6-K 1 d641127d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the Month of August 2017

Commission File Number 1-31517

 

 

China Telecom Corporation Limited

(Translation of registrant’s name into English)

 

 

31 Jinrong Street, Xicheng District

Beijing 100033, China

(Address of principal executive offices)

 

 

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F                        Form 40-F  ☐

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐)

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐)

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes  ☐                     No  ☒

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-                .)

 

 

 


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EXHIBITS

 

Exhibit
Number
   Page
Number
 
1.1   

Announcement of interim results for the six months ended June  30, 2017, dated August 23, 2017.

     A-1  

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 6-K may be viewed as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are, by their nature, subject to significant risks and uncertainties, and include, without limitation, statements relating to:

 

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

 

    our network expansion and capital expenditure plans;

 

    our operations and business prospects;

 

    the expected benefit of any acquisitions or other strategic transactions;

 

    our financial condition and results of operations;

 

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

 

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

 

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

 

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

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

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

 

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

 

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    the granting and approval of licenses;

 

    tariff policies;

 

    interconnection and settlement arrangements;

 

    capital investment priorities;

 

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

 

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

 

    spectrum and numbering resources allocation;

 

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

 

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

 

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

 

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

 

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

 

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

 

    the development of our mobile business is dependent on the Tower Company.

Please also see the “Risk Factors” section of the Company’s latest Annual Report on Form 20-F, as filed with the Securities and Exchange Commission.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    CHINA TELECOM CORPORATION LIMITED
Date: August 23, 2017     By:  

/s/ Yang Jie

      Name:   Yang Jie
      Title:   Chairman and Chief Executive Officer

 

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Exhibit 1.1

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

 

LOGO

China Telecom Corporation Limited

 

LOGO

(A joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 728)

ANNOUNCEMENT OF INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

HIGHLIGHTS

 

  -

Operating revenues amounted to RMB184,118 million, increased by 4.1% over the same period last year. Service revenues amounted to RMB165,847 million, up by 6.8% over the same period last year, outperforming the industry average growth

 

 

  -

EBITDA was RMB52,414 million, increased by 3.7% over the same period last year. EBITDA margin was 31.6%

 

 

  -

Profit attributable to equity holders of the Company was RMB12,537 million, increased by 7.4% over the same period last year. Basic earnings per share were RMB0.15

 

 

  -

Total number of mobile subscribers was 230 million, with a net increase of 14.85 million from the end of last year, of which the number of 4G terminal users reached 152 million, with a net increase of 30.15 million from the end of last year. 4G terminal users accounted for 66% of total mobile subscribers while the aggregate handset Internet data traffic increased by 126% over the same period last year

 

 

  -

Total number of wireline broadband subscribers was 128 million, with a net increase of 4.98 million from the end of last year, of which the number of Fibre-to-the-Home (FTTH) subscribers reached 117 million, with a net increase of 11.24 million from the end of last year, accounted for 92% of total wireline broadband subscribers

 

 

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CHAIRMAN’S STATEMENT

In the first half of this year, facing increasingly intensified market competition coupled with complicated and changing industry environments, the Company firmly rose to the challenges with a unitary goal cohering as a whole, adopting conscientious and pragmatic approach with excellent execution and marching towards the goal of being a leading integrated intelligent information services operator. With perseverance in integration and innovation, acceleration in scale development together with reinforcement of competitive strengths, the growth momentum in business development remained consistently strong. We firmly adhered to the established development strategy and comprehensively promoted the three initiatives1 with comprehensive in-depth reforms, initially attaining effective achievement in transformation and upgrades1.

Corporate operation continued to show solid development

In the first half of the year, the Company firmly seized the favourable opportunity of information consumption upgrade and proactively responded to the market competition. Adopting aggressive marketing strategies and rapidly expanding our scale with continual optimisation in structures, we achieved excellent performance in our operating results.

Financial results showed steady growth

In the first half of the year, operating revenues amounted to RMB184.1 billion, representing an increase of 4.1% over the same period last year. Service revenues2 amounted to RMB165.8 billion, representing an increase of 6.8% over the same period last year with revenue growth surpassing the industry average. Mobile service revenues amounted to RMB75.7 billion, increased by 12.2% over the same period last year with industry-leading growth. Revenues from emerging businesses accounted for 45.0% of service revenues, representing an increase of 6.1 percentage points over the same period last year. EBITDA3 was RMB52.4 billion, representing an increase of 3.7% over the same period last year while EBITDA margin3 was 31.6%. Net profit4 was RMB12.5 billion, representing an increase of 7.4% over the same period last year. Basic earnings per share were RMB0.15. Capital expenditure was RMB41.1 billion while free cash flow5 was RMB7.2 billion with remarkable improvement over last year.

 

1

Three initiatives refers to the implementation paths of the transformation and upgrades strategy (Transformation 3.0), namely network intelligentisation, service ecologicalisation and operation intellectualisation.

2

Service revenues were calculated based on operating revenues minus sales of mobile terminals, sales of wireline equipment and other non-service revenues.

3

EBITDA was calculated based on operating revenues minus operating expenses plus depreciation and amortisation while EBITDA margin was calculated based on EBITDA divided by service revenues.

4

Net profit refers to the profit attributable to the equity holders of the Company.

5

Free cash flow was calculated from EBITDA minus capital expenditure and income tax.

 

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

Accelerated expansion of business scale

In the first half of the year, the net increase of mobile subscribers was 14.85 million, reaching a total of 230 million and accounting for 16.8% market share, representing an increase of 0.6 percentage point from the end of last year. The net increase of 4G users was 30.15 million, reaching a total of 152 million and accounting for 17.2% market share, representing an increase of 1.2 percentage points from the end of last year while the penetration rate of 4G users reached 66%. The aggregate handset Internet data traffic increased by 126% compared to the same period last year while the DOU of 4G users reached 1.4GB, representing an increase of 56% over the same period last year with further enhancement in growth rate. The sales volume of 4G terminals was approximately 65 million, representing an increase of 48% over the same period last year, of which sales of “6-mode” handsets accounted for 96%.

The number of wireline broadband subscribers continued to maintain rapid growth. The net increase of wireline broadband subscribers was 4.98 million, reaching a total of 128 million. Of which the net increase of Fibre-to-the-Home (FTTH) subscribers was 11.24 million, reaching a total of 117 million while the penetration rate reached 92%. The proportion of wireline subscribers of Hundred-Mbps or above increased rapidly and reached 37%. The net increase of e-Surfing HD subscribers was 10.79 million, reaching a total of 72.12 million. The number of Internet of Things (IoT) connected devices nearly doubled as compared to the end of last year, reaching a total of 27.98 million. The number of actively participated merchants of “BestPay” was close to 400,000 while the number of average monthly active users exceeded 28 million, concurrently increased more than 2 times over the same period last year.

Continual optimisation in revenue structure

In the first half of the year, revenues from Intelligent Connection ecosphere increased by 4.4% over the same period last year, accounting for 84.9% of service revenues. Of which, the mobile handset Internet access revenue, being the top revenue growth driver of the Company, increased by 35.2% over the same period last year and accounted for 26.0% of service revenues, representing an increase of 5.5 percentage points over the same period last year. Voice revenues accounted for 19.2% of service revenues, representing a decrease of 4.3 percentage points over the same period last year with further mitigation of operating risks.

 

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Revenues from the ecosphere of Smart Family, new ICT applications, IoT and Internet Finance accounted for 15.1% of service revenues, representing an increase of 2.0 percentage points over the same period last year. Revenues from the four ecosphere increased by 22.8% over the same period last year while the proportion of the incremental revenues of the four ecosphere as a percentage to the incremental service revenues of the Company reached 43.5%. New revenue growth engines are being rapidly shaped and formed.

Attained initial effective achievement of Transformation 3.0

In the first half of this year, with our adherence to the established direction and reinforcement of strategic execution, the Company accelerated the promotion of network intelligentisation, service ecologicalisation and operation intellectualisation. The Transformation 3.0 strategy attained initial effective achievement while development capabilities were continuously accumulated.

Strengthening of network advantages

In the first half of the year, the Company endeavoured to construct three superior networks, namely 4G network, IoT network and all-fibre network with further reinforcement of network edges. With full accomplishment of refarming of 800MHz frequency and establishment of excellent full coverage 4G network, we offered superior industry-leading integrated experience to our customers. With simultaneous deployment of VoLTE, network capabilities of commercial trial were shaped and formed, laying a robust foundation for the upgrade of mobile voice business. Leveraging the 800MHz 4G network with full exploitation of low-frequency edges, the Company became the pioneer in building the first NB-IoT network with the widest coverage, largest scale and best quality in the world, which has comprehensively commenced the commercial launch and has gained network advantages of the business development of IoT. With our persistent efforts in promoting the construction of fibre network, the fibre network household coverage rate of cities and towns reached 92% while the overall average bandwidth of wireline broadband subscribers reached 62Mbps. The Company deployed Gbps access capabilities in major cities with reference to demand, expanded the coverage of Data Centre Interconnect (DCI) and effectively promoted the construction of integrated and efficiently-centralised Content Distribution Network (CDN), resulting in further enhancement of high-speed and superior end-to-end network experience.

With a vision looking forward into the future, the Company accelerated the promotion and implementation of network evolution. On the one hand, we are deeply devoted to engaging in 5G standard formulation and technology trial runs while proactively exploring and researching the networking plan for the evolution from 4G to 5G. 5G network field trial will be conducted in 6 cities and the joint research and development of 5G applications and solutions will be launched collaborating with co-operative partners from various industries, laying foundation for 5G development.

 

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In addition, we steadily promoted the evolution of network intelligentisation, expedited the introduction and deployment of technologies such as Software-Defined Networking (SDN) and Network Functions Virtualisation (NFV) and achieved the highly efficient collaboration of network and IT. As a result, a new generation of network with the characteristics of flexibility, swiftness and elasticity with extensible functions is progressively constructed, offering state-of-the-art network experience with embedded self-selective, visible and self-served features.

Prosperity of business ecology

In the first half of the year, the Company consolidated internal resources and enhanced fundamental capabilities. Through creation of platforms, open capabilities, extended influence on industry value chain and cross-platforms integration, ecology synergies was reinforced. With converged efforts on the establishment of five business ecosphere, namely Intelligent Connection, Smart Family, new ICT applications, IoT and Internet Finance, we jointly promoted service ecologicalisation with our co-operative partners surrounding the theme of “co-sharing, co-innovation, co-prosperity”.

In the area of Intelligent Connection, the Company promoted the certification of “6- mode” handset standard by Global Certification Forum (GCF) and Global System for Mobile Communications Association (GSMA), which was upgraded as an international standard. Customers’ choice of terminals was enriched while growth potential of customers was expanded, leading to the prosperous development of terminal markets. Aiming at carrying out deepened data traffic operation, we embarked on extensive cooperation with Internet enterprises. With data traffic as the core, we innovated the form of supply and enhanced product competitiveness, accelerating the release of data demand and endeavouring to achieve a win-win outcome.

In the area of Smart Family, we created an open platform of Smart Family and co- shared capabilities such as home gateway access and integration of cloud and network, participating in the development and sales of smart devices while collaborating with co-operative partners to provide high quality and diversified Smart Family products and services. With the enrichment of premium contents in e-Surfing HD platform and enhancement of video operation, competitive strengths was persistently consolidated. With comprehensive promotion of intelligent WiFi networking services, customers were provided with personalised WiFi networking proposals, broadening new connection portal of household network. With joint efforts to build offline Smart Family experience centres partnering with Internet enterprises and household electrical appliance stores, services such as family cloud and video calls were embedded while experience marketing was commenced so as to promote upgrades of smart homes consumption.

 

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In the area of new ICT applications, the Company integrated the capabilities including cloud, Big Data and “Internet+” and converged co-operative partners in areas of contents, applications and solutions to create cloud platform with open capabilities for government and enterprise customers. With the establishment of platforms in mass entrepreneurship and innovation, we covered millions of innovative and start-up enterprises to provide assistance on technology development, innovation incubation and product operation. Targeting key areas including government administration, education, medical care and industrial Internet, we cooperated with well-known enterprises in the industry and broadened informatisation applications, effectively promoting industrial transformation and upgrades.

In the area of IoT, the Company jointly formulated the IoT module standard together with co-operative partners and assisted terminal manufacturers to expedite product launch. We launched open platform and jointly created platform capabilities featuring global connectivity, safety and reliability and intelligent decision-making. In addition, with the co-establishment of open laboratory, the threshold of research and development was reduced while the launch of new IoT applications was accelerated. With increased deployment of resources, we promoted terminal subsidies policy, took the lead in value chain development and enriched the forms of products, facilitating the stimulation of demand for IoT. Driving the ecological development through e-Surfing IoT Industry Alliance, the Company focused on three types of markets, namely smart city, vertical industry and individual consumption to promote extensive co-operation with local governments and enterprises, striving to create an IoT ecosphere with centripetal force and facilitate ecological prosperity in joint efforts.

In the area of Internet Finance, leveraging rich customers resources and reliable mobile payment capabilities, we innovated sales and marketing model and launched BestPay red packet6, deeply promoting the integration of Internet Finance ecosphere and Intelligent Connection ecosphere and achieving the outcome of mutual promotion and mutual driven. We created open platform of BestPay merchants and converged premium merchants to offer service capabilities including sales and marketing, gateway access payment and capital concentration. Serving as channels for each other with platforms participants, we strived to accomplish co-sharing of resources aiming at achieving mutual growth. Through close cooperation with leading enterprises in the areas of financial planning and financial technology, the Company achieved the realisation of resources complementarity, enriching content connotation and expansion path of Internet Finance services of the Company.

 

6 

BestPay red packet is an innovative model of contract package launched by China Telecom. Each month a certain amount will be refunded to contract users on proportion, which can be used for airtime topping up as well as online and offline consumption of BestPay.

 

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Enhancement of operating capability

In the first half of the year, the Company focused on enhancing competitive capabilities in channel sales, network operations and customer services. In the aspect of channel sales, we applied Big Data to optimise the location of sales outlets and strengthened the outlets coverage in key areas. We promoted superior outlet systems to foster the standardised operation of self-operated outlets. The promotion of B2I2C (business to Internet to customer) products on online channels was expanded and new co-operative channels such as chain stores and supermarkets were promoted. In the aspect of network operations, we expedited the response speed of installation and maintenance and optimised the end-to-end operation maintenance process so as to persistently enhance users’ experience and strengthen network operations advantages. In the aspect of customer services, we executed our service commitment in fibre broadband to ensure “installation within one day, repairs within one day, compensation in the event of delay” and took the initiatives to publish Government and Enterprises Customers Service Standard White Paper in the industry, symbolising a new benchmark in services. Methods such as customer services robots and new media self- service were applied to launch smart services. The number of usage times of “Huango” mobile online service application was close to ten billions. The Company continued to rank first in the industry in terms of customer satisfaction7 in both handset and wireline Internet access services.

With vigorous promotion of operation intellectualisation, the Company placed great emphasis on the corporate core construction and Big Data applications as the crucial element of intelligent operations. By adopting centralised and open Internet structure to construct enterprise Big Data platform, the Company promoted data central acquisition, data central storage, collective data handling, data mining and data modelling, and has been equipped with data applications capabilities. In opening up our capabilities of data platform and data services towards entire network, we co-shared sales and marketing service models, corporate index systems, etc., and developed tens of Big Data applications. With the promotion of precision management, precision marketing, delicated service and lean network operations, operating cost was reduced while operational efficiency was improved, injecting intelligence in the operations of the Company.

 

7 

Customers’ satisfaction survey from the Ministry of Industry and Information Technology.

 

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In-depth promotion of comprehensive reform

Following the implementation of Transformation 3.0, the Company has commenced comprehensive reconstitution in areas including network, businesses, operations and management. It was imperative for us to promptly expedite the establishment of suitable systems and mechanisms and operation models in alignment with the strategy.

In the first half of the year, the Company grasped the favourable and golden period of reforms and unwaveringly promoted comprehensiveness and depth of reforms. Surrounding stimulation of vitality of employees and organisations, we further reinforced market-oriented reform initiatives, optimised systems and mechanisms and innovated operational management model so as to steadily promote comprehensive transformation and upgrades with comprehensive in-depth reforms as the assurance.

The Company adhered to promote reforms on organisational systems and operational mechanism with market-orientation as the core. Professional operational organisation systems were constructed to promptly respond to the frontline professional needs, forming strong and powerful vertical support. With the deepened promotion of “three- dimensional inter-driven forces” comprising sub-division of performance evaluation units, top-down support and professional operation, we enabled our frontline employees to have passion, capability and easiness to do. Sub-division of performance evaluation units has become the role model of China’s state-owned enterprises’ reforms. Counting on the incentive mechanism and restriction system as the key, the Company promoted the reforms of human resources. With innovated systems of “professional workstation”, we emphasised training of professional talents for the enterprise transformation while we proactively strengthened market-oriented staff appointment mechanism so as to stimulate vitality of the talent teams. Insisted on value contributions as the core, we promoted in-depth reforms in resources allocation. With the strengthening of resources allocation in supporting our strategy and operation, we induced resources towards highly profitable business units. We embedded value analysis models into the procedures of business assessment, investment decision-making and cost control and perfected matching relationship of input and output. In addition, we insisted on Internet-oriented means to optimise assets management and enhanced the efficiency of asset utilisation. Internal control management was strengthened so as to enhance the capabilities to prevent and control financial risks.

 

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Corporate governance and social responsibility

We are committed to maintaining a high level of corporate governance, attaching great importance to risk management and control. We strive to persistently enhance corporate transparency and value to ensure our healthy and orderly growth. Our efforts in corporate governance have been widely recognised by the capital markets. We were awarded “Most Honored Company in Asia” by Institutional Investor for seven consecutive years and “No. 1 Overall Best Managed Company in Asia” by FinanceAsia .

We adhere to operations with integrity, persevere in fulfillment of social responsibility and maintain a fair and orderly environment for market competition to facilitate healthy development for the industry ecology. We further implemented the “Speed Upgrade and Tariff Reduction” and assisted the “entrepreneurship and innovation by the general public” to foster the information consumption upgrade and benefit the society and the general public as a whole. We also proactively maintain the security of network and information and rigorously combat telecommunications information fraud. We received high recognition and appreciation from the society through our efforts in successfully accomplishing telecommunications assurance for Boao Forum for Asia and “the Belt and Road” Summit, as well as combating catastrophic flooding and disaster relief.

Transformation and upgrades leading to the smart future

At present, steady improvement of the national economy and deepened promotion of reforms of state-owned enterprises creates favourable macro-environment for us. With the devoted implementation of national “Cyberpower” strategy and active promotion of “Internet+” action plan, the transformation of traditional industry towards digitalisation, intelligentisation and environmentalisation is accelerated. Hence, the information and telecommunications industry becomes the industry with the highest growth potential among the key and fundamental industries of the national economy, bringing numerous development opportunities for us. Technologies penetration promotes industry upgrades, Internet of everything enters into new era and IoT experiences booming growth. The vast potentials of new emerging businesses such as cloud computing and Big Data coupled with rapid growth in data traffic demand opens up vast market potentials for us. Meanwhile, increasingly fierce industry competition, intensified cross-industry competition and value chain competition has evolved to competition of the entire ecosphere. Establishment of robust competitive strengths of the ecosphere is the crucial key to success.

 

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People who can observe and analyse the trends well are intelligent. People who can grasp and dominate the trends well are winners. In the second half of the year, directly facing market competition, we will further transform the network strengths and service edges into competitive strengths. We will adhere to adopt aggressive strategy, not only intensely focusing on integration and innovation as well as in-depth data traffic operation but also facilitating persistent enhancement of scale and effectiveness, so as to ensure the achievement of excellent results for the whole year. With our unwavering promotion of Transformation 3.0, the Company will focus on the enhancement of capabilities, expansion of open cooperation and co-building of “Ecosystem-Tetris” with co-operative partners, resulting in continuous reinforcement of ecological strengths. We will stimulate vitality with in-depth reforms and strengthen market consciousness, breaking up the barrier of systems and mechanisms which impede productivity and cultivating good atmosphere for work and entrepreneurship. With pragmatic implementation and reinforced execution together with the strengthening of process management and control by adopting clear and effective systems, we strive to attain new achievement in corporate transformation and upgrades as well as create more value for shareholders.

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

Yang Jie

Chairman and Chief Executive Officer

Beijing, China

23 August 2017

 

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GROUP RESULT

China Telecom Corporation Limited (the “Company”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2017 extracted from the unaudited interim financial statements of the Group as set out in its 2017 Interim Report.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

for the six-month period ended 30 June 2017

(Amounts in millions, except per share data)

 

         

Six-month period ended

30 June

 
          2017     2016  
     Notes    RMB     RMB  

Operating revenues

   3      184,118       176,828  

Operating expenses

       

Depreciation and amortisation

        (34,432     (33,447

Network operations and support

        (48,431     (43,951

Selling, general and administrative

        (28,738     (27,319

Personnel expenses

        (30,755     (28,909

Other operating expenses

        (23,780     (26,094
     

 

 

   

 

 

 

Total operating expenses

        (166,136     (159,720
     

 

 

   

 

 

 

Operating profit

        17,982       17,108  

Net finance costs

   4      (1,771     (1,728

Investment income

        15       9  

Share of profits of associates

        453       80  
     

 

 

   

 

 

 

Profit before taxation

        16,679       15,469  

Income tax

   5      (4,084     (3,747
     

 

 

   

 

 

 

Profit for the period

        12,595       11,722  
     

 

 

   

 

 

 

 

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            Six-month period ended
30 June
 
            2017     2016  
     Notes      RMB     RMB  

Other comprehensive income for the period:

       

Items that may be reclassified subsequently to profit or loss:

       

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

        (235     (342

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

        59       86  

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

        (96     37  

Share of other comprehensive income of associates

        6       6  
     

 

 

   

 

 

 

Other comprehensive income for the period, net of tax

        (266     (213
     

 

 

   

 

 

 

Total comprehensive income for the period

        12,329       11,509  
     

 

 

   

 

 

 

Profit attributable to:

       

Equity holders of the Company

        12,537       11,673  

Non-controlling interests

        58       49  
     

 

 

   

 

 

 

Profit for the period

        12,595       11,722  
     

 

 

   

 

 

 

Total comprehensive income attributable to:

       

Equity holders of the Company

        12,271       11,460  

Non-controlling interests

        58       49  
     

 

 

   

 

 

 

Total comprehensive income for the period

        12,329       11,509  
     

 

 

   

 

 

 

Basic earnings per share

     6        0.15       0.14  
     

 

 

   

 

 

 

Number of shares (in millions)

        80,932       80,932  
     

 

 

   

 

 

 

 

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(UNAUDITED)

at 30 June 2017

(Amounts in millions)

 

            30 June
2017
     31 December
2016
 
   Notes      RMB      RMB  

ASSETS

        

Non-current assets

        

Property, plant and equipment, net

        388,444        389,648  

Construction in progress

        87,136        80,381  

Lease prepayments

        22,591        22,955  

Goodwill

        29,921        29,923  

Intangible assets

        10,771        11,244  

Interests in associates

        35,324        34,572  

Investments

        1,296        1,535  

Deferred tax assets

     8        5,191        5,061  

Other assets

        2,985        3,077  
     

 

 

    

 

 

 

Total non-current assets

        583,659        578,396  
     

 

 

    

 

 

 

Current assets

        

Inventories

        3,614        5,081  

Income tax recoverable

        69        50  

Accounts receivable, net

     9        28,847        21,423  

Prepayments and other current assets

        23,655        19,470  

Short-term bank deposits

        3,327        3,331  

Cash and cash equivalents

        22,320        24,617  
     

 

 

    

 

 

 

Total current assets

        81,832        73,972  
     

 

 

    

 

 

 

Total assets

        665,491        652,368  
     

 

 

    

 

 

 

 

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Table of Contents
           

30 June

2017

   

31 December

2016

 
     Notes      RMB     RMB  

LIABILITIES AND EQUITY

       

Current liabilities

       

Short-term debt

        21,511       40,780  

Current portion of long-term debt and payable

        62,566       62,276  

Accounts payable

     10        132,482       122,444  

Accrued expenses and other payables

        107,660       91,087  

Income tax payable

        865       1,106  

Current portion of finance lease obligations

        56       52  

Current portion of deferred revenues

        1,243       1,253  
     

 

 

   

 

 

 

Total current liabilities

        326,383       318,998  
     

 

 

   

 

 

 

Net current liabilities

        (244,551     (245,026
     

 

 

   

 

 

 

Total assets less current liabilities

        339,108       333,370  
     

 

 

   

 

 

 

Non-current liabilities

       

Long-term debt

        9,019       9,370  

Finance lease obligations

        32       50  

Deferred revenues

        2,047       2,305  

Deferred tax liabilities

     8        6,372       4,770  

Other non-current liabilities

        548       580  
     

 

 

   

 

 

 

Total non-current liabilities

        18,018       17,075  
     

 

 

   

 

 

 

Total liabilities

        344,401       336,073  
     

 

 

   

 

 

 

Equity

       

Share capital

        80,932       80,932  

Reserves

        239,129       234,392  
     

 

 

   

 

 

 

Total equity attributable to equity holders of the Company

        320,061       315,324  

Non-controlling interests

        1,029       971  
     

 

 

   

 

 

 

Total equity

        321,090       316,295  
     

 

 

   

 

 

 

Total liabilities and equity

        665,491       652,368  
     

 

 

   

 

 

 

 

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Table of Contents

Notes:

 

1

BASIS OF PREPARATION

These interim financial statements have been prepared in accordance with International Accounting Standard 34, (“IAS 34”) “Interim Financial Reporting” issued by the International Accounting Standards Board and the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. These interim financial statements, which were authorised for issuance by the Board of Directors on 23 August 2017, reflect the unaudited financial position of the Group as at 30 June 2017 and the unaudited results of operations and cash flows of the Group for the six-month period then ended, which are not necessarily indicative of the results of operations and cash flows expected for the year ending 31 December 2017.

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

Except as described below, these interim financial statements have been prepared in accordance with the same accounting policies adopted in the 2016 annual financial statements of the Group.

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

Amendments to IAS 7, “Disclosure Initiative”

Amendments to IAS 12, “Recognition of Deferred Tax Assets for Unrealised Losses”

Amendments to IFRS 12 as part of the Annual Improvements to IFRSs 2014-2016 Cycle

The application of the above amendments to IFRSs has had no material effect on the Group’s interim financial statements. Additional disclosures as required by the amendments to IAS 7 will be provided in the Group’s consolidated financial statements for the year ending 31 December 2017.

These interim financial statements are unaudited, but have been reviewed by the Audit Committee of the Company. These interim financial statements have also been reviewed by the Company’s international independent auditor in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”, issued by the Hong Kong Institute of Certified Public Accountants.

 

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Table of Contents
2

SEGMENTAL REPORTING

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

 

3

OPERATING REVENUES

Operating revenues represent revenues from the provision of telecommunications services. The components of the Group’s operating revenues are as follows:

 

          Six-month period ended
30 June
 
          2017      2016  
     Notes    RMB millions      RMB millions  

Voice

   (i)      31,833        36,419  

Internet

   (ii)      84,755        73,017  

Information and application services

   (iii)      37,426        34,826  

Telecommunications network resource services and lease of network equipment

   (iv)      9,636        8,928  

Others

   (v)      20,468        23,638  
     

 

 

    

 

 

 
          184,118      176,828  
     

 

 

    

 

 

 

Note:

  (i)

Represent the aggregate amount of voice usage fees, installation fees and interconnections fees charged to customers for the provision of telephony services.

  (ii)

Represent amounts charged to customers for the provision of Internet access services.

  (iii)

Represent primarily the aggregate amount of fees charged to customers for the provision of Internet data centre service, system integration services, e-Surfing HD service, caller ID service and short messaging service and etc.

  (iv)

Represent primarily the aggregate amount of fees charged to customers for the provision of telecommunications network resource services and lease income from other domestic telecommunications operators and enterprise customers for the usage of the Group’s telecommunications networks and equipment.

  (v)

Represent primarily revenue from sale, and repair and maintenance of equipment as well as the resale of mobile services (MVNO).

 

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Table of Contents
4

NET FINANCE COSTS

 

     Six-month period ended
30 June
 
     2017     2016  
     RMB millions     RMB millions  

Interest expense incurred

     2,031       2,110  

Less: Interest expense capitalised*

     (176     (211
  

 

 

   

 

 

 

Net interest expense

     1,855       1,899  

Interest income

     (137     (170

Foreign exchange losses

     79       38  

Foreign exchange gains

     (26     (39
  

 

 

   

 

 

 
     1,771       1,728  
  

 

 

   

 

 

 

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

     3.2%-4.9     3.3%-5.0
  

 

 

   

 

 

 

 

5

INCOME TAX

Income tax in the profit or loss comprises:

 

     Six-month period ended
30 June
 
     2017      2016  
     RMB millions      RMB millions  

Provision for PRC income tax

     2,514        1,967  

Provision for income tax in other tax jurisdictions

     39        60  

Deferred taxation

     1,531        1,720  
  

 

 

    

 

 

 
     4,084        3,747  
  

 

 

    

 

 

 

 

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Table of Contents

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

 

           

Six-month period ended

30 June

 
     Notes     

2017

RMB millions

    

2016

RMB millions

 

Profit before taxation

        16,679        15,469  
     

 

 

    

 

 

 

Expected income tax expense at statutory tax rate of 25%

     (i)        4,170        3,867  

Differential tax rate on PRC subsidiaries’ and branches’ income

     (i)        (203      (211

Differential tax rate on other subsidiaries’ income

     (ii)        (19      (20

Non-deductible expenses

     (iii)        180        182  

Non-taxable income

     (iv)        (42      (36

Others

     (v)        (2      (35
        

 

 

 

Actual income tax expense

        4,084        3,747  
     

 

 

    

 

 

 

Note:

  (i)

Except for certain subsidiaries and branches which are mainly taxed at preferential rate of 15%, the provision for mainland China income tax is based on a statutory rate of 25% of the assessable income of the Company, its mainland China subsidiaries and branches as determined in accordance with the relevant income tax rules and regulations of the PRC.

  (ii)

Income tax provisions of the Company’s subsidiaries in Hong Kong and Macau Special Administrative Regions of the PRC, and in other countries are based on the subsidiaries’ assessable income and income tax rates applicable in the respective tax jurisdictions which range from 12% to 35%.

  (iii)

Amounts represent miscellaneous expenses in excess of statutory deductible limits for tax purposes.

  (iv)

Amounts represent miscellaneous income which are not subject to income tax.

  (v)

Amounts primarily represent tax deduction on prior year research and development expenses approved by tax authorities and other tax benefits.

 

6

BASIC EARNINGS PER SHARE

The calculation of basic earnings per share for the six-month period ended 30 June 2017 and 2016 is based on the profit attributable to equity holders of the Company of RMB12,537 million and RMB11,673 million, respectively, divided by 80,932,368,321 shares.

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

 

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Table of Contents
7

DIVIDENDS

Pursuant to the shareholders’ approval at the Annual General Meeting held on 23 May 2017, a final dividend of RMB0.093043 (equivalent to HK$0.105) per share totaling RMB7,530 million in respect of the year ended 31 December 2016 was declared and paid on 21 July 2017.

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

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

 

8

DEFERRED TAX ASSETS AND LIABILITIES

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

 

     Assets      Liabilities      Net Balance  
     30 June
2017
RMB
millions
    

31 December
2016

RMB
millions

     30 June
2017
RMB
millions
    

31 December
2016

RMB

millions

     30 June
2017
RMB
millions
    

31 December
2016

RMB

millions

 

Provisions and impairment losses, primarily for doubtful debts

     1,729        1,531        —          —          1,729        1,531  

Property, plant and equipment and others

     3,367        3,410        (6,095      (4,416      (2,728      (1,006

Deferred revenues and installation costs

     95        120        (67      (85      28        35  

Available-for-sale equity securities

     —          —          (210      (269      (210      (269
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Deferred tax assets/(liabilities)

     5,191        5,061        (6,372      (4,770      (1,181      291  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Balance at
1 January 2017
RMB millions
    

Recognised in
consolidated
statement of
comprehensive
income

RMB millions

     Balance at
30 June 2017
RMB millions
 

Provisions and impairment losses, primarily for doubtful debts

     1,531        198        1,729  

Property, plant and equipment and others

     (1,006      (1,722      (2,728

Deferred revenues and installation costs

     35        (7      28  

Available-for-sale equity securities

     (269      59        (210
  

 

 

    

 

 

    

 

 

 

Net deferred tax assets

     291        (1,472      (1,181
  

 

 

    

 

 

    

 

 

 

 

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9

ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, are analysed as follows:

 

           

30 June

2017

    

31 December

2016

 
     Note      RMB millions      RMB millions  

Third parties

        31,122        22,932  

China Telecom Group

     (i      1,285        949  

China Tower Corporation Limited

        13        10  

Other telecommunications operators in the PRC

        967        933  
     

 

 

    

 

 

 
        33,387        24,824  

Less: Allowance for doubtful debts

        (4,540      (3,401
     

 

 

    

 

 

 
        28,847        21,423  
     

 

 

    

 

 

 

Note:

  (i)

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

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

 

    

30 June

2017

    

31 December

2016

 
   RMB millions      RMB millions  

Current, within 1 month

     11,165        9,993  

1 to 3 months

     3,039        2,179  

4 to 12 months

     2,147        1,763  

More than 12 months

     1,497        761  
  

 

 

    

 

 

 
     17,848        14,696  

Less: Allowance for doubtful debts

     (3,510      (2,427
  

 

 

    

 

 

 
     14,338        12,269  
  

 

 

    

 

 

 

 

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Table of Contents

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

 

    

30 June

2017

RMB millions

    

31 December
2016

RMB millions

 

Current, within 1 month

     5,386        3,660  

1 to 3 months

     4,104        1,887  

4 to 12 months

     3,512        2,349  

More than 12 months

     2,537        2,232  
  

 

 

    

 

 

 
     15,539      10,128  

Less: Allowance for doubtful debts

     (1,030      (974
  

 

 

    

 

 

 
     14,509      9,154  
  

 

 

    

 

 

 

 

10

ACCOUNTS PAYABLE

Accounts payable are analysed as follows:

 

    

30 June

2017
RMB millions

    

31 December
2016

RMB millions

 

Third parties

     103,860        96,675  

China Telecom Group

     23,891        21,343  

China Tower Corporation Limited

     3,466        3,697  

Other telecommunications operators in the PRC

     1,265        729  
  

 

 

    

 

 

 
     132,482      122,444  
  

 

 

    

 

 

 

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

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

 

    

30 June

2017
RMB millions

    

31 December
2016

RMB millions

 

Due within 1 month or on demand

     26,153        17,931  

Due after 1 month but within 3 months

     23,199        19,891  

Due after 3 months but within 6 months

     31,552        21,611  

Due after 6 months

     51,578        63,011  
  

 

 

    

 

 

 
     132,482      122,444  
  

 

 

    

 

 

 

 

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Table of Contents

MANAGEMENT DISCUSSION AND ANALYSIS

According to paragraph 40 of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), save as disclosed herein, the Company confirms that the current company information in relation to those matters set out in paragraph 32 of Appendix 16 has not changed materially from the information disclosed in the Company’s 2016 Annual Report.

PURCHASE, SALE OR REDEMPTION OF SECURITIES

During the six-month period ended 30 June 2017, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.

DIRECTORS’ AND SUPERVISORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 June 2017, none of the Directors or Supervisors of the Company had any interests or short positions in any shares, underlying shares or debentures of the Company or its associated corporations (as defined in Part XV of the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the “SFO”)) as recorded in the register required to be maintained under Section 352 of the SFO or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”).

As at 30 June 2017, the Company has not granted its Directors or Supervisors, or their respective spouses or children below the age of 18 any rights to subscribe for the shares or debentures of the Company or any of its associated corporations and none of them has ever exercised any such right to subscribe for the shares or debentures.

CHANGE OF DIRECTORS AND SUPERVISORS SINCE THE DATE OF THE 2016 ANNUAL REPORT

The changes in the information relating to the Directors and Supervisors since the date of the Company’s 2016 Annual Report are set out below:

The term of office of the members of the fifth session of the Board of Directors of the Company expired on 23 May 2017. Mr. Yang Jie, Mr. Yang Xiaowei, Mr. Ke Ruiwen, Mr. Sun Kangmin, Mr. Gao Tongqing, Mr. Chen Zhongyue, Mr. Chen Shengguang, Mr. Tse Hau Yin, Aloysius, Madam Cha May Lung, Laura, Mr. Xu Erming and Madam Wang Hsuehming were elected or re-elected as directors of the sixth session of the Board of Directors of the Company at the Annual General Meeting held on 23 May 2017.

 

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Table of Contents

The term of office of the members of the fifth session of the Supervisory Committee of the Company expired on 23 May 2017. Mr. Sui Yixun, Mr. Hu Jing and Mr. Ye Zhong were re-elected as supervisors of the sixth session of the Supervisory Committee of the Company at the Annual General Meeting held on 23 May 2017. On the same date, Mr. Yang Jianqing and Mr. Zhang Jianbin have been elected by the employees of the Company democratically as supervisors of the Company representing the employees. A member of the fifth session of the Supervisory Committee, Mr. Tang Qi, retired as a supervisor of the Company upon expiry of the term of office of the fifth session of the Supervisory Committee on 23 May 2017.

On 7 June 2017, Mr. Yang Xiaowei resigned from his positions as an Executive Director, President and Chief Operating Officer of the Company due to change in work arrangement.

Mr. Ke Ruiwen, the Executive Director, Executive Vice President and Joint Company Secretary of the Company, has been appointed as the Chairman of Supervisory Committee of China Tower Corporation Limited. Mr. Xu Erming, the Independent Non-Executive Director of the Company, has retired from the position of Independent Supervisor of Harbin Electric Company Limited and has been appointed as an Independent Non-Executive Director of Comtec Solar Systems Group Limited. Mr. Ye Zhong, the Supervisor of the Company, has been appointed as a Director of Zhejiang Provincial Financial Holdings Co., Ltd. and a Director of Zhejiang Provincial Industry Fund Co., Ltd.

Save as stated above, there is no other information of the Directors or Supervisors of the Company required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules. The updated biographical details of the Directors and Supervisors are available on the website of the Company (www.chinatelecom-h.com ).

AUDIT COMMITTEE

The audit committee has reviewed with management and the Company’s international auditor, Deloitte Touche Tohmatsu, the accounting principles and practices adopted by the Group and discussed internal control and financial reporting matters including the review of the Company’s Interim Report for the six months ended 30 June 2017.

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

The Company attaches great importance to corporate governance. We continued to make efforts in improving the Company’s internal control mechanisms, strengthening information disclosure and enhancing the Company’s transparency, developing corporate governance practices and protecting shareholders’ interests to the maximum degree.

 

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Table of Contents

The roles of Chairman and Chief Executive Officer of the Company were performed by the same individual, for the six-month period ended 30 June 2017. In the Company’s opinion, through supervision by the Board of Directors and Independent Non-Executive Directors, with effective control of the Company’s internal check and balance mechanism, the same individual performing the roles of Chairman and Chief Executive Officer can enhance the Company’s efficiency in decision-making and execution and effectively capturing business opportunities. Many leading international corporations around the world also have similar arrangements.

Save as stated above, the Company has been in compliance with all the code provisions under the Corporate Governance Code as set out in Appendix 14 of the Listing Rules throughout the six-month period ended 30 June 2017.

COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS AND SUPERVISORS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules to govern securities transactions by Directors and Supervisors. Based on the written confirmations from the Directors and Supervisors, they have confirmed their compliance with the Model Code for Securities Transactions by Directors of Listed Issuers regarding the requirements in conducting securities transactions for the period from 1 January 2017 to 30 June 2017.

INTERIM REPORT

The Interim Report for the six months ended 30 June 2017 will be despatched to shareholders and made available on the website of The Stock Exchange of Hong Kong Limited (www. hkexnews. hk ) and the website of the Company (www.chinatelecom-h.com ) in due course.

 

By Order of the Board

China Telecom Corporation Limited

Yang Jie

Chairman and Chief Executive Officer

Beijing, China, 23 August 2017

 

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Table of Contents

FORWARD-LOOKING STATEMENTS

Certain statements contained in this announcement may be viewed as “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 (as amended) and Section 21E of the U.S. Securities Exchange Act of 1934 (as amended). Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. In addition, we do not intend to update these forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company’s most recent Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission (the “SEC”) and in the Company’s other filings with the SEC.

As at the date of this announcement, the Board of Directors of the Company consists of Mr. Yang Jie (as the chairman and chief executive officer); Mr. Ke Ruiwen, Mr. Sun Kangmin, Mr. Gao Tongqing and Mr. Chen Zhongyue ( all as the executive vice presidents); Mr. Chen Shengguang (as the non-executive director); Mr. Tse Hau Yin, Aloysius, Madam Cha May Lung, Laura, Mr. Xu Erming and Madam Wang Hsuehming (all as the independent non-executive directors).

 

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