3. Incomparable Transformation.
Incomparable Performance
In 2008, as the Company
continues to deepen its strategic
transformation and prepares for the upcoming
full services offering, the Company will enjoy
an excellent development prospect.
However, due to constant
changes of the pricing policy of mobile
communication and the rapid
diversion of traditional services attributable to
emerging telecommunication methods,
the Company will encounter more
challenging issues in the course of
development.
4. Contents
2 Corporate Information
3 Chairman’s Statement
5 Management Discussion and Analysis
7 Corporate Governance Report
14 Audit Committee Report
16 Director’s Report
29 Independent Auditors Report
31 Consolidated Income Statement
32 Consolidated Balance Sheet
34 Consolidated Statement of Changes
in Equity
35 Consolidated Cash Flow Statement
37 Notes to the Consolidated Financial
Statements
72 Financial Summary
73 Properties held for Investment
5. China Telecom Corporation Limited Annual Report 2008
6 7
Finanical Highlights For further information, please browse our website at www.chinatelecom-h.com
Operating Performance Operating Performance
Unit: RMB million Unit: RMB million
The NWDSH Adjustments The NWDSH Adjustments
The Company Group (Note 1) Consolidated The Company Group (Note 1) Consolidated
Item HK$’000 HK$’000 HK$’000 HK$’000 Item HK$’000 HK$’000 HK$’000 HK$’000
Investments in NWDSH and its Investments in NWDSH and its
subsidiaries (“WDSH Group”) 88 0,500 — (880,500) — subsidiaries (“WDSH Group”) 88 0,500 — (880,500) —
Other (liabilities)/assets net (54,020) 911,249 — 857,229 Other (liabilities)/assets net (54,020) 911,249 — 857,229
Net assets 826,480 911,249 (880,500) 857,229 Net assets 826,480 911,249 (880,500) 857,229
Share capital 6,095 — — 6,095 Share capital 6,095 — — 6,095
Capital reserve — 397,683 (60,115) 337,568 Capital reserve — 397,683 (60,115) 337,568
Contributed surplus 820,385 — (820,385) — Contributed surplus 820,385 — (820,385) —
Statutory reserve — 11,360 — 11,360 Statutory reserve — 11,360 — 11,360
826,480 911,249 (880,500) 857,229 826,480 911,249 (880,500) 857,229
The charts below are based on financials excluding amortisation of the upfront connection fees China Telecom Corporation
Turnover Analysis by geograohical TURNOVER ANALYSIS BY GEOGRAPHICAL
SEGMENTS
Revenue
Limited was listed
400
80
400
80
400
80
on The Stock Exchange
350
78.7
350
78.7
350
78.7
of Hong Kong
300
21.5
300
21.5
300
21.5 Limited and the New
250
10.7
250
10.7
250
10.7 York Stock
200 200 200
Exchange with net
150
230.5 270.3 260.8 300
150
230.5 270.3 260.8 300
150
230.5 270.3 260.8 300
proceeds from IPO of
100 100 100
approximately
US$1.3 billion.
50 50 50
0 0 0
03/2005 03/2006 03/2007 03/2008 03/2005 03/2006 03/2007 03/2008 03/2005 03/2006 03/2007 03/2008
CDM Turnover Retail Turnover CDM Turnover Retail Turnover CDM Turnover Retail Turnover
6. Annual Report 2008
9
Chairman‘s Statement
Dear Shareholders,
Employee benefit expense increased by 14.4% from HK$128.8 million in FY2006 to
HK$147.4 million in FY2007. This increase was primarily due to increase in wages
and salaries and other employment benefits as a result of recognising a full year’s
operations of certain stores opened in last year and new stores openings in current
year under review. Employee benefit expense as a percentage to revenue decreased
by 2.2% in FY2007 primarily due to improved operating efficiency.
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in
FY2006 to HK$97.5 million in FY2007. This increase was primarily due to increase
in depreciation and amortisation as a result of recognising a full year’s operations
of certain stores opened in last year and new stores openings in current year under
Wang Xiaochu
Chairman and Chief Executive Officer review. Depreciation and amortisation expense as a percentage to revenue decreased
by 1.0% in FY2007 primarily due to strong performance of revenue. Operating lease
rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7
million.
Other Operating Expenses
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in
FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a
full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to
strong performance of revenue.
Operating Lease Rental Expense
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
7. China Telecom Corporation Limited Annual Report 2008
10 Chairman’s Statement 11
Chairman’s Statement
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.Other operating expenses decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.Other operating expenses
increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007. This increase was primarily increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007. This increase was primarily
due to a HK$13.7 million increase in water and electricity expenses relating primarily to the newly opened stores due to a HK$13.7 million increase in water and electricity expenses relating primarily to the newly opened stores
and the effect of recognising a full year’s operations of certain stores in current year, a HK$6.4 million increase in and the effect of recognising a full year’s operations of certain stores in current year, a HK$6.4 million increase in
promotion, advertising and related expenses. Other operating expenses as a percentage to revenue decreased by promotion, advertising and related expenses. Other operating expenses as a percentage to revenue decreased by
1.1% in FY2007. 1.1% in FY2007.
Other Operating Expenses Gain on Disposal of Subsidiaries
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in Gain on disposal of subsidiaries of HK$58.0 million was primarily a result of the HK$31.9 million gain on disposal of
FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a Dalian Store on 1 July 2006 and the remaining HK$26.1 million gain on disposal of subsidiaries mainly represented
full year’s operations of certain stores opened in last year and new stores openings in current year under review. the gain on disposal of Kunming Store and Ningbo Trendy Store to Solar Leader Limited, a related company of the
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to Group, on 1 January 2007.
strong performance of revenue.
Employee Benefit Expense
Operating Lease Rental Expense Employee benefit expense increased by 14.4% from HK$128.8 million in FY2006 to HK$147.4 million in FY2007.
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in This increase was primarily due to increase in wages and salaries and other employment benefits as a result of
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and recognising a full year’s operations of certain stores opened in last year and new stores openings in current year
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue under review. Employee benefit expense as a percentage to revenue decreased
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.Other operating expenses by 2.2% in FY2007 primarily due to improved operating efficiency.
increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007. This increase was primarily
due to a HK$13.7 million increase in water and electricity expenses relating primarily to the newly opened stores
and the effect of recognising a full year’s operations of certain stores in current year, a HK$6.4 million increase in
promotion, advertising and related expenses. Other operating expenses as a percentage to revenue decreased by
1.1% in FY2007.
Gain on Disposal of Subsidiaries Wang Xiaochu
Chairman and Chief Executive Officer
Gain on disposal of subsidiaries of HK$58.0 million was primarily a result of the HK$31.9 million gain on disposal of
Dalian Store on 1 July 2006 and the remaining HK$26.1 million gain on disposal of subsidiaries mainly represented
Beijing, China
the gain on disposal of Kunming Store and Ningbo Trendy Store to Solar Leader Limited, a related company of the
31 March 2008
Group, on 1 January 2007.
8. China Telecom Corporation Limited Annual Report 2008
12 13
In 2007, emphasizing on both
scale and profitability as well
as differentiation in products,
applications and services for
broadband business, the Company
achieved revenue of RMB31,340
million from Internet access services,
representing an annual growth
of 32.1%. The proportion of revenues
from Internet access services to
operating revenues increased by 4.0
percentage points to 17.9%
from 2006. In 2007, as the
Company insisted on the strategy
of scale development of broadband
subscribers, the total number of
broadband subscribers increased by
7.33 million to 35.65 million.
9. China Telecom Corporation Limited Annual Report 2008
14 15
Business Review
Business Review Employee benefit expense increased by
The Company gained momentum in its business transformation. 14.4% from HK$128.8 million in FY2006 to
HK$147.4 million in FY2007. This increase
was primarily due to increase in wages and
salaries and other employment benefits as a
result of recognising a full year’s operations
of certain stores opened in last year and
new stores openings in current year under
review. Employee benefit expense as a
percentage to revenue decreased by 2.2% in
FY2007 primarily due to improved operating
efficiency.
Depreciation and amortisation expense
increased by 19.8% from HK$81.4 million in
FY2006 to HK$97.5 million in FY2007. This
increase was primarily due to increase in
depreciation and amortisation as a result of
recognising a full year’s operations of certain
stores opened in last year and new stores in
FY2007 primarily due to strong performance
of revenue.
Operating lease rental expense increased by
The following table sets out key operating data in 2005, 2006 and 2007: 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in FY2007, primarily due to the effect of recognising
a full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Operating lease rental expense as a percentage to revenue decreased by 4.0% in FY2007 mainly as a result of
Unit 2006 2007 2008 Rate of Change operating leverage of the expense.
(2008-2007)
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%) Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in
Local voice usage Million 449,404 422,562 406,268 (3.9%) FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8% full year’s operations of certain stores..
International, Hong Kong, Macau
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
Broadband subscribers Million 21.02 28.32 35.65 25.9%
Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
Caller ID service subscribers
SMS usage volume
Colour Ring Tone subscribers
Million
Million messages
Million
131.46
17,254
18.16
145.73
23,277
36.68
146.74
23,346
63.19
0.7%
0.3%
72.2%
+19.8%
HK$81.4 million
10. China Telecom Corporation Limited Annual Report 2008
16 17
In 2007, emphasizing on both
scale and profitability as well
as differentiation in products,
applications and services for
broadband business, the Company
achieved revenue of RMB31,340
million from Internet access services,
representing an annual growth
of 32.1%. The proportion of revenues
from Internet access services to
operating revenues increased by 4.0
percentage points to 17.9%
from 2006. In 2007, as the
Company insisted on the strategy
of scale development of broadband
subscribers, the total number of
broadband subscribers increased by
7.33 million to 35.65 million.
11. China Telecom Corporation Limited Annual Report 2008
18 Directors, Supervisors and Senior Management 19
Directors, Supervisors and Senior Management
01 Mr. Wang Xiaochu 03 Ms. Yeung Meiling
• Chairman of the board of directors and Chief Executive • Executive Director, Executive Vice President and Chief Financial Officer
• Officer of the Company. Mr. Wang served as Director General • Officer of the Company. Mr. Wang served as Director General
• Deputy Director General of the Hangzhou Telecommunications Bureau in Zhejiang • Deputy Director General of the Hangzhou Telecommunications Bureau in Zhejiang
province, province,
• Director General of the Tianjin Posts • Director General of the Tianjin Posts
• Telecommunications Administration, Chairman and Chief Executive • Telecommunications Administration, Chairman and Chief Executive
• Officer of China Mobile (Hong Kong) Limited, Vice President of China • Officer of China Mobile (Hong Kong) Limited, Vice President of China
• Mobile Communications Corporation. He is also President of China • Mobile Communications Corporation. He is also President of China
• Telecommunications Corporation and Chairman of the board of directors and a Non- • Telecommunications Corporation and Chairman of the board of directors and a Non-
Executive Director of China Communications Executive Director of China Communications
• Services Corporation Limited. He was responsible for the development of China Telecom’ • Telecommunications Scientific and Technological Progress Award.
s telephone network management systems and various other information technology
projects and as a result, received the Third-Class Award from the State Scientific and
Technological Progress Award and the First-Class Award from the former Ministry of Posts
• Telecommunications Scientific and Technological Progress Award.
• He graduated from Beijing Institute of Posts and Telecommunications in 1989 and
received a doctorate degree in business administration from The Hong Kong Polytechnic
University in 2005.
02 Mr. Chen Yi
04 Mr. Leng Rongquan
• Executive Director, President and Chief Operating Officer • Chairman of the board of directors and Chief Executive
• Officer of the Company. Mr. Wang served as Director General • Officer of the Company. Mr. Wang served as Director General
• Deputy Director General of the Hangzhou Telecommunications Bureau • Director General of the Tianjin Posts
• Director General of the Tianjin Posts • Telecommunications Administration, Chairman and Chief Executive
• Telecommunications Administration, Chairman and Chief Executive • Officer of China Mobile (Hong Kong) Limited, Vice President of China
• Officer of China Mobile (Hong Kong) Limited, Vice President of China • Mobile Communications Corporation. He is also President of China
• Mobile Communications Corporation. He is also President of China • Telecommunications Corporation and Chairman of the board of directors and a Non-
• Telecommunications Corporation and Chairman of the board of directors and a Non- Executive Director of China Communications
Executive Director of China Communications • Services Corporation Limited. He was responsible for the development of China Telecom’
• Telecommunications Scientific and Technological Progress Award. s telephone network management systems and various other information technology
projects and as a result, received the Third-Class Award from the State Scientific and
• He graduated from Beijing Institute of Posts and Telecommunications in 1989 and received
Technological Progress Award and the First-Class Award from the former Ministry of Posts
a doctorate degree in business administration from The Hong Kong Polytechnic University
in 2005. • Telecommunications Scientific and Technological Progress Award.
• He graduated from Beijing Institute of Posts and Telecommunications in 1989 and
received a doctorate degree in business administration from The Hong Kong Polytechnic
University in 2005.
12. China Telecom Corporation Limited Annual Report 2008
20 Management Discussion and Analysis 21
Management Discussion and Analysis
OTHER OPERATING EXPENSES
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in The following table sets out key operating data in 2005, 2006 and 2007:
FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a
Unit 2006 2007 2008 Rate of Change
full year’s operations of certain stores opened in last year and new stores openings in current year under review. (2008-2007)
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
strong performance of revenue.
Local voice usage Million 449,404 422,562 406,268 (3.9%)
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and International, Hong Kong, Macau
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.Other operating expenses Broadband subscribers Million 21.02 28.32 35.65 25.9%
increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007. This increase was primarily Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
due to a HK$13.7 million increase in water and electricity expenses relating primarily to the newly opened stores Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
SMS usage volume Million messages 17,254 23,277 23,346 0.3%
Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2%
13. China Telecom Corporation Limited Annual Report 2008
22 23
Notes to the Financial Statements Consolidated Statement of Changes in Equity
(Expressed in Renminbi) (For the year ended 31 December 2007)
Other Operating Expenses Unit 2006 2007 2008 Rate of Change
(2008-2007)
1. Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
million in FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of
Local voice usage Million 449,404 422,562 406,268 (3.9%)
recognising a full year’s operations of certain stores opened in last year and new stores openings in current
year under review. Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
FY2007 primarily due to strong performance of revenue. Operating lease rental expense increased by 14.1% International, Hong Kong, Macau
from HK$234.7 million in FY2006 to HK$267.7 million in FY2007, primarily due to the effect of recognising a full and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
year’s operations of certain stores opened in last year and new stores openings in current year under review. Broadband subscribers Million 21.02 28.32 35.65 25.9%
Operating lease rental expense as a percentage to revenue decreased by 4.0% in FY2007 mainly as a result of Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
operating leverage of the expense.
Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
SMS usage volume Million messages 17,254 23,277 23,346 0.3%
2. Other operating expenses increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007.
Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2%
This increase was primarily due to a HK$13.7 million increase in water and electricity expenses relating primarily
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
to the newly opened stores and the effect of recognising a full year’s operations of certain stores in current
year, a HK$6.4 million increase in promotion, advertising and related expenses. Other operating expenses as Local voice usage Million 449,404 422,562 406,268 (3.9%)
a percentage to revenue decreased by 1.1% in FY2007Gain on disposal of subsidiaries of HK$58.0 million Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
was primarily a result of the HK$31.9 million gain on disposal of Dalian Store on 1 July 2006 and the remaining International, Hong Kong, Macau
HK$26.1 million gain on disposal of subsidiaries mainly represented the gain on disposal of Kunming Store and and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
Ningbo Trendy Store to Solar Leader Limited, a related company of the Group, on 1 January 2007.Employee Broadband subscribers Million 21.02 28.32 35.65 25.9%
benefit expense increased by 14.4% from HK$128.8 million in FY2006 to HK$147.4 million in FY2007. This
Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
increase was primarily due to increase in wages and salaries and other employment benefits as a result of
Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
recognising a full year’s operations of certain stores opened in last year and new stores openings in current year
under review. Employee benefit expense as a percentage to revenue decreased by 2.2% in FY2007 primarily SMS usage volume Million messages 17,254 23,277 23,346 0.3%
due to improved operating efficiency. Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2%
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in Local voice usage Million 449,404 422,562 406,268 (3.9%)
FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
full year’s operations of certain stores opened in last year and new stores openings in current year under review.
International, Hong Kong, Macau
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
strong performance of revenue.
Broadband subscribers Million 21.02 28.32 35.65 25.9%
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
new stores openings in current year under review. Operating lease rental expense as a percentage to revenue SMS usage volume Million messages 17,254 23,277 23,346 0.3%
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.
