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Transcript of Ch Telecom
China Telecom Corporation Limited
Ch
ina T
ele
com
Corp
ora
tion
Lim
ited
31 Jinrong Street, Xicheng District, Beijing, PRC, 100032www. chinatelecom-h.com
Annual Report 2008
China Telecom Corporation Limited
Ch
ina T
ele
com
Corp
ora
tion
Lim
ited
31 Jinrong Street, Xicheng District, Beijing, PRC, 100032www. chinatelecom-h.com
Annual Report 2008
Incomparable Transformation.
Incomparable Performance
In 2008, as the Company continues to deepen its strategic transformation and prepares for the upcoming full services offering, the Company will enjoy an excellent development prospect. However, due to constant changes of the pricing policy of mobile communication and the rapid diversion of traditional services attributable to emerging telecommunication methods,the Company will encounter more challenging issues in the course of development.
2 Corporate Information
3 Chairman’s Statement
5 Management Discussion and Analysis
7 Corporate Governance Report
14 Audit Committee Report
16 Director’s Report
29 Independent Auditors Report
31 Consolidated Income Statement
32 Consolidated Balance Sheet
34 Consolidated Statement of Changes in Equity
35 Consolidated Cash Flow Statement
37 Notes to the Consolidated Financial Statements
72 Financial Summary
73 Properties held for Investment
Contents
China Telecom Corporation Limited
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Annual Report 2008
7
Finanical Highlights
Operating Performance
Unit: RMB million
The Company
The NWDSH
Group
Adjustments
(Note 1) Consolidated
Item HK$’000 HK$’000 HK$’000 HK$’000
Investments in NWDSH and its
subsidiaries (“WDSH Group”) 88 0,500 — (880,500) —
Other (liabilities)/assets net (54,020) 911,249 — 857,229
Net assets 826,480 911,249 (880,500) 857,229
Share capital 6,095 — — 6,095
Capital reserve — 397,683 (60,115) 337,568
Contributed surplus 820,385 — (820,385) —
Statutory reserve — 11,360 — 11,360
826,480 911,249 (880,500) 857,229
Turnover Analysis by geograohical TURNOVER ANALYSIS BY GEOGRAPHICAL
SEGMENTS
Revenue
For further information, please browse our website at www.chinatelecom-h.com
0
50
100
150
200
250
300
350
400
03/200803/200703/200603/2005
230.5 270.3 260.8
78.7
300
80
21.5
10.7
CDM Turnover Retail Turnover
0
50
100
150
200
250
300
350
400
03/200803/200703/200603/2005
230.5 270.3 260.8
78.7
300
80
21.5
10.7
CDM Turnover Retail Turnover
0
50
100
150
200
250
300
350
400
03/200803/200703/200603/2005
230.5 270.3 260.8
78.7
300
80
21.5
10.7
CDM Turnover Retail Turnover
Operating Performance
Unit: RMB million
The Company
The NWDSH
Group
Adjustments
(Note 1) Consolidated
Item HK$’000 HK$’000 HK$’000 HK$’000
Investments in NWDSH and its
subsidiaries (“WDSH Group”) 88 0,500 — (880,500) —
Other (liabilities)/assets net (54,020) 911,249 — 857,229
Net assets 826,480 911,249 (880,500) 857,229
Share capital 6,095 — — 6,095
Capital reserve — 397,683 (60,115) 337,568
Contributed surplus 820,385 — (820,385) —
Statutory reserve — 11,360 — 11,360
826,480 911,249 (880,500) 857,229
The charts below are based on fi nancials excluding amortisation of the upfront connection fees China Telecom Corporation Limited was listed on The Stock Exchange of Hong Kong Limited and the New York Stock Exchange with net proceeds from IPO of approximately
US$1.3 billion.
Chairman‘s Statement
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Annual Report 2008
9
Dear Shareholders,
Employee benefi t expense increased by 14.4% from HK$128.8 million in FY2006 to
HK$147.4 million in FY2007. This increase was primarily due to increase in wages
and salaries and other employment benefi ts as a result of recognising a full year’s
operations of certain stores opened in last year and new stores openings in current
year under review. Employee benefi t expense as a percentage to revenue decreased
by 2.2% in FY2007 primarily due to improved operating effi ciency.
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in
FY2006 to HK$97.5 million in FY2007. This increase was primarily due to increase
in depreciation and amortisation as a result of recognising a full year’s operations
of certain stores opened in last year and new stores openings in current year under
review. Depreciation and amortisation expense as a percentage to revenue decreased
by 1.0% in FY2007 primarily due to strong performance of revenue. Operating lease
rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7
million.
Other Operating Expenses
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in
FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a
full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to
strong performance of revenue.
Operating Lease Rental Expense
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
Wang XiaochuChairman and Chief Executive Offi cer
China Telecom Corporation Limited
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Annual Report 2008
11Chairman’s Statement
Chairman’s Statement
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.Other operating expenses
increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007. This increase was primarily
due to a HK$13.7 million increase in water and electricity expenses relating primarily to the newly opened stores
and the effect of recognising a full year’s operations of certain stores in current year, a HK$6.4 million increase in
promotion, advertising and related expenses. Other operating expenses as a percentage to revenue decreased by
1.1% in FY2007.
Other Operating Expenses
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in
FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a
full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to
strong performance of revenue.
Operating Lease Rental Expense
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.Other operating expenses
increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007. This increase was primarily
due to a HK$13.7 million increase in water and electricity expenses relating primarily to the newly opened stores
and the effect of recognising a full year’s operations of certain stores in current year, a HK$6.4 million increase in
promotion, advertising and related expenses. Other operating expenses as a percentage to revenue decreased by
1.1% in FY2007.
Gain on Disposal of Subsidiaries
Gain on disposal of subsidiaries of HK$58.0 million was primarily a result of the HK$31.9 million gain on disposal of
Dalian Store on 1 July 2006 and the remaining HK$26.1 million gain on disposal of subsidiaries mainly represented
the gain on disposal of Kunming Store and Ningbo Trendy Store to Solar Leader Limited, a related company of the
Group, on 1 January 2007.
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.Other operating expenses
increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007. This increase was primarily
due to a HK$13.7 million increase in water and electricity expenses relating primarily to the newly opened stores
and the effect of recognising a full year’s operations of certain stores in current year, a HK$6.4 million increase in
promotion, advertising and related expenses. Other operating expenses as a percentage to revenue decreased by
1.1% in FY2007.
Gain on Disposal of Subsidiaries
Gain on disposal of subsidiaries of HK$58.0 million was primarily a result of the HK$31.9 million gain on disposal of
Dalian Store on 1 July 2006 and the remaining HK$26.1 million gain on disposal of subsidiaries mainly represented
the gain on disposal of Kunming Store and Ningbo Trendy Store to Solar Leader Limited, a related company of the
Group, on 1 January 2007.
Employee Benefi t Expense
Employee benefi t expense increased by 14.4% from HK$128.8 million in FY2006 to HK$147.4 million in FY2007.
This increase was primarily due to increase in wages and salaries and other employment benefi ts as a result of
recognising a full year’s operations of certain stores opened in last year and new stores openings in current year
under review. Employee benefi t expense as a percentage to revenue decreased
by 2.2% in FY2007 primarily due to improved operating effi ciency.
Wang Xiaochu
Chairman and Chief Executive Offi cer
Beijing, China
31 March 2008
China Telecom Corporation Limited
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Annual Report 2008
13
In 2007, emphasizing on both scale and profi tability as well as differentiation in products, applications and services forbroadband business, the Company achieved revenue of RMB31,340 million from Internet access services, representing an annual growthof 32.1%. The proportion of revenues from Internet access services to operating revenues increased by 4.0 percentage points to 17.9%from 2006. In 2007, as the Company insisted on the strategy of scale development of broadband subscribers, the total number of broadband subscribers increased by 7.33 million to 35.65 million.
China Telecom Corporation Limited
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Annual Report 2008
15
Business Review
Employee benefi t expense increased by
14.4% from HK$128.8 million in FY2006 to
HK$147.4 million in FY2007. This increase
was primarily due to increase in wages and
salaries and other employment benefi ts as a
result of recognising a full year’s operations
of certain stores opened in last year and
new stores openings in current year under
review. Employee benefi t expense as a
percentage to revenue decreased by 2.2% in
FY2007 primarily due to improved operating
effi ciency.
Depreciation and amortisation expense
increased by 19.8% from HK$81.4 million in
FY2006 to HK$97.5 million in FY2007. This
increase was primarily due to increase in
depreciation and amortisation as a result of
recognising a full year’s operations of certain
stores opened in last year and new stores in
FY2007 primarily due to strong performance
of revenue.
Operating lease rental expense increased by
14.1% from HK$234.7 million in FY2006 to HK$267.7 million in FY2007, primarily due to the effect of recognising
a full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Operating lease rental expense as a percentage to revenue decreased by 4.0% in FY2007 mainly as a result of
operating leverage of the expense.
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in
FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a
full year’s operations of certain stores..
Unit 2006 2007 2008 Rate of Change (2008-2007)
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
Local voice usage Million 449,404 422,562 406,268 (3.9%)
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
International, Hong Kong, Macau
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
Broadband subscribers Million 21.02 28.32 35.65 25.9%
Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
SMS usage volume Million messages 17,254 23,277 23,346 0.3%
Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2%
The following table sets out key operating data in 2005, 2006 and 2007:
Business ReviewThe Company gained momentum in its business transformation.
+19.8%HK$81.4 million
China Telecom Corporation Limited
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Annual Report 2008
17
In 2007, emphasizing on both scale and profi tability as well as differentiation in products, applications and services forbroadband business, the Company achieved revenue of RMB31,340 million from Internet access services, representing an annual growthof 32.1%. The proportion of revenues from Internet access services to operating revenues increased by 4.0 percentage points to 17.9%from 2006. In 2007, as the Company insisted on the strategy of scale development of broadband subscribers, the total number of broadband subscribers increased by 7.33 million to 35.65 million.
China Telecom Corporation Limited
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Annual Report 2008
19Directors, Supervisors and Senior Management
Directors, Supervisors and Senior Management
01 Mr. Wang Xiaochu
• Chairman of the board of directors and Chief Executive• Offi cer of the Company. Mr. Wang served as Director General
• Deputy Director General of the Hangzhou Telecommunications Bureau in Zhejiang
province,
• Director General of the Tianjin Posts
• Telecommunications Administration, Chairman and Chief Executive
• Offi cer of China Mobile (Hong Kong) Limited, Vice President of China
• Mobile Communications Corporation. He is also President of China
• Telecommunications Corporation and Chairman of the board of directors and a Non-
Executive Director of China Communications
• Services Corporation Limited. He was responsible for the development of China Telecom’
s telephone network management systems and various other information technology
projects and as a result, received the Third-Class Award from the State Scientifi c and
Technological Progress Award and the First-Class Award from the former Ministry of Posts
• Telecommunications Scientifi c and Technological Progress Award.
• He graduated from Beijing Institute of Posts and Telecommunications in 1989 and
received a doctorate degree in business administration from The Hong Kong Polytechnic
University in 2005.
02 Mr. Chen Yi
• Executive Director, President and Chief Operating Offi cer
• Offi cer of the Company. Mr. Wang served as Director General
• Deputy Director General of the Hangzhou Telecommunications Bureau
• Director General of the Tianjin Posts
• Telecommunications Administration, Chairman and Chief Executive
• Offi cer of China Mobile (Hong Kong) Limited, Vice President of China
• Mobile Communications Corporation. He is also President of China
• Telecommunications Corporation and Chairman of the board of directors and a Non-
Executive Director of China Communications
• Telecommunications Scientifi c and Technological Progress Award.
• He graduated from Beijing Institute of Posts and Telecommunications in 1989 and received
a doctorate degree in business administration from The Hong Kong Polytechnic University
in 2005.
03 Ms. Yeung Meiling
• Executive Director, Executive Vice President and Chief Financial Offi cer• Offi cer of the Company. Mr. Wang served as Director General
• Deputy Director General of the Hangzhou Telecommunications Bureau in Zhejiang
province,
• Director General of the Tianjin Posts
• Telecommunications Administration, Chairman and Chief Executive
• Offi cer of China Mobile (Hong Kong) Limited, Vice President of China
• Mobile Communications Corporation. He is also President of China
• Telecommunications Corporation and Chairman of the board of directors and a Non-
Executive Director of China Communications
• Telecommunications Scientifi c and Technological Progress Award.
04 Mr. Leng Rongquan
• Chairman of the board of directors and Chief Executive• Offi cer of the Company. Mr. Wang served as Director General
• Director General of the Tianjin Posts
• Telecommunications Administration, Chairman and Chief Executive
• Offi cer of China Mobile (Hong Kong) Limited, Vice President of China
• Mobile Communications Corporation. He is also President of China
• Telecommunications Corporation and Chairman of the board of directors and a Non-
Executive Director of China Communications
• Services Corporation Limited. He was responsible for the development of China Telecom’
s telephone network management systems and various other information technology
projects and as a result, received the Third-Class Award from the State Scientifi c and
Technological Progress Award and the First-Class Award from the former Ministry of Posts
• Telecommunications Scientifi c and Technological Progress Award.
• He graduated from Beijing Institute of Posts and Telecommunications in 1989 and
received a doctorate degree in business administration from The Hong Kong Polytechnic
University in 2005.
China Telecom Corporation Limited
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Annual Report 2008
21
Management Discussion and AnalysisManagement Discussion and Analysis
Unit 2006 2007 2008 Rate of Change
(2008-2007)
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
Local voice usage Million 449,404 422,562 406,268 (3.9%)
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
International, Hong Kong, Macau
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
Broadband subscribers Million 21.02 28.32 35.65 25.9%
Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
SMS usage volume Million messages 17,254 23,277 23,346 0.3%
Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2%
The following table sets out key operating data in 2005, 2006 and 2007:
OTHER OPERATING EXPENSES
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in
FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a
full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to
strong performance of revenue.
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.Other operating expenses
increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007. This increase was primarily
due to a HK$13.7 million increase in water and electricity expenses relating primarily to the newly opened stores
Notes to the Financial Statements(Expressed in Renminbi)
China Telecom Corporation Limited
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Annual Report 2008
23
Unit 2006 2007 2008 Rate of Change
(2008-2007)
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
Local voice usage Million 449,404 422,562 406,268 (3.9%)
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
International, Hong Kong, Macau
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
Broadband subscribers Million 21.02 28.32 35.65 25.9%
Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
SMS usage volume Million messages 17,254 23,277 23,346 0.3%
Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2%
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
Local voice usage Million 449,404 422,562 406,268 (3.9%)
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
International, Hong Kong, Macau
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
Broadband subscribers Million 21.02 28.32 35.65 25.9%
Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
SMS usage volume Million messages 17,254 23,277 23,346 0.3%
Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2%
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
Local voice usage Million 449,404 422,562 406,268 (3.9%)
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
International, Hong Kong, Macau
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
Broadband subscribers Million 21.02 28.32 35.65 25.9%
Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
SMS usage volume Million messages 17,254 23,277 23,346 0.3%
Consolidated Statement of Changes in Equity(For the year ended 31 December 2007)
Other Operating Expenses
1. Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5
million in FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of
recognising a full year’s operations of certain stores opened in last year and new stores openings in current
year under review. Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in
FY2007 primarily due to strong performance of revenue. Operating lease rental expense increased by 14.1%
from HK$234.7 million in FY2006 to HK$267.7 million in FY2007, primarily due to the effect of recognising a full
year’s operations of certain stores opened in last year and new stores openings in current year under review.
Operating lease rental expense as a percentage to revenue decreased by 4.0% in FY2007 mainly as a result of
operating leverage of the expense.
2. Other operating expenses increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007.
This increase was primarily due to a HK$13.7 million increase in water and electricity expenses relating primarily
to the newly opened stores and the effect of recognising a full year’s operations of certain stores in current
year, a HK$6.4 million increase in promotion, advertising and related expenses. Other operating expenses as
a percentage to revenue decreased by 1.1% in FY2007Gain on disposal of subsidiaries of HK$58.0 million
was primarily a result of the HK$31.9 million gain on disposal of Dalian Store on 1 July 2006 and the remaining
HK$26.1 million gain on disposal of subsidiaries mainly represented the gain on disposal of Kunming Store and
Ningbo Trendy Store to Solar Leader Limited, a related company of the Group, on 1 January 2007.Employee
benefi t expense increased by 14.4% from HK$128.8 million in FY2006 to HK$147.4 million in FY2007. This
increase was primarily due to increase in wages and salaries and other employment benefi ts as a result of
recognising a full year’s operations of certain stores opened in last year and new stores openings in current year
under review. Employee benefi t expense as a percentage to revenue decreased by 2.2% in FY2007 primarily
due to improved operating effi ciency.
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in
FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a
full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to
strong performance of revenue.
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.