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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 September 2016

Commission File Number 1-31517

 

 

China Telecom Corporation Limited

(Translation of registrant’s name into English)

 

 

31 Jinrong Street, Xicheng District

Beijing 100033, China

(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-            .)

 

 

 


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EXHIBITS

 

Exhibit
Number

    
1.1    2016 Interim Report, dated August 23, 2016.

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 Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are, by their nature, subject to significant risks and uncertainties, and include, without limitation, statements relating to:

 

    our business and operating strategies and our ability to successfully execute these strategies;

 

    our network expansion and capital expenditure plans;

 

    our operations and business prospects;

 

    the expected benefit of any acquisitions or other strategic transactions;

 

    our financial condition and results of operations;

 

    the expected impact of new services on our business, financial condition and results of operations;

 

    the future prospects of and our ability to integrate acquired businesses and assets;

 

    the industry regulatory environment as well as the industry outlook generally; and

 

    future developments in the telecommunications industry in the People’s Republic of China, or the PRC.

The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “will,” “would” and similar expressions, as they relate to us, are intended to identify a number of these forward-looking statements.

These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. We are under no obligation to update these forward-looking statements and do not intend to do so. Actual results may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the following:

 

    any changes in the regulations or policies of the Ministry of Industry and Information Technology (prior to March 2008, the Ministry of Information Industry, or the MII), or the MIIT, and other relevant government authorities relating to, among other matters:


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    the granting and approval of licenses;

 

    tariff policies;

 

    interconnection and settlement arrangements;

 

    capital investment priorities;

 

    the provision of telephone and other telecommunications services to rural areas in the PRC;

 

    the convergence of television broadcast, telecommunications and Internet access networks, or three-network convergence; and

 

    spectrum and numbering resources allocation;

 

    the effects of competition on the demand for and price of our services;

 

    any potential further restructuring or consolidation of the PRC telecommunications industry;

 

    changes in the PRC telecommunications industry as a result of the issuance of the fourth generation mobile telecommunications, or 4G, licenses by the MIIT;

 

    the development of new technologies and applications or services affecting the PRC telecommunications industry and our current and future business;

 

    changes in political, economic, legal and social conditions in the PRC, including changes in the PRC government’s specific policies with respect to foreign investment in and entry by foreign companies into the PRC telecommunications industry, economic growth, inflation, foreign exchange and the availability of credit;

 

    results and effects of any investigation by the relevant PRC regulatory authorities;

 

    implementation of a value-added tax to replace the business tax in the PRC; and

 

    the uncertainties involved in the operations and the future performance of the Tower Company.

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.


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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: September 6, 2016              By:  

/s/ Yang Jie

        Name:   Yang Jie
        Title:   Chairman and Chief Executive Officer


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LOGO


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Forward-looking

Statements

Certain statements contained in this report 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 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. 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.

 

  

Contents

1   

Financial Highlights

2   

Chairman’s Statement

8   

Report on Review of Interim Financial Statements

9   

Unaudited Consolidated Statement of Financial Position

11   

Unaudited Consolidated Statement of Comprehensive Income

12   

Unaudited Consolidated Statement of Changes in Equity

13   

Unaudited Consolidated Statement of Cash Flows

15   

Notes to the Unaudited Interim Financial Statements

34   

Other Information


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Financial Highlights

 

     Six-month period ended 30 June  
     2015     2016  

Operating revenues (RMB millions)

     164,953        176,828   

EBITDA 1 (RMB millions)

     50,739        50,555   

EBITDA margin 2

     34.5     32.6

Net profit 3   (RMB millions)

     10,980        11,673   

Earnings per share (RMB)

     0.136        0.144   

Capital expenditure (RMB millions)

     36,685        40,746   

 

LOGO

 

1 EBITDA was calculated based on operating revenues minus operating expenses plus depreciation and amortisation.
2 EBITDA margin was calculated based on EBITDA divided by service revenues.
3 Net profit represented profit attributable to equity holders of the Company.

 

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Chairman’s Statement

 

LOGO

In the first half of 2016, with a unitary goal cohering as a whole, the Company adhered to the established development strategy to persist in excellent execution. Firmly seizing opportunities and taking steps in reform and innovation, the Company accomplished brilliant results. With accelerated expansion of operation scale, our business structure was continually optimised while our competitive capabilities were remarkably strengthened. The vitality of our employees was fully demonstrated. Through proactively grasping the arising opportunities and adapting to the changing trends in a timely manner, the Company firmly established a new strategy on transformation and upgrades, aimed at providing superb customer experience in an era of intellectual services and facilitating the Company’s evolution into a leading integrated intelligent information services operator.

Overall results

In the first half of 2016, the Company had excellent performance in its overall results. Operating revenues amounted to RMB176.8 billion, representing an increase of 7.2% over the same period last year, achieving industry-leading growth. Service revenues 1 amounted to RMB155.2 billion, representing an increase of 5.6% over the same period last year with continual rapid optimisation in revenue structure. EBITDA 2 was RMB50.6 billion while EBITDA margin 2 was 33%. Profit attributable to the equity holders of the Company was RMB11.7 billion, representing an increase of 6.3% over the same period last year. Basic earnings per share were RMB0.14. Capital expenditure was RMB40.7 billion while free cash flow 3  was RMB6.1 billion.

Taking into consideration the Company’s profitability, cash flow level and the capital requirements for future development, the Board of Directors has decided not to pay an interim dividend this year in order to maintain adequate funding flexibility. The Board of Directors will proactively consider the expectation of shareholders’ return and evaluate the final dividend proposal when reviewing the full year results and will propose to the shareholders’ general meeting accordingly.

 

1   Service revenues were calculated based on operating revenues minus sales of mobile terminals, sales of wireline equipment and other non-service revenues.
2   EBITDA was calculated based on operating revenues minus operating expenses plus depreciation and amortisation while EBITDA margin was calculated based on EBITDA divided by service revenues.
3   Free cash flow was calculated from EBITDA minus capital expenditure and income tax.

 

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Chairman’s Statement

 

Scale Breakthrough with Favourable Trends

In the first half of the year, the Company comprehensively implemented aggressive marketing strategy and emphasised the operating focuses, “2+5” 4 . With persistent promotion of in-depth integration and enhancement in efficiently-centralised operation, the Company expanded open cooperation and fully leveraged the differentiated edges, resulting in notable improvements in competitive strengths.

Comprehensive upgrade in   4G   capabilities   to drive industry-leading growth   in   mobile   business. By fully leveraging the competitive advantages in 4G network and “multi-mode” handsets, the Company increased efforts in integration and the effect of 4G driving the scale development of mobile business was evident. The net increase of 4G terminal users was 31.64 million, accounting for 18% market share in industry’s net additions. The total number of 4G terminal users reached 90.10 million, accounting for 15.2% market share. The net increase of mobile subscribers was 9.04 million, accounting for 32% market share in industry’s net additions. The total number of mobile subscribers reached approximately 210 million, representing 15.9% market share. 4G users accounted for 44% of total mobile subscribers, representing an increase of 14 percentage points from the end of last year. The monthly average data traffic per 4G user reached 889 MB while the aggregate handset Internet data traffic increased by 135% compared to the same period last year. The mobile handset Internet access revenue increased by 42% over the same period last year, accounting for 47% of the mobile service revenues. The mobile service revenues increased by 8.3% over the same period last year, outperforming the industry growth.

Sustained   expansion   of   fibre   broadband   edges to further strengthen our leading position in broadband service. The Company proactively implemented the national strategy of “Broadband China” and insisted on expediting bandwidth upgrade in broadband. Persistently driven by 100 Mbps products with trial run of 1,000 Mbps products, the Company comprehensively integrated and optimised our services quality, resulting in remarkable achievements in development. The wireline broadband service revenue increased by 3.3% over the same period last year, driving the wireline service revenues achieved healthy growth. The net addition of Fibre-to-the-Home (FTTH) subscribers was 17.35 million, reaching a total of 88.34 million. The net addition of wireline broadband subscribers was 4.94 million, reaching a total of approximately 120 million. FTTH subscribers accounted for 75% of the total wireline broadband subscribers, an increase of 12 percentage points from the end of last year. The market share of wireline broadband business within the service area of the Company’s wireline operations was 62% whereas the market share of FTTH subscribers was approximately 66%, continuing to maintain the leading position in wireline broadband market.

Rapid expansion in emerging areas and accelerated cultivation of new growth engines. Leveraging the e-Surfing HD platform and smart home gateway, and riding on our competitive advantages in subscribers scale, the Company endeavoured to build a “Smart Family” system. The net addition of e-Surfing HD subscribers was 9.78 million, representing an increase of 129% as compared with the subscriber growth number recorded in the same period last year. The total number of e-Surfing HD subscribers exceeded 50 million while the revenue increased by 33% over the same period last year. The number of active “BestPay” subscribers exceeded 8 million and “BestPay” positioned the second in third-party ranking of mobile payment industry apps 5 , while total transaction amount was approximately RMB380 billion. The whole-network efficient-centralisation of Internet of Things (IoT) business was launched in April with a focus on key breakthroughs in areas such as smart transport, smart logistics, wearable devices and Internet of vehicles. In the first half of the year, the net addition of IoT connections exceeded

 

4   “2+5” refers to two fundamental businesses namely 4G and fibre broadband plus five emerging areas namely e-Surfing HD, BestPay, Internet of Things, cloud and Big Data and “Internet+”.
5   Data source: Top 20 mobile payment apps in June 2016 by Analysys.cn.

 

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Chairman’s Statement

 

3 million. The Company will expedite the construction of an advanced IoT platform through self-R&D and cooperation. Fully leveraging the integration of cloud and network together with the existing data resources advantages, the Company accelerated efficiently-centralised development of cloud and Big Data businesses. The revenues from cloud services increased by 41% over the same period last year while the revenues from Big Data increased by nearly 3 times. We actively explored and developed the “Internet+” market with a focus on three key areas including government administration, education and healthcare and hence the quantity of orders from key government and enterprise customers increased by nearly 30% over the second half of last year. The development trend of emerging areas progressed well with vast potentials in the future prospect.

Excellent execution with notable advantages

In the first half of the year, the Company examined and assessed the market trends, planned meticulously and executed efficiently to establish new and all-rounded competitive advantages while striving to promote changes towards a more favourable direction for the Company in the competitive landscape.

Extensive in-depth integration. Exploiting the competitive strengths in full-service operation, the Company promoted in-depth integration and innovative development in various areas including business, network, platform and services, resulting in mutual promotion and interactions amongst respective businesses while effectively driving concurrent enhancements in scale and value. The high-value users subscribing to 4G, fibre broadband and e-Surfing HD services accounted for 45% 6 of total subscribers, facilitating the steady growth in operating revenues. Integration has become the Company’s strong and powerful competitive edge.

Leading superior network. 4G and fibre broadband formed and shaped competitive network advantages featuring broad coverage, fast network speed and high stability. In highly profitable 4G service areas, the Company fully leveraged the strengths of international mainstream FDD technology, spectrum resources and co-sharing of telecommunications towers as well as appropriately utilised carrier aggregation technologies. The integrated experience of the Company’s 4G network has become users’ preferred choice. Meanwhile, the Company has been approved to refarm the 800 MHz frequency bandwidth and planned to build a nationwide high quality 800 MHz LTE network in year 2017 at low costs to achieve 4G network coverage in rural areas and in-depth coverage in cities. We will lay down the foundations for the VoLTE and NB-IoT networks so as to foster rapid accomplishment of industry-leading 4G network quality. Through the acceleration of fibre network coverage, end-to-end bandwidth upgrade and interconnection of data centres, the Company effectively secured a high speed and high quality network browsing experience for our customers. In the first half of the year, the average bandwidth of wireline broadband subscribers reached 37 Mbps, representing 20% higher than the industry average. This further strengthened the Company’s leading market position in the fibre broadband industry, where we led the high-bandwidth development trends.

Flexible   and   innovative   marketing strategies. The Company endeavoured to promote “multi-mode” handsets as market mainstream, effectively expanding our sales radius and significantly improving our terminal competitiveness. Data traffic operations were further promoted and the cooperation with heavy data usage products such as video content was further reinforced, continuously enhancing data traffic scale and value. The Company continuously implemented the “Speed Upgrade and Tariff Reduction”, gradually cancelled the long-distance and roaming charges, proactively innovated the billing model and became the pioneer in China to explore and introduce on trial basis the “All-charge-as-data” billing, which effectively simplified customers’ choices and profoundly enhanced service attractiveness. The Company actively implemented Internet-orientation of channels, enhancing high collaborative operations of online and physical channels. The coverage and sales capabilities of physical channels were significantly improved while online channels have become the main sales channel for services such as data traffic packages and online top-up. The proportion of users derived from online channels continued to increase.

 

6   Up to the first half of 2016, the total number of users subscribing to access lines in service, mobile, wireline broadband and e-Surfing HD of the Company reached approximately 510 million.

 

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Chairman’s Statement

 

Remarkable achievements   in   cooperation. The Company took the initiative in innovation of development model, extensively consolidated competitive resources, cooperated with strong partners, resulting in a win-win outcome. Fully leveraging the co-sharing of telecommunications towers resources, the Company has been at the forefront of offering a superior 4G network experience rapidly. With the promotion of in-depth cooperation with other parties in the industry and enhancements in the co-building and co-sharing of networks, the Company successfully promoted “multi-mode” handsets as a national standard. In the first half of the year, the proportion of “multi-mode” handsets sold in the industry reached 34%, enabling the Company to swiftly achieve the decisive breakthrough in developmental bottleneck. In emerging areas such as “Smart Family”, mobile payment, “Internet+”, cloud and Big Data, and IoT, the Company proactively carried out crossover cooperation and cultivated a highly efficient and synergetic industrial ecosystem by focusing on product services, network platforms, sales channels and resource integration. Our differentiated competitive strengths were effectively enhanced.

Convenient and highly-efficient services. The Company has always persisted in consumer-oriented focus with continual enhancement of customer experience. In order to achieve the integration of marketing and maintenance as a whole, the Company introduced service modes such as “instant installation process at sales” and “pay after installation”. The online and physical channels were well coordinated, effectively expanding service channels. The Company comprehensively promoted premier services and the capabilities of the entire process service were continuously improved. In the first half of the year, the Company was ranked first in the industry in customer satisfaction for both mobile Internet and wireline Internet services.

Persistent and unwavering reform. The Company adhered to the reforms of mechanism and system, and continued the in-depth promotion of subdivision of performance evaluation units. The Company increased efforts in promoting frontline entrepreneurial platform to persistently stimulate the vitality of employees, resulting in continual enhancement in the morale of development. The results of frontline performance contract units remarkably improved. By strengthening the market-oriented corporate resources allocation, together with the establishment and gradual optimisation of “top-down” integrated service support system and effective collaboration of front-end and back-end operations, the efficiency and effectiveness of the Company’s overall operation was significantly improved. The “Internet+” talent development programme was established with a focus on nurturing a team of new talents including both professional and technical personnel, hence strengthening the Company’s ability to attract talents. Vigorously promoting the transformation of achievements in innovation, the Company became the first batch of the state’s model in mass entrepreneurship and innovation.

Continual optimisation of operation management. Through precision management and efficiently-centralised operations, the quality and efficiency of our operations were significantly improved. The Company persistently promoted automation of network maintenance and further improved IT operational efficiency by leveraging support systems such as MSS, resulting in continuous enhancement in efficient centralisation of networks and IT operations. Through proactively deploying the co-building and co-sharing of networks, continually improving the financial management, strengthening the scope and depth of centralised procurement, and improvement in investment and cost efficiency, our corporate value was continually enhanced.

Comprehensive transformation and upgrades

Starting from the end of 2004, the Company unwaveringly persisted in pursuing strategic transformation and upgrades, and has surmounted tough difficulties to pave a new path for promoting China Telecom’s development through transformation. At the end of 2004, the Company first put forth strategic transformation (Transformation 1.0) 7 , achieving a change from telecommunications to information services. By the end of 2010, the Company proposed in-depth transformation (Transformation 2.0) 8  and

 

7   Transformation 1.0 defined the corporate as Telecom Full Service Provider, Internet Applications Aggregator and Leading Enterprise ICT Service Provider.
8   Transformation 2.0 adjusted the corporate’s positioning as the Leader of Intelligent Pipeline, the Provider of Integrated Platforms and the Participant of Content & Application Development.

 

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Chairman’s Statement

 

explicitly defined the clear positioning of “Three New Roles” in order to adapt to the latest trend of mobile Internet and to proactively explore emerging business areas. The history has proved and confirmed that each and every transformation and upgrade in more than ten years in the past represented China Telecom always accurately grasps the prevailing development trends as every transformation and upgrade resulted in remarkable achievements. This also demonstrated that forward-looking strategic planning and trend-leading role are both vital to overall corporate development.

At present, we are about to enter into an advanced stage of information civilisation of mankind, the era of intellectual service. The Company officially established a comprehensive transformation and upgrades plan (Transformation 3.0) at the end of June 2016 and positioned itself as a leading integrated intelligent information services operator. Intelligent information services built on digitalisation and networkisation as fundamentals; widely used intellectualisation technologies such as cloud computing, Big Data, Mobile Internet, IoT, artificial intelligence as main drivers; in-depth integration between cloud and network including Software-Defined Networking (SDN), Network Functions Virtualisation (NFV), hardware generalisation and platform-based capabilities development as the priority; deepened exploration and value realisation of corporate internal and external data resources as the norm; and diversified intelligent terminals as the carrier, altogether enables the Company to accomplish crossover development in different areas.

The Company will focus and link through the main theme of intelligence and will promote the reconstitution of network, business, operations and management based on the three main directions namely network intelligentisation, service ecologicalisation and operation intellectualisation. Integrated intelligent information services featuring connection on demand, automatic response, realistic virtual experience and high price-to-performance ratio will be provided to customers. Network intelligentisation:   Being guided by CTNet2025 9 , the Company will promote network reconstitution, deepen open-source technology applications to accomplish the open integration of network and IT, moving forward towards the combination of development and operations as a whole. The Company will be able to provide customers with state-of-the-art network experience with embedded visible, self-selective and self-served characteristics. Service ecologicalisation: The Company will further emphasise the key operating focus, “2+5”. Through open cooperation, integrated innovation and promotion of business reconstitution, the Company will endeavour to build up the five key business ecosystems, namely Intelligent Connection, Smart Family, Internet Finance, new style ICT applications, and IoT in order to achieve co-existence, co-innovation and “win-win” outcomes. Operation intellectualisation: Being driven by Big Data applications, through enhancement of six key capabilities in network fundamentals, network operations, data operation, channel sales, customer service and talent development in order to promote the reconstitution of operations and management to support smart operations.

Recently, the Company has commenced the implementation of Transformation 3.0. With the completion of the top-level design on network reconstitution, the Company published the CTNet2025 white paper and launched the first series of network reconstitution projects encompassing various areas such as network framework, fundamental scientific R&D, network engineering and product development. Surrounding the prevailing “2+5” operating focuses, ecological alliances in the industry comprising “Smart Family”, IoT and Big Data, etc. have been gradually formed. The Company launched the system and evaluation performance index of “Smart Family”. With “BestPay” payment system as the core, the Company accelerated the development of emerging areas including consumer finance and proactively nurtured the industry ecosystem. Through an in-depth exploration and extensive applications coverage of Big Data, the Company will pragmatically promote operation intellectualisation through precision marketing, precision management, dedicated services and lean operations.

As an excellent corporate citizen

We are committed to maintaining a high level of corporate governance, attaching great importance to risk management and control. We strive to enhance corporate transparency and value to ensure our healthy

 

9   CTNet2025 refers to China Telecom’s CTNet2025 Network Structure White Paper.

 

 

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Chairman’s Statement

 

and orderly growth. Our persistent efforts in corporate governance have been widely recognised by the capital markets. We have been accredited with a number of awards and recognition for the year to date, including being voted as the “Most Honoured Companies in Asia” by Institutional Investor for six consecutive years. The Company was also awarded the Platinum Award – “Best Telecommunications Company in Asia” by FinanceAsia which honoured institutions and corporations in Asia consistently providing quality, excellent and innovative services to their customers over the past 20 years.

We persisted in operating with integrity and proactively fulfilled our corporate social responsibility while maintaining a fair and orderly environment for market competition and facilitating the healthy development of the entire value chain. Meanwhile, we actively promoted green operations, through further strengthening energy conservation and emissions reduction to improve the efficiency of resource utilisation. We vigorously promoted broadband penetration in rural areas in order to bridge the information gap between urban and rural areas. We received high recognition and appreciation from society through our efforts in combating catastrophic flooding in Southern China.

Endeavour to become bigger, better and stronger

Currently, the implementation of the national strategy of “Cyberpower” coupled with the promotion of supply-side structural reform will foster an advanced level equilibrium of supply and demand. This positive policy environment creates favourable conditions for the sustainable and healthy development of the industry. The Company will seize new development opportunities for transformation and upgrades.

In the second half of the year, the Company will proactively respond to the increasingly intensified market competition and changes in external environment. Oriented by market share dominance, the Company will expedite the scale development of two fundamental businesses, effectively collaborate on the operations of five major emerging areas while also endeavouring to enhance the six key capabilities in order to accelerate the transformation of our resource edges and capabilities into competitive strengths.

With reform and innovation as the driving force, the Company will promote the development strategy with talent development as the priority, optimise the market-oriented incentive mechanism, bolster vitality and improve efficiency in order to lay down a solid foundation for accelerated transformation and upgrades. At the same time, the Company will comprehensively promote reconstitution of four major areas including business, network, operations and management in order to accelerate the implementation of the new strategy on transformation and upgrades. The Company will strive to become a leading integrated intelligent information services operator, facilitate development towards the national strategy of “Cyberpower” and also serve society and the general public as a whole, while continuously creating new value for shareholders.

Finally, on behalf of the Board of Directors, I would like to take this opportunity to express my sincere appreciation to all our shareholders and customers for their support. I would also like to express my sincere thanks to all our employees for their hard work and contributions. Furthermore, I would like to extend my sincere gratitude towards Mr. Zhang Jiping and Mr. Zhu Wei for their excellent contributions during their tenure of office as the Directors of the Company.

 

LOGO
Yang Jie

Chairman and Chief Executive Officer

Beijing, China

 

23 August 2016

 

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Report on Review of Interim Financial Statements

 

LOGO

To the Board of Directors of China Telecom Corporation Limited

Introduction

We have reviewed the interim financial statements of China Telecom Corporation Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 9 to 33, which comprise the consolidated statement of financial position as at 30 June 2016 and the related consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the six-month period then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”) issued by the International Accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of these interim financial statements in accordance with IAS 34. Our responsibility is to express a conclusion on these interim financial statements based on our review, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Scope of Review

We conducted our review in accordance with Hong Kong Standard 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. A review of these interim financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that these interim financial statements are not prepared, in all material respects, in accordance with IAS 34.

Deloitte   Touche   Tohmatsu

Certified Public Accountants

Hong Kong

23 August 2016

 

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Consolidated Statement of Financial Position (Unaudited)

at 30 June 2016

(Amounts in millions)

 

     Note      30 June
2016
RMB
     31 December
2015
RMB
 

ASSETS

        

Non-current assets

        

Property, plant and equipment, net

        365,571         373,981   

Construction in progress

        84,206         69,103   

Lease prepayments

        23,252         23,609   

Goodwill

        29,921         29,920   

Intangible assets

        10,337         10,739   

Interests in associates

        34,559         34,473   

Investments

        1,415         1,624   

Deferred tax assets

     8         4,701         4,655   

Other assets

        3,250         3,349   
     

 

 

    

 

 

 

Total non-current assets

        557,212         551,453   

Current assets

        

Inventories

        5,166         6,281   

Income tax recoverable

        18         105   

Accounts receivable, net

     4         29,077         21,105   

Prepayments and other current assets

        18,524         16,229   

Short-term bank deposits

        2,836         2,519   

Cash and cash equivalents

     5         30,076         31,869   
     

 

 

    

 

 

 

Total current assets

        85,697         78,108   
     

 

 

    

 

 

 

Total assets

        642,909         629,561   
  

 

 

    

 

 

 

The notes on pages 15 to 33 form part of these interim financial statements.

 

 

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Consolidated Statement of Financial Position (Unaudited)

at 30 June 2016

(Amounts in millions)

 

     Note      30 June
2016
RMB
    31 December
2015
RMB
 

LIABILITIES AND EQUITY

       

Current liabilities

       

Short-term debt

     6         35,312        51,636   

Current portion of long-term debt

     6         153        84   

Accounts payable

     7         126,112        118,055   

Accrued expenses and other payables

        92,172        82,934   

Income tax payable

        955        2,154   

Current portion of finance lease obligations

        23        38   

Current portion of deferred revenues

        1,158        1,028   
     

 

 

   

 

 

 

Total current liabilities

     

 

255,885

  

 

 

255,929

  

     

 

 

   

 

 

 

Net current liabilities

     

 

(170,188

 

 

(177,821

     

 

 

   

 

 

 

Total assets less current liabilities

     

 

387,024

  

 

 

373,632

  

     

 

 

   

 

 

 

Non-current liabilities

       

Long-term debt and payable

     6         70,570        64,830   

Finance lease obligations

        99        81   

Deferred revenues

        2,345        1,454   

Deferred tax liabilities

     8         3,741        2,061   

Other non-current liabilities

        469        455   
     

 

 

   

 

 

 

Total non-current liabilities

     

 

77,224

  

 

 

68,881

  

     

 

 

   

 

 

 

Total liabilities

     

 

333,109

  

 

 

324,810

  

     

 

 

   

 

 

 

Equity

       

Share capital

        80,932        80,932   

Reserves

        227,857        222,852   
     

 

 

   

 

 

 

Total equity attributable to equity holders of the Company

        308,789        303,784   

Non-controlling interests

        1,011        967   
     

 

 

   

 

 

 

Total equity

        309,800        304,751   
     

 

 

   

 

 

 

Total liabilities and equity

        642,909        629,561   
     

 

 

   

 

 

 

The notes on pages 15 to 33 form part of these interim financial statements.

 

10


Table of Contents

Consolidated Statement of Comprehensive Income (Unaudited)

for the six-month period ended 30 June 2016

(Amounts in millions, except per share data)

 

          Six-month period ended 30 June  
     Note    2016
RMB
    2015
RMB
 

Operating revenues

   9      176,828        164,953   

Operating expenses

       

Depreciation and amortisation

        (33,447     (33,585

Network operations and support

   10      (43,951     (37,224

Selling, general and administrative

        (27,319     (25,062

Personnel expenses

   11      (28,909     (28,079

Other operating expenses

   12      (26,094     (23,849
     

 

 

   

 

 

 

Total operating expenses

        (159,720     (147,799
     

 

 

   

 

 

 

Operating profit

        17,108        17,154   

Net finance costs

   13      (1,728     (2,160

Investment income

        9        6   

Share of profits/(losses) of associates

        80        (456
     

 

 

   

 

 

 

Profit before taxation

        15,469        14,544   

Income tax

   14      (3,747     (3,536
     

 

 

   

 

 

 

Profit for the period

        11,722        11,008   
     

 

 

   

 

 

 

Other comprehensive income for the period

       

Items that may be reclassified subsequently to profit or loss

       

Change in fair value of available-for-sale equity securities

        (342     967   

Deferred tax on change in fair value of available-for-sale equity securities

        86        (242

Exchange difference on translation of financial statements of subsidiaries outside mainland China

        37        (11

Share of other comprehensive income of associates

        6        1   
     

 

 

   

 

 

 

Other comprehensive income for the period, net of tax

        (213     715   
     

 

 

   

 

 

 

Total comprehensive income for the period

        11,509        11,723   
     

 

 

   

 

 

 

Profit attributable to

       

Equity holders of the Company

        11,673        10,980   

Non-controlling interests

        49        28   
     

 

 

   

 

 

 

Profit for the period

        11,722        11,008   
     

 

 

   

 

 

 

Total comprehensive income attributable to

       

Equity holders of the Company

        11,460        11,695   

Non-controlling interests

        49        28   
     

 

 

   

 

 

 

Total comprehensive income for the period

        11,509        11,723   
     

 

 

   

 

 

 

Basic earnings per share

   16      0.14        0.14   
     

 

 

   

 

 

 

Number of shares (in millions)

   16      80,932        80,932   
     

 

 

   

 

 

 

The notes on pages 15 to 33 form part of these interim financial statements.

 

 

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Table of Contents

Consolidated Statement of Changes in Equity (Unaudited)

for the six-month period ended 30 June 2016

(Amounts in millions)

 

            Attributable to equity holders of the Company              
     Note      Share
capital
RMB
     Capital
reserve
RMB
    Share
premium
RMB
     Statutory
reserves
RMB
     Other
reserves
RMB
    Exchange
reserve
RMB
    Retained
earnings
RMB
    Total
RMB
    Non-
controlling
interests
RMB
    Total
equity
RMB
 

Balance as at 1 January 2015

        80,932         17,064        10,746         69,072         384        (941     111,926        289,183        925        290,108   

Profit for the period

        —           —          —           —           —          —          10,980        10,980        28        11,008   

Other comprehensive income

        —           —          —           —           726        (11     —          715        —          715   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

        —           —          —           —           726        (11     10,980        11,695        28        11,723   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition of non-controlling interests

        —           (1     —           —           —          —          —          (1     (6     (7

Contribution from non-controlling interests

        —           87        —           —           —          —          —          87        40        127   

Dividends

     15         —           —          —           —           —          —          (6,160     (6,160     —          (6,160
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 30 June 2015

        80,932         17,150        10,746         69,072         1,110        (952     116,746        294,804        987        295,791   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 1 January 2016

        80,932         17,150        10,746         70,973         876        (812     123,919        303,784        967        304,751   

Profit for the period

        —           —          —           —           —          —          11,673        11,673        49        11,722   

Other comprehensive income

        —           —          —           —           (250     37        —          (213     —          (213
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

        —           —          —           —           (250     37        11,673        11,460        49        11,509   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution from non-controlling interests

        —           34        —           —           —          —          —          34        (3     31   

Distribution to non-controlling interests

        —           —          —           —           —          —          —          —          (2     (2

Dividends

     15         —           —          —           —           —          —          (6,489     (6,489     —          (6,489
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 30 June 2016

        80,932         17,184        10,746         70,973         626        (775     129,103        308,789        1,011        309,800   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The notes on pages 15 to 33 form part of these interim financial statements.

 

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Table of Contents

Consolidated Statement of Cash Flows (Unaudited)

for the six-month period ended 30 June 2016

(Amounts in millions)

 

           Six-month period ended 30 June  
     Note     2016
RMB
    2015
RMB
 

Net cash from operating activities

     (a)        46,348        54,412   
    

 

 

   

 

 

 

Cash flows used in investing activities

      

Capital expenditure

       (36,032     (37,123

Purchase of investments

     (b)        (3,099     (1

Lease prepayments

       (19     (90

Proceeds from disposal of property, plant and equipment

       558        243   

Proceeds from disposal of lease prepayments

       1        —     

Purchase of short-term bank deposits

       (1,552     (2,114

Maturity of short-term bank deposits

       1,343        1,325   
    

 

 

   

 

 

 

Net cash used in investing activities

       (38,800     (37,760
    

 

 

   

 

 

 

Cash flows used in financing activities

      

Principal element of finance lease payments

       (26     —     

Proceeds from bank and other loans

       59,378        20,568   

Repayments of bank and other loans

       (68,742     (36,471

Payment for the acquisition of non-controlling interests

       —          (7

Contribution from non-controlling interests

       31        127   

Distribution to non-controlling interests

       (2     (70
    

 

 

   

 

 

 

Net cash used in financing activities

       (9,361     (15,853
    

 

 

   

 

 

 

Net (decrease)/increase in cash and cash equivalents

       (1,813     799   

Cash and cash equivalents at 1 January

       31,869        20,436   

Effect of changes in foreign exchange rate

       20        (7
    

 

 

   

 

 

 

Cash and cash equivalents at 30 June

       30,076        21,228   
    

 

 

   

 

 

 

The notes on pages 15 to 33 form part of these interim financial statements.

 

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Table of Contents

Consolidated Statement of Cash Flows (Unaudited)

for the six-month period ended 30 June 2016

(Amounts in millions)

 

  (a) Reconciliation of profit before taxation to net cash from operating activities

 

     Six-month period ended 30 June  
     2016
RMB
     2015
RMB
 

Profit before taxation

     15,469         14,544   

Adjustments for:

     

Depreciation and amortisation

     33,447         33,585   

Impairment losses for doubtful debts

     1,313         1,471   

Write down of inventories

     61         37   

Investment income

     (9      (6

Share of (profits)/losses of associates

     (80      456   

Interest income

     (170      (164

Interest expense

     1,899         2,362   

Net foreign exchange gain

     (1      (38

Net loss on retirement and disposal of long-lived assets

     991         1,865   
  

 

 

    

 

 

 

Operating profit before changes in working capital

     52,920         54,112   

Increase in accounts receivable

     (9,235      (7,567

Decrease in inventories

     1,058         625   

Increase in prepayments and other current assets

     (2,066      (2,076

Decrease/(increase) in other assets

     122         (151

Increase in accounts payable

     3,070         6,523   

Increase in accrued expenses and other payables

     5,614         8,259   

Decrease in deferred revenues

     (245      (226
  

 

 

    

 

 

 

Cash generated from operations

     51,238         59,499   

Interest received

     182         176   

Interest paid

     (1,934      (2,385

Investment income received

     1         —     

Income tax paid

     (3,139      (2,878
  

 

 

    

 

 

 

Net cash from operating activities

     46,348         54,412   
  

 

 

    

 

 

 

 

  (b) The Company sold certain telecommunications towers and related assets (“Tower Assets”) to China Tower Corporation Limited (“China Tower”) (hereinafter referred to as “Tower Assets Disposal”) and injected cash amounting to RMB2,966 million (“Cash Consideration”) to China Tower, in return for new shares issued by China Tower. The Tower Assets Disposal was completed on 31 October 2015, and the Cash Consideration was paid in February 2016.

The notes on pages 15 to 33 form part of these interim financial statements.

 

14


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

1. Principal Activities

China Telecom Corporation Limited (the “Company”) and its subsidiaries (hereinafter, collectively referred to as the “Group”) offers a comprehensive range of wireline and mobile telecommunications services including wireline voice, mobile voice, Internet, telecommunications network resource services and lease of network equipment, value-added services, integrated information application services and other related services. The Group provides wireline telecommunications services and related services in Beijing Municipality, Shanghai Municipality, Guangdong Province, Jiangsu Province, Zhejiang Province, Anhui Province, Fujian Province, Jiangxi Province, Guangxi Zhuang Autonomous Region, Chongqing Municipality, Sichuan Province, Hubei Province, Hunan Province, Hainan Province, Guizhou Province, Yunnan Province, Shaanxi Province, Gansu Province, Qinghai Province, Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region of the People’s Republic of China (the “PRC”). Following the acquisition of Code Division Multiple Access (“CDMA”) mobile telecommunications business in October 2008, the Group also provides mobile telecommunications and related services in the mainland China and Macau Special Administrative Region (“Macau”) of the PRC. The Group also provides international telecommunications services, including lease of network equipment, International Internet access and transit, and Internet data centre service in certain countries of the Asia Pacific, Europe, Africa, South America and North America regions. The operations of the Group in the mainland China are subject to the supervision and regulation by the PRC government.

 

2. 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 Appendix 16 to 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 23 August 2016, reflect the unaudited financial position of the Group as at 30 June 2016 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 2016.

These interim financial statements are prepared on the historical cost basis as modified by the revaluation of certain available-for-sale equity securities at fair value.

Except as described below, these interim financial statements have been prepared in accordance with the same accounting policies adopted in the 2015 annual financial statements of the Group.

 

 

15


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

2. Basis of Preparation (continued)

 

In the current interim period, the Group has applied, for the first time, the following amendments to International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board that are mandatorily effective for the current period:

Amendments to IFRS 11, “Accounting for Acquisitions of Interests in Joint Operations”

Amendments to IAS 1, “Disclosure Initiative”

Amendments to IAS 16 and IAS 38, “Clarification of Acceptable Methods of Depreciation and Amortisation”

Amendments to IFRSs, “Annual Improvements to IFRSs 2012–2014 Cycle”

Amendments to IAS 16 and IAS 41, “Agriculture: Bearer Plants”

Amendments to IFRS 10, IFRS 12 and IAS 28, “Investment Entities: Applying the Consolidation Exception”

The application of the above amendments to IFRSs has had no material effect on the Group’s interim financial statements.

The preparation of interim financial statements in conformity with IAS 34, “ Interim Financial Reporting ” requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

These interim financial statements contain consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2015 annual financial statements. The interim financial statements and notes thereon do not include all of the information required for a full set of financial statements prepared in accordance with IFRSs.

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 independent auditor in accordance with Hong Kong Standard 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.

The financial information relating to the financial year ended 31 December 2015 that is included in these interim financial statements as being previously reported does not constitute the Group’s statutory financial statements for that financial year but is derived from those financial statements. The statutory financial statements for the year ended 31 December 2015 are available from the Company’s registered office. The Company’s international independent auditor has expressed an unqualified opinion on those financial statements in the report dated 23 March 2016.

 

16


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

3. Segmental Reporting

An operating segment is a component of an entity that engages in business activities from which revenues are earned and expenses are incurred, and is identified on the basis of the internal financial reports that are regularly reviewed by the chief operating decision maker in order to allocate resources and assess performance of the segment. For the periods presented, management has determined that the Group has one operating segment as the Group is only engaged in the integrated telecommunications business. The Group’s assets located outside mainland China and operating revenues derived from activities outside mainland China are less than 10% of the Group’s assets and operating revenues, respectively. No geographical area information has been presented as such amount is immaterial. No single external customer accounts for 10 percent or more of the Group’s operating revenues.

 

4. Accounts Receivable, Net

Accounts receivable, net, are analysed as follows:

 

     Note      30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Third parties

        31,161         22,766   

China Telecom Group

     (i)         905         492   

China Tower

        6         —     

Other telecommunications operators in the PRC

        1,204         782   
     

 

 

    

 

 

 
        33,276         24,040   

Less: Allowance for doubtful debts

        (4,199      (2,935
     

 

 

    

 

 

 
        29,077         21,105   
     

 

 

    

 

 

 

Note:

 

(i) China Telecommunications Corporation together with its subsidiaries other than the Group are referred to as “China Telecom Group”.

 

17


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

4. Accounts Receivable, Net (continued)

 

Ageing analysis of accounts receivable from telephone and Internet subscribers based on the billing dates is as follows:

 

     30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Current, within 1 month

     10,818         10,001   

1 to 3 months

     3,273         2,181   

4 to 12 months

     2,279         1,821   

More than 12 months

     1,574         731   
  

 

 

    

 

 

 
     17,944         14,734   

Less: Allowance for doubtful debts

     (3,548      (2,393
  

 

 

    

 

 

 
     14,396         12,341   
  

 

 

    

 

 

 

Ageing analysis of accounts receivable from other telecommunications operators and enterprise customers based on dates of rendering of services is as follows:

 

     30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Current, within 1 month

     5,191         3,648   

1 to 3 months

     3,962         1,618   

4 to 12 months

     4,063         2,199   

More than 12 months

     2,116         1,841   
  

 

 

    

 

 

 
     15,332         9,306   

Less: Allowance for doubtful debts

     (651      (542
  

 

 

    

 

 

 
     14,681         8,764   
  

 

 

    

 

 

 

 

18


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

5. Cash and Cash Equivalents

 

     30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Cash at bank and in hand

     28,560         30,916   

Time deposits with original maturity within three months

     1,516         953   
  

 

 

    

 

 

 
     30,076         31,869   
  

 

 

    

 

 

 

 

6. Short-term and Long-term Debt and Payable

Short-term debt comprises:

 

     30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Loans from banks – unsecured

     4,910         5,361   

Super short-term commercial papers – unsecured

     18,197         33,995   

Other loans – unsecured

     182         182   

Loans from China Telecom Group – unsecured

     12,023         12,098   
  

 

 

    

 

 

 

Total short-term debt

     35,312         51,636   
  

 

 

    

 

 

 

The weighted average interest rate of the Group’s total short-term debt as at 30 June 2016 was 3.2% (31 December 2015: 3.1%) per annum. As at 30 June 2016, the Group’s loans from banks and other loans bear interest at rates ranging from 3.9% to 5.1% (31 December 2015: 3.9% to 5.6%) per annum, and are repayable within one year; super short-term commercial papers bear interest at rates ranging from 2.4% to 2.5% (31 December 2015: 2.1% to 3.0%) per annum, and are repayable by September 2016; the loans from China Telecom Group bear interest at rates from 3.5% to 4.5% (31 December 2015: 3.5% to 4.5%) per annum and are repayable within one year.

 

19


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

6. Short-term and Long-term Debt and Payable (continued)

 

Long-term debt and payable comprises:

 

     Note      30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Loans from banks – unsecured

     (i)         9,012         3,203   

Other loans – unsecured

     (i)         1         1   

Amounts due to China Telecommunications

        

Corporation – unsecured

        

Deferred consideration of Mobile Network Acquisition

     (ii)         61,710         61,710   
     

 

 

    

 

 

 

Total long-term debt and payable

        70,723         64,914   

Less: current portion

        (153      (84
     

 

 

    

 

 

 

Non-current portion

        70,570         64,830   
     

 

 

    

 

 

 

Note:

 

(i) The loans from banks includes long-term RMB denominated government loans with below-market interest rates ranging from 1.08% to 1.20% per annum obtained by the Group through banks. The Group recognised the loans at their fair value on initial recognition, and accreted the discount to profit or loss using the effective interest rate method. The difference between the fair value and face value of the loans was recognised as government grants in deferred revenue.

As at 30 June 2016, the loans from banks and other loans bear interest at rates ranging from 1.00% to 8.30% (31 December 2015: 1.00% to 8.30%) per annum with maturity through 2060.

 

(ii) Represents the remaining balance of the deferred consideration payable to China Telecommunications Corporation in respect of the acquisition of certain CDMA network assets and associated liabilities, which were held by China Telecommunications Corporation through network branches located in 30 provinces, municipalities and autonomous regions in the PRC (hereinafter referred to as the “Mobile Network Acquisition”). The Company may, from time to time, pay all or part of the deferred payment at any time after the completion date without penalty until the fifth anniversary of the completion date of the Mobile Network Acquisition. The Company pays interest on the deferred payment to China Telecommunications Corporation at half-yearly intervals and the interest accrues from the day following the completion of the Mobile Network Acquisition. The interest rate is set at a 5 basis points premium to the yield of the 5-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors before the completion date of the Mobile Network Acquisition and will be adjusted once a year in accordance with the last yield of the 5-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors at the end of each year. The annual interest rates for 2015 and 2016 are 5.11% and 4.00%, respectively.

If the amount is not paid when due, the Company is required to pay the liquidated damages on such amount at a daily rate of 0.03% of the amount in arrears from the day following the applicable due date to the date that such amount has actually been paid in full.

The Group’s short-term and long-term debt and payable do not contain any financial covenants. As at 30 June 2016, the Group had unutilised committed credit facilities amounting to RMB126,857 million (31 December 2015: RMB128,839 million).

 

20


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

7. Accounts Payable

Accounts payable are analysed as follows:

 

     30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Third parties

     95,753         95,305   

China Telecom Group

     19,576         18,702   

China Tower

     9,915         3,272   

Other telecommunications operators in the PRC

     868         776   
  

 

 

    

 

 

 
     126,112         118,055   
  

 

 

    

 

 

 

Amounts due to China Telecom Group are payable in accordance with contractual terms which are similar to those terms offered by third parties.

Ageing analysis of accounts payable based on the due dates is as follows:

 

     30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Due within 1 month or on demand

     26,964         21,486   

Due after 1 month but within 3 months

     19,991         18,624   

Due after 3 months but within 6 months

     22,667         19,430   

Due after 6 months

     56,490         58,515   
  

 

 

    

 

 

 
     126,112         118,055   
  

 

 

    

 

 

 

 

21


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

8. Deferred Tax Assets and Liabilities

The components of deferred tax assets and deferred tax liabilities recognised in the consolidated statement of financial position and the movements are as follows:

 

     Assets      Liabilities     Net Balance  
     30 June
2016
RMB millions
     31 December
2015
RMB millions
     30 June
2016
RMB millions
    31 December
2015
RMB millions
    30 June
2016
RMB millions
    31 December
2015
RMB millions
 

Provisions and impairment losses, primarily for doubtful debts

     1,590         1,291         —          —          1,590        1,291   

Property, plant and equipment and others

     2,957         3,174         (3,394     (1,605     (437     1,569   

Deferred revenues and installation costs

     154         190         (107     (130     47        60   

Available-for-sale equity securities

     —           —           (240     (326     (240     (326
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax assets/(liabilities)

     4,701         4,655         (3,741     (2,061     960        2,594   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     Balance at
1 January 2016
RMB millions
     Recognised in
consolidated
statement of
comprehensive
income
RMB millions
     Balance at
30 June 2016
RMB millions
 

Provisions and impairment losses, primarily for doubtful debts

     1,291         299         1,590   

Property, plant and equipment and others

     1,569         (2,006      (437

Deferred revenues and installation costs

     60         (13      47   

Available-for-sale equity securities

     (326      86         (240
  

 

 

    

 

 

    

 

 

 

Net deferred tax assets

     2,594         (1,634      960   
  

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

9. 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 period ended 30 June  
     Note      2016
RMB millions
     2015
RMB millions
 

Wireline voice

     (i)         13,580         15,268   

Mobile voice

     (ii)         22,839         24,889   

Internet

     (iii)         73,017         62,274   

Value-added services

     (iv)         20,839         20,128   

Integrated information application services

     (v)         13,987         13,966   

Telecommunications network resource services and lease of network equipment

     (vi)         8,928         8,667   

Others

     (vii)         23,638         19,761   
     

 

 

    

 

 

 
        176,828         164,953   
     

 

 

    

 

 

 

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 fees and 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, Colour Ring Tone, Internet data centre and Virtual Private Network services and etc.
(v) Represent primarily the aggregate amount of fees charged to customers for Best Tone information services and IT services and applications.
(vi) Represent primarily the aggregate amount of fees charged to customers for the provision of telecommunications network resource services and lease income from other domestic telecommunications operators and enterprise customers for the usage of the Group’s telecommunications networks and equipment.
(vii) Represent primarily revenue from sale, and repair and maintenance of equipment as well as the resale of mobile services (MVNO).

 

23


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

10. Network Operations and Support Expenses

Included in the Group’s network operations and support expenses are as follows:

 

     Six-month period ended 30 June  
     2016
RMB millions
     2015
RMB millions
 

Operating and maintenance

     21,768         20,713   

Utility

     6,454         5,944   

Property rental and management fee

     11,669         5,648   

Others

     4,060         4,919   
  

 

 

    

 

 

 
     43,951         37,224   
  

 

 

    

 

 

 

 

11. Personnel Expenses

Personnel expenses are attributable to the following functions:

 

     Six-month period ended 30 June  
     2016
RMB millions
     2015
RMB millions
 

Network operations and support

     19,273         18,171   

Selling, general and administrative

     9,636         9,908   
  

 

 

    

 

 

 
     28,909         28,079   
  

 

 

    

 

 

 

 

24


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

12. Other Operating Expenses

Other operating expenses consist of:

 

          Six-month period ended 30 June  
     Note    2016
RMB millions
     2015
RMB millions
 

Interconnection charges

   (i)      5,726         6,170   

Cost of goods sold

   (ii)      19,816         16,872   

Donations

        3         2   

Others

   (iii)      549         805   
     

 

 

    

 

 

 
        26,094         23,849   
     

 

 

    

 

 

 

Note:

 

(i) Interconnection charges represent amounts incurred for the use of other domestic and foreign telecommunications operators’ networks for delivery of voice and data traffic that originate from the Group’s telecommunications networks.
(ii) Cost of goods sold primarily represents cost of telecommunications equipment sold.
(iii) Others mainly include other surcharges related to VAT.

 

13. Net Finance Costs

Net finance costs comprise:

 

     Six-month period ended 30 June
     2016
RMB millions
   2015
RMB millions

Interest expense incurred

   2,110    2,517

Less: Interest expense capitalised*

   (211)    (155)
  

 

  

 

Net interest expense

   1,899    2,362

Interest income

   (170)    (164)

Foreign exchange losses

   38    11

Foreign exchange gains

   (39)    (49)
  

 

  

 

   1,728    2,160
  

 

  

 

*  Interest expense was capitalised in construction in progress at the following rates per annum

   3.3%–5.0%    3.8%–5.7%
  

 

  

 

 

25


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

14. Income Tax

Income tax in the profit or loss comprises:

 

     Six-month period ended 30 June  
     2016
RMB millions
     2015
RMB millions
 

Provision for PRC income tax

     1,967         3,922   

Provision for income tax in other tax jurisdictions

     60         28   

Deferred taxation

     1,720         (414
  

 

 

    

 

 

 
     3,747         3,536   
  

 

 

    

 

 

 

A reconciliation of the expected tax expense with the actual tax expense is as follows:

 

          Six-month period ended 30 June  
    

Note

   2016
RMB millions
     2015
RMB millions
 

Profit before taxation

        15,469         14,544   
     

 

 

    

 

 

 

Expected income tax expense at statutory tax rate of 25%

   (i)      3,867         3,636   

Differential tax rate on PRC subsidiaries’ and branches’ income

   (i)      (211      (185

Differential tax rate on other subsidiaries’ income

   (ii)      (20      (16

Non-deductible expenses

   (iii)      182         141   

Non-taxable income

   (iv)      (36      (39

Others

   (v)      (35      (1
     

 

 

    

 

 

 

Actual income tax expense

        3,747         3,536   
     

 

 

    

 

 

 

Note:

 

(i) Except for certain subsidiaries and branches which are mainly taxed at preferential rate of 15%, the provision for mainland China income tax is based on a statutory rate of 25% of the assessable income of the Company, its mainland China subsidiaries and branches as determined in accordance with the relevant income tax rules and regulations of the PRC.
(ii) Income tax provisions of the Company’s subsidiaries in Hong Kong and Macau Special Administrative Regions of the PRC, and in other countries are based on the subsidiaries’ assessable income and income tax rates applicable in the respective tax jurisdictions which range from 12% to 38%.
(iii) Amounts represent miscellaneous expenses in excess of statutory deductible limits for tax purposes.
(iv) Amounts represent miscellaneous income which are not subject to income tax.
(v) Amounts primarily represent tax deduction on prior year research and development expenses, losses on disposal of property, plant and equipment approved by tax authorities and other tax benefits.

 

26


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

15. Dividends

Pursuant to the shareholders’ approval at the Annual General Meeting held on 25 May 2016, a final dividend of RMB0.080182 (equivalent to HK$0.095) per share totaling RMB6,489 million in respect of the year ended 31 December 2015 was declared and paid on 15 July 2016.

Pursuant to the shareholders’ approval at the Annual General Meeting held on 27 May 2015, a final dividend of RMB0.076120 (equivalent to HK$0.095) per share totaling RMB6,160 million in respect of the year ended 31 December 2014 was declared and paid on 17 July 2015.

The Board of Directors has resolved not to pay an interim dividend.

 

16. Basic Earnings per Share

The calculation of basic earnings per share for the six-month period ended 30 June 2016 and 2015 is based on the profit attributable to equity holders of the Company of RMB11,673 million and RMB10,980 million, respectively, divided by 80,932,368,321 shares.

The amount of diluted earnings per share is not presented as there were no dilutive potential ordinary shares in existence for the periods presented.

 

17. Capital Commitments

As at 30 June 2016 and 31 December 2015, the Group had capital commitments as follows:

 

     30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Contracted for but not provided

     

Property

     514         403   

Telecommunications network plant and equipment

     9,039         9,745   
  

 

 

    

 

 

 
     9,553         10,148   
  

 

 

    

 

 

 

 

27


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

18. Fair Value Measurements of Financial Instruments

Financial assets of the Group include cash and cash equivalents, bank deposits, investments, accounts receivable, prepayments and other receivables. Financial liabilities of the Group include short-term and long-term debt and payable, other non-current liabilities, accounts payable, accrued expenses and other payables. The Group does not hold nor issue financial instruments for trading purposes.

Fair Value Measurements

Based on IFRS 13, Fair Value Measurement , the fair value of each financial instrument is 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:  

 

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:     fair values measured using valuation techniques in which any significant input is not based on observable market data

The fair values of the Group’s financial instruments (other than long-term debt and payable, other non-current liabilities and available-for-sale equity investment securities) approximate their carrying amounts due to the short-term maturity of these instruments.

The Group’s available-for-sale equity investment securities are categorised as level 1 financial instruments. The fair value of the Group’s available-for-sale equity investment securities is RMB1,255 million as at 30 June 2016 (31 December 2015: RMB1,597 million), based on quoted market price on PRC stock exchanges. The Group’s long-term investments, other than the available-for-sale equity investment securities, are unlisted equity interests for which no quoted market prices exist in the PRC and because their fair values cannot be measured reliably, so their fair values were not disclosed.

The fair values of long-term debt and payable and other non-current liabilities are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristics and maturities. The fair value measurement of long-term debt and payable and other non-current liabilities is categorised as level 2. The interest rates used by the Group in estimating the fair values of long-term debt and payable and other non-current liabilities, having considered the foreign currency denomination of the debt, ranged from 1.0% to 4.9% (31 December 2015: 1.0% to 4.9%). As at 30 June 2016 and 31 December 2015, the carrying amounts and fair values of the Group’s long-term debt and payable and other non-current liabilities were as follows:

 

     30 June 2016      31 December 2015  
     Carrying
amount
RMB millions
     Fair value
RMB millions
     Carrying
amount
RMB millions
     Fair value
RMB millions
 

Long-term debt and payable

     70,723         71,150         64,914         65,156   

Other non-current liabilities

     469         434         455         419   

During both periods, there were no transfers among instruments in level 1, level 2 or level 3.

 

28


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

19. Related Party Transactions

 

  (a) Transactions with China Telecom Group

The Group is a part of companies under China Telecommunications Corporation, a company owned by the PRC government, and has significant transactions and business relationships with members of China Telecom Group.

The principal transactions with China Telecom Group which were carried out in the ordinary course of business are as follows:

 

          Six-month period ended 30 June  
    

Note

   2016
RMB millions
     2015
RMB millions
 

Purchases of telecommunications equipment and materials

   (i)      2,385         2,209   

Sales of telecommunications equipment and materials

   (i)      1,415         1,606   

Construction and engineering services

   (ii)      7,742         7,830   

Provision of IT services

   (iii)      124         66   

Receiving IT services

   (iii)      394         362   

Receiving community services

   (iv)      1,200         1,147   

Receiving ancillary services

   (v)      5,985         5,556   

Property lease income

   (vi)      15         15   

Property lease expenses

   (vi)      197         297   

Net transaction amount of centralised services

   (vii)      264         224   

Interconnection revenues

   (viii)      33         30   

Interconnection charges

   (viii)      145         212   

Internet applications channel services

   (ix)      150         188   

Interest on amounts due to and loans from China Telecom Group

   (x)      1,462         2,042   

Lease of CDMA network facilities

   (xi)      64         108   

Lease of inter-provincial transmission optic fibres

   (xii)      8         10   

Lease of land use rights

   (xiii)      4         8   

Note:

 

(i) Represent the amount of telecommunications equipment and materials purchased from/sold to China Telecom Group and commission paid and payable for procurement services provided by China Telecom Group.
(ii) Represent construction and engineering as well as design and supervisory services provided by China Telecom Group.
(iii) Represent IT services provided to and received from China Telecom Group.

 

29


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

19. Related Party Transactions (continued)

 

  (a) Transactions with China Telecom Group (continued)

Note: (continued)

 

(iv) Represent amounts paid and payable to China Telecom Group in respect of cultural, educational, health care and other community services.
(v) Represent amounts paid and payable to China Telecom Group in respect of ancillary services such as repairs and maintenance of telecommunications equipment and facilities and certain customer services.
(vi) Represent amounts of property lease fee received and receivable from/paid and payable to China Telecom Group for mutual leasing of properties.
(vii) Represent net amount shared between the Company and China Telecom Group for costs associated with centralised services. The amount represents amounts received or receivable for the net amount of centralised services.
(viii) Represent amounts received and receivable from/paid and payable to China Telecom Group for interconnection of local and domestic long distance calls.
(ix) Represent amounts received and receivable from China Telecom Group in respect of Internet applications channel services, including the provision of telecommunications channel and applications support platform and billing and deduction services, etc.
(x) Represent interest paid and payable to China Telecom Group with respect to the amounts due to China Telecommunications Corporation and loans from China Telecom Group (Note 6).
(xi) Represent amounts paid and payable to China Telecom Group primarily for lease of certain CDMA mobile telecommunications network (“CDMA network”) facilities located in Xizang Autonomous Region.
(xii) Represent amounts paid and payable to China Telecom Group for lease of certain inter-provincial transmission optic fibres within its service regions.
(xiii) Represent amounts paid and payable to China Telecom Group for leases of land use rights.

Amounts due from/to China Telecom Group are summarised as follows:

 

     30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Accounts receivable

     905         492   

Prepayments and other current assets

     912         732   
  

 

 

    

 

 

 

Total amounts due from China Telecom Group

     1,817         1,224   
  

 

 

    

 

 

 

Accounts payable

     19,576         18,702   

Accrued expenses and other payables

     6,179         1,464   

Short-term debt

     12,023         12,098   

Long-term debt and payable

     61,710         61,710   
  

 

 

    

 

 

 

Total amounts due to China Telecom Group

     99,488         93,974   
  

 

 

    

 

 

 

 

30


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

19. Related Party Transactions (continued)

 

  (a) Transactions with China Telecom Group (continued)

 

Amounts due from/to China Telecom Group, other than short-term debt and long-term debt and payable, bear no interest, are unsecured and are repayable in accordance with contractual terms which are similar to those terms offered by third parties. The terms and conditions associated with short-term debt and long-term debt and payable due to China Telecom Group are set out in Note 6.

As at 30 June 2016 and 31 December 2015, no material allowance for doubtful debts was recognised in respect of amounts due from China Telecom Group.

 

  (b) Transactions with China Tower

The principal transactions with China Tower are as follows:

 

          Six-month period ended 30 June  
     Note    2016
RMB millions
     2015
RMB millions
 

Tower assets lease fee

   (i)      6,922         —     

Provision of IT services

   (ii)      6         —     

Note:

 

(i) Represent amounts paid and payable to China Tower for the lease of telecommunications towers and related assets.

Upon completion of the Tower Assets Disposal, the Company and China Tower entered into an agreement on 8 July 2016 to finally confirm the pricing and related arrangements in relation to the lease of telecommunications towers and related assets (including the “Tower Assets” and the tower products newly built by China Tower). The respective provincial branches of the Company and China Tower will enter into provincial service agreements in accordance with the actual demand for services. The service periods of these respective agreements are five years.

 

(ii) Represent IT services provided to China Tower.

 

31


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

19. Related Party Transactions (continued)

 

  (b) Transactions with China Tower (continued)

 

Amounts due from/to China Tower are summarised as follows:

 

     30 June
2016
RMB millions
     31 December
2015
RMB millions
 

Accounts Receivable

     6         —     

Prepayments and other current assets

     1,906         1,789   
  

 

 

    

 

 

 

Total amounts due from China Tower

     1,912         1,789   
  

 

 

    

 

 

 

Accounts payable

     9,915         3,272   

Accrued expenses and other payables

     178         3,097   
  

 

 

    

 

 

 

Total amounts due to China Tower

     10,093         6,369   
  

 

 

    

 

 

 

Amounts due from/to China Tower bear no interest, are unsecured and are repayable in accordance with contractual terms which are similar to those terms offered by third parties.

As at 30 June 2016 and 31 December 2015, no material allowance for doubtful debts was recognised in respect of amounts due from China Tower.

 

  (c) Key management personnel compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group.

Key management personnel compensation of the Group is summarised as follows:

 

     Six-month period ended 30 June  
     2016
RMB thousands
     2015
RMB thousands
 

Short-term employee benefits

     3,171         2,970   

Post-employment benefits

     392         461   
  

 

 

    

 

 

 
     3,563         3,431   
  

 

 

    

 

 

 

 

32


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2016

 

19. Related Party Transactions (continued)

 

  (d) Contributions to post-employment benefit plans

As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by municipal, autonomous regional and provincial governments for its employees. The Group is required to make contributions to the retirement plans at rates ranging from 14% to 21% of the salaries, bonuses and certain allowances of the employees. A member of the plan is entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. Other than the above, the Group also participates in supplementary defined contribution retirement plans managed by independent external parties whereby the Group is required to make contributions to the retirement plans at fixed rates of the employees’ salaries, bonuses and certain allowances. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above.

The Group’s contributions for the above plans for the six-month period ended 30 June 2016 were RMB3,198 million (six-month period ended 30 June 2015: RMB2,998 million).

The amount payable for contributions to the above defined contribution retirement plans as at 30 June 2016 was RMB748 million (31 December 2015: RMB791 million).

 

  (e) Transactions with other government-related entities in the PRC

The Group is a government-related enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the People’s Republic of China through government authorities, agencies, affiliations and other organisations (collectively referred to as “government-related entities”).

Apart from transactions with parent company and its fellow subsidiaries (Note 19(a)), the Group has transactions that are collectively but not individually significant with other government-related entities, which include but not limited to the following:

 

    rendering and receiving services, including but not limited to telecommunications services

 

    sales and purchases of goods, properties and other assets

 

    lease of assets

 

    depositing and borrowing

 

    use of public utilities

These transactions are conducted in the ordinary course of the Group’s business on terms comparable to the terms of transactions with other entities that are not government-related. The Group prices its telecommunications services and products based on government-regulated tariff rates, where applicable, or based on commercial negotiations. The Group has also established procurement policies and approval processes for purchases of products and services, which do not depend on whether the counterparties are government-related entities or not.

The directors of the Company believe the above information provides appropriate disclosure of related party transactions.

 

33


Table of Contents

Other Information

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 2015 Annual Report.

Purchase, Sale or Redemption of Securities

During the six-month period ended 30 June 2016, 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 2016, none of the Directors or Supervisors of the Company had any interests or short positions in any shares, underlying shares of equity derivatives or debentures of the Company or its associated corporations (as defined in 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 maintained 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 2016, 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 of Directors and Supervisors since the Date of the 2015 Annual Report

The changes in the information relating to the Directors and Supervisors since the date of the Company’s 2015 Annual Report are set out below:

On 25 April 2016, the Executive Director of the Company, Mr. Yang Jie was appointed as the Chairman and Chief Executive Officer of the Company. On the same day, he no longer held the offices of the President and Chief Operating Officer of the Company.

On 25 April 2016, the Executive Director of the Company, Mr. Yang Xiaowei was appointed as the President and Chief Operating Officer of the Company. On the same day, he no longer held the office of the Executive Vice President of the Company.

On 10 May 2016, Mr. Zhu Wei resigned from his position as a Non-Executive Director of the Company due to change in work arrangement.

On 19 August 2016, Mr. Zhang Jiping retired from his positions as an Executive Director and Executive Vice President of the Company due to his age.

Save as stated above, there is no other information of 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) .

 

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Other Information

 

Material Interests and Short Positions in Shares and Underlying Shares of the Company

As at 30 June 2016, 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 Shareholders

  

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.

   1,668,882,703 (Long position)    H shares      12.02     2.06  

348,035,935 shares as beneficial owner; 248,602,000 shares as investment manager; 10,700 shares as trustee (other than a bare trustee) and 1,072,234,068 shares as custodian corporation/ approved lending agent

  

 

54,101,278 (Short position)

  

 

H shares

  

 

 

 

0.38

 

 

 

 

 

0.07

 

 

 

Beneficial owner

  

 

1,072,234,068 (Shares available for lending)

  

 

H shares

  

 

 

 

7.72

 

 

 

 

 

1.32

 

 

 

Custodian corporation/ approved lending agent

BlackRock, Inc.

   967,847,607 (Long position)    H shares      6.97     1.20  

Interest of controlled corporation

   2,200,000
(Short position)
   H shares      0.02     0.00  

Interest of controlled corporation

 

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Other Information

 

Name of Shareholders

   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

The Bank of New York Mellon Corporation

    

 

 

834,090,669

(Long position

 

  

 

  H shares      6.01     1.03  

Interest of controlled corporation

 

    

 

 

805,835,485

(Shares available

for lending

  

  

  H shares      5.81     1.00  

Interest of controlled corporation

Citigroup Inc.

    

 

753,487,404

(Long position

  

  H shares      5.42     0.93  

36,425,608 shares as Interest of controlled corporation; 717,061,796 shares as custodian corporation/ approved lending agent

  

 

 

 

 

21,742,064

(Short position

 

  

 

 

H shares

  

 

 

 

0.15

 

 

 

 

 

0.03

 

 

 

Interest of controlled corporation

  

 

 

 

 

 

717,061,796

(Shares available

for lending

 

  

  

 

 

H shares

  

 

 

 

5.16

 

 

 

 

 

0.89

 

 

 

Custodian corporation/ approved lending agent

Save as disclosed above, as at 30 June 2016, 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, Deloitte Touche Tohmatsu, 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 2016.

 

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Other Information

 

Compliance with the Corporate Governance Code

The Company attaches 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 roles of Chairman and Chief Executive Officer of the Company were performed by the same individual, for the six-month period ended 30 June 2016. In the Company’s opinion, through supervision of the Board of Directors 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.

Save as stated above, the Company has been in compliance with all the code provisions under the Corporate Governance Code as set out in Appendix 14 of the Listing Rules throughout the six-month period ended 30 June 2016.

Compliance with the Model Code for Securities Transactions by Directors and Supervisors

The Company has adopted the Model Code as set out in Appendix 10 of the Listing Rules to govern securities transactions by Directors and Supervisors. Further to the specific enquiries made by the Company to Directors and Supervisors, they have confirmed their compliance with the Model Code throughout the period from 1 January 2016 to 30 June 2016.

 

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