividend of previous year
1,221
8,685
-
-
(9,906)
-
Dividend paid in respect of current year
-
-
-
-
(19,904)
(19,904)
Shares issued upon exercise of share option
142
1,806
(549)
-
-
1,399
Equity settled share-based transactions
-
-
4,768
-
-
4,768
Repurchase and cancellation of ordinary shares
(7)
-
-
7
(134)
(134)
At 31 August 2009
66,418
681,208
23,232
7
153,788
924,653
100 city Telecom (H.K.) Limited Annual
Report 2010
Notes to the Financial Statements
(Expressed in Hong Kong dollars)
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 Talents of the Group that was recognized in accordance with the accounting policy adopted for share based payment in note 1(o).
(iii) PRC statutory reserve
In accordance with Accounting Regulations for Business Enterprises, foreign investment enterprises in the PRC are required to transfer at least 10% of their profit after taxation, as
determined under accounting principles generally accepted in the PRC (PRC GAAP) to the general reserve until the balance of the general reserve is equal to 50% of their registered capital.
For the year ended 31 August 2010, CTI Guangzhou Customer Services Co. Ltd. (CTIGZ), a wholly-owned subsidiary
of the Group, made appropriation to the statutory reserve of RMB597,000 (2009: RMB510,000). The accumulated balance of the statutory reserve maintained at the CTIGZ as at 31 August 2010 was RMB2,012,000 (2009: RMB1,415,000). The statutory reserve
can be used to reduce previous years losses and to increase the capital of the subsidiary.
(iv) Exchange
reserve
The exchange reserve comprises all foreign exchange differences arising from the translation of the
financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 1(d)(ii).
City Telecom (H.K.) Limited Annual Report 2010 101
Notes to the Financial Statements
(Expressed in Honk Kong dollars)
20 CAPITAL AND RESERVES (CONTINUED)
(c) Share
capital
2010
2009
No. of shares
Amount HK$000
No. of shares
Amount HK$000
Authorised:
Ordinary shares of HK$0.10 each
2,000,000,000
200,000
2,000,000,000
200,000
Issued and fully paid:
Ordinary shares of HK$0.10 each
At the beginning
of the year
664,179,970
66,418
650,621,823
65,062
Shares issued in respect of scrip dividend of the previous year (note(i))
12,212,142
1,221
Shares issued upon exercise of share
options (note (ii))
20,317,374
2,032
1,416,005
142
Share issued upon placement (note (iii))
80,500,000
8,050
Repurchase and cancellation of ordinary shares
(70,000)
(7)
At the end of the year
764,997,344
76,500
664,179,970
66,418
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.
102 City Telecom (H.K.) Limited Annual Report 2010
Notes to the Financial Statements
(Expressed in Hong Kong dollars)
20 CAPITAL AND RESERVES (CONTINUED)
(c) Share
Capital (continued)
Notes:
(i) On 25 February 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 9 January 2009. These shares rank pari passu with existing shares of the Company in all respects.
(ii) During the year ended 31 August 2010, 20,317,374 ordinary shares (2009: 1,416,005 ordinary shares) were issued at a weighted average exercise price of HK$0.82 per ordinary share (
2009: HK$0.99 per ordinary share) to share option holders who had exercised their options. These shares so issued rank pari passu with the then existing ordinary shares in issue.
(iii) On 28 April 2010, the Company completed its public offering of 4,025,000 American Depositary Shares (ADSs). An
aggregate of 80,500,000 ordinary shares (4,025,000ADSs) were issued at a price of HK$5.0455 per ordinary shares (US$13.00per ADS) to independent professional, institutional and private investors. The Company raised net proceeds of approximately
HK$379,612,000 from the ADS offering.
(iv) The movement of outstanding share options during the year was as
follows:
Date of grant
Exercise price per share
Number of share options
outstanding at 1 September 2009
Granted
Exercised
Lapsed
Number of share options outstanding at 31
August 2010
21 October 2004
HK$1.5224
6,909,527
--
2,750,847
--
4,158,680
5 January 2005
HK$1.5224
16,183,208
--
--
--
16,183,208
22 May 2006
HK$0.6523
21,592,899
--
16,409,456
--
5,183,443
3 August 2006
HK$0.7018
40,540
--
40,540
--
---
22 November 2006
HK$0.7216
136,545
--
136,545
--
--
6 February 2008
HK$1.7568
6,044,791
--
502,000
--
5,542,791
11 February 2008
HK$1.8660
6,044,791
--
--
--
6,044,791
15 February 2008
HK$1.7568
1,007,465
--
402,986
--
604,479
2 May 2008
HK$1.7866
1,007,465
--
75,000
--
932,465
5 February 2010
HK$4.2400
--
6,000,000
--
--
6,000,000
58,967,231
6,000,000
20,317,374
--
44,649,857
During the year ended 31 August 2010, options were granted under the 2002 Share Option scheme to eligible participant for
the subscription of 6,000,000 shares of the Company at an exercise price of HK$4.24 each.
Each option entitles
the holder to subscribe for one share of HK$0.10 each in the Company at a predetermined exercise price.
City
Telecom (H.K.) Limited Annual Report 2010 103
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
20 CAPITAL AND RESERVES (CONTINUED)
(d) 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 31 August 2010 and 2009 are as follows:
The Group
2010 2009
HK$000 HK$000
Unsecured
10-year senior notes 162,586
Long-term bank loan 123,567
Obligations under finance leases 605 732
Total loans 124,172 163,318
Less: Cash at bank and in hand (588,665) (226,416)
Add: Bank overdrafts unsecured 10,490 5,364
Net cash (454,003) (57,734)
Net asset 1,688,539 1,228,527
Net debt to net
asset gearing ratio
Neither the Company nor any of its subsidiaries are currently subject to
externally imposed capital requirements.
104 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
21 DEFERRED TAXATION
The movements of net deferred tax (liabilities)/assets recognised in the balance sheet are as follows:
The Group 2010 HK$000 2009 HK$000 The Company 2010 HK$000 2009 HK$000
Balance as at the beginning of the year (15,709) 21,398 (7,047) (4,937)
Exchange differences 1
Deferred taxation (charged)/credited to income statement relating to the origination and reversal of temporary
differences (40,134)
(37,108) 949 (2,110)
Balance as at the end of the year (55,843) (15,709) (6,098) (7,047)
As at 31 August 2010, the Group has not recognised deferred tax assets in respect of unused tax losses of
HK$8,242,000 (2009: HK$8,154,000) because it is not probable that future taxable profits can be generated to utilise the tax losses.
The Group
2010 2009
HK$000 HK$000
After 5 years 2,553 2,455
No expiry date 5,689
5,699
8,242 8,154
According to the Corporate Income Tax (CIT) law and its relevant regulations, PRC-resident enterprises are levied withholding tax at 10% on dividends to their non-PRC-resident
corporate investors for earnings accumulated beginning on 1 January 2008, and undistributed earnings generated prior to 1 January 2008 are exempt from such withholdings tax. In addition, under the Arrangement between the Mainland of China
and Hong Kong Special Administration Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion and its related regulations, a qualified Hong Kong company will be liable for withholding tax at the rate of 5% for the dividend
income derived from the PRC, if the Hong Kong company is the beneficial owner and holds 25% of equity interests or more of the PRC company directly. At 31 August 2010, the Group has not recognized deferred tax liabilities in respect
of temporary differences relating to the undistributed earnings of its PRC subsidiary approximately amounting HK$12,283,000 (2009: HK$5,393,000) as the Group controls the dividend policy of the subsidiary and it does not consider that it is probable
that profits will not be distributed in the foreseeable future.
City Telecom (H.K.) Limited Annual Report 2010
105
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
21 DEFERRED TAXATION (CONTINUED)
The components of deferred tax assets and liabilities recognised in the balance sheet and the related movements during the year are as follows:
The Group Accelerated depreciation allowance 2010 2009 HK$000 HK$000
Deferred tax liabilities
At the beginning of the year
Charged to
consolidated income statement
Exchange differences (131,766) (15,027) (6) (126,447) (5,326) 7
At the end of the year (146,799) (131,766)
The Group Tax losses 2010 HK$000 2009 HK$000
Deferred tax assets
At the beginning of the year
Charged to consolidated income statement
Exchange differences 116,057 (25,107) 6 147,845 (31,782) (6)
90,956 116,057
The Company Accelerated depreciation allowance 2010 2009 HK$000 HK$000
Deferred tax liabilities
At the beginning of the
year Credited to the income statement (7,047) 949 (8,745) 1,698
At the end of the year (6,098) (7,047)
The Company Tax losses 2010 2009 HK$000 HK$000
Deferred tax assets
At the beginning of the year Charged to the income statement 3,808 (3,808)
At the end of the year
106 City
Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
21 DEFERRED TAXATION (CONTINUED)
The following amounts, determined after appropriate offsetting, are shown in the balance sheet:
The Group 2010 HK$000 2009 HK$000 The Company 2010 HK$000 2009 HK$000
Deferred tax assets Deferred tax liabilities
(55,843) (15,709) (6,098) (7,047)
(55,843)
(15,709) (6,098) (7,047)
22 DERIVATIVE FINANCIAL INSTRUMENT
The Group and the Company
2010 2009
HK$000 HK$000
Non-current liability
Interest rate swap, at fair value through profit or loss 11,293
During the year ended 31 August 2010, the Group entered into a 5-year interest rate swap contract with a HK$175,000,000 notional amount to hedge against interest rate risk. Under this
arrangement, the Group will pay a fixed rate interest on the notional amount on a quarterly basis, and receive a floating interest rate at HIBOR rate. The contract is recognised initially at fair value and is remeasured at each balance sheet date.
The interest rate swap does not quality for hedge accounting under IAS/HKAS 39, Financial instruments:
Recognition and measurement, and therefore changes in its fair value is recognised immediately in profit or loss.
23 LONG-TERM DEBT AND OTHER LIABILITIES
The Group
2010 HK$000 2009 HK$000 The Company 2010 HK$000 2009 HK$000
10-year senior notes (note
(a))
Long-term bank loan
unsecured (note (b))
Obligations under
finance leases (note (c)) 123,567 605 162,586 732 123,567 521 162,586 715
Current
portion of
obligations under finance leases 124,172 (212) 163,318 (202) 124,088 (189) 163,301 (193)
123,960 163,116 123,899 163,108
City Telecom (H.K.) Limited Annual Report 2010 107
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
23 LONG-TERM DEBT AND OTHER LIABILITIES (CONTINUED)
At 31 August 2010, the Groups and the Companys long-term debt and other liabilities were repayable as follows:
The Group 2010 HK$000 2009 HK$000 The Company 2010 HK$000 2009 HK$000
Long-term debt
After 2 years but within 5 years
After 5 years 123,567 162,586 123,567 162,586
Obligations under finance leases
Within 1 year
After 1 year but within 2 years
After 2 years but within 5 years
After 5 years 212 105 288 202 197 263 70 189 87 245 193
189 263 70
605 732 521 715
Less: Current portion of obligations under finance leases (212) (202) (189) (193)
393 530 332 522
123,960 163,116 123,899 163,108
Notes:
(a) On 20 January 2005, the Company issued unsecured 10-year senior fixed rates notes (the 10-year senior notes) with a principal amount of US$125 million at an issue price
equal to 100 per cent of the principal amount. The 10-year senior notes have a maturity date on 1 February 2015 and bear interest at the fixed rate of 8.75% per annum payable semi-annually on 1 February and 1 August of each year, commencing 1 August
2005.
The 10-year senior notes are unconditionally and irrevocably guaranteed on a joint and several basis by
the Companys subsidiaries (other than CTI Guangzhou Customer Services Co. Ltd.) as subsidiary guarantors.
On 4 December 2009, the Company repurchased a portion of the 10-year senior notes with a cumulative principal value of
US$1,500,000 (equivalent to HK$11,625,000) in the open market. The total consideration paid including accrued interest was approximately US$1,562,000 (equivalent to HK$12,103,000). The loss on extinguishment of the senior notes was US$41,000
(equivalent to HK$318,000) which has been recorded in other income, net.
On 1 February 2010, the Company
redeemed the then outstanding 10-year senior notes with principle value of US$19,863,000 (equivalent to HK$153,948,000) with the redemption price equal to 104.375% of the principal amount. The total consideration paid including accrued interest was
approximately US$21,601,000 (equivalent to HK$167,624,000). The loss on extinguishment of the 10-year senior notes was US$1,203,000 (equivalent to HK$9,332,000) which has been recorded in other income, net.
(b) As at 31 August 2010, HK$125,000,000 was drawn which bears floating interest rate and is repayable on 23 December
2014. The borrowing is subject to the fulfilment of covenants relating to certain of the Groups balance sheet ratios, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants the
drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. As at 31 August 2010, none of the covenants relating to drawn down facilities had been breached.
108 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
23 LONG-TERM DEBT AND OTHER LIABILITIES (CONTINUED)
Notes: (continued)
(c) At 31 August 2010, the Group had obligations under finance leases repayable as follows:
2010 The Group 2009
Present Interest Present
Interest
value of the expense Total value of the expense Total
minimum relating to minimum minimum relating to minimum
lease future lease lease future lease
payments periods payments payments periods payments
HK$000 HK$000 HK$000 HK$000 HK$000 HK$000
Within 1 year 212 30 242 202 35 237
After 1 year but within 2 years 105 20 125 197 22 219
After 2 years but within 5 years 288 22 310 263 30 293
After 5 years 70 1 71
393 42
435 530 53 583
605 72 677 732 88 820
At 31 August 2010, the Company had obligations under finance leases repayable as follows:
The Company
2010 2009
Present Interest Present Interest
value of the expense Total value 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 189 22 211 193 34 227
After 1 year but within 2 years 87 14 101 189 22 211
After 2 years but within 5 years 245 17 262 263 30 293
After 5 years 70 1 71
332 31 363 522 53 575
521 53 574 715 87 802
City Telecom (H.K.) Limited Annual Report 2010 109
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
24 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of profit before taxation to net cash inflow generated from operations
2010 HK$000 2009 HK$000
Profit before
taxation 259,545 251,559
Depreciation of owned fixed assets 198,323 205,624
Depreciation of fixed assets held under finance lease 706 617
Amortisation of deferred expenditure 48,621 53,160
Interest income (11,372) (4,869)
Interest element of finance lease 42 27
(Gain)/loss on disposal of fixed assets (1,375) 1,016
Realised gain on other financial assets (189)
Equity settled share-based transactions 5,347 4,768
Loss/ (gain) on extinguishment of 10-year senior notes 9,650 (31,371)
Change in fair value of derivative financial instrument 11,293
Interest, amortisation and exchange difference on 10-year senior notes 6,069 49,214
Interest on other borrowings 3,260 885
Amortisation of upfront cost on bank loans 192
Interest expenses on bank loans 1,379
Net
cash inflow before working capital changes 531,680 530,441
Decrease/(increase) in long-term receivable and
prepayment 917 (505)
Decrease in accounts receivable, other receivables,
deposits and prepayments 738 33,052
Increase in deferred expenditure (34,773) (46,525)
(Decrease)/increase in accounts payable, other payables,
accrued charges and deposits received (1,937) 17,419
(Decrease)/increase in deferred services revenue (8,272) 4,621
Net cash inflow generated from operations 488,353 538,503
110 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
24 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
(b) Analysis of financing activities during the year
Share capital (including share premium and capital reserve) HK$000
Obligations under finance leases HK$000
10-year senior notes HK$000
Balance at 1
September 2008 754,792 376 683,242
Share issued upon exercise of share options 1,399
Repurchase and cancellation of ordinary shares (7)
Share issued in respect of scrip dividend 9,906
Purchase of fixed assets under finance lease 494
Repayment of capital element of finance lease (138)
Repurchase of 10-year senior notes (485,829)
Gain on extinguishment of 10-year senior notes (31,371)
Amortisation of incidental issuance costs 1,545
Equity settled share-based transactions 4,768
Effect of foreign exchange rate changes (5,001)
Balance at 31 August 2009 770,858 732 162,586
Balance at 1 September 2009 770,858 732 162,586
Share issued upon exercise of share options 16,744
Shares issued upon placement 379,612
Purchase of fixed assets under finance lease 90
Repayment of capital element of finance lease (217)
Repurchase and redemption of 10-year senior notes (172,423)
Loss on extinguishment of 10-year senior notes 9,650
Amortisation of incidental issuance costs 188
Equity settled share-based transactions 5,347
Effect of foreign exchange rate changes (1)
Balance at 31 August 2010 1,172,561 605
City Telecom (H.K.) Limited Annual Report 2010 111
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
25 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 trade and other receivables. Management has a credit policy in
place and the exposure to the credit risk is monitored on an ongoing basis.
In respect of trade 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 26, 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 26.
Further quantitative
disclosures in respect of the Groups exposure to credit risk arising from accounts receivable are set out in note 16.
(b) Liquidity risk
The Company 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 Companys 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 realisable 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 Company aims to maintain flexibility in funding by maintaining committed credit lines available.
112 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
25 FINANCIAL INSTRUMENTS (CONTINUED)
(b) Liquidity risk (continued)
The following
table details the remaining contractual maturities at the balance sheet date of the Groups and the Companys financial liabilities, which are based on undiscounted cash flows (including interest) and the earliest date the Group and the
Company are required to pay.
Group
2010 2009
Total More than More than Total More
than More than
contractual Within 1 year 2 years contractual Within 1 year 2 years
undiscounted 1 year but but More undiscounted 1 year but but More
Carrying or on less than less than than Carrying or on less than less than than
amount cash flow demand 2 years 5 years 5 years amount cash flow demand 2 years 5 years 5 years
HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000
HK$000 HK$000 HK$000
Current liabilities
Bank overdrafts unsecured 10,490 10,490 10,490 5,364 5,364 5,364
Accounts payable 35,128 35,128 35,128 37,555 37,555 37,555
Other payables and
accrued charges 195,931 195,931 195,931 206,487 206,487 206,487
Deposits received 21,822 21,822 21,822 16,385 16,385 16,385
Obligations under finance leases 212 242 242 202 237 237
Tax payable 1,533 1,533 1,533 1,993 1,993 1,993
Non-current liabilities
Long-term bank loan
123,567 133,996 1,829 2,166 130,001
Derivative financial
instrument 11,293 11,435 4,580 3,441 3,414
10-year senior
notes 162,586 244,117 14,489 14,489 43,467 171,672
Obligations under
finance leases 393 435 125 310 530 583 219 293 71
400,369 411,012 271,555 5,732 133,725
431,102 512,721 282,510 14,708 43,760 171,743
Company
2010 2009
Total More than More than Total More than More than
contractual Within 1 year 2 years contractual Within 1 year 2 years
undiscounted 1 year but but More undiscounted 1 year but but More
Carrying or on less than less than than Carrying or on less than less than than
amount cash flow demand 2 years 5 years 5 years amount cash flow demand 2 years 5 years 5 years
HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000
HK$000 HK$000 HK$000
Current liabilities
Bank overdrafts unsecured 900 900 900 896 896 896
Amount due to subsidiaries 10,830 10,830 10,830 10,830 10,830 10,830
Accounts payable 17,877 17,877 17,877 20,484 20,484 20,484
Other payables and
accrued charges 24,605 24,605 24,605 23,530 23,530 23,530
Deposits received 7,954 7,954 7,954 7,886 7,886 7,886
Obligations under finance leases 189 211 211 193 227 227
Tax payable 356 356 356 356 356 356
Non-current liabilities
Long-term bank loan
123,567 133,996 1,829 2,166 130,001
Derivative financial
instrument 11,293 11,435 4,580 3,441 3,414
10-year senior
notes 162,586 244,117 14,489 14,489 43,467 171,672
Obligations under
finance leases 332 363 101 262 522 575 211 293 71
197,903 208,527 69,142 5,708 133,677
227,283 308,901 78,698 14,700 43,760 171,743
City Telecom (H.K.) Limited Annual Report 2010 113
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
25 FINANCIAL INSTRUMENTS (CONTINUED)
(c) Interest rate risk
The Groups
interest-rate risk arises mainly from the HK$125,000,000 bank loan which bears floating interest rate. Bank loans at variable rates expose the Group to cash flow interest rate risk.
(i) Interest rate profile
The following table details the interest rate profile of the Groups and the Companys borrowings at the balance sheet date.
The Group The Company
2010 2009 2010 2009
Effective interest rate %
HK$000
Effective interest rate %
HK$000
Effective interest rate %
HK$000
Effective interest rate %
HK$000
Fixed rate borrowings:
10-year senior notes
9.2 162,586 9.2 162,586
Obligations under finance leases 5.6 605 5.6 732 5.6 521
5.6 715
605 163,318 521 163,301
Floating rate borrowings:
Bank overdrafts
unsecured 5.3 10,490 5.3 5,364 5.3 900 5.3 896
Long-term bank loan 1.7 123,567 1.7 123,567
(ii) Sensitivity analysis
The Groups profit attributable to shareholders would decrease by approximately HK$1,250,000 in response to a 100
basis-points increase in market interest rates applicable as at 31 August 2010, with all other variables held constant.
(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.
114 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
25 FINANCIAL INSTRUMENTS (CONTINUED)
(d) Foreign currency risk (continued)
(i)
Exposure to currency risk
The following table details the Groups and the Companys exposure at the
balance sheet date to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate.
Group
2010 2009
United States Dollars 000
Japanese Yen 000
Canadian Dollars 000
United States Dollars
000
Japanese Yen 000
Canadian Dollars 000
Cash at bank and in
hand and pledged bank deposits 30,443 591 435 11,599 696 282
Bank overdraft unsecured (294)
(161)
Accounts payable (1,350) (3,183)
Other payables and accrued charges (1,075) (390)
10-year senior notes (20,979)
Overall net exposure 27,724 591 435 (13,114) 696 282
Company
2010 2009
United States Dollars 000
Renminbi 000 Japanese Yen 000
United States Dollars 000
Renminbi 000
Japanese Yen 000
Amounts due from subsidiaries 7 34,244 7 14,304
Cash at bank and in hand and pledged bank deposits 29,656 591 11,372 696
Amount due to a subsidiary (90) (90)
Bank overdraft unsecured (49)
Accounts payable (1,171) (1,780)
Other payables and accrued charges (517) (265)
10-year senior notes (20,979)
Overall net exposure 27,885 34,244 591 (11,784) 14,304 696
City Telecom (H.K.) Limited Annual Report 2010 115
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
25 FINANCIAL INSTRUMENTS (CONTINUED)
(d) Foreign currency risk (continued)
(ii)
Sensitivity analysis
The Companys foreign currency risk is mainly concentrated on the fluctuation of the
Renminbi against the Hong Kong dollar. It is assumed that the pegged rate between the Hong Kong dollar and the United States dollar would be materially unaffected by any changes in movement in value of the United States dollar against other
currencies. The following table details the Groups sensitivity to a 10% increase or decrease in the Hong Kong dollar against the Renminbi. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and
adjusts their translation at the year end for a 10% change in foreign currency rates. A positive number indicates an increase in profit for the year where the Renminbi strengthens against the Hong Kong dollar. For a 10% weakening of the Renminbi
against the Hong Kong dollar, there would be an equal and opposite impact on the profit and the balance below would be negative.
2010 2009
HK$000 HK$000
Renminbi 3,922 1,626
(e) Fair values
(i) Financial instrument carried
at fair value
The following table presents the carrying value of financial instrument measured at fair value
at the balance sheet date across the three levels of the fair value hierarchy defined in IFRS/HKFRS 7, Financial Instruments: Disclosures, with the fair value of each financial instrument categorised in its entirety based on the lowest level of
input that is significant to that fair value measurement. The levels are defined as follows:
Level 1
(highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments
Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or
indirectly based on observable market data
Level 3 (lowest level): fair values measured using valuation
techniques in which any significant input is not based on observable market data
2010
Level 1 HK$000
The Group
Level 2 HK$000
Level 3 HK$000
Total HK$000
Level 1 HK$000
The Company
Level 2 HK$000
Level 3 HK$000
Total HK$000
Liability
Derivative financial instrument:
Interest rate swap 11,293 11,293 11,293 11,293
116 City Telecom (H.K.) Limited
Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
25 FINANCIAL INSTRUMENTS (CONTINUED)
(e) Fair values (continued)
(i) Financial
instrument carried at fair value (continued)
The carrying amounts of the Groups and the Companys
financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 August 2010 and 2009 except as follows:
2010 Carrying amount HK$000
Fair value
HK$000
2009 Carrying amount HK$000
Fair value HK$000
The Group and the Company
10-year senior notes
162,586 157,285
(f) Estimation of fair values
Fair value of financial instruments is estimated as follows:
(i) The fair value of the 10-year senior notes was determined based on quoted market price.
(ii) Trade receivables less impairment provision and account payables are assumed to approximate their fair values.
(iii) The fair value of the long-term bank loan is estimated as the present value of future cash flows,
discounted at current market interest rate for similar financial instruments.
(iv) The fair value of the
interest rate swap is determined based on the discounted cash flow technique which takes into account estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates
and the current creditworthiness of the swap counterparties. Where discounted cash flow techniques are used, estimated future cash flows are based on managements best estimates and the discount rate is a market related rate for a similar
instrument at the balance sheet date.
City Telecom (H.K.) Limited Annual Report 2010 117
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
26 CONTINGENT LIABILITIES
The Group The Company
2010 2009 2010 2009
HK$000 HK$000 HK$000 HK$000
Bank guarantees provided to suppliers (notes 28(i) and (ii)) 2,770 2,490 2,200 2,490
Bank guarantee in lieu of payment of utility deposits (note 28(iii)) 5,572 5,272
Corporate guarantee provided to a subsidiary for shared banking facility (note) 4,650
8,342 7,762 2,200 7,140
Note: Corporate guarantee provided to a subsidiary represented the maximum amount of contingent liabilities of the Company had the shared banking facility of HK$4,650,000 as at 31 August
2009 been fully drawn. During the year ended 31 August 2010, the shared banking facility expired.
As at 31
August 2010, HK$133,342,000 (2009: HK$7,762,000) of the HK$353,840,000 (2009: HK$205,038,000) total banking facility and revolving loan facility was utilised by the Company and the subsidiary.
27 COMMITMENTS
(a) Capital commitments
The Group 2010
HK$000 2009 HK$000 The Company 2010 2009 HK$000 HK$000
Purchase of telecommunications,
computer and office equipment Contracted but not provided for 132,340 150,099
118 City Telecom
(H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
27 COMMITMENTS (CONTINUED)
(b) Commitments under operating leases
At 31
August 2010 and 2009, the Group and the Company has future aggregate minimum lease payments under non-cancellable operating leases as follows:
The Group 2010 2009 HK$000 HK$000 The Company 2010 2009 HK$000 HK$000
Leases in respect of land and buildings which are payable: Within 1 year
After 1 year but within 5 years 24,873 16,417 21,387 13,802
41,290 35,189
Leases in respect of
telecommunications facilities and computer equipment which are payable:
Within 1 year 63,948 45,321 210 181
After 1 year but within 5 years 14,200 9,600
After 5 years 4,849 6,271
82,997 61,192 210 181
124,287 96,381 210 181
(c) Program fee commitments
The Group entered into several long-term agreements with program content providers for the rights to use certain program contents in the Groups IP-TV services. Minimum amounts of
program fees to be paid by the Group are as follows:
2010 HK$000 2009 HK$000
Program fee in respect of program rights which are payable:
Within 1 year 25,539 9,094
After 1 year but within 5 years 48,087 6,238
73,626 15,332
City Telecom (H.K.) Limited Annual Report 2010 119
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
28 PLEDGE OF ASSETS
As at 31 August 2010, the Group had no pledged bank deposits.
As at 31 August 2009, the Group had 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 31 August 2009, bank guarantees of HK$500,000 were issued against this bank facility;
(ii) bank guarantees of HK$1,990,000 issued by the bank to third party suppliers of the Company and one of its
subsidiaries for payment of certain products and services procured by the Group from these third party suppliers; and
(iii) bank guarantees of HK$5,272,000 issued by the bank to certain utility vendors of the Group in lieu of payment of utility deposits.
29 BARTER TRANSACTION
During the year ended 31 August 2010, HKBN entered into an agreement with a third party (the Contract Party). Pursuant to the agreement, HKBN would provide network capacity to
the Contract Party for a service term of 10 years commencing on 1 May 2010 or after the respective activation of the relevant network capacity, and in exchange, the Contract Party would provide HKBN the right to use telecommunications facilities for
a term of 10 years commencing on 1 May 2010 or after the respective activation of the relevant network capacity. The transaction has been entered into on a barter basis at no consideration being exchanged. The agreement expires on 30 April 2020.
The Directors of the Company made an assessment and determined that since the arrangement above involves
exchange of services of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. Accordingly, the network capacity of the Contract Party under the agreement have not been recognised as an asset and no
revenue or deferred revenue have been recognised in the financial statements of the Group since inception of the arrangement.
30 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
10(a) and certain of the highest paid Talents as disclosed in note 10(b), is as follows:
2010 HK$000
2009 HK$000
Short-term Talent benefits 40,716 34,687
Post-employment benefits 2,725 2,614
Equity compensation benefits 5,347 4,071
48,788
41,372
120 City Telecom (H.K.) Limited Annual Report 2010
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
31 COMPARATIVE FIGURES
During the year, management performed a review of the presentation of the Groups and Companys cash at bank and in hand balance. As a result of the review, the Groups and
Companys bank-overdrafts unsecured balances amounted to HK$5,364,000 and HK$896,000 respectively which previously included in the cash at bank and in hand balance at 31 August 2009 have been reclassified as a current
liability to conform to the current years presentation. This change in presentation had no effect on the reported results of the prior year.
32 ACCOUNTING ESTIMATES AND JUDGEMENTS
(a) Key
sources of estimation uncertainty
Notes 11 and 25 contain information about the assumptions and risk factors
relating to fair value of share options and financial instruments. Other key sources of estimation uncertainty are as follows:
(b) Impairment loss for doubtful accounts
The
Group maintains impairment loss for doubtful accounts based upon evaluation of the recoverability of the accounts receivable and other receivables which takes into account the historical write-off experience and recovery rates. If the financial
condition of the customers were to deteriorate, additional impairment may be required.
(c) Depreciation
Depreciation is calculated to write off the cost of items of property, plant and equipment, less their
estimated residual value, if any, using the straight-line method over their estimated useful lives. The Group reviews the estimated useful lives of the assets annually in order to determine the amount of depreciation expense to be recorded during
any reporting period. The useful lives are based on the Groups historical experience with similar assets and takes into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant
changes from previous estimates.
(d) Income taxes
Determining income tax provisions involves judgement on the future tax treatment of certain transactions and
interpretation of tax rules. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax
legislation and practices.
Deferred tax assets are recognised for certain unused tax losses as set out in note
21. In assessing the recognition of deferred tax assets, management considers all available evidence, including available taxable temporary differences, projected future taxable income, tax planning strategies, historical taxable income, and the
expiration periods of the tax losses. For certain subsidiaries, deferred tax assets can only be recognised to the extent that it is probable that future taxable profits will be available against which they can be utilised. Managements
judgement is thus required to assess the probability of future taxable profits and this assessment is constantly reviewed and additional deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred
tax assets to be recovered.
City Telecom (H.K.) Limited Annual Report 2010 121
Notes to the
Financial Statements
(Expressed in Hong Kong dollars)
33 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31
AUGUST 2010
Up to the date of issue of these financial statements, the IASB/HKICPA has issued a number of
amendments, new standards and interpretations which are not yet effective for the year ended 31 August 2010 and which have not been adopted in these financial statements.
Effective for accounting periods beginning on or after
Amendment to IFRS/HKFRS 2 Share-based payment Group cash-settled share-based payment transactions 1 January 2010
IFRSs/HKFRSs (Amendments) Improvements to IFRSs/HKFRSs (2009) 1 January 2010
Amendment to IAS/HKAS 32 Financial instruments: Presentation Classification of rights issues 1 February 2010
IFRIC/HK (IFRIC) Int 19 Extinguishing financial liabilities with equity instruments 1 July 2010
IFRSs/HKFRSs (Amendments) Improvement to IFRSs/HKFRSs (2010) 1 July 2010 or 1 January 2011
Amendment to IFRIC/HK (IFRIC) Int 14 IAS/HKAS 19 The limitation on a defined benefit asset, minimum funding
requirements and their interaction Prepayments of a minimum funding requirement 1 January 2011
IAS/HKAS
24 (Revised) Related party disclosures 1 January 2011
Amendments to IFRS/HKFRS 7 Financial instruments:
Disclosures Transfer of financial assets 1 July 2011
IFRS/HKFRS 9 Financial instruments 1 January 2013
The Group is in the process of making an assessment of what the impact of these amendments, new standards and
new interpretations is expected to be in the period of initial application. So far the Group is not yet in a position to state whether they would have a significant impact on the Groups results of operations and financial position.
122 City Telecom (H.K.) Limited Annual Report 2010
Five-year
Financial Summary
(Expressed in Hong Kong dollars)
RESULTS, ASSETS AND LIABILITIES
The following table summarises the consolidated results, assets and liabilities of the Group for the five years ended 31 August 2010.
2010 2009 2008 2007 2006
HK$000 HK$000 HK$000 HK$000 HK$000
Results
Turnover 1,574,687 1,478,239 1,302,981
1,141,270 1,159,579
Profit/(loss) before taxation 259,545 251,559 108,372 30,891(99,485)
Income tax (expense)/benefit (42,679)(38,730) 16,818(2,026) 7,244
Profit/(loss) attributable to shareholders 216,866 212,829 125,190 28,865(92,241)
Assets
Goodwill 1,066 1,066 1,066 1,066 1,066
Fixed
assets 1,431,813 1,302,380 1,231,399 1,237,223 1,367,234
Other financial assets 39,213
40,274
Derivative financial instruments 1,039 1,845
Long term receivable and prepayment 5,174 6,091 5,586 6,932 12,532
Deferred tax asset 26,335
Deferred expenditure 35,612 49,460 56,095 21,367 12,445
Current assets 777,884 431,411 772,929 857,287 700,526
Total assets 2,251,549 1,790,408 2,093,410 2,164,127 2,135,922
Liabilities
Current liabilities 371,914 383,056 372,369 306,986 294,812
Non-current liabilities 191,096 178,825 688,434 953,259 949,456
Total liabilities 563,010 561,881 1,060,803 1,260,245 1,244,268
Net assets 1,688,539 1,228,527 1,032,607 903,882 891,654
City Telecom (H.K.) Limited Annual Report 2010 123
Corporate
Information
FINANCIAL CALENDAR
Full-year Results
Announced on 9 November 2010
Annual General Meeting 21 December 2010
LISTING
City Telecom (H.K.) Limiteds shares are listed under the stock code 1137 on The Stock Exchange of Hong Kong Limited and in the form of American Depositary Receipts (each
representing 20 ordinary shares of the Company) on the Nasdaq Stock Market in U.S. under the ticker symbol CTEL.
Executive Directors
Mr. WONG Wai Kay, Ricky
(Chairman)
Mr. CHEUNG Chi Kin, Paul (Vice Chairman)
Mr. YEUNG Chu Kwong, William (Chief Executive Officer)
Mr. LAI Ni Quiaque3 (Chief Financial Officer and Head of Talent Engagement)
Non-executive Director
Dr. CHENG Mo Chi, Moses3
Independent
Non-executive Directors
Mr. LEE Hon Ying, John2,4
Dr. CHAN Kin Man1,3
Mr. PEH Jefferson Tun Lu1,3
1 Members of Audit
Committee
2 Chairman of Audit Committee
3 Members of Remuneration Committee
4 Chairman of Remuneration Committee
Company
Secretary
Mr. LAI Ni Quiaque
Authorised Representatives
Mr. WONG Wai Kay,
Ricky
Mr. CHEUNG Chi Kin, Paul
Registered Office
Level 39, Tower 1, Metroplaza
223 Hing Fong Road
Kwai Chung, New Territories, Hong Kong
Legal Adviser to the Company as to U.S. and Hong Kong Laws
Jones Day
29th Floor, Edinburgh Tower The Landmark 15 Queens Road Central Hong Kong
Auditors KPMG
Certified Public Accountants
8th Floor, Princes Building 10 Chater Road Central, Hong Kong
Share Registrar
Computershare Hong Kong Investor Services Limited
46th Floor, Hopewell Centre 183 Queens Road East, Wanchai Hong Kong
American Depositary Bank
The Bank of New York Mellon Corporation
101
Barclay Street, 22nd Floor New York, NY 10286 USA
Principal Bankers
Citibank, N.A.
DBS Bank Ltd., Hong Kong Branch
The Hongkong and
Shanghai Banking Corporation Limited
Website
www.ctigroup.com.hk
124 City Telecom (H.K.) Limited Annual Report 2010
Special Thanks
Gene Wong Ki Ching,
Son of Ben Wong Wing Hong,
Manager-Sales
Wong Kwan Ho,
Son of Eric Wong Kwok Kei,
Associate Director
Corporate
Tong Wai Ching,
Daughter of Sarah Au Wai Ming,
Shop Manager
Wong Hei Lam,
Daughter of Eric Wong Kwok Kei,
Associate
Director Corporate
Fong Wing Ki,
Niece of Joe Law Chun Wai,
Senior Telesales Manager
Zoie Poon Hiu Tung,
Daughter of
Peggy Chan Fung Yee,
Executive Secretary
Andrew Hui King Chiu,
Son of Carol Cheng Wai Ping,
Customer Services
Executive
Cheng Tsun,
Son of Brenda Yu Po Yan,
Senior Operation Officer
Chang Pok Man,
Son of Ken Chang Sze Cheong,
Sales Manager -
Corporate
Concept, design and printing: iOne Financial Press Limited. Website: www.ione.com.hk
Where the English and the Chinese texts conflict, the English text prevails
City Telecom
(H.K.) Limited
Level 39, Metroplaza Tower 1,
No. 223 Hing Fong Road,
Kwai Chung, N.T., Hong Kong
www.ctigroup.com.hk
Hong Kong Television Network Ltd. (MM) (NASDAQ:CTEL)
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