As filed with the Securities and Exchange Commission on December 21, 2011April 29, 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
FORM 20-F
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
EXCHANGE ACT OF 1934
For the yearsixteen months ended AugustDecember 31, 20112014
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from orto
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number: 000-30354
City Telecom (H.K.)Hong Kong Television Network Limited
(Exact nameName of registrantRegistrant as Specified in its Charter)
Hong Kong Special Administrative Region,
The People’s Republic of China
(Jurisdiction of Incorporation or Organization)
Level 39, Tower 1, Metroplaza13th Floor, Trans Asia Centre
No. 223 Hing Fong Road18 Kin Hong Street
Kwai Chung, New Territories
Hong Kong
(Address of Principal Executive Offices)
Mr.Ms. Wong Nga Lai, Ni QuiaqueAlice
12th13th Floor, Trans Asia Centre
No.18 Kin Hong Street
Kwai Chung, New Territories
Hong Kong
Telephone : (852) 3145 60686888
Facsimile : (852) 2199 84458354
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title Of Each Class | Name Of Each Exchange On Which Registered | |
American Depositary Shares, each representing 20 Ordinary Shares | The Nasdaq Stock Market LLC | |
Ordinary | The Nasdaq Stock Market LLC* |
Securities registered or to be registered pursuant to Section 12(g) of the Act:SECURITIESREGISTEREDORTOBEREGISTEREDPURSUANTTO SECTION 12(G)OFTHE ACT:
NoneNONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:SECURITIESFORWHICHTHEREISAREPORTINGOBLIGATIONPURSUANTTO SECTION 15(D)OFTHE ACT:
NoneNONE
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 771,911,853809,016,643 Ordinary Shares, par value HK$0.10 per shareShares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨Yes ¨ No¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨ Accelerated filerx Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨ International Financial Reporting Standards as issued x Other ¨
|
by the International Accounting Standards Board
|
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has selected to follow. Item 17 ¨ Item 18¨
If this report is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
* | Not for trading, but only in connection with the registration of the American Depositary Shares |
i
ii
Use of defined and technical termsUSE OF DEFINED TERMS
Except as otherwise indicated by the context, references in this annual report to:
“Android” are to the operating system for mobile devices produced by Google.
“Apple Device” are to the electronic devices designed and produced by Apple Inc. including iPhone and iPad.
“ADSL” are to the asymmetric digital subscriber line technology;
“Articles” are to the Company’s existing Memorandum and Articles;
“City Telecom” or the “Company” are to City Telecom (H.K.) Limited;
“Category 5e copper wiring” are to certain network cabling commonly used for Ethernet network;
“Ethernet” are to a family of computer networking technology for local area networks;
“fiscal year” or “fiscal” are to the Company’s fiscal year ended August 31 for the year referenced;
“FMIC” are to an interconnection charge for circuit-switched traffic between a fixed network operator and a mobile network operator.
“FTNS business” are to our business segment in which we provide fixed telecommunications network services, including dial up and broadband Internet access services, local VoIP services, IP-TV services and corporate data services;
“FTNS Licenses” are to the licenses issued by the Hong Kong regulatory authorities for fixed telecommunications network services;
“GPON” are to Gigabit Passive Optical Network;
“Group” are to the Company and its subsidiaries;
“Hong Kong Companies Ordinance” are to Chapter 32 of the laws of Hong Kong;
“HKBA” or the “Hong Kong Broadcasting Authority” are to an independent statutory body established by the Hong Kong government for the regulation of the broadcasting industry in Hong Kong;
“HKBN” are to Hong Kong Broadband Network Limited, a wholly owned subsidiary of the Company;
“HKFRSs” are to Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants;
“HKMA” or “Hong Kong Monetary Authority” are to the government authority in Hong Kong responsible for maintaining monetary and banking stability in Hong Kong;
“HKSE Listing Rules” are to Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
“IDD business” are to our business segment in which we provide international direct dialing telecommunications services, including international long distance call services;
“IFRSs” are to International Financial Reporting Standards, as issued by the International Accounting Standards Board;
“Internet” are to the most common global system of interconnected computer networks with a standard protocol suite;
“IP” are to Internet Protocol, the most commonly used set of rules for dispatching data across the Internet;
“IP-TV services” are to pay-television services through Internet Protocol;
“Articles” | are to the Company’s Memorandum and Articles of Association; | |
“Broadcasting Ordinance” | are to the Broadcasting Ordinance (Chapter 562 of the laws of Hong Kong); | |
“CA” | are to the Communications Authority, a unified Hong Kong regulatory body for the broadcasting and the telecommunications sectors, which has taken over the functions and responsibilities of the HKBA and the Hong Kong Telecommunications Authority since April 1, 2012; | |
“Centre” | are to the Television and Multimedia Production Centre under construction in Tseung Kwan O Industrial Estate in Hong Kong; | |
“DTMB” | are to Digital Terrestrial Multimedia Broadcast, a standard widely adopted in the PRC, Hong Kong and Macau for the transmission of television to mobile and fixed terminals; | |
“Exchange Act” | are to the Securities Exchange Act of 1934, as amended; | |
“fiscal 2010” | are to the period of twelve months from September 1, 2009 to August 31, 2010; | |
“fiscal 2011” | are to the period of twelve months from September 1, 2010 to August 31, 2011; | |
“fiscal 2012” | are to the period of twelve months from September 1, 2011 to August 31, 2012; | |
“fiscal 2013” | are to the period of twelve months from September 1, 2012 to August 31, 2013; | |
“fiscal 2014” | are to the period of sixteen months from September 1, 2013 to December 31, 2014; | |
“free TV license” | are to a domestic free television programme service licence issued under the Broadcasting Ordinance | |
“FTNS Business” | are to our former business segment in which we provided fixed telecommunications network services, including dial-up and broadband Internet access services, local VoIP services, IP-TV services and corporate data services; | |
“Group” | are to the Company and its subsidiaries; | |
“Guangzhou Agreement” | are to the sale and purchase agreement dated April 19, 2012 entered into by the Company and Metropolitan Light (HK) Company Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of Metropolitan Light Company Limited; | |
“Hong Kong Companies Ordinance” | are to Chapter 622 of the laws of Hong Kong; | |
“HKBA” or the “Hong Kong Broadcasting Authority” | are to an independent statutory body established by the Hong Kong government for the regulation of the broadcasting industry in Hong Kong; | |
“HKBN” | are to Hong Kong Broadband Network Limited, a former wholly-owned subsidiary of the Company; | |
“HKMA” or “Hong Kong Monetary Authority” | are to the government authority in Hong Kong responsible for maintaining monetary and banking stability in Hong Kong; | |
“HKSE” | are to The Stock Exchange of Hong Kong Limited; | |
“HKSE Listing Rules” | are to Rules Governing the Listing of Securities on the HKSE; | |
“HKTV” or the “Company” | are to Hong Kong Television Network Limited; | |
“IDD Business” | are to our former business segment in which we provided international direct dialing telecommunications services, including international long distance call services; |
“IFRS” | are to International Financial Reporting Standards, as issued by the International Accounting Standards Board; | |
“Mobile TV Acquisition” | are to our acquisition on December 20, 2013 of the entire issued share capital of the Target Company pursuant to an option exercised by the Company under an agreement dated August 16, 2013 entered into between the Company and the Vendor; | |
“Mobile TV Spectrum” | are to the frequency at 678 – 686 MHz and microwave link in the frequency range of 7910 – 7920 MHz for the provision of broadcast-type mobile television services; | |
“Multimedia Business” | are to our business in which we provide multimedia production and distribution and other multimedia related services, including the offer of television programming through our OTT platform, our online shopping operation, multimedia and drama productions, content distribution and other related services; | |
“Nasdaq” | are to The Nasdaq Stock Market LLC; | |
“OTT” | are to Over-The-Top, which is the delivery of multimedia content over the Internet; | |
“Sarbanes-Oxley Act” | are to the Sarbanes-Oxley Act of 2002; | |
“SEC” | are to the Securities and Exchange Commission; | |
“Securities Act” | are to the Securities Act of 1933, as amended; | |
“Supplementary Financial Information” | are to the Company’s unaudited financial information relating to the twelve months ended August 31, 2014 and four months ended December 31, 2014; | |
“Talents” | are to all individuals employed by us, including the directors of the Company; | |
“Target Company”or“HKMTV” | are to Hong Kong Mobile Television Network Limited (formerly China Mobile Hong Kong Corporation Limited), a company incorporated in Hong Kong with limited liability and, prior to the Mobile TV Acquisition, a wholly-owned subsidiary of the Vendor; | |
“Telecom Group Agreement” | are to the sale and purchase agreement dated March 31, 2012 entered into between the Company and Metropolitan Light Company Limited in relation to the disposal of 100% of the issued share capital of City Telecom International Limited, Credibility Holdings Limited and Automedia Holdings Limited; | |
“Telecom Business” | are to the disposed businesses, which include the FTNS Business and IDD Business; | |
“Unified Carrier License” | are to a unified carrier licence issued by the Communications Authority to the Target Company; | |
“Vendor” | are to China Mobile Hong Kong Company Limited, a company incorporated in Hong Kong with limited liability and an wholly-owned subsidiary of China Mobile Limited, a company listed on the New York Stock Exchange and the main board of the HKSE; and | |
“we”, “us” or “our” | are to Hong Kong Television Network Limited and/or its subsidiaries, as the context requires. |
“ISR” or “international simple resale” are to a telecommunication methodology by which operators are allowed to pool traffic to a particular destination and send it down an international leased line, whereby such operator is able to charge its customers a per-minute fee while itself pays a lower fixed charged for leased line rental;
“Metro Ethernet” are to a computer network that covers a metropolitan area and that is based on the Ethernet standard;
“Mbps” are to megabits per second;
“Next Generation Network” are to our broadband packet-based fixed-line telecommunication network which utilizes Metro Ethernet and GPON technologies;
“OFTA” or the “Office of the Telecommunications Authority” are to an independent statutory body established by the Hong Kong government for the regulation of the telecommunications industry in Hong Kong;
“PNETS Licenses” are to licenses issued by the Hong Kong regulatory authorities for the public non-exclusive telecommunications services;
“Talents” are to all individuals employed by our Group including the directors of our Company;
“UC License” are to the Unified Carrier License issued by the Hong Kong regulatory authorities for fixed and mobile telecommunication services;
“USC” are to universal service contribution made to PCCW-HKT, a local carrier in Hong Kong, as specified in an arrangement established by OFTA of Hong Kong, in order to fund the network development costs for certain remote areas in Hong Kong;
“US GAAP” are to the Generally Accepted Accounting Principles in the United States;
“Video-On-Demand” are to systems which allow users to select and watch/listen to video or audio content on demand;
“VDSL” are to the very-high-bit-rate digital subscriber line technology; and
“VoIP” are to voice over internet protocol.
Currency translationCURRENCY TRANSLATION
We publish our consolidated financial statements in Hong Kong dollars. In this annual report, references to “Hong Kong dollars” or “HK$” are to the currency of Hong Kong, and references to “U.S. dollars” or “US$” are to the currency of the United States. This annual report contains translations of Hong Kong dollar amounts into U.S. dollar amounts solely for your convenience. Unless otherwise indicated, the translations have been made at US$1.00 = HK$7.7876,7.7531, which was the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on AugustDecember 31, 2011.2014. On December 9, 2011April 24, 2015, the exchange rate was US$1.00 = HK$7.7817.7.7499. You should not construe these translations as representations that the Hong Kong dollar amounts actually represent such U.S. dollar amounts or could have been or could be converted into U.S. dollars at the rates indicated or at any other rates.
Note regarding forward-looking statementsPRESENTATION OF FINANCIAL INFORMATION
Unless otherwise indicated, the financial information in this annual report has been prepared in accordance with IFRS. The significant IFRS accounting policies applied to our financial information in this annual report have been applied consistently.
NO INCORPORATION OF WEBSITE INFORMATION
The content of our website does not form part of this annual report.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. These include statements with respect to City Telecom and our plans, strategies and beliefs and other statements that are not historical facts.beliefs. These statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “intend”, “estimate”, “continue”, “plan”, “predict”, “project” or other similar words. TheAll statements other than statements of historical fact included in this annual report, including statements regarding our future financial position, strategy, projects costs and plans and objectives of management for future operations, are based on management’s assumptions and beliefs in light of the information currently available to us.forward-looking statements.
These assumptions involve risks and uncertainties which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievementsthose expressed or implied by such forward looking statements. Potential risks and uncertainties include, without limitation:include:
technological changes;
increasing competition in the telecommunications, Internet access, local VoIP, pay-televisionmultimedia market, including the television programming and corporate data markets;
the stability and continued development of the telecommunications network of our abilityprior Telecom Business, to maintain growthwhich the Company is granted a 20-year indefeasible right of use and successfully introduce new services;
the continued development and stability of our technological infrastructure, a platform through which our local and international telecommunications, Internet access, local VoIP, IP-TV and corporate data services are offered;
contrary to our telecommunications business with 19 years operational track record, our business expansion intolimited experience in multimedia production, content distribution and free TV subject to license grant, is a new line ofthe online shopping business, for us, for which we lack direct experience, thereby making forecasting much more difficult; and
When considering such forward-looking statements, you should keep in mind the factors described in Item 3 “Key information — risk factors”Risk Factors” and other cautionary statements appearing in Item 5 “Operating and financial reviewFinancial Review and prospects”Prospects” of this annual report. Such risk factors and statements describe circumstances that could cause actual results to differ materially from those contained in any forward-looking statement. Additionally, new risk factors can emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.
Special note on our financial information presentedAll forward-looking statements included in this annual report are based on information available to us on the date of this annual report. We undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this annual report.
Our consolidated
ITEM 1 | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable
ITEM 2 | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable
ITEM 3 | KEY INFORMATION |
Historical financial statementsinformation
The following table presents our selected historical financial data as of and for the yearstwelve months ended August 31, 2008, 2009, 2010, 2011, 2012 and 2011 included in this annual report on Form 20-F have been prepared in accordance with IFRSs as issued by the International Accounting Standards Board, or the IASB. Pursuant to the requirement under IFRS 1: First-Time Adoption of International Financial Reporting Standards, or IFRS 1, the date of our transition to IFRSs was September 1, 2007, which is the beginning of the earliest period for which we presented full comparative information in our consolidated financial statements in our annual report for the year ended August 31, 2009. With due regard to our accounting policies in previous periods2013, and the requirements of IFRS 1, we have concluded that no adjustments were required to the amounts reported under HKFRSs as of September 1, 2007 or in respect of the yearsixteen months ended AugustDecember 31, 2008.
In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission, or the SEC, which became effective on March 4, 2008, we are not required to provide reconciliation to U.S. GAAP.
PART I
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
City Telecom’s historical financial information
The following table presents selected historical financial data of our Company as of and for each of the years in the five-year period ended August 31, 2011.2014. Except for amounts presented in U.S. dollars, the selected historical consolidated income statement data and other financial data for the yearstwelve months ended August 31, 2009, 20102012 and 20112013 and the sixteen months ended December 31, 2014, and the selected historical consolidated balance sheet data as of August 31, 20102013 and 2011December 31, 2014, set forth below are derived from, should be read in conjunction with, and are qualified in their entirety by reference to our audited consolidated financial statements, including the related notes, included elsewhere in this annual report on Form 20-F.report. The selected historical consolidated income statement data for the yearstwelve months ended August 31, 20072010 and 20082011 and the selected historical consolidated balance sheet data as of August 31, 2007, 20082010, 2011 and 20092012 set forth below are derived from our audited consolidated financial statements that are not included in this annual report on Form 20-F.report. Our consolidated financial statements have been prepared in accordance with InternationalIFRS.
You should read the selected financial data in conjunction with our consolidated financial statements and related notes and Item 5 “Operating and Financial Reporting Standards, orReview and Prospects” included elsewhere in this annual report. Our historical results do not necessarily indicate our expected results for any future periods.
Pursuant to a resolution of the Board dated August 29, 2014, the Company’s financial year end date has been changed from August 31 to December 31 in order to unify the financial year-end dates of the Company and its subsidiaries and align with the business cycle of the Group’s potential customers in the retail e-commerce industry and the multimedia advertising industry. Accordingly, the accompanying consolidated financial statements, and the selected financial information below, for the current financial period cover a period of sixteen months from September 1, 2013 to December 31, 2014. As the fiscal 2010 through fiscal 2013 figures are not directly comparable with those of the current financial period, financial information for the twelve months ended August 31, 2014 and the four months ended December 31, 2014 prepared in accordance with IFRS, as issued byhas been presented to enhance comparability. This supplementary financial information has not been audited. For further information, see Note 1 to the International Accounting Standards Board.consolidated financial statements included elsewhere in this annual report.
Selected consolidated income statement data:
For the year ended August 31, | ||||||||||||||||||||
2008 | 2009 | 2010 | 2011 | 2011 | ||||||||||||||||
HK$ | HK$ | HK$ | HK$ | US$ | ||||||||||||||||
(Amounts in thousands except per share data and number of ordinary shares) | ||||||||||||||||||||
Revenue: | ||||||||||||||||||||
- FTNS business | 1,011,038 | 1,230,880 | 1,356,098 | 1,484,324 | 190,601 | |||||||||||||||
- IDD business | 291,943 | 247,359 | 218,589 | 197,134 | 25,314 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total operating revenue | 1,302,981 | 1,478,239 | 1,574,687 | 1,681,458 | 215,915 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Network costs and costs of sales: | ||||||||||||||||||||
- FTNS business | (103,524 | ) | (107,670 | ) | (144,347 | ) | (177,302 | ) | (22,767 | ) | ||||||||||
- IDD business | (74,843 | ) | (67,459 | ) | (50,945 | ) | (35,013 | ) | (4,496 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total network costs and costs of sales | (178,367 | ) | (175,129 | ) | (195,292 | ) | (212,315 | ) | (27,263 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other operating expenses | (966,094 | ) | (1,037,964 | ) | (1,105,604 | ) | (1,097,164 | ) | (140,886 | ) | ||||||||||
Interest expense, net | (59,541 | ) | (50,258 | ) | (10,863 | ) | (2,993 | ) | (384 | ) | ||||||||||
Other income/(expense), net | 9,393 | 36,671 | (3,383 | ) | 3,883 | 499 | ||||||||||||||
Income taxes benefit/(expense) | 16,818 | (38,730 | ) | (42,679 | ) | (58,954 | ) | (7,570 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | 125,190 | 212,829 | 216,866 | 313,915 | 40,311 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Basic earnings per share (cents) | 19.7 | 32.4 | 30.7 | 40.8 | 5.2 | |||||||||||||||
Diluted earnings per share (cents) (note 1) | 19.0 | 31.8 | 29.4 | 39.6 | 5.1 | |||||||||||||||
Dividends per share attributable to the year (cents) | 6.0 | 19.0 | 20.0 | 30.0 | 3.9 | |||||||||||||||
Weighted average number of ordinary shares | 634,015 | 657,201 | 706,605 | 768,807 | 768,807 | |||||||||||||||
Diluted weighted average number of ordinary shares (note 2) | 657,997 | 668,384 | 736,616 | 792,799 | 792,799 |
Twelve months ended August 31, 2010 | Twelve months ended August 31, 2011 | Twelve months ended August 31, 2012 | Twelve months ended August 31, 2013 | Twelve months ended August 31, 2014 | Four months ended December 31, 2014 | Sixteen months ended December 31, 2014 | Sixteen months ended December 31, 2014 | |||||||||||||||||||||||||
HK$ | HK$ | HK$ | HK$ | HK$ | HK$ | HK$ | US$ | |||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||||||
Continuing operations: | ||||||||||||||||||||||||||||||||
Turnover | — | — | 3,762 | 7,802 | 1,391 | 21,636 | 23,027 | 2,970 | ||||||||||||||||||||||||
Cost of sales | — | — | (6,006 | ) | (15,706 | ) | (560 | ) | (27,207 | ) | (27,767 | ) | (3,581 | ) | ||||||||||||||||||
Valuation gains on investment properties | — | — | 18,200 | 43,400 | 1,800 | 2,100 | 3,900 | 503 | ||||||||||||||||||||||||
Other operating expenses | (21,932 | ) | (23,481 | ) | (104,960 | ) | (201,514 | ) | (245,581 | ) | (98,218 | ) | (343,799 | ) | (44,344 | ) | ||||||||||||||||
Other income/(loss), net | (7,696 | ) | 3,456 | 19,920 | 128,909 | 117,702 | 29,907 | 147,609 | 19,038 | |||||||||||||||||||||||
Finance costs, net | (21,289 | ) | (7,303 | ) | (2,455 | ) | (4,860 | ) | (5,751 | ) | (2,016 | ) | (7,767 | ) | (1,002 | ) | ||||||||||||||||
Impairment losses/ write off of assets | — | — | — | — | (32,000 | ) | — | (32,000 | ) | (4,127 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Loss before taxation | (50,917 | ) | (27,328 | ) | (71,539 | ) | (41,969 | ) | (162,999 | ) | (73,798 | ) | (236,797 | ) | (30,543 | ) | ||||||||||||||||
Income tax (expenses)/ credit | (5,611 | ) | (4,782 | ) | (2,281 | ) | 1,659 | (145 | ) | (60 | ) | (205 | ) | (26 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Loss from continuing operations | (56,528 | ) | (32,110 | ) | (73,820 | ) | (40,310 | ) | (163,144 | ) | (73,858 | ) | (237,002 | ) | (30,569 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Discontinued operations: | ||||||||||||||||||||||||||||||||
Profit from discontinued operations (net of tax) | 273,394 | 346,025 | 3,771,694 | — | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
(Loss)/profit for the period | 216,866 | 313,915 | 3,697,874 | (40,310 | ) | (163,144 | ) | (73,858 | ) | (237,002 | ) | (30,569 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||||
Equity shareholders of the Company | ||||||||||||||||||||||||||||||||
-Continuing operations | (56,528 | ) | (32,110 | ) | (71,406 | ) | (40,310 | ) | (163,144 | ) | (73,858 | ) | (237,002 | ) | (30,569 | ) | ||||||||||||||||
-Discontinued operations | 273,394 | 346,025 | 3,771,694 | — | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
216,866 | 313,915 | 3,700,288 | (40,310 | ) | (163,144 | ) | (73,858 | ) | (237,002 | ) | (30,569 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Non-controlling interest | ||||||||||||||||||||||||||||||||
-Continuing operations | — | — | (2,414 | ) | — | — | — | — | — | |||||||||||||||||||||||
-Discontinued operations | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | — | (2,414 | ) | — | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
(Loss)/profit for the period | 216,866 | 313,915 | 3,697,874 | (40,310 | ) | (163,144 | ) | (73,858 | ) | (237,002 | ) | (30,569 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Basic (loss)/earnings per share (cents) | ||||||||||||||||||||||||||||||||
-Continuing and discontinued operations | 30.7 | 40.8 | 471.9 | (5.0 | ) | (20.2 | ) | (9.1 | ) | (29.3 | ) | (3.8 | ) | |||||||||||||||||||
-Continuing operations | (8.0 | ) | (4.1 | ) | (9.0 | ) | (5.0 | ) | (20.2 | ) | (9.1 | ) | (29.3 | ) | (3.8 | ) | ||||||||||||||||
-Discontinued operations | 38.7 | 44.9 | 480.9 | — | — | — | — | — | ||||||||||||||||||||||||
Diluted (loss)/earnings per share (cents)(1) | ||||||||||||||||||||||||||||||||
-Continuing and discontinued operations | 29.4 | 39.6 | 465.1 | (5.0 | ) | (20.2 | ) | (9.1 | ) | (29.3 | ) | (3.8 | ) | |||||||||||||||||||
-Continuing operations | (7.7 | ) | (4.1 | ) | (9.0 | ) | (5.0 | ) | (20.2 | ) | (9.1 | ) | (29.3 | ) | (3.8 | ) | ||||||||||||||||
-Discontinued operations | 37.1 | 43.7 | 474.1 | — | — | — | — | — |
Selected consolidated balance sheet data:
As of August 31, | August 31, 2010 | August 31, 2011 | August 31, 2012 | August 31, 2013 | August 31, 2014 | December 31, 2014 | December 31, 2014 | |||||||||||||||||||||||||||||||||||||||||
2008 HK$ | 2009 HK$ | 2010 HK$ | 2011 HK$ | 2011 US$ | HK$ | HK$ | HK$ | HK$ | HK$ | HK$ | US$ | |||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Total assets | 2,093,410 | 1,790,408 | 2,251,549 | 2,264,462 | 290,778 | 2,251,549 | 2,264,462 | 3,537,356 | 3,833,047 | 4,098,256 | 3,938,437 | 507,982 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
10-year senior notes due 2015 | (683,242 | ) | (162,586 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Long-term bank loan - unsecured | — | — | (123,567 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
Long-term bank loan – unsecured | (123,567 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Finance lease obligations – non-current portion | (255 | ) | (530 | ) | (393 | ) | (288 | ) | (37 | ) | (393 | ) | (288 | ) | (160 | ) | (70 | ) | — | — | — | |||||||||||||||||||||||||||
Derivative financial instrument | — | — | (11,293 | ) | (11,564 | ) | (1,485 | ) | (11,293 | ) | (11,564 | ) | (9,663 | ) | (5,181 | ) | (1,340 | ) | — | — | ||||||||||||||||||||||||||||
Finance lease obligations – current portion | (121 | ) | (202 | ) | (212 | ) | (105 | ) | (13 | ) | (212 | ) | (105 | ) | (85 | ) | (90 | ) | — | — | — | |||||||||||||||||||||||||||
Other liabilities | (377,185 | ) | (398,563 | ) | (427,545 | ) | (455,124 | ) | (58,443 | ) | (427,545 | ) | (455,124 | ) | (44,055 | ) | (577,084 | ) | (929,621 | ) | (883,276 | ) | (113,925 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total liabilities | (1,060,803 | ) | (561,881 | ) | (563,010 | ) | (467,081 | ) | (59,978 | ) | (563,010 | ) | (467,081 | ) | (53,963 | ) | (582,425 | ) | (930,961 | ) | (883,276 | ) | (113,925 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Net assets | 1,032,607 | 1,228,527 | 1,688,539 | 1,797,381 | 230,800 | 1,688,539 | 1,797,381 | 3,483,393 | 3,250,622 | 3,167,295 | 3,055,161 | 394,057 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Share capital | 65,062 | 66,418 | 76,500 | 77,191 | 9,912 | 76,500 | 77,191 | 80,902 | 80,902 | — | — | — | ||||||||||||||||||||||||||||||||||||
Share premium | 670,717 | 681,208 | 1,074,997 | 1,083,495 | 139,131 | |||||||||||||||||||||||||||||||||||||||||||
Reserves | 296,828 | 480,901 | 537,042 | 636,695 | 81,757 | |||||||||||||||||||||||||||||||||||||||||||
Other statutory capital reserves | 1,096,068 | 1,107,261 | 1,188,012 | 1,188,012 | — | — | — | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
Share capital and other statutory reserves | 1,172,568 | 1,184,452 | 1,268,914 | 1,268,914 | 1,268,914 | 1,268,914 | 163,665 | |||||||||||||||||||||||||||||||||||||||||
Other reserves | 515,971 | 612,929 | 2,214,479 | 1,981,708 | 1,898,381 | 1,786,247 | 230,392 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total shareholders’ equity | 1,032,607 | 1,228,527 | 1,688,539 | 1,797,381 | 230,800 | 1,688,539 | 1,797,381 | 3,483,393 | 3,250,622 | 3,167,295 | 3,055,161 | 394,057 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
For the year ended August 31, | ||||||||||||||||||||
2008 HK$ | 2009 HK$ | 2010 HK$ | 2011 HK$ | 2011 US$ | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||
EBITDA (note 3) | 377,964 | 508,058 | 469,437 | 594,059 | 76,283 | |||||||||||||||
Net cash inflow from operating activities | 381,991 | 536,771 | 485,340 | 585,899 | 75,235 | |||||||||||||||
Net cash outflow from investing activities | (147,750 | ) | (176,488 | ) | (306,254 | ) | (414,189 | ) | (53,186 | ) | ||||||||||
Net cash (outflow)/inflow from financing activities | (345,978 | ) | (561,292 | ) | 178,307 | (343,112 | ) | (44,059 | ) | |||||||||||
Capital expenditures (note 4) | 211,684 | 286,734 | 344,844 | 449,196 | 57,681 |
We believe that the most directly comparable measure to EBITDA is net cash provided by operating activities. The following table reconciles our net cash inflow from operating activities, the most directly comparable financial measure calculated and presented in accordance with IFRSs, to our definition of EBITDA on a consolidated basis for the years ended 2008, 2009, 2010 and 2011.
Twelve months ended August 31, 2010 | Twelve months ended August 31, 2011 | Twelve months ended August 31, 2012 | Twelve months ended August 31, 2013 | Twelve months ended August 31, 2014 | Four months ended December 31, 2014 | Sixteen months ended December 31, 2014 | Sixteen months ended December 31, 2014 | |||||||||||||||||||||||||
HK$ | HK$ | HK$ | HK$ | HK$ | HK$ | HK$ | US$ | |||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Net cash (outflow)/inflow from operating activities | 485,340 | 585,899 | 181,924 | (356,804 | ) | (241,404 | ) | (49,662 | ) | (291,066 | ) | (37,542 | ) | |||||||||||||||||||
Net cash (outflow)/inflow from investing activities | (306,254 | ) | (414,189 | ) | 3,681,791 | (1,781,342 | ) | (120,577 | ) | 627,835 | 507,258 | 65,426 | ||||||||||||||||||||
Net cash inflow/(outflow) from financing activities | 178,307 | (343,112 | ) | (2,191,749 | ) | 403,762 | 322,129 | (65,116 | ) | 257,013 | 33,150 | |||||||||||||||||||||
Capital expenditure(2) | ||||||||||||||||||||||||||||||||
- Continuing operations | — | 51,255 | 178,750 | 37,708 | 18,621 | 50,096 | 68,717 | 8,863 | ||||||||||||||||||||||||
- Discontinued operations | 344,844 | 397,941 | 283,643 | — | — | — | — | — | ||||||||||||||||||||||||
Dividends | ||||||||||||||||||||||||||||||||
- Interim dividend declared | 49,725 | 115,605 | 119,674 | — | — | — | — | — | ||||||||||||||||||||||||
- Final dividend proposed after balance sheet date | 103,275 | 115,787 | 121,352 | — | — | — | — | — | ||||||||||||||||||||||||
- Special dividend declared | — | — | 2,022,542 | — | — | — | — | — |
For the year ended August 31, | ||||||||||||||||||||
2008 HK$ | 2009 HK$ | 2010 HK$ | 2011 HK$ | 2011 US$ | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||
EBITDA | 377,964 | 508,058 | 469,437 | 594,059 | 76,283 | |||||||||||||||
Depreciation and amortization | (210,051 | ) | (206,241 | ) | (199,029 | ) | (218,197 | ) | (28,018 | ) | ||||||||||
Interest expense, net | (59,541 | ) | (50,258 | ) | (10,863 | ) | (2,993 | ) | (384 | ) | ||||||||||
Income taxes benefit/(expense) | 16,818 | (38,730 | ) | (42,679 | ) | (58,954 | ) | (7,570 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | 125,190 | 212,829 | 216,866 | 313,915 | 40,311 | |||||||||||||||
Depreciation and amortization | 210,051 | 206,241 | 199,029 | 218,197 | 28,018 | |||||||||||||||
Amortization of deferred expenditure | 33,777 | 53,160 | 48,621 | 37,873 | 4,863 | |||||||||||||||
Income taxes (benefit)/expense | (16,818 | ) | 38,730 | 42,679 | 58,954 | 7,570 | ||||||||||||||
Interest income | (15,596 | ) | (4,869 | ) | (11,372 | ) | (3,366 | ) | (432 | ) | ||||||||||
Interest element of finance lease | 34 | 27 | 42 | 30 | 4 | |||||||||||||||
Interest, amortization and exchange difference on senior notes | 72,640 | 49,214 | 6,069 | — | — | |||||||||||||||
Interest on other borrowings | 3,428 | 885 | 3,260 | 3,473 | 446 | |||||||||||||||
Amortization of upfront cost on bank loan | — | — | 192 | 182 | 23 | |||||||||||||||
Interest expense on bank loan | — | — | 1,379 | 1,152 | 148 | |||||||||||||||
Change in fair value of derivative financial instruments | — | — | 11,293 | 271 | 35 |
Write-off of upfront costs upon settlement of long-term bank loan Realized gain on long term bank deposit Loss/(gain) on disposal of fixed assets Equity settled share-based transaction Realized loss on derivatives financial instruments Realized and unrealized gain on other financial assets (Gain)/loss on extinguishment of senior notes Taxation paid Change in long term receivable and prepayments Change in working capital, net Net cash inflow from operating activities — — — 1,251 161 (1,185 ) — — — — 1,431 1,016 (1,375 ) 1,008 129 4,204 4,768 5,347 4,652 597 1,039 — — — — (3,284 ) (189 ) — — — (2,582 ) (31,371 ) 9,650 — — (4,250 ) (1,732 ) (3,013 ) (3,012 ) (387 ) 1,346 (505 ) 917 1,073 138 (27,434 ) 8,567 (44,244 ) (49,754 ) (6,389 ) 381,991 536,771 485,340 585,899 75,235
Operating data:
As of and for the year ended August 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2011 | |||||||||||||
FTNS subscriptions: | ||||||||||||||||
- Broadband Internet access | 316,000 | 391,000 | 526,000 | 590,000 | ||||||||||||
- Local VoIP | 329,000 | 382,000 | 431,000 | 476,000 | ||||||||||||
- IP-TV | 156,000 | 170,000 | 153,000 | 181,000 | ||||||||||||
Total | 801,000 | 943,000 | 1,110,000 | 1,247,000 | ||||||||||||
Registered international telecommunications accounts (note 5) | 2,336,000 | 2,383,000 | 2,445,000 | 2,488,000 | ||||||||||||
IDD outgoing minutes (in thousands) | 574,000 | 487,000 | 464,000 | 412,000 |
August 31, 2010 | August 31, 2011 | August 31, 2012 | August 31, 2013 | August 31, 2014 | December 31, 2014 | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Number of ordinary shares issued and fully paid (in thousands of shares) | 764,997 | 771,912 | 809,017 | 809,017 | 809,017 | 809,017 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
(1) | Diluted (loss)/earnings per share is computed by dividing (loss)/profit for the |
(2) |
Capital expenditures represent additions to fixed assets and include non-cash transactions. |
Selected Consolidated Income Statement:
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
Selected Consolidated Balance Sheet Data:
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
Other Financial Data:
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
We believe that the most directly comparable measure to EBITDA is net cash provided by operating activities. The following table reconciles our net cash provided by operating activities under HKFRS to our definition of EBITDA on a consolidated basis for fiscal 2007.
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
Operating Data:
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
Notes:
Exchange rate information
The Hong Kong dollar is freely convertible into other currencies (including the U.S. dollar). Since 1983, the Hong Kong dollar has been officially linked to the U.S. dollar and the current rate is US$1.00 to HK$7.80. Despite the efforts of the HKMA to keep the official exchange rate stable, the market exchange rate of the Hong Kong dollar against the U.S. dollar continues to beis influenced by the forces of supply and demand in the foreign exchange markets. Furthermore, the official exchange rate is itself subject to fluctuations and can be reset in circumstances where the secondary foreign exchange markets move beyond the HKMA’s ability to back the official rate with foreign reserves.
Exchange rates between the Hong Kong dollar and other currencies are influenced by the rate between the U.S. dollar and the Hong Kong dollar.
As of April 24, 2015, the exchange rate between the Hong Kong dollar and the U.S. dollar was 7.7499. The following table sets forth the average, high, low and period-end exchange rate between the Hong Kong dollar and the U.S. dollar (in Hong Kong dollars per U.S. dollar) for the fiscal periods indicated:
Average | High | Low | Period-end | |||||||||||||
(note) HK$ | HK$ | HK$ | HK$ | |||||||||||||
Fiscal 2007 | 7.8029 | 7.8289 | 7.7665 | 7.7968 | ||||||||||||
Fiscal 2008 | 7.7915 | 7.8159 | 7.7497 | 7.8036 | ||||||||||||
Fiscal 2009 | 7.7550 | 7.8094 | 7.7495 | 7.7505 | ||||||||||||
Fiscal 2010 | 7.7646 | 7.8040 | 7.7495 | 7.7781 | ||||||||||||
Fiscal 2011 | 7.7776 | 7.8087 | 7.7506 | 7.7876 | ||||||||||||
June 2011 | 7.7850 | 7.7976 | 7.7767 | 7.7814 | ||||||||||||
July 2011 | 7.7892 | 7.7964 | 7.7802 | 7.7942 | ||||||||||||
August 2011 | 7.7965 | 7.8087 | 7.7876 | 7.7876 | ||||||||||||
September 2011 | 7.7943 | 7.8040 | 7.7830 | 7.7840 | ||||||||||||
October 2011 | 7.7774 | 7.7884 | 7.7634 | 7.7641 | ||||||||||||
November 2011 | 7.7809 | 7.7957 | 7.7679 | 7.7730 | ||||||||||||
December 2011 (through December 9, 2011) | 7.7727 | 7.7817 | 7.7676 | 7.7817 |
Average(1) | High | Low | Period-end | |||||||||||||
HK$ | HK$ | HK$ | HK$ | |||||||||||||
Fiscal 2010 | 7.7646 | 7.8040 | 7.7495 | 7.7781 | ||||||||||||
Fiscal 2011 | 7.7776 | 7.8087 | 7.7506 | 7.7876 | ||||||||||||
Fiscal 2012 | 7.7670 | 7.8040 | 7.7532 | 7.7560 | ||||||||||||
Fiscal 2013 | 7.7559 | 7.7654 | 7.7493 | 7.7544 | ||||||||||||
October 2014 | 7.7572 | 7.7645 | 7.7541 | 7.7551 | ||||||||||||
November 2014 | 7.7543 | 7.7572 | 7.7519 | 7.7548 | ||||||||||||
December 2014 | 7.7541 | 7.7616 | 7.7509 | 7.7531 | ||||||||||||
January 2015 | 7.7531 | 7.7563 | 7.7508 | 7.7529 | ||||||||||||
February 2015 | 7.7551 | 7.7584 | 7.7517 | 7.7559 | ||||||||||||
March 2015 | 7.7584 | 7.7686 | 7.7534 | 7.7540 | ||||||||||||
April 2015 (through April 24, 2015) | 7.7509 | 7.7525 | 7.7495 | 7.7499 |
Note:
The average rates on the last business day of each month during the relevant fiscal year |
Source: For all periods prior to January 1, 2009, theThe exchange rate refers to noon buying rate as reported by the Federal Reserve Bank of New York. For periods beginning on or after January 1, 2009, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board.
B. Capitalization and indebtedness
Not applicable.
Not applicable
You should carefully considerC. Reasons for the risks described belowoffer and use of proceeds
Not applicable
In addition to the other information contained in this annual report before making an investment decision.on Form 20-F, you should carefully consider the following risk factors. If any of the possible events described below occurs, our business, financial condition, results of operations or prospects could be adversely affected. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impairadversely affect us.
Risks Relating to Our Business and Operations
Our application for a free TV license in Hong Kong was rejected and although our judicial review was successful, we may not ultimately receive a license.
In 2009, we submitted an application for a free TV license to the HKBA. On October 15, 2013, the Chief Executive in Council announced that it had rejected our application. As a result, we are not able to operate domestic free television program services in Hong Kong. On April 11, 2014, we submitted a new application for a free TV license, which is being considered by the CA. On January 6, 2014, we filed an application for leave to apply for judicial review in respect of the Chief Executive’s denial of our first application and the substantive hearing was conducted from August 27 to 29, 2014. The court’s judgment was handed down on April 24, 2015, quashing the Chief Executive’s denial of our application for a free TV license and directing the government to pay our legal fees and expenses in relation to the judicial review. The application was remitted to the Chief Executive in Council for reconsideration.
The Chief Executive in Council, after reconsidering our application, may again reject our application. Even if we again apply for judicial review of the new denial, that could be a protracted and costly process and one which is not successful in the end. We may not ultimately receive a license. As we had planned on domestic free television being one of the major distribution channels for our self-produced television content and the primary source of our advertising revenue, any failure to obtain a free TV license will make us more reliant on the other distribution channels we have been exploring, such as our mobile TV services, and developing, such as our OTT and Online Shopping Business.
Depending on the progress we make in obtaining a free TV license, we may at some point cease pursuing the domestic free television business in Hong Kong, which could have a material adverse effect on our business, operations.prospects and financial condition.
Our application to use the widely adopted DTMB standard to provide mobile TV services in Hong Kong using the license of our subsidiary was rejected by the CA, and our judicial review may not be successful.
By acquiring the Target Company in December 2013, we acquired a license to provide mobile TV services in Hong Kong. In April 2014, however, we suspended the launch of mobile TV services after being denied permission by the CA to provide the services using the DTMB transmission standard without also having a free tv license. As a consequence, we have reduced the scale of our workforce in the creative and production teams, and we suspended the filming of new television programs The High Court granted us leave to apply for judicial review, and the substantive hearing was conducted on November 26 and 27, 2014, with the judgment reserved to be handed down at a later date. As noted above, we have submitted a new application for a free TV license, and our first application for a free TV license may be reconsidered by the Chief Executive in Council in light of the outcome of the judicial review of his denial of that application. This free TV license, if granted, would enable us to use the DTMB transmission standard, but we may not ultimately receive the license. Subject to feedback from viewers, to the result of the Chief Executive’s reconsideration of our first application for a free TV license, to the result of the CA’s consideration of our second application for a free TV license, and to the result of the judicial review on our provision of mobile TV services, we may adjust the direction and pace of our content and will consider resuming content production. We cannot assurewill also continue to explore opportunities to extend the reach of our content to Hong Kong people using different platforms. Given the uncertainties relating to our licenses, there can be no assurance that we will in fact resume content production or extend the reach of our content.
As we had planned on our mobile TV services being one of the major distribution channels for our self-produced television content and a significant source of our advertising revenue, our failure to gain permission to provide mobile TV services in Hong Kong using an acceptable transmission standard will make us more reliant on the other distribution channels we have been developing, such as our OTT platform, and on other business development, such as our online shopping business. If we lose the judicial review in respect of our provision of mobile TV services, we may be responsible for the government’s costs incurred in the process. Even if the judicial review is successful, we will not necessarily be granted permission to use the DTMB transmission standard or another standard acceptable to us; a successful judicial review may merely mean that the CA will be required to reconsider our plan to use the DTMB transmission standard in light of the outcome of the judicial review.
If we do not make real progress in the near future toward permission to provide mobile TV service in Hong Kong using an acceptable transmission standard, we may cease pursuing the mobile TV business in Hong Kong, which may have a material adverse effect on our business, prospects and financial condition.
We have a limited operating history in our Multimedia Business, which makes it difficult to evaluate our business.
Our Multimedia Business includes our offer of free television programming through our OTT platform, our online shopping business, multimedia and drama productions, and content distribution and licensing, as well as artiste management services. We launched our OTT platform, HKTV Mall, in November 2014 and our online shopping business in February 2015. As a result, we have a limited operating history in the Multimedia Business for you to evaluate our business, financial performance and prospects. Our historical results, which were largely based on the Telecom Business that we disposed of in May 2012, are not indicative of our future performance. To date, we have not achieved significant revenue or profitability in our Multimedia Business and, going forward, we may not be able to generate significant revenue or achieve profitability.
We may not be able to implement our business plans and expansion strategies successfully.
We may not be able to implement our business plans and expansion strategies successfully. Our business plans include strengthening our position in the multimedia and television industry, in part through the expansion of our OTT platform, as well as expanding our online presence with our online shopping business. Our business plans and strategies have been formulated based on a number of assumptions, including successful cooperation with our business partners, and are expected to place substantial demands on our managerial, operational, financial and other resources.
The success of our business plans and expansion strategies depends on a number of factors, including our ability to:
The failure to achieve any of the events discussedabove could increase our costs of operation and investment. We may not be able to manage our operations efficiently to compete successfully in our existing markets or any new markets that we may enter, which may materially and adversely affect our business, prospects, financial condition and results of operations.
Our OTT and Online Shopping Businesses may not be profitable.
We have refined our business plan to focus primarily on the development of our OTT and online shopping businesses. On November 19, 2014, we officially announced the launch of the HKTV Mall – an OTT platform integrating entertainment and a one-stop online shopping platform in Hong Kong. The first phase was to launch the OTT platform with about 18 hours of broadcasting content, including self-produced drama series, variety and infotainment programs and purchased content. After the trial run on December 17, 2014, our online shopping mall was formally launched on February 2, 2015. This platform can be accessed through multiple Internet-connected devices, such as smart phones running on Android, iOS and Windows, tablet computers, personal computers, smart TV sets, Android TV boxes and game consoles. For the sixteen months ended December 31, 2014, we incurred a loss of HK$237.0 million. We may incur substantial expenditure in connection with these endeavors before we can generate significant revenue from our OTT and online shopping businesses. As a result, our OTT and online shopping businesses may not be able to become profitable in the risk factors below or any other events that has not been so identified will not occur. If they do,future.
The construction and development of the Centre is subject to a number of risks beyond our business, financial condition or results of operations could be materially adversely affected.control.
Risks relating to our businessWe started building the Centre on land granted by Hong Kong Science and operations
Technology Parks Corporation in the Tseung Kwan O Industrial Estate in February 2012. In light of the intense competition inrejection of our target markets,application for a free TV license, we cannot assure you that our revenues and net profit will continue to grow.
We derive our total revenues from our FTNShave suspended the construction of the Centre. Depending on business and our IDD business. Our FTNS business primarily consists of broadband Internet access, local VoIP, IP-TV and corporate data services, while our IDD business primarily consists of direct dial, international calling cards and mobile call forwarding services. Our total revenues increased by 6.8% to HK$1,681.5 million in fiscal 2011 from HK$1,574.7 million in fiscal 2010, and our net profit increased by 44.8% to HK$313.9 million in fiscal 2011 from HK$216.9 million in fiscal 2010. The increase in net profit in fiscal 2011 was primarily due to increased contribution from our FTNS business and finance cost savings of HK$15.9 million as adevelopments, the result of the full year impactChief Executive’s reconsideration of our first application for a free TV license, the result of the repurchase and redemptionCA’s consideration of our outstanding 10-year senior notes in fiscal 2010.
Although revenue fromsecond application for a free TV license and the outcome of the judicial review relating to our FTNSmobile TV license, we may resume the construction of the Centre to support our business increased by 9.5% in fiscal 2011,development. We have obtained an extension of time for development of the Centre to February 28, 2017. If we cannot assure you thatdo not resume the construction of the Centre, we will be ableunable to maintain such revenue and profit growth. The increase in revenue of our FTNS business was primarily duerecover the investment made to an increase in our broadband subscription base by 12.2% as a result of our “Member-Get-Member” marketing campaigns between November 2009 to August 2010, which reduced the price for our symmetric 100 Mbps service by half to HK$99 per month, in exchange for an enlarged customer base and a subsequent increasedate in the price for the same service following the termination of the “Member-Get-Member” marketing campaigns since September 1, 2010. We cannot assure you whether our revenues and net profit will continue to grow as a result of such price increase due to intense competition in our industry. The growth of our subscription base will depend on our ability to continue to expand our network coverage and to operate in a highly competitive market.
Further, revenue from our IDD business decreased by 9.8% in fiscal 2011. The decrease was primarily due to a decrease in the total number of airtime minutes by 11.2%. On our IDD service, our strategy is to focus on cash flow rather than market share. Due to increasing competition, we expect our IDD business will continue to experience pressure on tariff rates and to contribute to a smaller portion of our revenue and net profit over time.
Our ability to continue to grow our total revenues and net profit in the rapidly evolving telecommunications industry depends on many factors, including our ability to accurately identify and respond to demand for new services, success in developing new services on a timely basis, quality and cost competitiveness of our services, effectiveness of our sales and marketing efforts, and the number and nature of competitors in a given market segment. The global economic uncertainty has resulted in decreased consumer confidence and overall slower economic activity,project, which may dampen the demand for broadband services or affect our customers’ ability to continue with existing services. We cannot assure you that we can maintain the current level of revenue growth and profitability.
Given the pace of change in the telecommunications industry and the characteristics of our target markets, we cannot assure you that our FTNS business will continue to be profitable.
The main target market for our FTNS business is Hong Kong. The Hong Kong telecommunications industry is highly competitive. The intense competition could result in price reductions, reduced gross margins or loss of market share, any of which could adversely affect our future growth and profitability. We expect competition to continue to increase for the following reasons:
Increasing liberalization of the telecommunications industry in Hong Kong may continue to attract new local and foreign entrants and broaden the variety of telecommunications services available in the market, thereby increasing the overall level of competition in our industry.
The Hong Kong government may continue to issue new wireless and wire-line FTNS Licenses. For instance, 270 PNETS Licenses had been issued in Hong Kongtotaled HK$156.3 million as of December 31, 2010 for2014.
If we do resume the provisionconstruction and development of “external telecommunications services” (as defined in OFTA’s Determination asthe Centre, the success of December 30, 1998). Somethe project will be subject to a number of risks beyond our control, including:
The occurrence of any of these licenses are held by subsidiaries of major foreign telecommunications providers, which have competitive advantages over us due to their global presence , financial resourcesevents could further delay the construction and size.
Around December 31, 2007, Television Broadcasts Limited and Asia Television Limited, commonly known as TVB and ATV, respectively, the only two licensed domestic free television program broadcasters in Hong Kong, launched their digital terrestrial television services and have since broadened such services to cover an increasingly large percentagedevelopment of the viewing publicCentre or increase construction costs, which may in Hong Kong. As of December 13, 2011, their services offeredturn have a total of 11 free channels in both standard and high definition. This improvement in the quality of free television may result in a reduction in the number of subscribers for pay-television services.
As some of our main competitors have longer operating histories and others are subsidiaries of large business conglomerates, they may have greater financial, technical, marketing and other resources; a more sophisticated infrastructure; better brand recognition; and a larger subscription base and may be able to devote more human and financial resources to research and development, network improvement and marketing than we can. Our competitive position varies significantly by service type because each service is characterized by a different market. If we cannot compete effectively in a major market, our business, operating results and financial condition could be adversely affected.
Our services may become obsolete if we cannot address the changing needs of our customers.
The telecommunications industry is characterized by rapidly changing technology and industry standards, evolving subscriber needs and the changing nature of services with increasingly short life cycles. We cannot assure you that we will be able to respond successfully to technological advances and stay ahead of the evolving industry standards, for the following reasons:
To compete successfully, we must constantly increase the diversity and sophistication of the services we offer and upgrade our telecommunications technologies. We may be required to make substantial capital expenditures and may not be successful in modifying our network infrastructure in a timely and cost-effective manner in response to these changes.
New technology, such as the possible development of 4G wireless data networks as a substitute for fiber-based services, or other trends in the telecommunications industry, could have anmaterial adverse effect on the services we currently offer. For example, traditional fixed line home telephones are being replaced by mobile telephones and/or VoIP services. Technology substitution from global VoIP providers, some of which offer free PC-to-PC based international calls, is also becoming more prevalent. Increased adoption of such competing technology may lead to a decline in our revenues and profitability.
Changing our services in response to market demand may require the adoption of new technologies that could render many of the technologies that we are currently implementing less competitive or obsolete. We may also need to gain access to related or enabling technologies in order to integrate the new technology with our existing technology. Our new services may contain design flaws or other defects when first introduced to the market.
If we cannot offer the new services demanded by our customers in a timely manner, our business, operating results orprospects, financial condition could be adversely affected.and results of operations.
The development of our Next Generation Network and our multimedia production and distribution businessMultimedia Business requires significant capital expenditures,expenditure, which may not be available on terms satisfactory to usterms or may impose a burden on our other business activities.
Our business is capital intensive. We need to continue to devote substantial resources in infrastructure construction and upgrade to provide consistent and high quality services. In particular, because we deliver our fixed telecommunications network services through our self-owned Next Generation Network, we have made, and will continue to make, capital investments in the expansion and upgrade of this network and the development of various telecommunications services. We incurred total capital expenditures of approximately HK$449.2 million in fiscal 2011 including HK$50.1 million for a parcel of land and related costs for constructing our multimedia production and distribution centre which is expected to be completed within 36 months.
Excluding our business expansion into multimedia production and free TV subject to licensing, we expect to incur significant capital expenditures ranging from approximately HK$320 millionexpenditure to HK$350 million in fiscal 2012,develop our Multimedia Business, a large majoritymajor portion of which will be spent onfor the continued expansion and upgradebuilding of the Centre. Our capital expenditure plans will also include the development of our network. Once we achieved our 2.0 million homes pass target, we expect our core capital expenditure on the telecom business to turnover ratio gradually reduce to mid teens percentage of turnover in order to maintain our Next Generation Network. However, the telecom industry is exposed to rapidly evolving technology changes which may pose both opportunitiesOTT and threats to us, for which we may need to respond with additional operating and capital expenditures. We do not have a specific plan to upgrade our network but expect to incur recurring investment for technology upgrade which could be covered by the turnover ratio referenced above.online shopping businesses. While we intend to fund such expendituresexpenditure by using our currently available cash, as well as cash flow from operations,unutilized banking facilities, we may not have adequate capital to fund our projected capital expenditures. Our ability to fund operating andexpenditure if there is any further delay in our capital expenditures depends significantly on our ability to generate cash from operations. In fiscal 2011, we generated cash from operating activities of HK$585.9 million. However, we cannot assure you that we will be able to sustain our operationsexpenditure plans or if there is an increase in order to generate sufficient cash flows to meet our future requirements. Our ability to generate cash from operations is subject to general economic, financial, industry, legal and other factors and conditions, many of which are outside our control. In particular, our operations are subject to price and demand volatility in the telecommunications industry.
costs. If we cannot finance our operations and capital expenditure using existing available cash generated from operations,and unutilized banking facilities, we may be required to among other things, incur additional debt, reduce capital expenditures,expenditure, sell assets, or raise equity. The global economic uncertainty has caused a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and volatility in the capital markets. Although we have sufficient cash to meet our anticipated cash needs for at least the next 12 months, the current marketMarket conditions may affectimpair our ability to obtain further financing to support our networkcapital expansion in the future. Any failure to do so will negatively impact our business and slow down our network deployment, in that we may not be able to continue expanding our network infrastructure to cover substantial area of the Hong Kong territory.plans. Additional debt or equity financing may not be available, and debt financing, if available, may involve restrictions on our investing, financing and operating activities.
If any ofwe fail to capture viewer preferences, our new services are not successful, our operating resultsbusiness prospects and reputation could be materially and adversely affected.
New telecommunications services are introducedThe success of our self-produced multimedia content, such as the entertainment programs broadcast on our OTT platform and available in HKTV Mall, depends primarily on our ability to capture viewer preferences, which vary among different demographic groups and regions and could change rapidly. In general, the popularity of multimedia content among viewers is mainly determined by the producer’s ability to originate and source viewer-engaging content, create high-quality scripts and characters that appeal to a broad range of viewers, and cast popular talent and directors. If viewers’ reaction to our competitorsmultimedia content is different from timethat we have predicted, the success and popularity of our multimedia content may be jeopardized. If our multimedia content fails to time. If we do not anticipate these changes and rapidly adopt new and innovative services in response,perform as expected, we may not be able to fully capture the opportunitiesestablish a strong reputation in the market. Development of new services, however, exposes usmultimedia content production business, and our business prospects may be materially and adversely affected.
Changes in consumer viewing habits could adversely affect our business.
The manner in which consumers view multimedia content is changing rapidly. Digital cable, wireless and Internet content providers are continuing to the following risks:
Developing new telecommunications servicesimprove technologies, content offerings, user interfaces, and business models that allow consumers to access multimedia content with interactive capabilities. The devices through which multimedia content can be complex.consumed are also changing rapidly. Currently, multimedia content may be viewed on our OTT platform via multiple Internet-connected devices, such as smart phones, tablet computers, personal computers, smart TV sets, Android TV boxes and game consoles. If other providers of multimedia content address the changes in consumer viewing habits in a manner that is better able to meet consumer needs and expectations, our business could be materially and adversely affected.
Our distribution of multimedia content may be materially and adversely affected by instability of the network of our prior Telecom Business or disruption in the network’s continued development.
Upon the completion of the disposal of the Telecom Business, we were granted an indefeasible right of use, among other rights, to use certain of HKBN’s telecommunications capacity for a term of 20 years to enable the delivery of our multimedia content through the telecommunications network operated by HKBN. We expect the indefeasible right of use will form one of the main channels of distribution in Hong Kong for our multimedia content. Instability of the telecommunications network or disruption in the network’s continued development could materially and adversely affect our operations.
Our business could be materially and adversely affected by claims of infringement of intellectual property rights.
Monitoring and preventing the unauthorized use of our intellectual property rights may be difficult, costly and time-consuming. We are currently challenging a third party’s applications to register trademarks incorporating our name. If we are unable to adequately protect our copyrights and other intellectual property rights, these rights may be infringed, and our business, financial condition, results of operations and prospects may be materially and adversely affected.
Moreover, third parties may claim that our self-produced multimedia content, including television content, or our trademarks, misappropriate or infringe their intellectual property rights, including those with respect to their previous productions, scripts, characters and trademarks. We are actively defending ourselves against a third-party challenge to one of our registered trademarks. Litigation over intellectual property rights could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. If we are unsuccessful in defending any such assertions or claims, our business, financial condition, results of operations and reputation may be materially and adversely affected.
Our success depends on our ability to attract, retain and rehire high-quality production crew, talent artistes and logistics personnel in a highly competitive market.
The Multimedia Business requires the collaboration of many different workstreams and people with different expertise. In addition, some of our operations, such as our logistics operations, are human-capital intensive. As such, our ability to attract, retain and rehire high-quality production crew, popular talent artistes and logistics personnel will be a key factor to our success. Loss of a significant number of members of our logistics operations could cause customer dissatisfaction with our online shopping services; and, as a result, our business could be materially and adversely affected. We may not be able to adapt the new services effectively, promptlyre-hire Talents, in particular, production team members and economically to meet customer demand.
In developing new services,talent artistes whom we are required to continuehave made redundant or whose contracts we have not renewed, or to make significant investmentsreplacement hires, if we resume content production in our network infrastructurethe future or need them in order to supportmeet other future business needs.
In addition, we face competition for high-quality production crew and popular talent artistes from other multimedia content production companies and other organizations. Competition for these services. If we exceed our budgeted capital expenditure and cannot meet the additional capital requirements in time through operating cash flows and planned financings, we may have to delay our projects.
Any of our new services may not be commercially successful. The failure of any of our services to achieve commercial acceptanceindividuals could result in additional capital expenditures or, to the extent that we are required under the applicable accounting standards to recognize a charge for the impairment of assets, could materially adversely affect our financial condition and the results of our operations.
Specifically, we cannot assure you that any services enabled by upgrading and expanding our Next Generation Network will provide us with an acceptable rate of return. This would depend on our ability to accurately identify and respond to emerging consumer trends and demand. We cannot assure you that we can generate satisfactory investment returns on any new service.
We may lose investor confidence in the reliability of our financial statements if we fail to achieve and maintain effective internal control over financial reporting, which in turn could harm our business and adversely affect the trading prices of our ADRs.
The United States Securities and Exchange Commission, or the SEC, as required by Section 404(a) of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act”, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. Effective from September 21, 2010, the SEC adopted amendments to its rules and forms to conform them to Section 404(c) of the Sarbanes-Oxley Act, as added by Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Section 404(c) provides that Section 404(b) of the Sarbanes-Oxley Act shall not apply with respect to any audit report prepared for an issuer that is neither an accelerated filer nor a large accelerated filer. During fiscal 2010, we became an accelerated filer. Therefore, we are required to have an independent registered public accounting firm to attest to and report on the effectiveness of our internal controls over financial reporting starting from fiscal 2010.
We have evaluated our internal controls surrounding the financial reporting process for the current fiscal period so that management can attest to the effectiveness of these controls, as required by Section 404 of the Sarbanes-Oxley Act of 2002. We have implemented appropriate steps to strengthen the internal controls. However, we may identify conditions that could result in significant deficiencies or material weaknesses in the future. As a result, we could experience a negative reaction in the financial markets and incur additional costs in improving the condition of our internal controls. For a detailed discussion of controls and procedures, see Item 15 “Controls and procedures.”
Notwithstanding our efforts, our management may subsequently conclude that our internal control over financial reporting is not effective. Further, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may conclude that our internal control over financial reporting is not effective. If we do not successfully design and implement changes to our internal controls and management systems, or if we fail to maintain the adequacy of these controls as such standards are modified or amended from time to time, we may not be able to comply with Section 404(a) of the Sarbanes-Oxley Act. This could subjectrequire us to regulatory scrutinyoffer higher compensation and penalties that may resultother benefits in a loss of public confidence inorder to attract and retain them, which would increase our management, which could, among other things, adversely affect our customer and vendor confidence, stock price and our ability to raise additional capital and operate our business as projected.
If we cannot manage the growth in our FTNS business, the quality of our services and ourfuture operating results could be adversely affected.expenses.
We have been pursuing an aggressive strategy in growing our FTNS business. As part of this strategy, we intend to continue to expand and invest in our Next Generation Network infrastructure to support our range of broadband Internet access, local VoIP, IP-TV and corporate data services. The deployment of these projects has resulted and will result in significant demands on our systems and controls and may impact our administrative, operational and financial resources. These projects will also place significant demands on us to maintain the quality of our services to ensure that our brand does not suffer as a result of any deviations, whether actual or perceived, in the quality of our services.
Our ability to manage the growth in our FTNS business will depend upon our ability to:
improve our existing operational, administrative and technological systems and our financial and management controls;
enhance our infrastructure to support the expansion;
develop effective marketing plans;
control operational costs and maintain effective quality controls; and
offer competitive prices to customers for our services.
Our failure to achieve any of the above in an efficient manner and at a pace consistent with the growth of our FTNS business could have an adverse effect on the quality of our services and increase our costs of operation.
We depend on certain key personnel, and our business and growth prospects may be disrupted by the loss of their services.
Our future success is dependentdepends upon the continued service of our key executives and Talents. While we have employment agreements with members of our senior management, we cannot assure you that we will be able to retain these senior management. If one or moreany of our key personnel were unable or unwilling to continue in their present positions, or if they joined a competitor or formed a competing company, or if they shifted their focus away from Hong Kong operations, we may not be able to replace them easily and our business may be significantly disrupted and our financial condition and results of operations may be materially adversely affected.disrupted. Furthermore, as our industry is characterized by high demand and increased competition for Talents, we may need to offer higher compensation and other benefits in order to attract and retain key personnel in the future.personnel. We cannot assure you that we willmight not be able to attract and retain the key personnel that we will need to achieve our business objectives.
Our ability to further expandWe may lose investor confidence in the coveragereliability of our Next Generation Network may be limited by the physical limitations or our ability to obtain access rights in certain buildings.
Our Next Generation Network has the capability of providing value-added broadband services and content that combine voice, data and images with increased efficiency and flexibility. As part of our strategy to grow our FTNS business, we plan to increase the coverage of our Next Generation Network from the current number of 1.94 million residential homes pass as of August 31, 2011 to our target of 2.0 million residential homes pass by the end of 2011. To connect our Next Generation Network to a new physical site, we need to install fibre-to-the-home or fibre-to-the-building with Category-5e copper wiring, which we refer to as “in-building wiring”. Our expansion plan may be hindered because the installation of in-building wiring is subject to the following constraints:
Because at least one of our competitors has already installed in-building wiring in virtually all buildings and many buildings have limited physical space for additional in-building wiring, other FTNS providers, including us, may encounter a bottleneck when installing our own in-building wiring;
Some single-owner commercial buildings may grant rights of access to our competitors while barring us from installing our own in-building wiring; and
Certain developers may have affiliations with our competitors and may attempt to delay or inhibit our wiring installations.
We may be unable to capitalize on any economy of scale benefitsfinancial statements if we fail to expandmaintain effective internal controls over financial reporting, which in turn could harm our network coveragebusiness and adversely affect the trading prices of our ADSs.
Under the Sarbanes-Oxley Act, every public company must include a management report on its internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. Under the Sarbanes-Oxley Act, we are also required to have an independent registered public accounting firm to attest to and report on the effectiveness of our internal controls over financial reporting. For a detailed discussion of our controls and procedures, see Item 15 “Controls and procedures.”
Notwithstanding our efforts, our management could conclude that our internal controls over financial reporting are not effective. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may conclude that our internal controls over financial reporting are not effective. If either of these were to occur, we could experience a negative reaction in the financial markets and incur additional costs to improve our internal controls. If we do not successfully design and implement changes to our internal controls and management systems, or if we fail to maintain the adequacy of these controls as the relevant standards are modified or amended from time to time, we may not be able to comply with the Sarbanes-Oxley Act. This could subject us to regulatory scrutiny and penalties that could lead to a loss of public confidence in our management, which in turn could, among other things, adversely affect our shareholders’ confidence, our stock price and our ability to raise additional capital and operate our business as projected.
We may not be able to sustain the level of other income we generated in fiscal 2014.
We recorded “other income, net” of HK$147.6 million in fiscal 2014, which was significantly more than in previous years. As compared with fiscal 2013, the increase was mainly due to an increase of HK$56.3 million in investment return, which included an additional four months’ investment return of HK$35.5 million, as well as an additional four month’s rental from investment properties of HK$3.8 million, which were partially offset by a HK$41.4 million decrease in exchange gain. In fiscal 2014, our “other income, net” mainly comprised interest income from available-for-sale securities, bank interest income, net exchange gain and rental income from investment properties. As we develop our Multimedia Business, less surplus cash will be available for these investments and, accordingly, we may not be able to generate a similar level of other income as we did in fiscal 2014.
In addition, our investment income is affected by many factors beyond our control. For example, our interest income is affected by changes in interest rates, which are highly sensitive to many factors, including governmental monetary policy and domestic and international economic and political conditions. Deterioration in the credit of the securities in which we have invested and general market conditions may also materially and adversely affect our investment income.
We may not be able to realize our investment in other financial assets at our projected rate.desired time, price and transaction size, or to receive the debt principal back upon maturity.
We recorded other financial assets of HK$1,784.4 million as of December 31, 2014 which represented investment in available-for-sale securities mainly composed of debt securities, a significant portion of which has a maturity date of over one year from December 31, 2014, and equity securities. Although we mostly invested in liquid instruments with sound credit quality, such as investment grade products, securities of constituents in major stock indices or securities of state-owned or -controlled companies, we may still face liquidity risk, which is highly sensitive to many factors, including issuers’ credit and financial condition, governmental monetary policy and general market conditions. We may not be able to realize our investment in other financial assets at our desired time, price and transaction size.
In addition, we may not be able to recover the par value of our investment in available-for-sale debt securities, upon maturity or at all, if the credit quality and financial position of the debt issuers deteriorate.
If we are unable to offer products that attract new customers and recurring purchases from existing customers through our online shopping platform, HKTV Mall, our business, financial condition and results of operations may be materially and adversely affected.
We launched our 24-hour online shopping platform on HKTV Mall in February 2015. We expect this online shopping business will be one of the major contributors to our business. Our future growth opportunitiesdepends on our ability to continue to attract new online shopping customers as well as recurring purchases from existing online shopping customers. Constantly changing consumer preferences have affected and will continue to affect the online retail industry. We must stay abreast of emerging consumer preferences and anticipate product trends that will appeal to existing and potential customers. Our customers choose to purchase authentic and quality products on our website due in part to the attractive prices that we offer, and they may choose to shop elsewhere if we cannot match the prices offered by other websites or by physical stores. If our customers cannot find their desired products on our website at attractive prices, they may lose interest in us and visit our website less frequently or even stop visiting our website altogether, which in turn could materially and adversely affect our business, prospects, financial condition and results of operations.
Our online shopping business faces intense competition. We may lose customers if we fail to compete effectively.
The online retail industry in Hong Kong is intensely competitive. Our current or potential competitors include major online retailers in the Hong Kong area that offer a wide range of general merchandise product categories, major traditional retailers in Hong Kong that are moving into online retailing, major internet companies that have commenced online retail businesses, online retail companies in Hong Kong focused on specific product categories, and physical retail stores, including big-box stores that also aim to offer a one-stop shopping experience. In addition, new and enhanced technologies may increase the competition in the online retail industry. New competitive business models may appear, for example based on new forms of social media or social commerce.
Increased competition may reduce our margins or result in significant losses. When we set prices, we have to consider how competitors have set prices for the same or similar products. When they cut prices or offer additional benefits to compete with us, we may have to lower our own prices or offer additional benefits or risk losing market share, either of which could harm our financial condition and results of operations.
Some of our current or future competitors may have longer operating histories, greater brand recognition, better supplier relationships, larger customer bases or greater financial, technical or marketing resources than we do. Some of our competitors may be limitedable to secure more favorable terms from suppliers, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory policies and devote substantially more resources to their website, mobile application and systems development than us. We cannot assure you that we will be able to compete successfully against current or future competitors, and competitive pressures may have a material and adverse effect on our business, prospects, financial condition and results of operations.
Our online shopping business offers product categories which are not familiar to us, and a substantial increase in the number of products in the future may expose us to new challenges and more risks.
As of April 27, 2015, our online shopping mall has over 350 stores offering a variety of products in categories which include fashion, mother and baby, skin care and make up, personal care, medicine and health, supermarket, food and wine, household, music, video and books, games, toys and stationery, outdoor and sports, pet care, and digital and electronics products. In addition, we may substantially increase number of products we offer in the future. Our lack of familiarity with these products and lack of relevant customer data relating to these products may make it more difficult for us to anticipate customer demand and preferences. We may misjudge customer demand. It may also make it more difficult for us to inspect and control quality and ensure proper handling, storage and delivery. We may experience higher return rates on new products, receive more customer complaints about them and face costly product liability claims as a result.
Internet security concernsresult of selling them for the merchants who are the owners of the products, which could harm our brand and reputation as well as our financial performance. Furthermore, we may not be able to negotiate favorable terms with suppliers. We may need to provide aggressive promotional offers to gain market share or remain competitive in new categories. It may be difficult for us to achieve profitability in the new product categories, and our profit margin, if any, may be lower than we anticipate, which could adversely affect our Internet access services.overall profitability and results of operations.
We may be subject to product liability claims if people or properties are harmed by the products we sell through our online shopping platform.
To remain competitive,We are a marketplace with a substantial number of products and services, selling for third-party merchants through our online shopping platform, some of which may be defectively designed or manufactured. As a result, sales of such products could expose us to product liability claims relating to personal injury or property damage and may require product recalls or other actions. Third parties subject to such injury or damage may bring claims or legal proceedings against us as the operator of the marketplace selling the product. Although we must continuewould have legal recourse against the third-party merchants or manufacturer of such products under Hong Kong law, attempting to upgradeenforce our broadband Internet access, local VoIP, IP-TVrights against such parties may be expensive, time-consuming and corporate data services. Computer viruses, break-insultimately futile. In addition, we do not currently maintain any product liability insurance in relation to products we sell. As a result, any material product liability claim or litigation could have a material and other inappropriate or unauthorized usesadverse effect on our business, prospects, financial condition and results of operations. Even unsuccessful claims could result in the expenditure of funds and managerial efforts in defending them and could have a negative impact on our reputation.
We are subject to payment-related risks.
We enable customers of our Next Generation Networkonline shopping business to make payments through our website by working with third-party online payment processing service providers. As we rely on third parties to provide payment processing services, including processing payments made with credit cards, it could affect the provision of our full suite of Internet Protocol services and have the following effects on our FTNS business:
interruption, delays or cessation in services to our customers;
a threat to the security of confidential information stored in the computer system of our customers; and
illegal viewing or download of our contents.
To protectdisrupt our business from computer viruses and other harmful attacks,or even we may need to scale down or suspense the online shopping business if these companies become unwilling or unable to provide these services to us. We may be subject to human error, fraud and other illegal activities in connection with third-party online payment services. If our data security systems are breached or compromised, we may lose our ability to accept credit card payments from our customers, and we may be subject to claims for damages from our customers and third parties, all of which could adversely and materially affect our reputation as well as our results of operations.
If we are unable to conduct our marketing activities cost-effectively, our business, financial conditions and results of operations may be materially and adversely affected.
We have incurred, and we may in the future incur, significant costsexpenses on a variety of marketing efforts designed to increase sales of our products and enhance our brand recognition. Our marketing activities may not be well received by consumers and may not result in the levels of sales that we anticipate. Marketing approaches and tools in the online shopping business in Hong Kong are evolving. This further requires us to enhance our marketing approaches and experiment with new marketing methods to keep pace with industry developments and customer preferences. Failure to refine our existing marketing approaches or to introduce new marketing approaches in a cost-effective manner could reduce our market share, cause our net revenue to decline and negatively impact our prospects to achieve profitability.
Failure to protect confidential information of the customers of our online shopping business, due to network against security breaches or other causes, could damage our reputation and substantially harm our business and results of operations.
A significant challenge to the online retail industry is the secure storage of confidential information and its secure transmission over public networks. The online payments for products sold on our online shopping platform are settled through third-party online payment processing service providers. Maintaining complete security for the storage and transmission of confidential information on our technology platform, such as customer names, personal details and billing addresses, is essential to maintaining customer confidence.
We have adopted security policies and measures, including encryption technology, to protect our proprietary data and customer information. However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that we use to protect confidential information. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining the confidential or private information we hold as a result of our customers’ visits to our website and use of our mobile applications. Any individuals or entities that obtained our customers’ confidential or private information could engage in various other illegal activities using such information. In addition, we have limited control or influence over the security policies or measures adopted by third-party providers of online payment services through which our customers may elect to make payment for purchases. If we give third parties greater access to our technology platform in the future as part of a strategy of providing more technology services to third-party sellers and others, it may become more challenging for us to ensure the security of our systems. Any compromise of our information security, or the information security measures of our contracted third-party online payment and other service providers, could have a material and adverse effect on our reputation, business, prospects, financial condition and results of operations.
Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the Internet have recently come under increased public scrutiny. As online retail continues to evolve, we believe that increased regulation by the relevant authorities of data privacy on the Internet is likely. We may become subject to new laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information that could affect how we store, process and share data with our customers, suppliers and third-party sellers. Compliance with any additional laws could be expensive, and may place restrictions on the conduct of our business and the manner in which we interact with our customers. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against the threat ofus.
Significant capital and other resources may be required to protect against information security breaches or to alleviate problems caused by such breaches. We intendbreaches or to continuecomply with our privacy policies or privacy-related legal obligations. The resources required may increase over time as the methods used by hackers and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure by us to strengthenprevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other customer data, could cause our network securitycustomers to alleviate these problems. Our efforts, however,lose trust in us and could expose us to legal claims. Any perception by the public that online transactions or the privacy of user information are becoming increasingly unsafe or vulnerable to attacks could inhibit the growth of online retail and other online services generally, which may cause interruptions, delays or cessationsreduce the number of orders we receive.
The proper functioning of our services, andtechnology platform is essential to our customers may stop using our service or assert claims against us as a result.
We may be unablebusiness. Any failure to further expandmaintain the scopesatisfactory performance of our Internet access services unless we obtain additional network capacity.
Our ability to transition from time to time to more advanced technologies for faster Internet access is critical to our sustainable competitiveness. Because our Next Generation Network has limited capacity, our ability to expand the network bandwidth on a timely basis is subject to the following factors:
the expansionwebsite and development of our own international telecommunications facilities;
the availability of leased capacity from third party carriers at favorable rates; and
the possible termination or cancellation of our existing contracts.
If we fail to increase the capacity of our international bandwidth, our ability to increase our market share and revenue in the Internet access market segment will be limited.
Natural disasters and other disruptive regional eventssystems could damage our networkmaterially and adversely affect our business and operating results.reputation.
The satisfactory performance, reliability and availability of our technology platform are critical to our success and our ability to attract and retain customers and provide quality customer service. All of our sales of products are made online through our website. Any system interruptions caused by telecommunications failures, computer viruses, hacking or other attempts to harm our systems that result in the unavailability or slowdown of our website or reduced order fulfillment performance could reduce the volume of products sold and the attractiveness of product offerings on our website. Our network isservers may also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to system interruptions, website slowdown or unavailability, delays or errors in transaction processing, loss of data or the inability to accept and fulfill customer orders. Security breaches, computer viruses and hacking attacks have become more prevalent in the e-commerce industry. We can provide no assurance that our current security mechanisms will be sufficient to protect our IT systems from third-party intrusions, viruses or hacker attacks, information or data theft or other similar activities. Any such future occurrences could reduce customer satisfaction, damage our reputation and result in a material decrease in our revenue.
Additionally, we must continue to upgrade and improve our technology platform to support our business growth; failure to do so could impede our growth. However, we cannot assure you that we will be successful in executing these system upgrades and improvement strategies. In particular, our systems may experience interruptions during upgrades, and the new technologies or infrastructures may not be fully integrated with the existing systems on a timely basis, or at all. If our existing or future technology platform does not function properly, it could cause system disruptions and slow response times, affecting data transmission, which in turn could materially and adversely affect our business, financial condition and results of operations.
Any interruption in our logistics operation, including our warehousing and delivery operations, for an extended period may have an adverse impact on our business.
We have set up our own logistics center at Kowloon Bay with a logistics, warehousing and delivery team. Our ability to process and fulfill orders accurately and provide high quality customer service depends on the smooth operation of our logistics team, which includes our warehousing operation and the delivery services provided by our couriers and drivers. Our logistics operations may be vulnerable to damage or cessation of operations fromcaused by fire, earthquakes, severe storms, heavy rainfall,flood, power loss,outage, telecommunications failures, network software flaws, vandalism, transmission cable cutsfailure, break-ins, human error and other catastrophic events. We may experience failures or shut downs relating to individual points of presence or even catastrophic failureIf any of our entire network. Any sustained failurewarehouse or delivery services were rendered incapable of our network, our servers, oroperation, then we may be unable to fulfill relevant orders. We do not carry business interruption insurance, and the occurrence of any link inof the delivery chain, whether from operational disruption, natural disaster or otherwise,foregoing risks could have a material adverse effect on our business, prospects, financial condition and results of operations.
The lossWe may incur liability or become subject to penalties for counterfeit or unauthorized products sold on our website, or for products sold on our website or content posted on our website that infringe on third-party intellectual property rights, or for other misconduct.
As of key suppliers or their failure to deliver equipment onApril 27, 2015, our online shopping mall has over 350 stores offering a timely basis could negatively impact our business.
We rely on third parties for the supplyvariety of network equipment. Further, because an IP set-top box must be installedproducts in order to access our IP-TV services, we must have an adequate supplycategories which include fashion, mother and baby, skin care and make up, personal care, medicine and health, supermarket, food and wine, household, music, video and books, games, toys and stationery, outdoor and sports, pet care, and digital and electronics products. A substantial majority of such installation equipment on handproducts and services are offered by third-party merchants through our online shopping platform which functions as a marketplace for delivery to our customers in a timely manner.
such third parties. We purchase all of our IP set-top boxes and other equipmentalso directly sell from our suppliers on a purchase order basis and have no long-term contracts. If our suppliers are unable to supply us with these products in a timely manner or the costs of these products increase due to unforeseen causes, this could negatively impact our operating results, especially if we are unable to spread the costs over a larger subscription base or effectively pass the additional costs on to our subscribers.
Because we rely on third parties in delivering services through our Next Generation Network, our operating results could be adversely affected if their services are not timely or do not meet our standards.
We depend on third parties for the ongoing maintenance and repair of our Next Generation Network. Further, although our Next Generation Network is operated essentially as an independent network,own inventory a small portion of itthe products and services on our online shopping platform. Some of products offered on our online shopping platform may be defectively designed or manufactured.
In addition to acting as a marketplace for merchants, we also source a small portion of products in our inventory from third-party suppliers. Third-party sellers on our online marketplace are separately responsible for sourcing the products they sell on our website. Although we have adopted measures to verify the authenticity and authorization of products sold on our website and avoid potential infringement of third-party intellectual property rights in the course of sourcing and selling products, we may not always be successful.
In the event that counterfeit, unauthorized or infringing products are sold on our website, or infringing content is connectedposted on our website, we could face claims that we should be held liable. Irrespective of the validity of such claims, we could incur significant cost and effort in either defending against or settling such claims. If there is a successful claim against us, we might be required to pay substantial damages or refrain from further sale of the network of other providersrelevant products. Potential liability under interconnection agreements. We are also dependent on certain Hong Kong rail transport providerslaw if we negligently participated or assisted in infringement activities associated with counterfeit goods includes injunctions to maintaincease infringing activities, rectification, compensation, administrative penalties and provide us with access to their infrastructure to support the proper functioning of our equipment and fiber-based backbone. If these third parties fail to respondeven criminal liability. Moreover, such third-party claims or are untimelyadministrative penalties could result in their response to our maintenance and repair needs, our customers may experience interruptions or variations in the quality of our fixed telecommunications network services. Any service interruptions or variations could adversely affect our operating resultsnegative publicity, and our ability to retain or add new customers.
We cannot assure you that the licensereputation could be severely damaged. Any of domestic free television program service license will be granted to usthese events could have a material and our new business in the provision of domestic free television program will generate revenue in short period of time or become profitable in long run
On December 31, 2009, we submitted an application for the domestic free television program service license in Hong Kong to the HKBA. If granted, such license would allow us to provide free television program services in Hong Kong. As of December 13, 2011, our application for such license is still pending. If granted, we will incur additional expense for program production before we can generate revenue. In addition, given that Television Broadcasts Limited has dominance in viewership, we cannot assure that we can generate revenue in a short period of time and become profitable in the long run.
If we cannot manageadverse effect on our business, expansion in multimedia production, our operatingprospects, results could be adversely affected.of operations or financial condition.
We target to invest HK$600 million to build a multimedia center plus incur additional expenditure to produce drama series and a variety of TV contents for broadcasting in Hong Kong to generate advertising revenues within Hong Kong and for sale to international markets. Contrary to our telecommunications business with 19 years of operational track record, we lack direct experience in this new business.
Our ability to manage the expansion in the multimedia production business will depend on our ability to:
build our infrastructure on schedule and within budget;
manage to produce contents with good quality to our customers;
develop effective marketing channels in Hong Kong and international markets;
control operational costs and maintain effective quality controls; and
obtain the free television program service license for broadcasting in Hong Kong.
Our failure to achieve any of the above could increase our costs of operation and investments, thus affecting our operating results adversely.
Risks relating to the regulatory, political and economic environment
Regulatory reforms and currently contemplated regulatory initiatives in the telecommunications industry may adversely affect us.
The Hong Kong telecommunications industry is undergoing continuous regulatory reform. Our business and results of operations may be adversely affected by changessubject to seasonal fluctuations.
We may experience seasonality in our online shopping business similar to other retail businesses in Hong Kong. For example, sales in the telecommunications regulations, especiallytraditional retail industry are significantly higher in the following areas:
In July 2004, a new provisionfourth quarter of the Telecommunications Ordinance came into force. This anti-competition provision specifically regulates the conduct of all carrier licensees (in particular merger and acquisition transactions)each calendar year than in the Hong Kong telecommunications industry by giving OFTApreceding three quarters. Given that our OTT services were launched only in November 2014 and our online shopping mall formally began operations only in February 2015, we are still assessing the power to review the conductssignificance of any seasonal fluctuations in our business and transactions concerning carrier licenseestheir impact on our results of operations. Our business, financial conditions and to take appropriate actions if it determines that the transaction would, or is likely to, prevent or substantially lessen competition in a telecommunications market. OFTA has the power under this provision to conduct an investigation into any questionable transaction. It might consentresults of operations for future periods may experience seasonal fluctuations.
Risks Relating to the transaction (unconditionally orRegulatory, Political and Economic Environment
We are subject to any conditions it deems appropriate) or reject the transaction outright. The decision of OFTA will take into account whether the transaction will adversely affect the public interest and benefit. This provision may have an adverse effect on our ability to grow our business through mergers and acquisitions.
We offer local VoIP services through our Next Generation Network under HKBN’s FTNS License. Following the conclusion of a public consultation on the regulation of Internet Protocol Telephony Services, OFTA issued a statement on June 20, 2005, setting out its views and decisions on the regulatory and licensing framework for the provision of VoIP services, including the creation of a licensing framework, conformance to the existing system of assigning telephone numbers, imposition of interconnection charges and establishing guidelines with respect to the quality of services.
We offer fixed but not mobile telecommunications network services. OFTA has implemented a new fixed-mobile convergence licensing practice by way of the UC License. The UC License regime, which began on August 1, 2008, seeks to replace the existing four classes of carrier licenses for the provision of fixed and mobile services with a simple license. Going forward the UC License will be the only carrier license to be issued for the provision of fixed, mobile and/or converged services. Existing carrier licenses will remain effective until their expiry date. Licensees can choose to apply to convert their existing licenses to UC Licenses before then or apply for a UC License upon expiry. This regulatory change, together with the development of new technologies, may further accelerate the convergence of fixed and mobile telecommunications services, resulting in more structural competition between fixed-line and mobile telecommunications operators. As we do not have a mobile license, and are not currently authorized to provide mobile services, our ability to compete may be hindered by our inability to offer such services independently.
We provide our IP-TV services over our Next Generation Network under HKBN’s FTNS License. The Hong Kong government has indicatedconsumer protection laws that because our IP-TV services are carried over the Internet, we are exempted under the Broadcasting Ordinance from the requirement to obtain a domestic pay-television program service license. However, the Hong Kong government’s Communications and Technology Branch has informed us that the government is considering a review of the broadcasting regulatory regime and may introduce changes to the existing regulatory framework, including the existing exemption in the Broadcasting Ordinance. As a result, we cannot predict whether the government maycould require us to obtain a pay-television program service license in the future.
We require licenses from OFTA to providemodify our services. If one of these licenses is revoked or not renewed or there are substantial changes in its termscurrent business practices and conditions, we may be unable to deliver the services authorized by that license.incur increased costs.
We require licenses from OFTA to provide our fixed telecommunications network and international telecommunications services. Our business operations therefore are susceptible to the following changes in the regulatory environment in particular:
Our ability to adjust the tariffs for different services is governed by the terms and conditions of the relevant licenses. The licenses, however, are issued under different regulatory frameworks. The differences in regulatory structure for these licenses may constrain our flexibility to respond to market conditions, competition or cost structure.
We have been granted a waiver by OFTA to comply with the tariff restrictions contained in HKBN’s FTNS License. If the waiver is revoked, our ability to adjust the tariffs for our fixed telecommunication network services, including our offer of discounts to subscribers from time to time, will be restricted.
Our PNETS License is subject to OFTA’s annual renewal. On October 19, 2009, OFTA announcedHong Kong laws and regulations that regulate retailers generally or govern online retailers specifically. If these regulations were to change or if we, suppliers or third-party sellers on our marketplace were to violate them, the replacementcosts of the PNETS License by a new class of Services-Based Operator License, Class 3 Modified Services-Based Operator License. On November 10, 2009, the PNETS License of City Telecom was replaced by a Class 3 Modified Services-Based Operator License. On December 7, 2009, the PNETS License of HKBN was replaced by a Class 3 Modified Services-Based Operator License.
HKBN’s FTNS License was initially granted in 2000 for a term of 15 years and will expire in 2015. Since OFTA will no longer issue an FTNS License, HKBN will havecertain products or services could increase, or we could be subject to apply for a UC Licensefines or penalties or suffer reputational harm, which could reduce demand for the provision of fixed telecommunications networkproducts or services in 2015. However, the discretion whether a UC License will be granted to HKBN continues to rest with OFTA.
OFTA’s failure to renew or its revocation of any of these licenses or its amendment of any of the terms and conditions contained in such licenses for any reason would prohibit us from continuing to offer the services authorized by those licenses, which would have a significant adverse impactoffered on our revenueswebsite and profitability. In addition, there may be future changes in Hong Kong’s telecommunications regulations or policies that would require us to obtain additional licenses, which could have an adverse impact on our operations.
Our international telecommunications revenues may be adversely affected by increases in carrier charges in China.
In China, tariffs for all domestic and international long distance services offered through public switched telephone networks, leased lines and data services are jointly set by the Ministry of Information Industry of the PRC and the State Development Planning Commission. Certain tariffs payable by us to our carrier partners are based, among other things, on the tariffs set by these agencies with respect to the calls our subscribers make to persons in China. In fiscal 2011, approximately 80% of our international call traffic volume was to China. We cannot predict the timing, likelihood or magnitude of any tariff adjustments that may be imposed by the Ministry of Information Industry of the PRC and the State Development Planning Commission, nor can we predict the extent or potential impact upon our business of any future tariff increases. Such increases may lead to a decrease in traffic, reduce our revenues and adversely affecthurt our business and results of operations. In addition, ifLegal requirements are frequently changed and subject to interpretation, and we are unable to effectively managepredict the increased networkultimate cost of compliance with these requirements or their effect on our operations. We may be required to make significant expenditure or modify our business practices to comply with existing or future laws and regulations, which may increase our costs the profit margins of our IDD business could be adversely affected.
As approximately 50% of our Talents are located in Guangzhou, China, changes in Chinese labor or business laws may significantly affect our operations and materially limit our ability to serveoperate our Hong Kong based customers.business.
Our call center in Guangzhou employs over 1,500 Talents and is an important resource to us. We are therefore significantlymay be adversely affected by the complexity, uncertainties and changes in Hong Kong regulation of Internet-related businesses.
We are subject to Hong Kong laws and regulations governing foreign companies with operations in China. Asthat regulate the Chinese legal system develops, changes in suchInternet industry. The Internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or their enforcementomissions may leadbe deemed to restrictions onbe in violation of applicable laws and regulations. New laws and regulations may be promulgated that will regulate Internet activities, including online retail. If these new laws and regulations are promulgated, additional licenses may be required for our abilityoperations. If our operations do not comply with these new regulations at the time they become effective, or if we fail to hireobtain any licenses required under these new laws and retainregulations, we could be subject to penalties which may materially and adversely affect our Talents in China, which could impact our ability to provide services to our Hong Kong-based customers.business, prospectus, results of operations and financial condition.
Currency fluctuations of the Hong Kong dollar, our functional currency, may increase our operating costs and long term liability.adversely affect our profitability.
We are exposed to a certain amount of foreign exchange risk because our revenues areexpected revenue will be predominantly denominated in Hong Kong dollars, while a major portion of our operating costs and some of our capital expenditure plans are expected to be denominated in U.S. dollars, Renminbi or other foreign currencies. Our foreign currency-denominated expenses primarily consist of the following:
A majorIn addition, a significant portion of our operating costs of interconnection charges payable to overseas carriers for the delivery of our international calls. Substantially all of these interconnection charges areinvestments in available-for-sale securities and deposits is denominated in U.S. dollars or other foreign currencies.
The equipment and hardware we purchase for the expansion of our Next Generation Network constitutes a large portion of our capital expenditures and is also denominated in U.S. dollars.Renminbi.
Expenses incurred for the operation of our call center located in Guangzhou, China are denominated exclusively in Renminbi, the official currency of the People’s Republic of China. These include salaries paid to our personnel as well as various operating expenses that we incur to maintain our operations.
Since October 17, 1983,Although the Hong Kong dollar has been linked to the U.S. dollar at the rate of HK$7.80 per US$1.00. We, however, cannot assure you the link willsince 1983, it may not continue to be maintained in the future.linked. Any material depreciation of the Hong Kong dollar against the U.S. dollar, Renminbi or other currencies would increase our operating costs, including our debt servicing costs, make some of our capital expenditure plans more expensive and adversely affect our profitability.
The Renminbi is presently pegged to a basket of currencies, and there remains significant international pressure on the PRC government to further liberalize its currency policy. This could result In addition, any depreciation in a further and more significant appreciation in the value of theU.S. dollar or Renminbi against the Hong Kong dollar which would increasereduce the costvalue of operating our call center.investments in available-for-sale securities and deposits.
Our Chairman and Vice Chairman have significant ownership interestinterests in the company. We cannot assure you that our Chairman and Vice Chairman will notCompany. They could engage in any transactions that lead to conflictscould conflict with the interests of interest resulting from their ownership interests.our shareholders.
Our Chairman and Vice Chairman each have an indirect ownership interest in our Company through Top Group International Limited, which, as of December 13, 2011,April 27, 2015, held approximately 43.98%42.00% of the Company’s shares, of which 42.12% and 27.06% was owned by our Chairman and Vice Chairman, respectively. Top Group International Limited is a special purpose vehicle incorporated in the British Virgin Islands. Its board of directors consists of Mr. Wong and Mr. Cheung. Mr. Wong and Mr. Cheung have entered into a voting agreement pursuant to which they agreed to vote the 339,814,284 shares held by Top Group International Limited, the 7,145,28915,236,893 shares held by Mr. Wong individually, and the 44,286,15950,377,763 shares held by Mr. Cheung individually, collectively as a group. We cannot make assurances that ourOur Chairman orand Vice Chairman will notcould take actions that may not be in the best interests of our other shareholders.
ITEM 4 We believe we were a passive foreign investment company for our taxable year ended December 31, 2014, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our American depository shares or ordinary shares.
Based on the market price of our American depository shares, the value of our assets, and the composition of our income and assets, we believe we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our taxable year ended December 31, 2014. In addition, it is likely one or more of our subsidiaries were also PFICs for such year. A non-U.S. corporation will be a PFIC for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”). In general, the total value of our assets for purposes of the asset test will be determined based on the market price of our American depositary shares and ordinary shares. A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our American depositary shares and ordinary shares, our PFIC status will depend in large part on the market price of the American depositary shares and ordinary shares, which may fluctuate significantly. Furthermore, unless our share value increases and/or we invest a substantial amount of our cash and other passive assets in assets that produce active income, there is a significant risk we will be a PFIC for our taxable year ending December 31, 2015. Because we believe we were a PFIC for our taxable year ended December 31, 2014, certain adverse U.S. federal income tax consequences could apply to a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation”) who holds an American depository share or an ordinary share with respect to any “excess distribution” received from us and any gain from a sale or other disposition of the American depositary shares or ordinary shares. See “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company.”
Risks Relating to Our ADSs
As a foreign private issuer, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that are more lenient than those of a U.S. issuer.
As a foreign private issuer, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic issuers, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents and authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events. In addition, the executive compensation disclosure requirements to which we are subject under Form 20-F are less rigorous than those required of U.S. issuers under Form 10-K. Furthermore, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are not large accelerated filers or accelerated filers are required to file their annual report on Form 10-K within 90 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, aimed at preventing issuers from making selective disclosure of material information.
Holders of ADSs must act through the depositary to exercise their rights as shareholders of our Company.
Holders of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. If you are a holder of our ADSs, when a general meeting is convened, you may not receive sufficient notice to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but you might not receive the voting materials in time to ensure that you can instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.
Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests. Holders of our ordinary shares are not subject to this discretionary proxy.
You may be subject to limitations on the transfer of ADSs.
Our ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings, and you may not receive cash dividends or other distributions if it is impractical to make them available to you.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary will not make rights available to you unless either both the rights and any related securities are registered under the Securities Act or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are not obligated to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.
The holding, acquisition or exercise of voting control by non-Hong Kong resident ADS holders and shareholders may be restricted if we obtain a free TV license.
The holding, acquisition or exercise of voting control of a free TV license by persons who do not meet certain Hong Kong residency requirements as set out in the Broadcasting Ordinance (“Unqualified Voting Controllers”) is restricted in various ways by the Broadcasting Ordinance. Such restrictions include, but are not limited to, the requirement for prior approval from the CA for the holding, acquisition or exercise of voting control by an Unqualified Voting Controller of more than 2% of a licensee and restrictions on the exercise of “voting control” by such Unqualified Voting Controller. Under the Broadcasting Ordinance, “voting control” means “the control of or the ability to control, whether directly or indirectly, the exercise of the right to vote attaching to one or more voting shares of a licensee.” If we obtain a free TV license, our Company and any Unqualified Voting Controller will be subject to these restrictions. See “Item 4. Information on the Company—B. Business Overview—Regulatory Framework—Domestic Free Television Programme Services—Foreign Ownership Restrictions.”
ITEM 4 | INFORMATION ON THE COMPANY |
A. History and development of the Company
The legal and commercial name of our Company is Hong Kong Television Network Limited, effective from January 10, 2013 (our Company was formerly known as City Telecom (H.K.) Limited.Limited). We were incorporated on May 19, 1992 under the Hong Kong Companies Ordinance and isare a limited liability company. Our registered office is located at Level 39, Tower 1, Metroplaza, No. 223 Hing Fong Road,13th Floor, Trans Asia Centre, No.18 Kin Hong Street, Kwai Chung, New Territories, Hong Kong, telephone (852)(+852) 3145-6888. Our agent for U.S. federal securities laws purposes is CT Corporation System, 111 Eighth Avenue, New York, NY 10011.
We began offering international telecommunications services in September 1992. In our early stage of development, we focused on increasing our subscription base and amount of international traffic, and on building the CTI brand name as a low cost provider of international telecommunications services. In addition to our operations in Hong Kong, we also provide international telecommunications and Internet access services in Canada through two telecommunications companies in Canada, City Telecom Inc. and City Telecom (B.C.) Inc. We acquired our interests in these companies in December 1998, as part of our efforts to increase our market share of the telecommunications traffic between Canada and Hong Kong.
In January 1999, we became the first company in Hong Kong to obtain a PNETS License. This license, giveswhich gave us the right to offer international telecommunications services using ISRthe International Simple Resale (ISR) method and has had a significant positive impact on our international telecommunications revenues.revenue. We incorporated HKBN in Hong Kong in August 1999 and launched our broadband Internet access services in March 2000. In addition, we began providing local VoIP services in April 2002, IP-TV services in August 2003, and corporate data services in July 2004 using our Next Generation Network. In September 2007, we launched “Fibre-To-The-Home” residential broadband, including the “FibreHome100”, “FibreHome200” and “FibreHome1000” services. In December 2009, we achieved the one-million mark for fixed telecommunications network services subscriptions.
In December 2009, we submitted an application to the HKBA to obtain a free TV license. In August 2011, Hong Kong Science and Technology Parks Corporation granted us a parcel of land in Tseung Kwan O Industrial Estate, New Territories to build the Centre, a center for television and multimedia production. The network has the capability of providing value-added broadband services and content that combine voice, data and images with increased efficiency and flexibility.
We believe that oneconstruction of the cornerstonesCentre was suspended following the rejection of our successapplication for a free TV license. Depending on the outcome of the reconsideration of our application by the Chief Executive in Council in light of the results of the judicial review, we may resume the construction of the Centre to support our business development, and upon completion, the Centre would become our headquarters. We have obtained an extension of time for the development of the Centre to February 28, 2017.
In March and April 2012, we entered into the Telecom Group Agreement and the Guangzhou Agreement, respectively, and in May 2012, we completed the very substantial disposal transaction of both the FTNS Business and the IDD Business. Since then, the Multimedia Business has been our principal focus. Our Multimedia Business includes the production, sale and distribution of television drama series and variety and infotainment programs locally and internationally. Our business also includes artiste management services and independent content production.
Beginning in mid-2011, we embarked on a large-scale recruitment process in the multimedia industry, from creative directors to post-production professionals, and we began content production in April 2012. During fiscal 2014, we started the production for a number of drama series, including “End of the Day + 5”, “Sexpedia”, “The Wicked League” and “The Election”. On drama program production, we encourage our Talents to go beyond traditional or mass market drama programs. We have conducted workshops and invited different experts to develop new creative and production ideas and have conducted numerous focus groups by inviting mass market audiences to provide feedback on the first episode of certain drama series. We put the first episode of “Borderline” on YouTube to receive feedback on a larger-scale basis, held workshops to benchmark our creative and production skills, and held workshops with professional consultants for our field production and post-production Talent to enhance their techniques with respect to shooting, lighting and color grading skills when using Hollywood-grade cameras.
Our infotainment and variety programs cover a spectrum of program types, with a variety of subjects and locations, ranging from world class productions, such as “Challenge”, an adventure program, to programs introducing domestic local culture, such as “Secret of Food.” In March 2013, we invited our artistes Mr. Ai Wai, Ms. Lau Yuk Chui and Mr. Chou Tsun Wai to join us and become the first production crew in the world to walk through the entire Hang Son Doong, the world’s biggest cave in central Vietnam, which measures more than seven kilometers in length, 90 meters in width and 200 meters in height. In February 2014, we introduced a new program: a reality show crossover travel diary called “HKTV ‘Working’ Holiday”. The objective of this program is to provide a platform for young people, mostly those born in the 1990s, who are often considered spoiled and dependent, to demonstrate their ability, creativity and determination. The shortlisted candidates are responsible for the entire filming process, from research to quickly expandscript writing to serving as the emcee of luxury travel programs (for example, a program involving a test drive of a Ferrari along Lake Como in Milan and another involving a visit to Arte e Querce to be a truffle hunter with the help of a truffle dog, a journey which became a HK$180,000 treasury hunting adventure).
Upon the disposal of the Telecom Business, the news production operations unit remained with the Company and provided news content to the Telecom Business for their bbTV broadcasting use under a licensing arrangement. The licensing arrangement expired on August 31, 2013. Apart from the above self-produced programs, we also purchased popular and high-quality content from Japan, Korea and Mainland China, including television drama series and cartoons. To adapt to local audiences, we maintain a professional team for dubbing to local language and subtitling as part of the post production process. As of December 31, 2014, we had more than 1,000 episodes of purchased content in our service offerings when changeslibrary.
On October 15, 2013, the Chief Executive in regulation or technology have providedCouncil announced its decision against HKTV’s application for a free TV license which was first made in December 2009. In the light of this decision, in order to ensure its long-term well-being, the Company made redundant about 320 Talents, who started leaving us in phases beginning in October 2013.
On December 20, 2013, we announced our decision to launch our OTT and mobile television services. The intended launch of mobile TV services, however, has been suspended due to a dispute with an opportunitythe CA over the transmission standards the services would use. In April 2014, as a result of this, the Company took steps to do so. reduce the scale of its workforce in the creative and production teams to match its business needs and suspended the filming of new television programs, which has affected approximately 207 Talents mainly from the television content production team.
For the HKTV Mall, we launched our OTT services in November 2014. Subsequent to that, we formally launched the online shopping business on February 2, 2015. To cope with the development and launch of the HKTV Mall, the Company has increased its workforce accordingly.
Some of the key events in our history and development include the following:
In October 2006, our Liu Xiang “Be Ahead of Yourself” marketing campaign won the “Certificate of Excellence” of HKMA/TVB Awards for Marketing Excellence 2006.
In February 2007, we launched our “bb50 and bb200” symmetric residential broadband service supported by our special duty unit (“SDU”), personalized customer care service.
In June 2007, we were awarded “Best Retention Strategies” at the Hong Kong HRM Awards 2007.
In July 2007, we were awarded “Integrated Support Team” of the year at the Asia Pacific Customer Service Consortium Customer Relationship Excellence Awards.
In September 2007, we launched “Fibre-To-The-Home” residential broadband service, “FibreHome100”, “FibreHome200” and “FibreHome1000”. As the same time, we upgraded our entry level service broadband Internet access from 10 Mbps to 25 Mbps.
In January 2008, we began to offer our “Dual Mode High Definition Terrestrial TV Receiver and IPTV Set-Top Box” to all of our customers in Hong Kong.
In February 2008, we were awarded contract for the provision of payphone service at the Hong Kong International Airport.
In September 2008, we launched the National Geographic Channel’s first ever interactive channel.
In June 2009, we launched the first online broadband service registration platform in Hong Kong.
In November 2009, we accepted the Innovation in Recruitment award and Champion of HR award at the Hong Kong HRM Awards 2009.
In December 2009, we shatteredsubmitted an application to the one-million mark for fixed telecommunications network services subscriptions.
In March 2010,February 2012, we commenced construction of the Centre.
In April 2010,February 2015, we formally launched our 1Gbps symmetric residential broadbandonline shopping services in HKTV Mall and, at the same time, made available our video on demand service at HK$199 per month.
In December 2010, we launched “Music One”,on a high definition online music portal.
In March 2015, the HKTV app became available on Sony’s PlayStation® 4 game console. |
Principal Activities
We are a
Principal Activities
The Group principally provides multimedia production and enterprise market segments. The majority of our revenues are derived from business conducted in Hong Kong.
We derive our revenues from two business segments: FTNSdistribution and IDD. A breakdown of our revenues is as follows:
For the year ended August 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
HK$ | HK$ | HK$ | ||||||||||
(Amounts in thousands) | ||||||||||||
Revenue | ||||||||||||
FTNS business | 1,230,880 | 1,356,098 | 1,484,324 | |||||||||
IDD business | 247,359 | 218,589 | 197,134 | |||||||||
|
|
|
|
|
| |||||||
Total operating revenue | 1,478,239 | 1,574,687 | 1,681,458 | |||||||||
|
|
|
|
|
|
FTNS business. Our FTNS business involves the provision of fixed telecommunications network services through our self-owned Next Generation Network. Such services include the following:
high-speed broadband Internet access services at symmetric upstream and downstream access speeds of 25 Mbps to 1000 Mbps;
fixed line local telephony services using VoIP technology;
IP-TV services consisting of more than 110 channels, including self-produced news, children’s programs, international drama, movies and documentaries and local interest programming, using our IP platform; and
corporate dataother multimedia-related services, including the provisionoffer of dedicated bandwidthfree television programming through its OTT platform, multimedia and drama productions, content distribution, online shopping mall operation and other related services, which we refer to corporate customers.
Asin this annual report as our Multimedia Business. Our Multimedia Business includes the OTT platform and e-commerce online shopping and delivery services which were launched in November 2014 and February 2015 respectively and through which we distribute our multimedia content. See “Recent Developments.” The Multimedia Business generated HK$23.0 million of August 31, 2011, we had a total of approximately 1,247,000 subscriptions for our fixed telecommunications network services, consisting of 590,000 broadband Internet access, 476,000 local VoIPturnover in fiscal 2014, which mainly represented the income from program content broadcasting and 181,000 IP-TV services subscriptions.licensing, income received from artiste management functions, income from independent content production and e-commerce related income.
IDD business. Our IDD business involves the provision of international telecommunications services. Such services include direct dial services, international calling cards and mobile call forwarding services in Hong Kong and Canada. As of August 31, 2011, the customer base for our total international telecommunications services consisted of approximately 2.5 million registered accounts.
Strategy and Competitive Strengths
Our strategyaim is to market multiple fixed telecommunications network services by capitalizing on the new in-building blockwiring we have done onprovide an enjoyable one-stop shopping experience to Hong Kong people — a mass scalesimple and hassle-free shopping experience for customers, covering merchant sourcing, order placement, payment collection, same-day or next-day local product delivery, and post-sales customer service. This one-stop shopping experience also brings potential benefits to our Next Generation Network and willmerchants, as they can focus more on growing their business and on product development, rather than using their resources to build product distribution networks and handle post-sales services.
Our success in the OTT and online shopping businesses forming part of our market share, increasingMultimedia Business is dependent on two critical factors: developing our network coverageown strong logistics team and introducing new services through our IP platform.being able to attract a stable customer base and sufficient visitor traffic. We believeconsider that our success in these aspects of the Multimedia Business will continue to depend on our ability to capitalize on our focus on the residential mass and small-to-medium corporate and enterprise market segments, our leading-edge Next Generation Network, and our first mover advantage in the fixed line telecommunications market, which has a high entry barrier.
We believe that our demonstrated success is primarily due to our ability to capitalize on the following key strengths:
Focus onStrong content library. As a result of the Residential Mass, Small-To-Medium Corporate and Enterprise Market Segments and Certain High Bandwidth Demand Organizations in the Hospitality, Education and Finance Sectors. We focus on offering high-bandwidth services to the residential mass, small-to-medium enterprise markets and high bandwidth demand organizations in the hospitality, education and finance sectors in Hong Kong, whichinvestment we believe have significant growth potential. We price our services attractively on a value-for-bandwidth basis and at the same time offer bandwidth advantages over comparable service offerings by our competitors. Our IP-TV services focus on the residential mass market by providing Chinese-language content that targets the Chinese-speaking population of Hong Kong. We have also strengthened our English language contentmade over the past year to increaseseveral years in creative driven production, first-class production facilities and procurement of high-quality multimedia content, we have over 1,000 hours of self-produced drama series, variety and infotainment programs and purchased content in our competitiveness by adding Disney Channels, Discovery Channels, National Geographic, AXN, Bloomberg and other channels. Such focus has enabled us to quickly grow our subscription base, and we believe this will help us to increase revenues for our services.
Leading-Edge Next Generation Network. We believe our self-owned Next Generation Network, a fiber-based backbone,content library, which gives us an inherent costeffective means to attract traffic to the HKTV Mall, in particular for its initial launch. We have put these programs into our live streaming and performance advantage overvideo on demand systems for the public to watch for free on our competitors. The high capacity of this network has enabled us to offer a suite of services on a single IP network platform. This IPOTT platform is highly scalable, enabling us to offer broadbandusing Internet access local VoIP, IP-TVon multiple Internet-connected devices, such as smartphones, tablet computers, personal computers, smart TVs, TVs connected to set-top boxes, and corporate data services overgame consoles.
First Mover Advantage and High Barriers to Entry. Despitereach the intense competition in the Hong Kong telecommunications industry, the inherent characteristics of the fixed line telecommunicationsmass market create a high entry barrier. Accordingly, we believe that our Next Generation Network’s current coverage of 1.94 million residential homes pass, substantially all in densely populated areas, gives us a first mover advantage over our competitors. Competitors who want to replicate our business model to provide a full coverage network that includes remote and difficult-to-reach areas of Hong Kong may encounter technological difficulties. Attempting to deploy Metro Ethernet technology in such locations would significantly increase costs and completion time of such a network. While other telecommunications operators may lay their own fiber-to-the-building, we believe some would encounter significant in-building bottlenecks when attempting to complete an end-to-end network. This is because a majority of Hong Kong’s residential properties have limited space for in-building wiring leading to subscribers’ residences, making it difficult for new entrants to replicate our end-to-end network infrastructure.
Recent Development
On December 31, 2009, we submitted an application for the domestic free television program service license in Hong Kong to the HKBA. If granted, such license would allow us to provide free television program services in Hong Kong. As of December 13, 2011,April 27, 2015, we have more than 350 stores operating in HKTV Mall, with merchants from Hong Kong and overseas, providing products in areas such as fashion, mother and baby, skin care and make up, personal care, medicine and health, supermarket, food and wine, household, music, video and books, games, toys and stationery, outdoor and sports, pet care, and digital and electronics. Substantially all of the grantproducts in HKTV Mall are owned by our merchants and sold by them to consumers through HKTV Mall, which helps to minimize for us the risk of such license isholding excessive inventory, which most other retailers face. We intend to continue increasing the number of merchants using HKTV Mall and the number of products sold on our platform. By striving to enrich the variety of our products and services as much as possible, we hope to outpace physical shopping malls in terms of our ability to serve every aspect of a consumer’s life.
Recent Developments
Aiming to expand its foothold inTV licenses and judicial review
The Group’s original business model for free TV services and multimedia production business, City Telecom establishes a World-classsubsequently for mobile TV Multimedia Production and Distribution Centre on the land granted by Hong Kong Science and Technology Parks Corporation at Tseung Kwan O Industrial Estate. It will produce drama series and a variety of TV contents, in order to support the development of the Group’s free TV and Multimedia Production Business and the demand and development of the Group’s business partners.
The multimedia centre willservices have a total estimated gross floor area of approximately 300,000 square feet which will take City Telecom an investment of HK$600 million. It is expected to operate in full gear in 2014. There will be a number of studios of which, the largest one will be sized at 15,000 square feet, exhibition centre for educational purpose, post-production suite with leading facilities and equipment to support Super High-definition and 3D production,been suspended as well as administration offices.
Our Services
Fixed telecommunications network services
We offer our fixed telecommunications network services through our Next Generation Network. The high capacity of our fiber-based backbone has enabled us to offer a suite of services on a single IP network platform. These services include our broadband Internet access, local VoIP, IP-TV and corporate data services. Our strategy is to leverage our broadband subscription base to up-sell our other fixed telecommunications network services such as local VoIP and IP-TV.
The table below shows the profile the subscriptions of our fixed telecommunications network services over the past three years:
As of August 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Broadband Internet access | 391,000 | 526,000 | 590,000 | |||||||||
Local VoIP | 382,000 | 431,000 | 476,000 | |||||||||
IP-TV | 170,000 | 153,000 | 181,000 | |||||||||
|
|
|
|
|
| |||||||
Total FTNS subscriptions | 943,000 | 1,110,000 | 1,247,000 | |||||||||
|
|
|
|
|
|
Broadband Internet Accessdescribed below:
|
We frequently alter our promotions in response to changing market conditions or as a way of attracting additional subscribers.
|
In addition to the residential packages described above, we have also developed broadband and Metro Ethernet private network service plans that target corporate customers. We offer prepackaged plans that provide access at speeds of up to 1000 Mbps. Corporate customers that subscribe to prepackaged plans pay fixed monthly subscription fees ranging from HK$248 to HK$200,000, depending on bandwidth or solution selected. Our prepackaged plans include on-site training, on-site maintenance support, high capacity data transfer and e-mail services.
|
Our main competitors have been in operation longer and may have greater market presence, brand recognition and more financial, technical and personnel resources. In addition, they may have greater network coverage in terms of number of homes pass.
|
Local VoIP
|
We also offer hardware-based off-network local VoIP services, or “Broadband Phone” services, via the broadband network of other operators. In October 2005, we launched our global software-based VoIP services under the brand “2b”. This service is primarily targeted at the overseas Chinese community, which we believe will enable us to access a wider addressable market with higher tariff compared to the Hong Kong market. To ride on the latest trend of smart phones and tablets, in November 2010, we further launched our 2b app for Apple and Android Devices, which offers greater convenience to users without the need of bringing a laptop or PC. It especially targets those frequent travelers who want to save the voice roaming charges between overseas and Hong Kong.
|
|
|
IP-TV
|
|
|
TVBAs a result of the above incidents, the Company has reduced the scale of its workforce in the creative and Asia Television Limited (“ATV”) are indirect competitorsproduction teams to match its business needs and has substantially suspended the filming of new television programs, while the workforce for HKTV Mall has expanded in line with the development of that part of our pay-TV services. TVBbusiness.
OTT business
On November 19, 2014, we officially announced the launch of our OTT platform on HKTV Mall, an entertainment and ATV accountone-stop online shopping platform in Hong Kong. This platform can be accessed through various Internet-connected devices, such as smart phones running on Android, iOS and Windows, tablet computers, personal computers, smart TV sets, Android TV boxes and game consoles.
Our OTT platform was launched with the slogan “Always Something New.” Through our OTT platform, our self-produced drama series and variety and infotainment programs are made available for Hong Kong people to watch either by live streaming or through video on demand. To attract more viewers, we add fresh programs, such as self-produced drama series and variety and infotainment programs, a substantial proportionshopping program named “Shopping Hero” and purchased drama series and animation from Japan and Korea, on our OTT platform every day. As part of Hong Kong’s television viewershipour program content broadcasting, we earn advertising revenue through six major innovative advertising packages and plans. We also provide a platform for advertisement production and product placement by integration. Since the launch of HKTV Mall, we have aired a wide spectrum of advertisements broadcast through live streaming and video on demand, covering a variety of sectors, including skin care products, jewelry, personal loan and insurance companies, online travel, telecommunications services, online games, food and beverages, electronic appliances, oil and gas, apparel, dental care, and restaurant operations.
During the period under review, we entered into several content licensing arrangements with third parties for international program content distribution. We have brought a majority of our self-produced drama and infotainment programs through video portals or TV stations to overseas audiences, including those in Malaysia, Singapore, Australia and New Zealand.
Online shopping
In addition to our program content, we operate an online shopping platform through HKTV Mall. Our online shopping platform functions as a marketplace where third-party merchants can offer their products to customers and pay us commission on their sales. As of April 27, 2015, it features over 350 stores providing products in categories such as fashion, mother and baby, skin care and make up, personal care, medicine and health, supermarket, food and wine, household, music, video and books, games, toys and stationery, outdoor and sports, pet care, and digital and electronics. Included among the offerings in HKTV Mall are certain Japanese and Korean products, such as fashion, fresh seasonal fruits, cosmetics and skin care products, and local snacks, which are delivered to consumers directly from Japan and Korea. We provide transaction processing and billing services on all orders on our online shopping platform, and we marketleverage our own logistics team to offer our third-party merchants additional value-added services, such as supplementalwarehousing and delivery services. We require third-party merchants to theirs. Because TVBmeet our standards for authenticity and ATVreliability as we aim to offer primarily subscription-free televisionconsumers the same high-quality customer experience regardless of the source of the products they choose. In addition, we sell a small number of products from our self-owned inventory directly on our online shopping platform. HKTV Mall has its own customer services supported by advertising revenues,team to handle consumer inquiries. In order to offer a better user interface and shopping experience, HKTV Mall on December 17, 2014, commenced a trial run of the online shopping and end-to-end delivery services before their formal launch.
HKTV Mall formally launched on February 2, 2015 with the slogan “We Sell Whatever You Can Imagine,” aiming to be a large-scale online shopping mall in Hong Kong. To celebrate the grand opening and encourage the first purchases on our platform, we expect that their programming is designedallocated an over HK$120 million budget to attract the widest possible audience. In contrast, we and the other pay-TV operators rely on monthly subscription fees for mostbe used to grant HK$100 Mall Dollars to each individual who had registered as a user of our revenues. Other competitors include satelliteHKTV Mall and had activated his or her account on or before February 15, 2015. These Mall Dollars were valid for dollar-for-dollar online consumption until March 31, 2015, which was subsequently extended to April 5, 2015 due to overwhelming traffic approaching the expiration date. Going forward, we plan to have more marketing and promotional campaigns or TV operators, suchshopping programs to stimulate recurring purchases in HKTV Mall.
As of April 24, 2015, we had more than 1.36 million email IDs registered as Star TV,HKTV Mall members who are able to watch our program content by live streaming or video on demand as well as potential competition from direct-to-home broadcasters and broadcasters using digital terrestrial delivery methods.enjoy the online shopping experience provided by HKTV Mall.
Following are some key details of our online shopping operations:
|
International telecommunications services
We provide 24-7 online chat customer service to the users of our online shopping service. HKTV Mall members can contact our customer service representatives through online chat, ask questions and leave comments and complaints in writing through our website, or send us e-mails.
If a product is returnable and unused, then subject to the return and exchange policy set by the relevant third-party merchant in HKTV Mall, we allow the customer to exchange or return it within seven days after the customer receives the product. After we have received a product that is being returned, we will issue a Mall Dollar refund to the customer’s HKTV Mall account in the amount the customer paid. If a non-returnable product was received by the customer in damaged condition and has not been used, we will allow the customer to return it within seven days after receiving it, and we will issue a Mall Dollar refund as above. We generally pick up at the customer’s address products to be returned.
|
Other
In addition to the above, we continue our business of artiste management services overand multimedia content production.
Sales and marketing
To drive the years to includebusiness growth of HKTV Mall and for branding purposes, we use a variety of international direct dial servicessales and marketing tools, including the following:
|
|
Further, technology substitution from global VoIP providers such as Skype, which offers free PC-to-PC based international calls, is becoming more prevalent.
|
Our network infrastructure
Fixed telecommunications network
Our fixed telecommunications network services are delivered over our self-owned Next Generation Network, which allows us to deliver multiple services, including the triple play service of voice, broadband and IP-TV. The coverage of our Next Generation Network is concentrated in Hong Kong’s most densely populated areas, characterized by high-rise apartment buildings with multiple apartments on each floor. The network currently covers approximately 1.94 million residential homes pass, representing approximately 80% of Hong Kong’s total households and also about 1,600 commercial buildings. We plan to extend the coverage of our Next Generation Network to 2.0 million residential homes pass, representing approximately 90% of Hong Kong’s population, and to 1,800 commercial buildings by the end of 2011. As we expand the reach and coverage of our Next Generation Network, we plan to continue introducing new services.
Our Next Generation Network is deployed using Metro Ethernet technology. Metro Ethernet technology is highly cost-effective when access is to be provided to a large number of users in a single building or cluster of buildings and is typically used in commercial buildings in metropolitan areas in other geographical markets. Our Ethernet infrastructure is a system of Category-5e copper wiring that connects our subscribers’ premises to our local area network, or LAN, switches within a residential or commercial building. By keeping our Category-5e copper distance to less than 100 meters we are able to deliver bandwidth of up to 1000 Mbps to our subscribers.
The first step in expanding the reach of our fixed telecommunications network infrastructure is to select buildings that we believe will provide sufficient economic returns to justify our investment based on several factors, including population density, proximity of the building to our existing fiber loop and our projected ability to sell services. We then perform a site visit to analyze the feasibility of installing our Ethernet technology. Once we are satisfied with the prospects of a particular building, we must obtain access rights from the building’s management, which may take several weeks or months. After receiving the required access rights, we employ a combination of our full-time Talents and contractors to begin installation of our in-building Ethernet. The length of time required for the installation process depends on the size and structural features of the building and can be completed in as little as three weeks or take several months. As we install our in-building Ethernet infrastructure we simultaneously connect the building to our fiber-based backbone.
Unlike many of our competitors, which use multiple platforms to provide comparable services, all of our fixed telecommunications network services are offered through a single IP platform. In addition, unlike many new entrants to the industry, we operate an “end-to-end” network that extends from our IP network hub sites and our switching centers in Hong Kong to our subscribers’ premises. All the buildings covered by us are served by our self-owned infrastructure.
Since November 2007, we have been collaborating with one of the largest network solution providers for the deployment of our Next Generation Network using GPON technology. As the reach of GPON is considerably more than 100 meters, it can be a more cost effective solution to expand our Next Generation Network than our Ethernet setup for lower density deployments.
We incurred capital expenditures of approximately HK$344.8 million in fiscal 2010 and HK$449.2 million in fiscal 2011, substantially all of which were made in connection with the construction and upgrade of our infrastructure for the provision of fixed telecommunications network services. In fiscal 2012, we plan to further incur total capital expenditures about HK$320 million to HK$350 million in our fixed telecommunications network service business.
International telecommunications network
Our international telecommunications network consists of a system of switches, self-owned and leased backbone capacity, interconnection arrangements and undersea cables for the transmission of long distance calls and data.
|
Having our own undersea cables and our fiber-based backbone have enabled us to better control international transmission quality, reduce the costs associated with international transmission and reduce our reliance on third party infrastructure. Our international telecommunications network currently has a monthly handling capacity of approximately 130 million minutes. We believe that the continuing improvement of our international telecommunications network is important in supporting the growth of our subscription base and the expansion of our range of services.
|
We pay a fixed monthly fee to local fixed network operators for connection between our switches and their networks and a variable access fee payable on a per-minute basis when accessing their network. For customers using our own network, no interconnection fee is charged. We negotiate the termination charges we pay with the overseas carriers, and the termination charges vary from one overseas carrier to another. All of the interconnection and termination charges we pay to local fixed network operators and overseas carriers, respectively, are made on an open account basis with credit terms ranging from 10 to 30 days. The interconnection charges we pay to local fixed network operators are denominated in Hong Kong dollars and substantially all the interconnection charges we pay to overseas carriers are denominated in U.S. dollars.
|
Our two international telecommunications switching systems in Hong Kong handle telephone calls originating or terminating in Hong Kong as well as transit traffic. Our telecommunications network mainly consists of switching equipment supplied by Nortel Networks Limited and compression units supplied by Cisco Systems, Inc. and ECI Telecom Ltd. These systems are programmed to automatically choose the optimal routing for each transmission. Optimal routing is a function of a variety of factors, such as country or territory of origination and destination, communication quality, efficiency and costs, and the capacity of the various communication methods available.
Because our two international telecommunications switching systems in Hong Kong operate independently of each other, if one system breaks down, all transmissions are immediately diverted to another switching system. We have never experienced a period where all systems experienced a failure at the same time since we commenced operations in 1992.
Sales and marketing
We advertise our products and services through our “Fibre Shops”, “on-the-street” marketing kiosks, telemarketing and direct mailing, as well as through Chinese language television, radio, print media and on the Internet.
As of August 31, 2011, we had 16 “Fibre Shops” and a customer service center. We believe these shops can offer our customers convenient access to our wide range of services. We continue to identify new locations to expand our sales network.
We have an extensive sales network in Hong Kong. Our senior marketing personnel closely oversee our sales network to ensure that a consistent image is presented by all of our sales representatives in promoting City Telecom and HKBN. We provide commission based incentives to our residential sales force for our fixed telecommunications network services and international telecommunications services.
We have a sales division responsible for coordinating our corporate marketing and sales efforts. We believe our dedicated corporate and small-to-medium enterprise sales force is one of the largest sales forces targeted at corporate users of telecommunications and Internet services in Hong Kong. In addition, our dedicated corporate Talents designs marketing and sales promotions specifically tailored to address the concerns of business users. This division also organizes seminars for current and prospective customers to promote new products and services and to raise the public awareness of our various corporate offerings.
Maintenance and monitoring
To ensure reliability of our fixed telecommunications network, we continue to maintain our monitoring system, which involves:
two separate network operation centers in two different locations that operate 24 hours a day, 7 days a week, providing real-time service monitoring and maintenance services and supported by about 120 operational and field Talents;
individual self-reporting mechanisms and centralized performance monitoring systems for our switches and equipment;
an emergency self-reporting system that automatically contacts designated personnel; and
back-up systems for our switches, critical software and hardware components.
Once a network fault is detected by our control room, we will either rectify the problem remotely or dispatch field Talents to that location should physical interaction be required. After the problem has been resolved, we will continue to monitor network performance as well as track customer service feedback until we are assured of the fault being fully rectified.
Research and development activities
As of August 31, 2011,April 27, 2015, our research and development departmentteam in Hong Kong consisted of approximately 2527 Talents experienced in systems design, engineering, telecommunicationsmobile technology and computer programming. Our research and development departmentteam is primarily responsible for assessing and adapting the technology that we employexpect to deploy in upgradingour Multimedia Business, such as through the Internet. In particular, our research and expanding our Next Generation Network.development team has been discussing and evaluating with prospective applications developers various technical solutions available for the deployment and enhancement the OTT and online shopping platform and services. To identify and develop new market opportunities and product advancement, our research and development departmentteam evaluates new services offered by telecommunications and Internet companiestechnology under development in the United States and elsewhere and works closely with our sales and marketing department for product development. Our research and development expenditures were approximately HK$10.8 million, HK$11.2 million and HK$11.8 million for fiscal 2009, 2010 and 2011, respectively.department.
Customer service
We believe that excellent customer service and support is essential to our building and retaining of a large and loyal subscription base. We therefore have committed considerable personnel and financial resources to establishing a reliable and accessible customer service system.
Our customer service department provides integrated support to subscribers of FTNS business and IDD business. We provide a hotline to handle complaints, subscription applications and queries relating to account balances, pricing, billing, service and technical information. Complaints and in-depth queries from subscribers that cannot be immediately remedied or answered are forwarded to a customer care team, which is responsible for answering such complaints and queries. We also have a dedicated customer service team to provide service to our corporate subscribers, which includes access to a highly skilled technical team that may go to the customer site for trouble shooting and repairs.
Our centralized customer service call center is located in Guangzhou, which provides our customer service and back office support services at that location. This enables us to lower our operating costs while continuing to increase our customer service capabilities. As of August 31, 2011, our Guangzhou customer service facility had 1,532 Talents.
Billing and collection
Our credit and collection team is responsible for securing prompt payment from subscribers. Invoices are issued on a monthly or quarterly basis with a specified payment due date. A variety of payment methods are made available to our subscribers, including cash, check, credit card, payment by telephone service, automatic transfer from subscribers’ bank accounts or through Internet banking. Our bad debts expense represented approximately 0.8%, 0.9% and 0.8% of our revenue for each of fiscal 2009, 2010 and 2011, respectively.
We maintain tight collection procedures, including periodic reminder notices, and impose a charge of HK$10 or a fee of 1.5% to 2.5% per month on outstanding overdue amount for late payment. We have the right to charge the outstanding overdue amount to the subscriber’s pre-registered credit card account for any amount overdue or if applicable, deduct such amount from the subscriber’s application deposit. Moreover, we generally suspend an account when the amount overdue is not settled within our prescribed period. If payment is still not settled after we suspend the account, further recovery actions including court proceedings and/or the use of collection agencies will be taken.
Seasonality
Our operations are notmay be subject to significant seasonal fluctuations generally. Our IDD business typically experiences a slight decreasesimilar to other retail businesses in revenue duringHong Kong. Given that our OTT services were launched only in November 2014 and our online shopping mall began operations only in February 2015, we will observe the second quartersignificance of each fiscal year (i.e. December through February)any seasonal fluctuations in connection with the Christmas holiday and Chinese New Year holiday. We do not believe that seasonality has had a material effect on our business financial condition orand their impact on our results of operations. Over time, we expect to partially offset such fluctuations by launching promotional offers at key points in the year.
Environmental matters
Since our date of incorporation, we have not violated any environmental laws, ordinances or regulations, andWe believe that all of our operations comply fullyin all material respects with applicable environmental laws.
Intellectual property rights
We have registered and applied to register our trademarks with the Trademarks Registry of the Intellectual Property Department in Hong Kong. We have no other material intellectual property.
The following is a brief summary of the Hong Kong laws and regulations that currently materially affect our business. This section does not purport to be a comprehensive summary of all present and proposed regulations and legislation relating to the industries in which we operate.
As a providerMobile TV services
To facilitate further development of broadband Internet access, local VoIP, IP-TV and international telecommunicationsmobile TV services, the Hong Kong Government announced the “Framework for Development of Broadcast-type Mobile TV Services in Hong Kong, our operationsKong” in February 2010 (the “Mobile TV Policy Framework”). The radio spectrum of 678 - 686 MHz (i.e., the Mobile TV Spectrum) was then assigned through auction in June 2010. As disclosed in Item 4B, we obtained the Mobile TV Spectrum upon completion of the Mobile TV Acquisition on December 20, 2013. There are subject toseparate regimes for regulating “conveyance” and the “content” of mobile TV services. Establishing and maintaining a distributing network for transmitting local broadcast-type mobile TV services (i.e., conveyance) will require a Unified Carrier License issued under the Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong). The Telecommunications Ordinance sets out the overall licensing framework for Hong Kong’s telecommunications market. The Telecommunications Regulations (Chapter 106A of the Laws of Hong Kong) and the Telecommunications (Carrier Licences) Regulation (Chapter 106V of the Laws of Hong Kong) set out the prescribed licencss and provide for the license conditions that may be issued under the Telecommunications Ordinance. In issuing a Unified Carrier License for different types of services, the CA may attach additional special conditions which are not inconsistent with the Telecommunications Ordinance and the general conditions. Licensees will also need to comply with the Telecommunications Ordinance (including, among other things, provisions relating to anti-competitive practices, abuse of position, changes in relation to carrier licensees), regulations made under the Telecommunications Ordinance, license conditions or any other instruments which may be issued by the CA under the Telecommunications Ordinance.
The CA issued Unified Carrier License No.041 to our wholly-owned subsidiary, HKMTV, the holder of the Mobile TV Spectrum, on December 20, 2013. Unified Carrier License No. 041 sets out, among other things, the terms and conditions, in connection with the provision of broadcast-type mobile television services.
Anti-competitive conduct in the telecoms industry is currently regulated by the CA through provisions of the Telecommunications Ordinance and conditions imposed under licenses. The key governing competition provisions for the telecommunications sector are Sections 7K, 7L and 7N of the Telecommunications Ordinance, which prohibit anti-competitive conduct, abuse of dominance and discriminatory practices. Mergers and acquisitions of telecommunications carriers in Hong Kong are also subject to the sector-specific merger control rules that are set out in Section 7P of the Telecommunications Ordinance.
In relation to the content, the Broadcasting Ordinance Chapter 562 of the Laws of Hong Kong currently does not regulate television program services for mobile reception (i.e., reception at moving locations not related to any specified premises) in Hong Kong unless the services are not primarily targeting Hong Kong. As such, content delivered by both the streaming-type mobile TV services and their respectivethe broadcast-type mobile TV services are subject to regulation by general laws.
Pursuant to the Mobile TV Policy Framework, the not-for-profit Communications Association of Hong Kong (“CAHK”) published its Code of Practice for the Provision of Mobile Television Services (“Mobile TV Code of Practice”) in August 2012. The Mobile TV Code of Practice is a voluntary code for the self-regulation of mobile television service providers. The requirements of the Mobile TV Code of Practice supplement the relevant legislation and regulations currently in force and do not absolve any mobile television service providers from complying with all relevant legislation, regulations and license conditions. The Mobile TV Code of Practice covers broadcast-type mobile television services, streaming-type mobile television services and mobile video content, provided free of charge or subject to a fee. Content which is obtained from the Internet, obtained through mobile apps from independent third party and which is readily obtained from the Internet even if it is part of the content of mobile television services provided by mobile television service providers fall outside the scope of the Mobile TV Code of Practice. The CAHK may, in consultation with industry players and other stakeholders including the CA, review and amend the Mobile TV Code of Practice from time to time in order to meet the needs of the industry, to fulfill the needs and expectations of the society and to reflect changes in the market.
Domestic free television program services
We submitted our application for a free TV license to the HKBA in 2009. On October 15, 2013, the Hong Kong Government announced that our application for the license was rejected by the Chief Executive in Council, a decision that we challenged by judicial review. On April 11, 2014, we submitted a new application for a free TV license, which remains under consideration by the CA. On April 24, 2015, the court’s judgment in the judicial review was handed down, quashing the Chief Executive’s denial of our initial application for a free TV license and directing the government to pay our legal fees and expenses in relation to the judicial review. The application was remitted to the Chief Executive in Council for reconsideration. If and when we have been granted a free TV license, we will be regulated by the CA through its executive arm, the Office of the Communications Authority, and our broadcasting operations will be subject to the Broadcasting Ordinance, the Broadcasting (Miscellaneous Provisions) Ordinance (Chapter 391 of the Laws of Hong Kong) and the related subsidiary legislation, regulations, directions, orders, determinations and codes of practice. The Telecommunications Ordinance providespractice issued by the legislative and regulatory framework forCA, as well as the provision of telecommunications services and facilities in Hong Kong.license conditions. The Broadcasting Ordinance governs the content and scope of television programming and the licensing of television broadcasters.
Our primary regulator is OFTA, whose responsibility and functions include regulating and licensing telecommunications network services and regulating the telecommunications markets in Hong Kong, including the issuance of non-exclusive licenses; the determination of terms of interconnection; promotion of fair competition in the telecommunications sector; management of the radio frequency spectrum; development of technical standards and customer equipment testing; protection of consumer interests; and the control and administration of the Hong Kong numbering plans (including allocation of numbers or codes). The OFTA is also responsible for the administration of the Telecommunications Ordinance. We are also regulated by HKBA, which administers the Broadcasting Ordinance and makes recommendations to the Chief Executive-in-Council of Hong Kong on applications for broadcasting licenses, as well as on the renewal, suspension and revocation of licenses.
Telecommunications industry
Licensing
It is unlawful to establish or maintain any means of telecommunications, or possess, use or deal with telecommunications apparatus in Hong Kong without a license. OFTA has the authority to grant licenses for all means of telecommunications services and facilities in Hong Kong, including the provision of fixed wireline, public mobile telephone, Internet and satellite services. Furthermore, OFTA has the authority to require a licensee to comply with the terms of its license and any applicable legislation or regulations or codes of practice, and to suspend or revoke licenses to enforce the Telecommunications Ordinance or other rules or regulations or codes of practice to protect the public interest.
Prior to August 1, 2008 the operation of fixed and mobile services were regulated separately under four types of carrier license. Further, a number of other types of licenses permitted a licensee to establish facilities or services of a similar kind.
However, in recognition of the convergence of fixed and mobile services enabling voice, data and multimedia applications to be provided over common core networks, delivered through a range of wireline and wireless customer access networks and which will be accessible from common end-user devices irrespective of whether the users are at fixed locations or on the move with the result that is becoming more difficult to classify a service as a “fixed” or “mobile”, amendment legislation has been passed to create a single unified carrier license (UC License) encompassing both fixed and mobile carrier services. The UC License regime came into operation on August 1, 2008. After that date OFTA will not issue any further fixed or mobile carrier licenses. Instead the UC License is the only carrier license to be issued for the provision of fixed, mobile and/or converged services. In the meantime, existing fixed and mobile licenses continue to be effective until their expiry date. License holders may convert existing fixed or mobile licenses into UC Licenses before their expiry on a voluntary basis or apply for UC Licenses upon the expiry of existing fixed or mobile licenses.
General Licensing Requirements
Generally, a licensee is required to be a company incorporated in Hong Kong (which can be wholly owned by a foreign company) or a foreign company registered in Hong Kong. Currently, there is no foreign ownership restriction on the holder of a telecommunications license under the current regulatory regime.
Non-compliance by a telecommunication licensee with the Telecommunications Ordinance, any subsidiary legislation made pursuant to it, any of the license conditions or any direction issued by OFTA, could result in the revocation or suspension of the relevant license. The Telecommunications Ordinance contains a set of provisions setting forth the procedural steps which OFTA must adhere to prior to revoking or suspending any telecommunications licenses. In addition, the Chief Executive of Hong Kong has the authority, at the recommendation of OFTA, to revoke a telecommunications license at any time if it is in the public interest to do so.
Public Non-Exclusive Telecommunications Services License
A PNETS License is used by OFTA to cover the provision of a number of different telecommunications services where the service provider provides the service to the public using the network of a licensed carrier or by establishing or maintaining transmission facilities within the boundary of a building or property. In practice, the PNETS License is also used as a “sweep-up” license category, where a license is required by virtue of the Telecommunications Ordinance but none of the existing categories are applicable to the means of telecommunications or telecommunications service for which the license is required. With effect from November 30, 2009, the OFTA no longer issue PNETS Licenses to service-based providers using the network of a licensed carrier. As a replacement, all PNETS License will be gradually replaced by the modified Services-Based Operator License, i.e. Class 3 Services-Based Operator License. Holder of Class 1 & 2 Services-Based Operator License is allowed to provide Internet Protocol based telephony services making use of Hong Kong telephone numbers, while Class 3 Services-Based Operator is not allowed.
A Class 3 Services-Based Operator License has a validity period of 12 months and is renewable at the discretion of OFTA on an annual basis upon the payment of a prescribed annual fee, which is currently set at HK$750. Where radio communications apparatus is used, there is an additional variable component calculated by reference to the number of base stations and mobile stations involved.
Since the expiry of PNETS License in December 2009, OFTA granted us a Class 3 Services-Based operator License. The Class 3 Services-Based Operator License presently gives us the right to provide calling card services, ISR services for facsimile and data services, virtual private network services and external telecommunications services over the external telecommunications facilities of other licensed external facilities providers, the scope of service under the Class 3 Services-Based operator License is similar to the PNETS License previously granted to us by OFTA. HKBN also holds a Class 3 Services-Based Operator License, which was issued to us in December 2009. This Class 3 Services-Based Operator License allows us to act as an Internet service provider.
Under the terms of the Class 3 Services-Based Operator License, we and IDD1600 Company Limited, or IDD1600, our wholly owned subsidiary, are required to comply with certain license conditions relating to technical and reporting matters.
FTNS License
A FTNS License authorizes the licensee, among other things:
to provide a public fixed telecommunications network service, covering internal services or external services, or both; and
to establish and maintain a fixed telecommunications network, which may be wireline-based or wireless-based (Wi-Fi spectrum included), or a combination of both.
A FTNS License is valid for a period of 15 years and is renewable for a further period of not exceeding 15 years at OFTA’s discretion. The amount of license fee payable by a holder of a FTNS License comprises (i) a fixed annual amount of HK$1.0 million; (ii) a variable amount calculated on the basis of the number of customer connections (which is currently set at HK$700 for each 100 customer connections); and (iii) a variable fee calculated by reference to the radio spectrum assigned and used by the license holder.
HKBN currently holds a FTNS License, which was issued to it in February 2000 initially for the operation of a local fixed wireless network. This FTNS License has been subsequently amended three times and presently, HKBN is authorized to operate both local fixed telecommunications networks (wireline and wireless based) and external telecommunications facilities.
Interconnection
OFTA divides interconnection into two main types. The first type is “Type I Interconnection”, which is interconnection between network gateways, such as tandem exchanges, local exchanges or dedicated interconnection gateways, which allow end users on different networks to “communicate” with each other. The second type is “Type II Interconnection”, which is a connection to a fixed carrier’s network at points of the customer access network level (more often referred to as local access or local loop unbundling) allowing the end customer requesting the interconnection to use the customer access network of the fixed carrier to obtain FTNS. OFTA introduced the Type II interconnection policy in 1995 under which the fixed carriers have obligation to provide Type II interconnection at regulated terms and conditions.
On July 6, 2004 the Hong Kong government announced that the mandatory Type II Interconnection policy applicable to telephone exchanges for individual buildings covered by such exchanges, would be gradually withdrawn on a building-by-building basis, applying to buildings already connected to at least two self-built customer access networks, such withdrawal to be fully implemented by a final sunset date of June 30, 2008. Since that time, mandatory Type II Interconnection was to be maintained only in buildings for which it is technically not feasible or economically not viable for an operator to roll out its customer access network.
On July 3, 2008, OFTA issued a statement to confirm that the mandatory Type II Interconnection policy has been successfully withdrawn as from July 1, 2008 as well as to set out the issues to be followed up after its withdrawal. Since that date, interconnection terms including charges have been determined by commercial negotiation between carriers.
On April 27, 2009, OFTA issued a statement on “Carrier-to-Carrier Charging Principles (For Fixed Carrier Interconnections) providing guidance on carrier-to-carrier charging principles for fixed carrier interconnections that the OFTA will rely on when making determination for interconnection between fixed telecommunications networks in Hong Kong.
Competition provisions
Regulation of anti-competitive conduct
Although Hong Kong has never had a general competition code, historically, holders of FTNS Licenses have been prohibited from engaging in anti-competitive conduct, abusing a dominant position in a telecommunications market, or engaging in any discriminatory conduct by certain competition-related license conditions contained in the FTNS Licenses issued by OFTA. In June 2000, the competition provisions of the Telecommunications Ordinance became operational and, as from that time, anti-competitive conduct was prohibited by legislation as well as under the relevant license conditions.
The Telecommunications Ordinance provides an appeal mechanism by the establishment of a Telecommunications (Competition Provisions) Appeal Board. A person or a licensee aggrieved by a decision made by OFTA relating to the competition provisions may appeal to the Telecommunication (Competition Provisions) Appeal Board. Additionally, a third party suffering loss or damage from breach of such competition provisions may bring an action for damages or seek other appropriate remedies against the offending licensee.
Control on mergers and acquisitions
If OFTA determines that the relevant merger and acquisition activity has, or is likely to have, the effect of preventing or substantially lessening competition in a telecommunications market, OFTA is empowered to direct a carrier licensee to take such actions, such as the complete or partial divestiture of the relevant parties’ interests in the merged entity, as OFTA considers necessary, to eliminate or avoid any anti-competitive effect. However, OFTA may not issue such a directive if it takes the view that the public benefit of the merger and acquisition outweighs any detriment caused by a reduction in competition. Any decision made or direction issued by OFTA under the merger and acquisition provision is subject to appeal to the Telecommunications (Competition Provisions) Appeal Board.
The regulatory regime on mergers and acquisitions only applies to carrier licensees, which includes HKBN as a holder of a FTNS License, which is regarded as a carrier license for the purpose of the Telecommunications Ordinance.
Consumer protection
The Telecommunications Ordinance also contains a statutory provision that is primarily aimed at protecting consumers. This provision prohibits a licensee from engaging in any misleading or deceptive conduct.
OFTA has taken an active role in enforcing this prohibition and has developed voluntary codes to assist in this respect. For instance, in February 2010, OFTA issued a “Code of Practice for Communications Service Contracts” (the “Code”) which supersedes the “Code of Practice for the Service Contracts for the Provision of Public Telecommunications Services” issued in November 2004. The Code is a voluntary scheme intended to heighten customer satisfaction levels by improving the provisions used in communications customer contracts. The Code sets out guidelines on, among other things, the style, format and structure of written contracts, the expiry of term contract, termination of contract etc. In addition, the Code requires that an unsolicited contract must provide a cooling-off period of not less than seven days during which the customers may cancel the contract without incurring any payment liability or any other obligation whatsoever. The Code is applicable to all providers of communications service which include the supply of telecommunications services. Service providers pledging compliance with the Code shall publish on their respective website their pledges to the Code. On December 21, 2010, the Code has been adopted by the Communications Association of Hong Kong and the majority of providers, including HKBN, has pledged compliance with the Code.
Apart from the Telecommunications Ordinance, like any company carrying on business in Hong Kong, telecommunications operators are required to comply with applicable Hong Kong consumer protection laws, for example, the Sale of Goods Ordinance (Cap 26), Control of Exemption Clauses Ordinance (Cap 71), Supply of Services (Implied Terms) Ordinance (Cap 457), the Unconscionable Contracts Ordinance (Cap 458) , Personal Data (Privacy) Ordinance (Cap 486), and the Unsolicited Electronic Messages Ordinance (Cap 593).
Regulation of pricing
Currently, the pricing of both FTNS and public non-exclusive external telecommunications services in Hong Kong is regulated by license conditions. However, the regulatory frameworks of each type of services are different.
All Services-Based Operator Licenses contain license conditions requiring the licensees to publish their tariffs and to charge no more than the published tariffs.
Similarly, holders of FTNS Licenses or UC Licenses are prohibited by license conditions from charging more than their published tariffs for their services. The FTNS License/UC License conditions prohibit licensees from offering discounts to their published tariffs and require the licensees to seek approval from OFTA in connection with (i) any revision of published tariffs, (ii) tariffs for any new services or products or (iii) tariffs for any trial services. However, OFTA may grant a waiver of the application of any or all of these restrictions in relation to a relevant telecommunications market if, in the opinion of OFTA, the licensee is not “dominant” in such market. This is known as an ex ante regime.
HKBN has been granted a waiver from all the tariff revision prohibitions contained in its FTNS License and is able to provide discounts and revise its tariffs in all the FTNS markets.
Universal service contribution and local access charge
Under the current regulatory regime, PCCW-HKT has a universal service obligation to provide good, efficient and continuous basic telecommunications services at reasonable cost on a non-discriminatory basis to all persons in Hong Kong. To compensate PCCW-HKT for the expenses of this obligation, certain licensees are required to contribute to such cost, which is referred to as the USC.
On June 8, 2007, OFTA issued a Statement entitled “Review of the Regulatory Framework for Universal Service Arrangement”, which announced the new USC arrangement for funding the cost of universal service obligation. Commencing from May 1, 2009, the USC sharing arrangement based on external traffic volume has been migrated to that based on the number of all telephone numbers allocated which may be assigned to customers for voice services, non-voice services or both voice and non-voice services. Under the new arrangement, local fixed carrier license, local fixed telecommunications network service licensee, mobile carrier licensee, unified carrier licensee authorized to provide local fixed or mobile services, mobile virtual network operator licensee and services-based operator licensee authorized to provide Class 1 or 2 services are the USC contributing parties. In respect of the above, HKBN as a local fixed telecommunications network service licensee is classified as a USC contributing party and is required to pay USC under the regime that was introduced in 2009.
The level of USC is determined by OFTA and is reviewed periodically based on actual cost and revenue and on a customer-by-customer basis. The average rate has declined over the past several years. In accordance with a statement dated April 27, 2010 issued by OFTA, the level for the period from July 1, 2008 to April 30, 2009 is confirmed to be zero cent per minute and OFTA decided that USC contributing parties are not required to pay provisional USC from May 1, 2009 onward until a further review of the USC. Until November 23, 2011, OFTA has not yet released further review of the USC.
Additionally, providers of external telecommunications services, such as holders of Class 3 Services-Based Operator License, including ourselves and IDD1600, are required to pay a local access charge, or LAC, to the local network operators whose network facilities holders of Class 3 Services-based Operator Licenses use to transmit calls to and from their customers’ sites. The level of the LAC is calculated on a per-minute basis and its arrangement is based on the statement dated November 25, 1998 issued by OFTA. Since December 2009, OFTA is conducting a review on the LAC regime, for the time being, the existing LAC arrangement prevails.
Fixed mobile interconnection charge
In June 2007, OFTA determined the FMIC rates for HKBN, which is a fixed network operator, with one of its mobile network operators, China Resources Peoples Telephone Company Limited, or Peoples, at a rate of 4.8 Hong Kong cents per occupancy minute for interconnection from April 1, 2002 to August 31, 2002, 4.22 Hong Kong cents per occupancy minute for interconnection from September 1, 2002 to August 31, 2003 and 2.89 Hong Kong cents per occupancy minute for interconnection from September 1, 2004 to August 31, 2004. In February 2008, HKBN requested OFTA to make a new determination with four mobile network operators on the rate of FMIC payable by these mobile network operators for mobile interconnection service. In September 2008 OFTA indicated that it accepted HKBN’s request for determination. On May 28, 2010, OFTA issued its decision on the determination which set out the rates of mobile interconnection charges payable by the mobile operators under dispute. Based on this determination, we adjusted our revenue related to mobile interconnection charges and interest income during the year ended August 31, 2010. For details, please refer to note 2(b) of our consolidated financial statements.
Fixed Mobile Interconnection Charge, or FMIC, is an interconnection charge for circuit-switched traffic between a fixed network operator and a mobile network operator. OFTA has indicated in its statement published on April 27, 2007, that it will deregulate the existing FMIC arrangement with effect from April 27, 2009. When this occurs, the fixed and mobile network operators would have to adopt a more market driven approach in that parties are expected bilaterally to negotiate a commercially agreed FMIC without OFTA’s intervention.
Since the deregulation of FMIC arrangement on April 27, 2009, HKBN reached agreements with some of the mobile operators on the new settlement arrangements of FMIC. As of December 13, 2011, the discussion with remaining mobile operators on FMIC is still in progress.
Television broadcasting industry
At present, Hong Kong has two licensed domestic free television programprogramme broadcasters, TVBTelevision Broadcasts Limited and Asia Television Limited (“ATV”), providing free-to-air broadcasting services. In addition, there are also three licensed domestic pay-TV broadcasters, namely Hong Kong Cable Television Limited, PCCW Media Limited and TVB PayNetwork Vision Limited (formerly known as Galaxy Satellite BroadcastingTVB Pay Vision Limited). HKBN provides TV services overOn October 15, 2013, the Internet under its FTNS License, while Star TV continues to provide its services through satellite means under its satellite television uplink and downlink license. Currently,Hong Kong Government announced that the HKBA is processingChief Executive in Council had approved in principle applications for a domestic free television program service licenseTV licenses from Fantastic Television Limited and HK Television and Entertainment Company Limited (“HKTVE”), subject to further review and us.final determination by the Chief Executive in Council of the application at a later stage. On April 1, 2015, the Hong Kong Government announced the Chief Executive in Council’s decision on ATV’s application for renewal of its free TV license and HKTVE’s application for a new free TV license. The Chief Executive in Council decided not to renew ATV’s free TV license. Under the Broadcasting Ordinance, a written notice was required to be served on ATV at least twelve months before expiration of the license on November 10, 2015. In order to comply with the statutory requirement as to the length of notice, ATV will have its license extended to April 1, 2016. As of December 13, 2011,regards HKTVE, the HKBA has not yet announced its decisionChief Executive in Council decided to grant a free TV license to HKTVE, and such license will be valid for the aforesaid applications.12 years, until March 31, 2027, subject to a mid-term review in 2021.
Licensing
It is unlawful to offer any “television programprogramme service” in Hong Kong without aan appropriate license. “Television programprogramme service” is broadly defined to mean the provision of television programsprogrammes for transmission by telecommunications that are readily accessible to the general public in or outside Hong Kong or to persons in 2two or more specified premises simultaneously or on demand, whether on a point-to-point or a point-to-multipoint basis.basis (or any combination thereof), having equipment appropriate for receiving that service. The Broadcasting Ordinance exempts certain categories of television programprogramme services from the current licensing regime, including television programprogramme services provided on the service commonly known as the “Internet”.“Internet.” The Broadcasting Ordinance itself, however, does not contain a definition of “Internet”.“Internet.”
The Secretary for Commerce, Industry and Technology has indicated that on the condition that HKBN continues to provide its service on the platform currently deployed by HKBN, the Hong Kong government does not dispute that HKBN’s service is provided on the “Internet” and is thus exempt. On this basis, HKBN is not required to obtain a pay-television broadcasting license and continues to provide IP-TV services under its FTNS License.
Cross media ownership restrictions
As with other television regulatory regimes, there are detailed cross-media ownership restrictions in the Broadcasting Ordinance. The restrictions are only applicable to domestic free and domestic pay television programprogramme service licenses.
The Broadcasting Ordinance essentially provides that a company which is either a “disqualified person” or has a “disqualified person” exercising control over it will not be eligible to be granted a broadcasting licensedomestic free and domestic pay television programme service licence unless it discloseswith the disqualificationprior approval of the Chief Executive in its license application.Council. “Disqualified person” includes, for example, a company which is an existing domestic free or domestic pay television programprogramme licensee; an advertising agent; a sound broadcasting licensee; or a proprietor of newspaper printed or produced in Hong Kong.
Generally, a disqualified person who has complied with the disclosure requirementdisclosed its disqualification in its license application may apply for a broadcasting license. The Broadcasting Ordinance provides that the Chief Executive of Hong Kongin Council may grant a broadcasting license to a company, including a disqualified person or to a company which has a disqualified person exercising control over it, or to a disqualified person in which another disqualified person exercises control subject to such conditions as the Chief Executive of Hong Kongin Council sees fit.
Foreign ownership restrictions
In addition to the cross-media ownership restrictions outlined above, the Broadcasting Ordinance also imposes restrictions on foreign ownership of a holder of a domestic free television program serviceTV license. The restrictions do not prohibit the ownership of any voting shares in a domestic free television program serviceTV licensee but rather take the form of prohibiting the exercise of any voting rights attached to such voting shares.
Upon receivingIf we obtain a domestic free television program serviceTV license, an unqualified voting controller of our Company will be subject to the voting restrictions under Section 20(1)as set out in Part 3 of Schedule 1 to the Broadcasting Ordinance. An “unqualified voting controller” under the Broadcasting Ordinance refers to a voting controller who is not a qualified voting controller, and a qualified voting controller refers to a voting controller who satisfies the ordinary resident requirement and who, in the case of an individual, has resided in Hong Kong for a period of no less than seven years or in the case of a corporation, whose directors satisfy the Hong Kong residency requirement. According to Sectionparagraph 20(1) of Schedule 1 to the Broadcasting Ordinance, no unqualified voting controller may hold, acquire, or exercise or cause or permit to be exercised 2% to 6% or 6% to 10% or more than 10% of the total voting control of a domestic free television program serviceTV licensee without the prior approval of the HKBA. SectionCA. If an unqualified voting controller holds more than 10%, in the aggregate, of the total voting control of a licensee without the prior approval in writing of the CA, notwithstanding anything contained in the memorandum or articles of association of the licensee or any provision of the laws of Hong Kong apart from this section, he shall not exercise or cause or permit to be exercised, in relation to any question or matter arising at a general meeting of the licensee, voting rights exceeding, in the aggregate, 10% of the total voting control of the licensee. Paragraph 20(3) of Schedule 1 to the Broadcasting Ordinance provides that the HKBACA may, in respect of any unqualified voting controller who is in contravention of Section 20(1) of Schedule 1 to the Broadcasting Ordinance,such voting restriction, direct such unqualified voting controller in question to cease any such contravening act, theact. If and when a free TV license is granted to our Company, an unqualified voting controller willmay need to seek the requisite approval of the HKBA, if and when the license is granted toCA for exercising its voting power in our Company. Our Company shallwill be required to notify the HKBACA of the unqualified voting controller pursuant to the directions of the HKBACA and sectionsparagraphs 22 and 30 of Schedule 1 to the Broadcasting OrdinanceOrdinance.
Competition provisions
TheCurrently, competition provisions governing the broadcasting sector in Hong Kong are set out in the Broadcasting Ordinance, also contains competition provisions, which are aimed at prohibiting a licensee from engaging in “anti-competitive conduct” and a licensee who is in a dominant position from abusing its position. “Anti-competitive conduct” is defined as conduct that has the purpose or effect of preventing, distorting or substantially restricting competition in a television program service market.
The Broadcasting Ordinance provides that a breach of any of the competition statutory provisions may lead to the relevant contractual provisions in an agreement being regarded as void.
Unlike the regulatory regime for the telecommunications industry, thereThere is no equivalent of a specialized competition appeal board for the television broadcasting industry. A licensee aggrieved by a decision made by the HKBA,CA, may appeal by way of petition to the Chief Executive of Hong Kong.in Council.
Program standards, and advertising standards and technical standards
A broadcastingIn addition to the Broadcasting Ordinance, the Broadcasting (Miscellaneous Provisions) Ordinance and the related subsidiary legislation, regulations, directions, orders and determinations, a television programme service licensee is required to comply with the terms and conditions of its license and the codes of practice issued by the CA, pursuant to section 3 of the Broadcasting Ordinance, which set out generic standards with respect to program, advertising and technical standards applicable to the licensee. The Generic Codes of Practice for Television currently comprises of three sets of standards, i.e., the program standards, the advertising standards and the technical standards. The program standards and the advertising standards published byapply to the HKBA.four categories of television programme services licensed under the Broadcasting Ordinance,viz., domestic free television programme services, domestic pay television program services, non-domestic television programme services and other licensable television programme services. The technical standards are applicable to television programme services licensed under the Broadcasting Ordinance except for a service provided to hotel rooms. These codes are reviewed in consultation with the licensees and the general public. The latest program standards andwere issued in May 2014, the advertising standards were both issued on December 12, 2008.in January 2013 and the latest technical standards were issued in October 2012.
PRC Regulations
Non-compliance by licensee
Corporate laws relatingNon-compliance by a licensee with the Broadcasting Ordinance, any subsidiary legislation made pursuant to foreign investmentit, any of the license conditions or any direction issued by the CA or any of the code of practice, could result in the revocation or suspension of the relevant license. The Broadcasting Ordinance contains a set of provisions setting forth the procedural steps which the CA and the Chief Executive in Council must adhere to prior to revoking or suspending any broadcasting licenses.
Online shopping business
Misleading advertising
The establishment, operationTrade Descriptions (Unfair Trade Practices) (Amendment) Ordinance 2012 (the “Amendment Ordinance”) came into effect on July 19, 2013 and managementamended the Trade Descriptions Ordinance by prohibiting specified unfair trade practices and strengthening the enforcement mechanism. The Customs and Excise Department is the principal enforcement agency under the Trade Descriptions Ordinance. Concurrent jurisdiction is conferred on the Office of corporate entitiesthe Communications Authority to enforce the new fair trading sections in Chinarelation to the commercial practices of licensees under the Telecommunications Ordinance and the Broadcasting Ordinance that are governeddirectly connected with the provision of telecommunications and broadcasting services.
The key amendments include:
On July 15, 2013, the Customs and Excise Department and the Office of the PRC, orCommunications Authority published the Company Law, effectiveEnforcement Guidelines for the Amendment Ordinance to state the manner in 1994, as amended in 1999, 2004which they will exercise their enforcement powers and 2005, respectively. The Company Law is applicable to our PRC subsidiary CTI Guangzhou Customer Services Co. Ltd. unlessprovide guidance on the PRC laws on foreign investment have stipulated otherwise.operation of the new legislative provisions.
Data privacy
The establishment, approval, registered capital requirementPersonal Data (Privacy) Ordinance (“PDPO”) governs our collection and day-to-day operational matters of wholly foreign-owned enterprises, such as our PRC subsidiary, CTI Guangzhou Customer Services Co. Ltd., are regulated by the Wholly Foreign-owned Enterprise Lawuse of the PRC effective in 1986, as amended in 2000,personal data we collect from our customers and users of our HKTV Mall service.
The PDPO regulates all aspects of personal data processing. The PDPO defines “personal data” very broadly to include any data relating directly or indirectly to a living individual from which it is practicable for the Implementation Rulesidentity of the Wholly Foreign-owned Enterprise Lawindividual to be directly or indirectly ascertained. A “data user” is defined as the person who, either alone or jointly or in common with other persons, controls the collection, holding, processing or use of the PRC effective in 1990, as amended in 2001.
Foreign exchange
On August 29, 2008,personal data. A “data subject” is the Noticeindividual who is the subject of the General Affairs Department of the State Administration of Foreign Exchange on the Relevant Operating Issues concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-funded Enterprises, or Circular 142, was promulgated by the State Administration of Foreign Exchange, or SAFE. Pursuant to Circular 142, the foreign currency capital of foreign-invested enterprises, after being converted to Renminbi,personal data.
Personal data can only be processed or used by us for the purposes notified to the data subject on or before the collection of the data and any directly related purpose. Data subjects must consent to any new or additional purpose.
We are required under the PDPO to obtain data subjects’ consent to the processing of personal data for direct marketing purposes. Such consent must describe the kinds of personal data we will be using for direct marketing purposes and the classes of goods or services that will be marketed.
Contracts for the sale of goods
The Sale of Goods Ordinance (the “SGO”) applies to all contracts for the sale of goods. A contract for the sale of goods is made when the seller transfers or agrees to transfer the property in goods to the buyer for a price.
The SGO provides that goods for sale must:
If sellers fail to meet any one of the above conditions, they are in breach of contract. Under these circumstances, consumers are entitled to reject the goods and demand a full refund.
We will be bound by the provisions of the SGO where we are the seller of products. The SGO will not apply to our activities as an intermediary where we are acting as a marketplace for the sale of goods offered by third-party merchants only.
Contracts for the supply of services
The Supply of Services (Implied Terms) Ordinance (the “SSO”), provides that in the absence of provisions in the contract for services, services should be carried out (i) with reasonable care and skill (which generally means the services must meet the standard that a reasonable person would regard as satisfactory) (section 5 of the SSO), (ii) the services should be performed within a reasonable time if the time of performance has not been fixed by the contract (section 6 of the SSO); and (iii) a reasonable charge should be paid if the charge has not been fixed by the contract (section 7 of the SSO).
If we fail to meet any one of the above conditions, we would be “in breach of contract”. Under these circumstances, consumers would be entitled to seek compensation from us.
Section 8(1) of the SSO provides that as against a party to a contract for the supply of a service who deals as a consumer, the other party (the service supplier) cannot, by reference to any contract term, exclude or restrict any liability of his arising under the contract by virtue of this Ordinance. In other words, we cannot impose a contract term that excludes or restricts our liability on breach of contract.
We will be bound by the provisions of the SSO where we are the provider of services. The SSO will not apply to our activities as an intermediary where we are acting as a marketplace for the sale of services offered by third-party merchants only.
Unconscionable contracts for the sale of good or supply of services
The Unconscionable Contracts Ordinance (the “UCO”) applies to a contract for the sale of goods or supply of services in which one of the contracting parties is dealing as a consumer. If the Court finds that the contract or any part of it was unconscionable (that is, unfair or not sensible) in circumstances relating to the contract at the time when it was made, the Court would have the jurisdiction under section 5 of the UCO to refuse to enforce the contract, or to enforce the remainder of the contract without the unconscionable part, or to limit the application of, or to revise or alter, any unconscionable part so as to avoid any unconscionable result.
Misrepresentation
A person who makes a false statement of fact that induces another person to enter into a contract is guilty of making a misrepresentation. The three prerequisites for misrepresentation are:(i) someone has given a statement of fact,(ii) that statement is wrong, and (iii) that false statement induced the innocent party to enter into the contract.
The Misrepresentation Ordinance allows an innocent party to apply to court to cancel the contract and restore the parties to where they were before the contract was made and to claim compensation.
Limitations on liability
The Control of Exemption Clauses Ordinance (“CECO”) subjects any attempt by us to exclude our liability for financial loss or damage to property during the course of the provision of our services to the test of “reasonableness”. The reasonableness test is satisfied if the court concludes that the relevant exemption clause was fair and reasonable having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the agreement was made (section 3(1) CECO).
Under CECO, we cannot exclude or restrict our liability in relation to goods we have sold in respect of the following areas:
We will be bound by the provisions of CECO where we are the provider of goods and services. CECO will not apply to our activities as an intermediary where HKTV Mall is serving only as a marketplace for the sale of goods or services offered by third party merchants only.
Product safety
The Consumer Goods Safety Ordinance (the “CGSO”) and the Toys and Children’s Products Safety Ordinance (the “TCPS”) impose a statutory duty on manufacturers, importers and suppliers of consumer goods, toys and children’s products to ensure that the goods and products are reasonably safe. The CGSO also imposes controls on the advertising of consumer goods.
The CGSO does not prescribe any mandatory safety tests to be carried out on products before they are offered for sale. Suppliers are, however, encouraged to have their consumer goods tested by an approved laboratory to determine whether they are reasonably safe.
Under the TCPS, all toys manufactured, imported or supplied for consumption in Hong Kong must comply with one of three sets of safety standards for toys, while children’s products must comply with the corresponding standards set out in a schedule to the Ordinance. Toys with no relevant ISO 8124/IEC 62115, EN 71 (BS EN 71) or ASTM F963 standards and children’s products with no relevant standard requirements must comply with the ordinance’s general safety requirements, which imposes a duty on manufacturers, importers and suppliers to ensure that their products are reasonably safe.
As with the SGO, we will be bound by the provisions of the CGSO and TCPS where we are the seller of consumer products. Neither the CGSO nor the TCPS will apply to our activities as an intermediary where HKTV Mall is serving only as a marketplace for the sale of goods offered by third-party merchants.
Pharmaceutical safety
Under the Pharmacy and Poisons Ordinance, there are two kinds of medicine retailers: Listed Sellers of Poisons and Authorized Sellers of Poisons.
A Listed Seller of Poisons is only allowed to sell category 3 medicines, as set out in the Ordinance. Medicines in this category can be sold in pharmacies or medicine stores without resident pharmacists. Examples include drugs for the common cold, antipyretics, painkillers and those used to treat or alleviate minor illnesses.
An Authorized Seller of Poisons is authorized to sell all 3 categories of medicine under specific conditions. The Ordinance requires that medicines in categories 1 and 2 must be sold under the supervision of registered pharmacists at the premises of the Authorized Seller of Poisons.
Copyright infringement
Copyright is infringed by any person who, not being the owner of the copyright or his licensee, engages in any of the acts restricted by the Copyright Ordinance in Hong Kong. Under the Copyright Ordinance, an online service provider (“OSP”) such as HKTV Mall may be liable for copyright infringement if it “authorizes” another party to engage in an act restricted by copyright. Once an OSP becomes aware (or ought reasonably to have become aware) that its platform is being used for doing business withininfringing activities, it must take prompt action to bring the business scope approvedinfringing activity to an end.
The Copyright (Amendment) Bill 2014 was introduced in the Legislative Council on June 13, 2014 but has not yet been passed. The 2014 Bill would introduce safe harbor provisions which would have the effect of limiting, subject to conditions, our liability as an OSP for copyright infringement caused by relevant governmentalthird parties on our service platform.
Online transactions
The Electronic Transactions Ordinance provides the legal framework for the recognition of electronic records and signatures, giving them the same legal status as their paper counterparts. It has also established a Voluntary Certification Authority Recognition Scheme for certification authorities to enhance public confidence in electronic transactions.
Employment
All our employees are employed in Hong Kong, and shallwe are subject to the Hong Kong Employment Ordinance (the “EO”). The EO is the main employment legislation in Hong Kong, providing for certain minimum benefits and protections, including:
Subject to limited exceptions, the EO applies to all employees working in Hong Kong, regardless of their nationality. Observing the terms of the EO is generally considered to be mandatory, although it is not specifically expressed to be used for domestic equity investment except as otherwise explicitly provided byan overriding statute.
Other mandatory laws that are likely to apply to the employment relationship with our employees include the following:
Income tax
Hong Kong. In January 2008, the PRC Enterprise Income Tax Law took effect. The PRC Enterprise Income Tax Law appliescertain cases, a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, unless tax incentives are granted to special industries and projects. Under the PRC Enterprise Income Tax Law and its implementation regulations, dividends generated from the businessHong Kong national working outside of a PRC subsidiary after January 1, 2008 and payable to its foreign investorHong Kong may still be subject to a withholding tax rate of 10%this ordinance if the PRC tax authorities determine thatemployment has sufficient connection with Hong Kong.
Labor and work safety in China
The Labor Law of the PRC, or the Labor Law, which was effective on January 1, 1995, provides basic protections for employees, e.g. employment contracts shall be concluded if labor relationships are to be established between employers and employees; employers cannot compel employees to work beyond the time limit and shall provide wages which are not lower than local standards on minimum wages to the employees punctually; employers shall establish and improve their systems for labor safety and sanitation and strictly abide by applicable PRC rules and standards on labor safety and sanitation; and female employees and juvenile employees are given special protection.
On June 29, 2007, the National People’s Congress of China enacted the Labor Contract Law, which became effective on January 1, 2008. On September 18, 2008, the State Council further promulgated the Regulations on Implementation of the Labor Contract Law. Compared to the Labor Law, the Labor Contract Law and its implementing regulations impose more restrictions on employers and have been deemed to potentially increase labor costs for employers to terminate employment relationship with employees. Such restrictions include specific provisions related to fixed term employment contracts, temporary employment, probation, consultation with the labor union and employee assembly, employment without a contract, dismissal of employees, compensation upon termination and overtime work, and collective bargaining. According to the Labor Contract Law and its implementing regulations, an employer is obliged to sign an unlimited term employment contract withoffenses where an employee if the employer intends to renew employment relationship with such employee after two consecutive fixed term employment contracts. The employer also has to pay a compensation fee to the employee if the employer terminates the unlimited term labor contract, unlessaccepts or solicits advantages from third parties (for example, an employee refuseswho receives an inducement from a supplier of goods in return for placing orders with that supplier) or who offers advantages to extend an expired employment contract under terms which are the samepublic servants or more favorable than those in the expired contract. Compensation isconnection with contracts with public bodies. In some cases, employees may also required when the labor contract expires. Further, under the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008, employees who have worked more than one year for an employer are entitledbe subject to a paid vacation ranging from 5 to 15 days, depending on their length of service. Employees who waive such vacation time at the request of employers shall be compensated for three times their normal salaries for each waived vacation day.
TheOther laws and regulations governingaffecting our business
Competition
Hong Kong’s first cross-sector competition legislation, the labor relations and work safety also include:
the Work Safety LawCompetition Ordinance (Chapter 619 of the PRC (2002);Laws of Hong Kong), was enacted on June 14, 2012 and has been implemented in phases since January 18, 2013.
The main features of the RegulationCompetition Ordinance are to: (i) prohibit restrictive agreements and concerted practices; (ii) prohibit the abuse of a substantial degree of market power; (iii) prohibit anti-competitive mergers in the telecommunications sector; (iv) establish a Competition Commission and a Competition Tribunal; and (v) provide for incidental and connected matters.
The two sector-specific competition regimes that apply to the telecommunications and broadcasting sectors under the Telecommunications Ordinance and the Broadcasting Ordinance will be replaced upon implementation of the Competition Ordinance in phases.
Pursuant to the Competition Ordinance, both the CA and the Competition Commission are competent regulators and have concurrent jurisdiction on Occupational Injury Insurance (2004);
competition matters relating to telecommunications and broadcasting. The Competition Ordinance also provides a mechanism whereby such telecommunications and broadcasting related competition matters may be transferred between the Interim Measures ConcerningCA and the Maternity Insurance (1995);
Competition Commission. It is envisaged that in addition to the Interim Regulationsvarious codes and guidelines on competition related matters issued by the CA, new guidelines will be issued by the Competition Commission on the Collectioninterpretation of the conduct rules. the CA and Paymentthe Competition Commission will enter into a Memorandum of Social Insurance Premiums (1999) and its interim measures (1999); and
the RegulationUnderstanding to provide more clarity on the Administrationoperation of Housing Fund (2002).
The following chart sets forth our principal subsidiaries as of December 13, 2011:April 29, 2015:
Notes:
The jurisdiction of incorporation and our ownership percentage of each these subsidiaries as of December 13, 2011April 29, 2015 were as follows:
Name | Jurisdiction of | Percentage of interest held by HKTV | ||||||||
| ||||||||||
| Direct
| Indirect
| ||||||||
| ||||||||||
Attitude Holdings Limited | British Virgin Islands | — | 100 | % | ||||||
| British Virgin Islands | 100 | % | — | ||||||
| Hong Kong | — | 100 | % | ||||||
| British Virgin Islands | 100 | % | — | ||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
Excel Billion Profits Limited | Hong Kong | — | 100 | % | ||||||
Golden Trinity Holdings Limited | British Virgin Islands | 100 | % | — | ||||||
HKTV Japan Company Limited | Japan | — | 100 | % | ||||||
Hong Kong Broadband Digital TV Limited | Hong Kong | — | 100 | |||||||
| ||||||||||
| % | |||||||||
Hong Kong Broadband Television Company Limited | Hong Kong | — | 100 | % | ||||||
Hong Kong Media Production Company Limited | Hong Kong | — | 100 | % | ||||||
Hong Kong Mobile Television Network Limited | Hong Kong | — | 100 | % | ||||||
| Hong Kong | — | 100 | % | ||||||
Hong Kong Music Network Limited | Hong Kong | — | 100 | % | ||||||
Hong Kong TV Shopping Network Company Limited | Hong Kong | — | 100 | % | ||||||
Leader Artiste Management Company Limited | Hong Kong | — | % | |||||||
Multi Talent Enterprise Limited | British Virgin Islands | 100 | % | — | ||||||
Talent Ascent Limited | British Virgin Islands | 100 | % | — |
D. Property, plant and equipment
As of December 31, 2014, we owned premises with an aggregate area of 51,000 square feet, all of which were in Hong Kong, for our own use. We also had an aggregate of 126,000 square feet of investment properties for rental income or capital appreciation. In addition, we leased office and warehouse properties in Hong Kong.
Note: Our Company has only registered its Chinese name. The English name is an unregistered translation.During fiscal 2014, we invested HK$68.7 million on capital expenditure mainly for the set-up of the HKTV Mall, including computer system for OTT and online shopping platform, motor vehicles and equipment for logistics function, etc.
For the provision of fixed telecommunication network services, we own, or control through long-term leases, equipment consisting of switching, transmission and power equipment and connecting lines comprised of in-building wiring, fiber-based backbone, wireless and leased wire-line backbone and other support structures, conduits and similar items that comprise our Next Generation Network. The majority of the fiber-based backbone connecting our services is under public road, highways and streets. In Hong Kong, we owned an aggregate of 161,000 square feet predominately for self use as of August 31, 2011.None
For the provision of international telecommunications services, we own two switching systems in Hong Kong and two in Canada (one in Vancouver and the other in Toronto). We have invested and have rights to dedicated capacity in two undersea cables, the Japan-U.S. cable and the APCN 2 cable, for use as international transmission facilities, both of which were completed and have been operational since May 2002.
ITEM 5 | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
In addition, we have leased properties for 16 retail shops in Hong Kong and for a 3,500 square feet customer service center in Mongkok, Hong Kong.
We rely on suppliers to provide equipment, underground cables and other necessary components for the construction and upgrade of our Next Generation Network, and for our VoIP equipment. In order for new subscribers to be able to access our IP-TV services, we must install an IP set-top box in their homes. We must have an adequate supply of such installation equipment on hand to respond to new customer subscriptions in a timely manner. We purchase all of our IP set-top boxes and other equipment from our suppliers on a purchase order basis and have no long-term contracts. If our suppliers are unable to supply us with these products in a timely manner or the costs of these products increase due to unforeseen causes, this could negatively impact our operating results, especially if we are unable to acquire new subscribers or effectively appropriate our costs on to our customers.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion together with the rest of this annual report, including the consolidated financial statements and related notes included elsewhere in this annual report. The results discussed belowfollowing discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not necessarily indicativestatements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in Item 3 “Risk Factors” above and “Liquidity and Capital Resources” below. All forward-looking statements in this annual report are based on information available to us as of the date of this annual report and we assume no obligation to update any such forward-looking statements.
Pursuant to a resolution of the Board dated August 29, 2014, the Company’s financial year end date has been changed from August 31 to December 31 in order to unify the financial year end dates of the Company and its subsidiaries and align with the business cycle of the Group’s potential customers in the e-commerce retail industry and the multimedia advertising industry. As a result of this change, the Company’s fiscal 2014 results include consolidated financial statements for the sixteen months ended December 31, 2014, with comparative figures for the twelve months ended August 31, 2013 and August 31, 2012 for fiscal 2013 and 2012, respectively, and the fiscal 2014 results are accordingly not fully comparable to be expectedthe prior fiscal year results. For further information, see Note 1 to the consolidated financial statements included elsewhere in any future periods.this annual report.
Overview
We are a provider ofOverview
Prior to May 2012, we principally engaged in providing residential and corporate fixed telecommunications network services in Hong Kong. We offer our customers an integrated suite of broadband Internet access, local VoIP, IP-TVservice and corporate datainternational telecommunications services through our self-owned Next Generation Network. Our network covered 1.94 million residential homes pass as of August 31, 2011, representing more than 80% of the total households in Hong Kong and is concentrated in Hong Kong’s most densely populated areas, which reducesCanada. We derived our costrevenue from two business segments: the FTNS Business and the IDD Business. In March and April 2012, we entered into the Telecom Group Agreement and the Guangzhou Agreement and in May 2012, we disposed of network deployment per home pass. Asthe entire FTNS Business and IDD Business. Since then, the Multimedia Business has become our principal focus. The Multimedia Business includes the production, sale and distribution of August 31, 2011,television drama series, variety and infotainment programs locally and internationally, and the online shopping business. It also includes artiste management services and multimedia content production. The operating results of the disposed Telecom Business and the Multimedia Business have been presented, as discontinued operations and continuing operations, respectively, in our FTNS business had a subscription base of approximately 1,247,000 subscriptions. In addition, we offer a variety of international telecommunications services, including direct dial services, international calling cards and mobile call forwarding services, in Hong Kong. As of August 31, 2011, our IDD business had a subscription base of approximately 2.5 million registered accounts.consolidated financial statements.
Factors affecting our results of continuing operations
Our revenuesturnover
Our revenues are derivedIn fiscal 2014, our turnover represented income from two business segments: our FTNS businessprogram content broadcasting and our IDD business. Our FTNS business primarily consists of broadband Internet access, local VoIP, IP-TV and corporate data services, while our IDD business primarily consists of direct dial services, international calling cards and mobile call forwarding services.
FTNS business. Revenueslicensing, income from our FTNS business primarily consist of monthly service charges payable by our subscribersartiste management functions, income from independent content production, and interconnection charges payable by other telecommunications operators.
|
|
IDD business. Substantially all of revenues from our IDD business consist of tariffs, which generally varies by the destination of the call and the calling prefix, with discounts depending on the time of the day or day of the week when the call is placed.
Our operating expenses
Our operating expenses consist of network costs and costscost of sales and other operating expenses.
Network costs and costsCost of sales. NetworkCost of sales refers to programme costs vary accordingcharged to either our network capacity or our traffic volume. Suchprofit and loss over the showing period and talent costs mainly include leased line rentals, program fees and other production costs for our IP-TV serviceswhich are directly attributable to the turnover generated from the licensing of program rights, program production and interconnection charges payable to other local fixed network operators and international bandwidth providers. Network costs do not include depreciation charge, which is included in other operating expenses.
Other operating expenses. Other operating expenses mainly consist of Talentsalaries and related costs for Talents which are not capitalized as programme costs, costs relating to our e-commerce operations, costs of corporate functions, uncapitalized depreciation of fixed assets, amortization of intangible assets, advertising and marketing expenses, depreciationwrite-offs of owned fixed assets.
|
|
|
Critical accounting policies
The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with IFRSs for the fiscal years ended August 31, 2008, 2009, 2010 and 2011. Our significant accounting policies are more fully described in note 1 to our consolidated financial statements.statements included elsewhere in this annual report.
The preparation of our consolidated financial statements in conformity with IFRSsIFRS requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenuesrevenue and expenses and the disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments, including those related to fixed assets, provision for doubtful accounts,intangible assets, programme costs, investment properties, available-for-sale securities and deferred taxes, USC charges and certain revenue items.taxes. We base our estimates and judgments on historical experience and on various other factors we believe to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates as facts, circumstances and conditions change. The estimates and underlying assumptions are reviewed on an ongoing basis. Changes to accounting estimates are recognized in the period in which the estimate is changed if the change affects only that period or in the period of the change and future periods if the change affects both current and future periods.
Our accounting policies have been developed over many years as the telecommunications industry and generally accepted accounting principles have evolved. As our financial statements are prepared under IFRSs, our accounting policies are necessarily compliant with all aspects of IFRSs. IFRSs are based on a “substance over form” conceptual framework that requires us to look through the legal interpretation of an arrangement or transaction to its underlying purpose and to reflect it in our consolidated financial statements on that basis.
The following are the most significant accounting estimates and judgments we apply in preparing our consolidated financial statements.
Revenue recognition
Revenue for the provision of telecommunications services is recognized when an arrangement exists, service is rendered, fee is fixed or determinable and collectability is probable. Revenue received in advance is deferred and recognized as revenue on a straight-line basis over the stated period of time in the subscriber agreement.
A portion of revenue from our FTNS business is derived from network interconnection charges. Network interconnection charges are recorded as revenue based on usage of our fixed telecommunications network by the fixed telecommunications network operators. The determination of the rates on mobile interconnection charges at which revenue is recognized involved significant estimates by management. Significant changes in management estimates may result in material revenue adjustments.
Prior to April 27, 2009, mobile network operators were obliged to pay interconnection charges to us in accordance with the charging principles promulgated by OFTA. As certain local mobile network operators disagreed with the level of charges computed by us in the past, we recognize revenue related to mobile interconnection charges at amounts we believe to be realizable after consideration of the uncertainty regarding the timing and amount of the ultimate collection of amounts due. Specifically:
In August 2004, we requested OFTA to make a determination (the “2004 Determination”) on the level of mobile interconnection charges payable by one of the mobile network operators to us and the effective date of the determined mobile interconnection charges. The amount recognized in fiscal 2008 was based also on the 2004 Determination issued by OFTA in June 2007. In February 2008, we requested OFTA to make a new determination with four mobile operators on the rates of mobile interconnection charge and interest thereon. We subsequently entered into contractual agreements with some of these mobile operators, which agreed to pay mobile interconnection charges based on the 2004 Determination for the period from April 1, 2002 to August 31, 2004 and with respect to the period after August 31, 2004 at the interim rates stated in the agreements, which will be adjusted based on further determination to be issued by OFTA.
The amount recognized in fiscal 2009 and before was based on the 2004 Determination issued by OFTA in June 2007 which set out the rates of mobile interconnection charge payable by the mobile operators under dispute for interconnection services provided by us for the period from April 1, 2002 to August 31, 2004. In September 2008, OFTA indicated that it accepted our request for determination on the rate of mobile interconnection charge for the period from April 1, 2002 to April 26, 2009 payable by the mobile operators that have not reached contractual agreements with us, and the rate for period from September 1, 2004 to April 26, 2009 payable by those mobile operators that have reached contractual agreements with us and the interest thereon (the “2008 Determination”). On November 25, 2009, OFTA issued a Preliminary Analysis in relation to the 2008 Determination for the parties’ comments.
In May 2010, OFTA issued its decision on the 2008 Determination, which set out the rates of mobile interconnection charges payable by the mobile operators involved in the dispute. Based on such decision on the 2008 Determination, we reversed approximately HK$19.7 million revenue related to mobile interconnection charges and recognized approximately HK$10.1 million interest income in fiscal 2010.
For a discussion of our revenue recognition of mobile interconnection charges, please refer to note 2(b) to our consolidated financial statements. Actual amounts realized could be different from our estimate.
Useful lives of fixed assets
We estimate the useful lives of fixed assets in order to determine the amount of depreciation expense to be recorded. The useful life of an asset is estimated at the time the asset is acquired based on historical experience, the expected usage, and wear and tear of the asset, as well as technical obsolescence arising from changes in the market demandsdemand or service output of the asset. Changes in technology or industry conditions may cause the estimated period of use or the value of these assets to change. We perform periodic reviews to confirm the appropriateness of estimated economic useful lives for each class of fixed assets. For the three years ended August 31, 2011,fiscal 2012, fiscal 2013 and fiscal 2014, there were no changes in the useful lives of our fixed assets.
Intangible assets Upon the completion of the disposal of the Telecom Business in May 2012 and as part of the consideration received from the disposal, we were granted the indefeasible right of use of the telecommunications capacity of the Telecom Business for a term of 20 years and the right to use the telecommunications services from the Telecom Business for a term of 10 years. The fair value of these intangible assets as of the completion date of the disposal was determined with reference to comparable market transactions. During fiscal 2014, we acquired a wholly-owned subsidiary and recorded an intangible asset relating to our acquisition of Mobile TV Spectrum for the provision of broadcast-type mobile television services for a period of about 12 years. Intangible assets acquired by us are stated at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses. Amortization of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. Both the period and method of amortization are reviewed annually. Impairment of fixed assets
Under IFRSs,IFRS, if a triggering event occurs indicating that the carrying amount of an asset may not be recoverable, a new assessment of the carrying amount of that asset is required. Triggering events include significant adverse changes in the market value of an asset, changes in the business or regulatory environment, or certain legal events. The interpretation of such events requires judgment from the management with respect to whether such an event has occurred and whether management feelsconsiders that reassessment of the carrying value of the asset is required. If an event occurs that could affect the carrying value of the asset and management does not identify it as a triggering event and identify the asset as impaired, future operations could be adversely affected if this asset is subsequently written off or sold for less than its carrying value due to sudden downturns in the business environment.
Upon the occurrence of triggering events, the carrying amounts of fixed assets are reviewed to assess whether their recoverable amounts have declined below their carrying amounts. Under IFRSs,IFRS, the recoverable amount is the greater of its fair value less costs of sales and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the assets. Where the asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest identifiable group of assets that generates cash inflows independently (i.e. cash-generating-unit)that are largely independent of the cash inflows from other assets or groups of assets (such smallest identifiable groups being referred to as a cash-generating unit or “CGU”). Where the recoverable amount of fixed and other long-lived assets is less than their carrying value, an impairment loss is recognized to write down the assets to their recoverable amount, which is based on the fair value less costs to sell or value in use.
Estimation of cash flows arising from future use of the asset requires careful analysis regarding what we expect to recover from its future use. This includes consideration of our target market share and subscription base,viewership, market competition, future changes to our cost structure and technological change. In addition, the residual value of the asset on disposal requires judgment, as the estimated fair value of the asset at the time of disposal could change in response to market conditions and changes in expected use of the asset prior to disposal. Changes in the estimate of cash flows arising from expected future use of the asset or its residual value on disposal — based on changes in market conditions, changes in the use of assets, changes to our management plan,plans, and foreseeable technological changes or otherwise — could significantly change the calculation of the fair value or recoverable amount of the asset and the resulting impairment loss. This in turn could significantly affect theour results of our operations.
ForOur Multimedia Business comprises two CGUs, namely our “Media” CGU, which includes the three years ended August 31, 2011, nomultimedia, drama production and content distribution business, and our “E-commerce” CGU, which includes our online shopping business. During fiscal 2014, we recognized impairment loss on fixed assets, intangible assets and programme costs and wrote off certain construction in progress with an aggregated amount of HK$32.0 million. We have identified indications of impairment of our Media CGU assets, primarily as a result of the uncertainty related to the legal and technical feasibility in the provision of mobile television services. The recoverable amounts of these assets, which include primarily programme costs, certain fixed assets has been recognized.
Accounts receivable
Under IFRSs, provision is made against accounts receivable toand intangible assets, were assessed based on their value-in-use at the extent they are consideredMedia CGU level as well as our Multimedia Business as a whole and were determined by discounting the estimated cash flows to be doubtful. This provision requires judgment regardinggenerated from the collectabilityuse of certain receivables boththese assets at pre-tax discount rates of 13.40% at the Media CGU level and 15.25% at the overall Multimedia Business level. Key assumptions used in the estimation of value in use included discount rate, projected revenue of the Media CGU and projected revenue of our E-commerce CGU.
Any change in the assumptions adopted in the cash flow forecasts would significantly affect our impairment testing and hence our results of operations.
Fair value measurement of investment properties
Investment properties are stated at fair value. Any gain or loss arising from the change in fair value or from the retirement or disposal of an investment property is recognized in profit or loss.
Valuations of investment properties are carried out by an independent firm of surveyors. The fair value of our investment properties are determined by using the direct comparison approach by reference to recent sales prices of comparable properties.
Fair value measurement of available-for-sale securities
Our investments in debt and equity securities are classified as theyavailable-for-sale securities, which are incurredinitially stated at fair value, which is their transaction price unless it is determined that the fair value at initial recognition differs from the transaction price and as they age. We assess bad debt provisionthat fair value is evidenced by type of customers, namely residential, corporate and carrier,a quoted price in an active market for an identical asset or liability or based on past experiencea valuation technique that uses only data from observable markets.
At the balance sheet date, the fair value is remeasured, with any resultant gain or loss being recognized in other comprehensive income and accumulated separately in equity in the fair value reserve. When the investments are derecognized or impaired, the cumulative gain or loss recognized in equity is reclassified to profit or loss.
The fair value of recovery of old receivables,available-for-sale securities are based on quoted market prices for identical financial instruments at the aging ofbalance sheet date.
Programme costs
Programme costs are stated at cost less amounts expensed and any provision considered necessary by management. Programme costs are charged to profit or loss based on the accounts receivable balance and historical write-off experience. Certain receivables may be initially identified as collectible, yet subsequently become uncollectible and result in a subsequent write-offbroadcasting schedule of the related receivable toprogram reflecting the consolidated income statement. Changes in the collectabilitypattern of accounts receivableconsumption of their economic benefits.
- Self-produced programs
Self-produced programs consist primarily of drama, infotainment and variety programs. The cost of self-produced programs comprises direct production costs and an appropriate proportion of production overheads.
- Purchased programs
Purchased programs consist of film rights acquired for which provisions are not made could affectshowing on our future resultstelevision platforms. Cost of operations.purchased programs comprises cost of purchase, cost of conversion and an appropriate proportion of production overheads.
Included in the accounts receivable balance (net of allowance for doubtful debts) were receivables for mobile interconnection charges of HK$68.8 million, HK$39.8 million and less than HK$0.1 million as of August 31, 2009, 2010 and 2011, respectively. The balance represented mobile interconnection charges we billed to the local mobile network operators, and some of these charges had not been collected.
Changes in the allowance for doubtful debts consist of:
For the year ended August 31, | ||||||||||||||||
2009 HK$ | 2010 HK$ | 2011 HK$ | 2011 US$ | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Balance at beginning of the year | 11,944 | 3,160 | 5,823 | 748 | ||||||||||||
Additions charged to expense | 12,103 | 14,742 | 13,636 | 1,751 | ||||||||||||
Write-off | (20,887 | ) | (12,079 | ) | (12,929 | ) | (1,660 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at the end of the year | 3,160 | 5,823 | 6,530 | 839 | ||||||||||||
|
|
|
|
|
|
|
|
Deferred taxation
We recognized deferred tax assets for all deductible temporary differences and operating loss carry forwardscarry-forwards to the extent it is probable that future taxable profits will be available against which the assetassets can be utilized. The recognition of deferred tax assets requires judgment regarding the results of future operations, including the assumption that there will be sufficient future operations to allow us to utilize the related deferred tax assets. Our management projects future taxable income by considering all available information, including projected future taxable profit by taking into consideration of the effect of our capital expendituresexpenditure and other plans (such as the existing network capacity, technological changes and future market trends and projected fixed network coverage)trends), tax planning strategies, historical taxable incomes, and the expiration period of the unused tax losses carry forwardsloss carry-forwards of the Company and each of our Company andits subsidiaries.
As of August 31, 20102013 and 2011,December 31, 2014, we had not recognized deferred tax assets in respect of unused tax losses of HK$8.2204.9 million and HK$8.1566.0 million respectively, because it was not probable that future taxable profits could be generated to utilize the tax losses. All tax losses are subject to agreement with local tax authorities. Any changes in the estimate of future operations could change the recognition of our deferred tax assets, which could significantly affect our results of operations.
USC charges
Our management makes their best estimates for the USC, payable to PCCW-HKT in order to fund the network development costs incurred by PCCW-HKT in remote areas in Hong Kong. Such estimated costs are included as part of our costs of rendering services. The estimate is made based on the provisional rates announced by OFTA and is effective up to the date of the release of our consolidated financial statements. OFTA periodically reviews the actual costs incurred by PCCW-HKT in the development and adjusts the amounts owed to PCCW-HKT, or to be refunded by it, to the respective USC contributing parties, including us. Accordingly, the estimate made by our management for a financial year is subject to changes based on the revisions published by OFTA up to the date prior to the release of our consolidated financial statements. We adjust such differences as an addition to, or reduction of, the corresponding costs of services in that particular reporting period.
Any sum received in advance from PCCW-HKT as an estimated refund of USC on a provisional basis, which is subject to the final confirmation and determination of OFTA, is recorded in other payables and accrued charges in our balance sheet.
Operating Results
The following table sets forth, for the years indicated, a summary of our results of operations.
For the year ended August 31, | ||||||||||||||||
2009 | 2010 | 2011 | 2011 | |||||||||||||
HK$ | HK$ | HK$ | US$ | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Revenue | ||||||||||||||||
FTNS business | 1,230,880 | 1,356,098 | 1,484,324 | 190,601 | ||||||||||||
IDD business | 247,359 | 218,589 | 197,134 | 25,314 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
1,478,239 | 1,574,687 | 1,681,458 | 215,915 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Network costs and costs of sales | (175,129 | ) | (195,292 | ) | (212,315 | ) | (27,263 | ) | ||||||||
Other operating expenses | (1,037,964 | ) | (1,105,604 | ) | (1,097,164 | ) | (140,886 | ) | ||||||||
Other income, net | 41,540 | 7,989 | 7,249 | 931 | ||||||||||||
Finance costs | (55,127 | ) | (22,235 | ) | (6,359 | ) | (817 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Profit before taxation | 251,559 | 259,545 | 372,869 | 47,880 | ||||||||||||
Income taxes expense | (38,730 | ) | (42,679 | ) | (58,954 | ) | (7,570 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | 212,829 | 216,866 | 313,915 | 40,310 | ||||||||||||
|
|
|
|
|
|
|
|
Twelve months ended August 31, 2012 (Fiscal 2012) | Twelve months ended August 31, 2013 (Fiscal 2013) | Twelve months ended August 31, 2014 | Four months ended December 31, 2014 | Sixteen months ended December 31, 2014 (Fiscal 2014) | Sixteen months ended December 31, 2014 (Fiscal 2014) | |||||||||||||||||||
HK$ | HK$ | HK$ | HK$ | HK$ | US$ | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Continuing operations: | ||||||||||||||||||||||||
Turnover | 3,762 | 7,802 | 1,391 | 21,636 | 23,027 | 2,970 | ||||||||||||||||||
Cost of sales | (6,006 | ) | (15,706 | ) | (560 | ) | (27,207 | ) | (27,767 | ) | (3,581 | ) | ||||||||||||
Valuation gains on investment properties | 18,200 | 43,400 | 1,800 | 2,100 | 3,900 | 503 | ||||||||||||||||||
Other operating expenses | (104,960 | ) | (201,514 | ) | (245,581 | ) | (98,218 | ) | (343,799 | ) | (44,344 | ) | ||||||||||||
Other income/(loss), net | 19,920 | 128,909 | 117,702 | 29,907 | 147,609 | 19,038 | ||||||||||||||||||
Finance costs, net | (2,455 | ) | (4,860 | ) | (5,751 | ) | (2,016 | ) | (7,767 | ) | (1,002 | ) | ||||||||||||
Impairment losses/ write off of assets | — | — | (32,000 | ) | — | (32,000 | ) | (4,127 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loss before taxation | (71,539 | ) | (41,969 | ) | (162,999 | ) | (73,798 | ) | (236,797 | ) | (30,543 | ) | ||||||||||||
Income tax (expenses)/credit | (2,281 | ) | 1,659 | (145 | ) | (60 | ) | (205 | ) | (26 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loss from continuing operations | (73,820 | ) | (40,310 | ) | (163,144 | ) | (73,858 | ) | (237,002 | ) | (30,569 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Discontinued operations: | ||||||||||||||||||||||||
Profit from discontinued operations (net of tax) | 3,771,694 | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Loss)/profit for the period | 3,697,874 | (40,310 | ) | (163,144 | ) | (73,858 | ) | (237,002 | ) | (30,569 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
Note:
(1) | Following the disposal of our Telecom Business in May 2012, the Telecom Business was reclassified as discontinued operations for fiscal 2012. |
Fiscal 20112014 Compared to Fiscal 20102013
The following discussion compares fiscal 2013 (the twelve months ended August 31, 2013) with fiscal 2014 (the sixteen months ended December 31, 2014). For a comparison of fiscal 2013 results with results for the unaudited twelve months ended August 31, 2014, see “Management’s Discussion and Analysis” set forth in the Company’s Second Interim Report of 2014, which the Company furnished on a Form 6-K dated October 28, 2014.
Revenues.Turnover. Revenues increased by 6.8% toWe recorded turnover of HK$1,681.523.0 million in fiscal 2011 from2014, as compared to HK$1,574.77.8 million in fiscal 2010, reflecting2013, primarily comprising program content broadcasting and licensing, content production, provision of artiste management services and e-commerce related income. The increase of HK$15.2 million was mainly due to an increase in revenue fromprogram content broadcasting and in licensing income as a result of our FTNS business,launch of HKTV Mall on November 19, 2014, all of which was partially offset by the effectsexpiration of the news content license agreement on September 1, 2013 in relation to our discontinued operations. Of the HK$23.0 million of turnover in fiscal 2014, we recorded HK$21.6 million during the four months ended December 31, 2014 and HK$1.4 million during the twelve months ended August 31, 2014.
Cost of sales. We recorded cost of sales of HK$27.8 million for fiscal 2014 (all but HK$0.6 million of which arose in the four months ended December 31, 2014), as compared to HK$15.7 million for fiscal 2013. In both periods, our cost of sales mainly comprised programme costs charged to profit and loss over the showing period, talent, and other production costs for content production for third-party customers. The increase of HK$12.1 million was mainly due to the showing of program content during the period net of the decrease due to the expiration of the license agreement on September 1, 2013 for the distribution of news content.
Valuation gains on investment properties. Valuation gains on investment properties were HK$3.9 million in fiscal 2014 as compared to HK$43.4 million in fiscal 2013, based on the valuation carried out by an independent firm of surveyors.
Other operating expenses. We recorded operating expenses of HK$343.8 million in fiscal 2014 as compared to HK$201.5 million in fiscal 2013, representing an increase of HK$142.3 million. This increase was mainly driven by the following:
FTNS business. Revenues from our FTNS business increased by 9.5% to HK$1,484.3 million in fiscal 2011 from HK$1,356.1 million in fiscal 2010. The increase was primarily caused by an increase of 12.3% of our FTNS subscription base to 1,247,000 as of August 31, 2011 from 1,110,000 as of August 31, 2010.
|
|
|
IDD business. Revenues from our IDD business decreased by 9.8% to HK$197.1 million in fiscal 2011 from HK$218.6 million in fiscal 2010. The decrease was primarily2014, due to the reduction in IDD traffic volumeadditional four months of expenses, amounting to HK$11.0 million and HK$9.7 million, respectively; the decrease inadditional amortization arose from the tariff rate we charged toMobile TV Spectrum obtained through our customers. Competition during fiscal 2011 intensified as someacquisition of our competitors offered international direct dial minutes for free or at significantly lower rates as a marketing incentive to gain local fixed lineHKMTV, and mobile market shares. Further, technology from global VoIP providers such as Skype, which offer free PC-to-PC based international calls, was also becoming more prevalent in Hong Kong.
Network costs and costs of sales. Network costs and costs of sales increased by 8.7% to HK$212.3 million in fiscal 2011 from HK$195.3 million in fiscal 2010 mainly due to the increase in the cost of purchasing international bandwidth asuncapitalized depreciation was a result of the combined effectour slowdown and suspension of the record growth in broadband subscription and the increasing demand of bandwidth from customers as well as theprogram production.
Other operating expenses. Other operating expenses decreased by 0.8% tocommitted artiste payments, together totaling HK$1,097.217.5 million, in fiscal 2011 from HK$1,105.6 million in fiscal 2010 mainly due to under-utilization during the following:
Set forth below is a table summarizing the details of our other operating expenses in fiscal 20102013 and 2011:2014:
For the year ended August 31, | ||||||||||||||||||||||||||||||||
2010 | 2011 | 2011 | Twelve months ended August 31, 2013 (Fiscal 2013) | Twelve months ended August 31, 2014 | Four months ended December 31, 2014 | Sixteen months ended December 31, 2014 (Fiscal 2014) | Sixteen months ended December 31, 2014 (Fiscal 2014) | |||||||||||||||||||||||||
HK$ | HK$ | US$ | HK$ | HK$ | HK$ | HK$ | US$ | |||||||||||||||||||||||||
(Amounts in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Talent costs | (301,760 | ) | (311,355 | ) | (39,981 | ) | 84,303 | 105,814 | 40,688 | 146,502 | 18,896 | |||||||||||||||||||||
Advertising and marketing expenses | (372,727 | ) | (344,136 | ) | (44,190 | ) | 8,595 | 839 | 9,231 | 10,070 | 1,299 | |||||||||||||||||||||
Depreciation | (199,029 | ) | (218,197 | ) | (28,018 | ) | 19,107 | 24,690 | 9,680 | 34,370 | 4,433 | |||||||||||||||||||||
Amortization of intangible assets | 20,360 | 29,075 | 10,992 | 40,067 | 5,168 | |||||||||||||||||||||||||||
Write off/provision of artiste prepayment | 16,852 | 24,975 | 3,353 | 28,328 | 3,654 | |||||||||||||||||||||||||||
Provision for committed artiste payment | — | 10,863 | (4,860 | ) | 6,003 | 774 | ||||||||||||||||||||||||||
Others | (232,088 | ) | (223,476 | ) | (28,697 | ) | 52,297 | 49,325 | 29,134 | 78,459 | 10,120 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Other operating expenses | (1,105,604 | ) | (1,097,164 | ) | (140,886 | ) | 201,514 | 245,581 | 98,218 | 343,799 | 44,344 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
|
|
|
|
|
Other income, net. OtherWe recorded other income, net, decreased toof HK$7.2147.6 million in fiscal 2011 from2014, as compared to HK$8.0128.9 million in fiscal 2010.
Finance costs. Finance costs decreased by 71.6% to2013. The increase of HK$6.318.7 million in fiscal 2011 from HK$22.2 million in fiscal 2010. The decrease was mainly due to full year impactan increase of the finance cost savings through repurchase and redemption of our 10-year senior notes in fiscal 2010.
Income tax expense. We recorded an income tax expense of HK$59.0 million, which included a non-cash deferred tax expenses of HK$55.356.3 million in fiscal 2011, comparedinvestment return (which included an additional four months of investment return, amounting to an income tax expense of HK$42.735.5 million, in fiscal 2010, which included a non-cash deferred tax expensesthe current period) and an additional four months of HK$40.1 million.
Net income. For the foregoing reasons, netrental income increasedfrom investment properties, amounting to HK$313.93.8 million, in fiscal 2011 from HK$216.9 million in fiscal 2010. Net margin increased to 18.7% in fiscal 2011 from 13.8% in fiscal 2010.
Fiscal 2010 Compared to Fiscal 2009
Revenues. Revenues increased by 6.5% to HK$1,574.7 million in fiscal 2010 from HK$1,478.2 million in fiscal 2009, reflecting an increase in revenue from our FTNS business, the effectsboth of which were partially offset by a HK$41.4 million decrease in revenue from our IDD business andexchange gain mainly caused by the change in the regulatory regimedepreciation of mobile interconnection charges summarized below. Revenue contribution from our FTNS business increasedRenminbi (including an additional four months of net exchange loss amounting to 86.1% in fiscal 2010 from 83.3% in fiscal 2009.
|
|
|
|
As a result of OFTA’s decision on the 2008 Determination in May 2010 as stated above, revenue of HK$19.7 million related to mobile interconnection charges was reversed in fiscal 2010. In addition, prior to April 26, 2009, the mobile network operators were required to pay interconnection charges for all calls originating to and from the mobile users. After April 26, 2009, the chargeability of interconnection charges is subject to commercial negotiation. With the withdrawal of regulatory guidance on FMIC in favor of mobile network operators on April 27, 2009, only an insignificant amount of revenue related to mobile interconnection charges was recognized.
IDD business. Revenues from our IDD business decreased by 11.6% to HK$218.69.5 million in fiscal 20102014). In fiscal 2014, our other income, net, mainly comprised interest income from available-for-sale securities, bank interest income, rental income from investment properties and net exchange losses. Our investment income is affected by many factors beyond our control. For example, our interest income is affected by changes in interest rates, which are highly sensitive to many factors, including governmental monetary policy and domestic and international economic and political conditions. Deterioration in the credit of the securities in which we have invested and general economic conditions may also materially and adversely affect our investment income.
Finance costs, net. We recorded finance costs of HK$247.47.8 million in fiscal 2009. The decrease was primarily due2014, as compared to the reduction in IDD traffic volume and the decrease in the tariff rate we charged to our customers. Competition during fiscal 2010 intensified as some of our competitors offered international direct dial minutes for free or at significantly lower rates as a marketing incentive to gain local fixed line and mobile market shares. Further, technology from global VoIP providers such as Skype, which offer free PC-to-PC based international calls, was becoming more prevalent.
Network costs. Network costs increased by 11.5% to HK$195.34.9 million in fiscal 2010 from2013. The increase of HK$175.12.9 million is mainly due to a HK$4.6 million increase in interest on bank loans for investment yield enhancement purposes (including an additional four months of interest on bank loans, amounting to HK$2.0 million in fiscal 20092014), partially reduced by a decrease of HK$2.0 million in bank charges.
Impairment losses/write off of assets.We recognized impairment losses and wrote off certain Multimedia Business related assets of HK$32.0 million for fiscal 2014 in our profit and loss.
Income tax credit/(expenses). We recorded income tax expenses of HK$0.2 million in fiscal 2014, which included a non-cash deferred tax charge of HK$0.6 million and a HK$0.4 million over-provision of current tax for the prior year, compared to an income tax credit of HK$1.7 million in fiscal 2013, which mainly was composed of a non-cash deferred tax credit of HK$1.1 million and a HK$0.5 million over-provision of current tax for prior year.
Net loss. For the foregoing reasons, net loss of HK$237.0 million was incurred in fiscal 2014 as compared to HK$40.3 million in fiscal 2013.
Fiscal 2013 Compared to Fiscal 2012
Turnover. Our turnover from the Multimedia Business primarily consists of licensing fees, independent content production and artiste management fees. We recorded turnover of HK$7.8 million in fiscal 2013, primarily reflecting the licensing fees received from the Telecom Business to broadcast news content produced by our news production operation unit, the income from independent content production and the income received from our artiste management functions. We had HK$3.8 million of turnover in fiscal 2012 generated from our Multimedia Business.
Cost of sales. Cost of sales in fiscal 2013 was HK$15.7 million, primarily consisting of talent costs and other production costs which are directly attributable to the turnover generated from licensing of program rights, independent content production and the provision of artiste management services. Our cost of sales in fiscal 2012 was HK$6.0 million incurred. The increase between these two periods was mainly due to the increasefull-year impact of the license agreement for news content in fiscal 2013, as this license revenue started in April 2012. The license agreement for news content in relation to our discontinued operations expired on August 31, 2013.
Valuation gains on investment properties. Valuation gains on investment properties were HK$43.4 million in fiscal 2013 as compared to HK$18.2 million in fiscal 2012. These valuation gains consisted of the changes in the cost of purchasing international bandwidth as a resultfair value of the combined effect of the record growth in broadband subscription and the increasing demand of bandwidth from customers as well as the increase in program fees for IP-TV services to enhance the value of content to customers.investment properties held by us.
Other operating expenses. OtherOur other operating expenses increased by 6.5% to HK$1,105.6201.5 million in fiscal 20102013 from HK$1,038.0105.0 million in fiscal 20092012. This increase was mainly driven by the following:
Set forth below is a table summarizing the details of our other operating expenses in fiscal 20092012 and 2010:2013:
For the year ended August 31, | Twelve months ended August 31, 2012 (Fiscal 2012) | Twelve months ended August 31, 2013 (Fiscal 2013) | ||||||||||||||||||
2009 | 2010 | 2010 | ||||||||||||||||||
HK$ | HK$ | US$ | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||
(in thousands) | HK$ | HK$ | ||||||||||||||||||
Talent costs | (302,279 | ) | (301,760 | ) | (38,796 | ) | 55,971 | 84,303 | ||||||||||||
Advertising and marketing expenses | (299,794 | ) | (372,727 | ) | (47,920 | ) | 214 | 8,595 | ||||||||||||
Depreciation | (206,241 | ) | (199,029 | ) | (25,588 | ) | 4,636 | 19,107 | ||||||||||||
Amortization of intangible assets | 5,217 | 20,360 | ||||||||||||||||||
Write off/provision of artiste prepayment | 697 | 16,852 | ||||||||||||||||||
Others | (229,650 | ) | (232,088 | ) | (29,839 | ) | 38,225 | 52,297 | ||||||||||||
|
|
|
|
| ||||||||||||||||
Other operating expenses | (1,037,964 | ) | (1,105,604 | ) | (142,143 | ) | 104,960 | 201,514 | ||||||||||||
|
|
|
|
|
|
|
|
Other income, net. Other income, net, decreasedincreased to HK$8.0128.9 million in fiscal 20102013, from HK$41.519.9 million in fiscal 2009. The decrease2012, mainly due to an increase in return driven by the investment of surplus cash retained from the proceeds of the sale of the Telecom Business. Other income, net, was mainly contributed by the loss on extinguishmentcomposed of our 10-year senior notes ofinvestment income generated from available-for-sale securities, bank interest income, net exchange gain and rental income from investment properties.
Finance costs, net. Finance costs, net, increased to HK$9.74.9 million in fiscal 2010 compared to the gain on extinguishment of our 10-year senior notes of2013 from HK$31.42.5 million in fiscal 2009. The effect of which was partially offset by2012, primarily due to an increase in interest on bank loans and bank charges incurred for investments in available-for-sale securities.
Income tax credit/(expenses). We recorded income tax credit of HK$10.1 million recognized in relation to mobile interconnection charges in fiscal 2010.
Finance costs. Finance costs decreased by 59.7% to HK$22.21.7 million in fiscal 2010 from2013, which included a HK$55.11.1 million non-cash deferred tax credit and a HK$0.5 million over-provision of current tax for the prior year. In fiscal 2012, we incurred HK$2.3 million in fiscal 2009. The decrease was mainly due to finance cost savings through repurchase and redemption of our 10-year senior notes and interest bearing bank borrowings at a lower interest rate. The effect of which was partially offset by the change in fair value of derivative financial instrument that we did not have in fiscal 2009.
Income tax expense. We recorded an income tax expenseexpenses, mainly composed of HK$42.71.3 million which included ain non-cash deferred tax expenses ofand a HK$40.10.9 million in fiscal 2010, compared to an income tax expense of HK$38.7 million in fiscal 2009, which included a non-cash deferred tax expenses of HK$37.1 million.provision for current tax.
Net income.loss. For the foregoing reasons, we recorded net income increased toloss of HK$216.940.3 million in fiscal 2010 from2013 as compared to HK$212.873.8 million in fiscal 2009. Net margin decreased2012.
Discontinued operations. The disposal of the Telecom Business was completed on May 30, 2012. The operating results of the disposed Telecom Business up to 13.8%the disposal date have been presented as discontinued operations in fiscal 2010 from 14.4% in fiscal 2009. The slight decrease in net margin was primarily duethis annual report. For a detailed discussion of discontinued operations, see Item 18: Financial Statements—Notes to a higher cost in acquiring new customers.Consolidated Financial Statements—Note 3.
Recent accounting pronouncements
RecentRecently issued but not yet effective accounting pronouncements under IFRSsIFRS have been included in note 31 to our consolidated financial statements.
B. Liquidity and capital resources
We expect cash flow from operating activities to continue to be our principal source of liquidity. As of AugustDecember 31, 2011, we2014, the Group had a total cash and bank balancesposition of HK$409.0 million. Our day-to-day operations are also supported by819.2 million representing our cash at bank and in hand, as compared to HK$38.9690.5 million banking facilities, of which HK$6.9 million was utilized as of August 31, 2011.2013 representing our term deposits and cash at bank and in hand. Our outstanding borrowings were HK$802.2 million as of December 31, 2014, as compared to HK$532.0 million as of August 31, 2013. The increase in total cash position was mainly due to the additional net bank loan of HK$270.3 million drawn for investment yield enhancement purposes, net proceeds from disposal or maturity of available-for-sale securities of HK$203.7 million and net interest received of HK$146.8 million, which was partially offset by cash outflow of HK$142.3 million for the acquisition of HKMTV and the assets therein, purchases of certain fixed assets for HK$61.3 million and the utilization of resources for program production and other operating costs. As of December 31, 2014, we had utilized HK$802.2 million (HK$531.9 million as of August 31, 2013) uncommitted banking facilities, mainly for investment purpose, leaving HK$1,508.8 million (HK$2,011.8 million as of August 31, 2013) uncommitted banking facilities available for future utilization.
We believe that our current cash and cash equivalents and cash flow from operationsterm deposits on hand, together with the unutilized banking facilities, will be sufficient to meet our anticipated cash needs, including working capital requirements, capital expenditures,expenditure, repayment of our indebtedness when fall due and various contractual obligations, for at least the next 12twelve months. Our cash flows from operations, however, may decrease due to lower customer demand resulting from rapid technological changes, increasing competition resulting from new local and foreign entrants into the market, or our failure to obtain or renew the necessary telecommunication licenses. A decrease in our operating cash flow could adversely affect our ability to make planned capital expenditures, to comply with our obligations under various operating and capital leases and to repay amounts due under banking facilities.
Cash flow
The following table summarizes our cash flows for each of fiscal 2009, 20102012, 2013 and 2011:2014:
For the year ended August 31, | ||||||||||||||||
2009 | 2010 | 2011 | 2011 | |||||||||||||
HK$ | HK$ | HK$ | US$ | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Net cash inflow from operating activities | 536,771 | 485,340 | 585,899 | 75,235 | ||||||||||||
Net cash outflow from investing activities | (176,488 | ) | (306,254 | ) | (414,189 | ) | (53,186 | ) | ||||||||
Net cash (outflow)/inflow from financing activities | (561,292 | ) | 178,307 | (343,112 | ) | (44,059 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
(Decrease)/increase in cash and cash equivalents | (201,009 | ) | 357,393 | (171,402 | ) | (22,010 | ) | |||||||||
Cash and cash equivalents, at the beginning of year | 421,610 | 221,052 | 578,175 | 74,243 | ||||||||||||
Effect of foreign exchange rate changes on cash | 451 | (270 | ) | 1,358 | 174 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents, at the end of the year | 221,052 | 578,175 | 408,131 | 52,407 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Analysis of the balances of cash and cash equivalents | ||||||||||||||||
Cash at bank and in hand | 226,416 | 588,665 | 408,976 | 52,516 | ||||||||||||
Bank overdrafts — unsecured | (5,364 | ) | (10,490 | ) | (845 | ) | (109 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
221,052 | 578,175 | 408,131 | 52,407 | |||||||||||||
|
|
|
|
|
|
|
|
Twelve months ended August 31, 2012 (Fiscal 2012) | Twelve months ended August 31, 2013 (Fiscal 2013) | Twelve months ended August 31, 2014 | Four months ended December 31, 2014 | Sixteen months ended December 31, 2014 (Fiscal 2014) | Sixteen months ended December 31, 2014 (Fiscal 2014) | |||||||||||||||||||
HK$ | HK$ | HK$ | HK$ | HK$ | US$ | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Net cash (outflow)/inflow from operating activities | 181,924 | (356,804 | ) | (241,404 | ) | (49,662 | ) | (291,066 | ) | (37,542 | ) | |||||||||||||
Net cash inflow/(outflow) from investing activities | 3,681,791 | (1,781,342 | ) | (120,577 | ) | 627,835 | 507,258 | 65,426 | ||||||||||||||||
Net cash inflow/(outflow) from financing activities | (2,191,749 | ) | 403,762 | 322,129 | (65,116 | ) | 257,013 | 33,150 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Increase/(decrease) in cash and cash equivalents | 1,671,966 | (1,734,384 | ) | (39,852 | ) | 513,057 | 473,205 | 61,034 | ||||||||||||||||
Cash and cash equivalents, at the beginning of period | 408,131 | 2,080,053 | 347,849 | 305,221 | 347,849 | 44,866 | ||||||||||||||||||
Effect of foreign exchange rate changes on cash | (44 | ) | 2,180 | (2,776 | ) | 908 | (1,868 | ) | (241 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash and cash equivalents, at the end of the period | 2,080,053 | 347,849 | 305,221 | 819,186 | 819,186 | 105,659 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Analysis of the balances of cash and cash equivalents | ||||||||||||||||||||||||
Cash at bank and in hand | 2,083,079 | 347,849 | 305,221 | 819,186 | 819,186 | 105,659 | ||||||||||||||||||
Bank overdrafts – unsecured | (3,026 | ) | — | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2,080,053 | 347,849 | 305,221 | 819,186 | 819,186 | 105,659 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
Operating activities
Our principal sourceIn fiscal 2014, we incurred a net cash outflow from operating activities of HK$291.1 million, as compared to a net cash outflow of HK$356.8 million in 2013. The decrease was mainly due to the slow-down and suspension of our production and a cash-advance received for program content licensing and advertising.
In fiscal 2013, we incurred a net cash generatedoutflow from our FTNS business. Netoperating activities of HK$356.8 million, as compared to HK$181.9 million net cash inflow in fiscal 2012. The decrease was mainly due to nil contribution from the disposed Telecom Business during the year, an increase in programme costs and the costs for maintaining full spectrum of corporate overheads for the Multimedia Business.
Investing activities
In fiscal 2014, we incurred a net cash inflow from operatinginvesting activities decreased by 9.6%of HK$507.3 million, mainly representing decrease in term deposit of HK$335.3 million, net proceeds from the maturity, disposal and investment in available-for-sales securities of HK$536.8203.7 million, interest income received from investment in fiscal 2009 toavailable-for-sale securities and bank deposits of HK$485.3160.1 million, in fiscal 2010, which was a reflectionnet of cash outflow for the acquisition of a slight increase in our profit before taxation offsetting by lower cash receiptsubsidiary of receivables. Net cash inflow from operating activities increased 20.7% from HK$485.3142.3 million in fiscal 2010 to HK$585.9 million in fiscal 2011, primarily reflecting the increase in our profit before taxation resulting from the continued expansion of our subscription base.
Investing activities
Netand cash outflow from investing activities in fiscal 2011 was HK$414.2 million. The net cash outflow was mainly due tofor the purchase of fixed assets of HK$397.9 million for the development of our Next Generation Network and the purchase of land premium of HK$48.0 million for constructing61.3 million. In fiscal 2013, we incurred a multimedia production and distribution centre.
Netnet cash outflow from investing activities in fiscal 2010 was HK$306.3 million. The net cash outflow was mainly due to our purchase of fixed assets in the amount of HK$349.1 million.
Net cash outflow from investing activities1,781.3 million, mainly representing the investment in fiscal 2009 wasavailable-for-sale securities of HK$176.5 million. The net cash outflow was mainly due to our2,181.3 million and purchase of fixed assets of HK$289.939.4 million, the effectnet of which were partially offset by an decrease in pledgedterm deposits of HK$211.7 million, proceeds from disposal of certain available-for-sale securities of HK$155.9 million and interest income from investment in available-for-sale securities and bank deposits of HK$72.370.7 million.
In fiscal 2012, we incurred as net cash inflow from investing activities of HK$3,681.8 million, mainly representing the proceeds from the disposal of the Telecom Business (net of cash disposed of), net of increase in term deposits of HK$544.0 million and net proceeds from maturitypurchase of investment in debt securitiesfixed assets of HK$28.1467.8 million.
Financing activities
Net cash outflow from financing activities inIn fiscal 2011 was HK$343.1 million. The2014, we recorded net cash outflow was mainly due to our repayment of our bank loan of HK$125 million and payment of cash dividends of HK$219.3 million.
Net cash inflow from financing activities inof HK$257.0 million, mainly due to proceeds from bank loans of HK$270.4 million.
In fiscal 2010 was2013, we recorded net cash inflow from financing activities of HK$178.3403.8 million. The net cash inflow was mainly due to the proceeds from the offering of new ordinary shares in the amount of HK$396.4 million and the proceeds from new bank loans of HK$163.4531.8 million which were partially offset by the repurchase and redemptionnet of our 10-year senior notes of HK$172.4 million andfinal dividend paid for fiscal 2012 during the year of HK$158.4121.4 million.
NetIn fiscal 2012, we recorded net cash outflow from financing activities in fiscal 2009 was HK$561.3 million. The net cash outflow was mainly due to our repurchase of 10-year senior notes for an aggregate consideration of HK$485.82,191.7 million, (including transaction costs), payment of interest onmainly attributable to the 10-year senior notes of HK$52.7 million and payment of cash dividends of HK$23.02,257.8 million.
Long-term Indebtedness
As of AugustDecember 31, 2011,2014, we had outstanding debt of HK$1.2802.2 million. See Note 22 to the consolidated financial statements included elsewhere in this annual report for additional information concerning our outstanding debt.
Banking facilities
As of AugustDecember 31, 2011, we had available2014, the Group has utilized HK$802.2 million of its banking facilities, and revolving loan facility ofmainly for investment purposes, leaving HK$38.91,508.8 million of which HK$6.9 million was utilized.uncommitted banking facilities available for future utilization. The Group’s loans are secured by an equivalent amount of available-for-sale securities. See Note 22 to the consolidated financial statements included elsewhere in this annual report for additional information concerning our banking facilities.
Capital expendituresexpenditure
In order to further develop our Next Generation Network and continue to increasefiscal 2014, the scaleCompany recorded HK$68.7 million of operations of our FTNS business, we plan to make a total capital expenditure rangingas compared to HK$37.7 million for fiscal 2013. The fiscal 2014 capital expenditure mainly related to the set-up of the HKTV Mall, including computer system for OTT and online shopping platform, motor vehicles and equipment for logistics function. Moreover, the Group, through its wholly-owned subsidiary, acquired 100% of the equity interests of HKMTV for HK$157.5 million on December 20, 2013, however, its service launch was suspended due to the dispute on the transmission standard for mobile TV services.
With regard to future capital expenditure requirements for the Multimedia Business, the Company will remain cautious and it expects to fund its requirements with the consideration received from approximately HK$320 million to HK$350 million inthe disposal of the Telecom Business during fiscal 2012 to further increaseand banking facilities within the coverage of our Next Generation Network. In addition, we plan to invest HK$600 million for a multimedia productionGroup.
C. Research and distribution centre within three years.development, patents and licenses
We commit considerable resources to our research and development departmentteam in order to continuously improve our services and improve our market position.to better position ourselves in the multimedia market. As of August 31, 2011,April 27, 2015, our research and development teamdepartment in Hong Kong consisted of approximately 2527 Talents experienced in systems design, engineering, telecommunicationsmobile technology and computer programming. Our research and development departmentteam is primarily responsible for assessing and adapting the technology that we employexpect to deploy in upgradingMultimedia Business, such as through the Internet. In particular, our research and expanding our Next Generation Network.development team has been discussing and evaluating with prospective applications developers the different technical solutions available for the deployment and enhancement of the OTT and online shopping platform and services. To identify and develop new market opportunities theand product advancement, our research and development team assessesevaluates new services offered by telecommunications and Internet companiestechnology under development in the United States and elsewhere and works closely with our sales and marketing department. Our research and development expenditures were approximately HK$10.8 million, HK$11.2 million and HK$11.8 milliondepartment for fiscal 2009, 2010 and 2011, respectively.product development.
Revenue from our IDD business decreased by 9.8% to HK$197.2 million in fiscal 2011 from HK$218.6 million in fiscal 2010. The principal reason for this decrease was the intense competition, as our key competitors introduced highly aggressive price cuts. Partly as a result, the traffic volume of our IDD business decreased by 11.2% to 412.0 million minutes in fiscal 2011 from 464.0 million minutes in fiscal 2010. We expect competition will continue to increase in the future, creating further pressure on our volume and pricing.
Revenue from our FTNS business grew by 9.5% to HK$1,484.3 million in fiscal 2011 from HK$1,356.1 million in fiscal 2010. The principal reason for this increase was due to the broadband subscription growth of 12.2% to 590,000 subscription accounts as of August 31, 2011 from 526,000 subscription accounts as of August 31, 2010.
The global economic downturn has had a dampening effect on consumer sentiment and business activities across the globe in late 2008 and 2009 and the global economy continues to experience continued market volatility. The impact of the downturn on our operations has been limited because our FTNS and IDD services are “semi-utility” services. However, if the global economic downturn continues to experience significant volatility, demand for our services may be adversely affected.
Other than as describeddisclosed elsewhere in note 27this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from September 1, 2013 to December 31, 2014 that are reasonably likely to have a material adverse effect on our Consolidated Financial Statements, we haverevenue, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not entered into anynecessarily indicative of future operating results or financial conditions.
E. Off-balance sheet arrangements
As of December 31, 2014 and August 31, 2013, the Group had no material contingent liabilities or off-balance-sheet arrangements with any entities or individuals.obligations.
F. Tabular disclosure of contractual obligations
The following table sets forth information regarding our aggregate payment obligations in future years of the contractual obligations and commercial commitments that we had as of AugustDecember 31, 2011.2014.
Payments due by period | ||||||||||||||||||||||||||||||||||||
Contractual obligations | Total HK$ | Within 1 year | More than 1 year but within | More than 3 years | More than 5 years HK$ | Total HK$ | Within 1 year HK$ | More than 1 year but within 3 years HK$ | More than 3 years but within 5 years HK$ | |||||||||||||||||||||||||||
(Amounts in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||
Capital expenditure items | 141,432 | 141,432 | — | — | — | 19,087 | 19,087 | — | — | |||||||||||||||||||||||||||
Operating leases | 131,935 | 90,979 | 33,315 | 4,430 | 3,211 | 5,976 | 3,585 | 2,391 | — | |||||||||||||||||||||||||||
Obligation under finance leases | 435 | 125 | 238 | 72 | — | |||||||||||||||||||||||||||||||
Other current liabilities | 257,099 | 257,099 | — | — | — | |||||||||||||||||||||||||||||||
Programming fees (IP-TV) | 52,974 | 25,777 | 27,194 | 3 | — | |||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
Other current liabilities(1) | 882,450 | 882,450 | — | — | ||||||||||||||||||||||||||||||||
Program fee | 13,955 | 11,350 | 2,605 | — | ||||||||||||||||||||||||||||||||
Total | 583,875 | 515,412 | 60,747 | 4,505 | 3,211 | 921,468 | 916,472 | 4,996 | — | |||||||||||||||||||||||||||
|
|
|
|
|
Note:
| (1) | The other current liabilities of HK$ |
See “Note regarding forward-looking statements”.
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESstatements.”
A. Directors and senior management
Our board of directors consists of eightseven directors, three of whom, Mr. Lee Hon Ying, John, Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu and Mr. Mak Wing Sum, Alvin, are independent non-executive directors and one of whom, Dr. Cheng Mo Chi, Moses, is a non-executive director. The remaining four,directors. Mr. Wong Wai Kay, Ricky, Mr. Cheung Chi Kin, Paul, Mr. Yeung Chu Kwong, WilliamMs. To Wai Bing and Mr.Ms. Wong Nga Lai, Ni Quiaque,Alice, are executive directors. Every director, including non-executive and independent non-executive directors, is subject to retirement by rotation at least once every three years. One-third of the directors must retire from office at each annual general meeting and their re-election is subject to the approval of shareholders of the Company. Mr. Wong Wai Kay, Ricky, Mr. Cheung Chi Kin, Paul and Ms. Wong Nga Lai, Alice will retire from office by rotation at the forthcoming annual general meeting and, being eligible, will offer themselves for re-election at the forthcoming annual general meeting.
The following table sets forth certain information concerning our directors and senior management as of December 13, 2011.April 27, 2015.
Date joined City | ||||||||||
Name | Age | Position | Telecom | |||||||
Board of directors: | ||||||||||
WONG Wai Kay, Ricky | 50 | Executive Director and Chairman | 1992 | |||||||
CHEUNG Chi Kin, Paul | 54 | Executive Director and Vice Chairman | 1992 | |||||||
YEUNG Chu Kwong, William | 51 | Executive Director and Chief Executive Officer | 2005 | |||||||
LAI Ni Quiaque | 42 | Executive Director, Chief Financial Officer, Company Secretary and Head of Talent Engagement | 2004 | |||||||
CHENG Mo Chi, Moses | 61 | Non-Executive Director | 1997 | |||||||
LEE Hon Ying, John | 65 | Independent Non-Executive Director | 1997 | |||||||
CHAN Kin Man | 52 | Independent Non-Executive Director | 1997 |
Name | Age | Position | Date joined HKTV | |||
Board of directors: | ||||||
WONG Wai Kay, Ricky | 53 | Executive Director and Chairman | 1992 | |||
CHEUNG Chi Kin, Paul | 57 | Executive Director and Vice Chairman | 1992 | |||
TO Wai Bing | 53 | Executive Director and Chief Executive Officer | 2007 | |||
WONG Nga Lai, Alice | 40 | Executive Director, Chief Financial Officer, Company Secretary | 2003 | |||
LEE Hon Ying, John | 68 | Independent Non-Executive Director | 1997 | |||
PEH Jefferson Tun Lu | 55 | Independent Non-Executive Director | 2004 | |||
MAK Wing Sum, Alvin | 62 | Independent Non-Executive Director | 2013 |
PEH Jefferson Tun Lu Senior management: CHONG Kin Chun, John LO Sui Lun TO Wai Bing 52 Independent Non-Executive Director 2004 49 Managing Director of Corporate Division 1996 47 Chief Technology Officer 1998 49 Managing Director of Business Development 2007
Executive directors
Mr. WONG Wai Kay, Ricky, aged 50,53, is the co-founder and Chairman of the Group and is also a director of certain subsidiaries of the Group. HeMr. Wong is responsible for our overall strategic planning and management.management of the Group. Mr. Wong has over 26 years’extensive experience in the telecommunications and computer industries.industries as well as in corporate management. He had worked at a major US-listed computer company as a marketing representative and was responsible for marketing and distribution of computer products in Hong Kong from 1985 to 1989. He was also a co-founder and director of a company principally engaged in import and distribution of computer systems in Canada prior to co-founding of the Group. Mr. Wong holds a Bachelor’s Degree in Science and a Master of Business Administration Degree (Executive MBA Program)Programme) from The Chinese University of Hong Kong. He is a first cousin of Mr. Cheung Chi Kin, Paul, the Vice Chairman of the Group. Currently, Mr. Wong is a member of Zhejiang Committee, Chinese People’s Political Consultative Conference, a member of the Board of Trustees, United College, The Chinese University of Hong Kong and a member of the executive committee of the Digital Solidarity Fund of Hong Kong Council of Social Service.Kong.
Mr. CHEUNG Chi Kin, Paul, aged 54,57, is the co-founder and Vice Chairman of the Group and is also a director of certain subsidiaries of the Group. Mr. Cheung is responsible for overall strategic planning and management of the Group. Prior to that, Mr. Cheung was appointed aspreviously the Chief Executive Officer of the Company and was responsible for our day-to-day operations and technological research, development and support activities. Mr. Cheung has more than 30 years’extensive experience in the telecommunications and computer industries.industries as well as in corporate management. He had worked in several companies engaged in application software development and computer consultancy prior to co-founding of the Group. Mr. Cheung graduated with a Diploma of Advanced Programming and System Concepts Design from Herzing Institute, Canada. Mr. Cheung is a first cousin of Mr. Wong Wai Kay, Ricky, the Chairman of the Group.
Mr. YEUNG Chu Kwong, William,Ms. TO Wai Bing, aged 51,53, was appointed as the Executive Director and Chief Executive Officer of the Group in November 2008 withMay 2012. Ms. To is a director of certain subsidiaries of the responsibilitiesGroup, the Chief Operating Officer of Hong Kong Media Production Company Limited and the Chief Executive Officer of Leader Artiste Management Company Limited. Ms. To is responsible for developing corporate strategies and overseeing the operationsday-to-day management of the Group’s business. Prior to that, Ms. To was the Managing Director of Business Development of the Group. Before that, Mr. Yeung joined the Group as Chief Operating OfficerMs. To has a Diploma in October 2005. He wasElectronic Engineering and a Higher Certificate in charge of the Customer Engagement Department overseeing customer relationship management and was also in charge of the Network Development Department. Mr. Yeung has more than 20 years’ experience in the telecommunications industry. Prior to joining the Group, Mr. Yeung was the Director of Customers Division in SmarTone-Vodafone, and was an Inspector of Police in theElectronic Engineering from The Hong Kong Police Force. Mr. Yeung holds a Bachelor of Arts Degree from Hong Kong Baptist University, a Master of Business Administration Degree from University of Strathclyde, U.K. and a Master of Science Degree in Electronic Commerce and Internet Computing from The University of Hong Kong. Mr. Yeung is also a graduate of the Senior Executive Program of the Columbia University Graduate School of Business in New York. In 2010, Mr. Yeung was awarded the “Champion of Human Resources” by the HRM Awards.
Mr. LAI Ni Quiaque, aged 42, is Chief Financial Officer, Company Secretary and Head of Talent Engagement. Mr. Lai joinedPolytechnic University. Ms. To re-joined the Group in May 2004 and has over 20 years of experience in telecommunications industry, research and finance. Prior2007 after her previous service with the Group from September 1998 to July 2006. Before joining the Group, Mr.Ms. To had worked at Hong Kong Telecom International Limited for 16 years.
Ms. WONG Nga Lai, Alice, aged 40, was appointed as the Executive Director, Chief Financial Officer and Company Secretary of the Group in May 2012 and is also a highly rated analyst as Directordirector of certain subsidiaries of the Group. Ms. Wong has extensive experience in financial management, financial reporting and Headcorporate finance. She has overall responsibility for the Group’s finance, treasury, procurement and investor engagement functions. Prior to that, Ms. Wong was the Financial Controller of Asia Telecom Research for Credit Suisse and was involved in numerous global fund raisings for a wide range of Asian Telecom carriers such as China Mobile, China Telecom, China Unicom, SK Telecom, PCCW, Telekom Malaysia, etc. Before that, Mr. Lai held positions with Hongkong Telecom (now known as PCCW) and Kleinwort Benson Securities (Asia). Mr. Laithe Group. Ms. Wong holds a Bachelor of Commerce degree from the University of Western Australia and an ExecutiveQueensland, a Master of Business Administration Degreedegree from Kellogg-HKUST. Mr. Laithe Hong Kong University of Science and Technology and a Postgraduate Diploma in Corporate Governance. She is a Fellowqualified member of the Hong Kong Institute of Certified Public Accountants or HKICPA(HKICPA) and CPA Australia and is a MemberAssociation of the Hong Kong Institute of Directors. In 2009, Mr. Lai was awarded the “Champion of Human Resources” by the HRM Awards, and in 2011 he was selected by Global Telecom Business Magazine as one of the Top 50 CFOs in the industry to watch. Mr. LaiChartered Certified Accountants (ACCA). She has also been appointed as a member of the Remuneration CommitteeStudent Affairs Sub-committee of the Company.
Non-executive director
Dr. CHENG Mo Chi, Moses, aged 61, was appointed as an Independent Non-executive Director ofACCA Hong Kong since 2010. Before joining the Group, on June 17, 1997 and has been re-designated as a Non-executive Director of the Group with effect from September 30, 2004. Dr. Cheng has also been appointed as a member of the Remuneration Committee of the Company. Dr. Cheng is a practicing solicitor and the senior partner of Messrs. P.C. Woo & Co. and was a member of the Legislative Council of Hong Kong. He is the Founder Chairman of the Hong Kong Institute of Directors of which he is now the Honorary President and Chairman Emeritus. Dr. Cheng currently holds directorships in K. Wah International Holdings Limited, China Mobile Limited, China Resources Enterprise, Limited, Towngas China Company Limited, Hong Kong Exchanges and Clearing Limited, Kader Holdings Company Limited, Liu Chong Hing Investment Limited, Guangdong Investment Limited and Tian An China Investments Company Limited, all of which are publicly listed companies in Hong Kong. Dr. Cheng is also an independent non-executive director of ARA Asset Management Limited, a company whose shares are listed on Singapore Exchange Limited. His other directorships in publicly listed companies in the last three years include China COSCO Holdings Company Limited and Galaxy Entertainment Group Limited, both of which are public listed companiesMs. Wong had worked for PricewaterhouseCoopers in Hong Kong and ARA Asset Management (Fortune) Limited which manages Fortune Real Estate Investment Trust, a real estate investment trust listedprimarily focusing on the Singapore Stock Exchange.technology, info-communications and entertainment sectors.
Independent non-executive directors
Mr. LEE Hon Ying, John, aged 65,68, is the managing director of Cyber Networks Consultants Company in Hong Kong. He was the Regional Director, Asia Pacific of Northrop Grumman-Canada, Ltd. He was previously the director of network services of Digital Equipment (HK) Limited and prior to that, worked for Cable and Wireless (HK) Limited and Hong Kong Telecom. He is a chartered engineer and a member of Institution of Engineering and Technology, the United Kingdom, the Hong Kong Institution of Engineers and the Hong Kong Computer Society. He received a Master’s Degree in Information System from The Hong Kong Polytechnic University in 1992. In addition, he is the Vice President, International Structure covering 150 countries worldwide and Board Member of the Society of St. Vincent de Paul, Council General, which is an international charity body with its head office in Paris, France. He is the Commission memberVice President of Catholic DioceseParish Council of St. Anthony Church in Hong Kong Diocesan for Hospital Pastoral Care.Kong. Mr. Lee has been a Director of the Group since June 1997. Mr. Lee has also been appointed as the chairman of the Audit Committee and Remuneration Committee of the Company.
Dr. CHAN Kin Man, aged 52, is Director of Centre for Civil Society Studies, Associate Director of Center for Entrepreneurship and Associate Professor of the Department of Sociology of The Chinese University of Hong Kong. He received a Bachelor of Social Science Degree from The Chinese University of Hong Kong in 1983 and a Doctor of Philosophy Degree from Yale University in the U.S. in 1995. Dr. Chan has been a Director of the Group since June 1997. Dr. Chan has also been appointed as a member of the Audit Committee and RemunerationNomination Committee of the Company.
Mr. PEH Jefferson Tun Lu, aged 52,55, is a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants and a Certified Practicing Accountant of CPA Australia. Mr. Peh holds a Master Degree in Business from the University of Technology, Sydney. He has over 2932 years of experience in finance, accounting and management from listed and private companies in Hong Kong and Australia. Mr. Peh has been a Director of the Group since September 2004. Mr. Peh has also been appointed as a member of the Audit Committee and Remuneration Committee as well as the chairman of the Nomination Committee of the Company.
Senior management
Mr. CHONG Kin Chun, John,MAK Wing Sum, Alvin, aged 49, is the Managing62, was appointed as an Independent Non-executive Director of the Corporate DivisionGroup on September 1, 2013. Mr. Mak has also been appointed as a member of the Group.Audit Committee, Nomination Committee and Remuneration Committee of the Company. He is responsible for sales, servicinga Chartered Accountant and network expansion developmentis a member of the Group’s international telecommunications servicesCanadian Institute of Chartered Accountants as well as a member of the Hong Kong Institute of Certified Public Accountants. Mr. Mak is currently an independent non-executive director of Goldpac Group Limited, I.T Limited, Lai Fung Holdings Limited and fixed telecommunications network services for business, corporate and carrier customers. Mr. Chong joined the Group in February 1996 and holds a Bachelor’s Degree in Arts fromLuk Fook Holdings (International) Limited, all four companies are listed on The UniversityStock Exchange of Hong Kong Limited. After working in Citibank for over 26 years, Mr. Mak retired in May 2012. He last served as the Head of Markets and a Master of Business Administration Degree (Executive MBA Program) from The Chinese University of Hong Kong. Mr. Chong worked as a general manager overseeing product management and the sales force of a listed telecommunications products company inBanking for Citibank Hong Kong, from 1987 to 1996.
Mr. LO Sui Lun, aged 47, was appointed asbeing the Chief Technology Officercountry business manager for corporate and investment banking business. At Citibank, he had held various senior positions including Head of the Group in April 2011. He isGlobal Banking responsible for managing all the Group’s network, information system development and operations including broadband networking, wireless applications, VoIP networks, Pay TV operation and product development. He is also responsible for regulatory and carrier relations matters of the Group. Currently, he is in-charge of the Multimedia Production and Distribution Centre Project. Mr. Lo joined the Group in September 1998.coverage bankers. Prior to that, he also managed the Hong Kong corporate finance business, regional asset management business and was the Chief Financial Officer of North Asia. Before joining Citibank in 1985, Mr. LoMak was an audit group manager at Coopers & Lybrand (now known as PricewaterhouseCoopers). He worked for PCCW (formerly known as “Hong Kong Telecom”)Coopers & Lybrand for nineeight years, gaining experiencefive of which was in network planning and undersea cable investment. Mr. Lo holds a Bachelor’s Degree in Sciences in Electronics from The Chinese University of Hong Kong and a Master’s Degree in Business AdministrationToronto, Canada. He graduated from University of Strathclyde, U.K.Toronto with a Bachelor of Commerce in 1976.
Ms. TO Wai Bing, aged 49, is the Managing DirectorSenior management
Our Executive Directors are also members of Business Development of the Group. Ms. To is also in charge of International Business Department, Carrier Business Department and Pay TV Department. She is responsible for the control of cost of services, sales of carrier business, development of Pay TV business, explore and secure business partnerships to strengthen the Group’s business operations and development. Before joining the Group, Ms. To had worked in the Hong Kong Telecom Group for 16 years after graduating from The Hong Kong Polytechnic University with a Diploma in Electronic Engineering and subsequently a Higher Certificate in Electronic Engineering. Ms. To rejoined the Group in May 2007 after her previous service with the Group from September 1998 to July 2006.our senior management.
Directors’ and senior management’s compensation
Our directors and senior management receive compensation in the form of salaries, housing allowances, discretionary bonuses, other allowances and benefits in kind, including our contribution to the pension schemes for such individuals. We also granted share options to various directors and members of our senior management. For more information regarding share options granted to directors and members of our senior management, see Item 6 “Directors, senior management and employees — employees—Share ownership” below in this annual report.
Our senior management and Talents are entitled to receive an annual discretionary bonus based on their individual performance and our financial performance during the year in question.under review.
The aggregate amount of salaries or other compensation, housing allowances, other allowances and benefits in kind paid by us to our directors and senior management was approximately HK$40.626.5 million for fiscal 2011,2014, compared with HK$46.120.6 million for fiscal 2010.2013. The aggregate amount of contribution that we made to the retirement or similar benefits for our directors and members of our senior management was HK$2.62.4 million for fiscal 2011,2014, compared with HK$2.71.8 million for fiscal 2010.2013.
Except as discussed herein, no other payments have been paid or are payable, in respect of fiscal 2011,2014, by us or any of our subsidiaries to our directors and senior management.
Service contracts
We entered into service agreements with our four executive directors, Messrs.Mr. Wong Wai Kay, Ricky, Mr. Cheung Chi Kin, Paul, Yeung Chu Kwong, WilliamMs. To Wai Bing and Ms. Wong Nga Lai, Ni Quiaque,Alice, respectively. These service agreements include non-competition clauses under which our executive directors agree not to compete with us in accordance with the terms and conditions therein and shall continue to be effective unless and until terminated by either party of the respective service agreements. None of the agreements provide for any benefits or compensation upon termination of employment.
“Controlled company” exemption
We are a “controlled company” within the meaning of Nasdaq Listing Rule 5615(c) and IM-5615-5. More than 50.0% of the voting power for the election of our directors is held by a group consisting of Top Group International Limited, Mr. Wong Wai Kay, Ricky and Mr. Cheung Chi Kin, Paul. Mr. Wong and Mr. Cheung are the controlling shareholders of Top Group International Limited and have entered into a voting agreement pursuant to which they agreed to vote all of the shares held by Top Group International Limited, representing 43.98%42.00% of the voting power, all of the shares held by Mr. Wong individually, representing 0.93%1.88% of the voting power, and all of the shares held by Mr. Cheung individually, representing 5.73%6.23% of the voting power, collectively as a group.
We have elected to rely on the exemption from the majority independent board requirement, as set forth in Nasdaq Listing Rule 5615(b), except for the requirements of subsection (b)(2), which pertain to executive sessions of independent directors, and from the requirement for independent director oversight of executive officer compensation and director nominations, as set forth in Nasdaq Listing Rules 5605(d) and 5605(e).
In accordance with the laws of Hong Kong, the nomination and remuneration of our directors are governed by our ArticlesArticles. Pursuant to our Articles, our directors are appointed by our shareholders in the annual general meeting, and our directors’ fees are recommended by the remuneration committee of our board of directors and determined by our shareholders at the annual general meeting.
Audit committee
Our board of directors established an audit committee in March 1999 to ensure the impartial supervision of our accounting and business operations. The audit committee is comprised of three independent non-executive directors, namely, Mr. Lee Hon Ying, John (the Chairman of the audit committee), Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu.Lu and Mr. Mak Wing Sum, Alvin. Mr. Peh was appointed to the audit committee on September 1, 2004 and is aMr. Mak was appointed to the audit committee on September 1, 2013. Both are “financial expert”experts” within the meaning of, and as required by, the U.S. Sarbanes-Oxley Act of 2002.Act.
The audit committee is governed by an audit committee charter, which was adopted by our board of directors in August 2004 and updated in November 2010. ItMarch 2015. The audit committee is responsible for the following:
overseeing the accounting and financial reporting process of the Company and the audits of the Company’s consolidated financial statements on behalf of the board of directors; and
the appointment, compensation, retention and oversight of the work of the Company’s independent auditors (including resolution of disagreements between management and the auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company.
As provided in our audit committee charter, the audit committee is required to meet in person or telephonically at least twice a year and has the resources and authority appropriate to discharge its responsibilities as required by law, including the authority to engage independent counsel and other advisors as the audit committee deems necessary to carry out its duties.
The audit committee met fourfive times in fiscal 2011.2014. The major works performed by the committee from September 1, 20102013 to AugustDecember 31, 20112014 included the following:
Reviewed our consolidated financial statements for the fiscal year ended August 31, 2010 and2013, for the six months ended February 28, 2011;
Reviewed the internal audit progress, including procedures required for compliance with the Sarbanes-Oxley Act;
Reviewed the external auditor’s reportreports on the reviewreviews of our interim financial report for the six months ended February 28, 20112014 and our auditedsecond interim financial report for the twelve months ended August 31, 2014 and the audit of our consolidated financial statements for the financial year ended August 31, 2010;2013; and
Pre-approved the audit and non-audit services provided by KPMG, our external auditor.
Remuneration committee
Our board of directors established a remuneration committee in August 2001 to oversee the Company’s remuneration packages for executive directors. Among others, each of our executive directors is entitled to receive an annualthe discretionary performance bonus of such amount as determined by the board of directors upon recommendation and approval by the remuneration committee. The remuneration committee is comprised of sixfour members with three independent non-executive directors, Mr. Lee Hon Ying, John, Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu; the non-executive director, Dr. Cheng Mo Chi, Moses;Lu, Mr. Lai Ni Quiaque, the executive director, Chief Financial Officer, Company Secretary and Head of Talent EngagementMak Wing Sum, Alvin and Ms. Choy Mei Yuk, Mimi, Director of Talent Management. Mr. Lee Hon Ying, John is the chairman of the remuneration committee. The remuneration committee’s objectives are set out as follows:
Establish formal, fair and transparent procedures for developing policy and structure of all remuneration of directors and senior management;
Review and consider the Company’s policy for remuneration of directors and senior management;
Determine the remuneration packages of executive directors and senior management; and
Recommend the remuneration packages of non-executive directors (including independent non-executive directors).
The remuneration committee held one meeting during fiscal 2011.2014. The major works performed by the committee from September 1, 20102013 to AugustDecember 31, 20112014 included the following:
Reviewed and approved the discretionary performance bonus for the management committee members;
Reviewed and approved the remuneration packages for management committee members; and
Reviewed and approved the remuneration packages for the directors.
Nomination committee
Our board of directors established a nomination committee in February 2012. The nomination committee comprises three members, namely, Mr. Lee Hon Ying, John, Mr. Peh Jefferson Tun Lu, Mr. Mak Wing Sum, Alvin. Mr. Peh Jefferson Tun Lu is the chairman of the nomination committee. The nomination committee’s objectives are as follows:
The nomination committee held one meeting during fiscal 2014. The major works performed by the committee from September 1, 2013 to December 31, 2014 included the following:
The following table sets forth the number of our Talents by functional area as of August 31, 2011.2013 and December 31, 2014.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The following table sets forth the number of our Talents by geographical region as of August 31, 2011.2013 and December 31, 2014.
| ||||
| ||||
| ||||
| ||||
As of August 31, 2013 | As of December 31, 2014 | |||||||
Talents | ||||||||
Hong Kong | 527 | 394 | ||||||
|
|
|
| |||||
Total | 527 | 394 | ||||||
|
|
|
|
AsThe decrease in headcount was mainly due to the suspension of August 31, 2010the program production in light of the Chief Executive in Council’s decision against our application for a free TV license and 2011, we had 3,232 and 3,080 Talents, respectively.the unfavorable reply from the CA on the adoption of DRMB transmission standard for the provision of mobile television service, which was partially offset by the new hiring for the operation of HKTV Mall.
Share ownership
The following table sets forth the share ownership of our directors and senior management as of December 13, 2011.April 27, 2015.
Title of class | Identity of person or Group | Number of shares beneficially owned (note 3) | Percentage of shares beneficially owned (note 2) % | Outstanding share options | ||||||||||||
Ordinary shares | Wong Wai Kay, Ricky |
| 391,245,732 (note 1 | ) | 50.64 | 8,091,604 | ||||||||||
Ordinary shares | Cheung Chi Kin, Paul |
| 391,245,732 (note 1 | ) | 50.64 | 6,091,604 | ||||||||||
Ordinary shares | Yeung Chu Kwong, William | 2,306,000 | Less than 1.0 | 11,542,956 | ||||||||||||
Ordinary shares | Lai Ni Quiaque | 12,415,405 | 1.61 | 6,044,791 | ||||||||||||
Ordinary shares | Chong Kin Chun, John | 2,199,089 | Less than 1.0 | 2,022,900 | ||||||||||||
Ordinary shares | Lo Sui Lun | 175 | Less than 1.0 | 0 | ||||||||||||
Ordinary shares | To Wai Bing | Nil | Nil | 302,239 |
Title of class | Identity of person or group | Number of shares beneficially owned(1) | Percentage of shares beneficially owned(2) | Outstanding | ||||||||
Ordinary shares | Wong Wai Kay, Ricky | 405,428,940 | (3) | 50.11 | % | 0 | ||||||
Ordinary shares | Cheung Chi Kin, Paul | 405,428,940 | (3) | 50.11 | % | 0 | ||||||
Ordinary shares | To Wai Bing | 95,239 | Less than 1.0 | % | 0 | |||||||
Ordinary shares | Wong Nga Lai, Alice | 50,000 | Less than 1.0 | % | 0 | |||||||
Ordinary shares | Lee Hong Ying, John | 0 | 0 | % | 0 | |||||||
Ordinary shares | Peh Jefferon Tun Lu | 0 | 0 | % | 0 | |||||||
Ordinary shares | Mak Wing Sum, Alvin | 0 | 0 | % | 0 |
Notes:
(1) | Beneficial ownership is determined in accordance with the rules of the SEC. |
(2) | Percentage ownership is based on 809,016,643 shares issued as of April 27, 2015. |
(3) | The |
As at December 31, 2014 and August 31, 2013, there were no options outstanding.
Share Option Scheme
The following table sets forth theCompany operates a share options for the details of the share options heldoption scheme (the “Share Option Scheme”) which was adopted by the directors and senior managementshareholders of the Company on December 31, 2012 which the directors may, at their discretion, invite eligible participants to take up options to subscribe for shares subject to the terms and conditions stipulated therein. The Share Option Scheme is summarized as of December 13, 2011:
Directors | Date of grant | Exercise price HK$ | Balance as of December 14, 2010 | Options granted during the period | Exercise period | Options exercised during the period | Options cancelled/ lapsed during the period | Balance as of December 13, 2011 | ||||||||||||||||||||
Mr. Wong Wai Kay, Ricky | January 5, 2005 | 1.5224 | 8,091,604 | — | January 5, 2005 to October 20, 2014 | — | — | 8,091,604 | ||||||||||||||||||||
Mr. Cheung Chi Kin, Paul | January 5, 2005 | 1.5224 | 8,091,604 | — | January 5, 2005 to October 20, 2014 | 2,000,000 | — | 6,091,604 | ||||||||||||||||||||
Mr. Yeung Chu Kwong, William | May 22, 2006 | 0.6523 | 165 | — | May 22, 2007 to May 21, 2016 | — | — | 165 | ||||||||||||||||||||
February 6, 2008 | 1.7568 | 5,542,791 | — | (note 1) | — | — | 5,542,791 | |||||||||||||||||||||
February 5, 2010 | 4.2400 | 6,000,000 | — | (note 2) | — | — | 6,000,000 | |||||||||||||||||||||
Mr. Lai Ni Quiaque | February 11, 2008 | 1.8660 | 6,044,791 | — | (note 3) | — | — | 6,044,791 | ||||||||||||||||||||
Senior management | ||||||||||||||||||||||||||||
Mr. Chong Kin Chun, John | October 21, 2004 | 1.5224 | 2,022,900 | — | January 1, 2005 to October 20, 2014 | — | — | 2,022,900 | ||||||||||||||||||||
Mr. Lo Sui Lun | October 21, 2004 | 1.5224 | 505,726 | — | January 1, 2005 to October 20, 2014 | 505,726 | — | — | ||||||||||||||||||||
May 22, 2006 | 0.6523 | 1,133,175 | — | May 22, 2007 to May 21, 2016 | 1,133,175 | — | — | |||||||||||||||||||||
Ms. To Wai Bing | February 15, 2008 | 1.7568 | 302,239 | — | (note 4) | — | — | 302,239 |
Notes:follows:
(1) |
To grant share options to the eligible participants as incentives and rewards for their contribution to the Company or its subsidiaries.
(2) |
All shareholders own ordinary sharesEligible participants include employee, executives or officers (including executive, non-executive and enjoy the same voting rights with respect to each share.
Share Option Schemes
We adopted a second share option scheme, which we refer to as the 2002 Share Option Scheme, on December 23, 2002 and terminated the share option scheme adopted on July 12, 1997, which we refer to as the 1997 Share Option Scheme. Upon termination of the 1997 Share Option Scheme, no further options can be granted under the 1997 Share Option Scheme. Options granted under the 1997 Share Option Scheme that are not exercised lapsed automatically on July 12, 2007. Under the terms of the 2002 Share Option Scheme, our board of directors may, in its discretion from time to time, and subject to such conditions as the board may determine, within ten years beginning on December 23, 2002, grant any Talent or executive or officerindependent non-executive directors) of the Company or any of its subsidiaries, (including executive, non-executivesuppliers and independent non-executive directors of eachprofessional advisers of the abovementioned companies) and any suppliers or professional advisers who will or have provided services to the Company and/or its subsidiaries to subscribe for our ordinary shares.Group.
(3) | The total number of shares available for issue |
The maximumtotal number of ordinary shares which may be issued upon exercise of all options to be granted under our 2002 Share Option Scheme and any of our other share option scheme(s) mustthe scheme shall not exceed 10% of the ordinary shares in issue as ofat the date of approval or adoption of the scheme by the shareholdersShare Option Scheme on December 23, 2002. Ordinary shares which would have been issuable pursuant to options which have lapsed in accordance with the terms of such share option schemes will not be counted for the purpose of the 10% limit. Such limit may be refreshed upon approval by shareholders and compliance with all requirements under the HKSE Listing Rules. Pursuant thereto, such limit was refreshed with the approval of our shareholders in our annual general meetings held on December 29, 2004 and December 24, 2007 respectively up to a maximum limit equal to 10% of our total number of issued shares as of31, 2012 (i.e., 80,901,664 shares). As at the date of the said general meetings. Notwithstanding the foregoing,this annual report, the number of ordinaryshares available for issue in respect thereof is 80,901,664 shares, representing approximately 10% of the issued share capital of the Company. The shares which may be issued upon exercise of all outstanding options to be granted and yet to be exercised under our 2002the Share Option Scheme and any of our other share option scheme(s) of the Company at any time shall not exceed 30% of the total number of ordinary shares in issue from time to time. No options shall be granted under any scheme(s) of the Company or any of its subsidiaries if this will result in the 30% limit being exceeded.
(4) | The maximum entitlement of each participant under the Share Option Scheme |
The total number of ordinary shares issued and which may fall to be issued upon exercise in full of the options granted under our 2002the Share Option Scheme and any of our other share option scheme(s) of the Company (including exercised, cancelled and outstanding options) to each eligible participant in any 12-month periodtwelve months up to and including the date of grant shall not exceed 1% of the outstanding ordinary shares in issue as ofat the date of grant. Any further grant of options in excess of this 1% limit mustshall be approvedsubject to the issue of a circular by shareholders.
The subscription price for an ordinary share payable by a participant upon the exercise of any option granted underCompany and the 2002 Share Option Scheme will be determined by our board of directors in its absolute discretion, except that such price will not be less than the highest of (a) the closing priceapproval of the ordinary shares as stated in The Stock Exchange of Hong Kong Limited’s daily quotations sheet on the date of grant, which must be a business day; (b) the averageshareholders of the closing prices of the ordinary shares as statedCompany in The Stock Exchange of Hong Kong Limited’s daily quotations sheets for the five business days immediately preceding the date of grant;general meeting with such grantee and (c) the nominal value of an ordinary share.
Any grant of options to any of our directors, chief executives or substantial shareholders or any of their respectivehis associates (as defined in the HKSE Listing Rules) is required to be approved by our non-grantee independent non-executive directors. If we propose to grant options to a substantial shareholder abstaining from voting and/or any of its independent non-executive directors, or their respective associates, which will result in the number of ordinary shares issued and to be issued upon exercise of options granted and to be granted under our 2002 Share Option Scheme and any of our other share option scheme(s) (including options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant (a) representing in aggregate over 0.1% of the outstanding ordinary shares; and (b) having an aggregate value in excess of HK$5 million, based on the closing price of the ordinary shares at the date of each grant, such further grant of options will be subject to approval by shareholders and all requirements prescribed under the HKSE Listing Rules.Rules from time to time.
A grant of options may not be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information, including annual and interim results, has been made public.
(5) | The period within which the shares must be taken up under an option |
The period during which an option may be exercised will be determined by our board of directors inthe Board at its absolute discretion, exceptsave that no option may be exercised latermore than ten10 years from the date of grant. No option may be granted more than ten years after December 23, 2002. Subject to our earlier termination, the 2002 Share Option Scheme shall be valid and effective for a period of ten years after the date of adoption, that is, until December 23, 2012. In addition and to the extent not already exercised, an option will automatically lapse and not be exercisable upon the occurrence of any of the following events:
The Board is empowered to impose, at its discretion, any minimum period that an option must be held at the time of the grant of any particular option.
Acceptance of the option must be made within 30 days after the date of offer and HK$1.00 must be paid as a consideration for the grant of option.
The Board shall determine the exercise price of each option granted but in any event shall not be less than the highest of: (a) the closing price of the shares of the Company as stated in the Stock Exchange’s daily quotation sheet on the date of grant; and (b) the average of the closing price of the shares of the Company as stated in the Stock Exchange’s daily quotation sheet for the five business days immediately preceding the date of grant.
As of December 13, 2011, a total number of 96,247,857 options were granted 45,371,325 options were exercised, 14,532,018 options were lapsed and 36,344,514 options remain outstanding and unexercised. Total number of 45,249,001 options are available for issue as of December 13, 2011.under the Share Option Scheme by the Company.
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTION
The following table sets forth certain information regarding ownership of our ordinary shares as of December 13, 2011April 27, 2015 by all persons who are known to us to own beneficially 5% or more of our ordinary shares.
Title of class |
|
|
Number of shares | Percentage
beneficially
| ||||||||
Ordinary shares | Wong Wai Kay, Ricky | 405,428,940 | (3) | |||||||||
% | ||||||||||||
Ordinary shares | Cheung Chi Kin, Paul | 405,428,940 | (3) | |||||||||
% | ||||||||||||
Ordinary shares | Top Group International Limited | 405,428,940 | (3) | |||||||||
% | ||||||||||||
Ordinary shares | Leung Ka Pak | 339,814,284 | (4) | |||||||||
% | ||||||||||||
Ordinary shares | Yau Ming Yan, Andrew | 339,814,284 | (4) | |||||||||
| ||||||||||||
| % |
Notes:
(1) | Beneficial ownership is determined in accordance with the rules of the SEC. |
(2) | Percentage ownership is based on |
The |
Mr. Leung Ka Pak and Mr. Yau Ming Yan, Andrew may be deemed to have beneficial ownership in the 339,814,284 shares held by Top Group International Limited. Each of them expressly disclaims any beneficial ownership in such shares except to the extent of their respective pecuniary interest therein. Mr. Leung was a director and the president of all of our subsidiaries in Canada (other than City Telecom (Canada) Inc.) and resigned as a director and president in October 2005. After Mr. Leung’s resignation, Mr. Yau became a director and the president of all of our subsidiaries in Canada (other than City Telecom (Canada) Inc.). He resigned as a director and president in July 2006. |
As of December 13, 2011,April 27, 2015, there were 1425 registered holders of 9,742,8661,962,380 American Depositary Shares in the United States, consisting of 25.22%comprising 4.85% of our outstanding shares.
All shareholders own ordinary shares and enjoy the same voting rights with respect to each share.
Except as disclosed above, we are not directly or indirectly owned or controlled by any other person, corporation or foreign government.
We are not aware of any arrangement the operation of which may at a subsequent date result in a change of control of City Telecom.HKTV.
For the period since the beginning of our preceding three financial years up to the date of this document, we were a party to the following related party transactions.
Contracts with our directors and senior management
All of our directors and senior management have employment service agreements with us. Certain of our directors and senior management receive housing allowances, pensions, bonuses and commissions. In addition, some of our directors are also senior management of City TelecomHKTV and these persons may also have the ability to make significant business decisions effectingaffecting our operations. See Item 6 “Directors and senior management” above of this annual report for details concerning these arrangements.
C. Interests of experts and counsel
Not applicable.
ITEM 8 FINANCIAL INFORMATIONapplicable
A. Consolidated statements and other financial information
Financial statements
See pages F-1 — F-60to F-55 following Item 19.
Legal and regulatory proceedings
AsOn January 6, 2014, we filed an application for leave to apply for judicial review against the Chief Executive in Council’s decision to reject our application dated December 31, 2009 under the Broadcasting Ordinance for a free TV license. The application for leave was granted by the High Court of the Hong Kong Special Administrative Region on January 9, 2014. The substantive hearing was conducted from August 31, 2011, there were no legal or arbitration proceedings 27 to 29, 2014. On April 24, 2015, the Court of First Instance of the High Court of the Hong Kong Special Administrative Region quashed the Chief Executive in Council’s decision and remitted it to the Chief Executive in Council for reconsideration. The court further ordered the government to pay for the costs associated with the judicial review (making an ordernisithat have hadcosts of the judicial review be to the Company, to be taxed (meaning that the court will decide the amount) if not agreed).
On April 11, 2014, the Company filed an application for leave to apply for judicial review in respect of the recent past, orOffice of Communication Authority’s decision on March 11, 2014 that HKMTV would not be entitled to our knowledge, may have, significant effects on our financial position or profitability.commence operations if HKMTV adopted the DTMB transmission standard for its proposed mobile television service unless a domestic free/pay television programme service licence was first obtained by HKMTV. On May 20, 2014, the High Court granted HKMTV leave to apply for judicial review. The substantive hearing was conducted from November 26 to 27, 2014, and the judgment was reserved to be handed down at a later date.
Dividends
Unless the relevant provisions of the Hong Kong Companies Ordinance require otherwise, we may by ordinary resolution (being a resolution passed by a majority of our shareholders who attend and vote at a meeting of shareholders) from time to time declare dividends, but no dividend shall exceed the amount recommended by our board of directors. Our Articles contain provisions on apportioning dividends where shares are not or were not fully paid for during the period covered by the dividend.
Unless the relevant provisions of the Hong Kong Companies Ordinance require otherwise, our board of directors may pay such interim dividends as appears to them to be justified by our financial position and pay any dividend payable at a fixed rate at intervals decided upon by our board of directors, whatever our financial position, if the board of directors feels that this payment is justified.
Any dividend not claimed by a shareholder after a period of six years from the date when it was first due to be paid shall be forfeited and shall revert to us. The payment by our board of directors of any unclaimed dividend, interest or other sum payable on or in respect of a share into a separate account shall not make us responsible as a trustee for such sums.
For fiscal 2011, anNo interim or final dividend was declared at 15 Hong Kong cents per ordinary share. The total amount of HK$115,604,051.70 was paid as cash dividend on May 31, 2011.during fiscal 2014.
A final dividend of 15 Hong Kong cents per ordinary share was proposed on November 8, 2011, which will be approved by shareholders in the annual general meeting to be held on December 16, 2011. The 2011 final dividend will be paid on or about January 10, 2012.B. Significant changes
None
None.
ITEM 9 THE OFFER AND LISTINGA. Offer and listing details
Our ordinary shares have been listed under the number “1137” on The Stock Exchange of Hong Kong Limited, or the HKSE since August 4, 1997. Our American depositary shares, each representing 20 ordinary shares, havehad been listed under the symbol “CTEL” on Nasdaq since November 3, 1999. Our 10-year senior notes were listed under the ISIN codes of US178677AA871999 before we changed our name to “Hong Kong Television Network Limited” and USY16599AA30our symbol on the Singapore Exchange Securities Trading Limited, or SGX-ST,Nasdaq to “HKTV” on January 24, 2005. The 10-year senior notes were subsequently exchanged for registered notes with ISIN code US178677AB60 pursuant to a registration statement under the U.S. Securities Act of 1933 on June 24, 2005.28, 2013.
On December 4, 2009, we repurchased a portion of the 10-year senior notes with a cumulative principal amount of HK$11.6 million (US$1.5 million) from the open market. We paid a total consideration, including accrued interest, of approximately HK$12.1 million (US$1.6 million). On February 1, 2010, we redeemed the then outstanding 10-year senior notes with a cumulative principal amount of HK$153.9 million (US$19.9 million) at the redemption price equal to 104.375% of the principal amount. We paid a total consideration, including accrued interest, of approximately HK$167.6 million (US$21.6 million). As of August 31, 2010, all the 10-year senior notes has been repurchased and redeemed.
In April 2010, we offered an aggregate of 4,025,000 ADSs representing 80,500,000 ordinary shares at the offer price of US$13.00 per ADS. The proceeds we received, after deduction of underwriters’ discount but before deduction of offering expenses, amounted to US$49.8 million.
The price of our ordinary shares on the HKSE as of its close of trading on December 13, 2011April 27, 2015 was HK$4.1903.470 per share. The table below shows the high and low closing prices of the shares on the HKSE since listing.for the periods indicated below.
Price | Price | |||||||||||||||||||
High | Low | High | Low | |||||||||||||||||
(In HK$ | ) | (in HK$) | ||||||||||||||||||
Annual Date | ||||||||||||||||||||
2006 | 0.830 | 0.570 | ||||||||||||||||||
2007 | 3.670 | 0.830 | ||||||||||||||||||
2008 | 2.170 | 0.750 | ||||||||||||||||||
2009 | 3.950 | 0.840 | ||||||||||||||||||
Calendar Year Data | ||||||||||||||||||||
2010 | 6.770 | 3.690 | 6.770 | 3.690 | ||||||||||||||||
2011 | 6.200 | 3.520 | ||||||||||||||||||
2012 | 5.240 | 1.370 | ||||||||||||||||||
2013 | 4.460 | 1.880 | ||||||||||||||||||
2014 | 5.000 | 2.120 | ||||||||||||||||||
2015 (through April 27, 2015) | 3.890 | 2.530 | ||||||||||||||||||
Quarterly Data | ||||||||||||||||||||
2009 | ||||||||||||||||||||
2012 | ||||||||||||||||||||
September to December | 2.770 | 1.570 | ||||||||||||||||||
2013 | ||||||||||||||||||||
January to March | 1.140 | 0.840 | 2.820 | 2.100 | ||||||||||||||||
April to June | 1.780 | 1.100 | 2.950 | 2.180 | ||||||||||||||||
July to September | 2.630 | 1.630 | 2.580 | 2.280 | ||||||||||||||||
October to December | 3.950 | 2.500 | 4.460 | 1.880 | ||||||||||||||||
2010 | ||||||||||||||||||||
2014 | ||||||||||||||||||||
January to March | 6.210 | 3.800 | 3.760 | 2.150 | ||||||||||||||||
April to June | 6.770 | 4.420 | 2.540 | 2.120 | ||||||||||||||||
July to September | 5.200 | 3.690 | 3.150 | 2.270 | ||||||||||||||||
October to December | 6.200 | 4.800 | 5.000 | 2.240 | ||||||||||||||||
2011 | ||||||||||||||||||||
2015 | ||||||||||||||||||||
January to March | 6.200 | 5.350 | 3.890 | 2.530 | ||||||||||||||||
April to June | 6.080 | 4.410 | ||||||||||||||||||
July to September | 4.850 | 3.520 | ||||||||||||||||||
October to December (through December 13, 2011) | 4.340 | 3.520 | ||||||||||||||||||
Monthly Data | ||||||||||||||||||||
2014 | ||||||||||||||||||||
October | 3.200 | 2.240 | ||||||||||||||||||
November | 5.000 | 3.140 | ||||||||||||||||||
December | 4.250 | 3.320 | ||||||||||||||||||
2015 | ||||||||||||||||||||
January | 3.890 | 3.070 | ||||||||||||||||||
February | 3.480 | 2.810 | ||||||||||||||||||
March | 3.240 | 2.530 | ||||||||||||||||||
April (through April 27, 2015) | 3.820 | 2.690 |
Monthly Data 2011 June July August September October November December (through December 13, 2011) Price High Low (In HK$) 5.670 4.410 4.850 4.420 4.400 3.740 3.840 3.520 3.780 3.520 4.340 3.700 4.340 4.180
The price of our American depositary shares on Nasdaq as of its close of trading on December 13, 2011April 27, 2015 was US$10.6708.40 per American depositary share. The table below shows the high and low closing prices of the American depositary shares on Nasdaq since listing.for the periods indicated below.
Price | Price | |||||||||||||||||
High | Low | High | Low | |||||||||||||||
(In US$) | (in US$) | |||||||||||||||||
Annual Date | ||||||||||||||||||
2006 | 2.009 | 1.380 | ||||||||||||||||
2007 | 10.750 | 2.010 | ||||||||||||||||
2008 | 5.750 | 1.915 | ||||||||||||||||
2009 | 10.300 | 2.000 | ||||||||||||||||
Calendar Year Data | ||||||||||||||||||
2010 | 17.330 | 9.670 | 17.33 | 9.67 | ||||||||||||||
2011 | 15.78 | 9.08 | ||||||||||||||||
2012 | 13.48 | 3.91 | ||||||||||||||||
2013 | 9.88 | 4.96 | ||||||||||||||||
2014 | 11.83 | 5.00 | ||||||||||||||||
2015 (through April 27, 2015) | 10.94 | 6.46 | ||||||||||||||||
Quarterly Data | ||||||||||||||||||
2009 | ||||||||||||||||||
2012 | ||||||||||||||||||
September to December | 6.89 | 3.88 | ||||||||||||||||
2013 | ||||||||||||||||||
January to March | 2.870 | 2.000 | 6.97 | 5.40 | ||||||||||||||
April to June | 4.650 | 2.870 | 7.43 | 5.50 | ||||||||||||||
July to September | 7.023 | 4.050 | 6.40 | 5.75 | ||||||||||||||
October to December | 10.300 | 6.610 | 9.88 | 4.96 | ||||||||||||||
2010 | ||||||||||||||||||
2014 | ||||||||||||||||||
January to March | 16.180 | 10.150 | 9.26 | 5.65 | ||||||||||||||
April to June | 17.330 | 11.340 | 6.30 | 5.00 | ||||||||||||||
July to September | 13.500 | 9.670 | 7.74 | 5.85 | ||||||||||||||
October to December | 15.980 | 12.500 | 11.83 | 5.75 | ||||||||||||||
2011 | ||||||||||||||||||
2015 | ||||||||||||||||||
January to March | 15.780 | 13.730 | 10.94 | 6.46 | ||||||||||||||
April to June | 15.300 | 11.360 | ||||||||||||||||
July to September | 12.040 | 9.220 | ||||||||||||||||
October to December(through December 13, 2011) | 11.170 | 9.080 | ||||||||||||||||
Monthly Data | ||||||||||||||||||
2011 | ||||||||||||||||||
June | 14.260 | 11.360 | ||||||||||||||||
July | 12.040 | 11.000 | ||||||||||||||||
August | 11.180 | 9.450 | ||||||||||||||||
September | 9.720 | 9.220 | ||||||||||||||||
2014 | ||||||||||||||||||
October | 9.670 | 9.080 | 7.88 | 5.75 | ||||||||||||||
November | 11.170 | 9.370 | 11.83 | 8.42 | ||||||||||||||
December (through December 13, 2011) | 10.800 | 10.620 | ||||||||||||||||
December | 10.69 | 8.55 | ||||||||||||||||
2015 | ||||||||||||||||||
January | 9.77 | 8.32 | ||||||||||||||||
February | 8.62 | 7.26 | ||||||||||||||||
March | 10.94 | 6.46 | ||||||||||||||||
April (through April 27, 2015) | 9.72 | 7.20 |
Not applicable.applicable
See Item 9A above.
Not applicable
Not applicable
Not applicable
Not applicable.A. Share capital
Not applicable.applicable
Not applicable.
ITEM 10 ADDITIONAL INFORMATIONB. Memorandum and Articles of Association
Not applicable.
Described below is a summary of certain provisions of our existing Articles and, where relevant, the Hong Kong Companies Ordinance. As this is a summary, it does not contain all the information that may be important to you. You should therefore read our complete Articles if you would like additional information, which were filed with the U.S. Securities and Exchange CommissionSEC as an exhibit 1 to the annual report on Form 20-F for fiscal 2005 and isare incorporated by reference herein.
General
City TelecomHKTV was incorporated in Hong Kong on May 19, 1992 under the Hong Kong Companies Ordinance. Clause 3 of the Memorandum of Association states that the Company’s objects are to carry on, the business of telecommunications services in addition to various other relatedspecific types of business activities, any types of business as may be lawfully undertaken and unrelated business activities.carried on. Pursuant to the special resolution passed at the extraordinary general meeting of the Company held on December 31, 2012, the name of the Company was changed from “City Telecom (H.K.) Limited” to “Hong Kong Television Network Limited.” The Registrar of Companies in Hong Kong issued the Certificate of Change of Name on January 10, 2013.
Directors’ interests
A director shall not vote on, or be counted in the quorum in relation to, any resolution of our board of directors in respect of any contract, arrangement or other proposal whatsoever in which the director or any of his associate(s) (within the meaning of the HKSE Listing Rules) has aany material interest. This prohibition shall not apply to the following:following (assuming there is no material interest other than indicated below):
(a) | the giving of any security or indemnity to him or his associates(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries; |
(b) | the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which he or his associate(s) has himself/themselves assumed responsibility in whole or in part and whether alone or jointly under a guarantee or indemnity or by the giving of security; |
(c) | any proposal concerning an offer of shares, debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase in which offer he or his associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting thereof; |
(d) | any proposal concerning any other company in which he or his associate(s) is/are interested only, whether directly or indirectly, as an officer, executive or shareholder or in which he or his associate(s) is/are beneficially interested in shares of that |
(e) | any proposal or arrangement concerning the benefit of Talents of the Company or its subsidiaries, including the adoption, modification or operation of any Talents’ share scheme or any share incentive or share option scheme under which the director or his associate(s) may benefit; |
(f) | any proposal or arrangement concerning the benefit of Talents of the Company or its subsidiaries, including the adoption, modification or operation of a pension fund or retirement, death or disability benefits scheme which relates both to directors (or his associate(s)) and Talents of the Company or any of its subsidiaries and does not provide in respect of any director or his associate(s), as such any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and |
(g) | any contract or arrangement in which he or his associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company. |
Additionally, there is no shareholding qualification required to be a director.
Dividends
In accordance with our Articles, we may by ordinary resolution (being a resolution passed at a general meeting by a simple majority of thosethe votes cast by thethose shareholders who attendpresent and entitled to vote at a general meeting)in person or by proxy) from time to time declare dividends, but no dividend shall exceed the amount recommended by our board of directors. Our Articles contain provisions on apportioning dividends according to the amounts paid up on the shares in respect of which dividend is paid underon a pro rata basis during the period covered by the dividend.
In accordance with our Articles, subject to the requirements under the Hong Kong Companies Ordinance, our board of directors may pay such interim dividends that appear to be justified by our financial position and may also pay any dividend payable at a fixed rate at intervals decided upon by our board of directors, whenever our financial position, in the opinion of our board of directors, justifies the payment.
In respect of any dividend proposed to be paid or declared, our board of directors may further propose and announce prior to or at the same time as the payment or declaration of such dividend either that:
(a) | such dividend be satisfied in whole or in part in the form of an allotment of shares to the shareholders, credited as being fully paid up, provided that all the shareholders entitled to receive the dividend will also be entitled to choose to receive the dividend (or a part of it) in |
(b) | the shareholders entitled to such dividend are entitled to elect to receive an allotment of shares credited as fully paid up instead of the whole or part of the cash dividend our board of directors may decide upon. |
Any general meeting declaring a dividend may, upon the recommendation of our board of directors, by ordinary resolution, direct that the dividend shall be met, wholly or partly, by the distribution of our assets.
Any dividend not claimed by a shareholder after a period of six years from the date when it was first due to be paid shall be forfeited and shall revert to us. The payment by our board of directors of any unclaimed dividend, interest or other sum payable on or in respect of a share into a separate account shall not create any trustee relationship in respect of such sums.
Liquidation
Subject to the requirements under the Hong Kong Companies Ordinance, inIn the event of a members’ winding up, the liquidator may, with the sanction of a special resolution of the Company:Company and any other sanction required by the Hong Kong Companies Ordinance:
(a) | divide among the shareholders in kind the whole or any part of the assets of the Company and set such value as the liquidator deems fair upon any property to be divided and determine how the division shall be carried out between the shareholders; or |
(b) | vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator shall think fit, but no shareholder shall be compelled to accept any shares or other assets upon which there is any liability. |
Annual and extraordinary general meeting of shareholders
The Hong Kong Companies Ordinance requires our board of directors to hold an annual general meeting of our shareholders once every year and not more than 15 months after our previous annual general meeting. The annual general meeting is held at such time (within a period of not more than 15 months, or such longer period as the Registrar of Companies of Hong Kong may authorize in writing after the holding of the previous annual general meeting). Pursuant to our Articles, the annual general meeting and any other general meeting of our shareholder held for the passing of a special resolution (being a resolution passed at a general meeting by not less than 75% of thosethe votes cast by thethose shareholders who attendpresent and entitled to vote at a general meeting)in person or by proxy) should be convened by not less than 21 clear days’ notice in writing. The HKSE Listing Rules further requires a notice period of at least 20 clear business days for annual general meetings. The notice shall specify the place, date and time of meeting and the general nature of the business to be transacted. An annual general meeting may be called by not less than 20 clear business days’shorter notice if it is agreed by all shareholders entitled to attend and vote at the meeting. The business of the annual general meeting willusually include:
(a) | the declaration and sanctioning of dividends; |
(b) | the consideration and adoption of the accounts, balance sheet and reports of the directors and auditors and other documents required to be attached to the financial statements; |
(c) | the appointment of directors in place of those retiring (by rotation or otherwise); |
(d) | the appointment of auditors; and |
(e) | the fixing of, or the determining of the method of fixing, the remuneration of the directors and of the auditors. |
Our board of directors may convene an extraordinary general meeting (which is any general meeting of the shareholders other than the annual general meeting) whenever it thinks fit and must do so upon the request in writing of shareholders holding not less than one-twentieth5% of our paid-up capitalthe total voting rights of all shareholders of the Company and carrying the right to voteof voting at a general meeting. AllPursuant to our Articles, all extraordinary general meetings (other than those convened for the passing of a special resolution referred to above) should be convened by at not less than 1014 clear business days’ notice in writing. The HKSE Listing Rules further requires a notice period of at least 10 clear business days for extraordinary general meetings. Extraordinary general meetings may be called by less than 10 clear business days’shorter notice by a majority in number of the shareholders having the right to attend and vote at the meeting, being a majority together holding not less thanrepresenting at least 95% in nominal value of the shares giving that right.total voting rights at the meeting of all shareholders of the Company.
Except as otherwise provided by our Articles, two shareholders present in person or by proxy and entitled to vote shall be a quorum for all purposes. Whilst no business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, the absence of a quorum shall not preclude the choice or appointment of a chairman which shall not be treated as part of the business of the meeting.
The Nasdaq marketplace rules also provideOn August 29, 2014, our board of directors resolved to change our financial year-end date from August 31 to December 31 in order to unify our financial year-end date with the year-end dates of our subsidiaries and bring us in line with the business cycle of our potential clients.
Our 2013 annual general meeting was held on December 30, 2013. As a result of the change of our financial year-end date, our accounts and the accounts of our subsidiaries were not ready for approval on or before December 31, 2014 as would have been required if the financial year-end date had not been changed. We published our annual results for the sixteen months ended December 31, 2014 pursuant to the HKSE Listing Rules on March 26, 2015. Upon our application to change our financial year-end date, the Registrar of Companies in Hong Kong directed that a foreign private issuer such asthe holding of an annual general meeting by us may be granted an exemption from such requirements if it followsin calendar year 2014 was not required. We will hold our annual general meeting for the practice of its home country.calendar year 2015 on May 20, 2015.
Restrictions on ownership of shares
There are no restrictions, either pursuant to our Articles or to the laws of Hong Kong, on the rights of non-residents of Hong Kong or foreign persons to hold or exercise voting rights with respect to our ordinary shares.
Voting rights
Any decisions that are made by the shareholders in a general meeting require the passing of either an ordinary or a special resolution at such meeting. The type of resolution required to be passed depends upon the provisions ofrequirements under the Hong Kong Companies Ordinance and our Articles as certain matters may only be decided by the passing of a special resolutions.
Unless any shares have special terms as to voting, on a show of hands every shareholder who is present in person at a general meeting, shall have one vote irrespective of the number of shares he holds and on a poll every shareholder who is present in person or by proxy shall have one vote for every share of which he is the holder. Our Articles set out the circumstances in which a poll can be demanded.
Pursuant to Rule 13.39(4) of the HKSE Listing Rules, which became effective on January 1, 2009, any votes of the Shareholdersshareholders at a general meeting must be taken by poll.
Any shareholder that is a recognized clearing house within the meaning of the Securities and Futures Ordinance of Hong Kong may authorize such person or persons as it thinks fit to act as its representative (or representatives) at any general meeting or at any separate meeting of any class of shareholders (if relevant). However, if more than one person is authorized, the authorization must specify the number and class of shares in respect of which each person is in fact authorized. The authorized person will be entitled to exercise the same power on behalf of the recognized clearing house as that clearing house (or its nominees) could exercise if it were an individual shareholder of the Company.
Issue of shares
Under the Companies Ordinance, our board of directors may, without the prior approval of the shareholders, offer to issue new shares to existing shareholders in proportion to their current shareholdings. Our board of directors may not issue new shares in any other way without the prior approval of the shareholders. Any such approval to issue new shares given in a general meeting shall continue in force until the earlier of: (1) the conclusion of the next annual general meeting; or (2) the expiration of the period within which the next annual general meeting is required by law to be held; or (3) when revoked or varied by an ordinary resolution of the shareholders in a general meeting. Where such shareholders’ approval is given, subject to the HKSE Listing Rules and any conditions attached to such approval, our unissued shares may be at the disposal of our board of directors, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration and upon such terms and conditions as the directors may decide.
Subject to the provisions of our Articles, any shareholder may transfer all or any of his shares by an instrument of transfer in the usual or common form or in such other form as our board of directors may accept and may approve. Such instrument may be signed by hand or, if the buyer or seller is a clearing house or its nominee(s), signed by hand or by a machine imprinted signature or by such other manner as our board of directors may approve from time to time.
The instrument of transfer of a share shall be executed by or on behalf of both the buyer and the seller of that share provided that our board of directors may dispense with the signing of the instrument of transfer by the buyer in any case which it thinks fit in its discretion to do so. Except as provided in the paragraph above, our board of directors may also decide, either generally or in any particular case, upon request by either the buyer or seller of shares to accept mechanically signed transfers. The seller shall be deemed to remain the holder of the share until the name of the buyer is entered into our register in respect of that share. All instruments of transfer, when registered, may be retained by us. Nothing in our Articles prevents our board of directors from recognizing a renunciation of the allotment or provisional allotment of any share by the person to whom the shares were to be allotted in favor of some other person.
Our board of directors may in its absolute discretion and without giving any reason, decline to register any transfer of any share which is not a fully paid share.
Our board of directors may also decline to register any transfer unless:
(a) | the instrument of transfer, duly stamped, is lodged with us accompanied by the certificate for the shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the seller to make the transfer; |
(b) | such fee, not more than the maximum amount allowed by |
(c) | the instrument of transfer is in respect of only one class of share; |
(d) | in the case of a transfer of a share jointly held by two or more holders, the number of joint holders to whom the share is to be transferred does not exceed four; and |
(e) | the shares concerned are free of any lien in favor of us. |
If our board of directors declines to register a transfer of any share, it shall, within two months after the date on which the instrument of transfer was lodged, send to the buyer notice of the refusal.
Shareholders
In accordance with our Articles, only persons who are registered in our register of members are recognized by us as shareholders and absolute owners of the shares. The register of members may be closed by our board of directors at such times and for such periods as it may from time to time decide by giving notice in accordance with the HKSE Listing Rules, but the register shall be closed in any year for not more than 30 days (excluding Sundays and public holidays) unless extended by ordinary resolution.resolution and the book closure period shall not be extended beyond 60 days in any year.
Variations of Rights of Shares
Subject to the Companies Ordinance, all or any of the rights for the time being attached to any class of shares for the time being issued may from time to time (whether or not the Company is being wound up) be varied with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of such shares.
Other than such contracts entered into the ordinary course of business as are described in our disclosure in Item 7 “Major shareholders and related party transactions — related party transactions”,4 “Information on the Company,” we have not entered into any material contracts outside the ordinary course of our business within the two years preceding the date of this annual report.
The Basic Law of Hong Kong provides that the Hong Kong dollar will remain the legal tender in Hong Kong after July 1, 1997. The Basic Law also provides that no foreign exchange control policies will be applied in Hong Kong and that the Hong Kong dollar will be freely convertible. During the Asia regional economic crisis in 1998, however, the Hong Kong government intervened on several occasions in the foreign exchange market by purchasing the Hong Kong dollar and selling the U.S. dollar to support the value of the Hong Kong dollar.
There are no restrictions, either pursuant to our Articles, or pursuant to the laws of Hong Kong, on the rights of non-residents of Hong Kong or foreign persons to hold or exercise voting rights with respect to our ordinary shares, or export or import capital.
The following provides a general outline of the material tax considerations that may be relevant to a decision to own or dispose of our American depositary shares or shares but does not purport to deal with the tax consequences applicable to all categories of investors. Prospective investors should consult their own professional advisers on the Hong Kong, United States and overall tax implications of investing, holding or disposing the American depositary shares or shares under the laws of the countries in which they are liable to taxation. The discussion below is applicable to both U.S. and non-U.S. citizens as an investor.
Hong Kong Taxation
Tax on dividends
No tax is payable in Hong Kong by withholding or otherwise in respect of dividends paid by City Telecom.HKTV.
Profits tax
No tax is imposed in Hong Kong in respect of gains from the sale of our shares and American depositary shares, unless all the following factors are present:
(i) | such profits are derived from or arise in Hong Kong; |
(ii) | such profits are attributable to a trade, profession or business carried on in Hong Kong; and |
(iii) | the property in question, such as shares and American depositary shares, are not capital assets of that trade, profession or business. |
Taxable profits are subject to Hong Kong profits tax on corporations at the rate of 16.5% and on unincorporated businesses or individuals at the rate of 15%.
Profits from the sales of our shares, which are effected on the Hong Kong Stock Exchange,HKSE, will be considered to be derived from or arising in Hong Kong. Such profits are taxable if the shares are not held as capital assets and the profits are attributable to a business, trade or profession carried out in Hong Kong.
Profits from the sales of our American depositary shares will be considered to be derived from or arising in Hong Kong if the relevant purchase or sales contracts are effected in Hong Kong. In the event that those persons dealing or trading in the American depositary shares are doing so as part of their trade, profession or business that is being carried out in Hong Kong and the shares are not capital assets of such trade of business, then such profits will be subject to Hong Kong profits tax. In any case of an exchange of any American depositary receipts evidencing American depositary shares for certificates representing shares, any profit gained on subsequent disposition of such shares will be the difference between the initial price of American depositary shares and the market value of such shares at the date of disposition.
Stamp duty
The sale and purchase of shares is subject to Hong Kong stamp duty which is payable by both the seller and purchase.the purchaser. Both seller and purchaser must pay stamp duty at a rate of 0.1% each, totaling 0.2%, of the total value of the greater of (i) the consideration paid or (ii) the market value of the shares on the Hong Kong Stock Exchange,HKSE, or otherwise, on the date the contract note for the sale or purchase is executed. If, inWhere one of the caseparties to a transfer of a sale or purchase ofthe shares effected by a person who is not resident in Hong Kong and the stamp duty on either or both of the contract notes is not paid, the transfereeduty not paid will be liable to stampassessed on the instrument of transfer (if any) and pay stamp duty onwill be payable by the instrument in an amount equal to the unpaid duty.transferee. If the instrument is not stamped before or within the time for stamping such instrument, a penalty of up to ten10 times the duty payable may be imposed. In addition, a fixed duty of HK$5.00 is currently payable on any instrument of transfer of shares.
In addition to the depositary’s charges, if any, the withdrawal of the shares upon the surrender of American depositary receipts evidencing American depositary shares, and the issuance of American depositary receipts evidencing American depositary shares upon the deposit of the shares, will be subject to Hong Kong stamp duty at the rate described above for sale and purchase transactions. In the event the withdrawal or deposit does not result in a change in the beneficial ownership of the shares under Hong Kong law, only the nominal fixed duty of HK$5.00 will be payable. Investors are not liable for stamp duty on the issuance of the American depositary shares upon the initial deposit of shares issued directly to the depositary or for the account of the depositary. No Hong Kong stamp duty is payable upon the transfer of American depositary receipts evidencing our American depositary shares if such American depositary receipts are not maintained on a register in Hong Kong.
Tax treaty
There is currently no reciprocal tax treaty between Hong Kong and the U.S. regarding withholding.
United States Taxation
Certain U.S. Federal Income Tax ConsiderationsTaxation
The following is a summary ofdiscussion describes certain United StatesU.S. federal income tax considerations that are anticipatedconsequences to be material to the purchase, ownership, and dispositionU.S. Holders (as defined below) under present law of an investment in our American depository shares or American depositary shares byordinary shares. This discussion applies only to U.S. Holders that hold the American depository shares or ordinary shares as defined below. This summary is based oncapital assets within the U.S.meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing(generally, property held for investment) and proposedthat have the U.S. dollar as their functional currency. This discussion is based on the tax laws of the United States as of the date of this annual report and on U.S. Treasury regulations published rulings and court decisions, all as in effect onor, in some cases, proposed as of the date hereof. These lawsof this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are all subject to change, or different interpretation, possibly on a retroactive basis. This summary does not discusswhich change could apply retroactively and could affect the tax consequences described below.
The following discussion neither deals with the tax consequences to any particular investor nor describes all aspects of United States federal income taxation which may be importantthe tax consequences applicable to particular investorspersons in light of their individual investment circumstances, such as investors subject to special tax rules including: partnerships,situations such as:
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF AMERICAN DEPOSITORY SHARES OR ORDINARY SHARES.
The discussion below of the U.S. federal income tax purposes or that have a functional currency other thanconsequences to “U.S. Holders” will apply to you if you are the United States dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this summary does not discuss any foreign, state, or local tax considerations. This summary assumes that investors will hold our shares or American depositary shares as “capital assets” (generally, property held for investment) under the Code.
Each prospective investor is urged to consult its own tax advisor regarding the United States federal, state, local, and foreign income and other tax considerations of the purchase, ownership, and disposition of our shares or American depositary shares.
For purposes of this summary, a U.S. Holder is a beneficial owner of our American depository shares or American depositaryordinary shares that isand you are, for United StatesU.S. federal income tax purposes:
an individual who is a citizen or resident of the United States;
a corporation or(or other entity that is taxabletreated as a corporation for U.S. federal income tax purposes) created in or organized in the United States or under the laws of the United States, or any State thereof or political subdivision thereof;
an estate, the income of which is includible in gross income for United Statessubject to U.S. federal income tax purposestaxation regardless of its source;
a trust the administration of whichthat (1) is subject to the primary supervision of a court within the United States court and which hasthe control of one or more United StatesU.S. persons who have the authority to controlfor all substantial decisions of the trust; or
(2) has a trust that wasvalid election in existence on August 20, 1996, waseffect under applicable U.S. Treasury regulations to be treated as a United States person, for United States federal income tax purposes, on the previous day, and elected to continue to be so treated.
If you are a partner in a partnership or other entity or arrangement treatedtaxable as a partnership for United States federal income tax purposesthat holds ourAmerican depository shares or American depositary receipts, theordinary shares, your tax treatment of a partner will generally depend upon theon your status of the partner and the activities of the partnership. A U.S. Holder that isIf you are a partner in such a partnership, holding ouryou should consult your tax advisor.
The discussion below assumes the representations contained in the deposit agreement are true and the obligations in the deposit agreement and any related agreement have been and will be complied with in accordance with their terms. If you own American depository shares, oryou should be treated as the owner of the underlying ordinary shares represented by those American depositary receipts is urged to consult its own tax advisor concerning the United Statesdepository shares for U.S. federal income tax consequencespurposes.
The U.S. Treasury has expressed concerns that intermediaries in the chain of purchasing, owningownership between the holder of an American depository share and disposingthe issuer of the security underlying the American depository share may be taking actions that are inconsistent with the beneficial ownership of the underlying security (for example, pre-releasing American depository shares to persons that do not have the beneficial ownership of the securities underlying the American depository shares). Accordingly, the creditability of any foreign taxes and the availability of the reduced tax rate for any dividends received by certain non-corporate U.S. Holders, including individual U.S. Holders (as discussed below), could be affected by actions taken by intermediaries in the chain of ownership between the holders of American depository shares and our Company if as a result of such actions the holders of American depository shares are not properly treated as beneficial owners of underlying ordinary shares.
Passive Foreign Investment Company
Based on the market price of our American depository shares, or American depositary receipts by the partnership.
A beneficial ownervalue of our sharesassets, and the composition of our income and assets, we believe we were a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2014. A non-U.S. corporation will be a PFIC for U.S. federal income tax purposes for any taxable year if either:
A foreign corporationFor this purpose, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.
A separate determination must be made after the close of each taxable year as to whether we were a “passive foreign investment company”,PFIC for that year. Because the value of our assets for purposes of the asset test will generally be determined by reference to the market price of our American depository shares and ordinary shares, our PFIC status will depend in large part on the market price of our American depository shares and ordinary shares, which may fluctuate significantly. Based on the market price of our American depository shares and ordinary shares, and the composition of our assets during the taxable year ended December 31, 2014, we believe we were a PFIC for such year. In addition, we believe there is a significant risk we will be a PFIC for the taxable year ending December 31, 2015 and for future taxable years, unless the market price of our American depositary shares increases or “PFIC”,we reduce the amount of cash and other passive assets we hold relative to the amount of non-passive assets we hold. If we are a PFIC for United States federalany taxable year during which you hold American depository shares or ordinary shares, we generally will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold American depository shares or ordinary shares, unless we cease to be a PFIC and you make a “deemed sale” election with respect to the American depository shares or ordinary shares. If such election is made, you will be deemed to have sold American depository shares or ordinary shares you hold at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale would be subject to the consequences described in the following two paragraphs. After the deemed sale election, your American depository shares or ordinary shares with respect to which the deemed sale election was made will not be treated as shares in a PFIC, and you would not be subject to the rules described below with respect to any “excess distribution” you receive from us or any gain from an actual sale or other disposition of the American depositary shares or ordinary shares, unless we subsequently become a PFIC.The rules dealing with deemed sale elections are complex. You are encouraged to consult your tax advisor as to the possibility and consequences of making a deemed sale election if we cease to be treated as a PFIC and such election becomes available to you.
For each taxable year that we are treated as a PFIC with respect to you, you will be subject to special tax rules with respect to any “excess distribution” you receive and any gain you recognize from a sale or other disposition (including a pledge) of the American depository shares or ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the American depository shares or ordinary shares will be treated as an excess distribution. Under these special tax rules:
The tax liability for amounts allocated to taxable years prior to the year of disposition or excess distribution cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale or other disposition of our American depository shares or ordinary shares cannot be treated as capital, even if 75%you hold the American depository shares or moreordinary shares as capital assets.
If we are treated as a PFIC with respect to you for any taxable year, to the extent any of its grossour subsidiaries are also PFICs or we make direct or indirect equity investments in other entities that are PFICs, you may be deemed to own shares in such lower-tier PFICs that are directly or indirectly owned by us in that proportion which the value of the American depository shares or ordinary shares you own bears to the value of all of our American depository shares and ordinary shares, and you may be subject to the adverse tax consequences described in the preceding two paragraphs with respect to the shares of such lower-tier PFICs that you would be deemed to own. You should consult your tax advisor regarding the application of the PFIC rules to any of our subsidiaries.
Alternatively, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the PFIC rules described above regarding excess distributions and recognized gains. If you make a mark-to-market election for our American depository shares or ordinary shares, you will include in income consists of certain types of “passive” income or 50% or morefor each year we are a PFIC an amount equal to the excess, if any, of the fair market value of its assets are “passive”the American depository shares or ordinary shares as of the close of your taxable year over your adjusted basis in such American depository shares or ordinary shares. You will be allowed a deduction for the excess, if any, of the adjusted basis of the American depository shares or ordinary shares over their fair market value as of the close of the taxable year. BasedHowever, deductions will be allowable only to the extent of any net mark-to-market gains on our currentthe American depository shares or ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the American depository shares or ordinary shares, will be treated as ordinary income. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss on the American depository shares or ordinary shares, as well as to any loss realized on the actual sale or other disposition of the American depository shares or ordinary shares, to the extent the amount of such loss does not exceed the net mark-to-market gains previously included for such American depository shares or ordinary shares. Your basis in the American depository shares or ordinary shares will be adjusted to reflect any such income or loss amounts. If you make a mark-to-market election, any distributions we make would generally be subject to the rules discussed below under “—Dividends and projectedOther Distributions on the American Depository Shares or Ordinary Shares,” except the lower rate applicable to qualified dividend income assets,would not apply.
The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. Our American depository shares are listed on the Nasdaq, which is a qualified exchange or other market for these purposes. Consequently, if the American depository shares continue to be listed on the Nasdaq and activities,are regularly traded, and you are a holder of American depository shares, we presently believeexpect the mark-to-market election would be available to you if we were to become a PFIC. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs that we are notown, a PFIC in the current taxable year and do not anticipate becoming a PFIC in the future. The PFIC status of a foreign corporation for any taxable year, however, will notU.S. Holder may continue to be determinable until after the end of that taxable year. Because the classification of certain of our assets for United States federal income tax purposes is uncertain,subject to the PFIC rules are subjectwith respect to administrative interpretation, and the relevant facts may changeits indirect interest in the future, however, no assurance can be givenany investments held by us that we are not or will not be treated as a PFIC. The discussion below under “U.S. Holders-Dividends” and “U.S. Holders-Sale or Other Disposition of Shares or American depositary shares,” assumes that we will not be subject to treatment asan equity interest in a PFIC for United StatesU.S. federal income tax purposes. You should consult your tax advisor as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.
If we were currently or were to becomea non-U.S. corporation is a PFIC, U.S. Holders would be subject to special rules and a varietyholder of potentially adverse tax consequencesshares in that corporation may avoid taxation under the Code. See “PFIC Considerations” below.PFIC rules described above regarding excess distributions and recognized gains by making a “qualified electing fund” election to include in income its share of the corporation’s income on a current basis. However, you may make a qualified electing fund election with respect to your American depository shares or ordinary shares only if we agree to furnish you annually with certain tax information, and we currently do not intend to prepare or provide such information.
Unless otherwise provided by the U.S. Treasury, each U.S. Holder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. You should consult your tax advisor regarding any reporting requirements that may apply to you.
You are strongly urged to consult your tax advisor regarding the application of the PFIC rules to your investment in American depository shares or ordinary shares.
Dividends.Dividends and Other Distributions on the American Depository Shares or Ordinary Shares Any cash
Subject to the PFIC rules discussed above, the gross amount of any distributions paid by us outwe make to you (including the amount of any taxes withheld) with respect to our earnings and profits, as determined under United States federal income tax rules, will be subject to tax asAmerican depository shares or ordinary dividend income andshares generally will be includible in theyour gross income as dividend income on the date of a U.S. Holder upon actualreceipt by the depositary, in the case of American depository shares, or constructive receipt. Cash distributionsby you, in the case of ordinary shares, but only to the extent the distribution is paid by us in excessout of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Any such dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. To the extent the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), such excess amount will be treated first as a tax-free return of capitalyour tax basis in your American depository shares or ordinary shares, and then, to the extent of the U.S. Holder’s adjustedsuch excess amount exceeds your tax basis in ouryour American depository shares or ordinary shares, as capital gain. We currently do not, and we do not intend to, calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will generally be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
With respect to certain non-corporate U.S. Holders, including individual U.S. Holders, dividends may be taxed at the lower capital gains rate applicable to “qualified dividend income,” provided (1) the American depositarydepository shares and thereafter as gain from the sale or exchange of a capital asset. Dividends paidordinary shares are readily tradable on an established securities market in Hong Kong dollars will be includible in income in a United States dollar amount based on the United States, dollar(2) we are neither a PFIC nor treated as such with respect to Hong Kong dollar “spot” exchange rate prevailing at the time of receipt of such dividends by the depositary, in the case of American depositary shares, or by the U.S. Holder, in the case of shares held directly by such U.S. Holder. U.S. Holders should consult their own tax advisors regarding the United States federal income tax treatment of any foreign currency gain or loss recognized on the subsequent conversion of Hong Kong dollars received as dividends to United States dollars. Dividends received on shares or American depositary shares will not be eligibleyou (as discussed above) for the dividends received deduction allowed to corporations.
Under current law, “qualifiedtaxable year in which the dividend income” received by an individual prior to January 1, 2013 is subject to United States federal income tax rates lower than those applicable to ordinary income. The maximum federal income tax rate on such qualifying dividends received by an individual is 15%. Based upon our existing and anticipated future operations and current assets,was paid and the anticipation that ourpreceding taxable year, and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority, American depository shares are andconsidered for purposes of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on Nasdaq, as are our American depository shares. However, based on existing guidance, it is not entirely clear whether dividends you receive with respect to the ordinary shares will be taxed as qualified dividend income, because the ordinary shares are not themselves listed on the NASDAQ,a U.S. exchange. As discussed above in “—Passive Foreign Investment Company,” we believe that we arewere a “qualified foreign corporation” and that ourPFIC for the taxable year ended December 31, 2014. You should consult your tax advisor regarding the availability of the lower capital gains rate applicable to qualified dividend income for any dividends paid to U.S. Holders who are individuals will be eligible to be treated as “qualified dividend income”, provided that such Holders satisfy applicable holding period requirements with respect to the American depositary shares and other application requirements. Dividends paid by foreign corporations that are classified as PFICs are not “qualified dividend income”. See “PFIC Considerations” below.
Dividends received ondepository shares or American depositary shares generallyordinary shares.
Any dividends will be treated, for United States federal income tax purposes, as income from non-U.S. sources. Such non-U.S.constitute foreign source income generally will be “passive category income”for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), or in certain cases “general category income”, which is treated separately from other typesthe amount of incomethe dividend taken into account for purposes of computingcalculating the U.S. foreign tax credit. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit limitation will in general be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of any foreign withholding taxes imposed onincome. For this purpose, dividends received ondistributed by us with respect to our American depository shares or American depositary shares.ordinary shares will generally constitute “passive category income” but could, in the case of certain U.S. Holders, who do not elect to claim a U.S. foreign tax credit for foreign income tax withheld may instead claim a deduction, for United States federal income tax purposes, in respect of such withholdings, but only for a year in which the U.S. Holder elects to do so for all creditable foreign income taxes.constitute “general category income.”
In addition, the United States Treasury has expressed concerns that parties to whom depositary shares are pre-released may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by the holdersDisposition of American depositary shares. The analysis of the creditability of foreign withholding taxes could be affected by future actions that may be taken by the United States Treasury.
Sale or Other Disposition ofDepository Shares or American depositary shares. A U.S. HolderOrdinary Shares
Subject to the PFIC rules discussed above, you will recognize capitaltaxable gain or loss upon theon any sale, exchange or other taxable disposition of sharesan American depository share or American depositary shares in an amountordinary share equal to the difference between the amount realized uponfor the dispositionAmerican depository share or ordinary share and the U.S. Holder’s adjustedyour tax basis in such sharesthe American depository share or American depositary shares, as each is determined in U.S. dollars. Any suchordinary share. The gain or loss generally will be capital gain or loss will be long-term ifloss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, that has held the sharesAmerican depository share or American depositary shares have been heldordinary share for more than one year, andyou may be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any gain or loss you recognize on a disposition of American depository shares or ordinary shares will generally be United Statestreated as U.S. source gainincome or loss. Certain non-corporate U.S. Holders (including individuals) may qualify for preferential rates of United States federal income taxation in respect of long-term capital gains for taxable years beginning before January 1, 2013. The claim of a deduction in respect of a capital loss for United States federal incomeforeign tax purposes, may be subjectcredit limitation purposes.
Information Reporting and Backup Withholding
Any dividend payments with respect to limitations. If a U.S. Holder receives Hong Kong dollars for any such disposition, such U.S. Holder should consult its own tax advisor regarding the United States federal income tax treatment of any foreign currency gain or loss recognized on the subsequent conversion of the Hong Kong dollars to United States dollars.
Medicare Tax
For taxable years beginning after December 31, 2012, a United States person that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8% tax on the lesser of (1) the United States person’s “net investment income” for the relevant taxable year and (2) the excess of the United States person’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between US$125,000 and US$250,000, depending on the individual’s circumstances). A holder’s net investment income will generally include its gross dividend income and its net gains from the disposition of ADSs, unless such dividends or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a United States person that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in the ADSs.
PFIC considerations
If we were to be classified as a PFIC for any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of United States federal income tax that a U.S. Holder could derive from investing in a foreign company that does not distribute all of its earnings on a current basis. In such event, a U.S. Holder of theAmerican depository shares or American depositary shares may be subject to tax at ordinary income tax rates on (i) any gain recognized on the sales of the shares or American depositary shares and (ii) any “excess distribution” paid on the shares or American depositary shares (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding taxable years). In addition, a U.S. Holder may be subject to an interest charge on such gain or excess distribution. Prospective investors are urged to consult their own tax advisors regarding the potential tax consequences to them if we are or do become a PFIC, as well as certain elections that may be available to them to mitigate such consequences.
Non-U.S. Holders
An investment in shares or American depositary shares by a Non-U.S. Holder will not give rise to any United States federal income tax consequences unless:
the dividends received or gain recognized on the sale of the shares or American depositary shares by such person is treated as effectively connected with the conduct of a trade or business by such person in the United States as determined under United States federal income tax law, and the dividends are attributable to a permanent establishment (or in the case of an individual, a fixed place of business) that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis. In such cases you generally will be taxed in the same manner as a U.S. holder. If you are a corporate non-U.S. Holder, “effectively connected” dividends may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate, or
in the case of gains recognized on a sale of shares or American depositary shares by an individual, such individual is present in the United States for 183 days or more and certain other conditions are met. The non-U.S. Holder will be subject to United States federal income tax at a rate of 30% on the amount by which the U.S. — source capital gains exceed non-U.S. — source capital losses.
Backup withholding and information reporting
In general, information reporting requirements will apply to dividends on or the proceeds received onfrom the sale, exchange or redemption of American depository shares or American depositaryordinary shares paid withinmay be subject to information reporting to the United States (and, in certain cases, outside the United States)U.S. Internal Revenue Service and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder that furnishes a correct taxpayer identification number and makes any other required certification or that is otherwise exempt from backup withholding. U.S. Holders other than certainthat are required to establish their exempt recipients,status generally must provide such as corporations,certification on U.S. Internal Revenue Service Form W-9. U.S. Holders should consult their tax advisor regarding the application of the U.S. information reporting and backup withholding tax may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (or otherwise establishes, in the manner provided by law, an exemption from backup withholding) or to report dividends required to be shown on the U.S. Holder’s United States federal income tax returns.rules.
Backup withholding is not an additional income tax, and the amount of anytax. Amounts withheld as backup withholding from a payment to amay be credited against your U.S. Holder will be allowed as credit against the U.S. Holder’s United States federal income tax liability, provided thatand you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate returnsclaim for refund with the U.S. Internal Revenue Service and furnishing any required information in a timely manner.
Additional Reporting Requirements
Certain U.S. Holders who are filed.
A non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status to the payer, under penalties of perjury, on IRS Form W-8BEN.
Information with Respect to Foreign Financial Assets
Under recently enacted legislation, individuals that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 in taxable years beginning after March 18, 2010 will generally be required to filereport information relating to an information report with respectinterest in our American depository shares or ordinary shares, subject to such assets with their tax returns. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are notcertain exceptions (including an exception for American depository shares or ordinary shares held in accounts maintained by certain financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities.institutions). U.S. holders that are individuals are urged toHolders should consult their tax advisors regarding the applicationeffect, if any, of this legislation tothese rules on their ownership and disposition of ADSs.the American depository shares and ordinary shares.
THE ABOVE DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY, DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO OUR SHARES OR AMERICAN DEPOSITARY RECEIPTS AND IS NOT INTENDED TO BE CONSTRUED AS TAX ADVICE. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF PURCHASING, OWNING AND DISPOSING OF OUR SHARES OR AMERICAN DEPOSITARY RECEIPTS, INCLUDING THE APPLICABILITY AND EFFECT OF ANY UNITED STATES FEDERAL, STATE, LOCAL OR NON-UNITED STATES TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAW.F. Dividends and paying agents
Not applicable.applicable
Not applicable.applicable
We filed with Securities and Exchange Commissionthe SEC in Washington, D.C. a registration statement on Form F-1 (Registration No. 333-11012) under the Securities Act in connection with our global offering of American depositary shares in November 1999. The registration statement contains exhibits and schedules. For further information with respect to City TelecomHKTV and the American depositary shares, please refer to the registration statement and to the exhibits and schedules filed with the registration statement. In addition, whenever a reference is made in this annual report to a contract or other document of City Telecom,HKTV, you should be aware that such reference is not necessarily complete and that you should refer to the exhibits and schedules that are a part of the registration statement for a copy of the contract or other document.
The Company’s registration statements may be inspected and copied, including exhibits and schedules, and the reports and other information as filed with the Securities and Exchange CommissionSEC in accordance with the Securities Exchange Act of 1934 at the public reference facilities maintained by the Securities and Exchange CommissionSEC at 100F100 F Street NE, Washington, D.C. 20549. Copies of such material may also be obtained from the Public Reference Section of the Securities and Exchange CommissionSEC at 100F100 F Street NE, Washington, D.C. 20549, at prescribed rates. Information may be obtained regarding the Washington D.C. Public Reference Room by calling the Securities and Exchange CommissionSEC at 1-800-SEC-0330 or by contacting the Securities and Exchange CommissionSEC over the Internet at its website at http://www.sec.gov/.www.sec.gov.
Not applicable
Not applicable.
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk have been included in note 2427 to our consolidated financial statements.
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.A. Debt securities
Not applicable.applicable
Not applicable.applicable
Not applicable
Fees and Expenses
Persons depositing ordinary shares or ADR holders must pay: | For: | |
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | • Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property |
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | • Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | ||
US$0.02 (or less) per ADS | • Any cash distribution to our ADR holders | ||
A fee equivalent to the fee that would be payable if securities distributed to our ADR holders had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs | • Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR holders | ||
Registration or transfer fees | • Transfer and registration of ordinary shares on our ordinary share register to or from the name of the depositary or its agent when our ADR holders deposit or withdraw ordinary shares | ||
Expenses of the depositary in converting foreign currency to U.S. dollars | • Whenever the depositary or the custodian receives foreign currency, by way of dividends or other distributions or the net proceeds from the sale of securities, property or rights, and if at the time of the receipt thereof the foreign currency so received can in the judgment of the depositary be converted on a reasonable basis into U.S. dollars and the resulting U.S. dollars transferred to the United States | ||
Expenses of the depositary | • Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | ||
Taxes and other governmental charges the depositary or the custodian have to pay on any ADR or ordinary share underlying an ADR, for example, stock transfer taxes, stamp duty or withholding taxes | As necessary | ||
Any charges incurred by the depositary or its agents for servicing the deposited securities | As necessary |
Payment of Taxes
The ADR holder is required to pay all taxes and other governmental charges that may be payable in respect of any their ADSs, or the shares or other securities underlying their ADSs. The depositary may refuse to effect a transfer of any ADRs or refuse to effect the withdrawal of any securities underlying the ADRs while any such taxes and charges are outstanding. The depositary may deduct the amount of any taxes owed from any payments to our ADR holders. It may also sell deposited securities, by public or private sale, to pay any taxes owed. Our ADR holders will remain liable if the proceeds of the sale are not enough to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to our ADR holders any proceeds, or send to our ADR holders any property, remaining after it has paid the taxes.
Fees and Payments from the Depositary to Us
In fiscal year 2011,2014, the Company haddid not receivedreceive any payment from the depositary.
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15 CONTROLS AND PROCEDURES
None
ITEM 14 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None
ITEM 15 | CONTROLS AND PROCEDURES |
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. As of the end of the period covered by this annual report, based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures arewere effective to provide reasonable assurance that information the Company iswas required to disclose in reports that the Company filesfiled or submitssubmitted under the Securities Exchange Act of 1934 iswas recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information iswas accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Subsequent to the date of their evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect these controls.
B. Management’s report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as defined in Rules 13a-15(f) under the Securities Exchange Act, of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purpose in accordance with generally accepted accounting principles. Under Section 404(a) of the Sarbanes-Oxley Act, of 2002, our management is required to include its assessment of the effectiveness of our internal control procedures over financial reporting in ourthis annual report on Form 20-F beginning in the fiscal year ended August 31, 2009.report. With the assistance of the Company’s internal audit department, and external consultants, our management organized and conducted a comprehensivean assessment of internal control over financial reporting based on the control criteria in COSO framework.COSO’s 2013 Internal Control Integrated Framework. Based on this assessment, the Directors believeour management has concluded that, as of AugustDecember 31, 2011, the2014, our internal control over financial reporting iswas effective.
The Board of Directors and Shareholders of City Telecom (H.K.)Hong Kong Television Network Limited:
We have audited City Telecom (H.K.)Hong Kong Television Network Limited’s internal control over financial reporting as of AugustDecember 31, 2011,2014, based on criteria established in Internal Control – Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). TheHong Kong Television Network Limited’s management of City Telecom (H.K.) Limited is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Reportreport on Internal Controlinternal control over Financial Reporting.financial reporting. Our responsibility is to express an opinion on the City Telecom (H.K.)Hong Kong Television Network Limited’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, City Telecom (H.K.)Hong Kong Television Network Limited maintained, in all material respects, effective internal control over financial reporting as of AugustDecember 31, 2011,2014, based on criteria established in Internal Control – Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries as of December 31, 2014 and August 31, 2011 and 2010,2013, and the related consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated cash flow statements for each of the years insixteen months ended December 31, 2014 and the three-year periodtwelve months ended August 31, 2011,2013 and 2012, and our report dated December 19, 2011April 29, 2015 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG
Hong Kong, China
April 29, 2015
D. Changes in internal control over financial reporting
During fiscal 2011, the period covered by this annual report, except for the new control procedures introduced for the OTT platform and online shopping platform, which were launched in November 2014 and on trial run in December 2014 respectively, there have been no change has occurredmaterial changes in our internal controls over financial reporting that hashave materially affected, or isare reasonably likely to materially affect, our internal controlscontrol over financial reporting.
ITEM 16A Audit committee financial expert
ITEM 16A | AUDIT COMMITTEE FINANCIAL EXPERT |
Our board of directors established an audit committee to ensure the impartial supervision of our accounting and business operations. The audit committee is comprised of three independent non-executive directors, namely, Mr. Lee Hon Ying, John, Dr. Chan Kin Man and Mr. Peh Jefferson Tun Lu.Lu and Mr. Mak Wing Sum, Alvin. Mr. Peh was appointed to the audit committee on September 1, 2004 and is aMr. Mak was appointed to the audit committee on September 1, 2013. Both are “financial expert”experts” within the meaning of, and as required by, the U.S. Sarbanes-Oxley Act of 2002.
ITEM 16B | CODE OF ETHICS |
All of our Talents, officers and directors are bound by our code of business ethics and conduct. We adopted our code of ethics and modified it following the passage of, and to comply with, the U.S. Sarbanes Oxley Act of 2002.Sarbanes-Oxley Act. Copies of our code of ethics are available for viewing on our website at http://www.ctigroup.com.hkwww.hktv.com.hk and free of charge upon request made to our company secretary. We have never granted a waiver for non-compliance with the policies and procedures set forth in the code of ethics for any Talent of our Company or any of our subsidiaries.
ITEM 16C Principal accountant fees and services
ITEM 16C | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table sets forth the remuneration that we paid to KPMG, our independent auditor in each of our previous two fiscal years.
Fiscal 2013 | Fiscal 2014 | |||||||||||||||
(in millions) | ||||||||||||||||
HK$ | HK$ | |||||||||||||||
Nature of the service | 2011 HK$ million | 2010 HK$ million | ||||||||||||||
Audit fees | 2.3 | 2.3 | 1.4 | 2.1 | ||||||||||||
Audit-related fees | 0.2 | 0.2 | ||||||||||||||
Non-audit services fees | — | 0.3 | ||||||||||||||
|
| |||||||||||||||
Audit related fees | 0.1 | 0.3 | ||||||||||||||
Total | 2.5 | 2.8 | 1.5 | 2.4 | ||||||||||||
|
|
|
|
Audit fees
Audit fees are the aggregate fees billed by our independent auditors for the annual financial statement audit, subsidiary audits and other procedures required to be performed for the auditors to form an opinion on our consolidated financial statements.
Audit-related fees
Audit-related fees in fiscal 2013 and 2014 are the aggregate fees billed by our independent auditors mainly for the review of our interim financial statements and review of reports for compliance with telecommunications regulations and debt obligations.statements.
Non-audit services fees
Non-audit services fees are the aggregate fees billed by our independent auditors for the services provided for the ADS offering in April 2010.
Pre-approval polices
The engagement of KPMG and the services provided pursuant to such engagement were approved by our audit committee in accordance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X. The fees for all such services have been pre-approved by our audit committee. Our audit committee has satisfied itself that the provision of the above-stated non-audit services has not impaired the independence of KPMG.
ITEM 16D Exemptions from the listing standards for audit committees
ITEM 16D | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
ITEM 16E Purchase of equity securities by the issuer and affiliated purchasers
ITEM 16E | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
By way of a general mandate granted to our directors, the maximum aggregate nominal amount of shares that may be purchased pursuant to a mandate corresponds to 10% of the aggregate nominal amount of our issued share capital at the date the mandate was granted. During the yearsixteen months ended AugustDecember 31, 2011,2014, we had not repurchased any of the ordinary shares on the HKSE.
ITEM 16F Change in Registrant’s Certifying Accountant
ITEM 16F | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
ITEM 16G | CORPORATE GOVERNANCE |
As our ordinary shares are listed on the HKSE and American depositary shares representing our ordinary shares are listed on the Nasdaq Global Market, we are subject to applicable Hong Kong laws and regulations, including the HKSE Listing Rules, and the Hong Kong Companies Ordinance, as well as applicable U.S. federal securities laws, including the Exchange Act and the Sarbanes-Oxley Act. In addition, we are subject to the corporate governance requirements imposed by Nasdaq to the extent they apply to foreign private issuers. Under Nasdaq Stock Market Rule 5615(a)(3), a foreign private issuer such as us may follow its home country corporate governance practices in lieu of certain of the Nasdaq Stock Market Rules corporate governance requirements. Our current corporate governance practices differ from Nasdaq corporate governance requirements for U.S. companies in certain respects, as summarized below:
Nasdaq Stock Market Rule 5605(b)(1) requires a Nasdaq listed company to have a board of directors consisting of a majority of independent members,members. In this regard we have elected to adopt the practices of our home country,country. As a listed company in Hong Kong, we are subject to the requirement under the HKSE Listing Rules that at least three members of our board of directors be independent as determined under the HKSE Listing Rules. In compliance with our home country practices, we currently have three independent directors out of a total of eightseven directors. The standards for establishing independence under the HKSE Listing Rules also differ from those set forth in the Nasdaq Stock Market Rules.
Nasdaq Stock Market Rule 5605(b)(2) requires a Nasdaq listed company to schedule regular executive sessions in which non-management directors meet without management participation. In this regard we have elected to adopt the practices of our home country. Under the applicable Hong Kong law, our board of directors is required to meet regularly and at least four times a year and we are required to ensure that there is active participation by a majority of the directors and afford all directors an opportunity to include matters on the agenda. In addition, when a board meeting considers a matter in which a substantial shareholder or a director has a conflict of interest, the independent directors with no material interest in such matter must be present. In complianceAs a listed company in Hong Kong, we are subject to the requirement under the HKSE Listing Rules that our Chairman should hold meetings at least annually with our home country practices, we do not organize exclusive meetings for ourthe non-executive directors (including independent non-executive directors on a regular basis.
Nasdaq Stock Market Rule 5605(d)(1) requires a Nasdaq listed company to have the compensation of the chief executive officer and the other executive officers be determined, or recommended to the its board of directors for determination, by a compensation committee comprised solely of independent directors. In this regard we have elected to adopt the practices of our home country. Under the HKSE Listing Rules, listed companies are required to establish a remuneration committee with a majority of independent non-executive directors. The compensation of our executive officers is determined by a remuneration committee consisting of six directors,four members, three of whom are independent non-executive directors.
Nasdaq Stock Market Rule 5605(e)(1)5620 requires a Nasdaq listed company to have a nominations committee consisting solelyhold an annual general meeting of independent directorsshareholders no later than one year after the end of the company’s fiscal year end, solicit proxies and provide proxy statements for all meetings of shareholders and provide copies of such proxy solicitation to select or recommend for selection director nominees.Nasdaq. In this regardrespect of fiscal 2014, we have elected to adopt the practicespractice of our home country and do notin this respect. We have a nominations committee consisting solelyobtained direction from the Registrar of independent directors. UnderCompanies in Hong Kong that the HKSE Listing Rules, listed companies are recommended but not required to establish a nomination committee consistingholding of the independent non-executive directors with majority vote. Our director nominees are selectedan annual general meeting by or recommended for selection by our board of directors. Our current practiceus in calendar year 2014 is not inconsistent with our home country practices.
Other than the above, we have followed and intend to continue to follow the applicable Nasdaq corporate governance standards.
ITEM 16H | MINE SAFETY DISCLOSURE |
Not applicable.
ITEM 17 | FINANCIAL STATEMENTS |
We have elected to provide financial statements pursuant to Item 18.
ITEM 18 | FINANCIAL STATEMENTS |
See pages F-1 to F-60F-55 following Item 19.
Exhibit | Description of Document | |
1.1 | Memorandum and Articles of Association of the Company (filed as Exhibit 1 to the Company’s Annual Report on Form 20-F on January 30, 2006 and incorporated herein by reference). | |
3.1 | Deed of Covenant, dated as of March 15, 2011, by and among Top Group International Limited, Wong Wai Kay, Ricky, and Cheung Chi Kin, Paul (filed as Exhibit 3.1 to the Company’s Annual Report on Form 20-F on December 21, 2011 and incorporated herein by reference). | |
8.1 | Subsidiaries of the Company. | |
12.1 | Section 302 Certifications of the Chief Executive Officer. |
12.2 | Section 302 Certifications of the Chief Financial Officer. |
13 | Section 906 Certification of Chief Executive Officer and Chief Financial Officer. |
Index to Consolidated Financial StatementsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements | Pages | |||
F-1 | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
City Telecom (H.K.)Hong Kong Television Network Limited
We have audited the accompanying consolidated balance sheets of City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries (the “Group”) as of December 31, 2014 and August 31, 2011 and 2010,2013, and the related consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and the consolidated cash flow statements for the each of years insixteen months ended December 31, 2014 and the three-year periodtwelve months ended August 31, 2011.2013 and 2012. These consolidated financial statements are the responsibility of City Telecom (H.K.)Hong Kong Television Network Limited’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries as of December 31, 2014 and August 31, 2011 and 2010,2013, and the results of their operations and their cash flows for each of the years insixteen months ended December 31, 2014 and the three-year periodtwelve months ended August 31, 2011,2013 and 2012, in conformity with the International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), City Telecom (H.K.)Hong Kong Television Network Limited’s internal control over financial reporting as of AugustDecember 31, 2011,2014, based on criteria established in Internal Control – Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 19, 2011April 29, 2015 expressed an unqualified opinion on the effectiveness of the internal control over financial reporting of City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries.
/s/ KPMG
Hong Kong, China
April 29, 2015
City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries
Consolidated income statements
(Expressed in Hong Kong dollars)
For the year ended August 31, | ||||||||||||||||
2011 | 2010 | 2009 | ||||||||||||||
Note | HK$’000 | HK$’000 | HK $’000 | |||||||||||||
Turnover | 2 | 1,681,458 | 1,574,687 | 1,478,239 | ||||||||||||
Network costs and costs of sales | 3 | (212,315 | ) | (195,292 | ) | (175,129 | ) | |||||||||
Other operating expenses | 4 | (a) | (1,097,164 | ) | (1,105,604 | ) | (1,037,964 | ) | ||||||||
Other income, net | 4 | (b) | 7,249 | 7,989 | 41,540 | |||||||||||
Finance costs | 4 | (c) | (6,359 | ) | (22,235 | ) | (55,127 | ) | ||||||||
|
|
|
|
|
| |||||||||||
Profit before taxation | 4 | 372,869 | 259,545 | 251,559 | ||||||||||||
Income tax expense | 5 | (58,954 | ) | (42,679 | ) | (38,730 | ) | |||||||||
|
|
|
|
|
| |||||||||||
Profit attributable to shareholders | 313,915 | 216,866 | 212,829 | |||||||||||||
|
|
|
|
|
| |||||||||||
Basic earnings per share | 7 | HK40.8 cents | HK30.7 cents | HK32.4 cents | ||||||||||||
|
|
|
|
|
| |||||||||||
Diluted earnings per share | 7 | HK39.6 cents | HK29.4 cents | HK31.8 cents | ||||||||||||
|
|
|
|
|
|
Note | Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | |||||||||||||||||
(Note 1) | (Note 1) | (Note 1) | ||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||
Continuing operations | ||||||||||||||||||||||
Turnover | 4 | 23,027 | 21,636 | 1,391 | 7,802 | 3,762 | ||||||||||||||||
Cost of sales | 5 | (27,767 | ) | (27,207 | ) | (560 | ) | (15,706 | ) | (6,006 | ) | |||||||||||
Valuation gains on investment properties | 3,900 | 2,100 | 1,800 | 43,400 | 18,200 | |||||||||||||||||
Other operating expenses | 6(a) | (343,799 | ) | (98,218 | ) | (245,581 | ) | (201,514 | ) | (104,960 | ) | |||||||||||
Other income, net | 6(b) | 147,609 | 29,907 | 117,702 | 128,909 | 19,920 | ||||||||||||||||
Finance costs, net | 6(c) | (7,767 | ) | (2,016 | ) | (5,751 | ) | (4,860 | ) | (2,455 | ) | |||||||||||
Impairment losses/ write off of assets | 7 | (32,000 | ) | — | (32,000 | ) | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loss before taxation | (236,797 | ) | (73,798 | ) | (162,999 | ) | (41,969 | ) | (71,539 | ) | ||||||||||||
Income tax (expense)/credit | 8 | (205 | ) | (60 | ) | (145 | ) | 1,659 | (2,281 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loss from continuing operations | (237,002 | ) | (73,858 | ) | (163,144 | ) | (40,310 | ) | (73,820 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Discontinued operations | ||||||||||||||||||||||
Profit from discontinued operations (net of tax) | 3 | — | — | — | — | 3,771,694 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Loss)/profit for the period | (237,002 | ) | (73,858 | ) | (163,144 | ) | (40,310 | ) | 3,697,874 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Attributable to: | ||||||||||||||||||||||
Equity shareholders of the Company | ||||||||||||||||||||||
- Continuing operations | (237,002 | ) | (73,858 | ) | (163,144 | ) | (40,310 | ) | (71,406 | ) | ||||||||||||
- Discontinued operations | — | — | — | — | 3,771,694 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
(237,002 | ) | (73,858 | ) | (163,144 | ) | (40,310 | ) | 3,700,288 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Non-controlling interest | ||||||||||||||||||||||
- Continuing operations | — | — | — | — | (2,414 | ) | ||||||||||||||||
- Discontinued operations | — | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
— | — | — | — | (2,414 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Loss)/profit for the period | (237,002 | ) | (73,858 | ) | (163,144 | ) | (40,310 | ) | 3,697,874 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Basis (loss)/earnings per share | 11 | |||||||||||||||||||||
- Continuing operations | HK(29.3) cents | HK(9.1) cents | HK(20.2) cents | HK(5.0) cents | HK(9.0) cents | |||||||||||||||||
- Discontinued operations | — | — | — | — | HK480.9 cents | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
HK(29.3) cents | HK(9.1) cents | HK(20.2) cents | HK(5.0) cents | HK471.9 cents | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Diluted (loss)/earnings per share | 11 | |||||||||||||||||||||
- Continuing operations | HK(29.3) cents | HK(9.1) cents | HK(20.2) cents | HK(5.0) cents | HK(9.0) cents | |||||||||||||||||
- Discontinued operations | — | — | — | — | HK474.1 cents | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
HK(29.3) cents | HK(9.1) cents | HK(20.2) cents | HK(5.0) cents | HK465.1 cents | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
The accompany notes are integral part of these consolidated financial statements.
City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries
Consolidated statementstatements of comprehensive income
(Expressed in Hong Kong dollars)
For the year ended August 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
HK$’000 | HK$’000 | HK$’000 | ||||||||||
Profit for the year | 313,915 | 216,866 | 212,829 | |||||||||
Other comprehensive income | ||||||||||||
Exchange differences on translation of financial statements of overseas subsidiaries | 2,383 | (97 | ) | 70 | ||||||||
|
|
|
|
|
| |||||||
Total comprehensive income for the year | 316,298 | 216,769 | 212,899 | |||||||||
|
|
|
|
|
|
Note | Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | |||||||||||||||||
(Note 1) | (Note 1) | (Note 1) | ||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||
(Loss)/profit for the period | (237,002 | ) | (73,858 | ) | (163,144 | ) | (40,310 | ) | 3,697,874 | |||||||||||||
Other comprehensive income | 10 | |||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||
- Available-for-sale securities: net movement in fair value reserve | 41,540 | (38,277 | ) | 79,817 | (71,109 | ) | — | |||||||||||||||
- Exchange differences on translation of financial statements of subsidiaries outside Hong Kong | 1 | 1 | — | — | (265 | ) | ||||||||||||||||
- Exchange reserve realized upon disposal of Telecom Business | — | — | — | — | (4,881 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income for the period | (195,461 | ) | (112,134 | ) | (83,327 | ) | (111,419 | ) | 3,692,728 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Attributable to: | ||||||||||||||||||||||
Equity shareholders of the Company | (195,461 | ) | (112,134 | ) | (83,327 | ) | (111,419 | ) | 3,695,142 | |||||||||||||
Non-controlling interest | — | — | — | — | (2,414 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income for the period | (195,461 | ) | (112,134 | ) | (83,327 | ) | (111,419 | ) | 3,692,728 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
The accompany notes are integral part of these consolidated financial statements.
City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries
(Expressed in Hong Kong dollars)
As at August 31, | Note | December 31, 2014 HK$’000 | August 31, 2014 | August 31, 2013 | ||||||||||||||||||||||
2011 | 2010 | (Note 1) | ||||||||||||||||||||||||
Note | HK$’000 | HK$’000 | (Unaudited) | |||||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||
Goodwill | 11 | 1,066 | 1,066 | |||||||||||||||||||||||
Fixed assets | 12 | 1,642,701 | 1,431,813 | 15 | 550,159 | 519,820 | 531,277 | |||||||||||||||||||
Intangible assets | 16 | 391,198 | 395,328 | 291,366 | ||||||||||||||||||||||
Long term receivable and prepayment | 4,101 | 5,174 | 285 | 44 | 133 | |||||||||||||||||||||
Deferred expenditure | 14 | 15,323 | 6,626 | |||||||||||||||||||||||
Other financial assets | 18 | 1,490,420 | 1,633,396 | 1,620,277 | ||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
1,663,191 | 1,444,679 | 2,432,062 | 2,548,588 | 2,443,053 | ||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||
Accounts receivable | 15 | 71,999 | 99,729 | 19 | 7,688 | 370 | 1,325 | |||||||||||||||||||
Other receivables, deposits and prepayments | 15 | 90,984 | 89,490 | 19 | 40,752 | 50,202 | 66,688 | |||||||||||||||||||
Deferred expenditure | 14 | 29,312 | 28,986 | |||||||||||||||||||||||
Programme costs | 344,088 | 363,323 | 289,781 | |||||||||||||||||||||||
Inventories | 718 | 357 | 357 | |||||||||||||||||||||||
Other current financial assets | 18 | 293,943 | 257,152 | 341,337 | ||||||||||||||||||||||
Term deposits | 20(a) | — | 573,043 | 342,657 | ||||||||||||||||||||||
Cash at bank and in hand | 16 | 408,976 | 588,665 | 20(b) | 819,186 | 305,221 | 347,849 | |||||||||||||||||||
|
|
| ||||||||||||||||||||||||
|
| 1,506,375 | 1,549,668 | 1,389,994 | ||||||||||||||||||||||
601,271 | 806,870 |
|
|
| ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||
Bank overdrafts — unsecured | 845 | 10,490 | ||||||||||||||||||||||||
Accounts payable | 17 | 17,419 | 35,128 | 21 | 4,504 | 4,087 | 4,074 | |||||||||||||||||||
Other payables and accrued charges | 17 | 209,585 | 195,931 | 21 | 73,876 | 59,921 | 38,600 | |||||||||||||||||||
Deposits received | 26,969 | 21,822 | 1,905 | 1,905 | 1,905 | |||||||||||||||||||||
Current portion — Deferred service revenue | 18 | 85,895 | 97,248 | |||||||||||||||||||||||
Bank loans | 22 | 802,165 | 862,941 | 531,883 | ||||||||||||||||||||||
Tax payable | 2,281 | 1,533 | — | 285 | 395 | |||||||||||||||||||||
Current portion — obligations under finance leases | 22 | 105 | 212 | |||||||||||||||||||||||
Derivative financial instrument | 25 | — | 1,340 | — | ||||||||||||||||||||||
Current portion - obligations under finance leases | — | — | 90 | |||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
343,099 | 362,364 | 882,450 | 930,479 | 576,947 | ||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
Net current assets | 258,172 | 444,506 | 623,925 | 619,189 | 813,047 | |||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
Total assets less current liabilities | 1,921,363 | 1,889,185 | 3,055,987 | 3,167,777 | 3,256,100 | |||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||
Deferred tax liabilities | 20 | 111,138 | 55,843 | 24 | 826 | 482 | 227 | |||||||||||||||||||
Long-term deferred service revenue | 992 | 9,550 | ||||||||||||||||||||||||
Derivative financial instrument | 21 | 11,564 | 11,293 | 25 | — | — | 5,181 | |||||||||||||||||||
Long-term debt and other liabilities | 22 | 288 | 123,960 | |||||||||||||||||||||||
Obligations under finance leases | — | — | 70 | |||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||
826 | 482 | 5,478 | ||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
Net assets | 1,797,381 | 1,688,539 | 3,055,161 | 3,167,295 | 3,250,622 | |||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
Capital and reserves | 23 | |||||||||||||||||||||||||
Share capital | 19 | 77,191 | 76,500 | |||||||||||||||||||||||
Reserves | 19 | 1,720,190 | 1,612,039 | |||||||||||||||||||||||
Share capital: nominal value | — | — | 80,902 | |||||||||||||||||||||||
Other statutory capital reserves | — | — | 1,188,012 | |||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
Total equity attributable to equity shareholders of the Company | 1,797,381 | 1,688,539 | ||||||||||||||||||||||||
Share capital and other statutory reserves | 1,268,914 | 1,268,914 | 1,268,914 | |||||||||||||||||||||||
Other reserves | 1,786,247 | 1,898,381 | 1,981,708 | |||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||
Total equity | 3,055,161 | 3,167,295 | 3,250,622 | |||||||||||||||||||||||
|
|
|
The accompany notes are integral part of these consolidated financial statements.
City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries
Consolidated statements of changes in equity
For the sixteen months ended December 31, 2014
(Expressed in Hong Kong dollars)
Note | Share capital HK$’000 | Share premium HK$’000 | Capital reserve HK$’000 | Capital redemption reserve HK$’000 | Retained profits HK$’000 | Exchange reserve HK$’000 | Total HK$’000 | |||||||||||||||||||||||||
At September 1, 2010 | 76,500 | 1,074,997 | 21,064 | 7 | 513,208 | 2,763 | 1,688,539 | |||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | — | 313,915 | 2,383 | 316,298 | |||||||||||||||||||||||||
Dividend paid in respect of previous year | 6 | — | — | — | — | (103,735 | ) | — | (103,735 | ) | ||||||||||||||||||||||
Dividend paid in respect of current year | 6 | — | — | — | — | (115,605 | ) | — | (115,605 | ) | ||||||||||||||||||||||
Shares issued upon exercise of share option | 691 | 8,498 | (1,957 | ) | — | — | — | 7,232 | ||||||||||||||||||||||||
Equity settled share-based transactions | — | — | 4,652 | — | — | — | 4,652 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At August 31, 2011 | 77,191 | 1,083,495 | 23,759 | 7 | 607,783 | 5,146 | 1,797,381 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Note | Share capital HK$’000 | Share premium HK$’000 | Capital reserve HK$’000 | Capital redemption reserve HK$’000 | Retained profits HK$’000 | Exchange reserve HK$’000 | Total HK$’000 | |||||||||||||||||||||||||
At September 1, 2009 | 66,418 | 681,208 | 23,232 | 7 | 454,802 | 2,860 | 1,228,527 | |||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | — | 216,866 | (97 | ) | 216,769 | ||||||||||||||||||||||||
Dividend paid in respect of previous year | 6 | — | — | — | — | (108,735 | ) | — | (108,735 | ) | ||||||||||||||||||||||
Dividend paid in respect of current year | 6 | — | — | — | — | (49,725 | ) | — | (49,725 | ) | ||||||||||||||||||||||
Shares issued upon exercise of share option | 2,032 | 22,227 | (7,515 | ) | — | — | — | 16,744 | ||||||||||||||||||||||||
Equity settled share-based transactions | — | — | 5,347 | — | — | — | 5,347 | |||||||||||||||||||||||||
Shares issued upon placement | 8,050 | 371,562 | — | — | — | — | 379,612 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At August 31, 2010 | 76,500 | 1,074,997 | 21,064 | 7 | 513,208 | 2,763 | 1,688,539 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to the equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||||||||
Note | Share capital HK$’000 | Share premium HK$’000 | Capital redemption reserve HK$’000 | Retained profits HK$’000 | Revaluation reserve HK$’000 | Fair value reserve HK$’000 | Exchange HK$’000 | Other reserve HK$’000 | Total HK$’000 | Non-controlling interest HK$’000 | Total equity HK$’000 | |||||||||||||||||||||||||||||||||||
At September 1, 2013 | 80,902 | 1,188,005 | 7 | 1,889,487 | 165,156 | (71,109 | ) | — | (1,826 | ) | 3,250,622 | — | 3,250,622 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Loss for the period | — | — | — | (237,002 | ) | — | — | — | — | (237,002 | ) | — | (237,002 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income | 10 | — | — | — | — | — | 41,540 | 1 | — | 41,541 | — | 41,541 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total comprehensive income for the period | — | — | — | (237,002 | ) | — | 41,540 | 1 | — | (195,461 | ) | — | (195,461 | ) | ||||||||||||||||||||||||||||||||
Transition to no-par value regime on March 3, 2014 | 23(a) | 1,188,012 | (1,188,005 | ) | (7 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Revaluation reserve realized upon disposal of an investment property | 15(c) | — | — | — | 5,397 | (5,397 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
At December 31, 2014 | 1,268,914 | — | — | 1,657,882 | 159,759 | (29,569 | ) | 1 | (1,826 | ) | 3,055,161 | — | 3,055,161 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries
Consolidated statements of changes in equity (continued)(Continued)
For the twelve months ended August 31, 2014 and the four months ended December 31, 2014 - unaudited
(Expressed in Hong Kong dollars)
Attributable to the equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||||||||
Note | Share capital HK$’000 | Share premium HK$’000 | Capital redemption reserve HK$’000 | Retained profits HK$’000 | Revaluation reserve HK$’000 | Fair value reserve HK$’000 | Exchange HK$’000 | Other reserve HK$’000 | Total HK$’000 | Non-controlling interest HK$’000 | Total equity HK$’000 | |||||||||||||||||||||||||||||||||||
At September 1, 2013 | 80,902 | 1,188,005 | 7 | 1,889,487 | 165,156 | (71,109 | ) | — | (1,826 | ) | 3,250,622 | — | 3,250,622 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Loss for the period | — | — | — | (163,144 | ) | — | — | — | — | (163,144 | ) | — | (163,144 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income | 10 | — | — | — | — | — | 79,817 | — | — | 79,817 | — | 79,817 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total comprehensive income for the period | — | — | — | (163,144 | ) | — | 79,817 | — | — | (83,327 | ) | — | (83,327 | ) | ||||||||||||||||||||||||||||||||
Transition to no-par value regime on March 3, 2014 | 23(a) | 1,188,012 | (1,188,005 | ) | (7 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Revaluation reserve realized upon disposal of an investment property | 15(c) | — | — | — | 5,397 | (5,397 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
At August 31, 2014/ September 1, 2014 | 1,268,914 | — | — | 1,731,740 | 159,759 | 8,708 | — | (1,826 | ) | 3,167,295 | — | 3,167,295 | ||||||||||||||||||||||||||||||||||
Loss for the period | — | — | — | (73,858 | ) | — | — | — | — | (73,858 | ) | — | (73,858 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income | 10 | — | — | — | — | — | (38,277 | ) | 1 | — | (38,276 | ) | — | (38,276 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total comprehensive income for the period | — | — | — | (73,858 | ) | — | (38,277 | ) | 1 | — | (112,134 | ) | — | (112,134 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
At December 31, 2014 | 1,268,914 | — | — | 1,657,882 | 159,759 | (29,569 | ) | 1 | (1,826 | ) | 3,055,161 | — | 3,055,161 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong Television Network Limited and its subsidiaries
Consolidated statements of changes in equity (Continued)
For the twelve months ended August 31, 2013 and 2012
(Expressed in Hong Kong dollars)
Note | Share capital HK$’000 | Share premium HK$’000 | Capital reserve HK$’000 | Capital redemption reserve HK$’000 | Retained profits HK$’000 | Exchange reserve HK$’000 | Total HK$’000 | |||||||||||||||||||||||||
At September 1, 2008 | 65,062 | 670,717 | 19,013 | — | �� | 275,025 | 2,790 | 1,032,607 | ||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | — | 212,829 | 70 | 212,899 | |||||||||||||||||||||||||
Dividend paid in respect of previous year | 6 | — | — | — | — | (3,108 | ) | — | (3,108 | ) | ||||||||||||||||||||||
Shares issued in respect of scrip dividend of previous year | 6 | 1,221 | 8,685 | — | — | (9,906 | ) | — | — | |||||||||||||||||||||||
Dividend paid in respect of current year | — | — | — | — | (19,904 | ) | — | (19,904 | ) | |||||||||||||||||||||||
Shares issued upon exercise of share option | 142 | 1,806 | (549 | ) | — | — | — | 1,399 | ||||||||||||||||||||||||
Equity settled share-based transactions | — | — | 4,768 | — | — | — | 4,768 | |||||||||||||||||||||||||
Repurchase and cancellation of ordinary shares | (7 | ) | — | — | 7 | (134 | ) | — | (134 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At August 31, 2009 | 66,418 | 681,208 | 23,232 | 7 | 454,802 | 2,860 | 1,228,527 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to the equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||||||||
Note | Share capital HK$’000 | Share premium HK$’000 | Capital reserve HK$’000 | Capital redemption reserve HK$’000 | Retained profits HK$’000 | Revaluation reserve HK$’000 | Fair value reserve HK$’000 | Other reserve HK$’000 | Total HK$’000 | Non-controlling interest HK$’000 | Total equity HK$’000 | |||||||||||||||||||||||||||||||||||
At September 1, 2012 | 80,902 | 1,188,005 | — | 7 | 2,051,149 | 165,156 | — | (1,826 | ) | 3,483,393 | — | 3,483,393 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Loss for the period | — | — | — | — | (40,310 | ) | — | — | — | (40,310 | ) | — | (40,310 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income | 10 | — | — | — | — | — | — | (71,109 | ) | — | (71,109 | ) | — | (71,109 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total comprehensive income for the period | — | — | — | — | (40,310 | ) | — | (71,109 | ) | — | (111,419 | ) | — | (111,419 | ) | |||||||||||||||||||||||||||||||
Final dividend paid in respect of previous period | 9(b) | — | — | — | — | (121,352 | ) | — | — | — | (121,352 | ) | — | (121,352 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
At August 31, 2013 | 80,902 | 1,188,005 | — | 7 | 1,889,487 | 165,156 | (71,109 | ) | (1,826 | ) | 3,250,622 | — | 3,250,622 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Attributable to the equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||||||||
Note | Share capital HK$’000 | Share premium HK$’000 | Capital reserve HK$’000 | Capital redemption reserve HK$’000 | Retained profits HK$’000 | Exchange reserve HK$’000 | Revaluation reserve HK$’000 | Other reserve HK$’000 | Total HK$’000 | Non-controlling interest HK$’000 | Total equity HK$’000 | |||||||||||||||||||||||||||||||||||
At September 1, 2011 | 77,191 | 1,083,495 | 23,759 | 7 | 607,783 | 5,146 | — | — | 1,797,381 | — | 1,797,381 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Profit for the period | — | — | — | — | 3,700,288 | — | — | — | 3,700,288 | (2,414 | ) | 3,697,874 | ||||||||||||||||||||||||||||||||||
Other comprehensive income | 10 | — | — | — | — | — | (5,146 | ) | — | — | (5,146 | ) | — | (5,146 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total comprehensive income for the period | — | — | — | — | 3,700,288 | (5,146 | ) | — | — | 3,695,142 | (2,414 | ) | 3,692,728 | |||||||||||||||||||||||||||||||||
Final dividend paid in respect of previous period | 9(b) | — | — | — | — | (115,901 | ) | — | — | — | (115,901 | ) | — | (115,901 | ) | |||||||||||||||||||||||||||||||
Special dividend paid in respect of current period | 9(a) | — | — | — | — | (2,022,542 | ) | — | — | — | (2,022,542 | ) | — | (2,022,542 | ) | |||||||||||||||||||||||||||||||
Interim dividend paid in respect of current period | 9(a) | — | — | — | — | (119,674 | ) | — | — | — | (119,674 | ) | — | (119,674 | ) | |||||||||||||||||||||||||||||||
Shares issued upon exercise of share options | 3,711 | 104,510 | (33,044 | ) | — | — | — | — | — | 75,177 | — | 75,177 | ||||||||||||||||||||||||||||||||||
Equity settled share-based transactions | 6(d) | — | — | 10,480 | — | — | — | — | — | 10,480 | — | 10,480 | ||||||||||||||||||||||||||||||||||
Share options lapsed | — | — | (1,195 | ) | — | 1,195 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Revaluation of investment properties | — | — | — | — | — | — | 165,156 | — | 165,156 | — | 165,156 | |||||||||||||||||||||||||||||||||||
Contributions from non-controlling interest | — | — | — | — | — | — | — | — | — | 2,450 | 2,450 | |||||||||||||||||||||||||||||||||||
Acquisition of non-controlling interest | — | — | — | — | — | — | — | (1,826 | ) | (1,826 | ) | (36 | ) | (1,862 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
At August 31, 2012 | 80,902 | 1,188,005 | — | 7 | 2,051,149 | — | 165,156 | (1,826 | ) | 3,483,393 | — | 3,483,393 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are integral part of these consolidated financial statements.
City Telecom (H.K.)Hong Kong Television Network Limited and its subsidiaries
Consolidated cash flow statements
(Expressed in Hong Kong dollars)
Note | Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | |||||||||||||||||
(Note 1) | (Note 1) | (Note 1) | ||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||
Net cash (outflow)/inflow from operating activities | 26 | (291,066 | ) | (49,662 | ) | (241,404 | ) | (356,804 | ) | 184,927 | ||||||||||||
Overseas tax paid | — | — | — | — | (3,003 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net cash (outflow)/inflow from operating activities | (291,066 | ) | (49,662 | ) | (241,404 | ) | (356,804 | ) | 181,924 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Investing activities | ||||||||||||||||||||||
Additions of available-for-sale securities | (632,697 | ) | (172,350 | ) | (460,347 | ) | (2,181,277 | ) | — | |||||||||||||
Proceeds from disposal of available-for-sale securities | 244,437 | 30,470 | 213,967 | 155,939 | — | |||||||||||||||||
Proceeds from maturity of available-for-sale securities | 591,983 | 203,672 | 388,311 | — | — | |||||||||||||||||
Acquisition of a subsidiary | (142,343 | ) | — | (142,343 | ) | — | — | |||||||||||||||
Decrease/(increase) in term deposits | 335,329 | 567,908 | (232,579 | ) | 211,659 | (544,040 | ) | |||||||||||||||
Dividend received | 1,825 | 336 | 1,489 | 895 | — | |||||||||||||||||
Interest received | 160,071 | 41,289 | 118,782 | 70,749 | 14,282 | |||||||||||||||||
Proceeds from disposal of Telecom Business (net of cash disposed of) | 3(d) | — | — | — | — | 4,655,367 | ||||||||||||||||
Purchases of fixed assets | (61,347 | ) | (43,509 | ) | (17,838 | ) | (39,394 | ) | (467,840 | ) | ||||||||||||
Proceeds from disposal of fixed assets | 10,000 | 19 | 9,981 | 87 | 24,022 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net cash inflow/(outflow) from investing activities | 507,258 | 627,835 | (120,577 | ) | (1,781,342 | ) | 3,681,791 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net cash inflow/(outflow) before financing activities | 216,192 | 578,173 | (361,981 | ) | (2,138,146 | ) | 3,863,715 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financing activities | ||||||||||||||||||||||
Proceeds from issuance of new shares | — | — | — | — | 75,177 | |||||||||||||||||
Net proceeds from/ (repayment of) bank loans | 270,425 | (61,317 | ) | 331,742 | 531,847 | — | ||||||||||||||||
Repayment of capital element of finance leases | (160 | ) | — | (160 | ) | (85 | ) | (99 | ) | |||||||||||||
Interest element of finance leases | (3 | ) | — | (3 | ) | (9 | ) | (19 | ) | |||||||||||||
Interest paid on bank loans | (7,232 | ) | (2,043 | ) | (5,189 | ) | (2,402 | ) | — | |||||||||||||
Other borrowing cost paid | (6,017 | ) | (1,756 | ) | (4,261 | ) | (4,235 | ) | (7,134 | ) | ||||||||||||
Acquisition of non-controlling interest | — | — | — | — | (1,862 | ) | ||||||||||||||||
Dividends paid | — | — | — | (121,354 | ) | (2,257,812 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net cash inflow/(outflow) from financing activities | 257,013 | (65,116 | ) | 322,129 | 403,762 | (2,191,749 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Hong Kong Television Network Limited and its subsidiaries
Consolidated cash flow statements
(Expressed in Hong Kong dollars)
For the year ended August 31, | ||||||||||||||||
Note | 2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | |||||||||||||
Net cash inflow from operations | 23 | (a) | 588,911 | 488,353 | 538,503 | |||||||||||
Hong Kong profits tax paid | — | (456 | ) | — | ||||||||||||
Overseas tax paid | (3,012 | ) | (2,557 | ) | (1,732 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Net cash inflow from operating activities | 585,899 | 485,340 | 536,771 | |||||||||||||
|
|
|
|
|
| |||||||||||
Investing activities | ||||||||||||||||
Decrease in pledged bank deposits | — | 15,038 | 72,281 | |||||||||||||
Interest received | 3,059 | 11,372 | 4,869 | |||||||||||||
Purchases of fixed assets | (437,477 | ) | (349,076 | ) | (289,938 | ) | ||||||||||
Net proceeds from maturity of investment in debt securities | — | — | 28,051 | |||||||||||||
Proceeds from disposal of fixed assets | 20,229 | 16,412 | 8,249 | |||||||||||||
|
|
|
|
|
| |||||||||||
Net cash outflow from investing activities | (414,189 | ) | (306,254 | ) | (176,488 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Net cash inflow before financing activities | 171,710 | 179,086 | 360,283 | |||||||||||||
|
|
|
|
|
| |||||||||||
Financing activities | ||||||||||||||||
Repurchase of ordinary shares | — | — | (134 | ) | ||||||||||||
Proceeds from issuance of new shares | 23 | (b) | 7,232 | 396,356 | 1,399 | |||||||||||
Proceeds from new bank loans | — | 163,375 | — | |||||||||||||
Repayment of bank loan | (125,000 | ) | (40,000 | ) | — | |||||||||||
Repayment of capital element of finance leases | 23 | (b) | (212 | ) | (217 | ) | (138 | ) | ||||||||
Interest element of finance leases | (30 | ) | (42 | ) | (27 | ) | ||||||||||
Interest paid on bank loans | (1,152 | ) | (1,166 | ) | — | |||||||||||
Other borrowing costs paid | (4,638 | ) | (3,260 | ) | (885 | ) | ||||||||||
Interest paid on 10-year senior notes | — | (5,881 | ) | (52,670 | ) | |||||||||||
Repurchase of 10-year senior notes | 23 | (b) | — | (172,423 | ) | (485,829 | ) | |||||||||
Dividends paid | (219,312 | ) | (158,435 | ) | (23,008 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Net cash (outflow)/inflow from financing activities | (343,112 | ) | 178,307 | (561,292 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
(Decrease)/increase in cash and cash equivalent | (171,402 | ) | 357,393 | (201,009 | ) | |||||||||||
Cash and cash equivalent at September 1 | 578,175 | 221,052 | 421,610 | |||||||||||||
Effect of foreign exchange rate changes | 1,358 | (270 | ) | 451 | ||||||||||||
|
|
|
|
|
| |||||||||||
Cash and cash equivalent at August 31 | 408,131 | 578,175 | 221,052 | |||||||||||||
|
|
|
|
|
| |||||||||||
Analysis of the balances of cash and cash equivalents | ||||||||||||||||
Cash at bank and in hand | 408,976 | 588,665 | 226,416 | |||||||||||||
Bank overdrafts — unsecured | (845 | ) | (10,490 | ) | (5,364 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
408,131 | 578,175 | 221,052 | ||||||||||||||
|
|
|
|
|
|
Note | Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | |||||||||||||||||
(Note 1) | (Note 1) | (Note 1) | ||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||
Increase/(decrease) in cash and cash equivalents | 473,205 | 513,057 | (39,852 | ) | (1,734,384 | ) | 1,671,966 | |||||||||||||||
Cash and cash equivalent at the beginning of the period | 347,849 | 305,221 | 347,849 | 2,080,053 | 408,131 | |||||||||||||||||
Effect of foreign exchange rate changes | (1,868 | ) | 908 | (2,776 | ) | 2,180 | (44 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash and cash equivalent at the end of the period | 819,186 | 819,186 | 305,221 | 347,849 | 2,080,053 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Analysis of the balances of cash and cash equivalents | ||||||||||||||||||||||
Cash at bank and in hand | 20(b) | 819,186 | 819,186 | 305,221 | 347,849 | 2,083,079 | ||||||||||||||||
Bank overdrafts - unsecured | — | — | — | — | (3,026 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
819,186 | 819,186 | 305,221 | 347,849 | 2,080,053 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
The accompany notes are integral part of these consolidated financial statements.
1 |
City Telecom (H.K.)Hong Kong Television Network Limited (the “Company”) was incorporated in Hong Kong on May 19, 1992 under the Hong Kong Companies Ordinance. City Telecom (H.K.Pursuant to a resolution of the Board dated August 29, 2014, the Company’s financial year end date has been changed from August 31 to December 31 in order to unify the financial year end dates of the Company and its subsidiaries and align with the business cycle of the Group’s potential customers in the e-commerce retail industry and the multimedia advertising industry. Accordingly, the consolidated financial statements for the current financial period cover a period of sixteen months from September 1, 2013 to December 31, 2014. The figures presented for the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement and related notes cover the financial year from September 1, 2012 to August 31, 2013 (“Fiscal 2013”) Limitedand financial year from September 1, 2011 to August 31, 2012 (“Fiscal 2012”). As the Fiscal 2013 and Fiscal 2012 figures are not directly comparable with those of current financial period, financial information for the twelve months ended August 31, 2014 and the four months ended December 31, 2014 (“Supplementary financial information”), prepared in accordance with International Financial Reporting Standards, has been disclosed to enhance comparability. The Supplementary financial information has not been audited.
2 | Significant accounting policies |
(a) | Statement of compliance |
The Company and its subsidiaries (collectively referred to as the “Group”) are engaged in the provision of international telecommunicationsmultimedia business, including but not limited to the offer of free TV programme through Over-The-Top (“OTT”) platform, multimedia and drama productions, content distribution, online shopping mall operation and other related services and fixed telecommunications network services to customers in Hong Kong and Canada.(“Multimedia Business”).
The accompanying consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretations issued by the IASB.
The IASB has issued a number acertain new orand revised IFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. None of theseGroup.
Note 2(c) provides information on any changes in accounting policies would have a material impact onresulting from initial application of those developments to the Group’sextent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 31).
Theaccompanying consolidated financial statements were authorized for issue by the Board of Directors on December 19, 2011.April 29, 2015.
(b) | Basis of preparation of the financial statements |
The measurement basis used in the preparation of the financial statements is the historical cost basis except that investments in available-for-sale securities, investment properties and certain financial assets and liabilities are stated at their fair values or amortized costs as explained in the accounting policies set out below (see notes 1(j)2(f), 1(l)2(g), 1(q)2(l), 2(n), 2(s) and 1(r)2(t)).
The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances but are inherently uncertain and unpredictable, the results of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgments made by management in the application of IFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in note 30.notes 7, 15 and 27.
(c) | Change in accounting policies |
The IASB has issued a number of new IFRSs, which term collectively includes all applicable individual IFRSs, IASs and Interpretations and amendments to IFRSs, that are first effective for the current accounting period of the Group. Of these, the following developments are relevant to the Group’s financial statements:
– | IFRS 13, Fair value measurement |
– | Amendments to IFRS 7, Financial Instruments: Disclosures – Offsetting financial assets and financial liabilities |
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.
IFRS 13, Fair value measurement
IFRS 13 replaces existing guidance in individual IFRSs with a single source of fair value measurement guidance. IFRS 13 also contains extensive disclosure requirements about fair value measurements for both financial instruments and non-financial instruments. The Group has provided those disclosures in notes 15 and 27. The adoption of IFRS 13 does not have any material impact on the fair value measurements of the Group’s assets and liabilities.
Amendments to IFRS 7, Financial Instruments: Disclosures –Offsetting financial assets and financial liabilities
The amendments introduce new disclosures in respect of offsetting financial assets and financial liabilities. Those new disclosures are required for all recognized financial instruments that are set off in accordance with IAS 32, Financial instruments: Presentation and those that are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments and transactions, irrespective of whether the financial instruments are set off in accordance with IAS 32.
The adoption of the amendments does not have an impact on the Group’s financial statements because the Group has not offset financial instruments, nor has it entered into any master netting arrangement or similar agreement which is subject to the disclosure requirements of IFRS 7.
(d) | Subsidiaries and controlled entities |
Subsidiaries are entities controlled by the Group. Control existsThe Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the power to govern the financialGroup and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presentlyother parties) are exercisable are taken into account.
Group accounting |
(i) | Consolidation |
An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases.
Intra-group balances and transactions and cash flows and any unrealized profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealized losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment.
Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability.
Non-controlling interests are presented in the consolidated balance sheets within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company.
Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests and no gain or loss is recognized.
When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognized of an investment in an associate or jointly venture.
(ii) | Translation of foreign currencies |
Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in profit or loss.
For consolidation purposes, the balance sheetsThe results of subsidiaries denominated in foreign currenciesoperations are translated at the rates of exchange ruling at the balance sheet date whilst the income statement is translatedinto Hong Kong dollars at an average rate for the year. ExchangeBalance sheet items are translated into Hong Kong dollars at the closing foreign exchange rates at the balance sheet date. The resulting exchange differences are dealt with as a movementrecognized in reserves.
The accompanying consolidated financial statements are presentedother comprehensive income and accumulated separately in Hong Kong Dollars, which isequity in the Group’s functional currency. All financial information have been rounded to the nearest thousand.
Goodwill represents the excess of
When (ii) is greater than (i), then this excess is recognized immediately in profit or loss as a gain on a bargain purchase.
Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash-generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 1(i)).exchange reserve.
On disposal of a cash-generating unit duringforeign operation, the year, any attributablecumulative amount of purchased goodwillthe exchange differences relative to that foreign operation is included in the calculation ofreclassified from equity to profit or loss when the profit or loss on disposal.disposal is recognized.
(f) | Investments in debt and equity securities |
The Group’s policies for investments in debt and equity securities, are as follows:
Investments in debt and equity securities are initially stated at fair value, which is their transaction price unless it is determined that the fair value at initial recognition differs from the transaction price and that fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. These investments are subsequently accounted for as follows, depending on their classification:
Investments in securities held for trading are classified as current assets. Any attributable transaction costs are recognized in profit or loss as incurred. At the balance sheet date the fair value is remeasured, with any resultant gain or loss being recognized in profit or loss. The net gain or loss recognized in profit or loss does not include any dividends or interest earned on these investments as these are recognized in accordance with the policies set out in notes 2(u)(v) and 2(u)(vii).
Dated debt securities that the Group and/or the Company have the positive ability and intention to hold to maturity are classified as held-to-maturity securities. Held-to-maturity securities are stated at amortized cost less impairment losses (see note 2(k)).
Investments in securities which do not fall into any of the above categories are classified as available-for-sale securities. At the balance sheet date the fair value is remeasured, with any resultant gain or loss being recognized in other comprehensive income and accumulated separately in equity in the fair value reserve. As an exception to this, investments in equity securities that do not have a quoted price in an active market for an identical instrument and whose fair value cannot otherwise be reliably measured are recognized in the balance sheet at cost less impairment losses (see note 2(k)). Dividend income from equity securities and interest income from debt securities calculated using the effective interest method are recognized in profit or loss in accordance with the policies set out in notes 2(u)(v) and 2(u)(vii) respectively. Foreign exchange gains and losses resulting from changes in the amortized cost of debt securities are also recognized in profit or loss.
When the investments are derecognized or impaired (see note 2(k)), the cumulative gain or loss recognized in equity is reclassified to profit or loss. Investments are recognized/derecognized on the date the Group commits to purchase /sell the investments or they expire.
(g) | Investment property |
Investment properties are land and/or buildings which are owned and held to earn rental income and/or for capital appreciation.
Investment properties are stated at fair value, unless they are still in the course of construction or development at the balance sheet date and their fair value cannot be reliably measured at cost less accumulated depreciation (see note 1(g)) and impairment losses (see note 1(i)) if any.that time. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognized in the income statement.profit or loss. Rental income from investment properties is accounted for as described in note 2(u)(vi).
When the Group holds a property interest under an operating lease to earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for in accordance withas if it were held under a finance lease (see note 2(j)), and the same accounting policypolicies are applied to that interest as set outare applied to other investment properties leased under finance leases. Lease payments are accounted for as described in note 1(s)(v)2(j).
Fixed assets |
(i) | Construction in progress |
Construction in progress was carried at cost, which includes development and construction expenditure incurred and interest and direct costs attributable to the development less any accumulated impairment loss (note 1(i)(see note 2(k)) as considered necessary by the directors. No depreciation wasis provided for construction in progress. OnUpon completion, the associated costs wereare transferred to leasehold land and building.buildings.
(ii) | Other fixed assets |
Other fixed assets, comprising building,buildings, leasehold improvements, telecommunications,broadcasting and production equipment, network, computer and office equipment, furniture, fixtures and fittings and motor vehicles, are stated at cost less accumulated depreciation and accumulated impairment losses (note 1(i)(see note 2(k)).
Depreciation is calculated to write off the cost of items of property, plant and equipment,fixed assets, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:
Buildings situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives of 50 years
• Buildings situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives of 50 years | ||||||||||||||||||||
• Furniture, fixtures and fittings | 4 years | |||||||||||||||||||
• | 2 - 10 years |
• Network, computer and office equipment | 4 | |||||||||||||||||||
• Motor vehicles | 4 years | |||||||||||||||||||
• Leasehold improvements are depreciated over the shorter of the unexpired term of the leases and their estimated useful lives | ||||||||||||||||||||
• Leasehold land classified as held under finance leases is depreciated over the unexpired term of leases |
Leasehold improvements are depreciated over the shorter of the unexpired term of the leases and their estimated useful lives
Leasehold land classified as held under finance leases is depreciated over the unexpired term of leases
Investment properties situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives of 50 years
Where the parts of an item of property, plant and equipmentfixed assets have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.
Major costs incurred in restoring fixed assets to their normal working condition are charged to profit or loss. Major improvements are capitalized and depreciated over their expected useful lives to the Group.
The gain or loss on disposal of a fixed asset is the difference between the net salesdisposal proceeds and the carrying amount of the relevant asset, and is recognized in profit or loss on the date of disposal.
Intangible assets that are acquired by the Group are stated at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses (see note 2(k)).
Amortization of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortized from the date they are available for use and their estimated useful lives are as follows:
• Indefeasible right of use (“IRU”) of telecommunications capacity | 20 years | |||||||||||||||||||||||
• Right to use of telecommunications services | 10 years | |||||||||||||||||||||||
• Mobile television broadcast spectrum | 12 years |
Both the period and method of amortization are reviewed annually.
Assets held under leases |
An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.
(i) | Classification of assets leased to the Group |
Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.leases, with the following exceptions:
Land held for own use under an operating lease for which its fair value cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease (see note 1(h)(iii)).
- | property held under operating leases that would otherwise meet the definition of an investment property is classified as investment property on a property-by-property basis and, if classified as investment property, is accounted for as if held under a finance lease (see note 2(g)); and |
- | land held for own use under an operating lease for which its fair value cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. For these purposes, the inception of the lease is the time that the lease was first entered into by the Group, or taken over from the previous lessee. |
(ii) | Finance leases |
Where the Group acquiredacquires the use of assets under finance leases, the amounts representing the fair value of the leased asset or, if lower, the present value of the minimum lease payments of such assets, are included in fixed assets with the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation and impairment losses are accounted for in accordance with the accounting policy as set out in note 1(g)2(h) and note 1(i)2(k). Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period.
(iii) | Operating leases |
Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Receipts and payments made under operating leases net of any incentives received by/from the lessor are credited/charged to profit or loss on a straight-line basis over the lease periods.
Impairment of assets |
(i) | Impairment of investments in debt and equity securities and accounts and other receivables |
Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortized cost or are classified as available-for-sale securities are reviewed at the end of each reporting periodbalance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:
significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganization;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
If any such evidence exists, any impairment loss is determined and recognized as follows:
For trade and other current receivables and other financial assets carried at amortized cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assetsassets), where the effect of discounting is material).material. This assessment is made collectively where financial assets carried at amortized cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.
If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognized, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognized in prior years.
For available-for-sale securities, the cumulative loss that has been recognized in the fair value reserve is classified to profit or loss. The amount of the cumulative loss that is recognized in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that asset previously recognized in profit or loss.
Impairment losses recognized in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognized directly in other comprehensive income.
Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognized. Reversals of impairment losses in such circumstances are recognized in profit and loss.
Impairment losses are written off against the corresponding assets directly, except for impairment losses recognized in respect of accounts receivable,trade debtors, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against accounts receivabletrade debtors directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognized in profit or loss.
(ii) | Impairment of other assets |
Internal and external sources of information are reviewed at the end of each reporting periodbalance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognized no longer exists or may have decreased:
fixed assets;
investment property; and
goodwill.intangible assets.
If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment.
Calculation of recoverable amount
The recoverable amount of an asset is the greater of its fair value less costs to sellof disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).
Recognition of impairment losses
An impairment loss is recognized in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell,disposal (if measurable) or value in use if determinable.(if determinable).
Reversals of impairment losses
In respect of assets other than goodwill, anAn impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.
A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognized in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognized.
(iii) | Interim financial reporting and impairment |
Under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, the Group is required to prepare an interim financial report in compliance with IAS 34/HKAS 34,Interim financial reporting , in respect of the first six months and twelve months of the financial year. At the end of the interim period,periods, the Group applies the same impairment testing, recognition and reversal criteria as it would at the end of the financial yearperiod (see note 1(i)notes 2(k)(i) and 1(i)2(k)(ii)).
Impairment losses recognized in an interim period in respect of goodwill, available-for-sale equity securities and unquoted equity securities carried at costscost are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognized had the impairment been assessed only at the end of the financial year to which the interim period relates. Consequently, if the fair value of an available-for-sale equity security increases in the remainder of the annual period, or in any other period subsequently, the increase is recognized in other comprehensive income and not profit or losses.
Derivative financial instruments |
Derivative financial instruments are recognized initially at fair value. At each balance sheet date, the fair value is remeasured. The gain or loss on remeasurement to fair value is recognized immediately in profit or loss, except where the derivatives qualify for cash flow hedge accounting or hedge of a net investment in a foreign operation, in which case recognition of any resultant gain or loss depends on the nature of the item being hedged. For the years presented in the consolidated financial statements, none of the Group’s derivative financial instruments qualify as hedges or hedge accounting.
Deferred expenditure represents customer acquisition costs incurred for successful acquisition or origination of a service subscription agreement with a customer. SuchProgramme costs are deferredstated at cost less amounts expensed and amortizedany provision considered necessary by management. Programme costs are charged to the profit or loss based on a straight-line basis over the periodbroadcasting schedule of the underlying service subscription agreements.programme reflecting the pattern of consumption of their economic benefits.
Self-produced programmes
Self-produced programmes consist primarily of drama, infotainment and variety programmes. Cost of self-produced programmes comprises direct production cost and an appropriate proportion of production overheads.
Purchased programmes
Purchased programmes consist film rights acquired for showing on the Group’s television platform. Cost of purchased programme comprises cost of purchase, cost of conversion and an appropriate proportion of production overheads.
Accounts |
Trade and other receivables are initially recognized at fair value and thereafter stated at amortized cost less allowance for impairment of doubtful debts (see note 1(i)2(k)(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment of doubtful debts (see note 1(i)2(k)(i)).
Cash and cash equivalents |
Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.
Financial guarantees issued, provisions and contingent liabilities |
(i) | Financial guarantees issued |
Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognized as deferred income within trade and other payables. The fair value of financial guarantees issued at the time of issuance is determined by reference to fees charged in an arm’s length transaction for similar services. When such information is obtainable, or is otherwise estimated by reference to interest rate differentials, by comparing the actual rates charged by lenders when the guarantee is made available with the estimated rates that lenders would have charged, had the guarantees not been available, where reliable estimates of such information can be made. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognized in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognized in profit or loss on initial recognition of any deferred income. The amount of the guarantee initially recognized as deferred income is amortized in profit or loss over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognized in accordance with note 1(n)2(p)(ii) if and when (i) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in respect of that guarantee i.e. the amount initially recognized, less accumulated amortization.
(ii) | Other provisions and contingent liabilities |
Provisions are recognized for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
Talent benefits |
(i) | Leave entitlements |
Entitlements to annual leave and long service leave are recognized when they accrue to individuals employed by the Group hereinafter (referred to as “Talents”), including directors of the Company. A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by Talents up to the balance sheet date. Entitlements to sick leave and maternity or paternity leave are not recognized until the time of leave.
(ii) | Profit sharing and bonus plans |
Provisions for profit sharing and bonus plans are recognized when the Group has a present legal or constructive obligation as a result of services rendered by Talents and a reliable estimate of the obligation can be made.
(iii) | Retirement benefit costs |
The Group contributes to defined contribution retirement schemes which are available to certain Talents. Contributions to the schemes by the Group are calculated as a percentage of Talents’ basic salaries and charged to profit or loss. The Group’s contributions are reduced by contributions forfeited by those Talents who leave the scheme prior to vesting fully in the contributions.
The assets of the scheme are held in an independently administered fund that is separated from the Group’s assets.
(iv) | Share-based payments |
The fair value of share options granted to Talents or directors is recognized as an Talent cost with a corresponding increase in capital reserve within equity. The fair value is measured at grant date using the Black-Scholes option pricing model or Monte Carlo model, taking into account the terms and conditions upon which the options were granted. Where the Talents have to meet vesting conditions before becoming unconditionally entitled to the share options, the total estimated fair value of the share options is spread over the vesting period, taking into account the probability that the options will vest.
During the vesting period, the number of share options that is expected to vest is reviewed. Any adjustment to the cumulative fair value recognized in prior years is charged/credited to profit or loss, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s shares. The amount related to share options expense is recorded in the capital reserve until either the option is exercised or the option expires.
Income tax |
Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in profit or loss except to the extent that they relate to business combinations, or items recognized in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive income or directly in equity, respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilized, are recognized. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilized.
The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.
TheWhere investment properties are carried at their fair value in accordance with the accounting policy set out in note 2(g), the amount of deferred tax recognized is measured using the tax rates that would apply on sale of those assets at their carrying value at the balance sheet date unless the property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the property over time, rather than through sale. In all other cases, the amount of deferred tax recognized is measured based on the expected manner of realization or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.
The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.
Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:
in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
the same taxable entity; or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realize the current tax assets and settle the current tax liabilities on a net basis or realize and settle simultaneously.
Interest-bearing borrowings |
Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, the interest-bearing borrowings are stated at amortized cost with the difference between amortized cost and redemption value recognized in profit or loss over the period of borrowings using the effective interest method.
Trade and other payables |
Trade and other payables are initially recognized at fair value. Except for financial guarantee liabilities measured in accordance with note 1(n)2(p), trade and other payables are subsequently stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.
Revenue recognition |
(i) | Advertising income, net of agency deductions, is recognized when the advertisements are delivered through the Group’s OTT platform. |
(ii) | Revenue for licensing of programme rights is recognized over the contract period or upon delivery of the programmes concerned in accordance with the terms of the contracts. |
(iii) | Artiste management fee income is recognized when the services are rendered. |
(iv) | E-commerce income primarily comprised of commission income and revenue from merchandise sales. Commission income are recognized for transactions where the Group is not the primary obligor, is not subject to inventory risk, and does not have latitude in establishing prices and selecting suppliers. Commission income are recognized on a net basis which is based on a fixed percentage of the sales amount. Revenue from merchandise sales and related costs are recognized on a gross basis when the Group acts as a principal. |
Commission income and revenue from merchandise sales are recognized when the customer has accepted the goods and the related risks and rewards of ownership.
(v) | Interest income is recognized as it accrues using the effective interest method. |
(vi) | Rental income receivable under operating leases is recognized in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the platform of benefits to be derived from the leased assets. Lease incentives granted are recognized in profit or loss as an integral part of the aggregate net lease payments receivable. |
(vii) | Dividend income from unlisted investments is recognized when the shareholder’s right to receive payment is established. Dividend income from listed investments is recognized when the share price of the investment goes ex-dividend. |
(viii) | Revenue for the provision of international |
Tariff-free period granted to subscribers of fixed |
Amount received in advance for the provision of fixed telecommunications network services is deferred and included under deferred service revenue, and subsequently recognized as revenue on a straight-line basis over the related service period. |
Borrowing costs |
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of that asset.
All other borrowing costs are charged to profit or loss in the year in which they are incurred.
Discontinued operations |
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business. Classification as a discontinued operation occurs upon disposal.
Where an operation is classified as discontinued, a single amount is presented on the face of the income statement, which comprises:
the post-tax profit or loss of the discontinued operation; and
the post-tax gain or loss recognized on the disposal of the assets or disposal group constituting the discontinued operation.
(x) | Segment reporting |
Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s two lines of business.
Geographical information is not presented as the majority of the Group’s revenue is attributed to customersoperations are conducted in Hong Kong and the majority of the assets are located in Hong Kong.
When goods or services are exchanged for goods or services which are of a similar nature and value, the exchange is not regarded as a revenue generating transaction.
When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services rendered, adjusted by the amount of any cash or cash equivalents transferred.
Related parties |
For the purposes of these financial statements, a party is considered to be related to the Group if:
(a) | A person, or a close member of that person’s family, is related to the Group if that person: |
(i) |
(ii) | has significant influence over the |
(iii) |
(b) | An entity is related to the Group if any of the following conditions applies: |
(i) | The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). |
(ii) | One entity is an associate or joint venture of the other entity (or an associate or joint venture of a |
(iii) | Both entities are joint ventures of the same third party. |
(iv) | One entity is a joint venture of a third entity and the other entity is an |
(v) |
(vi) | The entity is controlled or jointly controlled by a person identified in (a). |
(vii) | A person identified in (a)(i) has significant influence over the |
Close family members of an individualthe family of a person are those family members who may be expected to influence, or be influenced by, that individualperson in their dealings with the entity.
3 | Discontinued operations |
On March 31, 2012, the Group entered into a Sales and Purchase Agreement with a third party (the “Purchaser”) to dispose of the Group’s International Telecommunications Services and Fixed Telecommunications Network Service businesses (the “Telecom Business”) (the “Disposal”). The consideration for the Disposal comprised of cash consideration of HK$4,873,649,000 on a cash-free, debt-free basis. As part and parcel of the Disposal, the Telecom Business grant an intangible asset, including indefeasible right of use (“IRU”) of the telecommunications capacity and right to use of telecommunications services to the Group upon the completion of Disposal. The Disposal was completed on May 30, 2012. The operating results of the disposed Telecom Business up to the disposal date have been presented as discontinued operations in the twelve months ended August 31, 2012.
The results of the discontinued operations included in the consolidated financial statements for the twelve months ended August 31, 2012 are as follows: |
Twelve months ended August 31, 2012 | ||||||
Note | HK$’000 | |||||
Turnover | 4 | 1,433,775 | ||||
Network costs and cost of sales | 5 | (277,028 | ) | |||
Other operating expenses | 6(a) | (860,946 | ) | |||
Other income, net | 6(b) | 3,638 | ||||
Finance costs, net | 6(c) | 574 | ||||
|
| |||||
Profit before taxation | 300,013 | |||||
Income tax expense | 8 | (48,407 | ) | |||
|
| |||||
Profit after taxation | 251,606 | |||||
Gain on sale of discontinued operations | 3(c) | 3,520,088 | ||||
|
| |||||
Profit from discontinued operations | 3,771,694 | |||||
|
|
(b) | The cash flows of the discontinued operations for the twelve months ended August 31, 2012 are as follows: |
Twelve months ended August 31, 2012 | ||||
HK$’000 | ||||
Net cash inflow from operating activities | 414,695 | |||
Net cash inflow from investing activities | 4,336,661 | |||
Net cash outflow from financing activities | (211,887 | ) | ||
Net cash inflow from discontinued operations | 4,539,469 | |||
(c) | Effect of Disposal on the financial position of the Group: |
Twelve months ended August 31, 2012 | ||||||
Note | HK$’000 | |||||
Net assets disposed of: | ||||||
Goodwill | 1,066 | |||||
Fixed assets | 1,601,528 | |||||
Long term receivable and prepayment | 4,533 | |||||
Deferred expenditure | 36,978 | |||||
Accounts receivable | 75,481 | |||||
Other receivables, deposits and prepayments | 165,161 | |||||
Cash at bank and in hand | 42,357 | |||||
Bank overdrafts - unsecured | (7,529 | ) | ||||
Accounts payable | (19,221 | ) | ||||
Other payables and accrued charges | (147,364 | ) | ||||
Deposits received | (20,946 | ) | ||||
Tax payable | (1,721 | ) | ||||
Deferred tax liabilities | (157,102 | ) | ||||
Deferred services revenue | (81,241 | ) | ||||
Obligations under finance leases | (49 | ) | ||||
|
| |||||
1,491,931 | ||||||
|
| |||||
Satisfied by: | ||||||
Cash consideration | (4,873,649 | ) | ||||
Grant of intangible assets including IRU of the telecommunications capacity and right to use of telecommunications services | (316,943 | ) | ||||
Exchange reserve realized upon disposal of Telecom Business | 10 | (4,881 | ) | |||
Transaction costs | 183,454 | |||||
|
| |||||
Gain on sale of discontinued operations | (3,520,088 | ) | ||||
|
|
No provision for Hong Kong Profits Tax has been made for the gain on sale of discontinued operations.
(d) | Analysis of the net cash inflow in respect of the Disposal: |
Twelve months ended August 31, 2012 | ||||
HK$’000 | ||||
Cash consideration | 4,873,649 | |||
Transaction costs | (183,454 | ) | ||
Cash and cash equivalents disposed of | (34,828 | ) | ||
Net cash inflow | 4,655,367 | |||
4 | Turnover and segment information |
The Group is principally engaged in the provision of multimedia business, including but not limited to the offer of free TV programming through OTT platform, multimedia and drama productions, contents distribution, online shopping mall operation and other related services.
Prior to the Disposal, the Group was also engaged in the provision of international telecommunications services and fixed telecommunications network services to customers in Hong Kong and Canada. RevenuesCanada which have been classified as discontinued operations in the twelve months ended August 31, 2012.
Turnover
The amount of each significant category of revenue recognized in turnover during the year areperiods is as follows:
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Turnover | ||||||||||||
International telecommunications services | 197,134 | 218,589 | 247,359 | |||||||||
Fixed telecommunications network services (note 2(b)) | 1,484,324 | 1,356,098 | 1,230,880 | |||||||||
|
|
|
|
|
| |||||||
1,681,458 | 1,574,687 | 1,478,239 | ||||||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Continuing operations | ||||||||||||||||||||
Licensing of programme rights and net advertising income | 20,612 | 20,542 | 70 | 6,745 | 3,762 | |||||||||||||||
Artiste Management services | 924 | 318 | 606 | 277 | — | |||||||||||||||
Others (Note) | 1,491 | 776 | 715 | 780 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
23,027 | 21,636 | 1,391 | 7,802 | 3,762 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Discontinued operations | ||||||||||||||||||||
International telecommunications services | — | — | — | — | 134,645 | |||||||||||||||
Fixed telecommunications network services | — | — | — | — | 1,299,130 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | 1,433,775 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
23,027 | 21,636 | 1,391 | 7,802 | 1,437,537 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Segmental Information
For the sixteen months ended December 31, 2014, four months ended December 31, 2014, twelve months ended August 31, 2014 and 2013
In a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for purposes of resource allocation and performance assessment, the Group has only identified one business segment i.e. Multimedia Business. In addition, the majority of the Group’s operations are conducted in Hong Kong and majority of the assets are located in Hong Kong. Accordingly, no operating or geographical segment information is presented.
For the twelve months ended August 31, 2012
Prior to the Disposal, the Group had two reportable business segments – international telecommunication services and fixed telecommunications network services. As a result of the Disposal, the Group has one reportable business segment – Multimedia Business.
The Group is organized on a worldwide basis into two business segments:
| ||||||
– | Multimedia services and others | : | provision of multimedia production and distribution and other multimedia related activities | |||
Discontinued operations: | ||||||
– | International telecommunications | : | provision of international long distance calls services | |||
| Fixed telecommunications network | : | provision of dial up and broadband Internet access services, |
The Group’s inter-segment transactions mainly consistconsisted of provision of leased lines services.services and licensing of programme right. These transactions were entered into on similar terms as those contracted with third parties.
Twelve months ended August 31, 2012 | ||||||||||||||||||||||||||||||||||||
2011 | Continuing operations | Discontinued operations | ||||||||||||||||||||||||||||||||||
International tele- communications services | Fixed tele- communications network services HK$’000 | Elimination HK$’000 | Group HK$’000 | Multimedia services and others HK$’000 | International telecommunications services HK$’000 | Fixed telecommunications network services HK$’000 | Elimination HK$’000 | Group HK$’000 | ||||||||||||||||||||||||||||
Turnover | ||||||||||||||||||||||||||||||||||||
- External sales | 197,134 | 1,484,324 | — | 1,681,458 | 3,762 | 134,645 | 1,299,130 | — | 1,437,537 | |||||||||||||||||||||||||||
- Inter-segment sales | 3,814 | 14,837 | (18,651 | ) | — | 1,100 | 698 | 10,530 | (12,328 | ) | — | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
200,948 | 1,499,161 | (18,651 | ) | 1,681,458 | 4,862 | 135,343 | 1,309,660 | (12,328 | ) | 1,437,537 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Segment results | 65,832 | 306,147 | 371,979 | (107,204 | ) | 32,555 | 263,246 | 188,597 | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
Other net income, excluding interest income | 3,883 | |||||||||||||||||||||||||||||||||||
Interest income | 3,366 | |||||||||||||||||||||||||||||||||||
Finance costs | (6,359 | ) | ||||||||||||||||||||||||||||||||||
Other net income | 6,317 | |||||||||||||||||||||||||||||||||||
Valuation gains on investment properties | 18,200 | |||||||||||||||||||||||||||||||||||
Gain on sale of discontinued operations | 3,520,088 | |||||||||||||||||||||||||||||||||||
Bank interest income | 17,241 | |||||||||||||||||||||||||||||||||||
Finance costs, net | (1,881 | ) | ||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Profit before taxation | 372,869 | 3,748,562 | ||||||||||||||||||||||||||||||||||
Income tax expense | (58,954 | ) | (50,688 | ) | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net profit | 313,915 | |||||||||||||||||||||||||||||||||||
Profit for the year | 3,697,874 | |||||||||||||||||||||||||||||||||||
|
|
August 31, 2012 | ||||||||||||||||
Continuing operations | Discontinued operations | |||||||||||||||
Multimedia services and others HK$’000 | International telecommunications services HK$’000 | Fixed telecommunications network services HK$’000 | Group HK$’000 | |||||||||||||
Segment assets | 2,755,116 | — | — | 2,755,116 | ||||||||||||
Term deposits | 544,040 | |||||||||||||||
Investment properties | 238,200 | |||||||||||||||
|
| |||||||||||||||
Total assets | 3,537,356 | |||||||||||||||
|
| |||||||||||||||
Segment liabilities | 51,682 | — | — | 51,682 | ||||||||||||
Tax payable | 935 | |||||||||||||||
Deferred tax liabilities | 1,346 | |||||||||||||||
|
| |||||||||||||||
Total liabilities | 53,963 | |||||||||||||||
|
| |||||||||||||||
Capital expenditure incurred during the year | 178,750 | 3,665 | 279,978 | 462,393 | ||||||||||||
Depreciation for the year | 4,636 | 7,021 | 174,248 | 185,905 |
2010 | ||||||||||||||||
International tele- communications services HK$’000 | Fixed tele- communications network services HK$’000 | Elimination HK$’000 | Group HK$’000 | |||||||||||||
Turnover | ||||||||||||||||
- External sales | 218,589 | 1,356,098 | — | 1,574,687 | ||||||||||||
- Inter-segment sales | 5,673 | 16,673 | (22,346 | ) | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
224,262 | 1,372,771 | (22,346 | ) | 1,574,687 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment results | 54,173 | 219,618 | 273,791 | |||||||||||||
|
|
|
| |||||||||||||
Other net income, excluding interest income | (3,383 | ) | ||||||||||||||
Interest income | 11,372 | |||||||||||||||
Finance costs | (22,235 | ) | ||||||||||||||
|
| |||||||||||||||
Profit before taxation | 259,545 | |||||||||||||||
Income tax expense | (42,679 | ) | ||||||||||||||
|
| |||||||||||||||
Net profit | 216,866 | |||||||||||||||
|
|
2009 | ||||||||||||||||
International tele- communications services HK$’000 | Fixed tele- communications network services HK$’000 | Elimination HK$’000 | Group HK$’000 | |||||||||||||
Turnover | ||||||||||||||||
- External sales | 247,359 | 1,230,880 | — | 1,478,239 | ||||||||||||
- Inter-segment sales | 5,669 | 19,784 | (25,453 | ) | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
253,028 | 1,250,664 | (25,453 | ) | 1,478,239 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment results | 61,631 | 203,515 | 265,146 | |||||||||||||
|
|
|
| |||||||||||||
Other net income, excluding interest income | 36,671 | |||||||||||||||
Interest income | 4,869 | |||||||||||||||
Finance costs | (55,127 | ) | ||||||||||||||
|
| |||||||||||||||
Profit before taxation | 251,559 | |||||||||||||||
Income tax expense | (38,730 | ) | ||||||||||||||
|
| |||||||||||||||
Net profit | 212,829 | |||||||||||||||
|
|
2011 | ||||||||||||
International tele- communications services HK$’000 | Fixed tele- communications network services HK$’000 | Group HK$’000 | ||||||||||
Segment assets | 432,716 | 1,831,746 | 2,264,462 | |||||||||
|
| |||||||||||
Segment liabilities | 79,459 | 274,203 | 353,662 | |||||||||
Tax payable | 2,281 | |||||||||||
Deferred tax liabilities | 111,138 | |||||||||||
|
| |||||||||||
Total liabilities | 467,081 | |||||||||||
|
| |||||||||||
Capital expenditure incurred during the year | 1,631 | 447,565 | 449,196 | |||||||||
Depreciation for the year | 11,499 | 206,698 | 218,197 |
2010 | ||||||||||||
International tele- communications services HK$’000 | Fixed tele- communications network services HK$’000 | Group HK$’000 | ||||||||||
Segment assets | 590,888 | 1,660,661 | 2,251,549 | |||||||||
|
| |||||||||||
Segment liabilities | 92,982 | 289,085 | 382,067 | |||||||||
Tax payable | 1,533 | |||||||||||
Deferred tax liabilities | 55,843 | |||||||||||
Long-term bank loan | 123,567 | |||||||||||
|
| |||||||||||
Total liabilities | 563,010 | |||||||||||
|
| |||||||||||
Capital expenditure incurred during the year | 5,223 | 339,621 | 344,844 | |||||||||
Depreciation for the year | 12,637 | 186,392 | 199,029 |
In June 2007, the TA issued the 2004 Determination which set out the rates of mobile interconnection charge payable by the mobile operator under dispute for interconnection services provided by HKBN for the period from April 1, 2002 to August 31, 2004 and the mobile operator under dispute paid mobile interconnection charge for the relevant period accordingly.
Subsequent to June 2007, HKBN entered into contractual agreements with several mobile operators which agreed to pay mobile interconnection charges based on the 2004 Determination for the period from April 1, 2002 to August 31, 2004 and with respect to the period after August 31, 2004 at the interim rate stated in the contractual agreements. The interim rate was subject to adjustment based on further determination to be issued by the TA.
In February 2008, since certain mobile operators had still not yet settled their mobile interconnection charges for interconnection services provided by HKBN, HKBN requested TA to make a new determination on the rate of mobile interconnection charge and interest thereon with the four mobile operators.
In September 2008, the TA accepted HKBN’s request for determination on the rate of mobile interconnection charges for the period from April 1, 2002 to April 26, 2009 payable by the mobile operators that had not reached contractual agreements with HKBN, and the rate for the period from September 1, 2004 to April 26, 2009 payable by those mobile operators that have reached contractual agreements with HKBN, and the interest rate thereon (the “2008 Determination”).
In May 2010, the TA issued its decision on the 2008 Determination which set out the rates of mobile interconnection charges payable by the mobile operators under dispute.
Based on the 2008 determination, the Group reversed approximately HK$19,706,000 revenue related to mobile interconnection charges and recognized approximately HK$10,053,000 interest income during the year ended August 31, 2010.
Included in the accounts receivable balance as at August 31, 2011 were receivable relating to mobile interconnection charges of HK$23,000 (August 31, 2010: HK$39,763,000).
Network costs and |
Continuing operations:
Cost of sales mainly include programme costs charged to the profit or loss over the showing period and talent costs and other production costs which are directly attributable to the revenue generated from licensing of programme rights, programme production and provision of artiste management services.
Discontinued operations:
Network costs and costscost of sales mainly include interconnection charges paid to local and overseas carriers, leased line rentals, programprogramme fees, and production costs for the IP-TV service, and do not include depreciation charge which is included in other operating expenses.
Profit(Loss)/profit before taxation is arrived at after charging/(crediting)crediting the following:
(a) | Other operating expenses |
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Advertising and marketing expenses | 344,136 | 372,727 | 299,794 | |||||||||
Amortization of deferred expenditure (note 14) | 37,873 | 48,621 | 53,160 | |||||||||
Auditors’ remuneration | 2,777 | 2,910 | 3,455 | |||||||||
Depreciation of owned fixed assets | 217,790 | 198,323 | 205,624 | |||||||||
Depreciation of fixed assets held under finance lease | 407 | 706 | 617 | |||||||||
Operating lease charges in respect of land and buildings | 28,426 | 22,669 | 17,010 | |||||||||
Operating lease charges in respect of equipment | — | 39 | 42 | |||||||||
Provision for doubtful debts (note 15(b)) | 13,636 | 14,742 | 12,103 | |||||||||
Impairment loss on other receivable | 1,587 | — | — | |||||||||
Loss / (gain) on disposal of fixed assets | 1,008 | (1,375 | ) | 1,016 | ||||||||
Talent costs (note 4(d)) | 311,355 | 301,760 | 302,279 | |||||||||
Others | 138,169 | 144,482 | 142,864 | |||||||||
|
|
|
|
|
| |||||||
1,097,164 | 1,105,604 | 1,037,964 | ||||||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Continuing operations | ||||||||||||||||||||
Depreciation | 37,773 | 10,188 | 27,585 | 26,622 | 6,268 | |||||||||||||||
Less: depreciation capitalized as programme costs | (3,403 | ) | (508 | ) | (2,895 | ) | (7,515 | ) | (1,632 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
34,370 | 9,680 | 24,690 | 19,107 | 4,636 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Advertising and marketing expenses | 10,070 | 9,231 | 839 | 8,595 | 214 | |||||||||||||||
Auditor’s remuneration | 2,395 | 1,331 | 1,064 | 1,500 | 1,630 | |||||||||||||||
Operating lease charges in respect of | ||||||||||||||||||||
- land and building | 11,652 | 4,414 | 7,238 | 4,796 | 2,827 | |||||||||||||||
- equipments | 1,701 | 1,074 | 627 | — | — | |||||||||||||||
Loss/(gain) on disposal of fixed assets | 208 | (3 | ) | 211 | 263 | 675 | ||||||||||||||
Talent costs (note 6(d)) | 146,502 | 40,688 | 105,814 | 84,303 | 55,971 | |||||||||||||||
Amortization of intangible assets (note 16) | 40,067 | 10,992 | 29,075 | 20,360 | 5,217 | |||||||||||||||
Impairment of accounts receivable | — | — | — | 100 | — | |||||||||||||||
Write off of artiste prepayment | 28,328 | 3,353 | 24,975 | 16,852 | 697 | |||||||||||||||
Provision for committed artiste payment | 6,003 | (4,860 | ) | 10,863 | — | — | ||||||||||||||
Others | 62,503 | 22,318 | 40,185 | 45,638 | 33,093 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
343,799 | 98,218 | 245,581 | 201,514 | 104,960 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Discontinued operations | ||||||||||||||||||||
Depreciation | — | — | — | — | 181,269 | |||||||||||||||
Advertising and marketing expenses | — | — | — | — | 271,532 | |||||||||||||||
Auditor’s remuneration | — | — | — | — | 1,071 | |||||||||||||||
Operating lease charges in respect of land and buildings | — | — | — | — | 26,910 | |||||||||||||||
Gain on disposal of fixed assets | — | — | — | — | (2,674 | ) | ||||||||||||||
Talent costs (note 6(d)) | — | — | — | — | 233,814 | |||||||||||||||
Amortization of deferred expenditure | — | — | — | — | 29,902 | |||||||||||||||
Others | — | — | — | — | 119,122 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | 860,946 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
343,799 | 98,218 | 245,581 | 201,514 | 965,906 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(b) | Other income, net |
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||
Continuing operations | ||||||||||||||||||||||||||||||||
Bank interest income | 23,017 | 5,292 | 17,725 | 27,051 | 16,167 | |||||||||||||||||||||||||||
Dividend income from available-for-sale equity securities | 1,825 | 336 | 1,489 | 895 | — | |||||||||||||||||||||||||||
Interest income from available-for-sale debt securities | 120,353 | 29,407 | 90,946 | 61,406 | — | |||||||||||||||||||||||||||
Gain on disposal of available-for-sale securities | 4,946 | 504 | 4,442 | 4,508 | — | |||||||||||||||||||||||||||
Rentals from investment properties | 15,306 | 3,809 | 11,497 | 11,765 | 3,388 | |||||||||||||||||||||||||||
Net exchange (loss)/gain | (18,425 | ) | (9,469 | ) | (8,956 | ) | 23,007 | 229 | ||||||||||||||||||||||||
Others | 587 | 28 | 559 | 277 | 136 | |||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||
147,609 | 29,907 | 117,702 | 128,909 | 19,920 | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||
Discontinued operations | ||||||||||||||||||||||||||||||||
Interest income | (3,366 | ) | (11,372 | ) | (4,869 | ) | — | — | — | — | 1,074 | |||||||||||||||||||||
Loss/(gain) on extinguishment of 10-year senior notes | — | 9,650 | (31,371 | ) | ||||||||||||||||||||||||||||
Net exchange gain | (995 | ) | (324 | ) | (3,038 | ) | — | — | — | — | 408 | |||||||||||||||||||||
Others | (2,888 | ) | (5,943 | ) | (2,262 | ) | — | — | — | — | 2,156 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(7,249 | ) | (7,989 | ) | (41,540 | ) | — | — | — | — | 3,638 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
147,609 | 29,907 | 117,702 | 128,909 | 23,558 | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||
(c) | Finance costs, net |
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Interest element of finance leases | 30 | 42 | 27 | |||||||||
Interest on 10-year senior notes | — | 5,881 | 52,670 | |||||||||
Amortization of incidental issuance costs | — | 188 | 1,545 | |||||||||
Interest on bank borrowings | 1,152 | 1,379 | — | |||||||||
Amortization of upfront costs on long-term bank loan | 182 | 192 | — | |||||||||
Change in fair value of derivative financial instrument | 271 | 11,293 | — | |||||||||
Write-off of upfront costs upon settlement of long-term bank loan | 1,251 | — | — | |||||||||
Other borrowing costs | 3,473 | 3,260 | 885 | |||||||||
|
|
|
|
|
| |||||||
6,359 | 22,235 | 55,127 | ||||||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Continuing operations | ||||||||||||||||||||
Interest element of finance leases | 3 | — | 3 | 9 | 15 | |||||||||||||||
Bank charges | 178 | 61 | 117 | 2,150 | — | |||||||||||||||
Interest on bank loans | 7,169 | 1,952 | 5,217 | 2,530 | — | |||||||||||||||
Change in fair value of derivative financial instrument | (5,181 | ) | (1,340 | ) | (3,841 | ) | (4,482 | ) | (1,901 | ) | ||||||||||
Other borrowing costs | 5,598 | 1,343 | 4,255 | 4,653 | 4,341 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
7,767 | 2,016 | 5,751 | 4,860 | 2,455 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Discontinued operations | ||||||||||||||||||||
Interest element of finance leases | — | — | — | — | 4 | |||||||||||||||
Others | — | — | — | — | (578 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | (574 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
7,767 | 2,016 | 5,751 | 4,860 | 1,881 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(d) | Talent costs |
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Wages and salaries | 517,609 | 518,380 | 506,638 | |||||||||
Provision for annual leave | 612 | 561 | 613 | |||||||||
Equity settled share-based transaction | 4,652 | 5,347 | 4,768 | |||||||||
Retirement benefit costs — defined contribution plans (note 8) | 43,872 | 38,820 | 34,614 | |||||||||
Less: Talent costs capitalized as fixed assets | (22,206 | ) | (20,851 | ) | (16,621 | ) | ||||||
Talent costs incurred in network costs and costs of sales | (10,843 | ) | (11,098 | ) | (13,461 | ) | ||||||
Talent cost incurred in advertising and marketing expenses | (222,341 | ) | (229,399 | ) | (214,272 | ) | ||||||
|
|
|
|
|
| |||||||
311,355 | 301,760 | 302,279 | ||||||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Continuing operations | ||||||||||||||||||||
Wages and salaries | 200,103 | 43,494 | 156,609 | 208,264 | 104,411 | |||||||||||||||
Retirement benefit costs - defined contribution plans (note 12) | 9,004 | 1,866 | 7,138 | 9,876 | 3,993 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
209,107 | 45,360 | 163,747 | 218,140 | 108,404 | ||||||||||||||||
Less: Talent costs capitalized as programme costs | (62,605 | ) | (4,672 | ) | (57,933 | ) | (121,207 | ) | (47,140 | ) | ||||||||||
Talent costs included in cost of sales | — | — | — | (12,630 | ) | (5,293 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
146,502 | 40,688 | 105,814 | 84,303 | 55,971 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Discontinued operations | ||||||||||||||||||||
Wages and salaries | — | — | — | — | 396,008 | |||||||||||||||
Equity settled share-based transaction | — | — | — | — | 10,480 | |||||||||||||||
Retirement benefit costs - defined contribution plans (note 12) | — | — | — | — | 38,074 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | 444,562 | ||||||||||||||||
Less: Talent costs capitalized as fixed assets | — | — | — | — | (17,671 | ) | ||||||||||||||
Talent costs included in network costs and cost of sales | — | — | — | — | (6,247 | ) | ||||||||||||||
Talent costs included in advertising and marketing expenses | — | — | — | — | (186,830 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | 233,814 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
146,502 | 40,688 | 105,814 | 84,303 | 289,785 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Talent costs include all compensation and benefits paid to and accrued for all individuals employed by the Group, including directors.
7 |
The Group’s Multimedia Business comprised of two cash generating units (“CGU”), namely “Media”, which operates the multimedia and drama production and contents distribution business, and “E-commerce”, which operates the online shopping business of the Group.
The Group recognized impairment loss on fixed assets, intangible assets and programme costs and wrote off certain construction in progress with an aggregated amount of HK$32,000,000 during the sixteen months ended December 31, 2014. The Group has identified indications of impairment of its Media CGU assets, primarily as a result of the uncertainty in the legal and technical feasibility in the provision of mobile television services. The recoverable amounts of these assets, which include primarily programme costs and certain fixed assets and intangible assets, were assessed based on their value in use at the Media CGU level as well as the Group’s Multimedia Business as a whole, and determined by discounting the estimated cashflows to be generated from the use of these assets at pre-tax discount rates of 13.40% at the Media CGU level and 15.25% at the overall Multimedia Business level. Key assumptions used in the estimation of value in use included discount rate, projected revenue of the Media CGU and projected revenue of E-commerce CGU.
|
|
| ||||||||||
| ||||||||||||
Income tax |
Hong Kong Profits Tax rate is 16.5%. There was no provision for Hong Kong Profits Tax for 2009, 2010 and 2011 as the Group’s Hong Kong subsidiaries which were subject to Hong Kong Profits Tax sustained tax losses. The statutory income tax rate in the People’s Republic of China (“PRC”) is 25%. CTI Guangzhou Customer Services Co., Ltd., a former wholly owned subsidiary of the Company, being a recognized Advanced Technology Service Enterprise, is subject to income tax at a reduced rate of 15% from calendar years 2010 to 2012. The provision of PRC income tax was calculated at 25% for calendar year 2009. Non-Hong Kong current taxation is mainly related to the PRC income tax.
The amount of income tax expense(expense)/credit in the consolidated income statement represents:
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Current taxation: | ||||||||||||
Hong Kong | ||||||||||||
- Over-provision in prior years | — | 40 | — | |||||||||
Non-Hong Kong | ||||||||||||
- Provision for the year | (3,524 | ) | (2,585 | ) | (1,622 | ) | ||||||
- Under-provision in prior years | (135 | ) | — | — | ||||||||
Deferred taxation: | ||||||||||||
- Origination and reversal of temporary differences (note 20) | (55,295 | ) | (40,134 | ) | (37,108 | ) | ||||||
- Recognition of previously unrecognized tax losses (note 20) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Income tax expense | (58,954 | ) | (42,679 | ) | (38,730 | ) | ||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Continuing operations | ||||||||||||||||||||
Current taxation | ||||||||||||||||||||
Hong Kong | ||||||||||||||||||||
- Provision for the year | — | — | — | — | (935 | ) | ||||||||||||||
- Over-provision in respect of prior year | 394 | 284 | 110 | 540 | — | |||||||||||||||
Deferred taxation | ||||||||||||||||||||
Origination and reversal of temporary differences | (599 | ) | (344 | ) | (255 | ) | 1,119 | (1,346 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(205 | ) | (60 | ) | (145 | ) | 1,659 | (2,281 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Discontinued operations | ||||||||||||||||||||
Current taxation | ||||||||||||||||||||
Non-Hong Kong | ||||||||||||||||||||
- Provision for the year | — | — | — | — | (2,443 | ) | ||||||||||||||
Deferred taxation | ||||||||||||||||||||
Origination and reversal of temporary differences | — | — | — | — | (45,964 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | (48,407 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(205 | ) | (60 | ) | (145 | ) | 1,659 | (50,688 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
The Group’s income tax expense(expense)/credit differs from the theoretical amount that would arise using the profits(loss)/profit before taxation at applicable tax rates as follows:
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Profit before taxation | 372,869 | 259,545 | 251,559 | |||||||||
|
|
|
|
|
| |||||||
Notional tax on profit before taxation, calculated at the prevailing tax rates applicable to profit in the jurisdictions concerned | (63,606 | ) | (43,781 | ) | (42,240 | ) | ||||||
Effect of non-taxable income | 535 | 4,692 | 1,466 | |||||||||
Effect of (loss)/gain on extinguishment of 10-year senior notes not subject to taxation | — | (1,592 | ) | 5,176 | ||||||||
Effect of non-deductible expenses | (4,975 | ) | (2,367 | ) | (3,648 | ) | ||||||
(Under)/over-provision in prior years | (135 | ) | 40 | — | ||||||||
Utilization of tax loss related to prior years | 6,872 | — | — | |||||||||
PRC income tax concession | 2,406 | — | — | |||||||||
Others | (51 | ) | 329 | 516 | ||||||||
|
|
|
|
|
| |||||||
Income tax expense | (58,954 | ) | (42,679 | ) | (38,730 | ) | ||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
(Loss)/profit before taxation | (236,797 | ) | (73,798 | ) | (162,999 | ) | (41,969 | ) | 3,748,562 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Notional tax on (loss)/profit before taxation, calculated at the prevailing tax rates applicable to profit in the jurisdiction concerned | 39,072 | 12,178 | 26,894 | 6,925 | (619,401 | ) | ||||||||||||||
Effect of non-taxable income | 21,577 | 6,399 | 15,178 | 22,691 | 4,662 | |||||||||||||||
Effect of non-deductible expenses | (8,705 | ) | 470 | (9,175 | ) | (4,886 | ) | (3,627 | ) | |||||||||||
Over-provision in respect of prior years | 394 | 284 | 110 | 540 | — | |||||||||||||||
Effect of unused tax losses not recognized | (53,200 | ) | (18,772 | ) | (34,428 | ) | (23,952 | ) | (9,693 | ) | ||||||||||
Effect of disposal of Telecom Business | — | — | — | — | 577,383 | |||||||||||||||
Others | 657 | (619 | ) | 1,276 | 341 | (12 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income tax (expense) /credit | (205 | ) | (60 | ) | (145 | ) | 1,659 | (50,688 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Representing by | ||||||||||||||||||||
- Continuing operations | (205 | ) | (60 | ) | (145 | ) | 1,659 | (2,281 | ) | |||||||||||
- Discontinued operations | — | — | — | — | (48,407 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(205 | ) | (60 | ) | (145 | ) | 1,659 | (50,688 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Dividends |
(a) | Dividends payable to equity shareholders of the Company attributable to the |
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Interim dividend declared and paid of HK15 cents per ordinary share (2010: HK6.5 cents per ordinary share , 2009: HK3 cents per ordinary share) | 115,605 | 49,725 | 19,904 | |||||||||
Final dividend proposed after the balance sheet date, of HK15 cents per ordinary share (2010: HK13.5 cents per ordinary share, 2009: HK16 cents per ordinary share) | 115,787 | 103,275 | 106,269 | |||||||||
|
|
|
|
|
| |||||||
231,392 | 153,000 | 126,173 | ||||||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Special dividend declared and paid of HK$2.5 per ordinary share | — | — | — | — | 2,022,542 | |||||||||||||||
Interim dividend declared and paid of HK15 cents per ordinary share | — | — | — | — | 119,674 | |||||||||||||||
Final dividend proposed after the August 31, 2012 of HK15 cents per ordinary share | — | — | — | — | 121,352 | |||||||||||||||
— | — | — | — | 2,263,568 | ||||||||||||||||
The Board has resolved not to declare any final dividend for the sixteen months ended December 31, 2014 and the twelve months ended August 31, 2013.
The final dividend proposed after the balance sheet date has not been recognized as a liability at the balance sheet date.
(b) | Dividends attributable to the previous financial year, approved and paid during the |
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Final dividend in respect of the financial year ended August 31, 2010, approved and paid of HK13.5 cents per ordinary share (2010: HK16 cents per ordinary share in respect of financial year ended August 31, 2009, 2009: HK2 cents per ordinary share in respect of financial year ended August 31, 2008) | 103,735 | 108,735 | 13,014 | |||||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Final dividend in respect of the twelve months ended August 31, 2012, approved and paid of HK15 cents per ordinary share (2012: HK15 cents per ordinary share in respect of twelve months ended August 31, 2011) | — | — | — | 121,352 | 115,901 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
During
10 | Other comprehensive income |
Tax effects relating to each component of other comprehensive income
Sixteen months ended December 31, 2014 | ||||||||||||
Before-tax amount HK$’000 | Tax expense HK$’000 | Net-of-tax HK$’000 | ||||||||||
Exchange difference on translation of financial statements of an overseas subsidiary | 1 | — | 1 | |||||||||
Available-for-sale securities: net movement in fair value reserve | 41,540 | — | 41,540 | |||||||||
|
|
|
|
|
| |||||||
41,541 | — | 41,541 | ||||||||||
|
|
|
|
|
| |||||||
Four months ended December 31, 2014 (Unaudited) | ||||||||||||
Before-tax amount HK$’000 | Tax expense HK$’000 | Net-of-tax HK$’000 | ||||||||||
Exchange difference on translation of financial statements of an overseas subsidiary | 1 | — | 1 | |||||||||
Available-for-sale securities: net movement in fair value reserve | (38,277 | ) | — | (38,277 | ) | |||||||
|
|
|
|
|
| |||||||
(38,276 | ) | — | (38,276 | ) | ||||||||
|
|
|
|
|
| |||||||
Twelve months ended August 31, 2014 (Unaudited) | ||||||||||||
Before-tax amount HK$’000 | Tax expense HK$’000 | Net-of-tax amount HK$’000 | ||||||||||
Exchange difference on translation of financial statements of an overseas subsidiary | — | — | — | |||||||||
Available-for-sale securities: net movement in fair value reserve | 79,817 | — | 79,817 | |||||||||
|
|
|
|
|
| |||||||
79,817 | — | 79,817 | ||||||||||
|
|
|
|
|
| |||||||
Twelve months ended August 31, 2013 | ||||||||||||
Before-tax amount HK$’000 | Tax expense HK$’000 | Net-of-tax HK$’000 | ||||||||||
Exchange difference on translation of financial statements of an overseas subsidiary | — | — | — | |||||||||
Available-for-sale securities: net movement in fair value reserve | (71,109 | ) | — | (71,109 | ) | |||||||
|
|
|
|
|
| |||||||
(71,109 | ) | — | (71,109 | ) | ||||||||
|
|
|
|
|
|
Before-tax amount HK$’000 Tax HK$’000 Net-of-tax HK$’000 Exchange difference on translation of financial statements of overseas subsidiaries Exchange reserve realized upon disposal of Telecom business Twelve months ended August 31, 2012
expense
amount (265 ) — (265 ) (4,881 ) — (4,881 ) (5,146 ) — (5,146 )
Component of other comprehensive income, including reclassification adjustments
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Available-for-sale securities: net movement in fair value reserve | ||||||||||||||||||||
Changes in fair value recognized during the period | 46,486 | (37,773 | ) | 84,259 | (66,601 | ) | — | |||||||||||||
Reclassified to profit or loss upon disposal | (4,946 | ) | (504 | ) | (4,442 | ) | (4,508 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
41,540 | (38,277 | ) | 79,817 | (71,109 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
11 (Loss)/earnings per share |
| |||||||||||||||||||
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
(Loss)/profit attributable to equity shareholders | (237,002 | ) | (73,858 | ) | (163,144 | ) | (40,310 | ) | 3,700,288 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted average number of ordinary shares |
| |||||||||||||||||||
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Issued ordinary shares at the beginning of the period | 809,017 | 809,017 | 809,017 | 809,017 | 771,912 | |||||||||||||||
Effect of share options exercised | — | — | — | — | 12,164 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted average number of ordinary shares at the end of the period (basic) | 809,017 | 809,017 | 809,017 | 809,017 | 784,076 | |||||||||||||||
Incremental shares from assumed exercise of share options | — | — | — | — | 11,511 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted average number of ordinary shares at the end of the period (diluted) | 809,017 | 809,017 | 809,017 | 809,017 | 795,587 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Basic (loss)/earnings per share | HK(29.3)cents | HK(9.1)cents | HK(20.2)cents | HK(5.0) cents | HK471.9 cents | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Diluted (loss)/earnings per share | HK(29.3)cents | HK(9.1)cents | HK(20.2)cents | HK(5.0) cents | HK465.1 cents | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
The diluted loss per share for the yearsixteen months ended December 31, 2014, four months ended December 31, 2014, twelve months ended August 31, 2009, a scrip dividend option was offered to all shareholders of2014 and 2013 are the Company, excluding shareholders with registered addresses outside Hong Kong, whosame as the basic loss per share as no potential ordinary share were entitled to the final dividend in respect of the financial year ended August 31, 2008. 12,212,142 shares were issuedoutstanding during the year ended August 31, 2009 to the shareholders of the Company who had elected to receive all or part of their entitlement to dividends in the form of scrip.respective periods.
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Profit attributable to shareholders | 313,915 | 216,866 | 212,829 | |||||||||
|
|
|
|
|
|
Weighted average number of ordinary shares
2011 of shares | 2010 of shares | 2009 of shares | ||||||||||
Issued ordinary shares at the beginning of the year | 764,997 | 664,180 | 650,622 | |||||||||
Effect of scrip dividend issued | — | — | 6,256 | |||||||||
Effect of share options exercised | 3,810 | 14,856 | 329 | |||||||||
Effect of placement | — | 27,569 | — | |||||||||
Effect of shares repurchased and cancelled | — | — | (6 | ) | ||||||||
|
|
|
|
|
| |||||||
Weighted average number of ordinary shares at the end of the year (basic) | 768,807 | 706,605 | 657,201 | |||||||||
Incremental shares from assumed exercise of share options | 23,992 | 30,011 | 11,183 | |||||||||
Weighted average number of ordinary shares at the end of the year (diluted) | 792,799 | 736,616 | 668,384 | |||||||||
|
|
|
|
|
| |||||||
Basic earnings per share | HK40.8 | cents | HK30.7 | cents | HK32.4 | cents | ||||||
|
|
|
|
|
| |||||||
Diluted earnings per share | HK39.6 | cents | HK29.4 | cents | HK31.8 | cents | ||||||
|
|
|
|
|
|
Retirement benefit costs |
The Group contributes to an Occupational Retirement Scheme (the “ORSO Scheme”), a defined contribution retirement scheme, which is available to some of its Talents in Hong Kong. Under the ORSO Scheme, the Talents are required to contribute 5% of their monthly salaries, while the Group’sGroups contributions are calculated at 10% and 5% of the monthly salaries of senior management Talents and all other Talents respectively. The Talents are entitled to 100% of the employer’s contributions after 10 years of completed service, or at a reduced scale after completion of 3 to 9 years’ service. Contributions to the ORSO Scheme are reduced by contributions forfeited by those Talents who leave the ORSO Scheme prior to vesting fully in the Groups contributions. The Talents are entitled to 100% of the employer’s contributions after 10 years of completed service, or at a reduced scale after completion of 3 to 9 years’ service. Contributions to the ORSO Scheme are reduced by contributions forfeited by those Talents who leave the ORSO Scheme prior to vesting fully in the Group’s contributions.
A mandatory provident fund scheme (the “MPF Scheme”) has been established under the Hong Kong Mandatory Provident Fund Scheme Ordinance in December 2000. The then existing Talents of the Group in Hong Kong could elect to join the MPF Scheme, while all new Talents joining the Group in Hong Kong from then onwards are required to join the MPF Scheme. Both the Group and the Talents are required to contribute 5% of each individual’s relevant income with a maximum amount of HK$1,000 per month before June 1, 2012, HK$1,250 per month before June 1, 2014, and commenced from June 1, 2014, the maximum amount has been increased to HK$1,500, as a mandatory contribution. Employer’s mandatory contributions are 100% vested in the Talents as soon as they are paid to the MPF Scheme. Senior Talents may also elect to join a Mutual Voluntary Plan (the “Mutual Plan”) in which both the Group and the Talent, on top of the MPF Scheme mandatory contributions, make a voluntary contribution to the extent of contributions that would have been made under the ORSO Scheme.
PursuantDuring the twelve months ended August 31, 2012, pursuant to the relevant regulations in the PRC, the Group contributescontributed to a defined contribution retirement scheme organized by the local social security bureau for each Talent of the former subsidiary in the PRC at the rate of 20% of a standard salary base as determined by the local social security bureau. The Group has no other obligation to make payments in respect of retirement benefits of these Talents.
The retirement schemes for Talents of the Group in other countries follow the local statutory requirements of the respective countries.
The aggregate employer’s contributions, net of forfeited contributions, which have been dealt with in the consolidated income statement during the year are as follows:
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Gross contributions | 43,872 | 38,820 | 34,614 | |||||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Gross contributions | ||||||||||||||||||||
- Continuing operations | 9,004 | 1,866 | 7,138 | 9,876 | 3,993 | |||||||||||||||
- Discontinued operations | — | — | — | — | 38,074 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
9,004 | 1,866 | 7,138 | 9,876 | 42,067 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At AugustDecember 31, 2011,2014, there was no forfeited contribution available to offset future contributions by the Group to the ORSO Scheme (2010(August 31, 2013 and 2009:2012: Nil).
Directors’ and senior management’s emoluments |
(a) | Directors’ remuneration |
The remuneration of each director forFor the yearsixteen months ended December 31, 2014:
Name of director | Fee HK$’000 | Salary HK$’000 | Discretionary bonuses HK$’000 | Share- payment HK$’000 | Employer’s contribution to defined contribution scheme HK$’000 | Total HK$’000 | ||||||||||||||||||
Wong Wai Kay, Ricky | — | 8,941 | 559 | — | 893 | 10,393 | ||||||||||||||||||
Cheung Chi Kin, Paul | — | 8,941 | 559 | — | 893 | 10,393 | ||||||||||||||||||
To Wai Bing | — | 3,010 | 188 | — | 301 | 3,499 | ||||||||||||||||||
Wong Nga Lai, Alice | — | 3,010 | 188 | — | 300 | 3,498 | ||||||||||||||||||
Cheng Mo Chi, Moses (note (a)) | 202 | — | — | — | — | 202 | ||||||||||||||||||
Lee Hon Ying, John | 297 | — | — | — | — | 297 | ||||||||||||||||||
Peh Jefferson Tun Lu | 278 | — | — | — | — | 278 | ||||||||||||||||||
Mak Wing Sum, Alvin (note (b)) | 278 | — | — | — | — | 278 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 1,055 | 23,902 | 1,494 | — | 2,387 | 28,838 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the four months ended December 31, 2014 (Unaudited):
Name of director | Fee HK$’000 | Salary HK$’000 | Discretionary bonuses HK$’000 | Share- payment HK$’000 | Employer’s contribution to defined contribution scheme HK$’000 | Total HK$’000 | ||||||||||||||||||
Wong Wai Kay, Ricky | — | 2,235 | — | — | 223 | 2,458 | ||||||||||||||||||
Cheung Chi Kin, Paul | — | 2,235 | — | — | 223 | 2,458 | ||||||||||||||||||
To Wai Bing | — | 752 | — | — | 75 | 827 | ||||||||||||||||||
Wong Nga Lai, Alice | — | 752 | — | — | 75 | 827 | ||||||||||||||||||
Cheng Mo Chi, Moses (note (a)) | — | — | — | — | — | — | ||||||||||||||||||
Lee Hon Ying, John | 74 | — | — | — | — | 74 | ||||||||||||||||||
Peh Jefferson Tun Lu | 69 | — | — | — | — | 69 | ||||||||||||||||||
Mak Wing Sum, Alvin (note (b)) | 69 | — | — | — | — | 69 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 212 | 5,974 | — | — | 596 | 6,782 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the twelve months ended August 31, 2011 is set out below:2014 (Unaudited):
Name of director | Fee HK$’000 | Salary HK$’000 | Discretionary bonuses | Share-based payment HK$’000 | Employer’s contribution to defined contribution scheme HK$’000 | Total HK$’000 | Fee HK$’000 | Salary HK$’000 | Discretionary bonuses HK$’000 | Share- payment HK$’000 | Employer’s contribution to defined contribution scheme HK$’000 | Total HK$’000 | ||||||||||||||||||||||||||||||||||||
Wong Wai Kay, Ricky | — | 6,704 | 1,000 | — | 670 | 8,374 | — | 6,706 | 559 | — | 670 | 7,935 | ||||||||||||||||||||||||||||||||||||
Cheung Chi Kin, Paul | — | 6,706 | 1,000 | — | 670 | 8,376 | — | 6,706 | 559 | — | 670 | 7,935 | ||||||||||||||||||||||||||||||||||||
Yeung Chu Kwong, William | — | 9,733 | 1,310 | 3,006 | 456 | 14,505 | ||||||||||||||||||||||||||||||||||||||||||
Lai Ni Quiaque | — | 2,762 | 635 | 1,906 | 276 | 5,579 | ||||||||||||||||||||||||||||||||||||||||||
Cheng Mo Chi, Moses | 176 | — | — | — | — | 176 | ||||||||||||||||||||||||||||||||||||||||||
To Wai Bing | — | 2,258 | 188 | — | 226 | 2,672 | ||||||||||||||||||||||||||||||||||||||||||
Wong Nga Lai, Alice | — | 2,258 | 188 | — | 225 | 2,671 | ||||||||||||||||||||||||||||||||||||||||||
Cheng Mo Chi, Moses (note (a)) | 202 | — | — | — | — | 202 | ||||||||||||||||||||||||||||||||||||||||||
Lee Hon Ying, John | 195 | — | — | — | — | 195 | 223 | — | — | — | — | 223 | ||||||||||||||||||||||||||||||||||||
Chan Kin Man | 182 | — | — | — | — | 182 | ||||||||||||||||||||||||||||||||||||||||||
Peh Jefferson Tun Lu | 182 | — | — | — | — | 182 | 209 | — | — | — | — | 209 | ||||||||||||||||||||||||||||||||||||
Mak Wing Sum, Alvin (note (b)) | 209 | — | — | — | — | 209 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total | 735 | 25,905 | 3,945 | 4,912 | 2,072 | 37,569 | 843 | 17,928 | 1,494 | — | 1,791 | 22,056 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
9 Directors’ and senior management’s emoluments (continued)For the twelve months ended August 31, 2013:
Name of director | Fee HK$’000 | Salary HK$’000 | Discretionary bonuses HK$’000 | Share- payment HK$’000 | Employer’s contribution to defined contribution scheme HK$’000 | Total HK$’000 | ||||||||||||||||||
Wong Wai Kay, Ricky | — | 6,706 | — | — | 670 | 7,376 | ||||||||||||||||||
Cheung Chi Kin, Paul | — | 6,706 | — | — | 670 | 7,376 | ||||||||||||||||||
To Wai Bing | — | 2,326 | 564 | — | 226 | 3,116 | ||||||||||||||||||
Wong Nga Lai, Alice | — | 2,273 | 1,276 | — | 226 | 3,775 | ||||||||||||||||||
Cheng Mo Chi, Moses | 193 | — | — | — | — | 193 | ||||||||||||||||||
Lee Hon Ying, John | 212 | — | — | — | — | 212 | ||||||||||||||||||
Chan Kin Man (note (c)) | 152 | — | — | — | — | 152 | ||||||||||||||||||
Peh Jefferson Tun Lu | 199 | — | — | — | — | 199 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 756 | 18,011 | 1,840 | — | 1,792 | 22,399 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the twelve months ended August 31, 2012:
Name of director | Fee HK$’000 | Salary HK$’000 | Discretionary bonuses HK$’000 | Share- payment HK$’000 | Employer’s contribution to defined contribution scheme HK$’000 | Total HK$’000 | ||||||||||||||||||
Wong Wai Kay, Ricky | — | 6,707 | 1,050 | — | 670 | 8,427 | ||||||||||||||||||
Cheung Chi Kin, Paul | — | 6,707 | 1,050 | — | 670 | 8,427 | ||||||||||||||||||
Yeung Chu Kwong, William (note (d)) | — | 7,477 | 66,163 | 8,901 | 342 | 82,883 | ||||||||||||||||||
Lai Ni Quiaque (note (d)) | — | 2,070 | 59,915 | 120 | 207 | 62,312 | ||||||||||||||||||
To Wai Bing (note (e)) | — | 6,199 | 4,200 | — | 192 | 10,591 | ||||||||||||||||||
Wong Nga Lai, Alice (note (e)) | — | 1,659 | 1,839 | — | 166 | 3,664 | ||||||||||||||||||
Cheng Mo Chi, Moses | 183 | — | — | — | — | 183 | ||||||||||||||||||
Lee Hon Ying, John | 202 | — | — | — | — | 202 | ||||||||||||||||||
Chan Kin Man | 190 | — | — | — | — | 190 | ||||||||||||||||||
Peh Jefferson Tun Lu | 190 | — | — | — | — | 190 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 765 | 30,819 | 134,217 | 9,021 | 2,247 | 177,069 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
(a) |
The remuneration of each director for the year ended August 31, 2010 is set out below:
Name of director | Fee HK$’000 | Salary HK$’000 | Discretionary bonuses | Share-based payment HK$’000 | Employer’s contribution to defined contribution scheme HK$’000 | Total HK$’000 | ||||||||||||||||||
Wong Wai Kay, Ricky | — | 6,707 | 1,800 | — | 670 | 9,177 | ||||||||||||||||||
Cheung Chi Kin, Paul | — | 6,709 | 1,800 | — | 670 | 9,179 | ||||||||||||||||||
Yeung Chu Kwong, William | — | 8,264 | 2,400 | 2,526 | 456 | 13,646 | ||||||||||||||||||
Lai Ni Quiaque | — | 2,642 | 750 | 2,455 | 264 | 6,111 | ||||||||||||||||||
Cheng Mo Chi, Moses | 168 | — | — | — | — | 168 | ||||||||||||||||||
Lee Hon Ying, John | 185 | — | — | — | — | 185 | ||||||||||||||||||
Chan Kin Man | 174 | — | — | — | — | 174 | ||||||||||||||||||
Peh Jefferson Tun Lu | 174 | — | — | — | — | 174 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 701 | 24,322 | 6,750 | 4,981 | 2,060 | 38,814 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(b) | Mr. Mak Wing Sum, Alvin was appointed as Independent Non-executive Director with effect from September 1, 2013. |
(c) | Dr. Chan Kin Man resigned as the Independent Non-Executive Director with effect from June 7, 2013. |
(d) | Mr. Yeung Chu Kwong, William and Mr. Lai Ni Quiaque resigned as Executive Directors with effect from May 30, 2012. |
(e) | Ms. To Wai Bing and Ms. Wong Nga Lai, Alice were appointed as Executive Directors with effect from May 30, 2012. |
No Directordirector waived any emoluments in respect of the yearssixteen months ended December 31, 2014, and twelve months ended August 31, 20102014, 2013 and 2011.2012.
The share-based payment represents the expenses determined based on the fair value of share options granted to certain directors under the Company’s share option scheme. Fair value of share options is estimated in accordance with the Group’s significant accounting policies in note 1. The details of the share-based payment are disclosed in note 10.2.
(b) | Five highest paid individuals |
The five individuals whose emoluments were the highest in the Group for the yearsixteen months ended December 31, 2014 include four (2010: four)(four months ended December 31, 2014, twelve months ended August 31, 2014 and 2013: four; twelve months ended August 31, 2012: five) directors whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining one (2010: one) individual during the yearrespective periods are as follows:
2011 HK$’000 | 2010 HK$’000 | |||||||
Basic salaries, other allowances and benefits in kind | 2,523 | 2,492 | ||||||
Discretionary bonuses | 300 | 300 | ||||||
Retirement benefit costs — defined contribution plans | 181 | 181 | ||||||
|
|
|
| |||||
3,004 | 2,973 | |||||||
|
|
|
|
The emoluments fell within the following band:
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Basic salaries, other allowances and benefits in kind | 1,370 | 303 | 1,067 | 1,558 | ||||||||||||
Discretionary bonuses | 118 | — | 118 | 100 | ||||||||||||
Retirement benefit costs – defined contribution plans | 65 | 13 | 52 | 78 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
1,553 | 316 | 1,237 | 1,736 | |||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
Equity settled share-based transactions |
The Company operates a share option scheme (the “2002“2012 Share Option Scheme”) which was adopted by shareholders of the Company on December 23, 200231, 2012 whereby the directors may, at their discretion, invite eligible participants to receive options to subscribe for shares subject to the terms and conditions stipulated therein.
Under the 20022012 Share Option Scheme, the Company may grant options to Talents (including executive, non-executive and independent non-executive directors), suppliers and professional advisers to subscribe for shares of the Company. The maximum number of options authorized under the 20022012 Share Option Scheme may not, when aggregated with any shares subject to any other executive and Talenttalent share option scheme, exceed 10% of the Company’s issued share capital on the date of adoption. The exercise price of the option is determined by the Company’s boardBoard of directorsDirectors at a price not less than the highest of (a) the par value of a share; (b) the average closing price of the Company’s shares for five trading days preceding the grant date; and (c)(b) the closing price of the Company’s shares on the date of grant. The 20022012 Share Option Scheme is valid and effective for a ten year period up to December 22, 201230, 2022 subject to earlier termination by the Company by resolution in general meeting or by the boardBoard of directors.Directors. The period during which the option may be exercised will be determined by the boardBoard of directorsDirectors at its discretion, save that no option may be exercised after more than ten years from the date of grant.
During the sixteen months ended December 31, 2014 and twelve months ended August 31, 2013, no share options have been granted under the 2012 Share Option Scheme by the Company.
The Company also operated an old share option scheme (the “2002 Share Option Scheme”) which was adopted by shareholders of the Company on December 23, 2002 and expired on December 22, 2012.
During the twelve months ended August 31, 2012 and in connection with the Disposal, certain conditions imposed on the share options granted under the 2002 Share Option Scheme were waived and all unvested outstanding share options become vested and exercisable immediately. The unamortized original grant date fair value amounting to HK$8,328,000 was fully recognized to profit or loss as share-based payment expenses at the date of modification.
As at December 31, 2014, August 31, 2014, 2013 and 2012, there were no options outstanding.
15 | Fixed assets |
Construction in progress | Investment properties | Leasehold land and buildings | Leasehold improvements | Furniture, fixtures and fittings | Network, computer and office equipment | Motor vehicles | Broadcasting and production equipment | Total | ||||||||||||||||||||||||||||
HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | ||||||||||||||||||||||||||||
Cost and valuation: | ||||||||||||||||||||||||||||||||||||
At September 1, 2013 | 150,210 | 234,200 | 57,866 | 20,051 | 2,739 | 30,851 | 6,950 | 64,302 | 567,169 | |||||||||||||||||||||||||||
Additions | 6,055 | — | — | 169 | 21 | 4,019 | — | 8,357 | 18,621 | |||||||||||||||||||||||||||
Acquisition of a subsidiary | — | — | — | — | — | 13,645 | — | — | 13,645 | |||||||||||||||||||||||||||
Disposals (note 15(c)) | — | (9,200 | ) | — | — | (3 | ) | (29 | ) | (1,894 | ) | (6 | ) | (11,132 | ) | |||||||||||||||||||||
Fair value adjustment | — | 1,800 | — | — | — | — | — | — | 1,800 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At August 31, 2014/ September 1, 2014 (Unaudited) | 156,265 | 226,800 | 57,866 | 20,220 | 2,757 | 48,486 | 5,056 | 72,653 | 590,103 | |||||||||||||||||||||||||||
Additions | 6,433 | — | — | 1,813 | 548 | 25,997 | 5,187 | 10,118 | 50,096 | |||||||||||||||||||||||||||
Disposals | — | — | — | — | — | (16 | ) | — | — | (16 | ) | |||||||||||||||||||||||||
Write off | (17,978 | ) | — | — | — | — | — | — | — | (17,978 | ) | |||||||||||||||||||||||||
Fair value adjustment | — | 2,100 | — | — | — | — | — | — | 2,100 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At December 31, 2014 | 144,720 | 228,900 | 57,866 | 22,033 | 3,305 | 74,467 | 10,243 | 82,771 | 624,305 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Representing: | ||||||||||||||||||||||||||||||||||||
Cost | 156,265 | — | 57,866 | 20,220 | 2,757 | 48,486 | 5,056 | 72,653 | 363,303 | |||||||||||||||||||||||||||
Valuation | — | 226,800 | — | — | — | — | — | — | 226,800 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At August 31, 2014/ September 1, 2014 (Unaudited) | 156,265 | 226,800 | 57,866 | 20,220 | 2,757 | 48,486 | 5,056 | 72,653 | 590,103 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Cost | 144,720 | — | 57,866 | 22,033 | 3,305 | 74,467 | 10,243 | 82,771 | 395,405 | |||||||||||||||||||||||||||
Valuation | — | 228,900 | — | — | — | — | — | — | 228,900 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At December 31, 2014 | 144,720 | 228,900 | 57,866 | 22,033 | 3,305 | 74,467 | 10,243 | 82,771 | 624,305 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Accumulated depreciation: | ||||||||||||||||||||||||||||||||||||
At September 1, 2013 | — | — | 1,319 | 9,947 | 1,408 | 9,486 | 2,260 | 11,472 | 35,892 | |||||||||||||||||||||||||||
Charge for the period | — | — | 1,967 | 3,495 | 518 | 8,340 | 1,584 | 11,681 | 27,585 | |||||||||||||||||||||||||||
Impairment loss | 4,830 | — | — | 243 | 28 | 975 | 126 | 1,544 | 7,746 | |||||||||||||||||||||||||||
Disposals | — | — | — | — | (3 | ) | (23 | ) | (908 | ) | (6 | ) | (940 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At August 31, 2014/ September 1, 2014 (Unaudited) | 4,830 | — | 3,286 | 13,685 | 1,951 | 18,778 | 3,062 | 24,691 | 70,283 | |||||||||||||||||||||||||||
Charge for the period | — | — | 554 | 366 | 190 | 4,397 | 579 | 4,102 | 10,188 | |||||||||||||||||||||||||||
Reclassification of impairment loss/ write off | (4,343 | ) | — | — | (243 | ) | (28 | ) | (837 | ) | (126 | ) | (748 | ) | (6,325 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At December 31, 2014 | 487 | — | 3,840 | 13,808 | 2,113 | 22,338 | 3,515 | 28,045 | 74,146 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net book value: | ||||||||||||||||||||||||||||||||||||
At August 31, 2014 (Unaudited) | 151,435 | 226,800 | 54,580 | 6,535 | 806 | 29,708 | 1,994 | 47,962 | 519,820 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
At December 31, 2014 | 144,233 | 228,900 | 54,026 | 8,225 | 1,192 | 52,129 | 6,728 | 54,726 | 550,159 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress Investment properties Leasehold land and buildings Leasehold improvements Furniture, fixtures and fittings Network, computer and office equipment Motor vehicles Cost and valuation: At September 1, 2012 Additions Disposals Fair value adjustment Write off Transfer from investment properties At August 31, 2013 Representing: Cost Valuation Accumulated depreciation: At September 1, 2012 Charge for the period Disposals Write off At August 31, 2013 Net book value: At August 31, 2013 Broadcasting
and
production
equipment Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 134,797 238,200 10,466 19,662 3,849 44,854 5,157 53,433 510,418 15,413 — — 612 152 7,615 2,875 11,041 37,708 — — — (11 ) — (1,503 ) — (172 ) (1,686 ) — 43,400 — — — — — — 43,400 — — — (212 ) (1,262 ) (20,115 ) (1,082 ) — (22,671 )
(note 15(d)) — (47,400 ) 47,400 — — — — — — 150,210 234,200 57,866 20,051 2,739 30,851 6,950 64,302 567,169 150,210 — 57,866 20,051 2,739 30,851 6,950 64,302 332,969 — 234,200 — — — — — — 234,200 150,210 234,200 57,866 20,051 2,739 30,851 6,950 64,302 567,169 — — 188 3,166 2,162 23,118 2,167 2,476 33,277 — — 1,131 7,000 508 7,765 1,175 9,043 26,622 — — — (7 ) — (1,282 ) — (47 ) (1,336 ) — — — (212 ) (1,262 ) (20,115 ) (1,082 ) — (22,671 ) — — 1,319 9,947 1,408 9,486 2,260 11,472 35,892 150,210 234,200 56,547 10,104 1,331 21,365 4,690 52,830 531,277
(a) |
Options that existed during the year ended August 31, 2011 are as follows, whereby all options are settled by physical delivery of shares:
|
| |||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
(i) |
Options that existed during the year ended August 31, 2010 are as follows, whereby all options are settled by physical delivery of shares:
|
|
| ||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
The vesting conditions of the respective share option grant are as follows:
Condition 1
Options granted are vested in one year or evenly vested over a period of two to three years. Options are awarded without performance conditions and are exercisable provided the participants have remained employed by the end of respective vesting periods.
Condition 2
Vesting of the options is conditional upon the performance of the Company’s shares over the period from the close of trading in Hong Kong on November 22, 2007 to November 21, 2010.
Upon fulfillment of the market conditions, certain options granted vest immediately, while other options affected by the same market conditions vest evenly over a period of three years.
During the year ended August 31, 2010, one of the market conditions in the option agreement has been replaced and the vesting of certain options is now conditional upon the Company reaching a non-market performance condition. Upon fulfillment of this non-market performance condition, a portion of the options affected by this condition vest immediately, while other options affected by this condition vest evenly over a period of three years.
The Group has accounted for the modification in accordance with IFRS/HKFRS 2 “Share-based payment” by measuring the incremental fair value which is the difference betweenfollowing table presents the fair value of the modified share optionscompany’s investment properties measured at balance sheet date on a recurring basis, categorized into the three-level fair value hierarchy as defined in IFRS 13, Fair value measurement. The level into which a fair value measurement is classified as determined with reference to the observability and thatsignificance of the original share options, both estimatedinputs used in the valuation technique as follows:
Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date
Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available
Level 3 valuations: Fair value measured using significant unobservable inputs
Fair value measurements categorized into | ||||||||||||||||
Fair HK$’000 | Level 1 HK$’000 | Level 2 HK$’000 | Level 3 HK$’000 | |||||||||||||
Recurring fair value measurements | ||||||||||||||||
Investments properties: | ||||||||||||||||
- December 31, 2014 | 228,900 | — | 228,900 | — | ||||||||||||
- August 31, 2014 (Unaudited) | 226,800 | — | 226,800 | — |
During the sixteen months ended December 31, 2014, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3. The Company’s policy is to recognize transfers between levels of fair value hierarchy as at the balance sheet date in which they occur.
All of the modification,Group’s investment properties were revalued as at August 31, 2014 and recognizingDecember 31, 2014. The valuations were carried out by an independent firm of surveyors, RHL Appraisal Limited, who have among their staff Fellows of the incremental fair value overHong Kong Institute of Surveyors with recent experience in the period fromlocation and category of property being valued. Management has discussion with the modification date untilsurveyors on the datevaluation assumptions and valuation results when the modified share options vest. The balance of the original grant-date fair value asvaluation is performed at the date of modification continues to be recognized over remaining original vesting period. The total incremental fair value arisen from this modification amounts to HK$4,278,000.each period end date.
Condition 3
(ii) | Valuation techniques and inputs used in Level 2 fair value measurements |
Vesting of the options is conditional upon the performance of the participants. Options granted are vested over a period of three to four years from the date of fulfillment of certain key performance indicators.
During the year ended August 31, 2010, one of the performance conditions has been modified. Such modification does not result in any incremental fair value, and therefore, there is no financial impact in the financial statements.
Condition 4
Vesting of the options is conditional upon the performance of the participants. Options granted are vested immediately from the date of fulfillment of the certain key performance indicators.
Condition 5
Vesting of the options is conditional upon the performance of the participants. Options granted are vested over a period of three to four years from the date of fulfillment of certain key performance indicators.
Condition 6
During the year ended August 31, 2011, one of the clauses in the option agreement has been modified. As a result of this modification, the expiry period of the share option has been extended to 10 years from the grant date of share options. The Group has accounted for the modification in accordance with IFRS/HKFRS 2 “Share-based payment” by measuring the incremental fair value which is the difference between the fair value of investment properties located in Hong Kong is determined using direct comparison approach by reference to recent sales price of comparable properties.
Fair value adjustment of investment properties is recognized in the modified share options and thatline item “valuation gains on investment properties” on the face of the original share options, both estimated as at the date of the modification, and recognizing the incremental fair value over the period from the modification date until the date when the modified share options vest. If the modification occurs after vesting date, the incremental fair value granted is recognized immediately. The balance of the original grant-date fair value as at the date of modification continues to be recognized over the remaining original vesting period. The total incremental fair value arisen from this modification amounts to HK$276,000.consolidated income statement.
(b) |
2011 | 2010 | |||||||||||||||
Weighted average exercise price HK$ | Number of options | Weighted average exercise price HK$ | Number of options | |||||||||||||
2002 Share Option Scheme | ||||||||||||||||
Outstanding at the beginning of the year | 1.87 | 44,649,857 | 1.27 | 58,967,231 | ||||||||||||
Granted during the year | — | — | 4.24 | 6,000,000 | ||||||||||||
Exercised during the year | 1.05 | (6,914,509 | ) | 0.82 | (20,317,374 | ) | ||||||||||
Forfeited during the year | 1.79 | (629,665 | ) | — | — | |||||||||||
|
|
|
| |||||||||||||
Outstanding at the end of the year | 2.03 | 37,105,683 | 1.87 | 44,649,857 | ||||||||||||
|
|
|
| |||||||||||||
Exercisable at the end of the year | 1.47 | 19,217,594 | 1.35 | 25,603,183 | ||||||||||||
|
|
|
|
The weighted average share price at the date of exercise for the share options exercised during the year was HK$5.63 (2010: HK$3.85).
The options outstanding at August 31, 2011 had a weighted exercise price of HK$2.03 (2010: HK$1.87) and a weighted average remaining contractual life of 3 years (2010: 4 years).
In determining the value of the share options granted during the year ended August 31, 2010 and share option modified during the year ended August 31, 2011 and August 31, 2010, the Black-Scholes option pricing model (the “Black-Scholes Model”) and Monte Carlo option pricing model (“Monte Carlo Model”) have been used. Both models are among the most generally accepted methodologies used to calculate the value of options. The variables of the models include expected life of the options, risk-free interest rate, expected volatility and expected dividend yield of the shares of the Company.
In determining the value of the share options granted during the year ended August 31, 2010, the following variables have been applied to the Black-Scholes Model:
| ||||
The above variables were determined as follows:
The fair value of the options granted was estimated as below:
| ||||
|
In determining the value of the share options modified during the year ended August 31, 2010, the Black-Scholes Model and Monte Carlo Model had been used.
The following variables of original share option and modified share option had been applied to the Monte Carlo Model and Black-Scholes Model respectively:
Measurement date | January 20, 2010 | |||||||
Original share option | Modified share option | |||||||
Variables | ||||||||
-Expected life | 3 years | 3 years | ||||||
-Risk-free rate | 0.96 | % | 0.96 | % | ||||
-Expected volatility | 74.73 | % | 74.73 | % | ||||
-Expected dividend yield | 6.09 | % | 6.09 | % |
The above variables were determined as follows:
The fair value of the options modified was estimated as below:
| ||||
In determining the value of the share options modified during the year ended August 31, 2011, the Black-Scholes Model had been used.
The following variables had been applied to the Black-Scholes Model:
Measurement date | December 21, 2010 | |||||||
Original share option | Modified share option | |||||||
Variables | ||||||||
-Expected life | 2 years | 4 years | ||||||
-Risk-free rate | 0.56 | % | 1.18 | % | ||||
-Expected volatility | 51.20 | % | 66.85 | % | ||||
-Expected dividend yield | 6.94 | % | 5.90 | % |
The above variables were determined as follows:
The fair value of the options modified during the year is estimated as below:
| ||||
|
The Group recognizes the fair value of granted share options and incremental fair value of modified share options as an expense in the income statement over the vesting period. The fair value of the granted share options and incremental fair value of modified share options are measured at the date of grant and date of modification respectively.
The Black-Scholes Model and Monte Carlo Model applied for the determination of the estimated value of the options granted under 2002 Share Option Scheme require input of highly subjective assumptions, including the expected stock volatility. Changes in subjective inputs may materially affect the estimated fair value of the options granted.
| ||||
| ||||
Impairment tests for cash-generating units containing goodwill
Goodwill is allocated to the Group’s cash-generating units (“CGU”) identified according to business segment as follows:
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Fixed telecommunications network service segment | 1,066 | 1,066 | ||||||
|
|
|
|
The recoverable amount of the CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows for the five-year period are estimated based on average growth rates of 14% and a pre-tax discount rate of 16%. Cash flows beyond the five year period are assumed to remain constant. The estimated growth rates used are comparable to the growth rate for the industry.
The key assumption used in the value-in-use calculation is the annual growth rate of the turnover of the fixed telecommunications network services, which are determined based on the past performance and management’s expectation for market development. The discount rate used is pre-tax and reflects specific risks relating to the fixed telecommunications services segment.
Any adverse change in the key assumptions could reduce the recoverable amount below carrying amount.
Construction in progress | Investment property | Leasehold land and buildings | Leasehold improvements | Furniture, fixtures and fittings | Telecom- munications, computer and office equipment | Motor vehicles | Total | |||||||||||||||||||||||||
HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | |||||||||||||||||||||||||
Cost: | ||||||||||||||||||||||||||||||||
At September 1, 2010 | — | 5,197 | 90,911 | 113,286 | 21,191 | 3,130,209 | 12,948 | 3,373,742 | ||||||||||||||||||||||||
Additions | 51,111 | — | 1,576 | 6,851 | 203 | 388,828 | 627 | 449,196 | ||||||||||||||||||||||||
Disposals | — | — | — | — | (42 | ) | (57,268 | ) | (1,356 | ) | (58,666 | ) | ||||||||||||||||||||
Exchange adjustments | — | — | — | 1,461 | 484 | 4,593 | — | 6,538 | ||||||||||||||||||||||||
Transfer of investment property | — | (5,197 | ) | 5,197 | — | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
At August 31, 2011 | 51,111 | — | 97,684 | 121,598 | 21,836 | 3,466,362 | 12,219 | 3,770,810 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Accumulated depreciation: | ||||||||||||||||||||||||||||||||
At September 1, 2010 | — | 2,413 | 14,284 | 80,316 | 18,132 | 1,816,942 | 9,842 | 1,941,929 | ||||||||||||||||||||||||
Charge for the year | — | 104 | 1,850 | 10,349 | 1,121 | 203,009 | 1,764 | 218,197 | ||||||||||||||||||||||||
Disposals | — | — | — | — | (42 | ) | (36,098 | ) | (1,356 | ) | (37,496 | ) | ||||||||||||||||||||
Exchange adjustments | — | — | — | 1,272 | 450 | 3,757 | — | 5,479 | ||||||||||||||||||||||||
Transfer of investment property | — | (2,517 | ) | 2,517 | — | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
At August 31, 2011 | — | — | 18,651 | 91,937 | 19,661 | 1,987,610 | 10,250 | 2,128,109 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net book value: | ||||||||||||||||||||||||||||||||
At August 31, 2011 | 51,111 | — | 79,033 | 29,661 | 2,175 | 1,478,752 | 1,969 | 1,642,701 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Cost: | ||||||||||||||||||||||||||||||||
At September 1, 2009 | — | 5,197 | 90,911 | 100,447 | 19,885 | 2,850,444 | 12,773 | 3,079,657 | ||||||||||||||||||||||||
Additions | — | — | — | 12,885 | 1,343 | 330,441 | 175 | 344,844 | ||||||||||||||||||||||||
Disposals | — | — | — | (212 | ) | (109 | ) | (51,906 | ) | — | (52,227 | ) | ||||||||||||||||||||
Exchange adjustments | — | — | — | 166 | 72 | 1,230 | — | 1,468 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
At August 31, 2010 | — | 5,197 | 90,911 | 113,286 | 21,191 | 3,130,209 | 12,948 | 3,373,742 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Accumulated depreciation: | ||||||||||||||||||||||||||||||||
At September 1, 2009 | — | 2,309 | 12,466 | 69,102 | 17,017 | 1,668,160 | 8,223 | 1,777,277 | ||||||||||||||||||||||||
Charge for the year | — | 104 | 1,818 | 11,270 | 1,166 | 183,052 | 1,619 | 199,029 | ||||||||||||||||||||||||
Disposals | — | — | — | (212 | ) | (109 | ) | (35,344 | ) | — | (35,665 | ) | ||||||||||||||||||||
Exchange adjustments | — | — | — | 156 | 58 | 1,074 | — | 1,288 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
At August 31, 2010 | — | 2,413 | 14,284 | 80,316 | 18,132 | 1,816,942 | 9,842 | 1,941,929 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net book value: | ||||||||||||||||||||||||||||||||
At August 31, 2010 | — | 2,784 | 76,627 | 32,970 | 3,059 | 1,313,267 | 3,106 | 1,431,813 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
The Group’s total future aggregate lease income receivable under non-cancellable operating lease are as follows: |
2011 HK$’000 | 2010 HK$’000 | |||||||
Leases in respect of investment property which are receivable: | ||||||||
- Within 1 year | — | 108 | ||||||
- After 1 year but within 5 years | — | — | ||||||
|
|
|
| |||||
— | 108 | |||||||
|
|
|
| |||||
Leases in respect of telecommunications facilities and computer equipment which are receivable: | ||||||||
- Within 1 year | 3,604 | 2,335 | ||||||
- After 1 year but within 5 years | 2,653 | 607 | ||||||
|
|
|
| |||||
6,257 | 2,942 | |||||||
|
|
|
| |||||
6,257 | 3,050 | |||||||
|
|
|
|
During the year ended August 31, 2011, the lease of the investment property to a third party expired and the property has then been leased to a group entity for self-use. Upon this change in use, the Group transferred the investment property into leasehold land and buildings.
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Continuing operations: | ||||||||||||
Leases in respect of investment properties which are receivable: | ||||||||||||
- Within 1 year | 11,428 | 11,428 | 11,481 | |||||||||
- After 1 year but within 5 years | 16,189 | 19,999 | 31,426 | |||||||||
|
|
|
|
|
| |||||||
27,617 | 31,427 | 42,907 | ||||||||||
|
|
|
|
|
|
(c) |
2011 HK$’000 | 2010 HK$’000 | |||||||
Leases of between 10 to 50 years | 130,144 | 79,411 | ||||||
|
|
|
| |||||
Representing: | ||||||||
Construction in progress carried at cost | 51,111 | — | ||||||
Leasehold land and building carried at cost | 79,033 | 76,627 | ||||||
Investment property carried at cost less impairment loss | — | 2,784 | ||||||
|
|
|
| |||||
130,144 | 79,411 | |||||||
|
|
|
|
(d) |
At August 31, 2011, the net book value of telecommunications, computer and office equipment under finance lease held by the Group amounted to HK$267,000 (2010: HK$674,000).
(e) | The net book value of interests in construction in progress, leasehold land and buildings and investment properties situated in Hong Kong are analyzed as follows: |
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Medium term lease | 427,159 | 432,815 | 440,957 | |||||||||
|
|
|
|
|
| |||||||
Representing: | ||||||||||||
Construction in progress carried at cost less impairment loss | 144,233 | 151,435 | 150,210 | |||||||||
Leasehold land and buildings carried at cost | 54,026 | 54,580 | 56,547 | |||||||||
Investment properties stated at fair value | 228,900 | 226,800 | 234,200 | |||||||||
|
|
|
|
|
| |||||||
427,159 | 432,815 | 440,957 | ||||||||||
|
|
|
|
|
|
(f) | The cost of construction in progress comprises premium paid for the land registered in Hong Kong with a lease term of about 36 years and expenditure incurred on the development of buildings not yet completed at the |
Further particulars of the Group’s leasehold land and properties interest at December 31, 2014 are as follows: |
Location | Use | Lease term | Attributable interest of the Group | |||||
12/F,14/F, 15/F & Roof on 17/F, | Leasing for rental income | Medium term lease | 100 | % | ||||
13/F and 16/F, Trans Asia Centre, | Self-use | Medium term lease | 100 | % | ||||
The whole of 14/F and Lorry Parking | Leasing for rental income | Medium term lease | 100 | % | ||||
The remaining portion of section S | Self-use | Medium term lease | 100 | % |
16 | Intangible assets |
Mobile television HK$’000 | IRU of the tele- HK$’000 | Right to use of HK$’000 | Total HK$’000 | |||||||||||||
Cost: | ||||||||||||||||
At September 1, 2013 | — | 226,700 | 90,243 | 316,943 | ||||||||||||
Additions through acquisition of a subsidiary | 146,591 | — | — | 146,591 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
At August 31, 2014/December 31, 2014 | 146,591 | 226,700 | 90,243 | 463,534 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated amortization: | ||||||||||||||||
At September 1, 2013 | — | 14,240 | 11,337 | 25,577 | ||||||||||||
Amortization for the period | 8,716 | 11,335 | 9,024 | 29,075 | ||||||||||||
Impairment losses | 4,594 | 6,589 | 2,371 | 13,554 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
At August 31, 2014 (Unaudited) | 13,310 | 32,164 | 22,732 | 68,206 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Amortization for the period | 4,186 | 3,789 | 3,017 | 10,992 | ||||||||||||
Reclassification of impairment loss (note 7) | (2,345 | ) | (3,270 | ) | (1,247 | ) | (6,862 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
At December 31, 2014 | 15,151 | 32,683 | 24,502 | 72,336 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net book value: | ||||||||||||||||
At August 31, 2014 (Unaudited) | 133,281 | 194,536 | 67,511 | 395,328 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
At December 31, 2014 | 131,440 | 194,017 | 65,741 | 391,198 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost: | ||||||||||||||||
At September 1, 2012 and August 31, 2013 | — | 226,700 | 90,243 | 316,943 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated amortization: | ||||||||||||||||
At September 1, 2012 | — | 2,905 | 2,312 | 5,217 | ||||||||||||
Amortization for the period | — | 11,335 | 9,025 | 20,360 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
At August 31, 2013 | — | 14,240 | 11,337 | 25,577 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net book value: | ||||||||||||||||
At August 31, 2013 | — | 212,460 | 78,906 | 291,366 | ||||||||||||
|
|
|
|
|
|
|
|
During the twelve months ended August 31, 2012, upon the completion of Disposal and as part of the consideration received from the Disposal, the Group was granted the IRU to use certain capacity of the telecommunications network of the Telecom Business for a term of 20 years and right to use of the telecommunications services from the Telecom Business for a term of 10 years.
During the sixteen months ended December 31, 2014, the Company acquired a wholly-owned subsidiary and recorded an intangible asset in the amount of HK$146,591,000 relating to the spectrum with frequency at 678–686 MHz and microwave link at the frequency range of 7910–7920 MHz (the “Spectrum”) for the provision of broadcast-type mobile television services for a period of about 12 years.
17 | Principal subsidiaries |
The following is a list of the principal subsidiaries which principally affected the results, assets or liabilities of the Group at August 31, 2011:Group:
Name | Place of incorporation | Principal activities and place of operations | Particulars of issued share capital | Percentage of interest | ||||||
Attitude Holdings Limited | British Virgin Islands | Inactive | Ordinary US$1 | 100 | ||||||
| British Virgin Islands | Investment holding in Hong Kong | Ordinary US$1 | *100 | ||||||
| Hong Kong | Inactive | Ordinary HK$2 | 100 | ||||||
Cosmo True Limited | British Virgin Islands | Kong | Ordinary US$1 | *100 | ||||||
|
| |||||||||
| ||||||||||
| ||||||||||
| ||||||||||
|
The following is a list of the principal subsidiaries which principally affected the results, assets or liabilities of the Group at August 31, 2011: (continued)
|
| |||||||||
| ||||||||||
| Hong Kong | Inactive | Ordinary HK$10,000 | 100 | ||||||
Golden Trinity Holdings Limited | British Virgin Islands | Investment holding in Hong Kong | Ordinary US$1 | *100 | ||||||
HKTV Japan Company Limited | Japan | Engaged in trading activities | Ordinary JPY10,000 | 100 | ||||||
Hong Kong Broadband | Hong Kong | Ordinary HK$10,000 | 100 | |||||||
Hong Kong Broadband Television Company Limited | Hong Kong | Inactive | Ordinary HK$ | 100 | ||||||
Hong Kong Media Production Company Limited | Hong Kong | Provision of production and distribution services | Ordinary HK$10,000 | 100 | ||||||
| Hong Kong | Provision of Mobile Television Service | Ordinary HK$2 | 100 | ||||||
Hong Kong Mobile Television (Leasing) Limited | Hong Kong | Inactive | Ordinary HK$1 | 100 | ||||||
Hong Kong Music Network Limited | Hong Kong | Producing, publishing and licensing of musical works | Ordinary HK$1 | 100 | ||||||
Hong Kong TV Shopping Network Company Limited | Hong Kong | TV programming through OTT platform and ecommerce business | Ordinary HK$1 | 100 | ||||||
Leader Artiste Management Company Limited | Hong Kong | Provision of agency services to artistes | Ordinary HK$100 | 100 | ||||||
Multi Talent Enterprise Limited | British Virgin Islands | Investment holding in Hong Kong | Ordinary | *100 | ||||||
Talent Ascent Limited | British Virgin Islands | Investment holding in Hong Kong | Ordinary US$1 | *100 |
* | Shares held directly by the Company. |
18 | Other financial assets |
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Available-for-sale debt securities | ||||||||||||
- Maturity dates within 1 year | 293,943 | 257,152 | 341,337 | |||||||||
- Maturity dates over 1 year | 1,450,267 | 1,593,674 | 1,581,553 | |||||||||
|
|
|
|
|
| |||||||
1,744,210 | 1,850,826 | 1,922,890 | ||||||||||
|
|
|
|
|
| |||||||
Available-for-sale equity securities | ||||||||||||
- Listed | 29,090 | 27,697 | 27,724 | |||||||||
- Unlisted | 11,063 | 12,025 | 11,000 | |||||||||
|
|
|
|
|
| |||||||
40,153 | 39,722 | 38,724 | ||||||||||
|
|
|
|
|
| |||||||
1,784,363 | 1,890,548 | 1,961,614 | ||||||||||
|
|
|
|
|
|
The available-for-sale securities were carried at fair value as at December 31, 2014, August 31, 2014 and 2013.
2011 HK$’000 | 2010 HK$’000 | |||||||
Balance as at the beginning of the year | 35,612 | 49,460 | ||||||
Additions during the year | 46,896 | 34,773 | ||||||
Less: amortization charge for the year (note 4(a)) | (37,873 | ) | (48,621 | ) | ||||
|
|
|
| |||||
44,635 | 35,612 | |||||||
Current portion | (29,312 | ) | (28,986 | ) | ||||
|
|
|
| |||||
Balance as at the end of the year | 15,323 | 6,626 | ||||||
|
|
|
|
Deferred expenditure represents costs incurred to acquire subscribers of the services offered by the Group, which is treated as customer acquisition costs and are amortized over the period of the underlying service subscription agreements.
Accounts receivable, other receivables, deposits and prepayments |
2011 | 2010 | December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||||||||
HK$’000 | HK$’000 | (Unaudited) | ||||||||||||||||||
Accounts receivable | 78,529 | 105,552 | 7,788 | 470 | 1,425 | |||||||||||||||
Less: Allowance for doubtful debts | (6,530 | ) | (5,823 | ) | ||||||||||||||||
Less: allowance for doubtful debts | (100 | ) | (100 | ) | (100 | ) | ||||||||||||||
|
|
| ||||||||||||||||||
|
| 7,688 | 370 | 1,325 | ||||||||||||||||
71,999 | 99,729 |
|
|
| ||||||||||||||||
Other receivables, deposits and prepayments | 90,984 | 89,490 | 40,752 | 50,202 | 66,688 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
162,983 | 189,219 | 48,440 | 50,572 | 68,013 | ||||||||||||||||
|
|
|
|
|
(a) | Aging analysis |
The aging analysis of accounts receivable is as follows:
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Current — 30 days | 44,949 | 41,244 | ||||||
31 — 60 days | 16,417 | 9,024 | ||||||
61 — 90 days | 6,861 | 5,245 | ||||||
Over 90 days | 10,302 | 50,039 | ||||||
|
|
|
| |||||
78,529 | 105,552 | |||||||
|
|
|
|
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Current - 30 days | 7,036 | 326 | 743 | |||||||||
31 - 60 days | 460 | 3 | 554 | |||||||||
61 - 90 days | 12 | 8 | — | |||||||||
Over 90 days | 280 | 133 | 128 | |||||||||
|
|
|
|
|
| |||||||
7,788 | 470 | 1,425 | ||||||||||
|
|
|
|
|
|
The majority of the Group’s accounts receivable are due within 30 days from the date of billings. SubscribersCustomers with receivable that are more than 3 months overdue are requested to settle all outstanding balance before further credit is granted.
(b) | Impairment of accounts receivable |
Impairment losses in respect of accounts receivable are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against accounts receivable directly (see note 1(i)2(k)(i)).
The movement in the allowance for doubtful debts during the year including both specific and collective loss componentsperiod is as follows:
2011 | 2010 | 2009 | ||||||||||
HK$’000 | HK$’000 | HK$’000 | ||||||||||
Balance as at the beginning of the year | 5,823 | 3,160 | 11,944 | |||||||||
Impairment loss recognized | 13,636 | 14,742 | 12,103 | |||||||||
Uncollectible amounts written off | (12,929 | ) | (12,079 | ) | (20,887 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as at the end of the year | 6,530 | 5,823 | 3,160 | |||||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Balance as at the beginning of the period | 100 | 100 | — | |||||||||
Impairment loss recognized | — | — | 100 | |||||||||
|
|
|
|
|
| |||||||
Balance as at the end of the period | 100 | 100 | 100 | |||||||||
|
|
|
|
|
|
(c) | Accounts receivable that are not impaired |
The aging analysis of accounts receivable that are neither individually nor collectively considered to be impaired are as follows:
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Neither past due nor impaired | 44,949 | 41,244 | ||||||
0 — 30 past due | 16,417 | 9,024 | ||||||
31 — 60 past due | 6,861 | 5,245 | ||||||
Over 60 past due | 3,772 | 44,216 | ||||||
|
|
|
| |||||
71,999 | 99,729 | |||||||
|
|
|
|
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Neither past due nor impaired | 7,036 | 326 | 743 | |||||||||
1 - 30 days past due | 460 | 3 | 554 | |||||||||
31 - 60 days past due | 12 | 8 | — | |||||||||
Over 60 days past due | 180 | 33 | 28 | |||||||||
|
|
|
|
|
| |||||||
7,688 | 370 | 1,325 | ||||||||||
|
|
|
|
|
|
Accounts |
Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default.
The amounts over 60 days past due for the Group included receivable relating to mobile interconnection charges of HK$23,000 as at August 31, 2011 (August 31, 2010: HK$39,763,000) (see note 2(b)).
Other accounts receivable that were past due but not impaired relate to a number of independent customers that have a good track record of payment.payment or a reputable corporate with sound financial conditions. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold collateral over these balances.
(d) | Other receivables, deposits and prepayments |
Other receivables, deposits and prepayments consist of rental deposits, for purchase of fixed assets, rental deposit, interest receivable, unbilled revenue, prepaymentreceivables, prepayments and other receivables. All of the other receivables, except for an amount of HK$1,775,000 (August 31, 2014: HK$1,790,000; August 31, 2013: HK$1,012,000), being primarily the rental deposits, and others amounted to HK$9,026,000 (2010: HK$8,643,000), are expected to be recovered within one year.
20 | Bank deposits and cash |
Term deposits |
Term deposits are time deposits with banks with maturity over three months at acquisition.
(b) | Cash at bank and in hand |
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Time deposits with banks and other financial institutions | 263,270 | 262,280 | ||||||
Cash at bank and in hand | 145,706 | 326,385 | ||||||
|
|
|
| |||||
Cash at bank and in hand in the balance sheet | 408,976 | 588,665 | ||||||
|
|
|
|
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Time deposits with banks within three months of original maturity | 727,226 | 197,534 | 176,684 | |||||||||
Cash at bank and in hand | 91,960 | 107,687 | 171,165 | |||||||||
|
|
|
|
|
| |||||||
Cash at bank and in hand in the balance sheet | 819,186 | 305,221 | 347,849 | |||||||||
|
|
|
|
|
|
Accounts payable, other payables and accrued charges |
2011 | 2010 | December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||||||||
HK$’000 | HK$’000 | (Unaudited | ) | |||||||||||||||||
Accounts payable | 17,419 | 35,128 | 4,504 | 4,087 | 4,074 | |||||||||||||||
Other payables and accrued charges | 209,585 | 195,931 | 73,876 | 59,921 | 38,600 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
227,004 | 231,059 | 78,380 | 64,008 | 42,674 | ||||||||||||||||
|
|
|
|
|
(a) | The aging analysis of the accounts payable |
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Current — 30 days | 11,719 | 6,838 | ||||||
31 — 60 days | 245 | 1,982 | ||||||
61 — 90 days | 733 | 1,647 | ||||||
Over 90 days | 4,722 | 24,661 | ||||||
|
|
|
| |||||
17,419 | 35,128 | |||||||
|
|
|
|
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Current - 30 days | 2,155 | 830 | 1,147 | |||||||||
31 - 60 days | 85 | 130 | 140 | |||||||||
61 - 90 days | 67 | 99 | 119 | |||||||||
Over 90 days past due | 2,197 | 3,028 | 2,668 | |||||||||
|
|
|
|
|
| |||||||
4,504 | 4,087 | 4,074 | ||||||||||
|
|
|
|
|
|
(b) | Other payables and accrued charges |
Other payables primarily consist of accrual for TalentsTalent salaries and bonus, carrier feesdeferred revenue for unearned licensing income and charges,advertising income, payable for purchase of fixed assets, advertising and promotional expenses as well as interest payable.
Deferred service revenue primarily includes service fees received from customersThe bank loans were repayable as follows:
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Within 1 year | 802,165 | 862,941 | 531,883 | |||||||||
|
|
|
|
|
|
At December 31, 2014, the uncommitted banking facilities of the Company amounted to HK$2,311,010,000 (August 31, 2014: HK$2,542,065,000; August 31, 2013: HK$2,543,728,000). The facilities were utilized to the extent of bank loans of HK$802,165,000 (August 31, 2014: HK$862,941,000; August 31, 2013: HK$531,883,000).
All of the Company’s banking facilities are subject to the fulfilment of covenants as are commonly found in advance forlending arrangements with financial institutions. If the Company were to breach the covenants, the drawn down facilities would become payable on demand. The Company regularly monitors its compliance with these covenants. Further details of the Group’s management of liquidity risk are set out in note 27(b). As at December 31, 2014, and August 31, 2014 and 2013, none of the covenants relating to drawn down facilities had been breached.
At December 31, 2014, the bank loans of HK$802,165,000 bore fixed telecommunications network services. Service fees received in advance is deferredinterest rate ranged from 0.6% to 0.8% per annum (August 31, 2014: 0.6% to 0.7%; August 31, 2013: 0.6% to 0.8%).
At December 31, 2014, August 31, 2014 and recognized as revenue on a straight-line basis overAugust 31, 2013, all bank loans were secured by certain of the related contract period.Group’s available-for-sale securities with an equivalent amount to the bank loans.
Capital and reserves |
(a) |
2011 No. of Shares | Amount HK$’000 | 2010 No. of shares | Amount HK$’000 | |||||||||||||
Authorized: | ||||||||||||||||
Ordinary shares of HK$0.10 each | 2,000,000,000 | 200,000 | 2,000,000,000 | 200,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Issued and fully paid: | ||||||||||||||||
Ordinary shares of HK$0.10 each | ||||||||||||||||
At the beginning of the year | 764,997,344 | 76,500 | 664,179,970 | 66,418 | ||||||||||||
Shares issued upon exercise of share options (note (i)) | 6,914,509 | 691 | 20,317,374 | 2,032 | ||||||||||||
Shares issued upon placement (note (ii)) | — | — | 80,500,000 | 8,050 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
At the end of the year | 771,911,853 | 77,191 | 764,997,344 | 76,500 | ||||||||||||
|
|
|
|
|
|
|
|
December 31, 2014 | August 31, 2014 | August 31, 2013 | ||||||||||||||||||||||
No. of Shares | Amount HK$’000 | No. of Shares | Amount HK$’000 | No. of shares | Amount HK$’000 | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Authorized: (note 1) | ||||||||||||||||||||||||
Ordinary shares of HK$0.10 each (note 2) | — | — | — | — | 2,000,000,000 | 200,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Issued and fully paid: | ||||||||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||
At the beginning of the period | 809,016,643 | 1,268,914 | 809,016,643 | 80,902 | 809,016,643 | 80,902 | ||||||||||||||||||
Transition to no-par value regime on March 3, 2014 (note 3) | — | — | — | 1,188,012 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
At the end of the period | 809,016,643 | 1,268,914 | 809,016,643 | 1,268,914 | 809,016,643 | 80,902 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note 1: | Under the new Hong Kong Companies Ordinance (Cap. 622), which commenced operation on March 3, 2014, the concept of authorized share capital no longer exists. |
Note 2: | In accordance with section 135 of the new Hong Kong Companies Ordinance (Cap. 622), the Company’s shares no longer have a par or nominal value with effect from March 3, 2014. There is no impact on the number of shares in issue or the relative entitlement of any of the members as a result of this transition. |
Note 3: | In accordance with the transitional provisions set out in section 37 of Schedule 11 to the new Hong Kong Companies Ordinance (Cap. 622) on March 3, 2014 any amount standing to the credit of the share premium account and the capital redemption reserve has become part of the Company’s share capital. |
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per ordinary share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.
Notes:
Date of grant | Exercise price per share | Number of share options outstanding at September 1, 2010 | Granted | Exercised | Forfeited | Number of share options outstanding at August 31, 2011 | ||||||||||||||||||
October 21, 2004 | HK$ | 1.5224 | 4,158,680 | — | (350,709 | ) | — | 3,807,971 | ||||||||||||||||
January 5, 2005 | HK$ | 1.5224 | 16,183,208 | — | (2,000,000 | ) | — | 14,183,208 | ||||||||||||||||
May 22, 2006 | HK$ | 0.6523 | 5,183,443 | — | (3,958,760 | ) | — | 1,224,683 | ||||||||||||||||
February 6, 2008 | HK$ | 1.7568 | 5,542,791 | — | — | — | 5,542,791 | |||||||||||||||||
February 11, 2008 | HK$ | 1.8660 | 6,044,791 | — | — | — | 6,044,791 | |||||||||||||||||
February 15, 2008 | HK$ | 1.7568 | 604,479 | — | (302,240 | ) | — | 302,239 | ||||||||||||||||
May 2, 2008 | HK$ | 1.7866 | 932,465 | — | (302,800 | ) | (629,665 | ) | — | |||||||||||||||
February 5, 2010 | HK$ | 4.2400 | 6,000,000 | — | — | — | 6,000,000 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
44,649,857 | — | (6,914,509 | ) | (629,665 | ) | 37,105,683 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Each option entitles the holder to subscribe for one ordinary share of HK$0.10 each in the Company at a predetermined exercise price.
(b) |
ThePrior to March 3, 2014, the application of the share premium account and the capital redemption reserve was governed by sections 48B and 49H respectively of the predecessor Hong Kong Companies Ordinance (Cap. 32). In accordance with the transitional provisions set out in section 37 of Schedule 11 to the new Hong Kong Companies Ordinance (Cap. 622), on 3 March 2014 any amount standing to the credit of the share premium account and the capital redemption reserve has become part of the Company’s share capital (see note 23(a)). The use of share capital as from 3 March 2014 is governed by Sections 48B of the new Hong Kong Companies Ordinance.
The capital reserve comprises the fair value of the actual or estimated number of unexercised share options granted to Talents of the Group that was recognized in accordance with the accounting policy adopted for share based payment in note 1(o)Ordinance (Cap. 622).
In accordance with Accounting Regulations for Business Enterprises, foreign investment enterprises in the PRC are required to transfer at least 10% of their profit after taxation, as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) to the general reserve until the balance of the general reserve is equal to 50% of their registered capital.
For the year ended August 31, 2011, CTI Guangzhou Customer Services Co Ltd (“CTIGZ”), a wholly-owned subsidiary of the Group, made appropriation to the statutory reserve of RMB951,000 (2010: RMB597,000). The accumulated balance of the statutory reserve maintained at the CTIGZ as at August 31, 2011 was RMB2,963,000 (2010: RMB2,012,000). The statutory reserve can be used to reduce previous years’ losses and to increase the capital of the subsidiary.
Exchange reserve |
The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.operations outside Hong Kong. The reserve is dealt with in accordance with the accounting policies set out in note 1(d)2(e)(ii).
Fair value reserve |
The fair value reserve comprises the cumulative net change in the fair value of available-for-sale securities held at the balance sheet date and is dealt with in accordance with the accounting policies in notes 2(f) and 2(k)(i).
(e) | Capital management |
The Group’s primary objectives when managing capital are to maintain a reasonable capital structure, safeguard the Group’s ability to continue as a going concern, and to provide returns for shareholders.
The Group manages the amount of capital in proportion to risk, and makes adjustments to its capital structure through the amount of dividend payment to shareholders, issuance of scrip and new shares, and managing its debt portfolio in conjunction with cash flow requirements, taking into account its future financial obligations and commitments.
The Group monitors its capital structure by reviewing its net debt to net asset gearing ratio. For this purpose, the Group defines net debt as total loansborrowing less cash at bank and in hand and after adding back bank overdraft - unsecured.term deposits.
The net debt to net asset gearing ratio as at December 31, 2014, August 31, 20112014 and 20102013 are as follows:
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Unsecured | ||||||||
- Long-term bank loan | — | 123,567 | ||||||
- Obligations under finance leases | 393 | 605 | ||||||
|
|
|
| |||||
Total loans | 393 | 124,172 | ||||||
Less: Cash at bank and in hand | (408,976 | ) | (588,665 | ) | ||||
Add: Bank overdrafts — unsecured | 845 | 10,490 | ||||||
|
|
|
| |||||
Net cash | (407,738 | ) | (454,003 | ) | ||||
Net asset | 1,797,381 | 1,688,539 | ||||||
|
|
|
| |||||
Net debt to net asset gearing ratio | — | — | ||||||
|
|
|
|
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Bank loans | (802,165 | ) | (862,941 | ) | (531,883 | ) | ||||||
Obligations under financial leases | — | — | (160 | ) | ||||||||
|
|
|
|
|
| |||||||
Total borrowings | (802,165 | ) | (862,941 | ) | (532,043 | ) | ||||||
Less: Cash at bank and in hand | 819,186 | 305,221 | 347,849 | |||||||||
Less: Term deposits | — | 573,043 | 342,657 | |||||||||
|
|
|
|
|
| |||||||
Net cash | 17,021 | 15,323 | 158,463 | |||||||||
Net assets | 3,055,161 | 3,167,295 | 3,250,622 | |||||||||
|
|
|
|
|
| |||||||
Net debt to net asset gearing ratio | N/A | N/A | N/A | |||||||||
|
|
|
|
|
|
Neither the Company nor any of its subsidiaries are currently subject to externally imposed capital requirements.
Deferred taxation |
(a) | Deferred tax assets and liabilities recognized |
(i) | The components of deferred tax (liabilities)/assets recognized in the consolidated balance sheet and the |
Depreciation allowances in excess of the related depreciation | Tax losses carried forward | Total | ||||||||||
Deferred tax arising from: | HK$’000 | HK$’000 | HK$’000 | |||||||||
At September 1, 2008 | (126,447 | ) | 147,845 | 21,398 | ||||||||
Charged to consolidate income statement | (5,326 | ) | (31,782 | ) | (37,108 | ) | ||||||
Exchange differences | 7 | (6 | ) | 1 | ||||||||
|
|
|
|
|
| |||||||
At August 31, 2009 | (131,766 | ) | 116,057 | (15,709 | ) | |||||||
|
|
|
|
|
| |||||||
At September 1, 2009 | (131,766 | ) | 116,057 | (15,709 | ) | |||||||
Charged to consolidate income statement | (15,027 | ) | (25,107 | ) | (40,134 | ) | ||||||
Exchange differences | (6 | ) | 6 | — | ||||||||
|
|
|
|
|
| |||||||
At August 31, 2010 | (146,799 | ) | 90,956 | (55,843 | ) | |||||||
|
|
|
|
|
| |||||||
At September 1, 2010 | (146,799 | ) | 90,956 | (55,843 | ) | |||||||
Charged to consolidate income statement | (21,185 | ) | (34,110 | ) | (55,295 | ) | ||||||
Exchange differences | (7 | ) | 7 | — | ||||||||
|
|
|
|
|
| |||||||
At August 31, 2011 | (167,991 | ) | 56,853 | (111,138 | ) | |||||||
|
|
|
|
|
|
Depreciation allowances in excess of the related depreciation | Tax losses carried forward HK$’000 | Total HK$’000 | ||||||||||
Deferred tax arising from: | ||||||||||||
At September 1, 2012 | (12,103 | ) | 10,757 | (1,346 | ) | |||||||
(Charged)/credited to consolidated income statement | (3,849 | ) | 4,968 | 1,119 | ||||||||
|
|
|
|
|
| |||||||
At August 31, 2013 | (15,952 | ) | 15,725 | (227 | ) | |||||||
|
|
|
|
|
| |||||||
At September 1, 2013 | (15,952 | ) | 15,725 | (227 | ) | |||||||
(Charged)/credited to consolidated income statement | (4,550 | ) | 4,295 | (255 | ) | |||||||
|
|
|
|
|
| |||||||
At August 31, 2014 (Unaudited) | (20,502 | ) | 20,020 | (482 | ) | |||||||
|
|
|
|
|
| |||||||
At September 1, 2014 (Unaudited) | (20,502 | ) | 20,020 | (482 | ) | |||||||
(Charged)/credited to consolidated income statement | (5,120 | ) | 4,776 | (344 | ) | |||||||
|
|
|
|
|
| |||||||
At December 31, 2014 | (25,622 | ) | 24,796 | (826 | ) | |||||||
|
|
|
|
|
|
(ii) | Reconciliation to the consolidated balance sheet |
The Group | ||||||||
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Net deferred tax asset recognized in the balance sheet | — | — | ||||||
Net deferred tax liabilities recognized in the balance sheet | (111,138 | ) | (55,843 | ) | ||||
|
|
|
| |||||
(111,138 | ) | (55,843 | ) | |||||
|
|
|
|
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Net deferred tax liabilities recognized in the balance sheet | (826 | ) | (482 | ) | (227 | ) | ||||||
|
|
|
|
|
|
(b) | Deferred tax assets not recognized |
As at AugustDecember 31, 2011,2014, the Group did not recognize deferred tax assets in respect of unused tax losses of HK$8,087,000 (2010:566,004,000 (August 31, 2014; HK$8,242,000)404,330,000; August 31, 2013: HK$204,948,000) as it was not probable that future taxable profits against which the losses could be utilized would be available in the relevant tax jurisdictions.
The Group | ||||||||
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Expiry in 15-20 years | 2,412 | 2,553 | ||||||
No expiry date | 5,675 | 5,689 | ||||||
|
|
|
| |||||
8,087 | 8,242 | |||||||
|
|
|
|
As at August 31, 2011, The tax losses do not expire under the Group has not recognized deferredcurrent tax liabilities in respect of the 10% (or 5% if tax treaty relief is available) PRC dividend withholding tax on temporary differences relating to the undistributed profits of its PRC subsidiary amounted to HK$31,550,000 (2010: HK$12,283,000), as the Group controls the dividend policy of the subsidiary and it has been determined that it is probable that profits will not be distributed in the foreseeable future.legislation.
Derivative financial instrument |
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Non-current liability | ||||||||
Interest rate swap, at fair value through profit or loss | 11,564 | 11,293 | ||||||
|
|
|
|
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Interest rate swap, at fair value through profit or loss | — | 1,340 | 5,181 | |||||||||
|
|
|
|
|
|
As at August 31, 20112014 and August 31, 2010,2013, the Group hashad a 5-year interest rate swap contract with a HK$175,000,000 notional amount to hedge against interest rate risk. Under this arrangement, the Group willwould pay a fixed rate interest on the notional amount on a quarterly basis, and receive a floating interest rate at HIBOR rate. The contract iswas recognized initially at fair value and iswas remeasured at each balance sheet date. The 5-year interest swap contract was matured on December 24, 2014.
The Interestinterest rate swap doeswas not quality for hedge accounting under IAS/HKASIAS 39,Financial instruments: Recognition and measurement, and therefore changes in its fair value is recognized immediately in profit or loss.
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Long-term bank loan — unsecured (note (a)) | — | 123,567 | ||||||
Obligations under finance leases (note (b)) | 393 | 605 | ||||||
|
|
|
| |||||
393 | 124,172 | |||||||
Current portion of — obligations under finance leases | (105 | ) | (212 | ) | ||||
|
|
|
| |||||
288 | 123,960 | |||||||
|
|
|
|
At August 31, 2011, the Group’s long-term debt and other liabilities were repayable as follows:
2011 | 2010 | |||||||
HK$’000 | HK$’000 | |||||||
Long-term debt | ||||||||
- after 2 years but within 5 years | — | 123,567 | ||||||
|
|
|
| |||||
Obligations under finance leases | ||||||||
- Within 1 year | 105 | 212 | ||||||
- After 1 year but within 2 years | 105 | 105 | ||||||
- After 2 years but within 5 years | 183 | 288 | ||||||
|
|
|
| |||||
393 | 605 | |||||||
Less: Current portion of obligations under finance leases | (105 | ) | (212 | ) | ||||
|
|
|
| |||||
288 | 393 | |||||||
|
|
|
| |||||
288 | 123,960 | |||||||
|
|
|
|
Notes:
2011 | 2010 | |||||||||||||||||||||||
Present value of the minimum lease payments | Interest expense relating to future periods | Total minimum lease payments | Present value of the minimum lease payments | Interest expense relating to future periods | Total minimum lease payments | |||||||||||||||||||
HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | |||||||||||||||||||
Within 1 year | 105 | 20 | 125 | 212 | 30 | 242 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
After 1 year but within 2 years | 105 | 14 | 119 | 105 | 20 | 125 | ||||||||||||||||||
After 2 years but within 5 years | 183 | 8 | 191 | 288 | 22 | 310 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
288 | 22 | 310 | 393 | 42 | 435 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
393 | 42 | 435 | 605 | 72 | 677 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the consolidated cash flow statement |
Reconciliation of profit before taxation to net cash (outflow)/inflow generated from operations
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | ||||||||||
Profit before taxation | 372,869 | 259,545 | 251,559 | |||||||||
Depreciation of owned fixed assets | 217,790 | 198,323 | 205,624 | |||||||||
Depreciation of fixed assets held under finance lease | 407 | 706 | 617 | |||||||||
Amortization of deferred expenditure | 37,873 | 48,621 | 53,160 | |||||||||
Interest income | (3,366 | ) | (11,372 | ) | (4,869 | ) | ||||||
Interest element of finance lease | 30 | 42 | 27 | |||||||||
Loss/(gain) on disposal of fixed assets | 1,008 | (1,375 | ) | 1,016 | ||||||||
Realized and unrealized gain on other financial assets | — | — | (189 | ) | ||||||||
Equity settled share-based transactions | 4,652 | 5,347 | 4,768 | |||||||||
Loss/(gain) on extinguishment of 10-year senior notes | — | 9,650 | (31,371 | ) | ||||||||
Change in fair value of derivative financial instruments | 271 | 11,293 | — | |||||||||
Interest, amortization and exchange difference on 10-year senior notes | — | 6,069 | 49,214 | |||||||||
Other borrowings costs | 3,473 | 3,260 | 885 | |||||||||
Amortization of upfront cost on long-term bank loan | 182 | 192 | — | |||||||||
Interest on bank borrowings | 1,152 | 1,379 | — | |||||||||
Write-off of upfront costs upon settlement of long-term bank loan | 1,251 | — | — | |||||||||
|
|
|
|
|
| |||||||
Net cash inflow before working capital changes | 637,592 | 531,680 | 530,441 | |||||||||
Decrease/(increase) in long-term receivable and prepayment | 1,073 | 917 | (505 | ) | ||||||||
Decrease in accounts receivable, other receivables, deposits and prepayments | 26,543 | 738 | 33,052 | |||||||||
Increase in deferred expenditure | (46,896 | ) | (34,773 | ) | (46,525 | ) | ||||||
(Decrease)/increase in accounts payable, other payables, accrued charges and deposits received | (9,490 | ) | (1,937 | ) | 17,419 | |||||||
(Decrease)/increase in deferred service revenue | (19,911 | ) | (8,272 | ) | 4,621 | |||||||
|
|
|
|
|
| |||||||
Net cash inflow generated from operations | 588,911 | 488,353 | 538,503 | |||||||||
|
|
|
|
|
|
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||
(unaudited) | (Unaudited) | |||||||||||||||||||
(Loss)/profit before taxation | (236,797 | ) | (73,798 | ) | (162,999 | ) | (41,969 | ) | 3,748,562 | |||||||||||
Depreciation of fixed assets | 37,773 | 10,188 | 27,585 | 26,622 | 187,537 | |||||||||||||||
Depreciation capitalized as programme costs | (3,403 | ) | (508 | ) | (2,895 | ) | (7,515 | ) | (1,632 | ) | ||||||||||
Amortization of deferred expenditure | — | — | — | — | 29,902 | |||||||||||||||
Amortization of programme cost | 26,626 | 26,626 | — | — | — | |||||||||||||||
Intangible assets written off | — | — | — | — | 2,450 | |||||||||||||||
Bank interest income | (23,017 | ) | (5,292 | ) | (17,725 | ) | (27,051 | ) | (17,241 | ) | ||||||||||
Interest income from available-for-sale securities | (120,353 | ) | (29,407 | ) | (90,946 | ) | (61,406 | ) | — | |||||||||||
Dividend income from available-for-sale securities | (1,825 | ) | (336 | ) | (1,489 | ) | (895 | ) | — | |||||||||||
Gain on disposal of available-for-sale securities | (4,946 | ) | (504 | ) | (4,442 | ) | (4,508 | ) | — | |||||||||||
Interest element of finance lease | 3 | — | 3 | 9 | 19 | |||||||||||||||
Loss/(gain) on disposal of fixed assets | 208 | (3 | ) | 211 | 263 | (1,999 | ) | |||||||||||||
Equity settled share-based transactions | — | — | — | — | 10,480 | |||||||||||||||
Valuation gains on investment properties | (3,900 | ) | (2,100 | ) | (1,800 | ) | (43,400 | ) | (18,200 | ) | ||||||||||
Gain on sale of discontinued operations | — | — | — | — | (3,520,088 | ) | ||||||||||||||
Amortization of intangible assets | 40,067 | 10,992 | 29,075 | 20,360 | 5,217 | |||||||||||||||
Change in fair value of derivative financial instrument | (5,181 | ) | (1,340 | ) | (3,841 | ) | (4,482 | ) | (1,901 | ) | ||||||||||
Other borrowing costs | 5,598 | 1,343 | 4,255 | 4,653 | 3,763 | |||||||||||||||
Interest expenses on bank loans | 7,169 | 1,952 | 5,217 | 2,530 | — | |||||||||||||||
Impairment losses/write off of assets | 32,000 | — | 32,000 | — | — | |||||||||||||||
Exchange loss/(gain) | 18,311 | 9,327 | 8,984 | (22,603 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash (outflow)/inflow before working capital changes | (231,667 | ) | (52,860 | ) | (178,807 | ) | (159,392 | ) | 426,869 | |||||||||||
(Decrease)/increase in long-term receivable and prepayment | (152 | ) | (241 | ) | 89 | 151 | (716 | ) | ||||||||||||
Increase/(decrease) in accounts receivable, other receivables, deposits and prepayments, and inventories | 82 | (11,899 | ) | 11,981 | (9,886 | ) | (108,169 | ) | ||||||||||||
Increase in programme costs | (83,439 | ) | (2,093 | ) | (81,346 | ) | (194,649 | ) | (85,985 | ) | ||||||||||
Increase in deferred expenditure | — | — | — | — | (22,245 | ) | ||||||||||||||
Increase/(decrease) in accounts payable, other payables, accrued charges and deposits received | 24,110 | 17,431 | 6,679 | 6,972 | (19,181 | ) | ||||||||||||||
Decrease in deferred services revenue | — | — | — | — | (5,646 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash (outflow)/inflow from operations | (291,066 | ) | (49,662 | ) | (241,404 | ) | (356,804 | ) | 184,927 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Share capital (including share premium and capital reserve) HK$’000 | Obligations under finance leases HK$’000 | 10-year senior notes HK$’000 | Long-term bank loan HK$’000 | |||||||||||||
Balance at September 1, 2008 | 754,792 | 376 | 683,242 | — | ||||||||||||
Share issued upon exercise of share options | 1,399 | — | — | — | ||||||||||||
Repurchase and cancellation of ordinary shares | (7 | ) | — | — | — | |||||||||||
Share issued in respect of scrip dividend | 9,906 | — | — | — | ||||||||||||
Purchase of fixed assets under finance lease | — | 494 | — | — | ||||||||||||
Repayment of capital element of finance lease | — �� | (138 | ) | — | — | |||||||||||
Repurchase of 10-year senior notes | — | — | (485,829 | ) | — | |||||||||||
Gain on extinguishment of 10-year senior notes | — | — | (31,371 | ) | — | |||||||||||
Amortization of incidental issuance costs | — | — | 1,545 | — | ||||||||||||
Equity settled share-based transactions | 4,768 | — | — | — | ||||||||||||
Effect of foreign exchange rate changes | — | — | (5,001 | ) | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at August 31, 2009 | 770,858 | 732 | 162,586 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at September 1, 2009 | 770,858 | 732 | 162,586 | — | ||||||||||||
Share issued upon exercise of share options | 16,744 | — | — | — | ||||||||||||
Shares issued upon placement | 379,612 | — | — | — | ||||||||||||
Purchase of fixed assets under finance lease | — | 90 | — | — | ||||||||||||
Repayment of capital element of finance lease | — | (217 | ) | — | — | |||||||||||
Repurchase and redemption of 10-year senior notes | — | — | (172,423 | ) | — | |||||||||||
Loss on extinguishment of 10-year senior notes | — | — | 9,650 | — | ||||||||||||
Amortization of incidental issuance costs | — | — | 188 | — | ||||||||||||
Net proceeds from new bank loan | — | — | — | 123,375 | ||||||||||||
Amortization of upfront costs on long-term bank loan | — | — | — | 192 | ||||||||||||
Equity settled share-based transactions | 5,347 | — | — | — | ||||||||||||
Effect of foreign exchange rate changes | — | — | (1 | ) | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at August 31, 2010 | 1,172,561 | 605 | — | 123,567 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at September 1, 2010 | 1,172,561 | 605 | — | 123,567 | ||||||||||||
Share issued upon exercise of share options | 7,232 | — | — | — | ||||||||||||
Repayment of capital element of finance lease | — | (212 | ) | — | — | |||||||||||
Repayment of long-term bank loan | — | — | — | (125,000 | ) | |||||||||||
Write-off of upfront costs upon settlement of long-term bank loan | — | — | — | 1,251 | ||||||||||||
Amortization of upfront cost of bank loan | — | — | — | 182 | ||||||||||||
Equity settled share-based transactions | 4,652 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at August 31, 2011 | 1,184,445 | 393 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
Financial instruments |
Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. These risks are limited by the Group’s financial management policies and practices described below.
(a) | Credit risk |
The Group’s credit risk is primarily attributable to accounts receivablemainly arose from trade and other receivables.receivables, term deposits, cash at bank and available-for-sale debt securities. Management has a credit policy in place and the exposure to the credit risk is monitored on an ongoing basis.
In respect of accounts receivabletrade and other receivables, credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay and take into account information specific to the customer as well as pertaining to the economic environment in which the customer locates.its financial condition. These receivables are normally due within 30 days from the date of billing. SubscribersCustomers with receivables that are more than 3 months overdue are requested to settle all outstanding balances before any further credit is granted. The Group generally does not obtain collateral from customers.
The Group’s exposure to credit risk arising from accounts receivables is influenced mainly by individual characteristics of each customer.customer and further quantitative disclosures are set out in note 19. The defaultcredit risk on trade receivables is not considered significant given majority credit sales were attributable to reputable corporations.
Available-for-sale debt securities, term and other bank deposits are invested or placed with counterparties and financial institutions with sound credit quality. To mitigate the risk of non-recovery of investments in available-for-sale debt securities and their related concentration risk, the countryGroup maintains portfolio which comprises mainly of investment grade products, constituents of defined world indices and instruments issued by state owned or controlled enterprises. The Group closely monitors the credit quality and financial positions of counterparties and consider appropriate action if the market value of the securities decline by a pre-determined threshold. Investments in which customer locates also has an influence on credit risk butdebt securities related to a lesser extent. Concentrationsnumber of credit riskcounterparties with respect to accounts receivable are limited dueno history of default on interest payments to the Group. As at December 31, 2014, there was no significant concentration risk, as the portfolio of the Group’s customer base being largeavailable-for-sale debt securities was diversified and unrelated. As such, management does not expect any significant lossescomprised of accounts receivable that have not been provideda number of counterparties and no individual counterparty accounted for by waymore than 10% of allowances as disclosed in note 15.the portfolio. All deposits were placed with financial institutions with credit rating of A- (S&P) or above.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset after deducting any impairment allowance in the balance sheet. Except for the financial guarantee given by the Group as disclosed in note 25,At December 31, 2014, the Group does not provide any otherfinancial guarantees which expose the Group to credit risk. The maximum exposure to credit risk in respect of these financial guarantees at the balance sheet date is disclosed in note 25.
Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from accounts receivable are set out in note 15.
(b) | Liquidity risk |
The Group has a cash management policy, which includes the short term investment of surplus cash surpluses and the raising of loans and other borrowings at acceptable costs to cover expected shortfall on cash demands. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient free cash, and readily realizablerealisable marketable securities and adequate amount of committed credit facilities from major financial institutions to meet its liquidity requirements in the short and long term. Due to the dynamic nature
The Group determines that there is no significant liquidity risk in view of the underlying business, the Group aims to maintain flexibility in funding by maintaining committed credit lines available.our adequate funds and unutilized banking facilities.
The following table details the remaining contractual maturities at the balance sheet date of the Group’s financial liabilities, which are based on undiscounted cash flows (including interest) and the earliest date the Group arecan be required to pay.
2011 | 2010 | |||||||||||||||||||||||||||||||||||||||
Carrying amount HK$’000 | Total contractual undiscounted cash flow HK$’000 | Within 1 year or on demand HK$’000 | More than 1 year but less than 2 years HK$’000 | More than 2 years but 5 years | Carrying amount HK$’000 | Total contractual undiscounted cash flow HK$’000 | Within 1 year or on demand | More than 1 year but less than 2 years HK$’000 | More than 2 years but Less than 5 years HK$’000 | |||||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||||||||||
Bank overdrafts - unsecured | 845 | 845 | 845 | — | — | 10,490 | 10,490 | 10,490 | — | — | ||||||||||||||||||||||||||||||
Accounts payable | 17,419 | 17,419 | 17,419 | — | — | 35,128 | 35,128 | 35,128 | — | — | ||||||||||||||||||||||||||||||
Other payables and accrued charges | 209,585 | 209,585 | 209,585 | — | — | 195,931 | 195,931 | 195,931 | — | — | ||||||||||||||||||||||||||||||
Deposits received | 26,969 | 26,969 | 26,969 | — | — | 21,822 | 21,822 | 21,822 | — | — | ||||||||||||||||||||||||||||||
Obligations under finance leases | 105 | 125 | 125 | — | — | 212 | 242 | 242 | — | — | ||||||||||||||||||||||||||||||
Tax payable | 2,281 | 2,281 | 2,281 | — | — | 1,533 | 1,533 | 1,533 | — | — | ||||||||||||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||||||||||||||||
Long-term bank loan | — | — | — | — | — | 123,567 | 133,996 | 1,829 | 2,166 | 130,001 | ||||||||||||||||||||||||||||||
Derivative financial instrument | 11,564 | 12,590 | 4,716 | 4,000 | 3,874 | 11,293 | 11,435 | 4,580 | 3,441 | 3,414 | ||||||||||||||||||||||||||||||
Obligations under finance leases | 288 | 310 | — | 119 | 191 | 393 | 435 | — | 125 | 310 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
269,056 | 270,124 | 261,940 | 4,119 | 4,065 | 400,369 | 411,012 | 271,555 | 5,732 | 133,725 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 | ||||||||||||||||||||
Carrying Amount HK$’000 | Total contractual undiscounted cash flow HK$’000 | Within 1 year or on demand HK$’000 | More than 1 year but less than 2 years HK$’000 | More than 2 year but less than 5 years HK$’000 | ||||||||||||||||
Current liabilities | ||||||||||||||||||||
Bank loans | 802,165 | 802,640 | 802,640 | — | — | |||||||||||||||
Accounts payable | 4,504 | 4,504 | 4,504 | — | — | |||||||||||||||
Other payables and accrued charges | 73,876 | 73,876 | 73,876 | — | — | |||||||||||||||
Deposits received | 1,905 | 1,905 | 1,905 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
882,450 | 882,925 | 882,925 | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
August 31, 2014 (Unaudited) | ||||||||||||||||||||
Carrying Amount HK$’000 | Total contractual undiscounted cash flow HK$’000 | Within 1 year or on demand HK$’000 | More than 1 year but less than 2 years HK$’000 | More than 2 year but less than 5 years HK$’000 | ||||||||||||||||
Current liabilities | ||||||||||||||||||||
Bank loans | 862,941 | 863,459 | 863,459 | — | — | |||||||||||||||
Accounts payable | 4,087 | 4,087 | 4,087 | — | — | |||||||||||||||
Other payables and accrued charges | 59,921 | 59,921 | 59,921 | — | — | |||||||||||||||
Deposits received | 1,905 | 1,905 | 1,905 | — | — | |||||||||||||||
Derivative financial instrument | 1,340 | 1,341 | 1,341 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
930,194 | 930,713 | 930,713 | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
August 31, 2013 | ||||||||||||||||||||
Carrying Amount HK$’000 | Total contractual undiscounted cash flow HK$’000 | Within 1 year or on demand HK$’000 | More than 1 year but less than 2 years HK$’000 | More than 2 year but less than 5 years HK$’000 | ||||||||||||||||
Current liabilities | ||||||||||||||||||||
Bank loans | 531,883 | 532,203 | 532,203 | — | — | |||||||||||||||
Accounts payable | 4,074 | 4,074 | 4,074 | — | — | |||||||||||||||
Other payables and accrued charges | 38,600 | 38,600 | 38,600 | — | — | |||||||||||||||
Deposits received | 1,905 | 1,905 | 1,905 | — | — | |||||||||||||||
Obligation under finance leases | 90 | 95 | 95 | — | — | |||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Derivative financial instrument | 5,181 | 5,600 | 4,115 | 1,485 | — | |||||||||||||||
Obligation under finance leases | 70 | 71 | — | 71 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
581,803 | 582,548 | 580,992 | 1,556 | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(c) | Interest rate risk |
Interest rate risk arose principally from available-for-sale debt securities, term deposits, bank loans and interest rate swap. Financial instruments with fixed and variable interest rates expose the Group to fair value and cash flow interest rate risk respectively due to fluctuations of market interest rates. The Group actively manages available-for-sale debt securities, term deposits and bank loans by comparing investment yields and quotations from the market, with a view to select terms which are most favorable to the Group.
Interest-bearing financial instruments of the Group were as follows:
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Fixed rate instruments: | ||||||||||||
- Other financial assets: available-for-sale debt securities | 1,744,210 | 1,850,826 | 1,922,890 | |||||||||
- Term deposits | — | 573,043 | 342,657 | |||||||||
- Bank loans | (802,165 | ) | (862,941 | ) | (531,883 | ) | ||||||
Variable rate instruments | ||||||||||||
- Derivative financial instrument – interest rate swap | — | (1,340 | ) | (5,181 | ) | |||||||
|
|
|
|
|
| |||||||
942,045 | 1,559,588 | 1,728,483 | ||||||||||
|
|
|
|
|
|
Fair value sensitivity analysis for fixed rate instruments
The Group account for the investments in debt securities as available-for-sale with any change in fair value recognized in other comprehensive income and accumulated in equity. With other variable held constant, a decrease or increase of 100 basis-points in interest rates at balance sheet date would have increased or decreased equity by HK$38,741,000 (August 31, 2014: HK$41,032,000; August 31, 2013: HK$54,180,000).
The Group account for the term deposits and bank loans at amortized cost, therefore a change in interest rates at balance sheet date would not affect profit or loss and equity.
Cash flow sensitivity analysis for variable rate instruments
The Group’s cash flow interest-rate risk arose mainly from the HK$125,000,000 long-term bank loan as at August 31, 2010 which bore floating interest rate. Bank loans at variable rates exposed the Group to cash flow interest rate risk. The long-term bank loan was fully repaid in the year ended August 31, 2011. The Group has a 5-year interest rate swap contract with a HK$175,000,000 notional amount as at August 31, 20112014 and 2010.2013. The Group will pay a fixed rate interest on the notional amount on a quarterly basis, and receive a floating interest rate at HIBOR rate.
The following table details thecontract was recognized initially at fair value and is re-measured at each balance sheet date. The 5-year interest rate profile of the Group’s borrowingsswap contract was matured on December 24, 2014.
The Group has no variable rate instrument subject to cash flow interest rate risk as at the balance sheet date.December 31, 2014.
2011 | 2010 | |||||||||||||||
Effective interest rate % | HK$’000 | Effective interest rate % | HK$’000 | |||||||||||||
Fixed rate borrowings: | ||||||||||||||||
Obligations under finance leases | 5.6 | 393 | 5.6 | 605 | ||||||||||||
|
|
|
| |||||||||||||
Floating rate borrowings: | ||||||||||||||||
Bank overdrafts — unsecured | 6.3 | 845 | 5.3 | 10,490 | ||||||||||||
Long-term bank loan | — | — | 1.7 | 123,567 | ||||||||||||
|
|
|
|
The Group’s profitloss attributable to shareholders would decrease by approximately HK$1,750,000 (2010:(August 31, 2013: decrease in loss attributable to shareholder of HK$1,250,000)1,750,000) in response to a 100 basis-points increase in market interest rates applicable as at August 31, 2011,2014, with all other variables held constant. The analysis performed including the effect of the Group’s interest rate swap contract as disclosed in note 21 to the financial statements.
(d) | Foreign currency risk |
All the Group’s monetary assets and liabilities are primarily denominated in either Hong Kong dollars or United States dollars. Given the exchange rate of the Hong Kong dollar to the U.S. dollar has remained close to the current pegged rate of HKD7.80 = USD1.00 since 1983, management does not expect significant foreign exchange gains or losses between the two currencies.
The Group is also exposed to a certain amount of foreign exchangecurrency risk, based ondue to the fluctuations between the Hong Kong dollars and the Renminbi arising from its operationsinvestments in the PRC.Renminbi available-for-sale securities, term deposits and cash at bank. In order to limit this foreign currency risk, exposure, the Group maintainedclosely monitors Renminbi cash balance that approximates twoexposure to three months’ of operating cash flows.an acceptable level by buying or selling Renminbi at spot rates where necessary.
The following table details the Group’s exposure at the balance sheet date to currency risk arising from recognized assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate. For presentation purposes, the amounts of the exposure are shown in HKD, translated using the spot rate at the balance sheet date.
2011 | 2010 | |||||||||||||||||||||||
United States Dollars ‘000 | Japanese Yen ‘000 | Canadian Dollars ‘000 | United States Dollars ‘000 | Japanese Yen ‘000 | Canadian Dollars ‘000 | |||||||||||||||||||
Cash at bank and in hand | 3,240 | 252 | 526 | 30,443 | 591 | 435 | ||||||||||||||||||
Bank overdrafts — unsecured | (107 | ) | — | — | (294 | ) | — | — | ||||||||||||||||
Accounts payable | (795 | ) | (168 | ) | (5 | ) | (1,350 | ) | — | — | ||||||||||||||
Other payables and accrued charges | (291 | ) | — | — | (1,075 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Overall net exposure | 2,047 | 84 | 521 | 27,724 | 591 | 435 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Exposure to foreign currencies (expressed in HKD) December 31, 2014 | Exposure to foreign currencies (expressed in HKD) August 31, 2014 | Exposure to foreign currencies (expressed in HKD) August 31, 2013 | ||||||||||||||||||||||
USD | RMB | USD | RMB | USD | RMB | |||||||||||||||||||
’000 | ’000 | ’000 | ’000 | ’000 | ’000 | |||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
Term deposits | — | — | 310,761 | 262,282 | 177,441 | 165,216 | ||||||||||||||||||
Cash at bank and in hand | 263,928 | 514,928 | 80,326 | 209,060 | 67,888 | 137,595 | ||||||||||||||||||
Other financial assets | ||||||||||||||||||||||||
- Available-for-sale debt securities | 1,166,767 | 523,183 | 1,213,234 | 583,734 | 1,137,122 | 735,711 | ||||||||||||||||||
- Available-for-sale equity securities | 11,063 | — | 12,025 | — | 11,000 | — | ||||||||||||||||||
Bank loans | (802,165 | ) | — | (862,941 | ) | — | (473,597 | ) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
639,593 | 1,038,111 | 753,405 | 1,055,076 | 919,854 | 1,038,522 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity analysis
Management determinesThe following table indicates the instantaneous change in the Group’s loss for the year and other components of equity in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the balance sheet date. In this respect, it is assumed that the Group’s exposurepegged rate between the HKD and the USD would be materially unaffected by any changes in movement in value of the USD against other currencies.
Increase/ (decrease) in foreign exchange rate HK$’000 | Decrease/ (increase) HK$’000 | Increase/ (decrease) in other HK$’000 | ||||||||||
December 31, 2014 | ||||||||||||
RMB | 1 | % | 10,510 | (129 | ) | |||||||
(1 | %) | (10,510 | ) | 129 | ||||||||
August 31, 2014 (Unaudited) | ||||||||||||
RMB | 1 | % | 10,579 | (29 | ) | |||||||
(1 | %) | (10,579 | ) | 29 | ||||||||
August 31, 2013 | ||||||||||||
RMB | 1 | % | 10,534 | (149 | ) | |||||||
(1 | %) | (10,534 | ) | 149 |
The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those assets or liabilities denominated in foreign currency held by the Group which expose the Group to foreign currency risk was not significant and hence no sensitivityat the balance sheet date. The analysis is prepared.
(e) |
Financial instrument carried at fair valueThe Group is exposed to equity price changes from available-for-sale equity securities.
The following table presentsAvailable-for-sale equity securities portfolio have been chosen based on their long term growth potential and returns and are monitored regularly for performance against expectations. Assuming that the carryingmarket value of financial instrument measuredthe Group’s available-for-sale equity securities had increased/decreased by not more than 10% at fair value atDecember 31, 2014, with all other variables held constant, the balance sheet date acrossimpact on the three levelstotal equity of the fair value hierarchy definedGroup is not expected to be material. Any increase or decrease in IFRS/HKFRS 7,Financial Instruments: Disclosures , with the fairmarket value of each financial instrument categorized in its entirety based on the lowest level of input that is significant to that fair value measurement. The levelsGroup’s available-for-sale equity securities would not affect the Group’s loss for the year unless they are defined as follows:impaired or disposed.
Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments
Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data
Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data
2011
Level 1 HK$’000 | Level 2 HK$’000 | Level 3 HK$’000 | Total HK$’000 | |||||||||||||
Liability | ||||||||||||||||
Derivative financial instrument: - Interest rate swap | — | 11,564 | — | 11,564 | ||||||||||||
|
|
|
|
|
|
|
|
2010
Level 1 HK$’000 | Level 2 HK$’000 | Level 3 HK$’000 | Total HK$’000 | |||||||||||||
Liability | ||||||||||||||||
Derivative financial instrument: - Interest rate swap | — | 11,293 | — | 11,293 | ||||||||||||
|
|
|
|
|
|
|
|
(f) |
(i) | Financial assets and liabilities measured at fair value |
The following table presents the fair value of the Group’s financial instruments measured at the balance sheet date on a recurring basis, categorized into the three-level fair value hierarchy defined in IFRS 13, Fair value measurement. The level into which a fair value measurement is classified as determined with reference to the observability and significance of financial instruments is estimatedthe inputs used in the valuation technique as follows:
Level 1 valuations: Fair values measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical financial assets or liabilities at the measurement date
Level 2 valuations: Fair values measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using unobservable inputs. Unobservable inputs are inputs for which market data are not available
Level 3 valuations: Fair values measured using significant unobservable inputs
December 31, 2014
Level 1 HK$’000 | Level 2 HK$’000 | Level 3 HK$’000 | Total HK$’000 | |||||||||||||
Assets | ||||||||||||||||
- Available-for-sale debt securities | — | 1,744,210 | — | 1,744,210 | ||||||||||||
- Available-for-sale equity securities | 29,090 | 11,063 | — | 40,153 | ||||||||||||
|
|
|
|
|
|
|
|
August 31, 2014 (Unaudited)
Level 1 HK$’000 | Level 2 HK$’000 | Level 3 HK$’000 | Total HK$’000 | |||||||||||||
Assets | ||||||||||||||||
- Available-for-sale debt securities | — | 1,850,826 | — | 1,850,826 | ||||||||||||
- Available-for-sale equity securities | 27,697 | 12,025 | — | 39,722 | ||||||||||||
Liability | ||||||||||||||||
Derivative financial instrument: | ||||||||||||||||
- Interest rate swap | — | (1,340 | ) | — | (1,340 | ) | ||||||||||
|
|
|
|
|
|
|
|
August 31, 2013
Level 1 HK$’000 | Level 2 HK$’000 | Level 3 HK$’000 | Total HK$’000 | |||||||||||||
Assets | ||||||||||||||||
- Available-for-sale debt securities | — | 1,922,890 | — | 1,922,890 | ||||||||||||
- Available-for-sale equity securities | 27,724 | 11,000 | — | 38,724 | ||||||||||||
Liability | ||||||||||||||||
Derivative financial instrument: | ||||||||||||||||
- Interest rate swap | — | (5,181 | ) | — | (5,181 | ) | ||||||||||
|
|
| �� |
|
|
|
|
During the sixteen months ended December 31, 2014, there were no transfers between Level 1 and Level 2, or transfer into or out of Level 3. The Group’s policy is to recognize transfers between levels of fair value hierarchy as at the balance sheet date in which they occur.
Valuation techniques and inputs used in Level 2 fair value measurements
The fair value of available-for-sale securities are based on quoted market prices for identical financial instruments at the balance sheet date.
The fair value of the interest rate swap is determined based on the discounted cash flow technique which takes into account estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date.
(ii) |
2011 HK$’000 | 2010 HK$’000 | |||||||
Bank guarantees provided to suppliers | 1,330 | 2,770 | ||||||
Bank guarantee in lieu of payment of utility deposits | 5,572 | 5,572 | ||||||
|
|
|
| |||||
6,902 | 8,342 | |||||||
|
|
|
|
AtThe carrying amounts of the Group’s other financial instruments carried at cost or amortized cost are not materially different from their fair value as at December 31, 2014, August 31, 2011, HK$6,902,000 (2010: HK$133,342,000) of the HK$38,900,000 (2010: HK$353,840,000) total banking facility was utilized by the Company2014 and the subsidiary.2013.
Commitments |
(a) | Capital commitments |
2011 HK$’000 | 2010 HK$’000 | |||||||
Purchase of telecommunications, computer and office equipment - contracted but not provided for | 141,432 | 132,340 | ||||||
|
|
|
| |||||
Construction of multimedia production and distribution city - authorized but not provided for | 600,000 | — | ||||||
|
|
|
| |||||
Others - contracted but not provided for | 5,000 | — | ||||||
|
|
|
|
December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||
(Unaudited) | ||||||||||||
Purchase of computer and office equipment | ||||||||||||
- contracted but not provided for | 5,038 | 42,716 | 3,465 | |||||||||
|
|
|
|
|
| |||||||
Construction of Multimedia Production and Distribution Center | ||||||||||||
- authorized but not contracted for | 823,438 | 831,921 | 845,603 | |||||||||
- contracted but not provided for | 14,049 | 13,911 | 7,168 | |||||||||
|
|
|
|
|
|
(b) | Commitments under operating leases |
At August 31, 2011 and 2010, theThe Group has future aggregate minimum lease payments under non-cancellable operating leases as follows:
2011 HK$’000 | 2010 HK$’000 | December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||||||||
Leases in respect of land and buildings which are payable: | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Land and buildings: | ||||||||||||||||||||
- Within 1 year | 27,679 | 24,873 | 3,585 | 3,416 | 2,172 | |||||||||||||||
- After 1 year but within 5 years | 20,642 | 16,417 | 2,391 | 2,236 | — | |||||||||||||||
|
|
|
|
| ||||||||||||||||
48,321 | 41,290 | 5,976 | 5,652 | 2,172 | ||||||||||||||||
|
|
|
|
| ||||||||||||||||
Leases in respect of telecommunications facilities and computer equipment which are payable | ||||||||||||||||||||
- Within 1 year | 63,300 | 63,948 | ||||||||||||||||||
- After 1 year but within 5 years | 17,103 | 14,200 | ||||||||||||||||||
- After 5 years | 3,211 | 4,849 | ||||||||||||||||||
|
| |||||||||||||||||||
83,614 | 82,997 | |||||||||||||||||||
|
| |||||||||||||||||||
131,935 | 124,287 | |||||||||||||||||||
|
|
(c) |
The Group entered into several long-term agreements with program content providerscertain production-related talents for the rights to use certain program contentsfuture production in the Group’s IP-TV services.Multimedia Business. Minimum amounts of program fees to be paid by the Group are analyzed as follows:
2011 HK$’000 | 2010 HK$’000 | December 31, 2014 HK$’000 | August 31, 2014 HK$’000 | August 31, 2013 HK$’000 | ||||||||||||||||
Program fee in respect of program rights which are payable: | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Production costs which are payable: | ||||||||||||||||||||
- Within 1 year | 25,777 | 25,539 | 11,350 | 35,552 | 81,472 | |||||||||||||||
- After 1 year but within 5 years | 27,197 | 48,087 | 2,605 | 3,804 | 31,146 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
52,974 | 73,626 | 13,955 | 39,356 | 112,618 | ||||||||||||||||
|
|
|
|
|
During the year ended August 31, 2010, HKBN entered into an agreement with a third party (the “Contract Party”). Pursuant to the agreement, HKBN would provide network capacity to the Contract Party for a service term of 10 years commencing on May 1, 2010 or after the respective activation of the relevant network capacity, and in exchange, the Contract Party would provide HKBN the right to use telecommunications facilities for a term of 10 years commencing on May 1, 2010 or after the respective activation of the relevant network capacity. The transaction has been entered into on a barter basis with no consideration being exchange. The agreement expires on April 30, 2020.
The Directors of the Company made an assessment and determined that since the arrangement above involves exchange of services of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. Accordingly, the network capacity of the Contract Party under the assessment have not been recognized as an asset and no revenue or deferred revenue have been recognized in the financial statements of the Group since inception of the arrangement.
Material related party transactions |
In addition to the transactions and balances disclosed elsewhere in these financial statements, the Group entered into the following material related party transactions.
Key management personnel remuneration
Remuneration for key management personnel, including amounts paid to the Company’s Directorsdirectors as disclosed in note 9(a) and certain of the highest paid Talents as disclosed in note 9(b),13(a) is as follows:
Sixteen months ended December 31, 2014 HK$’000 | Four months ended December 31, 2014 HK$’000 | Twelve months ended August 31, 2014 HK$’000 | Twelve months ended August 31, 2013 HK$’000 | Twelve months ended August 31, 2012 HK$’000 | ||||||||||||||||||||||||||||
2011 HK$’000 | 2010 HK$’000 | 2009 HK$’000 | (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||
Short-term Talent benefits | 35,979 | 40,716 | 34,687 | 26,451 | 6,186 | 20,265 | 20,607 | 176,852 | ||||||||||||||||||||||||
Post-employment benefits | 2,616 | 2,725 | 2,614 | 2,387 | 596 | 1,791 | 1,792 | 2,488 | ||||||||||||||||||||||||
Equity compensation benefits | 4,652 | 5,347 | 4,071 | — | — | — | — | 9,546 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
43,247 | 48,788 | 41,372 | 28,838 | 6,782 | 22,056 | 22,399 | 188,886 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
During the year, management performed a review of the classification of the Group’s deferred service revenue balance. As a result of the review, the Group’s “deferred service revenue” balance amounting to HK$9,550,000 which was previously included in the current liabilities balance at August 31, 2010 have been reclassified as a non-current liability. This change in classification had no effect on the reported results of the prior year.
30 |
Notes 10On December 20, 2013, the Company completed the acquisition of Hong Kong Mobile Television Network Limited (“HKMTV”, formerly known as China Mobile Hong Kong Corporation Limited) at an aggregate of cash consideration and 24 contain information aboutrelated transaction costs of HK$157,539,000. This transaction has been accounted for as an acquisition of assets and the assumptionsCompany recorded intangible assets of HK$146,591,000, fixed assets of HK$13,645,000 and risk factors relating to fair valueother payables of share options and financial instruments. Other key sourcesHK$2,697,000, as at the date of estimation uncertainty are as follows:acquisition.
On October 15, 2013, the Chief Executive in Council announced that the Company’s application dated December 31, 2009 under the Broadcasting Ordinance for the grant of a domestic free television programme service licence (the “Licence”) had been rejected. On January 6, 2014, the Company filed an application for leave to apply for judicial review against the Chief Executive in Council’s decision. The Group maintains impairment lossapplication for doubtful accounts based upon evaluationleave was granted by the High Court of the recoverabilityHong Kong Special Administrative Region on January 9, 2014. The substantive hearing was conducted August 27-29, 2014. On April 24, 2015, the Court of First Instance of the accounts receivable and other receivables which takes into account the historical write-off experience and recovery rates. If the financial conditionHigh Court of the customers wereHong Kong Special Administrative Region quashed the decision and ordered to deteriorate, additional impairmentremit it back to the Chief Executive in Council for reconsideration.
Despite the Court of First Instance of the High Court of the Hong Kong Special Administrative Region quashed the decision and ordered to remit it back to the Chief Executive in Council for reconsideration, the final decision on the application for the Licence may continue to be required.
Depreciation is calculated to write offprotracted by the costChief Executive in Council by way of itemslegal proceedings or administrative process and hence, the management do not consider the result of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives. The Group reviewsjudicial review has a material impact on the estimated useful livesrecoverable amount of the assets annually in orderrelating to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and takes into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.
Determining income tax provisions involves judgment on the future tax treatment of certain transactions and interpretation of tax rules. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislation and practices.
Deferred tax assets are recognized for certain unused tax losses as set out in note 20. In assessing the recognition of deferred tax assets, management considers all available evidence, including available taxable temporary differences, projected future taxable income, tax planning strategies, historical taxable income, and the expiration periods of the tax losses. For certain subsidiaries, deferred tax assets can only be recognized to the extent that it is probable that future taxable profits will be available against which they can be utilized. Management’s judgment is thus required to assess the probability of future taxable profits and this assessment is constantly reviewed and additional deferred tax assets are recognized if it becomes probable that future taxable profits will allow the deferred tax assets to be recovered.Multimedia Business.
Possible impact of amendments, new standards and interpretations issued but not yet effective for the |
Up to the date of issue of these financial statements, the IASB/HKICPAIASB has issued a number of amendments and new standards and interpretations which are not yet effective for the yearsixteen months ended AugustDecember 31, 20112014 and which have not been adopted in thesethe Group’s financial statements. These include the following which may be relevant to the Group.
Effective for accounting periods beginning on or | ||||||||
Amendments to | ||||||||
January 1, | ||||||||
Amendments to IAS 32, Financial instruments: Presentation – Offsetting financial assets and financial liabilities | January 1, 2014 | |||||||
Amendments to | January 1, 2014 | |||||||
Annual improvements to IFRSs 2010-2012 cycle | July 1, | |||||||
Annual improvements to IFRSs 2011-2013 cycle | July 1, 2014 | |||||||
Amendments to IAS 16, Property, plant and equipment and IAS 38, Intangible assets – Clarification of acceptable methods of depreciation and amortization | January 1, | |||||||
IFRS 15, Revenue from contract with customers | January 1, | |||||||
IFRS 9, Financial instruments | January 1, | |||||||
The Group is in the process of making an assessment of what the impact of these amendments new standards and new interpretationsstandards is expected to be in the period of initial application. So far the Group is not yet in a position to state whether they would have a significant impact on the Group’s results of operations and financial position.
The 10-year senior notes mentioned above were fully, irrevocablyIn addition, the requirements of Part 9, “Accounts and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by allAudit”, of the subsidiariesnew Hong Kong Companies Ordinance (Cap. 622) come into operation from the Company’s first financial year commencing after March 3, 2014 (i.e. the Company’s financial year which began on January 1, 2015) in accordance with section 358 of City Telecom (H.K.) Limited (collectively defined as “Guarantor Subsidiaries”), except CTI Guangzhou Customer Services Co. Ltd.that Ordinance. The Group is in the PRC (“Non-guarantor Subsidiary”).
The condensed consolidated financial information is presented below and should be readprocess of making an assessment of the expected impact of the changes in connection withthe Companies Ordinance on the consolidated financial statements in the period of City Telecom (H.K.) Limited prepared under IFRSs. Separate financial statementsinitial application of Part 9. So far it has concluded that the Guarantor Subsidiaries are not presented becauseimpact is unlikely to be significant and will primarily only affect the Guarantor Subsidiaries are wholly-ownedpresentation and have had fully and unconditionally guaranteeddisclosure of information in the Notes on a joint and several basis.
On February 1, 2010, the Company redeemed all the outstanding 10-year senior notes with a cumulative principal amount of HK$153.9 million (US$19.9 million) at the redemption price equal to 104.375% of the principal amount.
Since as of August 31, 2010, all the outstanding 10-year senior notes has been fully redeemed, the following condensed consolidated financial information is limited to the year ended August 31, 2009.
The following condensed consolidated financial information presents the consolidated balance sheets as of August 31, 2009 and the related consolidated income statements and cash flow statements for the years ended August 31, 2009 of (a) City Telecom (H.K.) Limited, the parent; (b) the Guarantor Subsidiaries on a combined basis; (c) the Non-guarantor Subsidiary; (d) eliminating entries; and (e) the total consolidated amounts.statements.
Consolidated balance sheet as of August 31, 2009
City Telecom (H.K.) Limited | Guarantor subsidiaries | Non- guarantor subsidiary | Eliminating entries | Consolidated total | ||||||||||||||||
HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | ||||||||||||||||
Non-current assets | ||||||||||||||||||||
Investments in subsidiaries (note) | 1,258,726 | 228,875 | — | (1,487,601 | ) | — | ||||||||||||||
Goodwill | — | — | — | 1,066 | 1,066 | |||||||||||||||
Fixed assets | 74,688 | 1,221,172 | 6,520 | 1,302,380 | ||||||||||||||||
Long term receivable and prepayment | — | 16,573 | — | (10,482 | ) | 6,091 | ||||||||||||||
Deferred expenditure | — | 12,786 | — | 12,786 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
1,333,414 | 1,479,406 | 6,520 | 1,322,323 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Current assets | ||||||||||||||||||||
Accounts receivable | 9,220 | 110,972 | — | 120,192 | ||||||||||||||||
Other receivables, deposits and prepayments | 3,393 | 67,584 | 2,492 | (3,704 | ) | 69,765 | ||||||||||||||
Deferred expenditure | — | 36,674 | — | 36,674 | ||||||||||||||||
Pledged bank deposits | 15,038 | — | — | 15,038 | ||||||||||||||||
Cash at bank and in hand | 120,315 | 78,665 | 27,436 | 226,416 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
147,966 | 293,895 | 29,928 | 468,085 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Current liabilities | ||||||||||||||||||||
Bank overdrafts — unsecured | 896 | 4,468 | — | 5,364 | ||||||||||||||||
Amounts due to subsidiaries/ fellow subsidiaries | 10,830 | 905,460 | 4,427 | (920,717 | ) | — | ||||||||||||||
Accounts payable | 20,484 | 17,071 | — | 37,555 | ||||||||||||||||
Other payables and accrued charges | 23,530 | 172,676 | 10,281 | 206,487 | ||||||||||||||||
Deposits received | 7,886 | 8,499 | — | 16,385 | ||||||||||||||||
Deferred service revenue | 10,848 | 107,904 | — | (3,682 | ) | 115,070 | ||||||||||||||
Tax payable | 356 | 496 | 1,141 | 1,993 | ||||||||||||||||
Current portion — obligation under finance leases | 193 | 9 | — | 202 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
75,023 | 1,216,583 | 15,849 | 383,056 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net current assets/(liabilities) | 72,943 | (922,688 | ) | 14,079 | 85,029 | |||||||||||||||
|
|
|
|
|
|
|
|
Consolidated balance sheet as of August 31, 2009 (continued)
City Telecom (H.K.) Limited | Guarantor subsidiaries | Non- guarantor subsidiary | Eliminating entries | Consolidated total | ||||||||||||||||
HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | ||||||||||||||||
Total assets less current liabilities | 1,406,357 | 556,718 | 20,599 | 1,407,352 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Non-current liabilities | ||||||||||||||||||||
Deferred tax liabilities | 7,047 | 8,662 | — | 15,709 | ||||||||||||||||
Long-term deferred service revenue | 10,535 | — | — | (10,535 | ) | — | ||||||||||||||
Long-term debt and other liabilities | 163,108 | 8 | — | 163,116 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
180,690 | 8,670 | — | 178,825 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net assets | 1,225,667 | 548,048 | 20,599 | 1,228,527 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Capital and reserves | ||||||||||||||||||||
Share capital | 66,418 | 15,485 | 8,131 | (23,616 | ) | 66,418 | ||||||||||||||
Reserves | 1,159,249 | 532,563 | 12,468 | (542,171 | ) | 1,162,109 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total equity attributable to equity shareholders of the Company | 1,225,667 | 548,048 | 20,599 | 1,228,527 | ||||||||||||||||
|
|
|
|
|
|
|
|
Consolidated income statement for the year ended August 31, 2009
City Telecom (H.K.) Limited | Guarantor subsidiaries | Non- guarantor subsidiary | Eliminating entries | Consolidated Total | ||||||||||||||||
HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | ||||||||||||||||
Revenue | 95,386 | 1,390,697 | 142,603 | (150,447 | ) | 1,478,239 | ||||||||||||||
Network costs | (29,973 | ) | (177,655 | ) | — | 32,499 | (175,129 | ) | ||||||||||||
Other operating expenses | (90,557 | ) | (959,960 | ) | (136,750 | ) | 149,303 | (1,037,964 | ) | |||||||||||
Other income, net | 108,933 | 31,684 | 576 | (99,653 | ) | 41,540 | ||||||||||||||
Finance costs | (54,241 | ) | (69,017 | ) | — | 68,131 | (55,127 | ) | ||||||||||||
Share of net profit from subsidiaries (note) | 185,391 | — | — | (185,391 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Profit before taxation | 214,939 | 215,749 | 6,429 | 251,559 | ||||||||||||||||
Income tax expense | (2,110 | ) | (34,998 | ) | (1,622 | ) | (38,730 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net profit | 212,829 | 180,751 | 4,807 | 212,829 | ||||||||||||||||
|
|
|
|
|
|
|
|
Condensed consolidated cash flow statement for the year ended August 31, 2009
City Telecom (H.K.) Limited | Guarantor subsidiaries | Non- guarantor subsidiary | Eliminating entries | Consolidated total | ||||||||||||||||
HK$’000 | HK$’000 | HK$’000 | HK$’000 | HK$’000 | ||||||||||||||||
Net cash inflow/(outflow) from operating activities | 487,691 | 88,243 | (38,930 | ) | (233 | ) | 536,771 | |||||||||||||
Net cash inflow/(outflow) from investing activities | 101,605 | (276,843 | ) | (1,250 | ) | (176,488 | ) | |||||||||||||
Net cash outflow from financing activities | (560,397 | ) | (895 | ) | — | (561,292 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Increase/(decrease) in cash at bank and in hand | 28,899 | (189,495 | ) | (40,180 | ) | (201,009 | ) | |||||||||||||
Cash at bank in hand at September 1, 2008 | 90,386 | 263,386 | 67,838 | 421,610 | ||||||||||||||||
Effects of foreign exchange rates changes | 134 | 306 | (222 | ) | 233 | 451 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Cash at bank and in hand at August 31, 2009 | 119,419 | 74,197 | 27,436 | 221,052 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Analysis of the balances of cash and cash equivalent: | ||||||||||||||||||||
Cash at bank and in hand | 120,315 | 78,665 | 27,436 | 226,416 | ||||||||||||||||
Bank overdrafts — unsecured | (896 | ) | (4,468 | ) | — | (5,364 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
119,419 | 74,197 | 27,436 | 221,052 | |||||||||||||||||
|
|
|
|
|
|
|
|
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
By: | /s/ | |
Name: | ||
Title: | ||
By: | /s/ Wong Nga Lai, | |
Name: | ||
Title: |
Date: December 21, 2011April 29, 2015