SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Month of August 2009
Commission File Number 1-31517
China Telecom Corporation Limited
(Translation of registrant’s name into English)
31 Jinrong Street, Xicheng District
Beijing, China 100140
(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.)
Form 20-F X Form 40-F
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): )
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): )
(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 No X
(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82- .)
EXHIBITS
| Exhibit |
Page | |||
| 1.1 | Announcement of Interim Results for the Six Months ended June 30, 2009, dated August 27, 2009. | A-1 | ||
| 1.2 | Reconciliation of Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”) (Excluding CDMA Network Capacity Lease Fee) to Net Cash from Operating Activities, dated August 27, 2009. | B-1 | ||
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 6-K may be viewed as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of China Telecom Corporation Limited (the “Company”) to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. The forward-looking statements include, without limitation, the continued growth of the telecommunications industry in China; the development of the regulatory environment; and the Company’s ability to successfully execute its business strategies.
Such forward-looking statements reflect the current views of the Company with respect to future events. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including, without limitation, any changes in the regulatory regime and significant policies for the telecommunications industry in China, including changes in the structure or functions of the primary industry regulator, Ministry of Industry and Information Technology, or the MIIT (which has assumed the regulatory functions of the former Ministry of Information Industry), or any changes in the regulatory policies of the MIIT and other relevant government authorities in China; the results of the ongoing restructuring of the telecommunications industry in China; any changes in the effects of competition on the demand and price of the Company’s telecommunications services; any changes in telecommunications and related technology and applications based on such technology; and changes in political, economic, legal and social conditions in China, including the Chinese government’s policies with respect to economic growth, foreign exchange, foreign investment and entry by foreign companies into China’s telecommunications market. Please also see the “Risk Factors” section of the Company’s latest Annual Report on Form 20-F, as filed with the Securities and Exchange Commission.
2
SIGNATURES
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.
| CHINA TELECOM CORPORATION LIMITED | ||||
| Date: August 28, 2009 | By: | /s/ Wang Xiaochu | ||
| Name: | Wang Xiaochu | |||
| Title: | Chairman and CEO | |||
3
Exhibit 1.1
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
China Telecom Corporation Limited
(A joint stock limited company incorporated in the People’s Republic of China with limited liability)
(Stock Code: 728)
ANNOUNCEMENT OF INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2009
HIGHLIGHTS
| Including the amortisation of upfront connection fees | Excluding the amortisation of upfront connection fees | |
| — Operating revenues reached RMB103,146 million |
— Operating revenues reached RMB102,554 million, up by 14.8% | |
| — EBITDA was RMB43,931 million, EBITDA margin was 42.6% |
— EBITDA was RMB43,339 million, down by 2.1%, EBITDA margin was 42.3% | |
| — Profit attributable to equity holders of the Company was RMB9,004 million, basic earnings per share was RMB0.11 |
— Profit attributable to equity holders of the Company was RMB8,412 million, down by 27.5%, basic earnings per share was RMB0.10 | |
| • | Total number of access lines in service was 199 million, representing a net decrease of 8.99 million from the end of last year, down by 4.3%. |
| • | Total number of broadband subscribers reached 49.05 million, representing a net addition of 4.78 million from the end of last year, up by 10.8%. |
| • | Total number of mobile subscribers reached 39.28 million, representing a net addition of 11.37 million from the end of last year, up by 40.7%. |
CHAIRMAN’S STATEMENT
In the first half of 2009, we continued to advocate the “Customer-focused Innovative Informatisation Strategy” in the new era of full services integrated operation with firm confidence. We actively explored the integration synergy of mobile, wireline and Internet services, accumulating and expanding the competitive edge through differentiated offering to achieve a good start of full services
A-1
operation. The launch of the “e surfing” brand for our mobile services was well received in the market and drove up the customer scale and the mobile revenue with increasing market share. The scale of brand customer base expanded persistently and the broadband as well as value-added and integrated information services continued to grow rapidly. The strength of full services offering has been enhanced and the customers’ satisfaction has noticeably improved. The strategic transformation achieved substantial and remarkable breakthroughs, laying a solid foundation for the long-term sustainable development of the Company.
Business Performance
In the first half of 2009, the Company’s operation was on track as planned. The operating revenues reached RMB103,146 million. Excluding the amortisation of upfront connection fees, the operating revenues were RMB102,554 million, representing a growth of 14.8% over the same period of last year, of which the mobile service revenue amounted to RMB12,814 million. Revenue from non-voice services exceeded 50%, amongst which the revenues from wireline broadband access as well as wireline value-added and integrated information services increased by 18.2% and 15.6% respectively. EBITDA1, 2 was RMB43,339 million, and the EBITDA margin was 42.3%. Profit attributable to equity holders of the Company2 was RMB8,412 million, representing a decline of 27.5% over the same period of last year. Basic earnings per share2 was RMB0.10. In the first half of the year, the capital expenditure was RMB17,033 million, a decline of 9.3% compared with the same period of last year. Free cash flow3 was RMB19,652 million. The Company believes that, despite its short term pressure on the Company’s profitability, the increase in marketing initiatives for the profitable scale development of our mobile services will significantly enhance future sustainable development and value creation of the Company.
Taking into consideration the Company’s business development needs and the cash flow position, the Board of Directors has decided not to pay any interim dividend for the year in order to maintain adequate funding flexibility. The Board of Directors will proactively consider the final dividend proposal at the time of reviewing the full year results and propose to the shareholders’ general meeting accordingly.
| 1 | For convenience of the investors’ analysis, EBITDA is calculated before CDMA network capacity lease fee. |
| 2 | Including the amortisation of the upfront connection fees, EBITDA was RMB43,931 million, profit attributable to equity holders of the Company was RMB9,004 million and basic earnings per share was RMB0.11. |
| 3 | Free cash flow is calculated from EBITDA (excluding amortisation of upfront connection fees) minus CDMA network capacity lease fee, capital expenditure and income tax. |
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Deepening Transformation to Create Integrated Operation Edge
With determination, we adhered to the development of full services integrated operation of mobile, wireline and Internet services. We proactively promoted and executed the strategy of focusing on mid- to-high-end customers with differentiated service offering to avoid single product price competition and endeavoured to maintain the value of the overall industry.
In the first half of the year, the promotion of ‘e surfing’ brand was well received by the market with the ‘Internet handset’ applications being introduced. Leveraging the competitive advantage of our 3G platform, we focused on the promotion of information application products such as ‘189 email’, ‘e surfing LIVE’, ‘imusic’ and ‘Mobile Best Tone’ to enable customers to easily enjoy and experience the enriched full services offering via mobile terminals. A wide range of personalised products were introduced to target at the mid-to-high-end customers. At the same time, we actively pushed forward the integrated packaging of mobile and wireline services, leading to the rapid expansion of mobile subscriber base. The number of mobile subscribers has increased by 11.37 million in the first half of the year, with a total number of 39.28 million mobile subscribers at the end of June 2009. The net addition market share rose from 12.0% in January 2009 to 28.7% in June 2009, demonstrating a gradual improvement on monthly basis, while the ARPU primarily remained stable.
For government and enterprise customers, we actively promoted a wide range of integrated services including ‘wireless Mega-eye’ (remote monitoring), ‘Office General Line’, ‘Integrated Communication’ and ‘Push-mail’, and promptly accomplished the synergy of existing wireline products and new mobile products. For household customers, we adopted integrated strategy to expand new addition market by leveraging the upgraded bandwidth to increase the market penetration of broadband products. Through customer account number operation, we realised the integrated development and seamless coverage of wireline broadband and wireless Internet, further consolidating our leading position in the market. In the first half of the year, the total numbers of wireline broadband customers and wireless Internet access customers have increased by 4.78 million and 1.61 million on a net basis, reaching a total of 49.05 million and 3.95 million respectively. Revenue from wireline broadband access services reached RMB22,745 million, an increase of 18.2% compared with the same period last year. Through integrated development, the subscriber scale of the two major customer segments expanded continuously. As of the end of June, the subscribers of ‘BizNavigator’ and ‘One Home’ service reached 3.01 million and 30.11 million respectively, representing an increase of 19.1% and 25.8% respectively from the beginning of the year.
Facing the challenges from the global financial crisis and the increasing mobile substitution in the first half of the year, there was a net decrease of 8.99 million of access lines in service. The total number of access lines in service was 199 million at the end of June 2009. Revenue from wireline voice service was RMB41,060 million, a decrease of 18.7% compared with the same period last year. In response thereto, we will further reinforce the development of transformation business such as ‘Best Tone’, system integration and Internet services and promote the value transfer from wireline voice to our non- voice and mobile services by leveraging our transformation business edge and integrated service packaging. In addition, we will also accelerate the migration of our mid-to-high-end PHS customers to our mobile service, endeavouring to mitigate the revenue decline of our voice service.
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Proactive Exploration to Promote Comprehensive Full Services Development
In the first half of the year, we continuously enhanced the competitiveness of the network quality, customer service, business functionality and terminal selection to proactively prepare for the full implementation of mid-to-high-end customer-focused differentiated service strategy, striving to create a new phase of full services integrated operation.
With the fastest pace, we have constructed the largest scale 3G network for the earliest commercial use in mainland China. By the end of July, we accomplished 3G network coverage of 342 cities and more than 2,000 counties, laying a solid foundation for seizing market opportunities. Simultaneously, with regard to customer experience, we continued to strengthen the network coverage and optimisation, leading to a rapid improvement in the network quality.
In order to meet the new requirement of full services integrated operation, we implemented innovative mechanisms and optimised processes to ensure efficient operation of our full services organisation structure and product development system. We persisted in the organisation deployment according to three major customer segments of government and enterprise, household, and individual customers, with strengthened accountability to ensure coordinated development. We established a product centre to focus on coordinating product development and deployment for the nationwide network. In addition, we set up a customer service monitoring centre to improve the quality of customer service and improve customers’ experience. Based on customer segmentation, we carried out “targeted” marketing, sales support, customer service and product research and development. We also continued to optimise the value-added service operation system and the sales process of integrated services to enhance the operational efficiency of our front-end business units.
In order to promptly and comprehensively improve the fundamental service quality, the Company launched the ‘Tackle-the-Deficiency’ campaign for customer service in the first half of the year to swiftly remedy the shortcomings of mobile service during the initial stage of operation. We strengthened the customer service accountability system and improved the customers’ experience to effectively enhance customer satisfaction. We steadily advanced the sales and servicing capability of our distribution channels in addition to launching our on-line ‘Mobile Palm Service Centre’. We also strengthened our electronic channels such as on-line Service Centre and ‘Hotline 10000’. The scale and sales capability of the open channels have been significantly improved with the proportion of mobile subscribers acquired through open channels exceeding one-third in June. Meanwhile, we further perfected the IT system to reinforce the support for the real-time and nationwide network operation of the mobile services, significantly upgrading the Company’s capability of customer service and data analysis.
Having a mobile handset terminal market which could satisfy the customers’ needs is a key condition for our mobile service development. We proactively promoted the cooperation with each party of the industry chain and enhanced centralised scale procurement and terminal customisation. We also bolstered the cooperation with upstream handset chip manufacturers and actively supported the sales channel of the industry chain to motivate our business partners and strengthen their confidence. In the first half of 2009, there were about 300 models of handset terminals on sale in the market and the volume of terminal supply was nearly three
A-4
times over the same period last year, achieving an overall balance of supply and demand in the market. Moving forward, we will further strengthen the cooperation with mobile handset designers and manufacturers to further promote research, development and production of mobile handsets. We will effectively promote the open channel procurement and sale of terminals, optimise the terminal subsidy model and vigorously push forward the penetration of 3G mobile handsets.
We adhered to the value-oriented approach with continuous optimisation of resource allocation. The Company continuously improved the control of resource utilisation, tilting towards the development of broadband, transformation and mobile services, while at the same time gradually reinforcing the integration of mobile and wireline resources to enhance the Company’s operational efficiency. We will further strengthen the centralised treasury management, improving capital operational effectiveness while progressively lowering the average borrowing cost. With a strict control on the scale of capital expenditure and further optimisation of its structure, the Company has maintained a strong free cash flow.
Continuous Enhancement of Corporate Governance
We strived to maintain and strengthen the high level of corporate governance, continuously improving the corporate transparency, ensuring the healthy development of the Company and endeavouring to enhance the corporate value. Our continuous efforts in corporate governance are widely recognised by the capital market. We were accredited with a number of awards in the first half of the year, including “The CAPITAL Outstanding China Enterprise Awards-Telecommunications” by The Capital for four consecutive years, “Asia’s Best Companies in Corporate Governance in China” for the year 2009 by Corporate Governance Asia, and “Best Corporate Governance” as well as “Best Managed Company” by Finance Asia in the Asia’s Best Companies Poll.
Future Outlook
The second half of this year will be a critical period for the Company to embark a new phase of full services integrated operation. With an improved market environment resulting from the gradual recovery of the economy, and leveraging the valuable practical experience in full services integrated operation accumulated in the past half year and beyond, we are more confident in accelerating our development. However, we are also fully aware of the increasingly intense market competition and the various challenges to be faced by the Company, including increasing difficulties in consolidating traditional voice business, intensified competition in the mid-to-high-end market and lack of competitiveness of mobile terminals.
In response thereto, we will take the integrated operation as a new kick-off of our transformation, leveraging the foundation of various preparation works previously accomplished. We will strengthen our focus on our wireline core value services and take full advantage of the experiences we have accumulated in Internet and informatisation application services in the past few years. We will innovate effective integrated development of wireline and mobile services to enhance our differentiation edge and endeavour to accomplish the key breakthroughs in mid-to-high-end market. We believe, following the further enhancement of our basic service quality and the
A-5
progressive rollout of 3G products with enriched mobile Internet applications, our 3G service and full services offering will have remarkable development in future, leading to further value creation for our shareholders.
| Wang Xiaochu |
| Chairman and Chief Executive Officer |
| Beijing, PRC |
| 27 August 2009 |
A-6
GROUP RESULTS
China Telecom Corporation Limited (the “Company”) is pleased to announce the consolidated results of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2009 extracted from the unaudited interim financial statements of the Group as set out in its 2009 Interim Report.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
for the six-month period ended 30 June 2009
(Amounts in millions, except per share data)
| Six-month periods ended 30 June |
||||||||
| Note | 2009 RMB |
2008 RMB |
||||||
| (restated) | ||||||||
| Operating revenues |
4 | 103,146 | 90,379 | |||||
| Operating expenses |
||||||||
| Depreciation and amortisation |
(26,029 | ) | (26,544 | ) | ||||
| Network operations and support |
(20,133 | ) | (15,607 | ) | ||||
| Selling, general and administrative |
(17,595 | ) | (10,995 | ) | ||||
| Personnel expenses |
(16,351 | ) | (13,857 | ) | ||||
| Other operating expenses |
(8,719 | ) | (4,624 | ) | ||||
| Total operating expenses |
(88,827 | ) | (71,627 | ) | ||||
| Operating profit |
14,319 | 18,752 | ||||||
| Net finance costs |
5 | (2,268 | ) | (2,289 | ) | |||
| Investment income/(loss) |
50 | (4 | ) | |||||
| Share of profits from associates |
25 | 34 | ||||||
| Profit before taxation |
12,126 | 16,493 | ||||||
| Income tax |
6 | (3,071 | ) | (3,816 | ) | |||
| Profit for the period |
9,055 | 12,677 | ||||||
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| Six-month periods ended 30 June |
||||||||
| Note | 2009 RMB |
2008 RMB |
||||||
| (restated) | ||||||||
| Other comprehensive income/(loss) for the period: |
||||||||
| Change in fair value of available-for-sale equity securities |
60 | (83 | ) | |||||
| Deferred tax on change in fair value of available-for-sale equity securities |
(15 | ) | 21 | |||||
| Exchange difference on translation of financial statements of subsidiaries outside mainland PRC |
(1 | ) | (79 | ) | ||||
| Other comprehensive income/(loss) for the period, net of tax |
44 | (141 | ) | |||||
| Total comprehensive income for the period |
9,099 | 12,536 | ||||||
| Profit attributable to: |
||||||||
| Equity holders of the Company |
9,004 | 12,634 | ||||||
| Minority interests |
51 | 43 | ||||||
| Profit for the period |
9,055 | 12,677 | ||||||
| Total comprehensive income attributable to: |
||||||||
| Equity holders of the Company |
9,048 | 12,493 | ||||||
| Minority interests |
51 | 43 | ||||||
| Total comprehensive income for the period |
9,099 | 12,536 | ||||||
| Basic earnings per share |
7 | 0.11 | 0.16 | |||||
| Weighted average number of shares |
80,932 | 80,932 | ||||||
A-8
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
at 30 June 2009
(Amounts in millions)
| Note | 30 June 2009 RMB |
31 December 2008 RMB | ||||
| ASSETS |
||||||
| Non-current assets |
||||||
| Property, plant and equipment, net |
284,181 | 299,159 | ||||
| Construction in progress |
19,715 | 13,615 | ||||
| Lease prepayments |
5,517 | 5,608 | ||||
| Goodwill |
29,922 | 29,922 | ||||
| Intangible assets |
12,943 | 14,235 | ||||
| Interests in associates |
905 | 882 | ||||
| Investments |
230 | 177 | ||||
| Deferred tax assets |
9 | 13,757 | 14,628 | |||
| Other assets |
5,948 | 6,612 | ||||
| Total non-current assets |
373,118 | 384,838 | ||||
| Current assets |
||||||
| Inventories |
3,095 | 2,561 | ||||
| Income tax recoverable |
278 | — | ||||
| Accounts receivable, net |
10 | 19,221 | 17,289 | |||
| Prepayments and other current assets |
4,057 | 7,386 | ||||
| Time deposits with original maturity over three months |
1,635 | 397 | ||||
| Cash and cash equivalents |
20,966 | 27,866 | ||||
| Total current assets |
49,252 | 55,499 | ||||
| Total assets |
422,370 | 440,337 | ||||
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| Note | 30 June 2009 RMB |
31 December 2008 RMB |
||||||
| LIABILITIES AND EQUITY |
||||||||
| Current liabilities |
||||||||
| Short-term debt |
81,124 | 83,448 | ||||||
| Current portion of long-term debt |
1,024 | 565 | ||||||
| Accounts payable |
11 | 35,423 | 34,458 | |||||
| Accrued expenses and other payables |
50,140 | 53,628 | ||||||
| Income tax payable |
— | 164 | ||||||
| Current portion of finance lease obligations |
22 | 22 | ||||||
| Current portion of deferred revenues |
4,121 | 4,505 | ||||||
| Total current liabilities |
171,854 | 176,790 | ||||||
| Net current liabilities |
(122,602 | ) | (121,291 | ) | ||||
| Total assets less current liabilities |
250,516 | 263,547 | ||||||
| Non-current liabilities |
||||||||
| Long-term debt |
24,137 | 39,226 | ||||||
| Finance lease obligations |
17 | 18 | ||||||
| Deferred revenues |
6,123 | 6,939 | ||||||
| Deferred tax liabilities |
9 | 2,685 | 2,816 | |||||
| Total non-current liabilities |
32,962 | 48,999 | ||||||
| Total liabilities |
204,816 | 225,789 | ||||||
| Equity |
||||||||
| Share capital |
80,932 | 80,932 | ||||||
| Reserves |
135,085 | 132,104 | ||||||
| Total equity attributable to equity holders of the Company |
216,017 | 213,036 | ||||||
| Minority interests |
1,537 | 1,512 | ||||||
| Total equity |
217,554 | 214,548 | ||||||
| Total liabilities and equity |
422,370 | 440,337 | ||||||
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Notes:
| 1. | BASIS OF PREPARATION |
These interim financial statements have been prepared in accordance with International Accounting Standard 34 (“IAS
34”) “Interim Financial Reporting” issued by the International Accounting Standards Board and the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. These interim financial statements, which were authorised for issuance by the Board of Directors on 27 August 2009, reflect the unaudited financial position of the Group as at 30 June 2009 and the unaudited results of operations and cash flows of the Group for the six-month period then ended, which are not necessarily indicative of the results of operations and cash flows expected for the year ending 31 December 2009.
These interim financial statements have been prepared in accordance with the same accounting policies adopted in the
2008 annual financial statements, except for the accounting policy, financial statement presentation and disclosure changes that are expected to be reflected in the 2009 annual financial statements. Details of these changes in accounting policy, financial statement presentation and disclosures are set out in Note 2.
These interim financial statements are unaudited, but have been reviewed by the Audit Committee of the Company. These interim financial statements have also been reviewed by the Company’s international auditors in accordance with Hong Kong Standards on Review Engagements 2410, “Review of interim financial information performed by the independent auditor of the entity”, issued by the Hong Kong Institute of Certified Public Accountants.
| 2. | CHANGES IN ACCOUNTING POLICY, FINANCIAL STATEMENT PRESENTATION AND DISCLOSURES |
The IASB has issued a number of new and revised IFRS and Interpretations that are effective or available for early adoption for accounting periods beginning on or after 1 January 2009. The Group has determined the accounting policies expected to be adopted in the preparation of the Group’s annual financial statements for the year ending 31 December 2009 on the basis of the IFRSs currently in issue, which the Group believes do not have a significant impact on the Group’s prior year financial position and results of operations. However, the adoption of the following new and revised IFRS and Interpretations has resulted in accounting policy, financial statement presentation and disclosure changes:
| (i) | IAS 1 (revised 2007), “Presentation of financial statements” |
In prior years, the Group’s consolidated financial statements comprised consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and other explanatory notes. Income and expenses recognised in profit or loss were presented in the consolidated income statement. All changes in equity during the year arising from transactions with equity shareholders in their capacity and other income and expenses that the Group recognised directly in equity in accordance with IFRSs were presented in the consolidated statement of changes in equity.
As a result of the adoption of IAS 1 (revised 2007), the Group’s consolidated income statement is replaced by the consolidated statement of comprehensive income. All income and expenses recognised in profit or loss, together with other income and expenses that were previously recognised directly in equity in accordance with IFRSs are now presented in the consolidated statement of comprehensive income. Comparative amounts have been restated to conform with the new presentation. This change in presentation has no effect on reported profit or loss, total income and expenses or net assets for any period presented. In addition, the term “consolidated balance sheet” has been changed to “consolidated statement of financial position” in accordance with IAS 1 (revised 2007).
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| (ii) | IFRIC 13, “Customer loyalty programmes” |
The Group launches a customer loyalty scheme to its telephony and Internet service subscribers that provides subscribers with bonus point credits. The bonus point credits can be redeemed for free telecommunication services or other gifts.
In prior years, the Group recognised bonus point credits associated with the customer loyalty scheme as a current liability based on the estimated fair value of the bonus point credits granted to subscribers, with a corresponding charge to selling, general and administrative expense. When the subscribers redeemed the awards or when the bonus point credits expired, the liability was reduced accordingly to reflect the change in outstanding obligations.
As a result of the adoption of IFRIC 13 which is effective for accounting period beginning on or after 1 July 2008, the Group accounts for bonus point credits associated with the customer loyalty scheme as a separately identifiable component of the sales transaction in which bonus point credits are granted. The fair value of the consideration received or receivable is allocated between bonus point credits and other components of the sale transaction based on their relative fair values. Consideration allocated to bonus point credits is initially recorded as a current liability which is subsequently recognised as revenue when the bonus point credits are redeemed by subscribers or the bonus point credits expire. The cost of gifts redeemed by subscribers is recognised as other operating expenses.
The following table summarises the retrospective adjustments that have been made in accordance with IFRIC 13 to each of the line items in the consolidated statement of comprehensive income for the period ended 30 June 2008:
| Effect of adoption of IFRIC 13 ((decrease)/increase for the period) RMB millions |
|||
| Operating revenues |
(55 | ) | |
| Selling, general and administrative expenses |
(108 | ) | |
| Other operating expenses |
53 |
As a result of the adoption of IFRIC 13, the Group’s operating revenues and selling, general and administrative expenses have been decreased by RMB198 million and RMB238 million respectively while other operating expenses has been increased by RMB40 million for the six-month period ended 30 June 2009. The adoption of IFRIC 13 does not have any effect on the Group’s net profit and total comprehensive income for the periods presented.
The IFRSs that will be effective or are available for voluntary early adoption in the annual financial statements for the year ending 31 December 2009 may be affected by the issuance of additional interpretations or other changes announced by the IASB subsequent to the date of issuance of these interim financial statements. Therefore the policies that will be applied in the Group’s financial statements for the year ending 31 December 2009 cannot be determined with certainty at the date of issuance of these interim financial statements.
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| 3. | SEGMENTAL REPORTING |
An operating segment is a component of the Group that engages in business activities from which the Group may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Group’s chief operating decision maker in order to allocate resource and assess performance of the segment. For the periods presented, management has determined that the Group has no operating segments as the Group is only engaged in an integrated telecommunication business. The Group’s assets located and operating revenues derived from activities outside the PRC are less than 1% of the Group’s assets and operating revenues, respectively. No geographical area information has been presented as such information is immaterial.
| 4. | OPERATING REVENUES |
Operating revenues represent revenues from the provision of telecommunications services. The components of the Group’s operating revenues are as follows:
| Six-month periods ended 30 June | ||||||
| Note | 2009 RMB millions |
2008 RMB millions | ||||
| (restated) | ||||||
| Wireline voice |
(i) | 41,060 | 50,485 | |||
| Mobile voice |
(ii) | 9,051 | — | |||
| Internet |
(iii) | 24,528 | 19,481 | |||
| Value-added services |
(iv) | 10,347 | 7,212 | |||
| Integrated information application services |
(v) | 5,928 | 4,772 | |||
| Managed data and leased line |
(vi) | 5,528 | 5,025 | |||
| Others |
(vii) | 6,112 | 2,376 | |||
| Upfront connection fees |
(viii) | 592 | 1,028 | |||
| 103,146 | 90,379 | |||||
Note:
| (i) | Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees, interconnections and upfront installation fees charged to customers for the provision of wireline telephony services. |
| (ii) | Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees and interconnections fees charged to customers for the provision of mobile telephony services. |
| (iii) | Represent amounts charged to customers for the provision of Internet access services. |
| (iv) | Represent the aggregate amount of fees charged to customers for the provision of value-added services, which comprise primarily caller ID services, short messaging services, back ring tone services (Colour Ring Tone), Internet data centre and IP-Virtual Private Network services. |
A-13
| (v) | Represent primarily the aggregate amount of fees charged to customers for system integration and consulting services and Best Tone information services, which comprise hotline enquiry and booking service. |
| (vi) | Represent primarily the aggregate amount of fees charged to customers for the provision of managed data transmission services and lease income from other domestic telecommunications operators and enterprise customers for the usage of the Group’s wireline telecommunication networks and equipment. |
| (vii) | Represent primarily revenue from sale, rental and repairs and maintenance of customer-end terminal equipment. |
| (viii) | Represent the amortised amount of the upfront fees received for initial activation of wireline services. |
| 5. | NET FINANCE COSTS |
Net finance costs comprise:
| Six-month periods ended 30 June | ||||||
| 2009 RMB millions |
2008 RMB millions |
|||||
| Interest expense incurred |
2,710 | 2,716 | ||||
| Less: Interest expense capitalised* |
(185 | ) | (204 | ) | ||
| Net interest expense |
2,525 | 2,512 | ||||
| Interest income |
(134 | ) | (217 | ) | ||
| Foreign exchange losses |
16 | 54 | ||||
| Foreign exchange gains |
(139 | ) | (60 | ) | ||
| 2,268 | 2,289 | |||||
| * Interest expense was capitalised in construction in progress at the following rates per annum |
1.3%–4.9% | 2.4%–5.7% | ||||
| 6. | INCOME TAX |
Income tax in the consolidated statement of comprehensive income comprises:
| Six-month periods ended 30 June | ||||
| 2009 RMB millions |
2008 RMB millions | |||
| Provision for PRC income tax |
2,321 | 3,779 | ||
| Provision for income tax in other tax jurisdictions |
25 | 18 | ||
| Deferred taxation |
725 | 19 | ||
| 3,071 | 3,816 | |||
A-14
A reconciliation of the expected tax with the actual tax expense is as follows:
| Six-month periods ended 30 June | ||||||||
| Note | 2009 RMB millions |
2008 RMB millions |
||||||
| Profit before taxation |
12,126 | 16,493 | ||||||
| Expected income tax expense at statutory tax rate of 25% |
(i) | 3,032 | 4,123 | |||||
| Differential tax rate on PRC subsidiaries’ and branches’ income |
(i) | (286 | ) | (311 | ) | |||
| Differential tax rate on other subsidiaries’ income |
(ii) | (15 | ) | (9 | ) | |||
| Non-deductible expenses |
(iii) | 682 | 538 | |||||
| Non-taxable income |
(iv) | (340 | ) | (519 | ) | |||
| Tax credit for domestic equipment purchases and other tax benefits |
(2 | ) | (6 | ) | ||||
| Income tax |
3,071 | 3,816 | ||||||
Note:
| (i) | The provision for PRC current income tax is based on a statutory rate of 25% of the assessable income of the Company, its subsidiaries and branches as determined in accordance with the relevant income tax rules and regulations of the PRC, except for certain subsidiaries and branches which are taxed at a preferential rate of 15% or 20%. |
| (ii) | Income tax provision of the Company’s subsidiaries in the Hong Kong and Macau Special Administrative Regions of PRC, and in other countries is based on the subsidiaries’ assessable income and income tax rates applicable in the respective tax jurisdictions which range from 12% to 35%. |
| (iii) | Amounts represent miscellaneous expenses in excess of statutory deductible limits for tax purpose. |
| (iv) | Amounts represent connection fees received from customers and other income which are not subject to income tax. |
| 7. | BASIC EARNINGS PER SHARE |
The calculation of basic earnings per share for the six-month periods ended 30 June 2009 and 2008 is based on the profit attributable to equity holders of the Company of RMB9,004 million and RMB12,634 million, respectively, divided by 80,932,368,321 shares in issue.
The amount of diluted earnings per share is not presented as there were no dilutive potential ordinary shares in existence for the periods presented.
| 8. | DIVIDENDS |
Pursuant to the shareholders’ approval at the Annual General Meeting held on 26 May 2009, a final dividend of RMB0.074963 (equivalent to HK$0.085) per share totalling approximately RMB6,067 million in respect of the year ended 31 December 2008 was declared and paid on 30 June 2009.
A-15
Pursuant to the shareholders’ approval at the Annual General Meeting held on 30 May 2008, a final dividend of RMB0.075747 (equivalent to HK$0.085) per share totalling RMB6,125 million in respect of the year ended 31 December 2007 was declared, of which RMB5,699 million and RMB426 million was paid on 16 June 2008 and 25 February 2009 respectively.
The Board of Directors has resolved not to pay an interim dividend for the year ending 31 December 2009.
| 9. | DEFERRED TAX ASSETS AND LIABILITIES |
Deferred tax assets and deferred tax liabilities are attributable to the items set out below:
| Assets | Liabilities | Net Balance | ||||||||||||||
| 30 June 2009 RMB millions |
31 December 2008 RMB millions |
30 June 2009 RMB millions |
31 December 2008 RMB millions |
30 June 2009 RMB millions |
31 December 2008 RMB millions |
|||||||||||
| Current |
||||||||||||||||
| Provisions and impairment losses, primarily for receivables |
974 | 726 | — | — | 974 | 726 | ||||||||||
| Non-current |
||||||||||||||||
| Property, plant and equipment |
5,750 | 6,738 | (1,867 | ) | (1,982 | ) | 3,883 | 4,756 | ||||||||
| Deferred revenues and installation costs |
1,357 | 1,424 | (790 | ) | (821 | ) | 567 | 603 | ||||||||
| Land use rights |
5,676 | 5,740 | — | — | 5,676 | 5,740 | ||||||||||
| Available-for-sale equity securities |
— | — | (28 | ) | (13 | ) | (28 | ) | (13 | ) | ||||||
| Deferred tax assets/(liabilities) |
13,757 | 14,628 | (2,685 | ) | (2,816 | ) | 11,072 | 11,812 | ||||||||
Movements in temporary differences are as follows:
| Note | Balance at 1 January 2009 RMB millions |
Recognised in statement of comprehensive income RMB millions |
Balance at 30 June 2009 RMB millions |
||||||||
| Current |
|||||||||||
| Provisions and impairment losses, primarily for receivables |
726 | 248 | 974 | ||||||||
| Non-current |
|||||||||||
| Property, plant and equipment |
4,756 | (873 | ) | 3,883 | |||||||
| Deferred revenues and installation costs |
603 | (36 | ) | 567 | |||||||
| Land use rights |
5,740 | (64 | ) | 5,676 | |||||||
| Available-for-sale equity securities |
(i) | (13 | ) | (15 | ) | (28 | ) | ||||
| Net deferred tax assets |
11,812 | (740 | ) | 11,072 | |||||||
A-16
Note:
| (i) | The deferred tax on changes in fair value of available-for-sale equity securities is recognised in other comprehensive income. |
| 10. | ACCOUNTS RECEIVABLE, NET |
Accounts receivable, net, are analysed as follows:
| 30 June 2009 RMB millions |
31 December 2008 RMB millions |
|||||
| Third parties |
20,302 | 17,923 | ||||
| China Telecom Group1 |
499 | 372 | ||||
| Other state-controlled telecommunications operators in the PRC |
1,385 | 1,112 | ||||
| 22,186 | 19,407 | |||||
| Less: Allowance for impairment of doubtful debts |
(2,965 | ) | (2,118 | ) | ||
| 19,221 | 17,289 | |||||
Amounts due from the provision of telecommunications services to customers are generally due within 30 days from the date of billing.
Ageing analysis of accounts receivable from telephone and Internet subscribers is as follows:
| 30 June 2009 RMB millions |
31 December 2008 RMB millions |
|||||
| Current, within 1 month |
11,320 | 11,282 | ||||
| 1 to 3 months |
2,515 | 2,170 | ||||
| 4 to 12 months |
1,858 | 1,514 | ||||
| More than 12 months |
1,061 | 495 | ||||
| 16,754 | 15,461 | |||||
| Less: Allowance for impairment of doubtful debts |
(2,851 | ) | (2,009 | ) | ||
| 13,903 | 13,452 | |||||
| 1 | China Telecommunications Corporation together with its subsidiaries other than the Group are referred to as “China Telecom Group”. |
A-17
Ageing analysis of accounts receivable from telecommunications operators and enterprise customers is as follows:
| 30 June 2009 RMB millions |
31 December 2008 RMB millions |
|||||
| Current, within 1 month |
1,765 | 1,397 | ||||
| 1 to 3 months |
1,663 | 1,210 | ||||
| 4 to 12 months |
1,393 | 834 | ||||
| More than 12 months |
611 | 505 | ||||
| 5,432 | 3,946 | |||||
| Less: Allowance for impairment of doubtful debts |
(114 | ) | (109 | ) | ||
| 5,318 | 3,837 | |||||
| 11. | ACCOUNTS PAYABLE |
Accounts payable are analysed as follows:
| 30 June 2009 RMB millions |
31 December 2008 RMB millions | |||
| Third parties |
29,146 | 27,698 | ||
| China Telecom Group |
5,772 | 6,387 | ||
| Other state-controlled telecommunications operators in the PRC |
505 | 373 | ||
| 35,423 | 34,458 | |||
Amounts due to China Telecom Group are repayable in accordance with contractual terms which are similar to those terms offered by third parties.
Ageing analysis of accounts payable is as follows:
| 30 June 2009 RMB millions |
31 December 2008 RMB millions | |||
| Due within 1 month or on demand |
7,151 | 7,530 | ||
| Due after 1 month but within 3 months |
8,856 | 10,289 | ||
| Due after 3 months but within 6 months |
9,896 | 6,807 | ||
| Due after 6 months |
9,520 | 9,832 | ||
| 35,423 | 34,458 | |||
A-18
MANAGEMENT DISCUSSION AND ANALYSIS
According to paragraph 40 of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), save as disclosed herein, the Company confirms that the current company information in relation to those matters set out in paragraph 32 of Appendix 16 has not changed materially from the information disclosed in the Company’s 2008 Annual Report.
PURCHASE, SALE OR REDEMPTION OF SECURITIES
During the six-month period ended 30 June 2009, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.
DIRECTORS’ AND SUPERVISORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES
As at 30 June 2009, none of the Directors or Supervisors had any interests or short positions in any shares, underlying shares of equity derivatives or debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (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 of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”).
As at 30 June 2009, the Company has not granted its Directors or Supervisors, or their respective spouses or children below the age of 18 any rights to subscribe for the shares or debentures of the Company or any of its associated corporations and none of them has ever exercised any such right to subscribe for the shares or debentures.
CHANGE IN DIRECTORS’ AND SUPERVISORS’ BIOGRAPHICAL DETAILS
As required under Rule 13.51(2) and Rule 13.51B(1) of Listing Rules, the change in Directors’ or Supervisors’ biographical details, since the despatch date of the Annual Report 2008 is set out below:
Madam Cha May Lung, Laura, the Independent Non-executive Director of the Company, has resigned as the independent non-executive directors of Baoshan Iron & Steel Co. Ltd. and Johnson Electric Holdings Limited, respectively. Save as those disclosed above, there is no other information for the Directors or Supervisors of the Company required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules. The updated biographical details of the Directors and Supervisors are available on the website of the Company (www.chinatelecom-h.com).
A-19
MATERIAL INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES OF THE COMPANY
As at 30 June 2009, the interests or short position of persons who are entitled to exercise or control the exercise of 5% or more of the voting power at any of the Company’s general meetings (excluding the Directors and Supervisors) in the shares and underlying shares of equity derivatives of the Company as recorded in the register required to be maintained under Section 336 of the SFO are as follows:
| Name of Shareholder |
Number of shares held |
Type of Shares |
Percentage of the respective type of shares in issue |
Percentage of the total number of shares in issue |
Capacity | ||||||||
| (%) | (%) | ||||||||||||
| China Telecommunications Corporation |
57,377,053,317 (Long position |
) |
Domestic shares | 85.57 | % | 70.89 | % | Beneficial owner | |||||
| Guangdong Rising Assets Management Co., Ltd |
5,614,082,653 (Long position |
) |
Domestic shares | 8.37 | % | 6.94 | % | Beneficial owner | |||||
| JPMorgan Chase & Co. |
1,125,289,717 (Long position |
) |
H shares | 8.11 | % | 1.39 | % | 85,299,392 shares as beneficial owner, 480,934,000 shares as investment manager and 559,056,325 shares as security interest holder/approved lending agent | |||||
| 39,740,080 (Short position |
) |
H shares | 0.29 | % | 0.05 | % | Beneficial owner | ||||||
| 559,056,325 (Shares available |
|
H shares | 4.03 | % | 0.69 | % | Security interest holder/approved lending agent | ||||||
| Barclays PLC |
967,527,618 (Long position |
) |
H shares | 6.97 | % | 1.20 | % | Interest of controlled corporation | |||||
| 2,116,000 (Short position |
) |
H shares | 0.02 | % | 0.003 | % | Interest of controlled corporation | ||||||
A-20
| Name of Shareholder |
Number of shares held |
Type of Shares |
Percentage of the respective type of shares in issue |
Percentage of the total number of shares in issue |
Capacity | ||||||||
| (%) | (%) | ||||||||||||
| RFS Holdings B.V. |
907,191,530 (Long position |
) |
H shares | 6.54 | % | 1.12 | % | Interest of controlled corporation | |||||
| 1,180,327,134 (Short position |
) |
H shares | 8.51 | % | 1.46 | % | Interest of controlled corporation | ||||||
| Capital Research and Management Company |
712,474,000 (Long position |
) |
H shares | 5.13 | % | 0.88 | % | Investment manager | |||||
Save as stated above, as at 30 June 2009, in the register required to be maintained under Section 336 of the SFO, no other persons were recorded to hold any interests or short positions in the shares or underlying shares of the equity derivatives of the Company.
AUDIT COMMITTEE
The audit committee has reviewed with management and the Company’s international auditor, KPMG, the accounting principles and practices adopted by the Group and discussed internal control and financial reporting matters including the review of the Company’s Interim Report for the six months ended 30 June 2009.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has attached great importance to corporate governance. We continued to make efforts in improving the Company’s internal control mechanisms, strengthening information disclosure and enhancing the Company’s transparency, developing corporate governance practices and protecting shareholders’ interests to the maximum degree.
The charter of audit committee of the Company was amended in March 2009 to reflect certain code provisions under the Code on Corporate Governance Practices in Appendix 14 of the Listing Rules which became effective from 1 January 2009. The roles of Chairman and Chief Executive Officer of the Company were performed by the same individual, for the six months period ended 30 June 2009. In the Company’s opinion, through supervision of the Board and Independent Non-executive Directors, and effective control of the Company’s internal check and balance mechanism, the same individual performing the roles of Chairman and Chief Executive Officer can achieve the goal of improving the Company’s efficiency in decision-making and execution, and effectively capture business opportunities. Many international leading corporations also have a similar arrangement.
A-21
Save as stated above, the Company has been in compliance with all the code provisions as set out in Appendix 14 “Code on Corporate Governance Practices” of the Listing Rules throughout the six months ended 30 June 2009.
COMPLIANCE WITH MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted the Model Code as set out in Appendix 10 of the Listing Rules to govern securities transactions by Directors. Further to the specific enquiries made by the Company to all Directors, they have confirmed their compliance with the Model Code throughout the period from 1 January 2009 to 30 June 2009.
INTERIM REPORT
The Interim Report for the six months ended 30 June 2009 will be despatched to shareholders and made available on the website of The Stock Exchange of Hong Kong Limited (www.hkex.com.hk) and the website of the Company (www.chinatelecom-h.com) in due course.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this announcement may be viewed as “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 (as amended) and Section 21E of the U.S. Securities Exchange Act of 1934 (as amended). Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. In addition, we do not intend to update these forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company’s most recent Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission (the “SEC”) and in the Company’s other filings with the SEC.
As of the date of this announcement, the Board of directors of the Company consists of Mr. Wang Xiaochu as the chairman and chief executive officer, Mr. Shang Bing as the president and chief operating officer, Madam Wu Andi as the executive vice president and chief financial officer, Mr. Zhang Jiping, Mr. Zhang Chenshuang, Mr. Yang Xiaowei, Mr. Yang Jie, and Mr. Sun Kangmin as the executive vice presidents, Mr. Li Jinming as the non-executive director, and Mr. Wu Jichuan, Mr. Qin Xiao, Mr. Tse Hau Yin, Aloysius, Madam Cha May Lung, Laura, Mr. Xu Erming as the independent non-executive directors.
A-22
Exhibit 1.2
China Telecom Corporation Limited
(A joint stock limited company incorporated in the People’s Republic of China with limited liability)
Reconciliation of Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”) (Excluding CDMA Network Capacity Lease Fee) to Net Cash from Operating Activities
On August 27, 2009, China Telecom Corporation Limited disclosed EBITDA (excluding CDMA network capacity lease fee) in its announcement of interim results for the six months ended June 30, 2009 in Hong Kong.
The following table sets forth a reconciliation of EBITDA (excluding CDMA network capacity lease fee) for the six months ended June 30, 2009 to net cash from operating activities for the same period, being the most comparable generally accepted accounting principles measure under International Financial Reporting Standards:
| RMB millions |
|||
| EBITDA (excluding CDMA network capacity lease fee) |
43,931 | ||
| Adjustment |
|||
| CDMA network capacity lease fee |
(3,583 | ) | |
| Non-cash items included in EBITDA |
2,296 | ||
| Net change in working capital |
2,875 | ||
| Decrease in deferred revenue |
(1,200 | ) | |
| Net interest paid |
(2,377 | ) | |
| Income tax paid |
(2,788 | ) | |
| Investment income received |
1 | ||
| Net cash from operating activities |
39,155 | ||
August 27, 2009
B-1