FORM
6-K
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Report
of Foreign Private Issuer
Pursuant
to Rule 13a-16 or 15d-16 of
the
Securities Exchange Act of 1934
For
the month of September, 2007
(Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F.)
Form
20-F T
Form 40-F _____
(Indicate
by check mark whether the registrant by furnishing the information contained
in
this form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934. )
Yes
____No T
(If
"Yes" is marked, indicate below the file number assigned to registrant in
connection with Rule 12g3-2(b): 82-__________. )
N/A
China
Netcom Group Corporation (Hong Kong) Limited
Building
C, No. 156, Fuxingmennei Avenue
Xicheng
District
Beijing,
100031 PRC
This
Form 6-K consists of:
An
announcement on 2007 interim results of China Netcom Group Corporation (Hong
Kong) Limited (the “Registrant”), made by the Registrant in English on August
22, 2007.
SIGNATURE
Pursuant
to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to
be signed on its behalf by the under-signed, thereunto duly
authorized.
CHINA
NETCOM GROUP CORPORATION (HONG
KONG) LIMITED
By /s/
Li
Fushen
By /s/
Mok
Kam Wan
Name: Li
Fushen and Mok Kam Wan
Title: Joint
Company
Secretaries
Date:
September 12, 2007
CHINA
NETCOM GROUP CORPORATION (HONG KONG) LIMITED
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
(Stock
Code: 906)
2007
INTERIM RESULTS ANNOUNCEMENT
CHAIRMAN’S
STATEMENT
Dear
Shareholders,
In
the first half of 2007, the Company continued to proactively pursue its
strategic transformation to become a “broadband communications and multimedia
services provider” and achieved remarkable results. Revenue from our high-growth
businesses grew rapidly at a growth rate of 39.4% in the first half of 2007,
reaching RMB13,029 million. We are confident that the Company will persistently
increase value for its shareholders as we progress towards our strategic
goals.
Strategic
Transformation
China’s
telecommunications industry has experienced a drastic turn since 2006. As
a
result of increasing mobile substitution, fixed-line operators have seen
revenue
growth slow down drastically and in some cases all but disappear. The trend
was
further accelerated in the first half of 2007 as mobile telecommunications
services providers continued to aggressively adjust their tariff and marketing
strategies, prompting us to accelerate our transformation.
As
you know by now, this transformation strategy is focused on “broadband and
broadband-enabled services”. Leveraging technological progress and network
convergence, the Company is committed to deliver broadband access and
bandwidth-intensive content and applications to individual customers and
ICT
services to business customers to meet changing market demand. We aim to
become
a “leading ICT service provider in China” and a “network information &
communication expert” for our government and corporate customers.
In
the first half of 2007, our strategic transformation progressed satisfactorily.
Our broadband subscriber base continued to grow rapidly. The total number
of
broadband subscribers increased from 12,968 thousand in the same period last
year to 17,123 thousand, representing an increase of 32.0%. Revenue from
ICT
services contributed 3.5% towards total revenue, while the contribution of
the
high-growth businesses towards total revenue grew to 32.0% from 23.1% a year
earlier, representing an increase of 8.9 percentage points.
As
a century-old traditional telecommunications operator we are facing
unprecedented challenges in our transformation. As we move from a fixed-line,
voice centric focus into the new broadband content and applications and IT
regimes, we are facing new competitors that are technologically ahead and
have
accumulated extensive market experience. We need to create demand and anticipate
changing customer needs effectively, innovate faster, master marketing
techniques and customer service and use all our resources more effectively
so we
can fund our future while continuing to increase shareholder value. Our
organizational structure and corporate culture need to change so that we
can
reinforce our core competitiveness in this new environment. I am confident
that
we have the necessary vision, the ability and the will to reform ourselves
and
inject vitality into this time-honored company.
Olympic
Opportunities
As
an official partner of the Beijing 2008 Olympic Games, we have shaped and
pursued our “Broadband Olympics” vision to make the Beijing 2008 Olympic Games
the first “Broadband Olympics” and “Digital Olympics” in history. After more
than two years of intense preparation, we are close to turning our vision
into
reality. On July 25, 2007, we launched the “Broadband Olympics” products series,
which enable us to best meet customer demand for network stability, security
and
convenience to the fullest possible extent and more importantly, to create
demand and satisfy the diversified needs of our subscribers for Olympics-related
telecommunications, content and applications, and IT support services, and
to
promote rapid growth in the broadband and ICT businesses. These products
address
the diversified needs of all our customers and provide:
●
|
Convenient,
high-speed and reliable Internet access through a seamless network
and
include Olympic broadband cards which provide users with high-speed
Internet access anytime anywhere; VLAN-based private networks for
news
agencies with real-time multimedia feeds; and Olympic high-definition
video transmission;
|
●
|
Diversified
and exclusive broadband contents to our subscribers to stimulate
and
satisfy the demand for Olympics-related content and applications
of the
public. e.g., CNC MAX Olympic channel, “Hello 2008” Olympic content
push.
|
●
|
Reliable
telecommunications and high quality integrated solutions to BOCOG
and the
media, and integrated solutions to business customers looking to
grow and
build their brands through the Olympics. Our products include Olympic
Call
Center, Olympic Network Surveillance System, Olympic Events Management
System, Olympic Fixed-line Telecommunications Command System, 2008
Smart
Traffic, and 2008 Convenient
Medicare.
|
As
our Olympic products allow our individual customers to learn, experience
and
enjoy our Olympic telecommunications services, we expect to gain recognition
as
a high quality and reliable “broadband communications and multimedia services
provider”. Furthermore, the Olympics are a unique opportunity to enhance our
ability to offer IT-CT integrated solutions to government and corporate
customers and establish ourselves as a “leading ICT service provider in China”
while providing comprehensive and high quality telecommunications solutions
to
BOCOG, the media and our business customers.
The
implementation of our “Broadband Olympics” vision will help us achieve great
progress in our transformation into a “broadband communications and multimedia
services provider”.
Corporate
Governance Improvement
In
the first half of 2007, the Board continued to refine the Company’s corporate
governance. Based on the results of the performance assessment of the Board
and
its Directors in 2006, the Company has developed a focused plan to enhance
the
performance of the Board. A specific training program will allow both internal
and external Directors to gain a deeper understanding of the Company’s
operations and of their responsibilities and obligations under the rules
of the
various stock exchanges where the shares of the Company are listed. The Board
has also begun in-depth research in areas such as Director selection and
succession procedures, as well as management succession planning and
compensation. This will allow the Company to develop open and transparent
Director selection and succession processes and more effectively appraise
the
performance and potential of senior executives.
Changes
of Directors and Management
On
July 12, 2007, Dr. Edward Tian Suning resigned from his positions as
Non-Executive Director and Vice President as well as member of the Strategy
Committee of the Board. On the same day, Mr. Miao Jianhua also resigned from
his
positions as Executive Director and Chairman and member of the Supervision
Committee of the Board. On the same day, Ms. Li Jianguo was appointed Executive
Director and Chairman and member of the Supervision Committee. The Board
fully
acknowledges and value the outstanding contributions made by Dr. Edward Tian
Suning and Mr. Miao Jianhua during their service on the Board, and welcome
Ms.
Li Jianguo as a member of the Board.
Prospects
In
the second half of 2007, the Company will continue to pursue innovation and
growth. In support of its transformation into a “broadband communications and
multimedia services provider”, the Company will continue to reform its
organizational structure, operation model, human resources structure and
corporate governance and reinforce core competitive advantages in a new
competitive landscape. We firmly believe that only continuous innovation
will
enable the Company to compete and enhance value for its
shareholders.
Last
but not least, I would like to extend our most sincere gratitude to all of
you
for your support and trust.
Zhang
Chunjiang
Chairman
Hong
Kong, August 22, 2007
CHIEF
EXECUTIVE OFFICER’S STATEMENT
Dear
Shareholders,
In
the first half of 2007, the major business strategies of the Company were
to
vigorously develop its high-growth businesses, stabilize its traditional
fixed-line business, refine management quality and improve cash flow. The
first
half of 2007 witnessed escalating imbalances in the competitive landscape
in
China’s telecommunications industry and intensifying mobile substitution.
Although our traditional fixed-line business declined, our strategic
transformation showed satisfactory results, our high-growth businesses
maintained rapid growth and the ratio of free cash flow over total revenue
improved.
I. Financial
Performance
In
the first half of 2007, revenue from continuing operations reached RMB41,508
million, which included upfront connection fees of RMB855 million. Excluding
upfront connection fees, revenue from continuing operations amounted to
RMB40,653 million, an increase of 0.43% compared with the same period last
year
(unless otherwise specified, all figures are net of the effect of upfront
connection fees and our discontinued operations). EBITDA was RMB21,907 million
and EBITDA margin was 53.9%. Consolidated net profit was RMB5,858 million,
which
included RMB624 million from discontinued operations. As a result of mobile
substitution, revenue growth slowed down in the first half of 2007. However,
our
high-growth businesses continued to develop strongly. With the rapid development
of new businesses such as ICT and broadband content and applications, revenue
from high-growth businesses reached RMB13,029 million in the first half of
2007,
an increase of 39.4% compared with the same period last year, highlighting
their
potential to strongly contribute to future growth.
In
the first half of 2007, the Company continued to optimize its budget and
CAPEX
management processes. We further strengthened our control over CAPEX and
increased the utilization efficiency of resources, while at the same time
ensuring sufficient investments in high-growth businesses. By the end of
the
first half of 2007, the Company’s CAPEX totaled RMB8,454 million, a decrease of
16.2% compared with the same period last year. As a result of the decrease
in
CAPEX, our free cash flow continued to grow, reaching RMB8,126 million, an
increase of 13.3% compared to the same period last year.
II. Business
Performance
Traditional
Fixed-line Business
In
2007, the Company’s development strategy for the traditional fixed-line business
is to retain subscribers, stimulate voice traffic, increase ARPU and eventually
stabilize its traditional fixed-line business by implementing bundled services
such as “Family 1+”. In April 2007, the Company completed the upgrading of its
local network to embrace intelligent functions and the upgrading of its
supporting systems in all service regions, and began to promote “Family 1+”
bundled service on a large scale. By the end of the first half of 2007, the
number of “Family 1+” subscribers reached 4,444 thousand.
The
“Family 1+” bundled services mitigated the decline in the number of local
telephone subscribers to a certain extent. In the first half of 2007, the
Company was able to restore growth in the number of local telephone subscribers.
The total number of subscribers reached 115,077 thousand, representing a
net
increase of 1,105 thousand from the end of 2006. The full-scale implementation
of “Family 1+” bundled services also effectively stimulated the growth of our
broadband subscriber base and increased usage of value-added services and
broadband content and applications, thereby significantly increasing the
value
of our existing subscriber base.
As
a result of continuous mobile substitution and the adjustments of the tariff
policies adopted by mobile operators in China, in the first half of 2007,
the
local voice traffic of the Company dropped by 7.4% compared with the same
period
last year. In the second half of the year, we will undertake further market
segmentation and review resource allocation and tariff model, as well as
fully
leverage our advantages in network resources with a view to mitigating the
decline in local voice traffic.
High-growth
Businesses
In
2007, the Company’s development strategies for high-growth businesses are: to
further increase the broadband subscriber base, to generate revenues from
content and applications as well as broadband access and develop the “PC+TV”
multi-terminal model; to strengthen marketing for value-added services for
its
fixed-line subscribers and the bundling of value-added services with basic
voice
service; to consolidate internal resources in order to accelerate growth
in the
ICT business. In the first half of 2007, as a result of sound strategic
implementation, our high-growth businesses experienced sustained rapid growth.
Revenue from high-growth businesses accounted for 32.0% of the Company’s total
revenue, up by 8.9 percentage points over the same period last
year.
By
the end of the first half of 2007, we had a total number of 17,123 thousand
broadband subscribers, representing an increase of 32.0% over the same period
last year and a net increase of 2,694 thousand compared with the end of 2006.
Revenue attributable to broadband and Internet-related services increased
by
33.8% over the same period last year, reaching RMB6,632 million. The ARPU
of
broadband services was RMB67.4, an increase of 3.4% over the same period
last
year.
On
May 17, 2007, the Company started the trials of “CNC MAX” Navigator, aiming to
provide broadband subscribers with diversified broadband content and application
services with both national and local features, in the provincial capitals
and
Olympic cities within its service regions. “CNC MAX” Navigator was fully
extended to all the service regions of the Company on August 8, 2007. In
the
second half of the year, with the continuous promotion of “CNC MAX” Navigator
and the enrichment of the broadband content and application services offered
by
the Company solely or developed with partners, we expect that the penetration
of
broadband content and application services will be further
enhanced.
In
the first half of 2007, the Company increased its efforts to promote value-added
services to its fixed-line subscribers and strengthen the development of
“Phone
Navigation” services, and launched such services as public service hotlines,
call centers and product authentification service. By the end of June 2007,
the
number of “Personalized Ring” subscribers increased from 10,365 thousand at the
same period last year to 23,911 thousand, an increase of 130.7%; the number
of
“Phone Navigation” subscribers reached 196 thousand. Revenue attributable to
value-added services for the first half of 2007 reached RMB3,129 million,
an
increase of 24.2% over the same period last year.
During
the first half of 2007, the Company set its long-term goal at becoming the
“leading ICT services provider in China” by capitalizing on its strengths in
network service, resources integration and customer relationship maintenance.
Based on the size of different ICT niche markets, the Company’s capabilities to
meet the needs of these niche customers, and its ability to bundle and support
core telecommunication businesses, the Company decided to focus on such key
customer segments as governmental authorities, securities houses and educational
and medical institutions, providing subscribers with long-term leases and
services which the Company has competitive edges such as platform lease,
network
maintenance and IT outsourcing and hosting. In the first half of 2007, the
Company entered into a number of important ICT contracts, including the National
Electronic Administration Network, an online inspection and monitoring platform
for national educational examinations at provincial level, and digital urban
management system. For the first half of 2007, revenue attributable to the
ICT
business was RMB1,438 million, accounting for 3.5% of the Company’s total
revenue.
III. Operation
Management
The
Company has been building a world-class operation and management system to
improve operational efficiency. Centralized management has been applied to
budget management, human resources, procurement, information system, network
operation maintenance and network construction to centralize resource
allocation. In the first half of 2007, the Company set up a market-oriented
and
budget-based resource allocation system, shifting less cost-effective resources
from traditional segments to broadband and ICT services.
The
Company continued its stringent control of CAPEX to improve resource utilization
efficiency. In the first half of 2007, the Company formulated a CAPEX
enhancement plan, which optimized the pre-project evaluation of fixed assets
investments and investment decision-making processes. Integrated analysis
and
comprehensive scientific evaluation improve decision-making, enhancing resource
utilization efficiency.
On
May 31, 2007, the Company completed the testing of its internal control over
financial reporting as at December 31, 2006. The company became the first
PRC
telecommunications operator to be in compliance with Section 404 of the
Sarbanes-Oxley Act. Over the past three years, the Company has built an internal
control system which is based on comprehensive risk management and is in
line
with domestic and foreign regulatory and legal requirements.
IV. Prospects
In
the second half of the year, the Company will intensify its efforts to retain
growth in its traditional businesses while promoting development in high-growth
businesses such as broadband, value-added services and ICT services. At the
same
time, the Company will shift its business model from product-oriented to
customer-oriented and focus on the following aspects:
|
●
|
optimizing
the bundling components and pricing of “Family 1+” service, attempting to
reform and adjust the tariff model for voice services, and slowing
down
the decline in voice traffic while achieving moderate growth in
the number
of local telephone subscribers;
|
|
●
|
increasing
broadband subscribers and the penetration of broadband content
and
applications through the bundling of services, promoting “CNC MAX”
Navigator to deliver more personalized and more diversified broadband
content and applications through self-operated and co-operative
means to
customers’ desktops, and promoting further growth in broadband access,
content and applications;
|
|
●
|
promoting
and marketing Olympics-related products fully so as to lay a sound
foundation for rapid growth in the broadband and ICT businesses
in
2008;
|
|
●
|
adjusting
organizational structures and marketing and management models to
accelerate the Company’s transformation, shifting from a product-oriented
business model to a customer-oriented business model to allow the
Company
to better respond to market changes and improve its competitiveness;
increasing analysis of the Company’s existing resources and product
profitability to better allocate resources and price its products;
and
further optimizing budgeting and investment management processes
to
improve resource utilization
efficiency.
|
The
Company is expecting more opportunities and challenges in 2007. However,
it is
my belief that through the joint efforts of the Board of Directors, the
management and all of our staff, we will be able to deliver satisfactory
results
for our shareholders.
ZUO
Xunsheng
Chief
Executive Officer
Hong
Kong, August 22, 2007
GROUP
RESULTS
China
Netcom Group Corporation (Hong Kong) Limited (the “Company”) is pleased to
announce the unaudited consolidated results of the Company and its subsidiaries
(the “Group”) for the six months ended June 30, 2007.
UNAUDITED
CONSOLIDATED CONDENSED INCOME STATEMENT
FOR
THE SIX MONTHS ENDED JUNE 30 2007
|
|
Six
months ended June 30
|
|
Note
|
2007
|
|
2006
|
|
|
RMB
million
Unaudited
|
|
RMB
million
Unaudited
Restated
Note
2
|
|
|
|
|
|
Continuing
operations:
|
|
|
|
|
Revenues
|
4
|
41,508
|
|
41,808
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
Depreciation
and amortisation
|
|
(12,616)
|
|
(12,282)
|
Networks,
operations and support
|
|
(6,642)
|
|
(5,640)
|
Staff
costs
|
|
(5,722)
|
|
(5,764)
|
Selling,
general and administrative
|
|
(4,854)
|
|
(5,751)
|
Other
operating expenses
|
|
(1,528)
|
|
(670)
|
|
|
|
|
|
Total
operating expenses
|
|
(31,362)
|
|
(30,107)
|
|
|
|
|
|
Interest
income
|
|
66
|
|
50
|
|
|
|
|
|
Profit
from operations
|
|
10,212
|
|
11,751
|
Finance
costs
|
|
(1,770)
|
|
(1,886)
|
|
|
|
|
|
Profit
before taxation
|
|
8,442
|
|
9,865
|
Taxation
|
6
|
(2,353)
|
|
(2,671)
|
|
|
|
|
|
Profit
for the period from continuing operations
|
|
6,089
|
|
7,194
|
|
|
Six
months ended June 30
|
|
Note
|
2007
|
|
2006
|
|
|
RMB
million
Unaudited
|
|
RMB
million
Unaudited
Restated
Note
2
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
Profit/(loss)
for the period from
discontinued
operations
|
11
|
624
|
|
(100)
|
|
|
|
|
|
Profit
for the period attributable to
shareholders
of the Company
|
|
6,713
|
|
7,094
|
|
|
|
|
|
Earnings
per share for profit from
continuing
operations attributable to shareholders of the Company for the
period
|
8
|
|
|
|
-
Basic earnings per share
|
|
RMB
0.92
|
|
RMB
1.09
|
-
Diluted earnings per share
|
|
RMB
0.90
|
|
RMB
1.08
|
|
|
|
|
|
Earnings/(loss)
per share for profit/(loss)
from
discontinued operations attributable to shareholders of the Company
for
the period
|
8
|
|
|
|
-
Basic earnings/(loss) per share
|
|
RMB
0.09
|
|
|
-
Diluted earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
Earnings
per share for profit attributable
to
shareholders of the Company for the period
|
8
|
|
|
|
-
Basic earnings per share
|
|
|
|
|
-
Diluted earnings per share
|
|
|
|
|
UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEET
AS
AT JUNE 30 2007
|
Note
|
As
at
June
30
2007
|
|
As
at
December
31
2006
|
|
|
RMB
million
Unaudited
|
|
RMB
million
Audited
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash
and bank deposits
|
|
4,524
|
|
7,571
|
Accounts
receivable
|
9
|
8,425
|
|
8,283
|
Inventories
and consumables
|
|
304
|
|
416
|
Prepayments,
other receivables and other current assets
|
|
990
|
|
1,437
|
Due
from holding companies and fellow subsidiaries
|
|
242
|
|
352
|
|
|
|
|
|
Total
current assets
|
|
14,485
|
|
18,059
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
Fixed
assets
|
|
156,026
|
|
168,044
|
Construction
in progress
|
|
6,645
|
|
6,355
|
Lease
prepayments
|
|
2,540
|
|
2,364
|
Intangible
assets
|
|
1,492
|
|
1,588
|
Deferred
tax assets
|
|
2,849
|
|
3,459
|
Other
non-current assets
|
|
3,574
|
|
3,966
|
|
|
|
|
|
Total
non-current assets
|
|
173,126
|
|
185,776
|
|
|
|
|
|
Total
assets
|
|
187,611
|
|
203,835
|
|
Note
|
As
at
June
30
2007
|
|
As
at
December
31
2006
|
|
|
RMB
million
Unaudited
|
|
RMB
million
Audited
|
Liabilities
and equity
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts
payable
|
10
|
16,788
|
|
17,654
|
Accruals
and other payables
|
|
3,996
|
|
3,056
|
Short-term
commercial paper
|
|
19,973
|
|
9,811
|
Short-term
bank loans
|
|
13,593
|
|
30,980
|
Current
portion of long-term bank and other loans
|
|
4,637
|
|
7,304
|
Due
to holding companies and fellow subsidiaries
|
|
6,523
|
|
7,519
|
Current
portion of deferred revenues
|
|
6,981
|
|
7,733
|
Current
portion of provisions
|
|
3,400
|
|
3,736
|
Taxation
payable
|
|
2,776
|
|
3,009
|
|
|
|
|
|
Total
current liabilities
|
|
78,667
|
|
90,802
|
|
|
|
|
|
Net
current liabilities
|
|
64,182
|
|
72,743
|
|
|
|
|
|
Total
assets less current liabilities
|
|
108,944
|
|
113,033
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
Long-term
bank and other loans
|
|
17,031
|
|
23,219
|
Corporate
bonds
|
|
2,000
|
|
—
|
Due
to holding companies and fellow subsidiaries
|
|
4,900
|
|
5,880
|
Deferred
revenues
|
|
5,243
|
|
6,198
|
Provisions
|
|
2,253
|
|
2,586
|
Deferred
tax liabilities
|
|
884
|
|
1,156
|
Other
non-current liabilities
|
|
15
|
|
16
|
|
|
|
|
|
Total
non-current liabilities
|
|
32,326
|
|
39,055
|
|
|
|
|
|
Total
liabilities
|
|
110,993
|
|
129,857
|
|
|
|
|
|
Financed
by:
|
|
|
|
|
Share
capital
|
|
2,201
|
|
2,199
|
Reserves
|
|
74,417
|
|
71,779
|
|
|
|
|
|
Shareholders’
equity
|
|
76,618
|
|
73,978
|
|
|
|
|
|
Total
liabilities and equity
|
|
187,611
|
|
203,835
|
Notes
to the Unaudited Interim Financial Statements
1 The
group and its principal activities
Background
of the group
China
Netcom Group Corporation (Hong Kong) Limited (the “Company”) was incorporated in
the Hong Kong Special Administrative Region (“Hong Kong”) of the People’s
Republic of China (“PRC”) as a limited liability company under the Hong Kong
Companies Ordinance, the shares of the Company were listed on The Stock Exchange
of Hong Kong Limited on November 17, 2004 and the ADSs were listed on New
York
Stock Exchange Inc. on November 16, 2004.
On
January 15, 2007, the wholly own subsidiary of the Company, China Netcom
(Group)
Corporation Limited (“CNC China”) entered into an assets transfer agreement with
it’s ultimate holding Company, China Network Communications Group Corporation
(the “China Netcom Group”), Pursuant to the agreement, CNC China agreed to
dispose of its assets, liabilities and business in relation to its
telecommunications operations in Guangdong Province and Shanghai Municipality
branches (“Guangdong and Shanghai branches”) in the PRC for consideration of
RMB3.5 billion. On February 14, 2007, the independent shareholders passed
an
ordinary resolution to approve the disposal. The disposal was completed on
February 28, 2007 upon the approval granted from the Ministry of Information
Industry (“MII”).
After
the disposal of the Guangdong and Shanghai branches, the Group is the dominant
provider of fixed line telephone services, broadband, other internet-related
services, and business and data communications services in ten northern
provinces, municipalities and autonomous region, namely Beijing Municipality,
Tianjin Municipality, Hebei Province, Liaoning Province, Shandong Province,
Henan Province, Shanxi Province, Neimenggu Autonomous Region, Jilin Province,
and Heilongjiang Province.
Currently,
the Group’s principal services consist of:
|
●
|
Fixed
line telephone services (including the personal handy phone system
(PHS)
services), comprising:
|
|
(a)
|
Local,
domestic long distance and international long distance
services;
|
|
(b)
|
Value-added
services, including caller identity, telephone information services;
and
|
|
(c)
|
Interconnection
services provided to other domestic telecommunications service
providers
including the fellow subsidiary owned by China Netcom Group operating
outside the ten service regions;
|
|
●
|
Broadband
services and other internet-related
services;
|
|
●
|
Business
and data communications services, including integrated regional
data and
voice communications services;
|
|
●
|
Information
Communications Technology Services, including system integration,
software
development, maintenance services, consultancy services, product
sales and
agency services, and equipment leasing
services.
|
2 Basis
of presentation
These
unaudited consolidated condensed financial statements (the “interim financial
statements”) have been prepared in accordance with Hong Kong Accounting Standard
(“HKAS”) 34, “Interim Financial Reporting” issued by the Hong Kong Institute of
Certified Public Accountants (the “HKICPA”) and the disclosure requirements of
the Hong Kong Companies Ordinance and the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited.
The
interim financial statements include the financial information of the Company
and its subsidiaries (collectively referred to as the “Group”) and have been
prepared in accordance with the same accounting policies adopted in the 2006
financial statements and the new accounting policies as set out in Note 3
below.
These interim financial statements should be read in conjunction with the
Group’s 2006 financial statements.
A
significant percentage of the Group’s funding requirements is achieved through
short term borrowings. Consequently, the balance sheet indicates a significant
working capital deficit. In the past, a substantial portion of the Group’s short
term borrowings have been rolled over upon maturity. In addition, on July
20,
2006 and April 30, 2007, the Group has issued commercial paper to raise
additional funding totalling RMB 20 billion. On June 8, 2007, the Group has
issued Corporate bonds to raise additional funding of RMB 2 billion. Based
on
the Group’s history of obtaining financing, its relationships with its bankers
and its operating performance, the directors consider that the Group will
continue to be able to roll over such short term financing, or will be able
to
obtain sufficient alternative sources of financing to enable it to operate
and
meet its liabilities as and when they fall due.
On
June 2, 2006, the Group entered into an agreement with third party buyers
to
dispose of the entire interests in Asia Netcom Corporation Limited (the “ANC
Group”) and the disposal was completed on August 22, 2006. On January 15, 2007,
CNC China entered into an assets transfer agreement with China Netcom Group
to
dispose of its assets and liabilities in relation to its telecommunications
operations in Guangdong and Shanghai branches in the PRC and the disposal
was
completed on February 28, 2007. In accordance with Hong Kong Financial Reporting
Standard (“HKFRS”) 5 “Non-current assets held for sales and discontinued
operations” issued by the HKICPA, the results and cash flows of the operations
of the ANC Group and Guangdong and Shanghai branches have been presented
as
discontinued operations. The first half year of 2006 comparative figures
in the
income statement and statement of cash flows were restated
accordingly.
3 Changes
in accounting policies
In
2007, the Group adopted the new and revised HKFRSs as listed below, which
are
relevant to its operations.
|
●
|
HKFRS
7 - Financial Instruments :
Disclosures
|
|
●
|
HKAS
1 (Amendment) - Presentation of Financial Statements: Capital
Disclosure
|
|
●
|
HK(IFRIC)
- Int 8 - Scope of HKFRS 2
|
|
●
|
HK(IFRIC)
- Int 10 - Interim Reporting and
Impairment
|
The
adoption of these new and revised HKFRSs by the Company did not have any
significant impact on its results of operations and financial
position.
4 Revenues
Revenues
represent the turnover of the Group and are derived from the provision of
fixed
line telecommunications and related services, net of the PRC business taxes
of
RMB 1,161 million (For the six months ended June 30, 2006: RMB 1,191 million)
and government levies. The Group’s revenues by business nature can be summarized
as follows:
|
Six
months ended June 30
|
|
2007
|
|
2006
|
|
RMB
million
Unaudited
|
|
RMB
million
Unaudited
Restated
Note
2
|
|
|
|
|
Revenues
|
|
|
|
Local
usage fees
|
10,281
|
|
11,356
|
Monthly
telephone services
|
6,697
|
|
8,631
|
Upfront
installation fees
|
653
|
|
691
|
DLD
usage fees
|
4,471
|
|
4,764
|
ILD
usage fees
|
411
|
|
414
|
Value-added
services
|
3,129
|
|
2,519
|
Interconnection
fees
|
4,203
|
|
3,949
|
Upfront
connection fees
|
855
|
|
1,330
|
Broadband
services
|
6,383
|
|
4,696
|
Other
internet-related services
|
249
|
|
261
|
Managed
data services
|
641
|
|
736
|
Leased
line income
|
1,189
|
|
1,137
|
Information
communication technologies services
|
1,438
|
|
—
|
Other
services
|
908
|
|
1,324
|
|
|
|
|
Total
|
41,508
|
|
41,808
|
5 Segmental
reporting
Business
segments provide services that are subject to risks and returns that are
different from other business segments. Geographical segments provide services
within a particular economic environment that are subject to risks and returns
that differ from those of components operating in other economic environments.
Currently the Group has one business segment, the provision of fixed line
telecommunications services. Less than 10% of the Group’s assets and operations
are located outside the PRC. Accordingly, no business and geographical segment
information is presented.
6 Taxation
|
Six
months ended June 30
|
|
2007
|
|
2006
|
|
RMB
million
Unaudited
|
|
RMB
million
Unaudited
Restated
Note
2
|
|
|
|
|
PRC
enterprise income tax (“EIT”)
|
2,587
|
|
3,035
|
Overseas
profit tax
|
11
|
|
1
|
Deferred
taxation-Continuing operations
|
(194)
|
|
(365)
|
Deferred
taxation- Change in statutory taxation rate
|
(51)
|
|
—
|
|
|
|
|
Taxation
charges
|
2,353
|
|
2,671
|
The
provision for EIT is calculated based on the statutory income tax rate of
33% on
the assessable profit of each of the entities now comprising the Group in
the
PRC as determined in accordance with the relevant income tax rules and
regulations in the PRC.
Taxation
on profits derived from certain subsidiaries outside the PRC, including Hong
Kong, has been calculated on the estimated assessable profit at the rates
of
taxation ranging from 17.50% to 34.00%, prevailing in the countries in which
those entities operate.
On
March 16, 2007, the National People’s Congress approved the Enterprise Income
Tax Law of the People’s Republic of China (the “New EIT Law”). This New EIT Law
reduces the enterprise income tax rate for domestic enterprises from 33%
to 25%
with effect from January 1, 2008. As a result of the new EIT Law, as at March
16, 2007, the carrying value of deferred tax assets has been written down
by RMB
775 million, with RMB 111 million recognised in income statement and RMB
664
million recognised in equity. The carrying value of deferred tax liabilities
has
been written down by RMB 273 million, with RMB 162 million recognised in
income
statement and RMB 111 million recognised in equity. The change in deferred
taxation recognised in current income statement or equity as a result of
the New
EIT Law corresponding to the related items previously recognised in income
statement or equity.
The
New EIT Law will provide further detailed measures and regulations on the
determination of
taxable
profit. Detail of tax incentives and grandfathering provisions will be issued
by
the State Council in due course. As and when the State Council announces
the
additional details in respect of the above taxable profit, the Company will
further assess the financial impact, if any, and this change in accounting
estimate will be accounted for prospectively.
7 Profit
distributions
|
Six
months ended June 30
|
|
2007(Note(i))
|
|
2006
|
|
HK$
million
Unaudited
|
|
RMB
million
Unaudited
|
|
HK$
million
Unaudited
|
|
RMB
million
Unaudited
|
|
|
|
|
|
|
|
|
Dividend
distributed during the period
|
3,678
|
|
3,600
|
|
3,073
|
|
3,196
|
Note:
|
(i)
|
Pursuant
to the shareholder’s approval at the Annual General Meeting held on May
22, 2007, a final dividend of HK$0.553 per share totaling RMB 3,600
million in respect of the year ended December 31, 2006 was declared
and
was paid on June 12, 2007, which has been reflected as a reduction
of
retained earnings for the six months ended June 30,
2007.
|
|
(ii)
|
No
interim dividend has been proposed by the directors for the period
ended
June 30, 2007. The payment of any future dividends will be determined
by
the Board of Directors.
|
|
(iii)
|
Appropriation
to statutory reserve
|
According
to a PRC tax approval document issued by the Ministry of Finance and State
Administration of Taxation to the Group, the Group’s upfront connection fees are
not subject to EIT and an amount equal to the upfront connection fees recognised
in the retained earnings should be transferred from retained earnings to
a
statutory reserve. At June 30, 2007, the Company has made an aggregated
appropriation of RMB 10,044 million to the statutory reserve (At June 30,
2006:
RMB 8,113 million). For the six months ended June 30, 2007, the Company made
an
appropriation of RMB855 million (For the six months ended June 30, 2006:
RMB1,330 million).
8 Earnings
per share
Basic
earnings per share is computed using the weighted average number of ordinary
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of ordinary shares and potential ordinary
shares outstanding during the period.
The
following table sets forth the computation of basic and diluted net earnings/
(loss) per share:
|
Six
months ended June 30
|
|
2007
|
|
2006
|
|
(in
RMB million, except share and per share data)
|
|
Unaudited
|
|
Unaudited
Restated
Note
2
|
|
|
|
|
Numerator:
|
|
|
|
Profit/(loss)
for the period
|
|
|
|
-
Continuing operations
|
6,089
|
|
7,194
|
-
Discontinued operations
|
624
|
|
(100)
|
|
|
|
|
|
6,713
|
|
7,094
|
|
|
|
|
Denominator:
|
|
|
|
Weighted
average number of ordinary shares outstanding and shares used in
computing
basic earnings/(loss) per share
|
6,651,863,638
|
|
6,596,123,569
|
Diluted
equivalent shares arising from share options
|
79,595,001
|
|
50,441,318
|
|
|
|
|
Shares
used in computing diluted earnings/(loss) per share
|
6,731,458,639
|
|
6,646,564,887
|
|
|
|
|
Basic
earnings/(loss) per share (RMB)
|
|
|
|
|
|
|
|
-
Continuing operations
|
0.92
|
|
1.09
|
|
|
|
|
-
Discontinued operations
|
0.09
|
|
(0.02)
|
|
|
|
|
-
Profit for the period
|
1.01
|
|
1.07
|
|
|
|
|
Diluted
earnings/(loss) per share (RMB)
|
|
|
|
|
|
|
|
-
Continuing operations
|
0.90
|
|
1.08
|
|
|
|
|
-
Discontinued operations
|
0.09
|
|
(0.02)
|
|
|
|
|
-
Profit for the period
|
0.99
|
|
1.06
|
9 Accounts
receivable
Amounts
due from the provision of fixed line telecommunications services to residential
and business customers are due within 30 days from the date of billing.
Residential customers who have accounts overdue by more than 90 days will
in
normal circumstances have their services disconnected. Accounts receivable
from
other telecommunications operators and customers are due between 30 to 90
days
from the billing date.
The
ageing analysis of accounts receivable based on the billing date is as
follows:
|
As
at
June
30
|
|
As
at
December
31
|
|
2007
|
|
2006
|
|
RMB
million
Unaudited
|
|
RMB
million
Audited
|
|
|
|
|
0-30
days
|
5,455
|
|
5,744
|
31-90
days
|
1,743
|
|
1,557
|
Over
90 days
|
2,740
|
|
2,326
|
|
|
|
|
Total
|
9,938
|
|
9,627
|
|
|
|
|
Less:
Allowance for doubtful debts
|
(1,513)
|
|
(1,344)
|
|
|
|
|
Net
carrying amounts
|
8,425
|
|
8,283
|
The
carrying value of accounts receivable approximates their fair values based
on
cash flows discounted using a rate based on the average short-term borrowing
rate of 6.57% (December 31, 2006: 6.12%).
Included
in the accounts receivable are amounts due from other state-controlled
telecommunication operators amounting to RMB 1,044 million (December 31,
2006:
RMB 1,079 million).
10 Accounts
payable
|
As
at
June
30
|
|
As
at
December
31
|
|
2007
|
|
2006
|
|
RMB
million
Unaudited
|
|
RMB
million
Audited
|
|
|
|
|
0-30
days
|
4,085
|
|
5,762
|
31-60
days
|
1,784
|
|
2,236
|
61-90
days
|
1,690
|
|
1,449
|
91-180
days
|
3,236
|
|
2,989
|
Over
180 days
|
5,993
|
|
5,218
|
|
|
|
|
Total
|
16,788
|
|
17,654
|
Included
in accounts payable were amounts due to other state-controlled
telecommunications operators amounting to RMB 25 million (December 31, 2006:
RMB
97 million).
11 Discontinued
operations
|
(i)
|
The
disposal of Guangdong and Shanghai branches (Note1) was completed
on
February 28, 2007. The results and cash flows of the Guangdong
and
Shanghai branches of the Group for the period ended June 30, 2007
and 2006
are presented as discontinued
operations.
|
|
(ii)
|
On
June 2, 2006, the Group entered into an agreement to dispose of
its entire
interest in the ANC Group. The transaction was completed on August
22,
2006. The results and cash flows of the ANC Group are presented
as
discontinued operations for the six months ended June 30,
2006.
|
|
(iii)
|
The
condensed income statements related to the discontinued operations
are as
follows:
|
|
Disposal
of Guangdong &
Shanghai
branches (i)
|
|
Disposal
of ANC Group (ii)
|
|
Total
|
|
For
the period
from
January 1 2007
to
February 28 2007
|
|
For
the Six
months
ended
June
30 2006
|
|
For
the six
months
ended
June
30 2007
|
|
For
the six
months
ended
June
30 2006
|
|
For
the six
months
ended
June
30 2007
|
|
For
the six
months
ended
June
30 2006
|
|
RMB
million
Unaudited
|
|
RMB
million
Unaudited
|
|
RMB
million
Unaudited
|
|
RMB
million
Unaudited
|
|
RMB
million
Unaudited
|
|
RMB
million
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
615
|
|
1,477
|
|
—
|
|
726
|
|
615
|
|
2,203
|
Expenses
|
(618)
|
|
(1,549)
|
|
—
|
|
(776)
|
|
(618)
|
|
(2,325)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before taxation of
discontinued
operations
|
(3)
|
|
(72)
|
|
—
|
|
(50)
|
|
(3)
|
|
(122)
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
1
|
|
23
|
|
—
|
|
(1)
|
|
1
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the period of
discontinued
operations
|
(2)
|
|
(49)
|
|
—
|
|
(51)
|
|
(2)
|
|
(100)
|
Gain
on disposal of discontinued
operations
|
927
|
|
—
|
|
—
|
|
—
|
|
927
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
(301)
|
|
—
|
|
—
|
|
—
|
|
(301)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
from disposal of
discontinued
operation
|
626
|
|
—
|
|
—
|
|
—
|
|
626
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss)
for the period from discontinued operations
|
624
|
|
(49)
|
|
—
|
|
(51)
|
|
624
|
|
(100)
|
INTERIM
DIVIDEND
The
board of directors of the Company have resolved that no interim dividend
be paid
for the six months ended June 30, 2007.
AUDIT
COMMITTEE
The
Audit Committee reviewed with management the accounting policies and practices
adopted by the Group and discussed auditing, internal control and financial
reporting matters including the review of the unaudited interim financial
statements for the six months ended June 30, 2007.
COMPLIANCE
WITH THE CODE PROVISIONS SET OUT IN THE CODE ON CORPORATE GOVERNANCE
PRACTICES
The
Company has complied with all code provisions of the Code on Corporate
Governance Practices as set out in Appendix 14 to the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing
Rules”) throughout the six months ended June 30, 2007.
Under
the amended Section 303A of the New York Stock Exchange Listed Company Manual,
foreign issuers (including the Company) listed on the New York Stock Exchange,
Inc. (the “NYSE”) are required to disclose a summary of the significant
differences between their domestic corporate governance rules and NYSE corporate
governance rules that would apply to a U.S. domestic issuer. A summary of
such
differences appears on our website at http://www.china-netcom.com/english/inv/
Corporate_Governance_Differences.htm.
COMPLIANCE
WITH THE MODEL CODE
The
Company has adopted the Model Code for Securities Transactions by Directors
of
Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing
Rules. All directors have confirmed, following enquiry by the Company, that
they
have complied with the required standard set out in the Model Code throughout
the period from January 1, 2007 to June 30, 2007.
PURCHASE,
SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES
During
the six months ended June 30, 2007, neither the Company nor any of its
subsidiaries purchased, sold or redeemed any of the Company’s listed
securities.
PUBLICATION
OF INTERIM RESULTS ON THE WEBSITES OF THE STOCK EXCHANGE OF HONG KONG LIMITED
AND THE COMPANY
The
2007 Interim Report will be dispatched to shareholders as well as made available
on The Stock Exchange of Hong Kong Limited’s website at http://www.hkex.com.hk
as well as the Company’s website at
http://www.irasia.com/listco/hk/chinanetcom/.
The
2007 interim financial information set out above does not constitute the
Group’s
statutory financial statements for the six months ended June 30, 2007 but
is
extracted from the consolidated condensed financial statements for the six
months ended June 30, 2007 to be included in the 2007 Interim
Report.
FORWARD-LOOKING
STATEMENTS
This
announcement includes ‘‘forward-looking statements’’ within the meaning of the
Private Securities Litigation Reform Act of 1995. Save for statements of
historical facts, all statements in this announcement that address activities,
events or developments which the Company expects or anticipates will or may
occur in the future are hereby identified as forward looking statements for
the
purpose of the safe harbour provided by Section 27A of the U.S. Securities
Act
of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act
of
1934, as amended. The words such as believe, intend, expect, anticipate,
project, estimate, predict, plan and similar expression are also intended
to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors, which may cause
the
actual performance, financial condition or results of operations of the Company
to be materially different from any future performance, financial condition
or
results of operations implied by such forward-looking statements. Further
information regarding these risks, uncertainties and other factors is included
in the Company’s Annual Report on Form 20-F filed with the U.S. Securities and
Exchange Commission (the ‘‘SEC’’) and in the Company’s other filings with the
SEC.
As
at the date of this announcement, the Board of Directors of the Company
comprises Mr. Zhang Chunjiang, Mr. Zuo Xunsheng, Ms. Li Jianguo, Mr. Zhang
Xiaotie and Mr. Li Fushen as executive directors, Mr. Yan Yixun, Mr. José María
Álvarez-Pallete and Mr. Mauricio Sartorius as non-executive directors, and
Mr.
John Lawson Thornton, Mr. Victor Cha Mou Zing, Dr. Qian Yingyi, Mr. Hou Ziqiang
and Mr. Timpson Chung Shui Ming as independent non-executive
directors.