Form
20-F
|
ü
|
Form
40-F
|
||||
Yes
|
No
|
ü
|
||||
By
|
/s/
Huo Haifeng
|
||
By
|
/s/
Mok Kam Wan
|
||
Name:
|
Huo
Haifeng and Mok Kam Wan
|
||
Title:
|
Joint
Company Secretaries
|
||
Date:
September 1, 2008
|
Chairman's
Statement
|
1
|
Independent
Review Report
|
4
|
Interim
Financial Statements
|
|
Unaudited
Consolidated Condensed Income Statement
|
5
|
Unaudited
Consolidated Condensed Balance Sheet
|
7
|
Unaudited
Consolidated Condensed Statement of Changes in Equity
|
9
|
Unaudited
Consolidated Condensed Statement of Cash Flows
|
11
|
Notes
to the Interim Financial Statements
|
12
|
Supplementary
Information for American Depositary Share Holders
|
50
|
Other
Information
|
53
|
Six
months ended June 30
|
||||||||||||
Note
|
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||||||||||
Continuing
operations:
|
||||||||||||
Revenues
|
4
|
41,125 | 41,535 | |||||||||
Depreciation
and amortisation
|
5
|
(12,964 | ) | (12,620 | ) | |||||||
Networks,
operations and support
|
5
|
(6,396 | ) | (6,645 | ) | |||||||
Staff
costs
|
5
|
(6,202 | ) | (5,732 | ) | |||||||
Selling,
general and administrative
|
5
|
(4,520 | ) | (4,863 | ) | |||||||
Other
operating expenses
|
5
|
(2,376 | ) | (1,721 | ) | |||||||
Other
operating income
|
23
|
752 | 210 | |||||||||
Operating
profit before interest income
|
9,419 | 10,164 | ||||||||||
Interest
income
|
34 | 67 | ||||||||||
Profit
from operations
|
9,453 | 10,231 | ||||||||||
Finance
costs
|
6
|
(1,292 | ) | (1,770 | ) | |||||||
Profit
before taxation
|
8,161 | 8,461 | ||||||||||
Taxation
|
7
|
(1,779 | ) | (2,355 | ) | |||||||
Profit
for the period from continuing operations
|
6,382 | 6,106 |
Six
months ended June 30
|
|||
Note
|
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
|
Discontinued
operations:
|
|||
Profit
for the period from discontinued operations
|
17
|
—
|
624
|
Profit
for the period attributable to shareholders of the Company
|
6,382
|
6,730
|
|
Earnings
per share for profit from continuing operations
|
|||
attributable
to shareholders of the Company for the period
|
|||
-
Basic earnings per share
|
9
|
0.95
|
0.92
|
-
Diluted earnings per share
|
9
|
0.94
|
0.91
|
Earnings
per share for profit from discontinued operations
|
|||
attributable
to shareholders of the Company for the period
|
|||
-
Basic earnings per share
|
9
|
—
|
0.09
|
-
Diluted earnings per share
|
9
|
—
|
0.09
|
Earnings
per share for profit attributable to
|
|||
shareholders
of the Company for the period
|
|||
-
Basic earnings per share
|
9
|
0.95
|
1.01
|
-
Diluted earnings per share
|
9
|
0.94
|
1.00
|
Note
|
As
at
June
30
2008
RMB
million
Unaudited
|
As
at
December
31
2007
RMB
million
Audited
|
|
Assets
|
|||
Current
assets
|
|||
Cash
and bank deposits
|
10
|
4,686
|
5,395
|
Accounts
receivable
|
11
|
8,252
|
8,458
|
Inventories
and consumables
|
288
|
287
|
|
Prepayments,
other receivables and other current assets
|
1,196
|
1,021
|
|
Due
from holding companies and fellow subsidiaries
|
12
|
189
|
347
|
Total
current assets
|
14,611
|
15,508
|
|
Non-current
assets
|
|||
Fixed
assets
|
13
|
152,044
|
156,948
|
Construction
in progress
|
5,372
|
3,990
|
|
Lease
prepayments
|
14
|
2,474
|
2,494
|
Intangible
assets
|
15
|
1,442
|
1,552
|
Deferred
tax assets
|
2,856
|
2,693
|
|
Other
non-current assets
|
16
|
2,928
|
3,243
|
Total
non-current assets
|
167,116
|
170,920
|
|
Total
assets
|
181,727
|
186,428
|
Note
|
As
at
June
30
2008
RMB
million
Unaudited
|
As
at
December
31
2007
RMB
million
Audited
|
||||||||||
Liabilities
and equity
|
||||||||||||
Current
liabilities
|
||||||||||||
Accounts
payable
|
18
|
17,074 | 15,639 | |||||||||
Accruals
and other payables
|
3,124 | 2,950 | ||||||||||
Short-term
commercial paper
|
19(a)(i)
|
— | 20,000 | |||||||||
Short-term
bank loans
|
19(a)(ii)
|
30,328 | 11,850 | |||||||||
Current
portion of long-term bank and other loans
|
19(b)
|
4,723 | 5,322 | |||||||||
Due
to holding companies and fellow subsidiaries
|
12
|
4,531 | 4,598 | |||||||||
Current
portion of deferred revenues
|
20
|
6,865 | 7,103 | |||||||||
Current
portion of provisions
|
3,361 | 3,381 | ||||||||||
Taxation
payable
|
1,895 | 3,750 | ||||||||||
Total
current liabilities
|
71,901 | 74,593 | ||||||||||
Net
current liabilities
|
(57,290 | ) | (59,085 | ) | ||||||||
Total
assets less current liabilities
|
109,826 | 111,835 | ||||||||||
Non-current
liabilities
|
||||||||||||
Long-term
bank and other loans
|
19(b)
|
12,861 | 14,425 | |||||||||
Corporate
bonds
|
19(c)
|
2,000 | 2,000 | |||||||||
Due
to holding companies and fellow subsidiaries
|
12
|
3,318 | 6,169 | |||||||||
Deferred
revenues
|
20
|
3,604 | 4,314 | |||||||||
Provisions
|
2,043 | 2,007 | ||||||||||
Deferred
tax liabilities
|
819 | 856 | ||||||||||
Other
non-current liabilities
|
15 | 12 | ||||||||||
Total
non-current liabilities
|
24,660 | 29,783 | ||||||||||
Total
liabilities
|
96,561 | 104,376 | ||||||||||
Financed
by:
|
||||||||||||
Share
capital
|
21
|
2,213 | 2,206 | |||||||||
Reserves
|
82,953 | 79,846 | ||||||||||
Shareholders'
equity
|
85,166 | 82,052 | ||||||||||
Total
liabilities and equity
|
181,727 | 186,428 |
Attributable
to shareholders of the company (unaudited)
|
||||||||||||||||||||||||||||||||
Share
capital
RMB
million
Note
21
|
Share
premium
RMB
million
|
Capital
reserve
RMB
million
|
Statutory
reserve
RMB
million
|
Revaluation
reserve
RMB
million
|
Other
reserve
RMB
million
|
Retained
earnings
RMB
million
|
Total
equity
RMB
million
|
|||||||||||||||||||||||||
Balance as at
January 1, 2008
|
2,206 | 43,538 | 417 | 14,196 | 897 | (6,157 | ) | 26,955 | 82,052 | |||||||||||||||||||||||
Transfers to
statutory reserve (Note 8(iii))
|
— | — | — | 505 | — | — | (505 | ) | — | |||||||||||||||||||||||
Transfers to
retained earnings in respect of
|
||||||||||||||||||||||||||||||||
depreciation
difference on revalued assets
|
— | — | — | — | (1,012 | ) | (34 | ) | 1,046 | — | ||||||||||||||||||||||
Currency
translation differences
|
— | — | — | — | — | (19 | ) | — | (19 | ) | ||||||||||||||||||||||
Net
income/(expense)
|
||||||||||||||||||||||||||||||||
recognised
directly in equity
|
— | — | — | 505 | (1,012 | ) | (53 | ) | 541 | (19 | ) | |||||||||||||||||||||
Profit for the
period
|
— | — | — | — | — | — | 6,382 | 6,382 | ||||||||||||||||||||||||
Total income
recognised for the period
|
— | — | — | 505 | (1,012 | ) | (53 | ) | 6,923 | 6,363 | ||||||||||||||||||||||
Dividends for
2007 distributed
|
||||||||||||||||||||||||||||||||
during
the period (Note 8(i))
|
— | — | — | — | — | — | (3,499 | ) | (3,499 | ) | ||||||||||||||||||||||
Issue of
shares upon exercise of
|
||||||||||||||||||||||||||||||||
share
options (Note 21)
|
7 | 260 | (33 | ) | — | — | — | — | 234 | |||||||||||||||||||||||
Share-based
compensation (Note 22)
|
— | — | 16 | — | — | — | — | 16 | ||||||||||||||||||||||||
Balance as at
June 30, 2008
|
2,213 | 43,798 | 400 | 14,701 | (115 | ) | (6,210 | ) | 30,379 | 85,166 |
Attributable
to shareholders of the company (unaudited)
|
||||||||||||||||||||||||||||||||
Share
capital
RMB
million
Note
21
|
Share
premium
RMB
million
|
Capital
reserve
RMB
million
|
Statutory
reserve
RMB
million
|
Revaluation
reserve
RMB
million
|
Other
reserve
RMB
million
|
Retained
earnings
RMB
million
|
Total
equity
RMB
million
|
|||||||||||||||||||||||||
Balance as at
January 1, 2007
|
2,199 | 43,295 | 389 | 11,811 | 2,886 | (5,095 | ) | 18,709 | 74,194 | |||||||||||||||||||||||
Transfers to
statutory reserve (Note 8(iii))
|
— | — | — | 855 | — | — | (855 | ) | — | |||||||||||||||||||||||
Transfers to
retained earnings in respect
|
||||||||||||||||||||||||||||||||
of
depreciation difference on
revalued assets
|
— | — | — | — | (1,016 | ) | (50 | ) | 1,066 | — | ||||||||||||||||||||||
Transfers to
retained earnings
in respect
|
||||||||||||||||||||||||||||||||
of
revaluation reserve relating to disposal of
|
||||||||||||||||||||||||||||||||
Guangdong
and Shanghai branches
|
— | — | — | — | (69 | ) | 20 | 49 | — | |||||||||||||||||||||||
Movement of
deferred tax upon changes
|
||||||||||||||||||||||||||||||||
in
statutory taxation rate
|
— | — | — | — | 111 | (664 | ) | — | (553 | ) | ||||||||||||||||||||||
Currency
translation differences
|
— | — | — | — | — | (7 | ) | — | (7 | ) | ||||||||||||||||||||||
Net
income/(expense) recognised
directly in equity
|
— | — | — | 855 | (974 | ) | (701 | ) | 260 | (560 | ) | |||||||||||||||||||||
Profit for the
period
|
— | — | — | — | — | — | 6,730 | 6,730 | ||||||||||||||||||||||||
Total income
recognised for the period
|
— | — | — | 855 | (974 | ) | (701 | ) | 6,990 | 6,170 | ||||||||||||||||||||||
Dividends for
2006 distributed
|
||||||||||||||||||||||||||||||||
during
the period (Note 8(i))
|
— | — | — | — | — | — | (3,600 | ) | (3,600 | ) | ||||||||||||||||||||||
Issue of
shares upon exercise of
share
options
|
2 | 62 | (9 | ) | — | — | — | — | 55 | |||||||||||||||||||||||
Share-based
compensation (Note 22)
|
— | — | 32 | — | — | — | — | 32 | ||||||||||||||||||||||||
Balance as at
June 30, 2007
|
2,201 | 43,357 | 412 | 12,666 | 1,912 | (5,796 | ) | 22,099 | 76,851 |
Six
months ended June 30
|
||||||||||||
Note
|
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||||||||||
Continuing
operations:
|
||||||||||||
Net
cash inflow from operating activities
|
15,955 | 16,559 | ||||||||||
Net
cash outflow from investing activities
|
(7,464 | ) | (7,049 | ) | ||||||||
Net
cash outflow from financing activities
|
(9,193 | ) | (16,155 | ) | ||||||||
Net
cash (outflow)/inflow from continuing operations
|
(702 | ) | (6,645 | ) | ||||||||
Net
cash inflow from discontinued operations
|
17
|
— | 3,491 | |||||||||
Decrease
in cash and cash equivalents
|
(702 | ) | (3,154 | ) | ||||||||
Cash
and cash equivalents at beginning of period
|
5,304 | 7,623 | ||||||||||
Cash
and cash equivalents at end of period
|
10
|
4,602 | 4,469 |
1.
|
The
Group and its principal activities
|
·
|
Fixed
line voice and value-added services,
comprising:
|
(a)
|
Local,
domestic long distance and international long distance
services;
|
(b)
|
Value-added
services, including caller identity, telephone information services;
and
|
(c)
|
Interconnection
services provided to other domestic telecommunications operators including
the fellow subsidiary owned by China Netcom Group operating outside the
ten service regions;
|
·
|
Broadband
services and other Internet-related
services;
|
·
|
Information
Communications Technology Services, including system integration, software
services, outsourcing services, professional consulting services,
professional services related with network information and disaster
recovery, and other integrated solutions to client based on information
and communications industry;
|
·
|
Business
and data communications services, including managed data services and
leased line services; and
|
·
|
Advertising
and media services.
|
2.
|
Basis
of presentation
|
(a)
|
These
unaudited consolidated condensed financial statements (the "interim
financial statements") have been prepared in accordance with Hong Kong
Accounting Standard ("HKAS") 34, "Interim Financial Reporting" issued by
the Hong Kong Institute of Certified Public Accountants (the "HKICPA") and
the disclosure requirements of the Hong Kong Companies Ordinance and the
Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited.
|
(b)
|
A
significant percentage of the Group's funding requirements is achieved
through short term borrowings. Consequently, the balance sheet indicates a
significant working capital deficit. In the past, a substantial portion of
the Group's short term borrowings have been rolled over upon maturity.
Based on the Group's history of obtaining financing, its relationships
with its bankers and its operating performance, the directors consider
that the Group will continue to be able to roll over such short term
financing, or will be able to obtain sufficient alternative sources of
financing to enable it to operate and meet its liabilities as and when
they fall due.
|
(c)
|
On
January 15, 2007, CNC China entered into an assets transfer agreement with
China Netcom Group to dispose of its assets and liabilities relating to
its telecommunications operations in Guangdong and Shanghai branches in
the PRC and the disposal was completed on February 28, 2007. In
accordance with Hong Kong Financial Reporting Standard ("HKFRS") 5
"Non-current assets held for sales and discontinued operations" issued by
the HKICPA, the results and cash flows of the operations of Guangdong and
Shanghai branches for the six months ended June 30, 2007 have been
presented as discontinued
operations.
|
(d)
|
On
December 5, 2007, System Integration Corporation entered into an Equity
Interest Transfer Agreement with China Netcom Group Beijing Communications
Corporation, pursuant to which System Integration Corporation agreed to
acquire the entire equity interest of Beijing Telecom P&D Institute
from China Netcom Group Beijing Communications Corporation. Before the
acquisition, Beijing Telecom P&D Institute was a wholly
owned subsidiary of China Netcom Group Beijing Communications
Corporation, which is a wholly owned subsidiary of China Netcom Group.
Since China Netcom Group is the ultimate holding company of the Group, the
acquisition is a business combination under common control. Therefore, the
Group accounted for this acquisition using the pooling of interest method
according to Accounting Guideline No. 5 - Merger Accounting for Common
Control Transactions ("AG 5"). The acquired businesses and assets are
recorded at book value under HKFRS as if the businesses and assets of
Beijing Telecom P&D Institute have been owned by the Group from the
earliest comparative period presented. Accordingly, the financial
information for the six months ended June 30, 2007 has been
restated.
|
3.
|
Accounting
policies
|
·
|
HK(IFRIC)
- Int 11, 'HKFRS 2 – Group and treasury share
transactions'
|
·
|
HK(IFRIC)
- Int 12, 'Service concession
arrangements'
|
·
|
HK(IFRIC)
- Int 14, 'HKAS 19 – the limit on a defined benefit asset, minimum funding
requirements and their interaction'
|
·
|
HKFRS
8, 'Operating segments'
|
·
|
HKAS
23 (amendment), 'Borrowing costs'
|
·
|
HKFRS
2 (amendment), 'Share-based
payment'
|
·
|
HKFRS
3 (amendment), 'Business combinations' and consequential amendments to
HKAS 27, 'Consolidated and separate financial statements', HKAS 28,
'Investments in associates' and HKAS 31, 'Interests in joint
ventures'
|
·
|
HKAS
1 (amendment), 'Presentation of
financial'
|
·
|
HKAS
32 (amendment), 'Financial instruments: presentation', and consequential
amendments to HKAS 1, 'Presentation of financial
statements'
|
4.
|
Revenues
|
Six
months ended June 30
|
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||
Revenues
|
|||
Local
usage fees
|
9,072
|
10,281
|
|
Monthly
telephone services
|
5,132
|
6,697
|
|
Upfront
installation fees
|
599
|
653
|
|
DLD
usage fees
|
3,945
|
4,471
|
|
ILD
usage fees
|
356
|
411
|
|
Value-added
services
|
2,993
|
3,035
|
|
Interconnection
fees
|
3,951
|
4,203
|
|
Upfront
connection fees
|
505
|
855
|
|
Broadband
services
|
8,859
|
6,383
|
|
Other
Internet-related services
|
301
|
249
|
|
Managed
data services
|
538
|
641
|
|
Leased
line income
|
1,494
|
1,189
|
|
Information
communications technology services
|
1,882
|
1,465
|
|
Advertising
and media services
|
413
|
94
|
|
Other
services
|
1,085
|
908
|
|
Total
|
41,125
|
41,535
|
5.
|
Operating
expenses
|
Six
months ended June 30
|
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||
Staff
costs
|
6,202
|
5,732
|
|
Depreciation
and amortisation
|
12,964
|
12,620
|
|
Maintenance
costs
|
1,727
|
1,853
|
|
Taxes
|
200
|
142
|
|
Customer
installation costs
|
936
|
981
|
|
Interconnection
charges
|
1,896
|
2,004
|
|
Advertising
and promotion expenses
|
297
|
360
|
|
Sales
channel costs
|
951
|
1,041
|
|
Subscribers
acquisition and retention costs
|
397
|
985
|
|
Auditor's
remuneration
|
9
|
10
|
|
Bad
and doubtful debt expenses
|
618
|
239
|
|
Operating
leases
|
915
|
952
|
|
Cost
of hardware sold in relation to information
|
|||
communications
technology services
|
975
|
970
|
6.
|
Finance
costs
|
Six
months ended June 30
|
|||||||||
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||||||||
Interest
expenses on:
|
|||||||||
-Bank
and other loans wholly repayable within five years
|
1,252 | 1,524 | |||||||
-Bank
and other loans wholly repayable after more than five
years
|
91 | 112 | |||||||
-Deferred
consideration related to Acquisition of New Horizon
|
148 | 199 | |||||||
Total
|
1,491 | 1,835 | |||||||
Less:
Interest expenses capitalised in construction in progress
|
(68 | ) | (89 | ) | |||||
Exchange
(gain)/loss, net
|
(148 | ) | 12 | ||||||
Bank
charges
|
17 | 12 | |||||||
|
1,292 | 1,770 |
Interest
expenses were capitalised in construction
|
||||
in
progress using the following annual interest rates
|
5.2%
|
4.46%-5.49%
|
|
7.
|
Taxation
|
Six
months ended June 30
|
|||||||||
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||||||||
PRC
enterprise income tax ("EIT")
|
1,971 | 2,589 | |||||||
Overseas
profit tax
|
9 | 11 | |||||||
Deferred
taxation-continuing operations
|
(201 | ) | (194 | ) | |||||
Deferred
taxation- change in statutory taxation rate
|
— | (51 | ) | ||||||
Taxation
charges
|
1,779 | 2,355 |
7.
|
Taxation
(continued)
|
Six
months ended June 30
|
|||||||||
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||||||||
Profit
before taxation
|
8,161 | 8,461 | |||||||
Weighted
average statutory taxation rate
|
25 | % | 33 | % | |||||
Tax
calculated at the weighted average statutory taxation rate
|
2,040 | 2,792 | |||||||
Non-taxable
income (Note)
|
(265 | ) | (366 | ) | |||||
Expenses
not deductible for tax purposes
|
26 | 30 | |||||||
Change
in statutory taxation rate
|
— | (51 | ) | ||||||
Others
|
(22 | ) | (50 | ) | |||||
Taxation
charges
|
1,779 | 2,355 |
Note:
|
Non-taxable
income comprises primarily upfront connection fees charged to customers
and amortised over the customer relationship period. (Note
8(iii))
|
8.
|
Profit
distributions
|
Six
months ended June 30
|
|||||
2008
(Note (i))
|
2007
|
||||
HK$
million
|
RMB
million
|
HK$
million
|
RMB
million
|
||
Unaudited
|
Unaudited
|
Unaudited
|
Unaudited
|
||
Dividend
distributed during the period
|
3,960
|
3,499
|
3,678
|
3,600
|
|
Note:
|
|
(i)
|
Pursuant
to the shareholder's approval at the Annual General Meeting held on May
22, 2008, a final dividend of HK$0.592 per share totaling RMB 3,499
million in respect of the year ended December 31, 2007 was declared and
was paid on June 12, 2008, which has been reflected as a reduction of
retained earnings for the six months ended June 30,
2008.
|
|
(ii)
|
No
interim dividend has been proposed by the directors for the period ended
June 30, 2008. The payment of any future dividends will be determined by
the Board of Directors.
|
|
(iii)
|
Appropriation
to statutory reserve
|
|
According
to a PRC tax approval document issued by the Ministry of Finance and State
Administration of Taxation to the Group, the Group's upfront connection
fees are not subject to EIT and an amount equal to the upfront connection
fees recognised in the retained earnings should be transferred from
retained earnings to a statutory reserve. At June 30, 2008, the Company
has made an aggregated appropriation of RMB11,211 million to the statutory
reserve (At June 30, 2007: RMB 10,044 million). For the six months ended
June 30, 2008, the Company made an appropriation of RMB 505 million (For
the six months period ended June 30, 2007: RMB 855
million).
|
9.
|
Earnings
per share
|
Six
months ended June 30
|
|||
2008
|
2007
|
||
(in
RMB million, except share and per share data)
|
|||
Unaudited
|
Unaudited
|
||
Restated
|
|||
Note
2(d)
|
|||
Numerator:
|
|||
Profit
for the period
|
|||
-
Continuing operations
|
6,382
|
6,106
|
|
-
Discontinued operations
|
—
|
624
|
|
6,382
|
6,730
|
||
Denominator:
|
|||
Weighted
average number of ordinary shares outstanding and
|
|||
shares
used in computing basic earnings per share
|
6,686,088,782
|
6,651,863,638
|
|
Diluted
equivalent shares arising from share options
|
76,232,189
|
79,595,001
|
|
Shares
used in computing diluted earnings per share
|
6,762,320,971
|
6,731,458,639
|
|
Basic
earnings per share (RMB)
|
|||
-
Continuing operations
|
0.95
|
0.92
|
|
-
Discontinued operations
|
—
|
0.09
|
|
-
Profit for the period
|
0.95
|
1.01
|
|
Diluted
earnings per share (RMB)
|
|||
-
Continuing operations
|
0.94
|
0.91
|
|
-
Discontinued operations
|
—
|
0.09
|
|
-
Profit for the period
|
0.94
|
1.00
|
10.
|
Cash
and bank deposits
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||
Cash
and cash equivalents
|
4,602
|
5,304
|
|
Time
deposits with original maturities over three months
|
84
|
91
|
|
Total
cash and bank deposits
|
4,686
|
5,395
|
|
Effective
interest rate of time deposits with original
|
|||
maturities
over three months (%)
|
1.71-4.14
|
0.72
|
|
Included in cash and bank deposits as at June 30, 2008 and December
31, 2007 were Renminbi-denominated balances kept in the PRC amounting to
RMB 4,176 million and RMB 5,054 million respectively. The conversion of
Renminbi-denominated balances into foreign currencies and the remittance
of bank balances and cash out of the PRC are subject to the rules and
regulations of foreign exchange control promulgated by the PRC
government.
|
Included in the bank deposits were deposits in state-owned banks amounting to RMB 4,024 million at June 30, 2008 (December 31, 2007: RMB 4,958 million ). For the six months ended June 30, 2008, interest income earned from these state-owned banks deposits amounted to RMB 29 million (For the six months ended June 30, 2007: RMB 61 million). |
11.
|
Accounts
receivable
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||
0-30
days
|
5,236
|
5,682
|
|
31-90
days
|
1,758
|
1,866
|
|
Over
90 days
|
3,116
|
2,308
|
|
Total
|
10,110
|
9,856
|
|
Less:
Allowance for doubtful debts
|
(1,858)
|
(1,398)
|
|
Net
carrying amounts
|
8,252
|
8,458
|
12.
|
Due
from/(to) holding companies and fellow
subsidiaries
|
Note
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||
Current:
|
||||
Due
from ultimate holding company
|
(a)
|
76
|
245
|
|
Due
from intermediate holding companies
|
(a)
|
6
|
6
|
|
Due
from fellow subsidiaries
|
(a)
|
107
|
96
|
|
Total
|
189
|
347
|
||
Due
to ultimate holding company
|
||||
-
Deferred consideration
|
(b)
|
1,960
|
1,960
|
|
-
Others
|
(a)
|
779
|
1,371
|
|
Due
to intermediate holding companies
|
(d)
|
443
|
—
|
|
Due
to fellow subsidiaries
|
(a)
|
1,349
|
1,267
|
|
Total
|
4,531
|
4,598
|
||
Non-current:
|
||||
Due
to ultimate holding company
|
||||
-
Deferred consideration
|
(b)
|
2,940
|
3,920
|
|
Due
to intermediate holding companies
|
(c)
|
73
|
¬78
|
|
Due
to fellow subsidiaries
|
(c)
|
305
|
2,171
|
|
Total
|
3,318
|
6,169
|
12.
|
Due
from/(to) holding companies and fellow subsidiaries
(continued)
|
|
(a)
|
These
are interest free, unsecured and have no fixed terms of
repayment.
|
|
(b)
|
Balance
represents the deferred payments arising from the Acquisition of New
Horizon outstanding at the period end. The balance is charged at an
interest rate of 5.265 % per annum with final maturity through June 30,
2010. The deferred payment is analysed as
follows:
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||
Within
one year
|
1,960
|
1,960
|
|
In
the second year
|
1,960
|
1,960
|
|
In
the third to fifth year, inclusive
|
980
|
1,960
|
|
Total
|
4,900
|
5,880
|
|
(c)
|
The
balances bear interest at a rate of about 3.8% per annum, unsecured and
have repayment terms of 3 years. The fair value of the balances is RMB 354
million.
|
|
(d)
|
The
balances mainly include the dividend in respect of 2007 payable to an
intermediate holding company amounting to RMB 442
million.
|
13.
|
Fixed
assets
|
Buildings
RMB
million
Unaudited
|
Tele-
communications
networks
and
equipment
RMB
million
Unaudited
|
Furniture,
fixture,
motor
vehicles
and
other
equipment
RMB
million
Unaudited
|
Total
RMB
million
Unaudited
|
||||||||||||||
Cost
/ valuation:
|
|||||||||||||||||
Balance
at January 1, 2008
|
28,155 | 296,216 | 21,434 | 345,805 | |||||||||||||
Additions
for the period
|
14 | 444 | 297 | 755 | |||||||||||||
Transferred
from construction
|
|||||||||||||||||
in
progress
|
256 | 6,426 | 670 | 7,352 | |||||||||||||
Disposals/write
off for the period
|
(88 | ) | (1,518 | ) | (61 | ) | (1,667 | ) | |||||||||
Balance
at June 30, 2008
|
28,337 | 301,568 | 22,340 | 352,245 | |||||||||||||
Accumulated
depreciation:
|
|||||||||||||||||
Balance
at January 1, 2008
|
(8,039 | ) | (169,900 | ) | (10,918 | ) | (188,857 | ) | |||||||||
Depreciation
charge for the period
|
(503 | ) | (10,981 | ) | (1,162 | ) | (12,646 | ) | |||||||||
Disposals/write
off for the period
|
5 | 1,259 | 38 | 1,302 | |||||||||||||
Balance
at June 30, 2008
|
(8,537 | ) | (179,622 | ) | (12,042 | ) | (200,201 | ) | |||||||||
Net
book value at June 30, 2008
|
19,800 | 121,946 | 10,298 | 152,044 | |||||||||||||
Net
book value at January 1, 2008
|
20,116 | 126,316 | 10,516 |
13.
|
Fixed assets (continued)
|
Buildings
RMB
million
Unaudited
|
Tele-
communications
networks
and
equipment
RMB
million
Unaudited
|
Furniture,
fixture,
motor
vehicles
and
other
equipment
RMB
million
Unaudited
|
Total
RMB
million
Unaudited
|
||||||||||||||
Cost
/ valuation:
|
|||||||||||||||||
Balance
at January 1, 2007
|
27,711 | 289,263 | 18,899 | 335,873 | |||||||||||||
Additions
for the year
|
56 | 797 | 725 | 1,578 | |||||||||||||
Transferred
from construction
|
|||||||||||||||||
in
progress
|
971 | 15,540 | 2,595 | 19,106 | |||||||||||||
Disposals/write
off for the year
|
(33 | ) | (1,749 | ) | (441 | ) | (2,223 | ) | |||||||||
Disposal
of Guangdong and
|
|||||||||||||||||
Shanghai
branches
|
(550 | ) | (7,635 | ) | (344 | ) | (8,529 | ) | |||||||||
Balance
at December 31, 2007
|
28,155 | 296,216 | 21,434 | 345,805 | |||||||||||||
Accumulated
depreciation:
|
|||||||||||||||||
Balance
at January 1, 2007
|
(7,159 | ) | (151,127 | ) | (9,446 | ) | (167,732 | ) | |||||||||
Depreciation
charge for the year
|
(1,030 | ) | (21,977 | ) | (2,004 | ) | (25,011 | ) | |||||||||
Disposals/write
off for the year
|
16 | 1,337 | 395 | 1,748 | |||||||||||||
Disposal
of Guangdong
|
|||||||||||||||||
and
Shanghai branches
|
134 | 1,867 | 137 | 2,138 | |||||||||||||
Balance
at December 31, 2007
|
(8,039 | ) | (169,900 | ) | (10,918 | ) | (188,857 | ) | |||||||||
Net
book value at
|
|||||||||||||||||
December
31, 2007
|
20,116 | 126,316 | 10,516 | 156,948 | |||||||||||||
Net
book value at January 1, 2007
|
20,552 | 138,136 | 9,453 | 168,141 |
14.
|
Lease
prepayments
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Lease
prepayments for land (i)
|
2,172 | 2,183 | |||||||
Lease
prepayments for network capacity (ii)
|
302 | 311 | |||||||
Total
|
2,474 | 2,494 |
(i)
|
Lease
prepayments for land
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Held
for
|
|||||||||
Lease
of between 10 to 50 years
|
2,169 | 2,162 | |||||||
Lease
of less than 10 years
|
3 | 21 | |||||||
Balance
at end of period/year
|
2,172 | 2,183 |
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Balance
at beginning of period/year
|
2,183 | 2,046 | |||||||
Additions
for the period/year
|
16 | 232 | |||||||
Amortisation
for the period/year
|
(27 | ) | (87 | ) | |||||
Disposal
of Guangdong and Shanghai branches
|
— | (8 | ) | ||||||
Balance
at end of period/ year
|
2,172 | 2,183 |
14.
|
Lease
prepayments (continued)
|
(ii)
|
Lease
prepayments for network capacity
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Held
for
|
|||||||||
Lease
of between 10 to 50 years
|
302 | 311 |
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Balance
at beginning of period/year
|
311 | 318 | |||||||
Amortisation
for the period/year
|
(9 | ) | (7 | ) | |||||
Balance
at end of period/ year
|
302 | 311 |
15.
|
Intangible
assets
|
Purchased
software
RMB
million
Unaudited
|
Sponsorship
fees
RMB
million
Unaudited
Note
26(xii)
|
Total
RMB
million
Unaudited
|
|||||||||||
Cost:
|
|||||||||||||
Balance
at January 1, 2008
|
2,295 | 540 | 2,835 | ||||||||||
Additions
for the period
|
36 | — | 36 | ||||||||||
Transferred
from construction in progress
|
135 | — | 135 | ||||||||||
Balance
at June 30, 2008
|
2,466 | 540 | 3,006 | ||||||||||
Accumulated
amortisation:
|
|||||||||||||
Balance
at January 1, 2008
|
(878 | ) | (405 | ) | (1,283 | ) | |||||||
Amortisation
for the period
|
(213 | ) | (68 | ) | (281 | ) | |||||||
Balance
at June 30, 2008
|
(1,091 | ) | (473 | ) | (1,564 | ) | |||||||
Net
book value at June 30, 2008
|
1,375 | 67 | 1,442 | ||||||||||
Net
book value at January 1, 2008
|
1,417 | 135 | 1,552 |
15.
|
Intangible
assets (continued)
|
Purchased
software
RMB
million
Unaudited
|
Sponsorship
fees
RMB
million
Unaudited
Note
26(xii)
|
Total
RMB
million
Unaudited
|
|||||||||||
Balance
at January 1, 2007
|
1,894 | 540 | 2,434 | ||||||||||
Additions
for the year
|
150 | — | 150 | ||||||||||
Transferred
from construction in progress
|
399 | — | 399 | ||||||||||
Disposals/write
off
|
(73 | ) | — | (73 | ) | ||||||||
Disposal
of Guangdong and Shanghai branches
|
(75 | ) | — | (75 | ) | ||||||||
Balance
at December 31, 2007
|
2,295 | 540 | 2,835 | ||||||||||
Accumulated
amortisation:
|
|||||||||||||
Balance
at January 1, 2007
|
(573 | ) | (270 | ) | (843 | ) | |||||||
Amortisation
for the year
|
(394 | ) | (135 | ) | (529 | ) | |||||||
Disposals/write
off
|
69 | — | 69 | ||||||||||
Disposal
of Guangdong and Shanghai branches
|
20 | — | 20 | ||||||||||
Balance
at December 31, 2007
|
(878 | ) | (405 | ) | (1,283 | ) | |||||||
Net
book value at December 31, 2007
|
1,417 | 135 | 1,552 | ||||||||||
Net
book value at January 1, 2007
|
1,321 | 270 | 1,591 |
16.
|
Other
non-current assets
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Installation
costs
|
2,534 | 2,847 | |||||||
Others
|
394 | 396 | |||||||
Total
|
2,928 | 3,243 |
17.
|
Discontinued
operations
|
(i)
|
The
disposal of Guangdong and Shanghai branches (Note 1) was completed on
February 28, 2007. The results and cash flows of the Guangdong and
Shanghai branches of the Group for the six months ended June 30, 2007 are
presented as discontinued
operations.
|
As
at February 28, 2007 RMB million Audited |
|||||
Net
assets sold (excluding cash and cash equivalents):
|
|||||
Accounts
receivable and other current assets
|
416 | ||||
Fixed
assets and other non-current assets
|
7,630 | ||||
Current
portion of deferred revenue
|
(183 | ) | |||
Accounts
payables
|
(2,046 | ) | |||
Long-term
loans
|
(3,000 | ) | |||
Other
liabilities
|
(267 | ) | |||
2,550 | |||||
Gain
on disposal of Guangdong and Shanghai branches
|
927 | ||||
Net
cash inflow from disposal of Guangdong and Shanghai
branches
|
3,477 | ||||
Analysis
of net cash inflow from disposal of Guangdong and Shanghai
branches
|
|||||
Cash
proceeds received
|
3,500 | ||||
Less:
cash and cash equivalents disposed
|
(23 | ) | |||
Net
cash inflow
|
3,477 |
17.
|
Discontinued operations (continued)
|
(ii)
|
The
condensed income statements and cash flow statements for the six months
ended June 30, 2007 related to the discontinued operations are as
follows:
|
Disposal
of Guangdong
&
Shanghai branches
For
the period from
January
1, 2007 to
February
28, 2007
|
|||||
RMB
million
Audited
|
|||||
Discontinued
operations:
|
|||||
Revenues
|
615 | ||||
Expenses
|
(618 | ) | |||
Loss
before taxation of discontinued operations
|
(3 | ) | |||
Taxation
|
1 | ||||
Loss
for the period of discontinued operations
|
(2 | ) | |||
Gain
on
|
|||||
disposal
of discontinued
|
|||||
operations
before taxation
|
927 | ||||
Taxation
|
(301 | ) | |||
Gain
on disposal of discontinued operations after taxation
|
626 | ||||
Profit
for the period from discontinued operations
|
624 |
17.
|
Discontinued operations (continued)
|
|
(ii)
|
The
condensed income statements and cash flow statements for the six months
ended June 30, 2007 related to the discontinued operations are as follows:
(continued)
|
Disposal
of Guangdong
& Shanghai branches For the period from January 1, 2007 to February 28, 2007 |
|||||
RMB
million
Audited
|
|||||
Discontinued
operations:
|
|||||
Net
cash inflow from operating activities
|
388 | ||||
Cash
outflow from investing activities
|
(374 | ) | |||
Cash
inflow from disposal of discontinued operations
|
3,477 | ||||
Net
cash inflow from investing activities
|
3,103 | ||||
Net
cash inflow from financing activities
|
— | ||||
Cash
flow from discontinued operations
|
3,491 |
18.
|
Accounts
payable
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||
0-30
days
|
6,264
|
6,214
|
|
31-60
days
|
1,842
|
1,462
|
|
61-90
days
|
1,315
|
1,266
|
|
91-180
days
|
2,444
|
2,251
|
|
Over
180 days
|
5,209
|
4,446
|
|
Total
|
17,074
|
15,639
|
19.
|
Bank
and other loans
|
(a)
|
(i)
|
CNC
China issued two lots of RMB10 billion unsecured commercial paper with
repayment periods of 1 year and 270 days on April 30, 2007 and September
18, 2007 in the PRC capital market respectively. The effective interest
rates are 3.34% and 3.93% respectively. The aggregated net cash proceeds
raised in these exercises is RMB20 billion. These commercial papers were
fully repaid on May 9, 2008 and June 16, 2008
respectively.
|
(ii)
|
As
at June 30, 2008, the short term bank loans were unsecured and
comprised:
|
Interest
rate
|
As
at June 30
|
As
at December 31
|
||
Currency
|
and
final maturity
|
2008
|
2007
|
|
RMB
million
|
RMB
million
|
|||
Unaudited
|
Audited
|
|||
Renminbi
denominated
|
Interest
rates ranging from 5.10% to 6.56% per annum with maturity through December
28, 2008
|
24,789
|
11,850
|
|
Hong
Kong
Dollar
denominated
|
Interest
rates ranging from 2.21%to 4.47% per annum with maturity through June 10,
2009
|
5,539
|
—
|
|
Total
|
30,328
|
11,850
|
19.
|
Bank
and other loans (continued)
|
(b)
|
The
Group's long term bank and other loans
comprise:
|
Note
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Long
term bank loans
|
(i)
|
17,533 | 19,645 | |||||||
Finance
lease obligations
|
(ii)
|
51 | 102 | |||||||
17,584 | 19,747 | |||||||||
Less:
Current portion
|
(4,723 | ) | (5,322 | ) | ||||||
12,861 | 14,425 |
|
(i)
Long
term bank loans
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Loans
|
|||||||||
Unsecured
|
17,396 | 19,433 | |||||||
Secured
|
137 | 212 | |||||||
Total
|
17,533 | 19,645 | |||||||
Less:
Current portion
|
(4,672 | ) | (5,220 | ) | |||||
Long
term loans
|
12,861 | 14,425 |
19.
|
Bank
and other loans (continued)
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||
Within
one year
|
4,672
|
5,220
|
|
In
the second year
|
5,649
|
9,671
|
|
In
the third to fifth year, inclusive
|
4,479
|
1,952
|
|
After
the fifth year
|
2,733
|
2,802
|
|
17,533
|
19,645
|
|
As
at June 30, 2008, bank loans of RMB 137 million (December 31, 2007: RMB
212 million) were secured by the
following:
|
·
|
As
at June 30, 2008, corporate guarantees granted by third parties to the
extent of RMB 137 million (December 31, 2007: RMB 163 million);
and
|
·
|
As
at June 30, 2008, there are no corporate guarantees granted by China
Netcom Group (December 31, 2007: RMB 49
million).
|
(ii)
|
Finance
lease obligations
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Obligation
under finance leases
|
51 | 102 | |||||||
Less:
current portion
|
(51 | ) | (102 | ) | |||||
— | — |
|
The
accumulated finance lease obligation payable to a related party as at June
30, 2008 amounted to RMB 51 million (December 31, 2007: RMB 102
million).
|
The interest rates charged on finance leases are ranging from 5.18% to 5.7% with maturity through December 8, 2008 (December 31, 2007: 5.18% to 5.7% with maturity through December 8, 2008). |
19.
|
Bank
and other loans (continued)
|
|
(b) | The Group's long term bank and other loans comprise: (continued) |
|
(ii) | Finance lease obligations (continued) |
The Group's liabilities under finance leases are analysed as follows: |
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||||||||
Within
one year
|
51 | 105 | |||||||
Less:
future finance charges on finance leases
|
— | (3 | ) | ||||||
Present
value of finance lease liabilities
|
51 | 102 | |||||||
The
present value of finance lease liabilities is as follows:
|
|||||||||
Within
one year
|
51 | 102 |
(c)
|
Corporate
bonds
|
|
On
June 8, 2007, the Group issued RMB 2 billion ten-year corporate bonds,
bearing interest at 4.5% per annum. The corporate bonds are secured by a
corporate guarantee granted by Bank of China
Limited.
|
(d)
|
The
fair value of the Group's non-current portion of long term bank and other
loans at June 30, 2008 and December 31, 2007 were as
follows:
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||
Long
term bank loans
|
11,746
|
12,320
|
|
Corporate
bonds
|
1,761
|
2,000
|
|
13,507
|
14,320
|
|
The
fair value is based on cash flows discounted using market rates ranging
from 3.36% to 7.59% (December 31, 2007: 3.25% to
7.05%).
|
20.
|
Deferred
revenues
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
|||||||||
Balance
at beginning of period/year:
|
||||||||||
-
upfront connection fees
|
1,582 | 3,099 | ||||||||
-
upfront installation fees
|
4,714 | 5,767 | ||||||||
-
prepaid telephony services
|
5,037 | 5,065 | ||||||||
-
other
|
84 | — | ||||||||
11,417 | 13,931 | |||||||||
Additions
for the period/year:
|
||||||||||
-
upfront connection fees
|
— | — | ||||||||
-
upfront installation fees
|
115 | 226 | ||||||||
-
prepaid telephony services
|
15,222 | 31,749 | ||||||||
-
other
|
22 | 86 | ||||||||
15,359 | 32,061 | |||||||||
Reductions
for the period/year:
|
||||||||||
-
upfront connection fees
|
(505 | ) | (1,517 | ) | ||||||
-
upfront installation fees
|
(601 | ) | (1,279 | ) | ||||||
-
prepaid telephony services
|
(15,139 | ) | (31,777 | ) | ||||||
-
other
|
(62 | ) | (2 | ) | ||||||
(16,307 | ) | (34,575 | ) | |||||||
Included:Disposal of discontinued operations: | ||||||||||
-
prepaid telephony services
|
— | (183 | ) | |||||||
Balance
at end of period/year:
|
||||||||||
-
upfront connection fees
|
1,077 | 1,582 | ||||||||
-
upfront installation fees
|
4,228 | 4,714 | ||||||||
-
prepaid telephony services
|
5,120 | 5,037 | ||||||||
-
other
|
44 | 84 | ||||||||
10,469 | 11,417 | |||||||||
Representing:
|
||||||||||
-
Current portion
|
6,865 | 7,103 | ||||||||
-
Non-current portion
|
3,604 | 4,314 | ||||||||
10,469 | 11,417 |
21.
|
Share
capital
|
Ordinary
shares of US$0.04 each
|
Authorized
Convertible
preference shares of
US$0.04
each
|
Total
|
|||||||
No.
of shares
|
US$
|
RMB
Million
|
No.
of shares
|
US$
|
RMB
Million
|
US$
|
RMB
Million
|
||
As at January
1, 2007,
|
|||||||||
2008
and June 30, 2008
|
25,000,000,000
|
1,000,000,000
|
8,277
|
7,741,782
|
309,671
|
3
|
1,000,309,671
|
8,280
|
Issued
Ordinary
shares of US$0.04 each
|
||||
No.
of shares
|
US$
|
RMB
in million
|
||
As
at January 1, 2007
|
6,650,643,500
|
266,025,740
|
2,199
|
|
Exercise
of share options (Note)
|
23,684,900
|
947,396
|
7
|
|
As
at December 31, 2007
|
6,674,328,400
|
266,973,136
|
2,206
|
|
As
at January 1, 2008
|
6,674,328,400
|
266,973,136
|
2,206
|
|
Exercise
of share options (Note)
|
24,868,800
|
994,752
|
7
|
|
As
at June 30, 2008
|
6,699,197,200
|
267,967,888
|
2,213
|
Note:
|
The
Group issued new shares for the options exercised during this period. For
the six months ended June 30, 2008, the Company issued 24,868,800 shares
(2007: 23,684,900 shares) upon the exercise of options by participants in
the Share Option Scheme. The total consideration received amounted to RMB
234 million and the portion that exceeds the nominal value of the shares
issued was recorded as share premium of the
Company.
|
22.
|
Share
option scheme
|
22.
|
Share option scheme (continued)
|
No.
of share options
|
|||||||||
As
at January
1,
2007
|
Granted
|
Exercised
|
Lapsed
and
forfeited
|
As
at December
31,
2007
|
Exercise
price
(HK$)
|
Weighted
average
closing
price
per
share at
respective
days
immediately
before
the
exercises
of
options
(HK$)
|
No.
of
share
options
exercisable
as at
December
31, 2007
|
||
First
Grant
|
97,612,700
|
—
|
16,231,400
|
2,117,440
|
79,263,860
|
8.40
|
22.23
|
20,728,290
|
|
Second
Grant
|
79,034,200
|
—
|
7,453,500
|
—
|
71,580,700
|
12.45
|
23.92
|
24,490,320
|
|
Total
|
176,646,900
|
—
|
23,684,900
|
2,117,440
|
150,844,560
|
45,218,610
|
No.
of share options
|
|||||||||
As
at January
1,
2008
|
Granted
|
Exercised
|
Lapsed
and
forfeited
|
As
at June
30,
2008
|
Exercise
price
(HK$)
|
Weighted
average
closing
price
per
share at
respective
days
immediately
before
the
exercises
of
options
(HK$)
|
No.
of
share
options
exercisable
as at
June
30, 2008
|
||
First
Grant
|
79,263,860
|
—
|
12,299,600
|
99,900
|
66,864,360
|
8.40
|
26.17
|
39,532,240
|
|
Second
Grant
|
71,580,700
|
—
|
12,569,200
|
39,600
|
58,971,900
|
12.45
|
25.46
|
13,784,860
|
|
Total
|
150,844,560
|
—
|
24,868,800
|
139,500
|
125,836,260
|
53,317,100
|
22.
|
Share option scheme (continued)
|
23.
|
Other
operating income
|
24.
|
Commitments
|
(a)
|
Capital
commitments
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||
Contracted
but not provided for
|
|||
-
Leasehold land and buildings
|
26
|
10
|
|
-
Telecommunications networks and equipment
|
879
|
530
|
|
-
Others
|
23
|
9
|
|
Total
|
928
|
549
|
|
Authorised
but not contracted for
|
|||
-
Leasehold land and buildings
|
5
|
21
|
|
-
Telecommunications networks and equipment
|
144
|
106
|
|
-
Others
|
—
|
1
|
|
Total
|
149
|
128
|
24.
|
Commitments
(continued)
|
(b)
|
Operating
lease commitments
|
As
at June 30
2008
RMB
million
Unaudited
|
As
at December 31
2007
RMB
million
Audited
|
||
Within
one year
|
368
|
579
|
|
In
the second to fifth year, inclusive
|
436
|
1,134
|
|
After
the fifth year
|
320
|
291
|
|
Subtotal
|
1,124
|
2,004
|
25.
|
Contingent
liabilities
|
26.
|
Related
party transactions
|
26.
|
Related
party transactions (continued)
|
Six
months ended June 30
|
||||
Note
|
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||
Emoluments
to key management
|
||||
-
salaries, welfare,
|
||||
and
contributions to retirement scheme
|
(i)
|
5
|
5
|
|
Interconnection
fees
|
||||
-
from fellow subsidiaries
|
(iv)(b)
|
419
|
300
|
|
-
from other state-owned
|
||||
telecommunications operators
|
(iv)(b)
|
2,828
|
3,206
|
|
Subtotal
|
3,247
|
3,506
|
||
Interconnection
charges
|
||||
-
to fellow subsidiaries
|
(iv)(b)
|
384
|
316
|
|
-
to other state-owned
|
||||
telecommunications operators
|
(iv)(b)
|
873
|
732
|
|
Subtotal
|
1,257
|
1,048
|
||
Rental
income from properties
|
||||
leased
to fellow subsidiaries
|
(iv)(a),(iv)(c)
|
1
|
1
|
|
Purchase
of materials
|
||||
-
from fellow subsidiaries
|
(iv)(a),(iv)(c)
|
139
|
281
|
|
-
from other related companies
|
(iv)(a),(iv)(c)
|
89
|
33
|
|
Subtotal
|
228
|
314
|
26.
|
Related
party transactions (continued)
|
Six
months ended June 30
|
||||
Note
|
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||
Receipt
of engineering, project planning, design,
|
||||
construction
and information technology services
|
||||
-
from fellow subsidiaries
|
(iv)(a),(iv)(b)
|
620
|
636
|
|
-
from other related companies
|
(iv)(a),(iv)(b)
|
296
|
74
|
|
Subtotal
|
916
|
710
|
||
Ancillary
telecommunications support services
|
||||
-
from fellow subsidiaries
|
(v)
|
239
|
172
|
|
-
from other related companies
|
(v)
|
15
|
24
|
|
Subtotal
|
254
|
196
|
||
Payment
of operating lease rentals of premises
|
||||
-
to fellow subsidiaries
|
(iv)(a),(iv)(c)
|
312
|
317
|
|
Property
sub-lease rentals to fellow subsidiaries
|
(iv)(a),(iv)(c)
|
1
|
6
|
|
Common
corporate services income
|
||||
from
ultimate holding company
|
(vi)
|
62
|
39
|
|
Common
corporate services
|
||||
expenditure
paid to ultimate holding company
|
(vi)
|
206
|
214
|
26.
|
Related
party transactions (continued)
|
Six
months ended June 30
|
||||
Note
|
2008
RMB
million
Unaudited
|
2007
RMB
million
Unaudited
Restated
Note
2(d)
|
||
Support
services received
|
||||
-
from fellow subsidiaries
|
(vii)
|
206
|
232
|
|
-
from other related companies
|
(vii)
|
10
|
7
|
|
Subtotal
|
216
|
239
|
||
Telecommunications
rental income
|
||||
from
other state-owned
|
||||
telecommunications operators
|
(iv)(b)
|
246
|
336
|
|
Payment
for lease of telecommunications facility
|
||||
-
to ultimate holding company
|
(viii)
|
45
|
32
|
|
-
to fellow subsidiaries
|
(viii)
|
115
|
110
|
|
Subtotal
|
160
|
142
|
||
Information
communication
|
||||
technologies
service income received
|
||||
-
from ultimate holding company
|
(xv)
|
27
|
30
|
|
-
from fellow subsidiaries
|
(xv)
|
36
|
18
|
|
-
from other related companies
|
(xv)
|
6
|
—
|
|
-
from other state-owned
|
||||
telecommunications operators
|
(xv)
|
26
|
24
|
|
Subtotal
|
95
|
72
|
26.
|
Related
party transactions (continued)
|
|
Note:
|
|
(i)
|
Represents
the emoluments paid to all of the directors and the top management of the
Group, who are considered related parties of the
Group.
|
|
(ii)
|
The
Group entered into finance lease arrangements with a related party,
details have been set out in Note 19
(b)(ii).
|
|
(iii)
|
Related
party represents the non-listed investors of the fellow
subsidiaries.
|
|
(iv)
|
Priced
based on one of the following three
criteria:
|
|
(a)
|
market
price;
|
|
(b)
|
prices
based on government guidance; or
|
|
(c)
|
cost
plus basis.
|
|
(v)
|
Represents
provision of ancillary telecommunications support services to the Group by
the fellow subsidiaries and the related companies. These services include
certain telecommunications pre-sale, on-sale and after-sale services,
certain sales agency services, the printing and delivery of invoice
services, the maintenance of certain air-conditioning, fire alarm
equipment and telephone booths and other customer
services.
|
|
(vi)
|
The
Group entered into a Master Service Sharing agreement with China Netcom
Group pursuant to which expenses associated with common corporate services
is allocated between the Group and China Netcom Group based on total asset
as appropriate.
|
|
(vii)
|
Represents
the support services provided to the Group by the fellow subsidiaries and
the related companies. These support services include equipment leasing
services, motor vehicles services, safety and security services,
conference services, basic construction agency services, equipment
maintenance services, employee training services, advertising services,
printing services and other support
services.
|
|
(viii)
|
The
Group entered into a Telecommunications Facilities Leasing Agreement with
China Netcom Group pursuant to which the Group leases the international
telecommunications facilities, inter-provincial transmission optic fibers
and other telecommunications facilities from China Netcom Group. The lease
payment is based on the depreciation charge of the
assets.
|
|
(ix)
|
Pursuant
to the Listing Reorganisation and the Acquisition, China Netcom Group have
agreed to hold and maintain, for the Group's benefit, all licenses
received from the MIIT and original Ministry of Information Industry in
connection with the Restructured Businesses transferred to the Group. The
licenses maintained by China Netcom Group were granted by the MIIT and
original Minstry of Information Industry at nil or nominal costs. To the
extent that China Netcom Group incurs a cost to maintain or obtain
licenses in the future, the Company has agreed reimburse China Netcom
Group for any such expense.
|
|
(x)
|
China
Netcom Group has also agreed to indemnify the Group in connection with any
tax and deferred tax liabilities not recognised in the financial
statements of the Group arising from transactions prior to the date of
Listing Reorganisation and the Acquisition in relation to the business of
the Group prior to the Listing and the business of the newly required four
provinces/autonomous region
respectively.
|
|
(xi)
|
As
at June 30, 2008, China Netcom Group granted corporate guarantee to the
Group as set out in Note 19(b)(i).
|
|
(xii)
|
China
Netcom Group, the Group's ultimate holding company, entered into an
agreement (the "Sponsorship Agreement") with Beijing Organization
Committee ("BOCOG") which designated China Netcom Group as the exclusive
fixed-line telecommunications services partner in the People's Republic of
China ("PRC") to sponsor the 2008 Beijing Olympic Games. China Netcom
Group allocated the sponsorship fee to its members based on the estimated
future benefits derived from the Sponsorship Agreement to respective
members and the Group has contributed a portion of the required support
under the Sponsorship Agreement through cash payment and provision of
services to BOCOG amounting to RMB0.54 billion. Accordingly, an intangible
asset and a payable to the ultimate holding company of the said amount
have been recognised on the Group's balance
sheet.
|
|
(xiii)
|
As
at June 30, 2008, the Group has balances with other state-owned
telecommunication operators, cash deposited in and loans granted from
state-owned banks as set out in Notes 10, 11, 18 and 19
respectively.
|
26.
|
Related
party transactions (continued)
|
|
Note:
|
|
(xiv)
|
Up
to June 30, 2008, the deferred consideration in respect of the Acquisition
of New Horizon paid to China Netcom Group amounted to RMB 4,900 million,
and the balance of deferred consideration amounted to RMB 4,900 million as
at June 30, 2008 (December 31, 2007: RMB 5,880 million). The accumulated
related interest charged to income statement up to June 30, 2008 amounted
to RMB 1,090 million (up to December 31, 2007: RMB 942
million).
|
|
(xv)
|
System
Integration Corporation, an indirect wholly owned subsidiary of the
Company, entered into an Information and Communications Technology
Agreement on November 7, 2006 with China Netcom Group, which was replaced
by a new agreement on the same terms and conditions signed on November 6,
2007. Pursuant to the Information and Communications Technology Agreement,
System Integration Corporation (and its subsidiaries) will provide
Information Communications Technology Services to China Netcom Group.
System Integration Corporation will also subcontract services ancillary to
the provision of Information Communications Technology Services, namely
the System Installation and Configuration Services to the subsidiaries and
branches of China Netcom Group in China Netcom Group's southern service
region in PRC. Information Communications Technology Services include
system integration services, software development services, operational
maintenance services, consultancy services, product sales and distribution
related services and equipment leasing-related
services.
|
|
(xvi)
|
On
January 15, 2007, CNC China entered into an assets transfer agreement with
its ultimate holding Company, China Netcom Group. Pursuant to the
agreement, CNC China agreed to dispose of its assets and liabilities in
relation to its telecommunications operations in Guangdong Province and
Shanghai Municipality branches in the PRC for cash consideration of RMB
3.5 billion. On February 14, 2007, the independent shareholders passed an
ordinary resolution to approve the disposal. The disposal was completed on
February 28, 2007 upon the approval granted from MIIT and original
Ministry of Information Industry.
|
|
(xvii)
|
On
December 5, 2007, System Integration Corporation, a directly wholly owned
subsidiary of CNC China, entered into an equity interest transfer
agreement and agreed to acquire the entire equity interest of Beijing
Telecom P&D Institute from China Netcom Group Beijing Communications
Corporation at a consideration of RMB298.9 million. The acquisition was
completed on December 31, 2007. The difference of the consideration paid
and the net assets value of the Beijing Telecom P&D Institute is RMB61
million and recognised directly in the other
reserve.
|
27.
|
Significant
subsequent events
|
28.
|
Ultimate
holding party
|
29.
|
Approval
of financial statements
|
Six
months ended June 30
|
||||||||||||
2007
Unaudited
|
2008
Unaudited
|
2008
Unaudited
|
||||||||||
RMB
million
except
per
share
data
|
US$
million
except
per
share
data
|
|||||||||||
Restated
Note
2(d)
|
||||||||||||
Profit
from continuing operations under HKFRS
|
6,106 | 6,382 | 930 | |||||||||
U.S.GAAP
adjustments:
|
||||||||||||
Revaluation
of fixed assets
|
(2,389 | ) | (1,800 | ) | (262 | ) | ||||||
Tax
effect on the above adjustments
|
788 | 450 | 66 | |||||||||
Change
in statutory taxation rate
|
349 | — | — | |||||||||
Profit
from continuing operations under U.S.GAAP
|
4,854 | 5,032 | 734 | |||||||||
Profit
from discontinued operations under HKFRS
|
624 | — | — | |||||||||
U.S.GAAP
adjustments:
|
||||||||||||
Revaluation
of fixed assets
|
(10 | ) | — | — | ||||||||
Tax
effect on the above adjustments
|
3 | — | — | |||||||||
Gain
on disposal of Guangdong
|
||||||||||||
and
Shanghai branches (Note)
|
(626 | ) | — | — | ||||||||
Loss
from discontinued operations under US GAAP
|
(9 | ) | — | — | ||||||||
Consolidated
profit for the period under HKFRS
|
6,730 | 6,382 | 930 | |||||||||
Consolidated
profit for the period under U.S.GAAP
|
4,845 | 5,032 | 734 | |||||||||
Shares
used in computing basic earnings per share (in million)
|
6,652 | 6,686 | 6,686 | |||||||||
Shares
used in computing diluted earnings per share (in million)
|
6,731 | 6,762 | 6,762 |
Six
months ended June 30
|
|||
2007
Unaudited
|
2008
Unaudited
|
2008
Unaudited
|
|
RMB
million
except
per
share
data
|
US$
million
except
per
share
data
|
||
Restated
Note
2(d)
|
|||
Earnings
per share for profit from continuing
|
|||
operations
attributable to shareholders of the
|
|||
Company
for the period under U.S. GAAP
|
|||
-
Basic earnings per share
|
RMB
0.73
|
RMB
0.75
|
USD
0.11
|
-
Diluted earnings per share
|
RMB
0.72
|
RMB
0.74
|
USD
0.11
|
Loss
per share for loss from discontinued
|
|||
operations
attributable to shareholders
|
|||
of
the Company for the period under U.S. GAAP
|
|||
-
Basic loss per share
|
—
|
—
|
—
|
-
Diluted loss per share
|
—
|
—
|
—
|
Earnings
per share for profit attributable
|
|||
to
shareholders of the Company
|
|||
for
the period under U.S. GAAP
|
|||
-
Basic earnings per share
|
RMB
0.73
|
RMB
0.75
|
USD
0.11
|
-
Diluted earnings per share
|
RMB
0.72
|
RMB
0.74
|
USD
0.11
|
As
at December
31,
2007
Unaudited
RMB
million
|
As
at June
30,
2008
Unaudited
RMB
million
|
As
at June
30,
2008
Unaudited
US$
million
|
||||||||||
Consolidated
shareholders' equity under HKFRS
|
82,052 | 85,166 | 12,416 | |||||||||
U.S.GAAP
adjustments:
|
||||||||||||
Revaluation
of fixed assets
|
30,704 | 30,704 | 4,476 | |||||||||
Depreciation
on revaluation of fixed assets
|
(17,740 | ) | (19,540 | ) | (2,849 | ) | ||||||
Tax
effect on the above adjustments
|
(3,241 | ) | (2,791 | ) | (407 | ) | ||||||
Consolidated
shareholders' equity under U.S.GAAP
|
91,775 | 93,539 | 13,636 |
Note:
|
As
set out in note 2(c) to the financial statements, the disposal of
Guangdong and Shanghai Branches was completed on February 28, 2007. It is
a disposal under common control. Under HKFRS, the gain on disposal was
recognised in the income statement while under U.S. GAAP, the gain was
recognised directly in the shareholders' equity in accordance with the
requirement of FAS 141.
|
No.
of shares
involved
in the
options
outstanding
at
the beginning
of
the period
|
No.
of shares
involved
in
the
options
outstanding
at
period
end
|
Date
on
which
options
were
granted
|
No.
of shares
involved
in
the
options
cancelled
during
the
period
|
No.
of shares
acquired
on
exercise
of
options
during
the
period
|
Price
per
share
to be
paid
on
exercise
of
options
HK$
|
||
Directors
|
|||||||
Zuo
Xunsheng
|
480,000
|
455,500
|
October 22,
2004
|
—
|
24,500
|
8.40
|
|
Li
Fushen
|
480,000
|
480,000
|
October 22,
2004
|
—
|
—
|
8.40
|
|
Yan
Yixun
|
354,000*
|
354,000
|
October 22,
2004
|
—
|
—
|
8.40
|
|
Employees and
other
|
|||||||
persons
granted with
|
|||||||
options
after the date
|
|||||||
of
listing of the Company's
|
|||||||
shares
on the Stock Exchange
|
71,580,700
|
58,971,900
|
December 6,
2005
|
39,600
|
12,569,200
|
12.45
|
|
Employees and
other
|
|||||||
persons
granted with
|
|||||||
options
before the date
|
|||||||
of
listing of the Company's
|
|||||||
shares
on the Stock Exchange
|
77,949,860**
|
65,574,860
|
October 22,
2004
|
99,900
|
12,275,100
|
8.40
|
|
Total
|
150,844,560
|
125,836,260
|
139,500
|
24,868,800
|
|
|
Notes | |
*
|
Mr.
Yan Yixun has made a commitment that all after-tax proceeds from the sale
of shares acquired on the exercise of his options will be donated to the
disadvantaged groups in society and people and groups in need of
donations.
|
**
|
The
number of shares involved in the options outstanding at the beginning of
the period included share options granted to Mr. Zhang Chunjiang and Mr.
Zhang Xiaotie involving a total of 1,300,000 shares.
Mr.
|
|
Zhang
Chunjiang resigned as Chairman and Executive Director of the Company with
effect from May 23, 2008. Mr. Zhang Xiaotie also resigned as Executive
Director and Senior Vice President of the Company with effect
from May 23, 2008.
|
(a)
|
The
total number of shares involved in the options outstanding at period end
represents 1.88 per cent. of the issued share capital of the Company as at
June 30, 2008.
|
(b)
|
Grantees
of the share options granted on October 22, 2004 are entitled to exercise
the options in the following
periods:
|
|
(i)
|
in
respect of 40 per cent. of the options granted, from May 17, 2006 to
November 16, 2010;
|
|
(ii)
|
in
respect of a further 20 per cent. of the options granted, from May 17,
2007 to November 16, 2010;
|
|
(iii)
|
in
respect of a further 20 per cent. of the options granted, from May 17,
2008 to November 16, 2010; and
|
|
(iv)
|
in
respect of the remaining 20 per cent. of the options granted, from May 17,
2009 to November 16, 2010.
|
(c)
|
Grantees
of the share options granted on December 6, 2005 are entitled to exercise
the options in the following
periods:
|
|
(i)
|
in
respect of 40 per cent. of the options granted, from December 6, 2007 to
December 5, 2011;
|
|
(ii)
|
in
respect of a further 20 per cent. of the options granted, from December 6,
2008 to December 5, 2011;
|
|
(iii)
|
in
respect of a further 20 per cent. of the options granted, from December 6,
2009 to December 5, 2011; and
|
|
(iv)
|
in
respect of the remaining 20 per cent. of the options granted, from
December 6, 2010 to December 5,
2011.
|
Period
during
which
options
were
exercised
|
Exercise
price
|
Weighted
average
closing
price per
share
immediately
before
dates of
exercise
of options
|
Proceeds
received
|
Number
of shares
involved
in the
options
|
(HK$)
|
(HK$)
|
(HK$)
|
||
From
January 1, 2008 to June 30, 2008
|
8.40
|
26.17
|
103,316,640
|
12,299,600
|
12.45
|
25.46
|
156,486,540
|
12,569,200
|
Capacity
|
Number
of
ordinary
shares held
|
Percentage
of total
issued
shares
|
|||||||
China
Network
Communications
Group
Corporation
|
Interest
of controlled corporations
|
4,797,132,564 | (1)(2)(3) | 71.61 | % | ||||
China
Netcom Group
|
Beneficial
owner
|
4,647,449,014 | |||||||
Corporation
(BVI) Limited
|
Interest
of controlled corporations
|
1 | |||||||
Trustee
|
149,683,549 | ||||||||
Total
|
4,797,132,564 | (1)(2)(3) | 71.61 | % | |||||
Telefónica
Internacional S.A.U.
|
Beneficial
owner
|
481,986,741 | (3) | 7.19 | % | ||||
AllianceBernstein
L.P.
|
Interest
of controlled corporations
|
358,589,888 | 5.35 | % |
Notes:
|
|
(1)
|
China
Network Communications Group Corporation ("China Netcom Group")
beneficially owns 4,647,449,014 shares held by its wholly-owned
subsidiary, China Netcom Group Corporation (BVI) Limited ("CNC BVI") and 1
share held by CNC Cayman, Limited, a wholly-owned subsidiary of CNC BVI.
The percentage of total issued share capital of the Company beneficially
held by China Netcom Group is 69.37 per
cent..
|
(2)
|
China
Netcom Group is deemed under the SFO to be interested in 149,683,549
shares held by CNC BVI as trustee on behalf of certain shareholders,
representing 2.23 per cent. of the issued share capital of the
Company.
|
(3)
|
On
January 18, 2008, the Company was informed by the beneficiary owners of
the shares of the Company which were held in trust by CNC BVI that they
have entered into a share purchase agreement with Telefónica
Internacional, S.A. to transfer an aggregate of 148,015,436 shares to
Telefónica Internacional, S.A. or its related entities. Upon completion of
this transaction, Telefónica Internacional, S.A. and its associates will
hold 481,986,741 shares and the number of shares held by CNC BVI as
trustee on behalf of certain shareholders will reduce to 149,683,549. As
at the date of this report, this transaction has not been
completed.
|
57
|