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 April, 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 x 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 x
(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:
The announcement of 2006 final results of China Netcom Group Corporation
(Hong Kong) Limited (the "Registrant"), made by the Registrant in English on
April 2, 2007.
[GRAPHIC OMITTED]
CHINA NETCOM GROUP CORPORATION (HONG KONG) LIMITED
(Incorporated in Hong Kong with limited liability under the Companies Ordinance)
(Stock Code: 906)
2006 ANNOUNCEMENT OF FINAL RESULTS
CHAIRMAN'S STATEMENT
Dear Shareholders,
2006 was an important year for the development of China's telecommunications
industry. In 2006, although broadband businesses in China grew rapidly, more and
more fixed-line telephone subscribers and voice traffic migrated to mobile
service. The extent of mobile substitution that is currently happening in China
is one of the largest among the major telecommunications markets in the world as
there is no genuine full-service provider in China.
Facing such challenges and opportunities, in 2006, we continued to pursue our
strategic goal of becoming a "broadband communications and multi-media services
provider" relentlessly. Our high-growth businesses maintained its rapid growth
and made an impressive contribution to revenue. At the same time, the Company's
traditional fixed-line telephone business was facing severe challenges. We saw
negative growth in local telephone subscribers for the first time in corporate
history. In 2006, the consolidated net profit of the Company was RMB12,960
million (Excluding RMB2,406 million of upfront connection fees, the Company's
consolidated net profit was RMB10,554 million). Basic earnings per share was
RMB1.95.
Strategic Transformation
The telecommunications industry is undergoing a major reform. The rapid
development of Internet technology and its wide applications has created a new
industrial revolution, with concomitant effects on culture and society. While
the reforms in the telecommunications industry pose challenges, they also bring
about enormous opportunities for industry participants. In this context, in
order to grow, we must innovate. Thus, the Company has set a long-term strategic
goal of transforming itself from a traditional voice-centric telecommunications
services provider to a broadband and multi-media services provider.
In 2006, we made major progress towards our strategic goal of becoming a
broadband and multi-media services provider.
By the end of 2006, the total number of the Company's broadband subscribers
reached 15.081 million, representing a year-on-year increase of 31.4%. In March
2006 the Company established China Netcom Group Broadband Online Limited
Corporation a wholly-owned subsidiary, then launched "CNC MAX", the first
all-video website in China. In July 2006, we were approved to provide IPTV
services in five cities in addition to Harbin, Heilongjiang Province. In
cooperation with local government, we launched IPTV-based integrated information
services in rural areas of Henan Province, and this cooperative model was
recognised by relevant governmental departments. In 2006, the Company's
broadband strategy, which includes broadband access and content as well as IPTV
services, was strengthened and enhanced to embrace multi-dimensional delivery.
We have begun to see substantial growth in our broadband business, and are now
moving into new parts of the broadband and Internet value chain.
In 2006, the Company leveraged on the opportunities brought about by the
government initiatives of "informationisation". We inaugurated such services
through our brand, "CNC Connected", to meet the demand by corporate and
government customers for integrated information services which comprise
telecommunications, IT and IT related applications services. With our extensive
network, customer and brand resources, we are moving away from a monolithic
network and voice communications services provider to become a provider of
integrated information services.
The Olympic Games and Strategic Cooperation
As the sole official partner of the 2008 Beijing Olympics for fixed-line
telecommunications services, our strategies are
o To leverage on the historic opportunity of the Olympic Games to bring our
service performance to a higher level, by establishing a bottleneck-free
service system and meeting market demand for stable, safe and user-friendly
services;
o To enhance penetration of our broadband services, accelerate broadband
content and applications development, so as to honour our commitment to
deliver a "Broadband Olympics";
o To enhance our management standard through the process of delivering high
quality and multi-level communications solutions to the Olympic Games;
o To enhance our corporate identity and branding through Olympics-related
marketing efforts.
We intensified our Olympic strategy in 2006. We believe through implementing our
Olympic strategy, the Olympics Games will serve as a milestone in our corporate
development, and play a pivotal role in our overall transformation into a
multi-media telecommunications service provider.
We have long maintained an open mind towards strategic cooperations with the
world's leading telecommunications operators. We believe that such cooperations
will help to bring about innovations in technology, products and management
knowhow, constituting elements conducive to enhancing our management standard
and core competences, In 2006 we deepened our cooperative relationship with
Telefonica in the areas of strategy, innovation, budgeting and operations. This
exercise was instrumental in helping the Company strengthen its management,
especially its capital expenditure (CAPEX) management.
Corporate Governance
The Company is putting in place international best-practices of corporate
governance. We believe that these will strengthen our core competences.
In 2006, the Company carried out reformation of its board of directors from the
perspective of the "hardware" and "software" of corporate governance. Firstly,
changes were made with regard to the structure and responsibilities of the board
of directors and board committees. We modified key board and committee
procedures. In particular, we put in place a system to evaluate performance of
directors, board committees, and the board of directors. These changes in board
structure, procedures and the introduction of a performance evaluation system
are meant to improve the board's efficiency, encourage active participation on
the part of directors, and ensure that board decisions will be to the benefit of
all shareholders as well as to the Company's long-term development.
In 2006, the nominating and corporate governance committee conducted the first
round of performance evaluations of the board of directors and board committees.
The compensation committee conducted the first performance evaluation of board
members based on their professional capabilities, ability to fulfill duties, and
ability to maintain objective in decision making. Based on the results, the
board will provide training and research sessions to directors; and to reform
operational procedures of the board of directors in order to improve efficiency
and professional standards of the board and board committees.
Value to Shareholders
After taking into account the Company's financial position in 2006, estimated
cash flow in 2007 and business development strategies for the future, the Board
of Directors has recommended payment of a final dividend of HK$0.553 per share
for the financial year ended December 31, 2006, up 18.7% from HK$0.466 in 2005.
On August 22, 2006, we disposed our entire shareholding in Asia Netcom
Corporation Limited (the "ANC Group"). On February 28, 2007, we disposed our
Guangdong and Shanghai telecommunications assets and operations to our parent
company China Network Communications Corporation ("China Netcom Group"). These
two transactions have enabled us to concentrate on our northern service region,
where we have extensive network resources and dominant market share. We believe
that these transactions enabled the Company to reinforce our market dominant
position in the traditional fixed-line telephone market, better grasp the growth
opportunities in the northern service region, with a view to creating greater
value for the shareholders.
Change of Directors and Management
On December 19, 2006, Mr. Mauricio Sartorius was appointed as a non-executive
director of the Company and Ms. Hong Chen Jin was appointed as an alternate
director to Mr. Jose Maria Alvarez-Pallete and Mr. Mauricio Sartorius. On
December 20, 2006, Mr. Miao Jianhua resigned from his position as joint company
secretary of the Company, but remained as an executive director of the Company.
On the same date, Mr. Li Fushen, the Chief Financial Officer of the Company, was
appointed as joint company secretary of the Company. On January 15, 2007, Ms. Li
Liming resigned as non-executive director of the Company, and Mr. Li Fushen was
appointed as an executive director of the Company.
On behalf of the Company, I wish to express our sincere gratitude for the
contributions made by Mr. Miao Jianhua as joint company secretary and Ms. Li
Liming as non-executive director. At the same time, I would also like to extend
our warmest welcome to Mr. Mauricio Sartorius, Ms. Hong Chen Jin and Mr. Li
Fushen for joining the board.
Prospects
Looking ahead, as information technology develops rapidly and the
telecommunications industry rapidly shifts focus towards broadband, mobility, IP
and convergence, our business philosophy is innovation and development. Through
innovation in technologies, services and management, we will strive to establish
our engines of sustainable development to get ourselves well-prepared to seize
future growth opportunities and to support pursuit of our strategic goal of
becoming a broadband communications and multi-media services provider.
In 2007, we will utilize bundled and convergence services to lessen the effects
brought about by the decline in traditional fixed-line telephone businesses. We
will take full advantage of the forthcoming Olympic Games to increase
penetration of broadband and make new breakthroughs in high-growth businesses
such as broadband access, broadband content and applications as well as ICT
(Information communication technology) services. We will promote innovation in
such areas as tariff, services, branding, and organization to accommodate
changes in the market. We will prepare ourselves for mobile services and
accelerate network convergence, with a view to providing our customers with
multi-dimensional services.
Lastly, I would like to extend my sincere appreciation to our shareholders for
their trust and support. I am also grateful for the management and staff's
contributions to the Company in 2006. We believe that, with the commitment of
our management and staff, we will be able to provide our customers with high
quality service, our employees with greater satisfaction, and our shareholders
with increased value and returns.
Zhang Chunjiang
Chairman
Hong Kong, April 2, 2007
CHIEF EXECUTIVE OFFICER'S STATEMENT
Dear Shareholders,
I am pleased to report to you that we made significant progress in 2006 toward
our strategic goal of becoming a "broadband communications and multi-media
service provider", against the backdrop of escalating challenge from
intensifying mobile substitution. Contribution of our high-growth businesses to
the total revenue continued to increase, laying a solid foundation for our
strategic transformation.
1. Stable Financial Performance
In 2006, the Company generated RMB87,901 million of consolidated revenues,
which include RMB86,921 million of revenue from continuing operations and
RMB980 million of revenue from discontinued operations. Excluding upfront
connection fees of RMB2,406 million, our revenue was RMB85,495 million, of
which RMB84,515 million was attributable to continuing operations. Revenue
from continuing operations grew by 2.5% over the last year. Intensifying
mobile substitution and a downward adjustment of tariff for inter-district
calls slowed down our revenue growth in 2006 as compared with that of last
year.
Our consolidated net profit for 2006 was RMB12,960 million, and excluding
upfront connection fees, our consolidated net profit was RMB10,554 million
which includes discontinued operations (unless otherwise specified, all
data in the subsequent sections exclude discontinued operations and the
effect of the upfront connection fees). As a result of our strengthened
management over CAPEX, CAPEX for continuing operations for the year was
RMB26,474 million, which was RMB826 million lower than the budgetary
guidance outlined by management at the beginning of the year. Benefiting
from revenue growth, cost control and effective capital expenditure
management, our free cash flow* grew by a robust 19.9% to RMB7,476 million.
As a result of the growth of free cash flow, by the end of 2006, our
interest bearing debts reduced by 3.6% to RMB79,154 million.
2. Challenges Faced by Traditional Fixed-line Businesses
2006 was an unusual year for monolithic telecommunications operators in
China which solely operate fixed-line networks. The acceleration of mobile
substitution created severe imbalances in the competitive landscape. Our
traditional fixed-line business was facing acute challenges.
In 2006, our strategic response to the acceleration of mobile substitution
was to leverage off our extensive network resources and the multi-business
nature of our business to develop bundled and converged services. In the
first half of 2006, the Company launched a bundled service offered under
the brand "Family 1+", and a converged service offered under the brand
"Unified Number" which captures both fixed-line and mobile functionalities
in certain cities. This helped to lessen mobile substitution to a certain
extent in the pilot cities. By the end of 2006, the number of local
telephone subscribers amounted to 114.934 million, reporting a decline for
the first time in our corporate history. Of the subscribers, 27.334 million
were PHS subscribers, almost at the same level as over the same period last
year. Both the local voice ARPU and traffic experienced a decline.
In 2006, we launched several new products targeted at a variety of market
segments. These included: the "Family 1+" bundled product for urban
residential customers; the "Economical Phone" service which does not charge
monthly fees for rural customers; and the " New Sunshine" service for
colleges and universities. We believe with the completion of upgrading of
our local fixed network to embrace intelligent functionalities and the
implementation of our initiatives to retain our traditional fixed line
business through bundled services, we will be able to lessen effects of
mobile substitution in 2007 and to defend our dominant market position in
the traditional fixed line market of our northern service region.
3. Sustained Rapid Development of High-growth Businesses
In 2006, we experienced continued strong momentum in high-growth services
including broadband service, value-added services, information and
communications technology (ICT) and business & data communications
services. This sector experienced revenue increase of 31.6% from last year,
reaching 26.0% of the total revenue, up 5.8 percentage points from last
year. High-growth businesses helped offset revenue decline in traditional
fixed line businesses and was the biggest drive for sustainable and
effective growth in 2006.
The Company's strategy for high-growth businesses in 2006 included
promoting broadband video and interactive content and applications while
expanding the broadband subscriber base; continuously launching new
value-added services; and speeding up the promotion of "CNC Connected" and
ICT business to make them the growth drivers in the future. Such strategies
achieved sound results in 2006.
Broadband service still experienced rapid growth. As at the end of 2006, we
had 15.081 million broadband subscribers, representing an increase of 31.4%
from last year. Through the implementation of strategic initiatives such as
broadband applications and content, IPTV and broadband business, we are
gradually entering into a new business model for broadband operation, with
an "access + content" combined fee mechanism riding on a "PC + TV"
multi-terminal platform. By the end of 2006, revenue attributable to
broadband and Internet-related services amounted to RMB11,248 million,
representing an increase of 33.7% over the same period last year, and
contributed 13.3% of the total revenue, an increase of 3.1 percentage
points over the same period in 2005. The ARPU of broadband services reached
RMB66.3, preluding a healthy upward trend. The number of IPTV subscribers
was 144.5 thousand, representing an increase of 201% over the same period
last year.
In 2006, we established China Netcom Group System Integration Limited
Corporation, an entity that provides business customers with ICT services
that integrate communications, network connectivity and information
technology, leveraging off our plentiful fixed-line network resources, rich
customer resources and our strong brand identity. It will meet the demand
for increasingly diversified and customized needs of our customers,
boosting customer retention and loyalty, stabilizing our market share and
explore new avenues for revenue growth. Taking advantage of the central
government policy to promote an information society, we launched "CNC
Connected" services in 2006, promoting ICT services. Tailored to the
demands of small-and medium-sized business customers, we developed an
integrated solutions platform that allows companies to perform external
communications as well as internal information technology related
applications. At the same time, we launched a "Broadened Vision" video
surveillance product under the auspices of the Government's "Safe City"
policy. In 2006, excluding traditional voice and broadband services,
revenue from our business customers including ICT services and business &
data communications services reached RMB5,267 million.
Our value-added services sustained rapid growth momentum in 2006 as some
PHS-based value-added services were successfully applied to the fixed-line
telephone. Up to the end of 2006, revenue from our value-added services
reached RMB5,421 million, representing an increase of 35.5% over the same
period last year, contributing 6.4% of the total revenue. The number of
personalized ring subscribers was 15.766 million, of which 8.917 million
were fixed line personalized ring subscribers, representing an increase of
480.9% over the same period last year, leading to a penetration rate of
10.2%. PHS SMS volume was 7,815 million messages, representing an increase
of 15.3% from last year.
4. Olympics-driven Strategic Transformation
Core to our Olympics strategy is to make the 2008 Beijing Olympics a
"Digital Olympics" and a "Broadband Olympics" while bringing breakthroughs
to high-growth operations and significantly upgrading our organizational
management standards.
In the past year, our preparatory work for the Olympic Games moved into an
implementation phase. We deployed an Olympics communication service
assurance system and signed Olympics broadcasting service co-operation
agreements and memorandums of understanding (MoUs) for telecommunications
co-operation with various carriers, creating the country's largest
city-wide intelligent optical network - the Beijing multi-service broadband
transmission network. Through these communications infrastructure
development for the Olympics, we will ensure the realisation of our
"Broadband Olympics" vision, satisfying our customers' needs for stability,
safety and flexibility to the maximum extent.
Taking advantage of our ambitious program for the Olympic Games, we will
institute the "Broadband Olympics" theme into our new service offerings.
Jointly with the Beijing Olympics Committee, we have planned an
Olympic-themed fixed communication product system which incorporates the
"Broadband Olympics" idea. We seek to leverage off our status as an Olympic
partner by launching new products such as "Broadband Hotels 2008". As at
the end of 2006, 1,267 hotels had signed up for this service. In April
2006, we reached an agreement with Visa International Service Association
on joint marketing rights for Olympic telephone cards. This marked a
breakthrough in the Company's commemorative telephone card business.
5. Steady Management Innovation and Reasonable Resource Allocation
In 2006 we continued to tighten controls over capital expenditures and
resource allocation in an effort to improve our free cash flow and our
efficient utilization of capital.
We established an annual revenue assurance plan in accordance with the
business plan for 2006. The revenue assurance plan allocated resources
reasonably to better ensure the achievement of our operation targets. With
the support of the board of directors and our strategic partners, we
increased our management focus on and carefully reviewed and prioritized
CAPEX items in order to establish more effective controls.
As a result of improved resource allocation, the Company assigned priority
to CAPEX for high-growth services and our strategic transformation. The
ratio of CAPEX for high-growth services to total CAPEX rose to 19.8% in
2006 from 15.2% over the same period last year. The ratio of CAPEX for
traditional fixed-line services to total CAPEX continued to decline. CAPEX
for PHS-related operations also declined by 42.6% to RMB2,748 million.
We will continue to focus on CAPEX controls in 2007 to achieve a higher
CAPEX utilization rate. For 2007, the estimated CAPEX is RMB21,000 million,
representing a decrease of 20.7% from 2006. We anticipate that the CAPEX to
revenue ratio will continue to decrease significantly.
After two years of development work, we achieved decisive success in
enterprise resource planning (ERP) and internal control management at the
end of 2006. ERP system has been put into place all our service areas. An
internal control system based on the Committee of the Sponsoring
Organizations of the Treadway Commission (COSO) definitions of internal
controls, standards and criteria has been completed and deployed in all
areas. The implementation of these two projects will improve the
standardization and systemization of our management, raising management
standards and bringing about improved efficiency throughout the
organization.
6. Business Strategies for 2007
Our business strategies will focus on the following in 2007:
- Traditional fixed-line businesses: continuing to promote bundled
services and converged services like "Family 1+" and "Unified Number";
implementing more flexible tariff policies to meet market and customer
demands; promoting customer loyalty programs; building integrated,
professional customer service systems; establishing a strong and
consistent brand image to retain and acquire customers and improve our
competitiveness;
- High-growth businesses:
o Broadband services: On the basis of incessant innovation,
continuing the "access + content" fee mechanism and "PC+TV"
multi-terminal development model while expanding network capacity
to boost access speed; taking advantage of the development of new
technologies and the Olympics; introducing an innovative business
model to increase the broadband penetration rate; introducing new
broadband content and value-added services; promoting the scale
development of IPTV; providing intensive marketing of
broadband-based bundled services; and increasing brand awareness
for our broadband services.
o Value added services: continuing to promote value-added services
such as caller identification display, personalized ring tones,
short message service (SMS) and telephone information services;
intensifying the bundling of value-added services and basic voice
services; and intensifing the promotion of value-added services
for fixed network and innovations in the variety of service
offerings.
o Information and Communications Technology (ICT) service:
carefully building our ICT business based on the size of
different ICT service segments, our compatibility of capacity and
the contribution to bundled core telecommunications services
including the development of ICT services for SMEs on the current
"Small-to Medium-enterprises Information Platform" to provide
users with custodian service; providing comprehensive system
consultancy and business application system services to large
enterprises; providing government agencies with LAN services and
outsourcing services; and integrating internal resources,
processes, organization structure and review systems to guarantee
the rapid development of ICT services.
- Olympics marketing: Under the slogan "Race to 2008", marketing Olympic
products such as the expansion of plug-and-play broadband access,
"2008 Broadband Hotels", "Broadband City" and marketing Olympic themed
products such as Olympic telephone card; and strengthening cooperation
with partners on broadband content related to the Olympics;
- Preparing for the delivery of mobile services: expanding our TD-SCDMA
trial in Qingdao; and strengthening research into new technologies and
services, in order to create a foundation for the convergence of fixed
and mobile services and staying ahead of the competition.
- Management improvements: with the recent launch of our ERP system and
IT system, improving operational efficiency in terms of finance,
network support and marketing. We will leverage off our strategic
partnership resources to improve efficiency in terms of budget and
CAPEX control, in order to guarantee the mobilization of resources for
high-growth services and towards our strategic transformation, thereby
increasing our free cash flow.
Based on a philosophy of innovation and development, we are committed to
becoming a broadband communications and multi-media services provider in
2007 through our strategic transformation.
I would like to take this opportunity to express our most sincere thanks to
our customers, shareholders, board of directors and employees for your
trust and support.
ZUO Xunsheng
Chief Executive Officer
Hong Kong, April 2, 2007
* Free cash flow represents net cash flow from operating activities of
continuing operation net of capital expenditure
GROUP RESULTS
China Netcom Group Corporation (Hong Kong) Limited (the "Company") is pleased to
announce the audited consolidated results of the Company and its subsidiaries
(the "Group") for the year ended December 31, 2006.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2006
Year ended December 31
Note 2006 2005
RMB million RMB million
Restated
Note 2
Continuing operations:
Revenues 4 86,921 85,861
-------------- ---------------
Operating expenses
Depreciation and amortization (25,608) (24,919)
Networks, operations and support (14,383) (13,465)
Staff costs (12,151) (12,034)
Selling, general and administrative (13,366) (13,322)
Other operating expenses (2,054) (1,390)
-------------- ---------------
Total of operating expenses (67,562) (65,130)
-------------- ---------------
Other income 621 --
Interest income 132 131
Dividend income -- 29
Deficit on revaluation of fixed assets 10 (1,524) --
-------------- ---------------
Profit from operations 18,588 20,891
Finance costs (mainly represent interest cost) (3,888) (3,347)
-------------- ---------------
Profit before taxation 14,700 17,544
Taxation 6 (3,559) (3,430)
-------------- ---------------
Profit for the year from continuing operations 11,141 14,114
============== ===============
Discontinued operations:
Profit/(loss) for the year from
discontinued operations 9 1,819 (226)
============== ===============
Profit for the year 12,960 13,888
============== ===============
Dividends proposed after the balance sheet date 7 3,695 3,196
============== ===============
Earnings per share for profit from
continuing operations attributable to
shareholders of the Company for the year
Basic earnings per share 8 RMB1.68 RMB2.14
============== ===============
Diluted earnings per share 8 RMB1.67 RMB2.13
============== ===============
Earnings/(loss) per share for profit/(loss) from discontinued operations
attributable to shareholders of the Company for the year
Basic earnings/(loss) per share 8 RMB0.27 RMB(0.03)
============== ===============
Diluted earnings/(loss) per share 8 RMB0.27 RMB(0.03)
============== ===============
Earnings per share for profit attributable
to shareholders of the Company for the year
Basic earnings per share 8 RMB1.95 RMB2.11
============== ===============
Diluted earnings per share 8 RMB1.94 RMB2.10
============== ===============
CONSOLIDATED BALANCE SHEET
As at December 31
Note 2006 2005
RMB million RMB million
Assets
Current assets
Cash and bank deposits 7,571 4,895
Accounts receivable 11 8,283 7,401
Inventories and consumables 416 472
Prepayments, other receivables and
other current assets 1,437 1,484
Due from holding companies and
fellow subsidiaries 352 247
-------------- ---------------
Total current assets 18,059 14,499
-------------- ---------------
Non-current assets
Fixed assets 168,044 168,663
Construction in progress 6,355 6,822
Lease prepayments 2,364 1,949
Intangible assets 1,588 1,393
Deferred tax assets 3,459 3,480
Other non-current assets 3,966 6,034
-------------- ---------------
Total non-current assets 185,776 188,341
-------------- ---------------
Total assets 203,835 202,840
============== ===============
Liabilities and equity
Current liabilities
Accounts payable 12 17,654 16,719
Accruals and other payables 3,056 3,905
Short term commercial papers 9,811 --
Short term bank loans 30,980 47,341
Current portion of long term bank
and other loans 7,304 6,846
As at December 31
Note 2006 2005
RMB million RMB million
Due to ultimate holding company
and fellow subsidiaries 7,519 8,990
Current portion of deferred revenues 7,733 7,975
Current portion of provisions 3,736 4,029
Taxation payable 3,009 2,594
-------------- ---------------
Total current liabilities 90,802 98,399
-------------- ---------------
Net current liabilities (72,743) (83,900)
-------------- ---------------
Total assets less current liabilities 113,033 104,441
-------------- ---------------
Non-current liabilities
Long term bank and other loans 23,219 18,143
Due to ultimate holding company
and fellow subsidiaries 5,880 7,840
Deferred revenues 6,198 10,925
Provisions 2,586 3,174
Deferred tax liabilities 1,156 1,324
Other non-current liabilities 16 25
-------------- ---------------
Total non-current liabilities 39,055 41,431
-------------- ---------------
Total liabilities 129,857 139,830
-------------- ---------------
Financed by:
Share capital 2,199 2,181
Reserves 71,779 60,829
-------------- ---------------
Shareholders' equity 73,978 63,010
-------------- ---------------
Total liabilities & equity 203,835 202,840
============== ===============
Notes
1 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") on October 22, 1999 as a limited
liability company under the Hong Kong Companies Ordinance. The Company,
China Netcom (Holdings) Company Limited and China Network Communications
Group Corporation (the "China Netcom Group") underwent reorganization (the
"Listing Reorganization") on June 30, 2004. Following the Listing
Reorganization, the shares of the Company were listed on The Stock Exchange
of Hong Kong Limited on November 17, 2004 and the ADSs of the Company were
listed on The New York Stock Exchange Inc. on November 16, 2004. After the
Listing Reorganization, the Company's ultimate holding company has become
China Netcom Group.
After Listing Reorganization and acquisition of China Netcom Group New
Horizon Communications Corporations (BVI) Limited and China Netcom Group
New Horizon Communication Limited, the Company and its subsidiaries (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. The Group also provides telecommunications services to selected
business and residential customers in two southern municipality and
province, namely Shanghai Municipality and Guangdong Province in the PRC.
On June, 2, 2006, the Group entered into an agreement with third party
buyers to dispose of its entire interest in the ANC Group for an aggregate
cash consideration of US$168.84 million, at fair value determined by both
parties. The transaction was completed on August 22, 2006.
Currently, the Group's principal services consist of:
o 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
twelve service regions;
o Broadband services and other Internet-related services;
o Information Communications Technology Services, including system
integration, software development, maintenance services, consultancy
services, product sales and agency services, and equipment leasing
services;
o Business and data communications services, including integrated
regional data and voice communications services.
2 Basis of presentation
The financial statements have been prepared in accordance with Hong Kong
Financial Reporting Standards ("HKFRS"), Hong Kong Accounting Standards
("HKAS") and interpretations issued by the Hong Kong Institute of Certified
Public Accountants (`'HKICPA"). They have also been prepared in accordance
with the disclosure requirements of the Companies Ordinance and Rules
Governing the Listing Securities on The Stock Exchange of Hong Kong
Limited. They have been prepared under the historical cost convention
modified by the revaluation of certain fixed assets in 2006 and on a going
concern basis.
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. Based on the Group's history of
obtaining finance, its relationships with its bankers and its operating
performance, the board of 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.
Since the Group disposed of the ANC Group during the year, in accordance
with HKFRS 5"Non-current assets held for sale and discontinued operations"
issued by the HKICPA, the results and cash flows of the operations of the
ANC Group have been presented as discontinued operations. The 2005
comparative figures in the income statement and statement of cash flow are
restated accordingly.
3 Changes in accounting policies
In 2006, the Group adopted certain revised HKFRSs which are relevant to its
operations as listed below.
o HKAS 21(Amendment) - Net investment in a Foreign Operation
o HKAS39(Amendment) - Cash Flow Hedge Accounting for Forecast Intragroup
Transactions
o HKAS 39(Amendment) - Fair Value Options
o HKFRS 39(Amendment) and HKAS 4(Amendment) - Financial guarantee
contracts
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.
The HKICPA has also issued a number of new and revised HKFRSs which are
relevant to the Group's operations as set out below which are effective for
accounting periods beginning on or after January 1, 2007. The Group has not
early adopted these new or revised HKFRSs in the financial statements for
the year ended December 31, 2006. The Group has commenced an assessment of
the impact of these new and revised HKFRSs, but is not yet in a position to
state whether these new and revised HKFRSs would have a significant impact
on its results of operations and financial position.
o HKFRS 7 - Financial Instruments : Disclosures
o HKAS 1 (Amendment) - Presentation of Financial Statements: Capital
Disclosure
o HK(IFRIC) - Int 8 - Scope of HKFRS 2
o HK(IFRIC) - Int 10 - Interim Reporting and Impairment
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 and government levies. The Group's revenues by business
nature can be summarized as follows:
Year ended December 31
2006 2005
RMB million RMB million
Restated
Note 2
Revenues
Local usage fees 22,274 24,582
Monthly telephone services 16,689 18,261
Upfront installation fees 1,369 1,442
DLD usage fees 10,185 10,260
ILD usage fees 1,160 1,180
Value-added services 5,421 4,000
Interconnection fees 8,400 7,783
Upfront connection fees 2,406 3,405
Broadband services 10,556 7,824
Other Internet-related services 692 591
Managed data services 1,505 1,656
Leased line income 2,974 2,596
Information communication technologies service 788 --
Other services 2,502 2,281
-------------- ---------------
Total 86,921 85,861
============== ===============
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 is 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
Year ended December 31
2006 2005
RMB million RMB million
Restated
Note 2
PRC enterprise income tax ("EIT") 4,039 3,581
Overseas profit tax 20 11
Deferred taxation (500) (162)
-------------- ---------------
Taxation charges 3,559 3,430
============== ===============
The provision for PRC 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.
7 Profit distributions
Year ended December 31
2006 2005
HK$ million RMB million HK$ million RMB million
Final dividend proposed after
balance sheet date of
HK$0.553 per share
(2005 : HK$0.466 per share) 3,678 3,695 3,073 3,196
=============== =============== ============== ===============
Dividend distributed during the year 3,073 3,196 245 259
=============== =============== ============== ===============
In the meeting of the board of directors held on April 2, 2007, the
directors proposed a final dividend of HK$0.553 per ordinary share for the
year ended December 31, 2006. Dividends proposed after the balance sheet
date have not been reflected as a dividend payable and will be reflected as
an appropriation in the 2007 financial statements.
8 Earnings per share
Basic earnings per share is computed using the weighted average number of
ordinary shares outstanding during the year. Diluted earnings per share is
computed using the weighted average number of ordinary shares and potential
ordinary shares outstanding during the year.
The following table sets forth the computation of basic and diluted
earnings per share:
Year ended December 31
2006 2005
(in RMB millions, except share
and per share data)
Restated
Note 2
Numerator:
Profit/ (loss) for the year
- Continuing operations 11,141 14,114
- Discontinued operations 1,819 (226)
-------------- ---------------
12,960 13,888
============== ===============
Denominator
Weighted average number of ordinary shares outstanding
and shares used in computing basic earnings per share 6,615,520,381 6,593,529,000
Diluted equivalent shares arising from share options 51,955,496 34,112,723
-------------- ---------------
Shares used in computing diluted earnings per share 6,667,475,877 6,627,641,723
-------------- ---------------
Basic earnings/(loss) per share (RMB)
- Continuing operations 1.68 2.14
============== ===============
- Discontinued operations 0.27 (0.03)
============== ===============
- Profit for the year 1.95 2.11
============== ===============
Diluted earnings/(loss) per share (RMB)
- Continuing operations 1.67 2.13
============== ===============
- Discontinued operations 0.27 (0.03)
============== ===============
- Profit for the year 1.94 2.10
============== ===============
9 Discontinued operations
On June, 2, 2006, the Group entered into an agreement with third party
buyers to dispose of its entire interest in the ANC Group for an aggregate
cash consideration of US$168.84 million, at fair value determined by both
parties. The disposal was completed on August 22, 2006. The gain on
disposal amounted to RMB1,878 million. The results and cash flows of the
ANC Group for the year ended December 31, 2006 are presented as
discontinued operations.
The income statement are as follows:
For the period from For the
January 1, 2006 year ended
to August 22, December 31,
2006 2005
RMB million RMB million
Discontinued operations:
Revenues 980 1,371
Expenses (1,038) (1,598)
-------------- ---------------
Loss before taxation (58) (227)
-------------- ---------------
Taxation (1) 1
-------------- ---------------
Loss for the period/year of discontinued operations (59) (226)
Gain on disposal of discontinued operations 1,878 --
-------------- ---------------
Profit/(loss) for the period/year from discontinued operations 1,819 (226)
============== ===============
10 Revaluation of fixed assets
According to the group's accounting policies, each class of fixed assets of
the Group other than buildings as at December 31, 2006 has been revalued by
Beijing China Enterprise Appraisal Co. Ltd. on a depreciated replacement
cost basis. The net deficit arising on the revaluation was RMB453 million,
the net deficit was split between a credit to the revaluation reserve
amounting to RMB1,071 million and an expense to the profit and loss account
of RMB1,524 million for the year.
11 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 operations 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 December 31
2006 2005
RMB million RMB million
0-30 days 5,744 5,446
31-90 days 1,557 1,556
Over 90 days 2,326 2,053
-------------- ---------------
Total 9,627 9,055
-------------- ---------------
Less: Allowance for doubtful debts (1,344) (1,654)
-------------- ---------------
Net carrying amounts 8,283 7,401
============== ===============
12 Accounts payable
As at December 31
2006 2005
RMB million RMB million
0-30 days 5,762 6,281
31-60 days 2,236 1,796
61-90 days 1,449 1,297
91-180 days 2,989 1,940
Over 180 days 5,218 5,405
-------------- ---------------
Total 17,654 16,719
============== ===============
13 Significant subsequent event
(i) On January 15, 2007, China Netcom (Group) Company Limited ("CNC
China"), the Group's principal operating subsidiary in China, entered
into an assets transfer agreement with its ultimate holding Company,
China Netcom Group. Pursuant to the agreement, CNC China agreed to
dispose of its assets and liabilities in relation to its
telecommunications operations in Guangdong Province and Shanghai
Municipality branches in the PRC for a 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, 2006 upon the approval granted from MII. The
Group expects to recognise a pre-tax gain approximately RMB0.95
billion and the gain will be reported as part of the discontinued
operations for the year ending December 31, 2007.
(ii) After the balance sheet date the directors proposed a final dividend.
Further details are disclosed in Note 7.
(iii) On 16 March 2007, the National People's Congress approved the new PRC
Enterprise Income Tax Law ("New Income Tax Law"). This legislation
reduces the enterprise income tax rate for domestic enterprises from
33% to 25% with effect from 2008. The tax rate reduction will also
affect the carrying value of the net deferred tax assets of the
Group's domestic operations as HKAS 12 requires deferred tax items to
be written down to reflect future realization at the newly enacted tax
rate of 25% upon approval by the National People's Congress. The
financial impact will be reflected in the financial statements for the
year ending December 31, 2007. The Group cannot reasonably estimate
the financial impact of the New Income Tax Law to the Group at this
stage as the implementation measures to the New Income Tax Law was not
yet finalized.
AUDIT COMMITTEE
The Audit Committee reviewed with management the accounting policies and
practices adopted by the Group and discussed auditing, internal control and
financial report matters including the review of the audited financial
statements for the year ended December 31, 2006.
COMPLIANCE WITH THE CODE PROVISIONS OF 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 throughout the
year ended December 31, 2006.
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.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
The Company and its subsidiaries did not purchase, sell or redeem any of the
listed securities of the Company during the year.
CLOSURE OF REGISTER OF MEMBERS
The register of members of the Company will be closed from May 17, 2007 to May
22, 2007 (both days inclusive), during which period no transfer of shares in the
Company will be effected. In order to qualify for the proposed final dividend,
all transfers, accompanied by the relevant share certificates, must be lodged
with the Company's registrar, Computershare Hong Kong Investor Services Limited,
Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai,
Hong Kong, not later than 4:30 p.m. on May 16, 2007.
PUBLICATION OF ANNUAL REPORT ON THE WEBSITE OF THE STOCK EXCHANGE
OF HONG KONG LIMITED AND THE COMPANY
The Annual Report for the year ended December 31, 2006 will be published on the
website of The Stock Exchange of Hong Kong Limited (www.hkex.com.hk) as well as
the website of the Company (www.china-netcom.com).
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, Mr. Zhang Xiaotie, Mr. Li
Fushen and Mr. Miao Jianhua as executive directors, Dr. Tian Suning, Mr. Yan
Yixun, Mr. Jose Maria Alvarez-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.
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: April 4, 2007