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As
filed with the Securities and Exchange Commission on March 24,
2010.
   UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM
20-F/A
 (Amendment No. 1)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES
EXCHANGE ACT OF 1934
 or
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the fiscal year ended August 31, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from or
 or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
 Date of event requiring this shell company report
 Commission file number: 000-30354
 City Telecom (H.K.) Limited
 (Exact name of registrant as Specified in its Charter)
 Hong Kong Special Administrative Region,
The Peoples Republic of China  (Jurisdiction of Incorporation or Organization)
 Level 39, Tower 1, Metroplaza
No. 223 Hing Fong Road
Kwai Chung, New Territories
Hong Kong  (Address of Principal Executive Offices)
 Mr. Lai Ni Quiaque
12th Floor, Trans Asia Centre
No.18 Kin Hong Street
Kwai Chung, New Territories
Hong Kong
 Telephone : (852) 3145 6068
Facsimile : (852) 2199 8445  (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title Of Each Class
    
    Name Of Each Exchange On Which RegisteredAmerican Depositary Shares, each representing 20 Ordinary Shares, par value HK$0.10 per share
    
    The Nasdaq Stock Market LLCOrdinary Shares, par value HK$0.10 per share*
    
    The Nasdaq Stock Market LLC*
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as at the close of the period covered by the annual report:
  o þ
  o þ
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer
o
    
    Non-accelerated filer þ(Do not check if a smaller reporting
company)
    
    Smaller reporting company o
  US GAAP o
    
    International Financial Reporting Standards as issued by the International Accounting Standards Board þ
    
    Other o
  o o
  o þ
 *
    
    Not for trading, but only in connection with the registration of the American Depositary Shares




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##### 



Contents
 Use of defined and technical terms
    
    
    1Currency translation
    
    
    1Note regarding forward-looking statements
    
    
    2Special note on our financial information presented in this annual report
    
    
    3PART IItem 1 Identity of directors, senior management and advisers
    
    
    4Item 2 Offer statistics and expected timetable
    
    
    4Item 3 Key information
    
    
    4-13Item 4 Information on the Company
    
    
    13-27Item 5 Operating and financial review and prospects
    
    
    27-35Item 6 Directors, senior management and employees
    
    
    36-43Item 7 Major shareholders and related party transactions
    
    
    44-45Item 8 Financial information
    
    
    45Item 9 The offer and listing
    
    
    45-47Item 10 Additional information
    
    
    47-54Item 11 Quantitative and qualitative disclosures about market risk
    
    
    54-55Item 12 Description of securities other than equity securities
    
    
    55PART IIItem 13 Defaults, dividend arrearages and delinquencies
    
    
    55Item 14 Material modifications to the rights of security holders and use of proceeds
    
    
    55Item 15 Controls and procedures
    
    
    55Item 16A Audit committee financial expert
    
    
    56Item 16B Code of ethics
    
    
    56Item 16C Principal accountant fees and services
    
    
    56Item 16D Exemptions from the listing standards for audit committees
    
    
    56Item 16E Purchase of equity securities by the issuer and affiliated purchasers
    
    
    57Item 16F Change in Registrants Certifying Accountant
    
    
    57Item 16G Corporate Governance
    
    
    57PART IIIItem 17 Financial statements
    
    
    58Item 18 Financial statements
    
    
    58Item 19 Exhibits
    
    
    58EX-12.1EX-12.2EX-13




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Use of defined and technical terms
  
    
    Hong Kong Companies Ordinance are to Chapter 32 of the laws of Hong Kong;
    
    City Telecom or the Company are to City Telecom (H.K.) Limited;
    
    fiscal year or fiscal are to the Companys fiscal year ended August 31 for the year referenced;
    
    FTNS business are to our business segment in which we provide fixed telecommunications
network services, including dial up and broadband Internet access services, local VoIP
services, IP-TV services and corporate data services;
    
    FTNS Licenses are to the licenses issued by the Hong Kong regulatory authorities for
fixed telecommunications network services;
    
    GPON are to Gigabit Passive Optical Network;
    
    Group are to the Company and its subsidiaries;
    
    HKBN are to Hong Kong Broadband Network Limited, a wholly owned subsidiary of the Company;
    
    HKFRSs are to Hong Kong Financial Reporting Standards issued by the Hong Kong Institute
of Certified Public Accountants;
    
    IDD business are to our business segment in which we provide international
telecommunications services, including international long distance call services;
    
    IFRSs are to International Financial Reporting Standards, as issued by the International Accounting Standards Board;
    
    IP-TV services are to pay-television services through Internet Protocol;
    
    PNETS Licenses are to licenses issued by the Hong Kong regulatory authorities for the
public non-exclusive telecommunications services;
    
    UC License are to the Unified Carrier License issued by the Hong Kong regulatory
authorities for fixed and mobile telecommunication services;
    
    VoIP are to Voice over Internet Protocol.
 
 Currency translation
  1




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Note regarding forward-looking statements
   
    
    technological changes;
    
    changes in our regulatory environment, including changes in rules and policies
promulgated by regulatory agencies from time to time;
    
    increasing competition in the telecommunications, Internet access, local VoIP,
pay-television and corporate data markets;
    
    the benefits we expect to derive from our Next Generation Network, which utilize Metro
Ethernet and GPON technologies, in which we have been making significant capital
investments;
    
    our ability to maintain growth and successfully introduce new services;
    
    the continued development and stability of our technological infrastructure, a platform
through which our local and international telecommunications, Internet access, local VoIP,
IP-TV and corporate data services are offered; and
    
    changes in the local and global economic environment.
  2




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Special note on our financial information presented in this annual report
    3




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PART I
 
 ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3 KEY INFORMATION
 A. Selected financial data
 City Telecoms historical financial information
  Selected consolidated statement of operations data:
 As of and for the year ended August 31,2008
    
    
    2009
    
    
    2009HK$
    
    
    HK$
    
    
    US$(Amounts in thousands except per share data)Revenue:- FTNS business
    
    
    1,011,038
    
    
    
    1,230,880
    
    
    
    158,813- IDD business
    
    
    291,943
    
    
    
    247,359
    
    
    
    31,915Total operating revenue
    
    
    1,302,981
    
    
    
    1,478,239
    
    
    
    190,728Network costs:- FTNS business
    
    
    (103,524
    )
    
    
    (107,670
    )
    
    
    (13,892
    )- IDD business
    
    
    (74,843
    )
    
    
    (67,459
    )
    
    
    (8,704
    )Total network costs
    
    
    (178,367
    )
    
    
    (175,129
    )
    
    
    (22,596
    )Other operating expenses
    
    
    (966,094
    )
    
    
    (1,037,964
    )
    
    
    (133,922
    )Interest expense, net
    
    
    (59,541
    )
    
    
    (50,258
    )
    
    
    (6,484
    )Other income, net
    
    
    9,393
    
    
    
    36,671
    
    
    
    4,731Income taxes benefit/(expense)
    
    
    16,818
    
    
    
    (38,730
    )
    
    
    (4,997
    )Net income
    
    
    125,190
    
    
    
    212,829
    
    
    
    27,460Basic earnings per share (HK cents)
    
    
    19.7
    
    
    
    32.4
    
    
    
    4.2Diluted earnings per share (HK cents) (note 1)
    
    
    19.0
    
    
    
    31.8
    
    
    
    4.1Dividends per share attributable to the year (HK cents)
    
    
    6.0
    
    
    
    19.0
    
    
    
    2.5Weighted average number of ordinary shares
    
    
    634,015
    
    
    
    657,201
    
    
    
    657,201Diluted weighted average number of ordinary shares (note 2)
    
    
    657,997
    
    
    
    668,384
    
    
    
    668,384
 4




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Selected consolidated balance sheet data:
 As of the year ended August 31,2008
    
    
    2009
    
    
    2009HK$
    
    
    HK$
    
    
    US$(Amounts in thousands)Total assets
    
    
    2,080,416
    
    
    
    1,785,044
    
    
    
    230,313Long-term debt and other liabilities
    
    
    (683,242
    )
    
    
    (162,586
    )
    
    
    (20,977
    )Finance lease obligations
    
    
    (376
    )
    
    
    (732
    )
    
    
    (94
    )Other liabilities
    
    
    (364,191
    )
    
    
    (393,199
    )
    
    
    (50,733
    )Total liabilities
    
    
    (1,047,809
    )
    
    
    (556,517
    )
    
    
    (71,804
    )Net assets
    
    
    1,032,607
    
    
    
    1,228,527
    
    
    
    158,509Share capital
    
    
    65,062
    
    
    
    66,418
    
    
    
    8,570Share premium
    
    
    670,717
    
    
    
    681,208
    
    
    
    87,892Reserves
    
    
    296,828
    
    
    
    480,901
    
    
    
    62,047Total shareholders equity
    
    
    1,032,607
    
    
    
    1,228,527
    
    
    
    158,509
 Other financial data:
 For the year ended August 31,2008
    
    
    2009
    
    
    2009HK$
    
    
    HK$
    
    
    US$(Amounts in thousands)EBITDA (note 3)
    
    
    377,964
    
    
    
    508,058
    
    
    
    65,551Net cash inflow from operating activities
    
    
    378,563
    
    
    
    535,886
    
    
    
    69,142Net cash outflow from investing activities
    
    
    (147,750
    )
    
    
    (176,488
    )
    
    
    (22,771
    )Net cash outflow from financing activities
    
    
    (342,550
    )
    
    
    (560,407
    )
    
    
    (72,306
    )Capital expenditures (note 4)
    
    
    211,684
    
    
    
    286,734
    
    
    
    36,996
  For the year ended August 31,2008
    
    
    2009
    
    
    2009HK$
    
    
    HK$
    
    
    US$(Amounts in thousands)EBITDA
    
    
    377,964
    
    
    
    508,058
    
    
    
    65,551Depreciation and amortization
    
    
    (210,051
    )
    
    
    (206,241
    )
    
    
    (26,610
    )Interest expense, net
    
    
    (59,541
    )
    
    
    (50,258
    )
    
    
    (6,484
    )Income taxes benefit/(expense)
    
    
    16,818
    
    
    
    (38,730
    )
    
    
    (4,997
    )Net income
    
    
    125,190
    
    
    
    212,829
    
    
    
    27,460Depreciation and amortization
    
    
    210,051
    
    
    
    206,241
    
    
    
    26,610Amortization of deferred expenditure
    
    
    33,777
    
    
    
    53,160
    
    
    
    6,859Income taxes (benefit)/expense
    
    
    (16,818
    )
    
    
    38,730
    
    
    
    4,997Interest income
    
    
    (15,596
    )
    
    
    (4,869
    )
    
    
    (628
    )Interest element of finance lease
    
    
    34
    
    
    
    27
    
    
    
    3Interest, amortization and exchange difference on senior notes
    
    
    72,640
    
    
    
    49,214
    
    
    
    6,350Realized gain on long term bank deposit
    
    
    (1,185
    )
    
    
    
    
    
    
    Loss on disposal of fixed assets
    
    
    1,431
    
    
    
    1,016
    
    
    
    131Equity settled share-based transaction
    
    
    4,204
    
    
    
    4,768
    
    
    
    615Realized loss on derivatives financial instruments
    
    
    1,039
    
    
    
    
    
    
    
    Realized and unrealized gain on other financial assets
    
    
    (3,284
    )
    
    
    (189
    )
    
    
    (24
    )Gain on extinguishment of senior notes
    
    
    (2,582
    )
    
    
    (31,371
    )
    
    
    (4,048
    )Taxation paid
    
    
    (4,250
    )
    
    
    (1,732
    )
    
    
    (223
    )Change in long term receivable and prepayments
    
    
    1,346
    
    
    
    (505
    )
    
    
    (65
    )Change in working capital, net
    
    
    (27,434
    )
    
    
    8,567
    
    
    
    1,105Net cash inflow from operating activities
    
    
    378,563
    
    
    
    535,886
    
    
    
    69,142
 5




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Operating data:
 As of and for the year ended August 31,2007
    
    
    2008
    
    
    2009FTNS subscriptions:- Broadband Internet access
    
    
    247,000
    
    
    
    316,000
    
    
    
    391,000- Local VoIP
    
    
    308,000
    
    
    
    329,000
    
    
    
    382,000- IP-TV
    
    
    128,000
    
    
    
    156,000
    
    
    
    170,000Total
    
    
    683,000
    
    
    
    801,000
    
    
    
    943,000Registered international telecommunications
accounts (note 5)
    
    
    2,331,000
    
    
    
    2,336,000
    
    
    
    2,383,000IDD outgoing minutes (in thousands)
    
    
    659,000
    
    
    
    574,000
    
    
    
    487,000
 
 Notes:(1)
    
    Diluted earnings per share is computed by dividing the net income by the diluted weighted
average number of ordinary shares during the year.(2)
    
    For fiscal 2008 and 2009, the diluted weighted average number of ordinary shares was the
weighted average number of ordinary shares outstanding during the respective years, plus the
weighted average number of additional ordinary shares which would have been outstanding
assuming all the outstanding share options have been exercised at the beginning of the
respective years or on the date of issue, whichever is earlier.(3)
    
    EBITDA for any period means, without duplication, net income for such period, plus the
following to the extent deducted in calculating such net income: interest expense, income
taxes, depreciation and amortization expense (excluding any such non-cash charge to the extent
it represents an accrual of or reserve for cash charges in any future period or amortization
of a prepaid cash expense that was paid in a prior period not included in the calculation),
less interest income. EBITDA is not a measure of performance under
IFRSs. We believe that
EBITDA is an additional measure utilized by investors in determining a borrowers ability to
meet debt service requirements. However, EBITDA does not represent, and should not be used as
a substitute for, net earnings or cash flows from operations as determined in accordance with
IFRSs, and EBITDA is not necessarily an indication of whether cash flow will be sufficient to
fund our cash requirements. In addition, our definition of EBITDA may differ from that of
other companies.(4)
    
    Capital expenditures represent additions to fixed assets and include non-cash transactions.(5)
    
    Registered accounts refer to international telecommunications customers that have a valid
account. Account holders may or may not be active users of our services. Selected Consolidated Statement of Operations Data:
 For the year ended August 31,2005 (6)
    
    
    2006 (6)
    
    
    2007HK$
    
    
    HK$
    
    
    HK$(Amounts in thousands except per share data)HKFRSRevenues:Fixed telecommunications
network services
    
    
    629,464
    
    
    
    716,600
    
    
    
    816,800International
telecommunications
services
    
    
    532,595
    
    
    
    418,276
    
    
    
    324,470Total operating revenue
    
    
    1,162,059
    
    
    
    1,134,876
    
    
    
    1,141,270Network Costs:Fixed telecommunications
network services
    
    
    (118,383
    )
    
    
    (125,639
    )
    
    
    (103,795
    )International
telecommunications
services
    
    
    (221,019
    )
    
    
    (174,954
    )
    
    
    (110,796
    )Total network costs
    
    
    (339,402
    )
    
    
    (300,593
    )
    
    
    (214,591
    )Other operating expenses
    
    
    (958,031
    )
    
    
    (919,795
    )
    
    
    (834,104
    )(Loss)/income from operations
    
    
    (135,374
    )
    
    
    (85,512
    )
    
    
    92,575Interest (expense)/income, net
    
    
    (40,884
    )
    
    
    (68,259
    )
    
    
    (64,833
    )Other income, net
    
    
    6,037
    
    
    
    4,465
    
    
    
    3,149Income taxes credit/ (expense)
    
    
    6,725
    
    
    
    7,244
    
    
    
    (2,026
    )Net (loss)/income
    
    
    (163,496
    )
    
    
    (142,062
    )
    
    
    28,865Basic (loss)/ earnings per
share (cents)
    
    
    (26.6
    )
    
    
    (23.1
    )
    
    
    4.7Diluted (loss)/earnings per
share (cents) (1)
    
    
    (26.6
    )
    
    
    (23.1
    )
    
    
    4.6Dividends declared per share
(cents)
    
    
    
    
    
    
    
    
    
    
    8.0Weighted average number of
shares
    
    
    613,525
    
    
    
    614,134
    
    
    
    614,840Diluted weighted average
number of shares (2)
    
    
    613,525
    
    
    
    614,134
    
    
    
    631,319
 For the year ended August 31,2005
    
    
    2006
    
    
    2007HK$
    
    
    HK$
    
    
    HK$(Amounts in thousands except per share data)U.S. GAAPTotal operating revenue
    
    
    1,162,059
    
    
    
    1,134,876
    
    
    
    1,141,270Total operating
expenses
    
    
    (1,289,014
    )
    
    
    (1,220,388
    )
    
    
    (1,048,695
    )Net (loss)/income
    
    
    (149,148
    )
    
    
    (142,062
    )
    
    
    28,865Basic (loss)/earnings
per share (cents)
    
    
    (24.3
    )
    
    
    (23.1
    )
    
    
    4.7Diluted
(loss)/earnings per
share (cents) (1)
    
    
    (24.3
    )
    
    
    (23.1
    )
    
    
    4.6Dividends declared per
share (cents)
    
    
    
    
    
    
    
    
    
    
    8.0Weighted average
number of shares
    
    
    613,525
    
    
    
    614,134
    
    
    
    614,840Diluted weighted
average number of
shares (2)
    
    
    613,525
    
    
    
    614,134
    
    
    
    631,319
 Selected Consolidated Balance Sheet Data:
 August 31,2005
    
    
    2006
    
    
    2007HK$
    
    
    HK$
    
    
    HK$(Amounts in thousands)HKFRSTotal assets
    
    
    2,347,428
    
    
    
    2,124,215
    
    
    
    2,161,133Debt
    
    
    (945,348
    )
    
    
    (948,027
    )
    
    
    (952,593
    )Finance lease
obligation
    
    
    (3,135
    )
    
    
    (2,373
    )
    
    
    (1,210
    )Other liabilities
    
    
    (378,491
    )
    
    
    (282,161
    )
    
    
    (303,448
    )Total liabilities
    
    
    (1,326,974
    )
    
    
    (1,232,561
    )
    
    
    (1,257,251
    )Net assets employed
    
    
    1,020,454
    
    
    
    891,654
    
    
    
    903,882Share capital
    
    
    61,412
    
    
    
    61,417
    
    
    
    61,650Share premium
    
    
    619,408
    
    
    
    620,298
    
    
    
    622,433Reserves
    
    
    339,634
    
    
    
    209,939
    
    
    
    219,799Total shareholders
equity
    
    
    1,020,454
    
    
    
    891,654
    
    
    
    903,882
 August 31,2005
    
    
    2006
    
    
    2007HK$
    
    
    HK$
    
    
    HK$(Amounts in thousands)U.S. GAAPTotal assets
    
    
    2,385,556
    
    
    
    2,154,305
    
    
    
    2,189,086Total liabilities
    
    
    (1,352,876
    )
    
    
    (1,257,034
    )
    
    
    (1,279,587
    )Net shareholders
equity
    
    
    1,032,680
    
    
    
    897,271
    
    
    
    909,499
 Other Financial Data:
 For the year ended August 31,2005 (6)
    
    
    2006 (6)
    
    
    2007HK$
    
    
    HK$
    
    
    HK$(Amounts in thousands)HKFRSEBITDA (3)
    
    
    108,377
    
    
    
    195,417
    
    
    
    353,827Net cash provided by
operating activities
    
    
    77,383
    
    
    
    184,151
    
    
    
    383,999Net cash (used in) /
provided by investing
activities
    
    
    (557,440
    )
    
    
    (492,742
    )
    
    
    114,053Net cash provided by
/(used in) financing
activities
    
    
    792,216
    
    
    
    (86,432
    )
    
    
    (109,504
    )Capital expenditures (4)
    
    
    419,126
    
    
    
    322,935
    
    
    
    132,250
  For the year ended August 31,2005
    
    
    2006
    
    
    2007HK$
    
    
    HK$
    
    
    HK$(Amounts in thousands)EBITDA (3)
    
    
    108,377
    
    
    
    195,417
    
    
    
    353,827Depreciation and amortization
    
    
    (237,714
    )
    
    
    (276,464
    )
    
    
    (258,103
    )Interest expense, net
    
    
    (40,884
    )
    
    
    (68,259
    )
    
    
    (64,833
    )Income taxes credit/(expense)
    
    
    6,725
    
    
    
    7,244
    
    
    
    (2,026
    )Net (loss)/income
    
    
    (163,496
    )
    
    
    (142,062
    )
    
    
    28,865Depreciation and amortization
    
    
    237,714
    
    
    
    276,464
    
    
    
    258,103Impairment loss on investment
property
    
    
    
    
    
    
    1,131
    
    
    
    Amortization of deferred
expenditure
    
    
    12,927
    
    
    
    13,973
    
    
    
    15,580Income taxes (credit)/expense
    
    
    (6,725
    )
    
    
    (7,244
    )
    
    
    2,026Interest income
    
    
    (13,578
    )
    
    
    (20,378
    )
    
    
    (22,671
    )Interest, amortization and
exchange difference on senior
notes
    
    
    54,065
    
    
    
    86,664
    
    
    
    89,879Other borrowing costs
    
    
    
    
    
    
    1,919
    
    
    
    (739
    )(Gain) / loss on disposal of
fixed assets
    
    
    (134
    )
    
    
    9,621
    
    
    
    1,714Equity settled share-based
transaction
    
    
    6,965
    
    
    
    6,823
    
    
    
    5,727Realized and unrealized loss
on derivatives financial
instruments
    
    
    
    
    
    
    125
    
    
    
    806Unrealized gain on other
investments
    
    
    (300
    )
    
    
    (668
    )
    
    
    (1,887
    )Taxation paid
    
    
    (1,393
    )
    
    
    (2,532
    )
    
    
    (2,171
    )Change in long term receivable
    
    
    (6,893
    )
    
    
    567
    
    
    
    5,600Change in working capital, net
    
    
    (41,769
    )
    
    
    (40,252
    )
    
    
    3,167Net cash flow provided by
operating activities
    
    
    77,383
    
    
    
    184,151
    
    
    
    383,999
 Operating Data:
 As of and for the year ended August 31,2005
    
    
    2006
    
    
    2007Fixed Telecommunications
Network Services
Subscriptions:Broadband Internet Access
    
    
    229,000
    
    
    
    220,000
    
    
    
    247,000Local VoIP
    
    
    293,000
    
    
    
    281,000
    
    
    
    308,000IP-TV
    
    
    109,000
    
    
    
    116,000
    
    
    
    128,000Total
    
    
    631,000
    
    
    
    617,000
    
    
    
    683,000Registered international
telecommunications accounts
(5)
    
    
    2,054,036
    
    
    
    2,201,963
    
    
    
    2,331,000IDD outgoing minutes (in
thousands)
    
    
    947,100
    
    
    
    788,000
    
    
    
    659,000
 
 (1)
    
    Diluted (loss)/ earnings per share is computed by dividing the net
(loss)/ income by the diluted weighted average number of ordinary
shares during the year.(2)
    
    For fiscal 2007, the diluted weighted average number of shares was the
weighted average number of ordinary shares outstanding during the
year, plus the weighted average number of additional ordinary shares
which would have been outstanding assuming all the outstanding share
options and share warrants (if any) have been exercised at the
beginning of the respective years or on the date of issue, whichever
is earlier. For fiscal 2005 and 2006, the diluted weighted average
number of shares was equal to the weighted average number of ordinary
shares outstanding during the respective years because the incremental
effect of share options and share warrants was anti-dilutive in a
loss-making year.(3)
    
    EBITDA for any period means, without duplication, net income/(loss)
for such period, plus the following to the extent deducted in
calculating such net income/(loss): interest expense, income taxes,
depreciation and amortization expense (excluding any such non cash
charge to the extent it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense
that was paid in a prior period not included in the calculation), less
interest income. EBITDA is not a measure of performance under HKFRS or
U.S. GAAP. We believe that EBITDA is an additional measure utilized by
investors in determining a borrowers ability to meet debt service
requirements. However, EBITDA does not represent, and should not be
used as a substitute for, net earnings or cash flows from operations
as determined in accordance with HKFRS or U.S. GAAP, and EBITDA is not
necessarily an indication of whether cash flow will be sufficient to
fund our cash requirements. In addition, our definition of EBITDA may
differ from that of other companies.(4)
    
    Capital expenditures represent additions to fixed assets and include
non-cash transactions.(5)
    
    Registered accounts refer to international telecommunications
customers that have a valid account. Account holders may or may not be
active users of our services.(6)
    
    Due to additional evidence and information received with respect to
the collectability of the mobile interconnection charges on January
30, 2006, we were required to reassess the conditions on which the
estimates on bad debt provision for mobile interconnection charges
receivables were based. Such assessment were made after the
publication of our Hong Kong statutory financial statements for fiscal
2005 but prior to the filing of our annual report on Form 20-F for
fiscal 2005. The effect of the reassessment was reflected in our
annual report on Form 20-F for fiscal 2005 and in our Hong Kong
statutory financial statements for fiscal 2006.Our reassessment had the following effects on our consolidated
statement of operations for fiscal 2005 and 2006: As previouslyreported inAs previously
    
    
    
    
    
    
    2006 Hong Kongreported in 2005 Hong
    
    
    As reported
    
    
    statutory
    
    
    As reportedKong statutory
    
    
    in 2005 Form
    
    
    financial
    
    
    in 2006financial statements
    
    
    20-F
    
    
    statements
    
    
    Form 20-FHK$
    
    
    HK$
    
    
    HK$
    
    
    HK$(Amounts in thousands except per share data)Total operating revenue
    
    
    1,137,356
    
    
    
    1,162,059
    
    
    
    1,159,579
    
    
    
    1,134,876Provision for doubtful debts
    
    
    (60,563
    )
    
    
    (35,445
    )
    
    
    7,668
    
    
    
    (17,450
    )Net loss after tax
    
    
    (206,352
    )
    
    
    (156,531
    )
    
    
    (92,241
    )
    
    
    (142,062
    )Loss per share  basic and
diluted
    
    (33.6) cents
    
    (25.5) cents
    
    (15.0) cents
    
    (23.1) cents
 6




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##### Table of Contents



Exchange rate information
    Average
    
    
    High
    
    
    Low
    
    
    Period-end(note)HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Fiscal 2005
    
    
    7.7869
    
    
    
    7.8002
    
    
    
    7.7684
    
    
    
    7.7718Fiscal 2006
    
    
    7.7601
    
    
    
    7.7796
    
    
    
    7.7506
    
    
    
    7.7767Fiscal 2007
    
    
    7.8029
    
    
    
    7.8289
    
    
    
    7.7665
    
    
    
    7.7968Fiscal 2008
    
    
    7.7915
    
    
    
    7.8159
    
    
    
    7.7497
    
    
    
    7.8036Fiscal 2009
    
    
    7.7550
    
    
    
    7.8094
    
    
    
    7.7495
    
    
    
    7.7505July 2009
    
    
    7.7500
    
    
    
    7.7505
    
    
    
    7.7495
    
    
    
    7.7500August 2009
    
    
    7.7506
    
    
    
    7.7516
    
    
    
    7.7500
    
    
    
    7.7505September 2009
    
    
    7.7503
    
    
    
    7.7514
    
    
    
    7.7498
    
    
    
    7.7500October 2009
    
    
    7.7497
    
    
    
    7.7502
    
    
    
    7.7495
    
    
    
    7.7497November 2009
    
    
    7.7497
    
    
    
    7.7501
    
    
    
    7.7495
    
    
    
    7.7500December 2009
(through December 14, 2009)
    
    
    7.7501
    
    
    
    7.7515
    
    
    
    7.7495
    
    
    
    7.7515
 
 Note:
    
    The average rates on the last business day of each month during the
relevant fiscal year period or the average rates for each business day during the
relevant monthly period.Source:
    
    For all periods prior to January 1, 2009, the exchange
rate refers to noon buying rate as reported by the Federal Reserve
Bank of New York. For periods beginning on or after January 1,
2009, the exchange rate refers to the exchange rate as set forth in
the H.10 statistical release of the Federal Reserve Board. B. Capitalization and indebtedness
  C. Reasons for the offer and use of proceeds
  D. Risk factors
 You should carefully consider the risks described below and other information contained in
this annual report before making an investment decision. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not presently known to us,
or that we currently deem immaterial, may also impair our business operations. We cannot assure you
that any of the events discussed in the risk factors below will not occur. If they do, our
business, financial condition or results of operations could be materially adversely affected.
 Risks relating to our business and operations
 In light of the intense competition in our target markets, we cannot assure you that our
revenues and net profit will continue to grow.
   7




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Given the pace of change in the telecommunications industry and the characteristics of our
target markets, we cannot assure you that our FTNS business will continue to be profitable.
  
    
    Increasing liberalization of the telecommunications industry in Hong Kong may continue
to attract new local and foreign entrants and broaden the variety of telecommunications
services available in the market, thereby increasing the overall level of competition in
our industry.
    
    The Hong Kong government may continue to issue new wireless and wire-line FTNS Licenses.
For instance, 261 PNETS Licenses had been issued in Hong Kong as of
October 31, 2009 for the provision of external telecommunications services (as defined in the
Telecommunications Authoritys Determination as of December 30, 1998). Some of these
licenses are held by subsidiaries of major foreign telecommunications providers, which have
competitive advantages over us due to their global presence and size.
    
    Around December 31, 2007, Television Broadcasts Limited and Asia Television Limited,
commonly known as TVB and ATV, respectively, the only two licensed domestic territorial
broadcasters in Hong Kong, launched their digital terrestrial television services and have
since broadened such services to cover an increasingly large percentage of the viewing
public in Hong Kong. As of December 15, 2009, their services offered a total of 11 free
channels in both standard and high definition. This improvement in the quality of free
television may result in a reduction in the number of subscribers for pay-television
services.
  Our services may become obsolete if we cannot address the changing needs of our customers.
  
    
    To compete successfully, we must constantly increase the diversity and sophistication of the services we offer and upgrade our telecommunications
technologies. We may be required to make substantial capital expenditures and may not be successful in
modifying our network infrastructure in a timely and cost-effective manner in response to these changes.
    
    New technology, such as the possible development of 4G wireless data networks as a substitute for a fiber-based services, or other trends in the
telecommunications industry, could have an adverse effect on the services we currently offer. For example, traditional fixed line home telephones are
being replaced by mobile telephones and/or VoIP services. Technology substitution from global VoIP providers,
some of which offer free PC-to-PC based international calls, is also
becoming more prevalent. Increased adoption of such competing technology may
lead to a decline in our revenues.
    
    Changing our services in response to market demand may require the adoption of new technologies that could render many of the technologies
that we are currently implementing less competitive or obsolete. We may also need to gain access to related or enabling technologies
in order to integrate the new technology with our existing technology. Our new services may contain design flaws or other defects when first introduced to the market.
  The development of our Next Generation Network requires significant capital expenditures,
which may not be available on terms satisfactory to us or may impose a burden on our other business
activities.
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If any of our new services are not successful, our operating results could be adversely
affected.
  
    
    Developing new telecommunications services can be complex. We may not be able to adapt
the new services effectively and economically to meet customer demand.
    
    In developing new services, we are required to continue to make significant investments
in our network infrastructure in order to support these services. If we exceed our budgeted
capital expenditure and cannot meet the additional capital requirements in time through
operating cash flow and planned financings, we may have to delay the project.
    
    Any of our new services may not be commercially successful. The failure of any of our
services to achieve commercial acceptance could result in additional capital expenditures
or, to the extent that we are required under the applicable accounting standards to
recognize a charge for the impairment of assets. Any impairment charges could materially
and adversely affect our financial condition and the results of our operations.
  We may need to improve our internal controls over financial reporting and our independent
auditors may not be able to attest to their effectiveness.
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If we cannot manage the growth in our FTNS business, the quality of our services and our
operating results could be adversely affected.
   
    
    improve our existing operational, administrative and technological systems and our
financial and management controls;
    
    enhance our infrastructure to support the expansion;
    
    develop effective marketing plans;
    
    control operational costs and maintain effective quality controls; and
    
    offer competitive prices to customers for our services.
  We depend on certain key personnel, and our business and growth prospects may be disrupted by
the loss of their services.
  Our ability to further expand the coverage of our Next Generation Network may be limited by
the physical limitations or our ability to obtain access rights in certain buildings
  
    
    Because at least one of our competitors has already installed in-building wiring in
virtually all buildings and many buildings have limited physical space for additional
in-building wiring, other FTNS providers, including us, may encounter a bottleneck when
installing our own in-building wiring.
    
    Some single-owner commercial buildings may grant rights of access to our competitors
while barring us from installing our own in-building wiring.
    
    Certain developers may have affiliations with our competitors and may attempt to delay
our wiring installations.
  Internet security concerns could adversely affect our Internet access services.
  
    
    interruption, delays or cessation in services to our customers;
    
    a threat to the security of confidential information stored in the computer system of
our customers; and
    
    illegal viewing or download of our contents.
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We may be unable to further expand the scope of our Internet access services unless we obtain
additional network capacity.
  
    
    the expansion and development of our own international telecommunications facilities;
 
    
    the availability of leased capacity from third party carriers at favorable rates; and
 
    
    the possible termination or cancellation of our existing contracts.
  Natural disasters and other disruptive regional events could damage our network and adversely
affect our business and operating results.
  The loss of key suppliers or their failure to deliver equipment on a timely basis could
negatively impact our business.
   Because we rely on third parties in delivering services through our Next Generation Network,
our operating results could be adversely affected if their services are not timely or do not meet
our standards.
  Risks relating to the regulatory, political and economic environment
 Regulatory reforms and currently contemplated regulatory initiatives in the telecommunications
industry may adversely affect us.
  
    
    In July 2004, a new provision of the Telecommunications Ordinance came into force. This
anti-competition provision specifically regulates the conduct of all carrier licensees (in
particular merger and acquisition transactions) in the Hong Kong telecommunications
industry by giving the Telecommunications Authority the power to
review the conducts and
transactions concerning carrier licensees and to take appropriate actions if it determines
that the transaction would, or is likely to, prevent or substantially lessen competition in
a telecommunications market. The Telecommunications Authority has the power under this
provision to conduct an investigation into any questionable transaction. It might consent
to the transaction (unconditionally or subject to any conditions it deems appropriate) or
reject the transaction outright. The decision of the Telecommunications Authority will
take into account of whether the transaction will adversely affect the public interest and
benefit. This provision may have an adverse effect on our ability to grow our business
through mergers and acquisitions.
 
    
    We offer local VoIP services through our Next Generation Network under HKBNs FTNS
License. Following the conclusion of a public consultation on the regulation of Internet
Protocol Telephony Services, the Telecommunications Authority issued a statement on June
20, 2005, setting out its views and decisions on the regulatory and licensing framework for
the provision of VoIP services, including the creation of a licensing framework,
conformance to the existing system of assigning telephone numbers, imposition of
interconnection charges and establishing guidelines with respect to the quality of
services.
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##### Table of Contents




    
    We offer fixed but not mobile telecommunications network services. The Telecommunications
Authority has implemented a new fixed-mobile convergence licensing practice by way of the
UC License. The UC License regime, which began on August 1, 2008, seeks to replace the
existing four classes of carrier licenses for the provision of fixed and mobile services
with a simple license. Going forward the UC License will be the only carrier license to be issued
for the provision of fixed, mobile and/or converged services. Existing carrier licenses
will remain effective until their expiry date. Licensees can choose to apply to convert
their existing licenses to UC Licenses before then or apply for a UC License upon expiry.
This regulatory change, together with the development of new technologies, may further
accelerate the convergence of fixed and mobile telecommunications services, resulting in
more structural competition between fixed-line and mobile telecommunications operators. As
we do not have a mobile license, and are not currently authorized to provide mobile
services, our ability to compete may be hindered by our inability to offer such services
independently.
 
    
    We provide our IP-TV services over our Next Generation Network under HKBNs FTNS
License. The Hong Kong government has indicated that because our IP-TV services are
carried over the Internet, we are exempted under the Broadcasting Ordinance from the
requirement to obtain a domestic pay-television program service license. However, the
governments Communications and Technology Branch has informed us that the government is
considering a review of the broadcasting regulatory regime and may introduce changes to the
existing regulatory framework, including the existing exemption in the Broadcasting
Ordinance. However, we cannot predict whether the government may require us to obtain a
pay-television program service license in the future.
 We require licenses from the Telecommunications Authority to provide our services. If one of
these licenses is revoked or not renewed or there are substantial changes in its terms and
conditions, we may be unable to deliver the services authorized by that license.
  
    
    Our ability to adjust the tariffs for different services are governed by the terms and
conditions of the relevant licenses. The licenses, however, are issued under different
regulatory frameworks. The differences in regulatory structure for these licenses may
constrain our flexibility to respond to market conditions, competition or cost structure.
 
    
    We have been granted a waiver by the Telecommunications Authority to comply with the
tariff restrictions contained in HKBNs FTNS License. If the waiver is revoked, our ability
to adjust the tariffs for our fixed telecommunication network services, including our offer
of discounts to subscribers from time to time, will be restricted.
 
    
    Our PNETS License is subject to the Telecommunications Authoritys annual renewal. On
October 19, 2009, the Telecommunications Authority announced the replacement of the PNETS
License by a new class of Services-Based Operator License, Class 3 Modified Services-Based
Operator License. On December 1, 2009, the PNETS License of City Telecom was replaced by a
Class 3 Modified Services-Based Operator License. It is expected that the PNETS License of
HKBN would also be replaced by a Class 3 Modified Services-Based Operator License on
January 1, 2010 through the renewal procedure. HKBNs FTNS License was initially granted
in 2000 for a term of 15 years and may be renewed for such further period not exceeding 15
years at the discretion of the Telecommunications Authority.
 
    
    The Telecommunications Authoritys failure to renew or its revocation of any of these
licenses or its amendment of any of the terms and conditions contained in such licenses for
any reason would prohibit us from continuing to offer the services
authorized by those licenses, which would have a significant adverse impact on our revenues and profitability.
In addition, there may be future changes in Hong Kongs telecommunications regulations or
policies that would require us to obtain additional licenses, which could have an adverse
impact on our operations.
 Our international telecommunications revenues may be adversely affected by increases in
carrier charges in China.
  As approximately 48% of our staff located in Guangzhou, China, changes in Chinese labor or
business laws may significantly affect our operations and our ability to serve our Hong Kong based
customers.
  Currency fluctuations of the Hong Kong dollar, our functional currency, may increase our
operating costs and long term liability.
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##### Table of Contents




    
    A major portion of our operating costs of interconnection charges payable to overseas
carriers for the delivery of our international calls. Substantially all of these
interconnection charges are denominated in U.S. dollars or other foreign currencies.
    
    The equipment and hardware we purchase for the expansion of our Next Generation Network
constitutes a large portion of our capital expenditures and is also denominated in U.S.
dollars.
    
    Payment of interest, principal and any other amounts due under the 10-year senior notes
due 2015 are made in U.S. dollars.
    
    Expenses incurred for the operation of our call center located in Guangzhou, China are
denominated exclusively in Renminbi, the official currency of the Peoples Republic of
China. These include salaries paid to our personnel as well as various operating expenses
that we incur to maintain our operations.
   Our Chairman and Vice Chairman have significant ownership interest in the company. We cannot assure
you that our Chairman and Vice Chairman will not engage in any transactions that lead to conflicts
of interest resulting from their ownership interests
  
 Item 4 Information on the Company
 A. History and development of the Company
     
    
    In October 2006, our Liu Xiang Be Ahead of Yourself marketing campaign won the
Certificate of Excellence of HKMA/TVB Awards for Marketing Excellence 2006.
    
    In February 2007, we launched our bb50 and bb200 symmetric residential broadband
service supported by SDU personalized customer care service.
    
    In June 2007, we were awarded Best Retention Strategies at the Hong Kong HR Awards
2007.
    
    In July 2007, we were awarded Integrated Support Team of the year at the Asia Pacific
Customer Service Consortium Customer Relationship Excellence Awards.
    
    In September 2007, we launched Fiber-To-The-Home residential broadband service,
FiberHome100, FiberHome200 and FiberHome1000. As the same time, we upgraded our entry
level service broadband Internet access from 10 Mbps to 25 Mbps.
    
    In January 2008, we began to offer our Dual Mode High Definition Terrestrial TV
Receiver and IPTV Set-Top Box to all of our customers in Hong Kong.
    
    In February 2008, we were awarded contract for the provision of payphone service at the
Hong Kong International Airport.
 
 13




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##### Table of Contents




    
    In September 2008, we launched the National Geographic Channels first ever Interactive Channel.
    
    In June 2009, we launched the first Online Broadband Service Registration Platform in Hong Kong.
    
    In July 2009, we were awarded the 2009 Hong Kong Management Association Quality Award  Bronze.
    
    In November 2009, we accepted the Innovation in Recruitment award and Champion of HR
award at the Hong Kong HRM Awards 2009.
 B. Business overview
 Principal Activities
   For the year ended August 31,2008
    
    
    2009HK$
    
    
    HK$(Amounts in thousands)RevenueFTNS business
    
    
    1,011,038
    
    
    
    1,230,880IDD business
    
    
    291,943
    
    
    
    247,359Total operating revenue
    
    
    1,302,981
    
    
    
    1,478,239
 
    
    FTNS business.Our FTNS business involves the provision of fixed telecommunications
network services through our self-owned Next Generation Network. Such services include the
following:
 -
    
    high-speed broadband Internet access services at symmetric upstream and
downstream access speeds of 25 Mbps to 1,000 Mbps;-
    
    fixed line local telephony services using VoIP technology;-
    
    pay television services consisting of more than 80 channels, including
self-produced news, childrens programming, international drama, movies and
documentary and local interest programming, using our IP platform; and-
    
    corporate data services, including the provision of dedicated bandwidth to
corporate customers.
  
    
    IDD business.Our IDD business involves the provision of international
telecommunications services. Such services include direct dial services, international
calling cards and mobile call forwarding services in Hong Kong and Canada. As of August 31,
2009, the customer base for our total international telecommunications services consisted
of approximately 2.4 million registered accounts.
 Strategy and Competitive Strengths
   
    
    Focus on the Residential Mass and Small-To-Medium Corporate and Enterprise Market
Segments.We focus on offering high-bandwidth services to the residential mass and
small-to-medium enterprise markets in Hong Kong, which we believe have significant growth
potential. We price our services attractively on a value-for-bandwidth basis and at the
same time offer bandwidth advantages over comparable service offerings by our competitors.
Our IP-TV services focus on the residential mass market by providing Chinese-language
content that targets the Chinese-speaking population of Hong Kong. We have also
strengthened our English language contents over the past year to increase our
competitiveness by adding National Geographic, AXN, Bloomberg and other channels. Our focus
on the residential mass and small-to-medium corporate and enterprise markets has enabled us
to quickly grow our subscription base, and we believe this will help us to up-sell our
services.
    
    Leading-Edge Next Generation Network.We believe our self-owned Next Generation Network,
a fiber-based backbone, gives us an inherent cost and performance advantage over our
competitors. The high capacity of this network has enabled us to offer a suite of services
on a single IP network platform. This IP platform is highly scalable, enabling us
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to offer broadband Internet access, local VoIP, IP-TV and corporate data services over a
single network. It is also capable of providing up to 1,000 Mbps symmetric broadband
Internet access. Whereas our competitors are on a linear improvement path, we can upgrade
our fiber based services logarithmically from 100Mbps to 1,000Mbps on our existing passive
fiber infrastructure which existing technology cannot accomplish using legacy telephone
lines.
 
    
    First Mover Advantage and High Barriers to Entry.Despite the intense competition in the
Hong Kong telecommunications industry, the inherent characteristics of the fixed line
telecommunications market create a high entry barrier. Accordingly, we believe that our
Next Generation Networks current coverage of 1.6 million residential homes pass,
substantially all in densely populated areas, gives us a first mover advantage over our
competitors. Competitors who want to replicate our business model to provide a full
coverage network that includes remote and difficult-to-reach areas of Hong Kong may
encounter technological difficulties. Attempting to deploy Metro Ethernet technology in
such locations would significantly increase costs and completion time of such a network.
While other telecommunications operators may lay their own fiber-to-the-building, we
believe some would encounter significant in-building bottlenecks when attempting to
complete an end-to-end network. This is because a majority of Hong Kongs residential
properties have limited space for in-building wiring leading to subscribers residences,
making it difficult for new entrants to replicate our end-to-end network build.
 Recent Development
 Update on Fixed Mobile Interconnection Charge
  Buyback of 10-year Senior Notes
  Our Services
 Fixed telecommunications network services
   As of August 31,2007
    
    
    2008
    
    
    2009Broadband Internet access
    
    
    247,000
    
    
    
    316,000
    
    
    
    391,000Local VoIP
    
    
    308,000
    
    
    
    329,000
    
    
    
    382,000IP-TV
    
    
    128,000
    
    
    
    156,000
    
    
    
    170,000Total FTNS subscriptions
    
    
    683,000
    
    
    
    801,000
    
    
    
    943,000
 Broadband Internet Access
 
    
    Scope of service.Our broadband Internet access services in Hong Kong are offered
through HKBN. We currently offer our residential and corporate customers broadband
Internet access speeds of up to 1,000 Mbps, but the majority of our customers currently
have access speeds between 25 Mbps and 100 Mbps. We also offer Fiber-to-the-Home, or
FTTH, broadband service for 100 Mbps, 200 Mbps and 1,000 Mbps. Rather than using
Category-5e copper wiring for the last mile, optical fiber is used in FTTH broadband
service. Currently, all of our broadband Internet access packages include free e-mail and
for additional charges, offer customers for a variety of value added services, such as
bbDrive, an on-line virtual hard drive with up to 10Gb of storage; bbGuard, an
anti-spam and anti-virus package; and bbWatch, a full-screen IP-TV service that is
viewed with a desktop or laptop computer; bbWi-Fi, a service in which subscribers can
have wireless Internet access through more than 2,000 hotspots; and getFAXEASY, a
service in which subscribers can simply receive fax by their email address in Hong Kong
and worldwide. A unique fax number is assigned to each subscriber. We frequently alter our
promotions in response to changing market conditions or as a way of attracting additional
subscribers.
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
    
    Pricing.We currently offer broadband service for
bb25, bb50, bb100, FiberHome200 and FiberHome1000 at monthly fees ranging from HK$99 to HK$1,688 for
unlimited service access. On November 1, 2009, we launched our Member-Get-Member series
of marketing programs. Under this series, our existing customers may refer a new customer
to use our broadband Internet Access services and both will enjoy access to our bb100
services for HK$99 per month. Our strategy is to reduce the market price to a more
affordable level such that customers can focus on quality. When our broadband service
becomes more affordable, we believe that our customers will not change their provider
merely for a lower price.In addition to the residential packages described above, we have also developed broadband
promotions that target corporate customers. We offer prepackaged plans that provide access
at speeds of up to 1,000 Mbps. Corporate customers that subscribe to prepackaged plans pay
fixed monthly subscription fees ranging from HK$128 to HK$24,000. Our prepackaged plans
include on-site training, on-site maintenance support, high capacity data transfer and
e-mail services.
    
    Competition.There have been many new entrants to the Internet access business, but our
main competitors are PCCW-HKT, i-Cable and HGC. PCCW-HKT has been offering broadband
Internet access services since May 1998 and mainly uses asymmetric digital subscriber line
technology, or ADSL, over its telephone network to provide asymmetric Internet access at
speeds up to 6 Mbps/8 Mbps downstream and 640 Kbps/800 Kbps upstream. In November 2007,
PCCW-HKT announced the provision of 100 Mbps and 1,000 Mbps fiber direct broadband
Internet access service to two-thirds of Hong Kongs households. i-Cable began providing
broadband Internet access services in March 2000 using its hybrid fiber coaxial network
that provides symmetric typical access speeds up to 8 Mbps shared by a cluster of
buildings. HGC predominantly uses VDSL technology and typically provides access speeds up
to 100 Mbps.Our main competitors have been in operation longer and may have greater market presence,
brand recognition and more financial, technical and personnel resources. In addition,
they may have greater network coverage in terms of number of homes pass.
    
    Market share.We had approximately 391,000 broadband Internet access subscriptions as
at August 31, 2009, which represented a market share of approximately 20% with respect to
the total number of broadband Internet access subscribers in Hong Kong.
 Local VoIP
 
    
    Scope of service.We offer our on-network local VoIP services in Hong Kong by installing
IP-based voice switching equipment in locations covered by our Next Generation Network.
Voice signals are transmitted through our Ethernet network by the VoIP switches installed
in the subscribers building. The quality of our local VoIP
service is comparable to traditional fixed line local telephony services, and customers are able to use their
existing telephone equipment. In addition, with portability of fixed line numbers, fixed
line telephony subscribers switching to our local VoIP services are able to retain their
existing local telephone number.We also offer hardware-based off-network local VoIP services, or Broadband Phone
services, via the broadband network of other operators. In October 2005, we launched our
global software-based VoIP services under the brand 2b. This service is primarily
targeted at the overseas Chinese community, which we believe will enable us to access a
wider addressable market with higher tariff compared to the Hong Kong market. For HK$98 per
month, 2b provides broadband users around the world with a standard Hong Kong 8-digit
fixed line number to make and receive unlimited calls to/from Hong Kong. Moreover, we offer
a full range of value added services, including call waiting, voice mail and conference
call features.
    
    Pricing.We currently charge HK$118 per month, on standalone basis, for our local VoIP
services depending on the service plan, and we offer a full range of value added services,
including call waiting, caller display and conference call services.
    
    Competition.PCCW-HKT is the incumbent and largest fixed telecommunications network
operator in Hong Kong. Based on public information, PCCW-HKT had a market share of
approximately 70% with respect to local telephony services as of June 30, 2009. The
remainder of the market is shared among ourselves and three other alternative carriers:
HGC, New World and Wharf T&T. The principal basis of competition for local telephony is
price and brand name recognition. PCCW-HKT has the highest brand name recognition, but we
and the other operators are contending by offering competitively priced local telephony
services that provide comparable quality to PCCW-HKT.
    
    Market share.As of August 31, 2009, we had 382,000 local VoIP subscriptions. Our market
share with respect to local residential telephony services was approximately 20% as of
August 31, 2009.
 IP-TV
 
    
    Scope of service.Our IP-TV services began in August 2003 and include the provision of
standard definition and high definition video via our Next Generation Network to an IP
set-top-box connected to the subscribers television set. In May 2007, we renamed our IP-TV
services as bbTV. bbTV currently consists of 80 channels, including a self-produced
24-hour news channel and education and recreation channels (including childrens
programming) and channels whose content is obtained from other content-providers. Since the
launch of our IP-TV services in August 2003, we have progressively adjusted our content
offerings and valued added components of the services. We consider our IP-TV to be an
incremental component of our broadband and VoIP service offerings, rather than a large
standalone business.
    
    Pricing.We currently charge HK$168 per month for this subscription-based pay television
service. Because of the scalability of our Next Generation Network infrastructure, the
current cost of adding IP-TV services to an existing broadband Internet access or local
VoIP subscriber is small.
 16




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
    
    Competition.Our two main competitors in the pay-television business are i-Cable and
PCCW-HKT. The pay-television services of i-Cable and PCCW-HKT include a significant amount
of exclusive contents, such as English Premier League Football until June 2010, HBO,
Cinemax, ESPN and others. We target a different market than these competitors by offering
predominantly Chinese language contents and attractive pricing, both of which we consider
critical for successful penetration in the residential mass market. We have also
strengthened our English language contents over the past year to increase our
competitiveness by adding National Geographic, AXN, Bloomberg and other channels.TVB and ATV are indirect competitors of our pay-TV services. TVB and ATV account for a
substantial proportion of Hong Kongs television viewership and we market our services as
supplemental to theirs. Because TVB and ATV offer primarily subscription-free television
services supported by advertising revenues, we expect that their programming is designed to
attract the widest possible audience. In contrast, we and the other pay-TV operators rely
on monthly subscription fees for most of our revenues. Other competitors include satellite
TV operators, such as Star TV, as well as potential competition from direct-to-home
broadcasters and broadcasters using digital terrestrial delivery methods.
    
    Market share. As of August 31, 2009, we had 170,000 subscriptions representing
approximately 7% of the total pay-television subscription base in Hong Kong
 International telecommunications services
 
    
    Scope of services.We began providing international telecommunications services in 1992
and were among the first companies to be granted a PNETS License. Our international
telecommunications services are offered to our FTNS business customers via our Next
Generation Network and to other carriers customers via indirect access. Indirect access
allows any pre-registered telecom user in Hong Kong to access our services via our two
primary access codes 1666 and 0030. By dialing our access code, our registered customers
can access any destination in the world through our network, by paying us a usage charge.We have greatly expanded our range of services over the years to include a variety of
international direct dial services at competitive rates. We believe that our ability to
deliver a range of calling plans with varying features that cater to different customer
needs has been one of the key factors of our success. We market our international
telecommunications services under the IDD 1666 and IDD 0030 brand names. These two brands
provide us with flexibility in our marketing strategies. The primary international
telecommunications services that we currently offer our customers are the following:
 Service
    
    DescriptionIDD 1666
    
    Provides subscribers with international
direct dial using the access code 1666 in
Hong Kong.IDD 0030
    
    Provides subscribers with international
direct dial using the access code 0030 in
Hong Kong.Mobile call forwarding services
    
    Allows call forwarding of Hong Kong mobile
numbers to any overseas telephone number
so that subscribers can receive calls
while in overseas.
 
    
    Pricing.We charge our IDD 1666 and IDD 0030 users a per minute tariff rate that varies
according to the destination of the call and the calling prefix, with discounts depending on
the time of day or day of the week when the call is placed as well as monthly plans. To
maintain our market share in a market segment with increasingly intense competition, we have
significantly reduced some of our international telecommunications rates and introduce new
marketing and promotional offers from time to time. To offset the effects of these price
reductions, we have taken steps to reduce our cost base, such as using our relatively large
traffic volume to negotiate lower prices from our international partners, establishing a
call center in Guangzhou to provide customer service and back office support services, and
developing our own international telecommunications infrastructure. Our employment of two
separate brand names, IDD 1666 and IDD 0030, also provide us with flexibility in our
marketing strategies.
    
    Competition.PCCW-HKT, HGC, New World, and Wharf T&T are our main competitors in the
international telecommunications business. As in previous years, we experienced fierce price
competition in Hong Kong during fiscal 2009. This competition drove down the average tariff
rates per minute and we expect this price competition to continue in fiscal 2010.Further, technology substitution from global VoIP providers such as Skype, which offers
free PC-to-PC based international calls, is becoming more prevalent.
    
    Market share.We experienced a reduction in total traffic volume of 12.9% to 574 million
minutes in fiscal 2008 and a further reduction of 15.2% to 487 million minutes in fiscal
2009. The continuing reduction in traffic volume was mainly due to intense competition as
some of our integrated competitors offered free or very low cost international direct dial
minutes as a customer incentive to gain local fixed line and mobile market share.
 Our network infrastructure
 Fixed telecommunications network
  17




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##### Table of Contents



International telecommunications network
  
    
    Undersea cables. In March 2002, we received our license to provide undersea cable-based
FTNS. This license allows us to purchase and operate our own undersea cables. In 2000, we
entered into contracts with two large consortia of international telecommunications
companies to acquire undersea cable capacity. Pursuant to the first contract, we completed
the construction of a Japan-U.S. undersea cable in August 2001. Pursuant to the second
contract, we agreed to jointly construct and maintain the Asia-Pacific Cable Network 2
undersea cable as an international transmission facility. Construction of the cable was
completed in May 2002, and commercial operation began immediately thereafter. We spent a
total of HK$120 million on these two projects. We believe the utilization of these undersea
cables provides capacity for significant future growth of our international and
fixed-network telecommunications services.Having our own undersea cables and our fiber-based backbone have enabled us to better
control international transmission quality, reduce the costs associated with international
transmission and reduce our reliance on third party infrastructure. Our international
telecommunications network currently has a monthly handling capacity of approximately 140
million minutes. We believe that the continuing improvement of our international
telecommunications network is important in supporting the growth of our subscription base
and the expansion of our range of services.
 
    
    Interconnection arrangements.We have entered into interconnection arrangements with
other local fixed network operators in Hong Kong and overseas carriers to transmit calls
between Hong Kong and overseas destinations for our customers. We take into account a
number of factors in choosing the local fixed network operators and overseas carriers with
whom we cooperate, including the level of termination charges and transmission efficiency
and quality. We evaluate the performance of parties with whom we have interconnection
arrangements periodically. We believe that we will not have difficulty in finding
alternative overseas carriers if performance standards are not being met or a change is
otherwise necessary. We have not experienced any disruption in the provision of our
services as a result of a change of arrangements with overseas carriers or local fixed
network operators.We pay a fixed monthly fee to local fixed network operators for connection between our
switches and their networks and a variable access fee payable on a per-minute basis when
accessing their network. For customers using our own network, no interconnection fee is
charged. We negotiate the termination charges we pay with the overseas carriers, and the
termination charges vary from one overseas carrier to another. All of the interconnection
and termination charges we pay to local fixed network operators and overseas carriers,
respectively, are made on an open account basis with credit terms ranging from 10 to 30
days. The interconnection charges we pay to local fixed network operators are denominated
in Hong Kong dollars and substantially all the interconnection charges we pay to overseas
carriers are denominated in U.S. dollars.
 18




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##### Table of Contents




    
    International telecommunications switching systems.We own five international
telecommunications switching systems: three in Hong Kong and two in Canada, one in
Vancouver and one in Toronto.Our three international telecommunications switching systems in Hong Kong handle telephone
calls originating or terminating in Hong Kong as well as transit traffic. Our
telecommunications network mainly consists of switching equipment by Nortel Networks
Limited and compression units supplied Cisco Systems, Inc. and ECI Telecom Ltd. These
systems are programmed to automatically choose the optimal routing for each transmission.
Optimal routing is a function of a variety of factors, such as country or territory of
origination and destination, communication quality, efficiency and costs, and the capacity
of the various communication methods available.Because our three international telecommunications switching systems in Hong Kong operate
independently of each other, if one system breaks down, all transmissions are immediately
diverted to another switching system. We have never experienced a period where all systems
experienced a failure at the same time since we commenced operations in 1992.
 Sales and marketing
     Maintenance and monitoring
  
    
    two separate network operation centers in two different locations operate 24 hours a
day, 7 days a week, network operation center providing real-time service monitoring and
maintenance services and supported by about 130 operational and field staff;
    
    individual self-reporting mechanisms and centralized performance monitoring systems for
our switches and equipment;
    
    an emergency self-reporting system that automatically contacts designated personnel; and
    
    back-up systems for our switches, critical software and hardware components.
  Research and development activities
  Customer service
   19




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##### Table of Contents



Billing and collection
   Seasonality
  Environmental matters
  Intellectual property rights
  C. Regulatory framework
 The following is a brief summary of the Hong Kong laws and regulations that currently
materially affect our business. This section does not purport to be a comprehensive summary of all
present and proposed regulations and legislation relating to the industries in which we operate.
   Telecommunications industry
 Licensing
    20




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##### Table of Contents



General Licensing Requirements
   Public Non-Exclusive Telecommunications Services License
     FTNS License
  -
    
    to provide a public fixed telecommunications network service, covering internal services or external services, or both; and-
    
    to establish and maintain a fixed telecommunications network, which may be wireline-based or wireless-based (Wi-Fi
spectrum included), or a combination of both.
   Interconnection
  21




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Competition provisions
 Regulation of anti-competitive conduct
   Control on mergers and acquisitions
   Consumer protection
    Regulation of pricing
    22




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Universal service contribution and local access charge
     Fixed mobile interconnection charge
    Television broadcasting industry
  Licensing
  23




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Cross media ownership restrictions
    Foreign ownership restrictions
  Competition provisions
    Program standards and advertising standards
  
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##### Table of Contents



D. Organizational structure
  
 City Telecom (H.K.) Limited (1)
(Hong Kong)
CTI Guangzhou Customer
Services Company Limited (2)
(Peoples Republic of China)
Automedia Holdings Limited (3)
(British Virgin Islands)
City Telecom
International Limited
(British Virgin Islands)
Hong Kong Broadband
Network Limited (4)
(Hong Kong)
Credibility Holdings Limited
(British Virgin Islands)
IDD1600 Company Limited
(Hong Kong)
CTI Marketing Company Limited
(Hong Kong)
City Telecom (Canada) Inc.
(Canada)
963673 Ontario Limited
(Canada)
City Telecom Inc.
(Canada)
City Telecom (B.C.) Inc.
(Canada) 
 Notes:(1)
    
    The other immediate subsidiaries of City Telecom (H.K.) Limited are SGBN Singapore Broadband
Network Pte. Limited and Golden Trinity Holdings Limited. The immediate subsidiaries of Golden
Trinity Holdings Limited are Warwick Gold Enterprises Limited and Attitude Holdings Limited.(2)
    
    The Company has only registered its Chinese name. The English name is an unregistered
translation.(3)
    
    The other immediate subsidiaries of Automedia Holdings Limited are Global Courier Company
Limited, CTI International Limited, BBTV Company Limited, City Telecom (U.S.A.) Inc., City
Telecom (Vancouver) Inc. and City Telecom (Toronto) Inc.(4)
    
    The immediate subsidiaries of Hong Kong Broadband Network Limited are Excel Billion Profits
Limited, Hong Kong Television Network Limited, Hong Kong Broadband Television Company Limited,
Hong Kong Broadband Phone Limited and Hong Kong Broadband Digital TV Limited. 25




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##### Table of Contents



Percentage of interestheld by City TelecomJurisdiction of
    
    Direct
    
    
    IndirectName
    
    incorporation
    
    %
    
    
    %963673 Ontario Limited
    
    Canada
    
    
    
    
    
    
    100Attitude Holdings Limited
    
    British Virgin Islands
    
    
    
    
    
    
    100Automedia Holdings Limited
    
    British Virgin Islands
    
    
    100
    
    
    BBTV Company Limited
    
    Hong Kong
    
    
    
    
    
    
    100City Telecom (B.C.) Inc.
    
    Canada
    
    
    
    
    
    
    100City Telecom (Canada) Inc.
    
    Canada
    
    
    
    
    
    
    100City Telecom (Toronto) Inc.
    
    Canada
    
    
    
    
    
    
    100City Telecom (U.S.A.) Inc.
    
    United States
of America
    
    
    
    
    
    
    100City Telecom (Vancouver) Inc.
    
    Canada
    
    
    
    
    
    
    100City Telecom Inc.
    
    Canada
    
    
    
    
    
    
    100City Telecom International Limited
    
    British Virgin Islands
    
    
    100
    
    
    Credibility Holdings Limited
    
    British Virgin Islands
    
    
    100
    
    
    CTI Guangzhou Customer 
     Services Company Limited (note)
    
    Peoples
Republic of China
    
    
    100
    
    
    CTI International Limited
    
    Hong Kong
    
    
    
    
    
    
    100CTI Marketing Company Limited
    
    Hong Kong
    
    
    
    
    
    
    100Excel Billion Profits Limited
    
    Hong Kong
    
    
    
    
    
    
    100Global Courier Company Limited
    
    Hong Kong
    
    
    
    
    
    
    100Golden Trinity Holdings Limited
    
    British Virgin Islands
    
    
    100
    
    
    Hong Kong Broadband Digital TV Limited
    
    Hong Kong
    
    
    
    
    
    
    100Hong Kong Broadband Network Limited
    
    Hong Kong
    
    
    
    
    
    
    100Hong Kong Broadband Phone Limited
    
    Hong Kong
    
    
    
    
    
    
    100Hong Kong Broadband Television Company Limited
    
    Hong Kong
    
    
    
    
    
    
    100Hong Kong Television Network Limited
    
    Hong Kong
    
    
    
    
    
    
    100IDD1600 Company Limited
    
    Hong Kong
    
    
    
    
    
    
    100SGBN Singapore Broadband Network Pte. Limited
    
    Singapore
    
    
    100
    
    
    Warwick Gold Enterprises Limited
    
    Hong Kong
    
    
    
    
    
    
    100
 
  
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##### Table of Contents



E. Property, plant and equipment
     
 Item 5 Operating and financial review and prospects
 You should read the following discussion together with the rest of this annual report,
including the consolidated financial statements and related notes included elsewhere in this annual
report. The results discussed below are not necessarily indicative of the results to be expected in
any future periods. Since these are our first consolidated financial statements prepared in
accordance with IFRSs, pursuant to the transitional relief granted by the SEC in respect of the
first-time application of IFRSs, the following is limited to a discussion of our financial condition
and results of operations for the years ended August 31, 2009 and 2008, and no comparative
information for the year ended August 31, 2007 have been included. For further details, please see
Special Note on Our Financial Information Presented in This Annual Report above.
 Overview
  A. Factors affecting our results of operations
 Our revenues
  
    
    FTNS business.Revenues from our FTNS business primarily consist of monthly service
charges payable by our subscribers and interconnection charges payable by other
telecommunications operators.
 -
    
    Monthly service charges.We charge our subscribers a monthly service charge,
which generally varies by the number and nature of the fixed telecommunications network
services subscribed. Our strategy is to market additional services to our subscribers
by leveraging our broadband Internet access subscription base of 391,000 as of August
31, 2009 and the scalability of our Next Generation Network.-
    
    Interconnection charges.We offer fixed telecommunications network services
through our self-owned Next Generation Network. Under the terms of HKBNs fixed
telecommunications network services license, we are required to provide interconnection
services to other network operators, including mobile network operators. Because
certain local mobile network operators disagreed with the level of interconnection
charges computed by us, certain amount of these charges had not been collected as of
August 31, 2009.
 
    
    IDD business.Substantially all of revenues from our IDD business consists of tariffs,
which generally varies by the destination of the call and the calling prefix, with
discounts depending on the time of day or day of the week when the call is placed.
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##### Table of Contents



Our operating expenses
  
    
    Network costs.Network costs vary according to either our network capacity or our
traffic volume. Such costs mainly include leased line rentals, program fees and production
costs for our IP-TV services and interconnection charges payable to other local fixed
network operators and international bandwidth providers. Network costs do not include
depreciation charge, which is included in other operating expenses.
    
    Other operating expenses.Other operating expenses mainly consist of staff costs,
advertising and marketing expenses, depreciation of owned fixed assets.
 -
    
    Staff costs. Salaries and related costs incurred for services rendered by
employees.-
    
    Advertising and marketing expenses.Due to our efforts in promoting our FTNS
services, our advertising and marketing expenses incurred in connection with
subscription acquisition activities have been relatively high. We expect that we will
be required to continue to invest significant financial and human resources in our
sales and marketing efforts as we strive to build our subscription base and to enhance
our brand value.-
    
    Depreciation.Depreciation is calculated to write off the cost of fixed assets
less their estimated residual value, if any, using straight line method over their
estimated useful lives. We expect that we will continue to invest in our Next
Generation Network to expand our network coverage. In addition, any technological
advancement or obsolescence might affect the estimated useful lives of our fixed
assets.
 Critical accounting policies
 The following discussion and analysis is based on our consolidated financial statements, which
have been prepared in accordance with IFRSs for the fiscal years ended August 31, 2008 and 2009.
Our significant accounting policies are more fully described in note 1 to our consolidated
financial statements.
    Revenue recognition
    
 28




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##### Table of Contents




    
    The amount recognized for fiscal 2004 and before was determined using the available rates
under the then-existing calculation model (fully distributed cost model) for
interconnection service between fixed and mobile operators, which are based on historical
cost data of PCCW-HKT Telephone Limited. In May 2004, the Telecommunications Authority
confirmed that mobile network operators are obliged to pay interconnection charges to us in
accordance with the charging principles promulgated by the Telecommunications Authority. A
number of mobile network operators, however, disputed the basis of our calculation. In
August 2004, we requested the Telecommunications Authority to make a determination (the
2004 Determination) on the level of mobile interconnection charges payable by one of the
mobile network operators to us and the effective date of the determined mobile
interconnection charges.
    
    The amount recognized in fiscal 2005 reflected a discount from the amounts billed which
was determined based on our assessment of the range of likely outcomes of the 2004
Determination. In November 2005, we entered into contractual agreements with one of the
mobile network operators who agreed to pay interim mobile interconnection charges at a rate
based on PCCW-HKTs published fully distributed cost model of HK$0.0436 per occupancy
minute until the Telecommunications Authority issued its final ruling.
    
    The amount recognized in fiscal 2006 was based on the preliminary rates published by the
Telecommunications Authority in March 2006 as we awaited a final ruling by the
Telecommunications Authority on the 2004 Determination.
    
    The amount recognized in fiscal 2007 was based on the 2004 Determination issued by the
Telecommunications Authority in June 2007, which set out the rates of mobile
interconnection charge payable by the mobile operator under dispute for interconnection
services provided by us for the period from April 1, 2002 to August 31, 2004.
    
    The amount recognized in fiscal 2008 was based also on the 2004 Determination issued by
the Telecommunications Authority in June 2007. In February 2008, we requested the
Telecommunications Authority to make a new determination with four mobile operators on the
rates of mobile interconnection charge and interest thereon. We subsequently entered into
contractual agreements with some of these mobile operators, which agreed to pay mobile
interconnection charges based on the 2004 Determination for the period from April 1, 2002
to August 31, 2004 and with respect to the period after August 31, 2004 at the interim
rates stated in the agreements, which will be adjusted based on further determination to be
issued by the Telecommunications Authority.
    
    The amount recognized in fiscal 2009 was based also on the 2004 Determination issued by
the Telecommunications Authority in June 2007. In September 2008, the Telecommunications
Authority indicated that it accepted our request for determination on the rate of mobile
interconnection charge for the period from April 1, 2002 to April 26, 2009 payable by the
mobile operators that have not reached contractual agreements with us, and the rate for
period from September 1, 2004 to April 26, 2009 payable by those mobile operators that have
reached contractual agreements with us and the interest thereon (the 2008 Determination).
On November 25, 2009, the Telecommunications Authority issued a Preliminary Analysis in relation to the 2008 Determination. As of December 15, 2009, the 2008 Determination is still in process.
  Useful lives of fixed assets
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Impairment of fixed assets
     Accounts receivable
    For the year ended August 31,2008
    
    
    2009HK$
    
    
    HK$(Amounts in thousands)Balance at beginning of the year
    
    
    22,392
    
    
    
    11,944Additions charged to expense
    
    
    14,293
    
    
    
    12,103Write-off
    
    
    (24,741
    )
    
    
    (20,887
    )Balance at the end of the year
    
    
    11,944
    
    
    
    3,160
 Deferred taxation
  30




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USC charges
   Operating Results
  For the year ended August 31,2008
    
    
    2009
    
    
    2009HK$
    
    
    HK$
    
    
    US$(Amounts in thousands)RevenueFTNS business
    
    
    1,011,038
    
    
    
    1,230,880
    
    
    
    158,813IDD business
    
    
    291,943
    
    
    
    247,359
    
    
    
    31,9151,302,981
    
    
    
    1,478,239
    
    
    
    190,728Network costs
    
    
    (178,367
    )
    
    
    (175,129
    )
    
    
    (22,596
    )Other operating expenses
    
    
    (966,094
    )
    
    
    (1,037,964
    )
    
    
    (133,922
    )Other revenues
    
    
    24,989
    
    
    
    41,540
    
    
    
    5,359Finance costs
    
    
    (75,137
    )
    
    
    (55,127
    )
    
    
    (7,112
    )Profit before taxation
    
    
    108,372
    
    
    
    251,559
    
    
    
    32,457Income taxes benefit/(expense)
    
    
    16,818
    
    
    
    (38,730
    )
    
    
    (4,997
    )Net income
    
    
    125,190
    
    
    
    212,829
    
    
    
    27,460
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##### Table of Contents



Fiscal 2009 Compared to Fiscal 2008
 Revenues.
 
    
    FTNS business.Revenues from our FTNS business increased by 21.8% to HK$1,230.9 million
in fiscal 2009 from HK$1,011.0 million in fiscal 2008. The increase was primarily caused by
an increase of 17.7% of our FTNS subscription base to 943,000 as of August 31, 2009 from
801,000 as of August 31, 2008 and, to a lesser extent, an increase in the average revenue
per user for our Internet access services. We believe that there was growing market
acceptance of premium pricing in fiscal 2009.
 o
    
    Broadband Internet access.The subscription base for our Internet access
services increased by 23.7%, to 391,000 as of August 31, 2009 from 316,000 as of
August 31, 2008. During fiscal 2009, partly as a result of our success in
differentiating our services by emphasizing our ultra high Internet access speed, we
were able to acquire and retain customers who are willing to enter into subscription
contracts with a long service period. Revenues from our Internet access services
increased as a result.o
    
    Local VoIP.The subscription base for our local VoIP services rose by 16.1%, to
382,000 as of August 31, 2009 from 329,000 as of August 31, 2008, mainly due to
improved branding and our greater success in cross selling our VoIP services to
subscribers of our Internet access services.o
    
    IP-TV.The subscription base for our IP-TV services increased by 9.0% to
170,000 subscriptions, with the majority of the new subscriptions coming from existing
subscribers of our Internet access and local VoIP services.
 Also as included in revenue from our FTNS business were mobile interconnection charges of
HK$20.6 million in fiscal 2009. The mobile interconnection charges in fiscal 2009 decreased
by 30.5% compared to fiscal 2008 due to the withdrawal of regulatory guidance on FMIC in
favor of Mobile Partys Network Pay on April 26, 2009. Prior to April 26, 2009, the mobile
network operators were required to pay interconnection charges for all calls originating to
and from the mobile users. After April 26, 2009, the chargeability of interconnection
charges is subject to commercial negotiation.
    
    IDD business.Revenues from our IDD business decreased by 15.3% to HK$247.4 million in
fiscal 2009 from HK$292.0 million in fiscal 2008. The decrease was primarily due to the
reduction in IDD traffic volume. Competition during the fiscal year was intense as some of
our integrated competitors offered international direct dial minutes for free or at very
low cost as a marketing incentive to gain local fixed line and mobile market shares.
Further, technology from global VoIP providers such as Skype, which offer free PC-to-PC
based international calls, was also becoming more prevalent.
 Network costs.
 Other operating expenses.
  For the year ended August 31,2008
    
    
    2009
    
    
    2009HK$
    
    
    HK$
    
    
    US$(Amounts in thousands)Staff costs
    
    
    (247,460
    )
    
    
    (302,279
    )
    
    
    (39,001
    )Advertising and marketing expenses
    
    
    (307,743
    )
    
    
    (299,794
    )
    
    
    (38,681
    )Depreciation
    
    
    (210,051
    )
    
    
    (206,241
    )
    
    
    (26,610
    )Others
    
    
    (200,840
    )
    
    
    (229,650
    )
    
    
    (29,630
    )Other operating expenses
    
    
    (966,094
    )
    
    
    (1,037,964
    )
    
    
    (133,922
    )
 
    
    Staff costs.Staff costs increased by 22.1% to HK$302.3 million in fiscal 2009 from
HK$247.5 in fiscal 2008. We increased our total work force by 4.0% to 3,173 employees
as of August 31, 2009 from 3,051 employees as of August 31, 2008, primarily due to the
increased scale of operations in our FTNS business and the increasing scope in
investing and developing our talents through staff education partnership and talent
infinity program.
    
    Advertising and marketing expenses.Advertising and marketing expenses decreased by
2.6% to HK$299.8 million in fiscal 2009 from HK$307.7 million in fiscal 2008. Our
salaries and commissions for our sales and marketing
 32




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##### Table of Contents



employees were increased by
HK$19.5 million due to increases in total contract sum from substantial growth in
subscription base. Moreover, our opening of more new shops caused shop related
operating costs increased by HK$11.4 million. The effects of the foregoing, however,
were partially offset by a decrease in mass media advertising costs of HK$34.4 million.
    
    Depreciation.Depreciation decreased by 1.9% to HK$206.2 million in fiscal 2009.
Notwithstanding our purchase of additional fixed assets for our network infrastructure
as we increased the scale of operations in our FTNS business, a portion of our owned
fixed assets were fully depreciated and a lower depreciation expenses was incurred as a
result.
 Other revenues.
 Finance costs.
 Income tax benefit/(expense).
 Net income.
 Recent accounting pronouncements
  B. Liquidity and capital resources
   Cash flow
  For the year ended August 31,2008
    
    
    2009
    
    
    2009HK$
    
    
    HK$
    
    
    US$(Amounts in thousands)Net cash inflow from operating activities
    
    
    378,563
    
    
    
    535,886
    
    
    
    69,142Net cash outflow from investing activities
    
    
    (147,750
    )
    
    
    (176,488
    )
    
    
    (22,771
    )Net cash outflow from financing activities
    
    
    (342,550
    )
    
    
    (560,407
    )
    
    
    (72,306
    )Decrease in cash and bank balances
    
    
    (111,737
    )
    
    
    (201,009
    )
    
    
    (25,935
    )Cash at bank and in hand, at the beginning of year
    
    
    532,894
    
    
    
    421,610
    
    
    
    54,398Effect of foreign exchange rate changes on cash
    
    
    453
    
    
    
    451
    
    
    
    58Cash at bank and in hand, at the end of the year
    
    
    421,610
    
    
    
    221,052
    
    
    
    28,521
 33




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##### Table of Contents



Operating activities
  Investing activities
   Financing activities
   Indebtedness
  10-year senior notes
     Banking facilities
  Capital expenditures
  34




---



##### Table of Contents



C. Research and development, patents and licenses
  D. Trend information
    E. Off-balance sheet arrangements
  F. Tabular disclosure of contractual obligations
  Payments due by periodMore than
    
    
    More than1 year
    
    
    3 yearsWithin
    
    
    but within
    
    
    but within
    
    
    More thanTotal
    
    
    1 year
    
    
    3 years
    
    
    5 years
    
    
    5 yearsContractual obligations
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$(Amounts in thousands)Capital expenditure items
    
    
    150,099
    
    
    
    150,099
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    96,381
    
    
    
    66,708
    
    
    
    19,284
    
    
    
    4,118
    
    
    
    6,27110-year senior notes
    
    
    244,117
    
    
    
    14,489
    
    
    
    28,978
    
    
    
    28,978
    
    
    
    171,672Obligation under finance leases
    
    
    820
    
    
    
    237
    
    
    
    320
    
    
    
    192
    
    
    
    71Other current liabilities
    
    
    262,420
    
    
    
    262,420
    
    
    
    
    
    
    
    
    
    
    
    Programming fees (IP-TV)
    
    
    15,332
    
    
    
    9,094
    
    
    
    6,238
    
    
    
    
    
    
    
    Total
    
    
    769,169
    
    
    
    503,047
    
    
    
    54,820
    
    
    
    33,288
    
    
    
    178,014
 
 Note:
    
    the other current liabilities of HK$262.4 million is comprised of accounts payable of HK$37.6
million, other payables and accrued charges of HK$206.5 million, deposits received of HK$16.4
million and tax payable of HK$1.9 million. A detailed explanation of the nature of accounts payable
and other payables and accrued charges is contained in Note 18 to the Companys audited
consolidated financial statements included in this Form 20-F. G. Safe Harbor
  35




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##### Table of Contents



Item 6 Directors, senior management and employees
 A. Directors and senior management
   Datejoined CityName
    
    Age
    
    Position
    
    TelecomBoard of directors:WONG Wai Kay, Ricky
    
    
    48
    
    
    Chairman
    
    
    1992CHEUNG Chi Kin, Paul
    
    
    52
    
    
    Vice Chairman
    
    
    1992YEUNG Chu Kwong, William
    
    
    49
    
    
    Executive Director and Chief Executive Officer
    
    
    2005LAI Ni Quiaque
    
    
    40
    
    
    Executive Director, Chief Financial Officer,
Company Secretary and Head of Talent Engagement
    
    
    2004CHENG Mo Chi, Moses
    
    
    59
    
    
    Non-Executive Director
    
    
    1997LEE Hon Ying, John
    
    
    63
    
    
    Independent Non-Executive Director
    
    
    1997CHAN Kin Man
    
    
    50
    
    
    Independent Non-Executive Director
    
    
    1997PEH Jefferson Tun Lu
    
    
    50
    
    
    Independent Non-Executive Director
    
    
    2004Senior management:CHONG Kin Chun, John
    
    
    47
    
    
    Managing Director of Corporate Division
    
    
    1996LO Sui Lun
    
    
    45
    
    
    Director of Corporate Affairs Department
    
    
    1998TAM Ming Chit
    
    
    44
    
    
    Chief Technology Officer
    
    
    2008TO Wai Bing
    
    
    47
    
    
    Managing Director of Business Development
    
    
    2007
 Executive directors
   36




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##### Table of Contents



Non-executive director
  Independent non-executive directors
    Senior management
  37




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##### Table of Contents



B. Compensation
 Directors and senior managements compensation
     C. Board practices
 Service contracts
  Controlled company exemption
  Audit committee
  38




---



##### Table of Contents




    
    overseeing the accounting and financial reporting process of the Company and the audits
of the Companys consolidated financial statements on behalf of the board of directors; and
    
    the appointment, compensation, retention and oversight of the work of the Companys
independent auditors (including resolution of disagreements between management and the
auditors regarding financial reporting) for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the Company.
   -
    
    Reviewed the Companys consolidated financial statements for the year ended August 31, 2008
and for the six months ended February 28, 2009;
 -
    
    Reviewed the internal audit progress, including the procedures required for the compliance
with the Sarbanes-Oxley Act;
 -
    
    Reviewed the external auditors report on the review of the Companys interim financial
report for the six months ended February 28, 2009 and the Companys audited consolidated
financial statements for the year ended August 31, 2008; and
 -
    
    Pre-approved the audit and non-audit services provided by KPMG, the Companys external
auditor.
 Remuneration committee
  -
    
    Establish formal, fair and transparent procedures for developing policy and structure of all
remuneration of directors and senior management.
 -
    
    Review and consider the Companys policy for remuneration of directors and senior management.-
    
    Recommend the remuneration packages of non-executive directors (including independent non-executive directors).
  -
    
    Reviewed and approved the proposed discretionary performance bonus for the management committee members;-
    
    Reviewed and approved the remuneration packages for management committee members; and-
    
    Reviewed and approved the remuneration for the directors.
 D. Employees
  EmployeesInformation technology and engineering
    
    
    437Sales and marketing, customer service
and Special Duty Unit, or SDU
    
    
    2,433General administration and others
    
    
    303Total
    
    
    3,173
  EmployeesHong Kong
    
    
    1,633Guangzhou
    
    
    1,520Canada
    
    
    20Total
    
    
    3,173
 39




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##### Table of Contents



E. Share ownership
 Share ownership
  Number
    
    
    Percentageof shares
    
    
    of shares
    
    
    OutstandingIdentity of person
    
    beneficially
    
    
    beneficially
    
    
    shareTitle of class
    
    or Group
    
    owned
    
    
    owned
    
    
    options(note 4)
    
    
    (note 3)%Ordinary shares
    
    Wong Wai Kay, Ricky
    
    346,959,573
(note 1)
    
    
    
    51.05
    
    
    
    8,091,604Ordinary shares
    
    Cheung Chi Kin, Paul
    
    382,100,443
(note 2)
    
    
    
    56.22
    
    
    
    8,091,604Ordinary shares
    
    Yeung Chu Kwong, William
    
    
    3,000,000
    
    
    Less than 1.0
    
    
    
    7,062,956Ordinary shares
    
    Lai Ni Quiaque
    
    
    10,392,506
    
    
    
    1.53
    
    
    
    8,067,690Ordinary shares
    
    Chong Kin Chun, John
    
    
    2,777,089
    
    
    Less than 1.0
    
    
    
    2,022,900Ordinary shares
    
    Lo Sui Lun
    
    Nil
    
    
    Nil
    
    
    
    2,022,901Ordinary shares
    
    Tam Ming Chit
    
    Nil
    
    
    Nil
    
    
    
    1,007,465Ordinary shares
    
    To Wai Bing
    
    Nil
    
    
    Nil
    
    
    
    1,007,465
 
 Notes:(1)
    
    Of the 346,959,573 shares, 339,814,284 shares are beneficially owned through Mr Wongs
42.12 % interest in Top Group International Limited, or Top Group, and 7,145,289 shares are
owned directly by Mr Wong.(2)
    
    Of the 382,100,443 shares, 339,814,284 shares are beneficially owned through Mr Cheungs
27.06% interest in Top Group, 17,361,820 shares are owned directly by Mr. Cheung and
24,924,339 shares are beneficially owned through Mr. Cheungs 50% interest in Worship Limited.(3)
    
    Percentage ownership is based on 679,594,047 shares issued as of December 15, 2009.(4)
    
    Beneficial ownership is determined in accordance with the rules of the SEC. 40




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##### Table of Contents



Item 6 Directors, senior management and employees (continued)
 Share ownership (continued)
  AdjustmentOptions
    
    
    
    to number
    
    
    Options
    
    
    OptionsBalance
    
    
    granted
    
    
    
    of options
    
    
    exercised
    
    
    cancelled/
    
    Balanceas at
    
    
    during
    
    
    
    for 2008
    
    
    during
    
    
    lapsed
    
    as atDate of
    
    Exercise
    
    January 9,
    
    
    the
    
    Exercise
    
    Final
    
    
    the
    
    
    during
    
    December 15,grant
    
    price
    
    2009
    
    
    period
    
    period
    
    dividend
    
    
    period
    
    
    the period
    
    2009(note 1)HK$DirectorsMr. Wong Wai
Kay, Ricky
    
    January 5,
2005
    
    1.5224
(note 4)
    
    
    8,053,478
    
    
    
    
    January 5,
2005 to
October 20,
2014
    
    
    38,126
    
    
    
    
    
    
    
    
    
    8,091,604May 22,
2006
    
    0.6523
(note 5)
    
    
    6,040,108
    
    
    
    
    May 22,
2007 to
May 21,
2016
    
    
    28,593
    
    
    
    6,068,701
    
    
    
    
    Mr. Cheung Chi
Kin, Paul
    
    January 5,
2005
    
    1.5224
(note 4)
    
    
    8,053,478
    
    
    
    
    January 5,
2005 to
October 20,
2014
    
    
    38,126
    
    
    
    
    
    
    
    
    
    8,091,604May 22,
2006
    
    0.6523
(note 5)
    
    
    6,040,108
    
    
    
    
    May 22,
2007 to
May 21,
2016
    
    
    28,593
    
    
    
    6,068,701
    
    
    
    
    Mr. Yeung Chu
Kwong, William
    
    May 22,
2006
    
    0.6523
(note 5)
    
    
    1,013,369
    
    
    
    
    May 22,
2007 to
May 21,
2016
    
    
    4,796
    
    
    
    
    
    
    
    
    
    1,018,165February 6,
2008
    
    1.7568
(note 6)
    
    
    6,016,309
    
    
    
    
    (note 2)
    
    
    28,482
    
    
    
    
    
    
    
    
    
    6,044,791Mr. Lai Ni
Quiaque
    
    May 22,
2006
    
    0.6523
(note 5)
    
    
    2,013,369
    
    
    
    
    May 22,
2007 to
May 21,
2016
    
    
    9,530
    
    
    
    
    
    
    
    
    
    2,022,899February 11,
2008
    
    1.8660
(note 7)
    
    
    6,016,309
    
    
    
    
    (note 3)
    
    
    28,482
    
    
    
    
    
    
    
    
    
    6,044,791Senior managementMr. Chong Kin
Chun, John
    
    October 21,
2004
    
    1.5224
(note 4)
    
    
    2,013,368
    
    
    
    
    January 1,
2005 to
October 20,
2014
    
    
    9,532
    
    
    
    
    
    
    
    
    
    2,022,900May 22,
2006
    
    0.6523
(note 5)
    
    
    503,342
    
    
    
    
    May 22,
2007 to
May 21,
2016
    
    
    2,383
    
    
    
    505,725
    
    
    
    
    Mr. Lo Sui Lun
    
    October 21,
2004
    
    1.5224
(note 4)
    
    
    503,343
    
    
    
    
    January 1,
2005 to
October 20,
2014
    
    
    2,383
    
    
    
    
    
    
    
    
    
    505,726May 22,
2006
    
    0.6523
(note 5)
    
    
    1,510,026
    
    
    
    
    May 22,
2007 to
May 21,
2016
    
    
    7,149
    
    
    
    
    
    
    
    
    
    1,517,175Dr. Tam Ming Chit
    
    May 2,
2008
    
    1.7866
(note 8)
    
    
    1,002,718
    
    
    
    
    (note 2)
    
    
    4,747
    
    
    
    
    
    
    
    
    
    1,007,465Ms. To Wai Bing
    
    February 15,
2008
    
    1.7568
(note 6)
    
    
    1,002,718
    
    
    
    
    (note 2)
    
    
    4,747
    
    
    
    
    
    
    
    
    
    1,007,465
 41




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##### Table of Contents



Item 6 Directors, senior management and employees (continued)
 Share ownership (continued)
 
 Notes:(1)
    
    As a result of allotment of 12,212,142 new shares to shareholders of the Company who elected
to receive the 2008 Final Dividend in shares on February 25, 2009, the exercise price of and
the number of share subject to the 60,299,426 share options outstanding on December 19, 2008
(being the Record Date for determining the entitlement of 2008 Final Dividend) were adjusted
pursuant to the 2002 Share Option Scheme with effect from February 25, 2009. The closing price
per share immediately before the date of the grant of the Options was HK$0.88.(2)
    
    The exercise of the Options is subject to certain conditions that must be achieved by the
grantees. The Options shall be exercised not later than December 23, 2012.(3)
    
    The exercise of the Options is subject to the performance of the Companys share. The Options
shall be exercised not later than December 23, 2012.(4)
    
    Exercise price of the share options was adjusted from HK$1.5297 to HK$1.5224 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).(5)
    
    Exercise price of the share options was adjusted from HK$0.6554 to HK$0.6523 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).(6)
    
    Exercise price of the share options was adjusted from HK$1.7652 to HK$1.7568 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).(7)
    
    Exercise price of the share options was adjusted from HK$1.8749 to HK$1.8660 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).(8)
    
    Exercise price of the share options was adjusted from HK$1.7951 to HK$1.7866 per ordinary
share as a result of our payment of the 2008 Final Dividend (see note 1).  Share Option Schemes
     42




---



##### Table of Contents



(a)
    
    the expiry date relevant to that option;(b)
    
    one month following the date a grantee ceases to be an eligible participant for any reason
other than death or termination of his relationship with us (or the relevant subsidiary, as
the case may be) on any of the grounds specified in (g) below;(c)
    
    12 months, or such longer period as the Board may determine, following the death of a grantee
whose relationship with us (or the relevant subsidiary, as the case may be) would not have
been terminated on any of the grounds specified in (g) below;(d)
    
    21 days following the date an effective resolution is passed for our voluntary winding-up;(e)
    
    subject to (d) above, the date of commencement of such winding-up;(f)
    
    the date on which any compromise or arrangement between us and our members or creditors in
connection with a scheme for our reconstruction or our amalgamation with any other company or
companies becomes effective;(g)
    
    the date on which the grantee ceases to be an eligible participant by reason of the
termination of his or her relationship with us or the relevant subsidiary on any one or more
of the grounds of serious misconduct or breach, bankruptcy, insolvency, composition with his
or her creditors or conviction of any criminal offence involving his or her integrity or
honesty or, in the case of a grantee-employee and if so determined by the Board, on any other
common law, statutory or contractual ground on which an employer would be entitled to
terminate such grantees employment;(h)
    
    14 days following the date a general offer (which has been made to shareholders by way of
take-over offer, share repurchase offer or scheme of arrangement or otherwise in like manner)
becomes, or is declared unconstitutional; and(i)
    
    the date on which we cancel the options by reason that the grantee in any way sells,
transfers, charges, mortgages, encumbers or creates any interest in favour of any third party
over or in relation to any of his or her options or attempt to do so.
  43




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##### Table of Contents



Item 7 Major shareholders and related party transactions
 A. Major shareholders
  Percentagesof sharesIdentity of person
    
    
    Beneficially
    
    
    beneficiallyTitle of class
    
    or Group
    
    
    owned
    
    
    owned(note 5)
    
    
    (note 1)%Ordinary shares
    
    Wong Wai Kay, Ricky
    
    
    346,959,573(note 2)
    
    
    
    51.05Ordinary shares
    
    Cheung Chi Kin, Paul
    
    
    382,100,443(note 3)
    
    
    
    56.22Ordinary shares
    
    Top Group International Limited
    
    
    339,814,284
    
    
    
    50.00Ordinary shares
    
    Leung Ka Pak
    
    
    339,814,284(note 4)
    
    
    
    50.00Ordinary shares
    
    Yau Ming Yan, Andrew
    
    
    339,814,284(note 4)
    
    
    
    50.00
 
 Notes:(1)
    
    Percentage ownership is based on 679,594,047 shares issued as of December 15, 2009.(2)
    
    Of the 346,959,573 shares, 339,814,284 shares are beneficially owned through Mr. Wongs
42.12 % interest in Top Group International Limited or Top Group, and 7,145,289 shares are
owned directly by him. Top Group International Limited, Top Group is a holding company
incorporated in British Virgin Islands with no active operations. Top Group has two directors,
Mr. Wong Wai Kay, Ricky and Mr. Cheung Chi Kin, Paul, who are our chairman and vice chairman
respectively. They are two of shareholders of Top Group. Mr. Leung Ka Pak and Mr. Yau Ming
Yan, Andrew are the two other shareholders of Top Group.(3)
    
    Of the 382,100,443 shares, 339,814,284 shares are beneficially owned through Mr. Cheungs
27.06% interest in Top Group, 17,361,820 shares are owned directly by Mr. Cheung and
24,924,339 shares are beneficially owned through Mr. Cheungs 50% interest in Worship
Limited.(4)
    
    The 339,814,284 shares are beneficially owned through Mr. Leungs 21.00% and Mr. Yaus 9.82%
interest in Top Group. Mr. Leung Ka Pak was a director and the president of all of the
Companys subsidiaries in Canada (other than City Telecom (Canada) Inc.). He resigned as a
director and president in October 2005. After Mr. Leung resigned, Mr. Yau Ying Yan, Andrew was
a director and the president of all subsidiaries in Canada (other than City Telecom (Canada)
Inc.). He resigned as a director and president in July 2006.(5)
    
    Beneficial ownership is determined in accordance with the rules of the SEC.     B. Related party transactions
  Contracts with our directors and senior management
  44




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##### Table of Contents



C. Interests of experts and counsel
  
 Item 8 Financial information
 A. Consolidated statements and other financial information
 Financial statements
  Legal and regulatory proceedings
   Dividends
      B. Significant changes
  
 Item 9 The offer and listing
 A. Offer and listing details
   PriceHigh
    
    
    Low(In HK$)2004
    
    
    2.975
    
    
    
    1.3102005
    
    
    1.530
    
    
    
    0.5502006
    
    
    0.830
    
    
    
    0.5702007
    
    
    3.670
    
    
    
    0.830
 45




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##### Table of Contents



PriceHigh
    
    
    Low(In HK$)2008
    
    
    2.170
    
    
    
    0.7502007January to March
    
    
    1.560
    
    
    
    0.830April to June
    
    
    2.200
    
    
    
    1.250July to September
    
    
    2.120
    
    
    
    1.780October to December
    
    
    3.670
    
    
    
    1.9302008January to March
    
    
    2.170
    
    
    
    1.620April to June
    
    
    2.090
    
    
    
    1.670July to September
    
    
    1.950
    
    
    
    1.340October to December
    
    
    1.360
    
    
    
    0.7502009January to March
    
    
    1.140
    
    
    
    0.840April to June
    
    
    1.780
    
    
    
    1.100July to September
    
    
    2.630
    
    
    
    1.630October to December (through December 15, 2009)
    
    3.950
    
    
    2.5002009June
    
    
    1.780
    
    
    
    1.610July
    
    
    1.860
    
    
    
    1.630August
    
    
    2.070
    
    
    
    1.850September
    
    
    2.630
    
    
    
    2.030October
    
    
    2.880
    
    
    
    2.550November
    
    3.920
    
    
    2.500December (through December 15, 2009)
    
    3.950
    
    
    3.440
  PriceHigh
    
    
    Low(In US$)2004
    
    
    7.720
    
    
    
    3.3202005
    
    
    3.980
    
    
    
    1.3702006
    
    
    2.009
    
    
    
    1.3802007
    
    
    10.750
    
    
    
    2.0102008
    
    
    5.750
    
    
    
    1.9152007January to March
    
    
    4.350
    
    
    
    2.010April to June
    
    
    5.830
    
    
    
    3.100July to September
    
    
    5.600
    
    
    
    4,050October to December
    
    
    10.750
    
    
    
    4.8302008January to March
    
    
    5.580
    
    
    
    4.250April to June
    
    
    5.750
    
    
    
    4.370July to September
    
    
    4.910
    
    
    
    2.950October to December
    
    
    3.380
    
    
    
    1.9152009January to March
    
    
    2.870
    
    
    
    2.000April to June
    
    
    4.650
    
    
    
    2.870July to September
    
    
    7.023
    
    
    
    4.050October to December (through December 15, 2009)
    
    10.300
    
    
    6.6102009June
    
    
    4.650
    
    
    
    4.010July
    
    
    4.830
    
    
    
    4.050
 46




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##### Table of Contents



PriceHigh
    
    
    Low(In US$)August
    
    
    5.240
    
    
    
    4.560September
    
    
    7.023
    
    
    
    5.290October
    
    
    7.750
    
    
    
    6.750November
    
    10.000
    
    
    6.610December (through December 15, 2009)
    
    10.300
    
    
    8.800
 B. Plan of distribution
  C. Markets
  D. Selling shareholders
  E. Dilution
  F. Expenses of the issue
  
 Item 10 Additional information
 A. Share capital
  B. Memorandum and Articles of Association
  General
  Directors interests
  (a)
    
    the giving of any security or indemnity to him or his associates(s) in respect of money lent
or obligations incurred or undertaken by him or any of them at the request of or for the
benefit of the Company or any of its subsidiaries;
 (b)
    
    the giving of any security or indemnity to a third party in respect of a debt or obligation
of the Company or any of its subsidiaries for which he or his associate(s) has
himself/themselves assumed responsibility in whole or in part and whether alone or jointly
under a guarantee or indemnity or by the giving of security;
 (c)
    
    any proposal concerning an offer of shares, debentures or other securities of or by the
Company or any other company which the Company may promote or be interested in for
subscription or purchase in which offer he or his associate(s) is/are or is/are to be
interested as a participant in the underwriting or sub-underwriting thereof;
 (d)
    
    any proposal concerning any other company in which he or his associate(s) is/are interested
only, whether directly or indirectly, as an officer, executive or shareholder or in which he
or his associate(s) is/are beneficially interested in shares of that Company, provided that he
and any of his associate(s) are not in aggregate beneficially interested in five per cent or
more of the issued shares of any class of such Company (or of any third company through which
his interest or that of his associate(s) is derived) or of the voting rights;
 (e)
    
    any proposal or arrangement concerning the benefit of employees of the Company or its
subsidiaries, including the adoption, modification or operation of any employees share scheme
or any share incentive or share option scheme under which the director or his associate(s) may
benefit;
 47




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##### Table of Contents



(f)
    
    any proposal or arrangement concerning the benefit of employees of the Company or its
subsidiaries, including the adoption, modification or operation of a pension fund or
retirement, death or disability benefits scheme which relates both to directors (or his
associate(s)) and employees of the Company or any of its subsidiaries and does not provide in
respect of any director or his associate(s), as such any privilege or advantage not generally
accorded to the class of persons to which such scheme or fund relates; and
 (g)
    
    any contract or arrangement in which he or his associate(s) is/are interested in the same
manner as other holders of shares or debentures or other securities of the Company by virtue
only of his/their interest in shares or debentures or other securities of the Company.
  Dividends
    (a)
    
    such dividend be satisfied in whole or in part in the form of an allotment of shares to the
shareholders, credited as being fully paid up, provided that all the shareholders entitled to
receive the dividend will also be entitled to choose to receive the dividend (or a part of it)
in cash; or
 (b)
    
    the shareholders entitled to such dividend are entitled to elect to receive an allotment of
shares credited as fully paid up instead of the whole or part of the cash dividend our board
of directors may decide upon.
   Liquidation
  (a)
    
    divide among the shareholders the whole or any part of the assets of the Company and set such
value as the liquidator deems fair upon any property to be divided and determine how the
division shall be carried out between the shareholders; or
 (b)
    
    vest the whole or any part of such assets in trustees upon such trusts for the benefit of the
contributories as the liquidator shall think fit,but no shareholder shall be compelled to accept any shares or other assets upon which there is
any liability.
 Annual and extraordinary general meeting of shareholders
  (a)
    
    the declaration and sanctioning of dividends;(b)
    
    the consideration and adoption of the accounts, balance sheet and reports of the directors
and auditors and other documents required to be attached to the financial statements;(c)
    
    the appointment of directors in place of those retiring (by rotation or otherwise);(d)
    
    the appointment of auditors; and(e)
    
    the fixing of, or the determining of the method of fixing, the remuneration of the directors
and of the auditors.
  48




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##### Table of Contents



Restrictions on ownership of shares
  Voting rights
     Issue of shares
      (a)
    
    the instrument of transfer, duly stamped, is lodged with us accompanied by the certificate
for the shares to which it relates and such other evidence as our board of directors may
reasonably require to show the right of the seller to make the transfer;
 (b)
    
    such fee, not more than the maximum amount allowed by The
Stock Exchange of Hong Kong Limited from
time to time, as our board of directors may from time to time require is paid to us in respect
of it;
 (c)
    
    the instrument of transfer is in respect of only one class of share;
 49




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##### Table of Contents



(d)
    
    in the case of a transfer of a share jointly held by two or more holders, the number of joint
holders to whom the share is to be transferred does not exceed four; and
 (e)
    
    the shares concerned are free of any lien in favor of us.
  Shareholders
  C. Material contracts
  50




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##### Table of Contents



D. Exchange controls
   E. Taxation
  Hong Kong Taxation
 Tax on dividends
  Profits tax
  (i)
    
    such profits are derived from or arise in Hong Kong;(ii)
    
    such profits are attributable to a trade, profession or business carried on in Hong Kong; and(iii)
    
    the property in question, such as shares and American depositary shares, are not capital
assets of that trade, profession or business.
    Stamp duty
   Tax treaty
  51




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##### Table of Contents



United States Taxation
 Certain U.S. Federal Income Tax Considerations
    -
    
    an individual who is a citizen or resident of the United States;-
    
    a corporation, or other entity that is taxable as a corporation, created in or organized
under the laws of the United States or any State or political subdivision thereof;-
    
    an estate the income of which is includible in gross income for United States federal income
tax purposes regardless of its source;-
    
    a trust the administration of which is subject to the primary supervision of a United States
court and which has one or more United States persons who have the authority to control all
substantial decisions of the trust; or-
    
    a trust that was in existence on August 20, 1996, was treated as a United States person, for
United States federal income tax purposes, on the previous day, and elected to continue to be
so treated.
    U.S. Holders
  Dividends.
 52




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##### Table of Contents



PFIC considerations
  Non-U.S. Holders
  -
    
    the dividends received or gain recognized on the sale of the shares or American depositary
shares by such person is treated as effectively connected with the conduct of a trade or
business by such person in the United States as determined under United States federal income
tax law, and the dividends are attributable to a permanent establishment (or in the case of an
individual, a fixed place of business) that you maintain in the United States if that is
required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation
on a net income basis. In such cases you generally will be taxed in the same manner as a U.S.
holder. If you are a corporate non-U.S. Holder, effectively connected dividends may, under
certain circumstances, be subject to an additional branch profits tax at a 30% rate or a
lower rate if you are eligible for the benefits of an income tax treaty that provides for a
lower rate, or
 -
    
    in the case of gains recognized on a sale of shares or American depositary shares by an
individual, such individual is present in the United States for 183 days or more and certain
other conditions are met. The non-U.S. Holder will be subject to United States federal income
tax at a rate of 30% on the amount by which the U.S.  source
capital gains exceed non-U.S.  source capital losses.
 Backup withholding and information reporting
  53




---



##### Table of Contents



F. Dividends and paying agents
  G. Statement by experts
  H. Documents on display
   I. Subsidiary information
  
 Item 11 Quantitative and qualitative disclosures about market risk
  54




---



##### Table of Contents



Item 12 Description of securities other than equity securities
  
 PART II
 
 Item 13 Defaults, dividend arrearages and delinquencies
  
 Item 14 Material modifications to the rights of security holders and use of proceeds
  
 Item 15 Controls and procedures
 A. Disclosure controls and procedures
  B. Managements report on internal control over financial reporting
  C. Changes in internal control over financial reporting
  55




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##### Table of Contents



Item 16A Audit committee financial expert
  
 Item 16B Code of ethics
  
 Item 16C Principal accountant fees and services
  2008
    
    
    2009Nature of the service
    
    HK$ million
    
    
    HK$ millionAudit fees
    
    
    2.8
    
    
    
    2.6Audit-related fees
    
    
    0.4
    
    
    
    0.4Total
    
    
    3.2
    
    
    
    3.0
 Audit fees
  Audit-related fees
  Pre-approval polices
  
 Item 16D Exemptions from the listing standards for audit committees
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##### Table of Contents



Item 16E Purchase of equity securities by the issuer and affiliated purchasers
  Highest price
    
    
    Lowest price
    
    
    TotalNumber of
    
    
    paid per
    
    
    paid per
    
    
    considerationDate of repurchase
    
    Ordinary Shares
    
    
    Ordinary Share
    
    
    Ordinary Share
    
    
    paidHK$
    
    
    HK$
    
    
    HK$August 11, 2009
    
    
    70,000
    
    
    
    1.92
    
    
    
    1.91
    
    
    
    134,197
 
 Item 16F Change in Registrants Certifying Accountant
  
 Item 16G Corporate Governance
  
    
    Nasdaq Stock Market Rule 5605(b)(1) requires a Nasdaq listed company to have a board of
directors consisting of a majority of independent members, In this regard we have elected
to adopt the practices of our home country, As a listed company in Hong Kong, we are
subject to the requirement under the HKSE Listing Rules that at least three members of our
board of directors be independent as determined under the HKSE Listing Rules. In compliance
with our home country practices, we currently have three independent directors out of a
total of eight directors. The standards for establishing independence under the HKSE
Listing Rules also differ from those set forth in the Nasdaq Stock Market Rules.
    
    Nasdaq Stock Market Rule 5605(b)(2) requires a Nasdaq listed company to schedule regular
executive sessions in which non-management directors meet without management participation.
In this regard we have elected to adopt the practices of our home country. Under the
applicable Hong Kong law, our board of directors is required to meet regularly and at least
four times a year and we are required to ensure that there is active participation by a
majority of the directors and afford all directors an opportunity to include matters on the
agenda. In addition, when a board meeting considers a matter in which a substantial
shareholder or a director has a conflict of interest, the independent directors with no
material interest in such matter must be present. In compliance with our home country
practices, we do not organize exclusive meetings for our independent non-executive
directors on a regular basis.
    
    Nasdaq Stock Market Rule 5605(d)(1) requires a Nasdaq listed company to have the
compensation of the chief executive officer and the other executive officers be determined,
or recommended to the Board for determination, by a compensation committee comprised solely
of independent directors. In this regard we have elected to adopt the practices of our home
country. Under the HKSE Listing Rules, listed companies are required to establish a
remuneration committee with a majority of independent non-executive directors. The
compensation of our executive officers is determined by a remuneration committee consisting
of six directors, three of whom are independent non-executive directors.
    
    Nasdaq Stock Market Rule 5605(e)(1) requires a Nasdaq listed company to have a
nominations committee consisting solely of independent directors to select or recommend for
selection director nominees. In this regard we have elected to adopt the practices of our
home country and do not have a nominations committee consisting solely of independent
directors. Under the HKSE Listing Rules, listed companies are recommended but not required
to establish a nomination committee consisting of the independent non-executive directors
with majority vote. Our director nominees are selected by or recommended for selection by
the Board. Our current practice is not inconsistent with our home country practices.
  57




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##### Table of Contents



PART III
 
 Item 17 Financial statements
  
 Item 18 Financial statements
  
 Item 19 Exhibits
 (a)
    
    Exhibit 12.1  Section 302 Certifications of the Chief Executive Officer.(b)
    
    Exhibit 12.2  Section 302 Certifications of the Chief Financial Officer.(c)
    
    Exhibit 13  Section 906 Certification of Chief Executive Officer and Chief Financial
Officer.
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##### Table of Contents



Index to Consolidated Financial Statements
 Audited Consolidated Financial Statements
    
    PagesReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Income Statements
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Changes in Equity
    
    
    F-4Consolidated Cash Flow Statements
    
    
    F-5Notes to the Consolidated Financial Statements
    
    
    F-6




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       
 F-1




---



##### Table of Contents



For the year ended August 31,Note
    
    
    2009
    
    
    2008HK$000
    
    
    HK $000Revenue
    
    
    2
    
    
    
    1,478,239
    
    
    
    1,302,981Network costs
    
    
    3
    
    
    
    (175,129
    )
    
    
    (178,367
    )Other operating expenses
    
    
    4
    (a)
    
    
    (1,037,964
    )
    
    
    (966,094
    )Other revenues
    
    
    4
    (b)
    
    
    41,540
    
    
    
    24,989Finance costs
    
    
    4
    (c)
    
    
    (55,127
    )
    
    
    (75,137
    )Profit before taxation
    
    
    4
    
    
    
    251,559
    
    
    
    108,372Income tax (expense)/ benefit
    
    
    5
    
    
    
    (38,730
    )
    
    
    16,818Profit attributable to shareholders
    
    
    
    
    
    
    212,829
    
    
    
    125,190Dividends
    
    
    6
    
    
    
    126,173
    
    
    
    38,614Basic earnings per share
    
    
    7
    
    
    HK32.4 cents
    
    
    HK19.7 centsDiluted earnings per share
    
    
    7
    
    
    HK31.8 cents
    
    
    HK19.0 cents
  
 F-2




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##### Table of Contents



As at August 31,Note
    
    
    2009
    
    
    2008HK$000
    
    
    HK$000Non-current assetsGoodwill
    
    
    11
    
    
    
    1,066
    
    
    
    1,066Fixed assets
    
    
    12
    
    
    
    1,302,380
    
    
    
    1,231,399Long term receivable and
prepayment
    
    
    
    
    
    
    6,091
    
    
    
    5,586Deferred expenditure
    
    
    15
    
    
    
    12,786
    
    
    
    15,391Deferred tax assets
    
    
    21
    
    
    
    
    
    
    
    26,3351,322,323
    
    
    
    1,279,777Current assetsAccounts receivable
    
    
    16
    
    
    
    120,192
    
    
    
    140,283Other receivables, deposits
and prepayments
    
    
    16
    
    
    
    69,765
    
    
    
    82,726Deferred expenditure
    
    
    15
    
    
    
    36,674
    
    
    
    40,704Other financial assets
    
    
    14
    
    
    
    
    
    
    
    27,997Pledged bank deposits
    
    
    27
    
    
    
    15,038
    
    
    
    87,319Cash at bank and in hand
    
    
    17
    
    
    
    221,052
    
    
    
    421,610462,721
    
    
    
    800,639Current liabilitiesAccounts payable
    
    
    18
    
    
    
    37,555
    
    
    
    52,324Other payables and accrued
charges
    
    
    18
    
    
    
    206,487
    
    
    
    178,114Deposits received
    
    
    
    
    
    
    16,385
    
    
    
    16,264Deferred service revenue
    
    
    19
    
    
    
    115,070
    
    
    
    110,449Tax payable
    
    
    
    
    
    
    1,993
    
    
    
    2,103Current portion  obligations under
finance leases
    
    
    22
    
    
    
    202
    
    
    
    121377,692
    
    
    
    359,375Net current assets
    
    
    
    
    
    
    85,029
    
    
    
    441,264Total assets less current liabilities
    
    
    
    
    
    
    1,407,352
    
    
    
    1,721,041Non-current liabilitiesDeferred tax liabilities
    
    
    21
    
    
    
    15,709
    
    
    
    4,937Long-term debt and other liabilities
    
    
    22
    
    
    
    163,116
    
    
    
    683,497178,825
    
    
    
    688,434Net assets
    
    
    
    
    
    
    1,228,527
    
    
    
    1,032,607Capital and reservesShare capital
    
    
    20
    
    
    
    66,418
    
    
    
    65,062Reserves
    
    
    20
    
    
    
    1,162,109
    
    
    
    967,545Total equity attributable to
equity shareholders of the
Company
    
    
    
    
    
    
    1,228,527
    
    
    
    1,032,607
  
 F-3




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##### Table of Contents



(Expressed in Hong Kong dollars)
 For the year ended August 31,Note
    
    
    2009
    
    
    2008HK$000
    
    
    HK$000Total equity as at beginning of the year
    
    
    
    
    
    
    1,032,607
    
    
    
    903,882Net profit recognized directly in equity:Exchange adjustments on translation of
the financial statements of subsidiaries
    
    
    
    
    
    
    70
    
    
    
    1,619Net profit for the year
    
    
    
    
    
    
    212,829
    
    
    
    125,190Total recognized profit for the year
    
    
    
    
    
    
    212,899
    
    
    
    126,809Dividends declared and paid in respect of the
current year
    
    
    
    
    
    
    (19,904
    )
    
    
    (11,371
    )Dividends declared and paid in respect of the
previous year
    
    
    
    
    
    
    (3,108
    )
    
    
    (5,915
    )(23,012
    )
    
    
    (17,286
    )Movements in equity arising from
capital transactions:Repurchase and cancellation of ordinary shares
    
    
    
    
    
    
    (134
    )
    
    
    Equity settled share-based transactions
    
    
    10
    
    
    
    4,768
    
    
    
    4,204Shares issued upon exercise of options
    
    
    
    
    
    
    1,399
    
    
    
    14,9986,033
    
    
    
    19,202Total equity as at the end of the year
    
    
    
    
    
    
    1,228,527
    
    
    
    1,032,607
  
 F-4




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##### Table of Contents



(Expressed in Hong Kong dollars)
 For the year ended August 31,Note
    
    
    2009
    
    
    2008HK$000
    
    
    HK$000Net cash inflow from operations
    
    
    23
    (a)
    
    
    537,618
    
    
    
    382,813Hong Kong profits tax recovered
    
    
    
    
    
    
    
    
    
    
    42Overseas tax paid
    
    
    
    
    
    
    (1,732
    )
    
    
    (4,292
    )Net cash inflow from operating activities
    
    
    
    
    
    
    535,886
    
    
    
    378,563Investing activitiesIncrease in pledged bank deposits
    
    
    
    
    
    
    72,281
    
    
    
    Interest received
    
    
    
    
    
    
    4,869
    
    
    
    15,596Purchases of fixed assets
    
    
    
    
    
    
    (289,938
    )
    
    
    (189,903
    )Net proceeds from maturity of investment
in debt securities
    
    
    
    
    
    
    28,051
    
    
    
    3,900Net proceeds from redemption of
long-term bank deposit
    
    
    
    
    
    
    
    
    
    
    15,600Proceeds from disposal of fixed assets
    
    
    
    
    
    
    8,249
    
    
    
    7,057Net cash outflow from investing activities
    
    
    
    
    
    
    (176,488
    )
    
    
    (147,750
    )Net cash inflow before financing
activities
    
    
    
    
    
    
    359,398
    
    
    
    230,813Financing activitiesRepurchase of ordinary shares
    
    
    
    
    
    
    (134
    )
    
    
    Proceeds from issuance of new shares
    
    
    23
    (b)
    
    
    1,399
    
    
    
    14,998Repayment of capital element of
finance leases
    
    
    23
    (b)
    
    
    (138
    )
    
    
    (834
    )Interest element of finance leases
    
    
    
    
    
    
    (27
    )
    
    
    (34
    )Interest paid on 10-year senior notes
    
    
    
    
    
    
    (52,670
    )
    
    
    (70,010
    )Repurchase of 10-year senior notes
    
    
    23
    (b)
    
    
    (485,829
    )
    
    
    (269,399
    )Dividends paid
    
    
    
    
    
    
    (23,008
    )
    
    
    (17,271
    )Net cash outflow from financing activities
    
    
    
    
    
    
    (560,407
    )
    
    
    (342,550
    )Decrease in cash at bank
and in hand
    
    
    
    
    
    
    (201,009
    )
    
    
    (111,737
    )Cash at bank and in hand at
September 1
    
    
    
    
    
    
    421,610
    
    
    
    532,894Effect of foreign exchange rate changes
    
    
    
    
    
    
    451
    
    
    
    453Cash at bank and in hand at
August 31
    
    
    
    
    
    
    221,052
    
    
    
    421,610
  
 F-5




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##### Table of Contents



1
    
    Significant accounting policies(a)
    
    Statement of complianceCity Telecom (H.K.) Limited (the Company) was incorporated in Hong Kong on May 19, 1992 under the
Hong Kong Companies Ordinance. City Telecom (H.K.) Limited and its subsidiaries (collectively
referred to as the Group) are engaged in the provision of international telecommunications
services and fixed telecommunications network services to customers in Hong Kong and Canada.The accompanying consolidated financial statements have been prepared in accordance with all
applicable International Financial Reporting Standards (IFRSs) issued by the International
Accounting Standards Board (IASB), which collective term includes all applicable individual
International Financial Reporting Standards, International Accounting Standards (IASs) and
Interpretations issued by the IASB.In prior periods, the Company prepared its consolidated financial statements in accordance with
Hong Kong Financial Reporting Standards (HKFRSs), which collective term includes all applicable
individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKASs) and
Interpretations issued by the Hong Kong Institute of Certified Public Accountants (HKICPA) and
accounting principles generally accepted in Hong Kong. Although HKFRSs have been fully converged
with IFRSs in all material respects since January 1, 2005, the accompanying consolidated financial
statements are the first published financial statements in which the Company makes an explicit and
unreserved statement of compliance with IFRSs. Therefore, in preparing these financial statements
management has given due consideration to the requirements of IFRS 1, First-time Adoption of
International Financial Reporting Standards. The date of the Companys transition to IFRSs was
determined to be September 1, 2007, being the beginning of the earliest period for which the
Company presents full comparative information in these financial statements.With due regard to the Companys accounting policies in previous periods and the requirements of
IFRS 1, management has concluded that no adjustments to the amounts reported under HKFRSs as at
the date of transition to IFRSs, or in respect of the year ended August 31, 2008, were required in
order to enable the Company to make an explicit and unreserved statement of compliance with IFRSs
in the first IFRS financial statements which included these amounts as comparatives.The IASB has issued a number of new or revised IFRSs that are first effective or available for
early adoption for the current accounting period of the Company. However, none of these
developments are relevant to the Companys operations.The Group has not applied any new standard or interpretation that is not yet effective for the
current accounting period (see note 31).The consolidated financial statements were authorized for issue by the Board of Directors on
November 5, 2009.(b)
    
    Basis of preparation of the financial statementsThe measurement basis used in the preparation of the financial statements is the historical cost
basis except that certain financial assets are stated at their fair values or amortized costs as
explained in the accounting policies set out below (see notes 1(j), 1(k) and 1(r)).The preparation of financial statements in conformity with IFRSs requires management to
make judgments, estimates and assumptions that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and future periods if the revision
affects both current and future periods.Judgments made by management in the application of IFRSs that have significant effect
on the financial statements and estimates with a significant risk of material adjustment in the
next year are discussed in note 30.(c)
    
    Subsidiaries and controlled entitiesSubsidiaries are entities controlled by the Group. Control exists when the Group has the power to
govern the financial and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that presently are exercisable are
taken into account.
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1
    
    Significant accounting policies (continued)(d)
    
    Group accounting(i)
    
    ConsolidationAn investment in a subsidiary is consolidated into the consolidated financial statements from the
date that control commences until the date that control ceases.Intra-group balances and transactions and any unrealized profits arising from intra-group
transactions are eliminated in full in preparing the consolidated financial statements.
Unrealized losses resulting from intra-group transactions are eliminated in the same way as
unrealized gains but only to the extent that there is no evidence of impairment.(ii)
    
    Translation of foreign currenciesTransactions in foreign currencies are translated at exchange rates ruling at the transaction
dates. Monetary assets and liabilities denominated in foreign currencies are translated at
exchange rates ruling at the balance sheet date. Exchange differences arising in these cases are
dealt with in profit or loss.For consolidation purposes, the balance sheets of foreign subsidiaries are translated at the rates
of exchange ruling at the balance sheet date whilst the income statement is translated at an
average rate for the year. Exchange differences are dealt with as a movement in reserves.The accompanying consolidated financial statements are presented in Hong Kong Dollars, which is
the Companys functional currency. All financial information have been rounded to the nearest
thousand.(e)
    
    GoodwillGoodwill represents the excess of the cost of a business combination or an investment in an
associate or a jointly controlled entity over the Groups interest in the net fair value of the
acquirees identifiable assets, liabilities and contingent liabilities.Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to
cash-generating units and is tested annually for impairment (see note 1(i)). In respect of
associates or jointly controlled entities, the carrying amount of goodwill is included in the
carrying amount of the interest in the associate or jointly controlled entity.Any excess of the Groups interest in the net fair value of the acquirees identifiable assets,
liabilities and contingent liabilities over the cost of a business combination or an investment in
an associate or a jointly controlled entity is recognized immediately in profit or loss.On disposal of a cash generating unit, an associate or a jointly controlled entity during the
year, any attributable amount of goodwill is included in the calculation of the profit or loss on
disposal.(f)
    
    Investment propertyInvestment properties are buildings which are owned and held to earn rental income and/or for
capital appreciation.Investment properties are stated in the balance sheet at cost less accumulated depreciation (see
note 1(g)) and impairment losses (see note 1(i)) if any. Any gain or loss arising from the
retirement or disposal of an investment property is recognized in the income statement. Rental
income from investment property is accounted for in accordance with the accounting policy as set
out in note 1(t)(v).(g)
    
    Fixed assetsFixed assets are stated at cost less accumulated depreciation and accumulated impairment losses.Depreciation is calculated to write off the cost of items of property, plant and equipment, less
their estimated residual value, if any, using the straight-line method over their estimated useful
lives as follows:
 -
    
    Buildings situated on leasehold land are depreciated over the shorter of the unexpired term
of lease and their estimated useful lives of 50 years
 -        Furniture, fixtures and fittings
    
    4 years-        Telecommunications, computer and office
equipment
    
    4 years  20 years-        Motor vehicles
    
    4 years
 -
    
    Leasehold improvements are depreciated over the shorter of the unexpired term of the leases
and their estimated useful lives.
 Where the parts of an item of property, plant and equipment have different useful lives, the cost
of the item is allocated on a reasonable basis between the parts and each part is depreciated
separately. Both the useful life of an asset and its residual value, if any, are reviewed
annually.
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1
    
    Significant accounting policies (continued)(g)
    
    Fixed assets (continued)Major costs incurred in restoring fixed assets to their normal working condition are charged to
profit or loss. Major improvements are capitalized and depreciated over their expected useful
lives to the Group.The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and
the carrying amount of the relevant asset, and is recognized in profit or loss on the date of
disposal.(h)
    
    Assets held under leasesAn arrangement, comprising a transaction or a series of transactions, is or contains a lease if
the Group determines that the arrangement conveys a right to use a specific asset or assets for an
agreed period of time in return for a payment or a series of payments. Such a determination is
made based on an evaluation of the substance of the arrangement and is regardless of whether the
arrangement takes the legal form of a lease.(i)
    
    Classification of assets leased to the GroupAssets that are held by Group under leases which transfer to the Group substantially all the risks
and rewards of ownership are classified as being held under finance leases. Leases which do not
transfer substantially all the risks and rewards of ownership to the Group are classified as
operating leases.Land held for own use under an operating lease for which its fair value cannot be measured
separately from the fair value of a building situated thereon at the inception of the lease, is
accounted for as being held under a finance lease, unless the building is also clearly held under
an operating lease (see note 1(h)(iii)).(ii)
    
    Finance leasesWhere the Group acquired the use of assets under finance leases, the amounts representing the fair
value of the leased asset or, if lower, the present value of the minimum lease payments of such
assets, are included in fixed assets with the corresponding liabilities, net of finance charges,
recorded as obligations under finance leases. Depreciation and impairment losses are accounted
for in accordance with the accounting policy as set out in note 1(g) and note 1(i). Finance
charges implicit in the lease payments are charged to profit or loss over the period of the leases
so as to produce an approximately constant periodic rate of charge on the remaining balance of the
obligations for each accounting period.(iii)
    
    Operating leasesLeases where substantially all the risks and rewards of ownership of assets remain with the lessor
are accounted for as operating leases. Receipts and payments made under operating leases net of
any incentives received by/from the lessor are credited/charged to profit or loss on a
straight-line basis over the lease periods.(i)
    
    Impairment of assets(i)
    
    Impairment of investments in debt and equity securities and accounts receivable and other
receivablesInvestments in debt and equity securities that
are stated at cost or amortized cost or are classified as
available-for-sale securities, and other current and non-current receivables that
are stated at cost or amortized cost are
reviewed at each balance sheet date to determine whether there is objective evidence of
impairment. Objective evidence of impairment includes observable data that comes to the attention
of the Group about one or more of the following loss events:
 -
    
    significant financial difficulty of the debtor;-
    
    a breach of contract, such as a default or delinquency in interest or principal payments;-
    
    it becoming probable that a debtor will enter bankruptcy or other financial reorganization; and-
    
    a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
 If any such evidence exists, any impairment loss is determined and recognized as follows:
 -
    
    For unquoted equity securities and current and non-current receivables that are carried at
cost, the impairment loss is measured as the difference between the carrying amount of the
financial asset and the estimated future cash flows, discounted at the current market rate of
return for a similar financial asset where the effect of discounting is material. Impairment
losses for current and non-current receivables that are carried at cost are reversed if in a
subsequent period the amount of the impairment loss decreases. Impairment losses for equity
securities are not reversed.-
    
    For financial assets carried at amortized cost, the impairment loss is measured as the
difference between the assets carrying amount and the present value of estimated future cash
flows, discounted at the financial assets original effective interest rate (i.e. the
effective interest rate computed at initial recognition of these assets). This assessment is
made collectively where financial assets carried at amortized cost share similar risk
characteristics, such as similar past due status, and have not been individually assessed as
impaired. Future cash flows for financial assets which are assessed for impairment
collectively are based on historical loss experience for assets with credit risk
characteristics similar to the collective group.
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1
    
    Significant accounting policies (continued)(i)
    
    Impairment of assets (continued)(i)
    
    Impairment of investments in debt and equity securities and accounts receivable and other
receivables (continued)
 If in a subsequent period the amount of an impairment loss decreases and the decrease can be
linked objectively to an event occurring after the impairment loss was recognized, the
impairment loss is reversed through profit or loss. A reversal of an impairment loss shall
not result in the assets carrying amount exceeding that would have been determined had no
impairment loss been recognized in prior years.-
    
    For available-for-sale securities, the cumulative loss that has been recognized directly in
equity is removed from equity and is recognized in profit or loss. The amount of the
cumulative loss that is recognized in profit or loss is the difference between the
acquisition cost (net of any principal repayment and amortization) and current fair value,
less any impairment loss on that asset previously recognized in profit or loss.Impairment losses recognized in profit or loss in respect of available-for-sale equity
securities are not reversed through profit or loss. Any subsequent increase in the fair
value of such assets is recognized directly in equity.Impairment losses in respect of available-for-sale debt securities are reversed if the
subsequent increase in fair value can be objectively related to an event occurring after the
impairment loss was recognized. Reversals of impairment losses in such circumstances are
recognized in profit and loss.
 Impairment losses are written off against the corresponding assets directly, except for impairment
losses recognized in respect of accounts receivable, whose recovery is considered doubtful but not
remote. In this case, the impairment losses for doubtful debts are recorded using an allowance
account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable
is written off against accounts receivable and any amounts held in the allowance account relating
to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance
account are reversed against the allowance account. Other changes in the allowance account and
subsequent recoveries of amounts previously written off directly are recognized in profit or loss.(ii)
    
    Impairment of other assetsInternal and external sources of information are reviewed at each balance sheet date to identify
indications that the following assets may be impaired or, except in the case of goodwill, an
impairment loss previously recognized no longer exists or may have decreased:
 -
    
    fixed assets;-
    
    investment property; and-
    
    goodwill.
 If any such indication exists, the assets recoverable amount is estimated. In addition, for
goodwill, the recoverable amount is estimated annually whether or not there is any indication of
impairment.
 -
    
    Calculation of recoverable amountThe recoverable amount of an asset is the greater of its net selling price and value in use.
In assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of time value
of money and the risks specific to the asset. Where an asset does not generate cash inflows
largely independent of those from other assets, the recoverable amount is determined for the
smallest group of assets that generates cash inflows independently (i.e. a cash-generating
unit).-
    
    Recognition of impairment lossesAn impairment loss is recognized in profit or loss whenever the carrying amount of an asset,
or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment
losses recognized in respect of cash-generating units are allocated first to reduce the
carrying amount of any goodwill allocated to the cash-generating unit (or group of units)
and then, to reduce the carrying amount of the other assets in the unit (or group of units)
on a pro rata basis, except that the carrying value of an asset will not be reduced below
its individual fair value less costs to sell, or value in use, if determinable.-
    
    Reversals of impairment lossesIn respect of assets other than goodwill, an impairment loss is reversed if there has been a
favorable change in the estimates used to determine the recoverable amount. An impairment
loss in respect of goodwill is not reversed.A reversal of an impairment loss is limited to the assets carrying amount that would have
been determined had no impairment loss been recognized in prior years. Reversals of
impairment losses are credited to profit or loss in the year in which the reversals are
recognized.
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1
    
    Significant accounting policies (continued)(j)
    
    Other financial assetsThe Group accounts for investments in debt and equity securities are as follows:Financial assets held for trading and those designated as at fair value through profit or loss at
inception are accounted for at fair value. Such financial assets are initially stated at fair
value and are classified as current assets, if they are expected to be realized within 12 months.
At each balance sheet date the fair value of the financial assets is remeasured, with any
resultant gain or loss being recognized in profit or loss. The net gain or loss recognized in
profit or loss does not include any interest earned on these investments. Interest income is
recognized in accordance with the policies set out in note 1(t)(iv).Held-to-maturity securities are dated debt securities that the Group has the positive ability and
intent to hold to maturity. Such securities are initially recognized in the balance sheet at fair
value plus transaction costs. Subsequently, they are stated in the balance sheet at amortized
cost less impairment losses (see note 1(i)(i)).Financial assets that are not classified as held for trading, financial assets at fair value
through profit or loss or, held-to-maturity securities, are classified as available-for-sale
securities. Available-for-sale securities are initially recognized at fair value plus transaction
costs. At each balance sheet date the fair value of the assets is remeasured, with any resultant
gain or loss recognized directly in equity, except for impairment losses (see note 1(i)(i)) and
foreign exchange gains and losses, which are recognized directly in profit or loss. Where these
investments are interest-bearing, interest calculated using the effective interest method is
recognized in profit or loss. When these investments are derecognized, the cumulative gain or
loss previously recognized directly in equity is recognized in profit or loss.Investments are recognized on the date the Group commits to purchase the investments. Investments
are derecognized when:
 (i)
    
    the contractual rights to the cash flows from the investment securities expire; or(ii)
    
    the Group transfers the contractual rights to receive the cash flows of the investment
securities.
 (k)
    
    Derivative financial instrumentsDerivative financial instruments that are not designated or do not qualify as hedges are
recognized initially at fair value. At each balance sheet date the fair value of the derivative
financial instruments is remeasured. The gain or loss on remeasurement to fair value is charged
immediately to profit or loss.(l)
    
    Deferred expenditureDeferred expenditure represents customer acquisition costs incurred for successful acquisition or
origination of a service subscription agreement with a customer. Such costs are deferred and
amortized on a straight-line basis over the period of the underlying service subscription
agreements.(m)
    
    Accounts receivableAccounts receivable and other receivables are initially recognized at fair value and thereafter
stated at amortized cost less allowance for impairment of doubtful debts (see note 1(i)(i)),
except where the receivables are interest-free loans made to related parties without any fixed
repayment terms or the effect of discounting would be immaterial. In such cases, the receivables
are stated at cost less impairment of doubtful debts (see note 1(i)(i)).(n)
    
    Cash, bank balances and pledged bank depositsCash and bank balances consist of cash on hand, cash in bank accounts and interest-bearing savings
accounts. Cash that is restricted for use or pledged as security is disclosed separately on the
face of the balance sheet, and is not included in the cash and bank balances total in the
consolidated statements of cash flows. The pledged bank deposits represent cash maintained at a
bank as security for bank facility and bank guarantees issued by the bank to third party suppliers
and utility vendors (see note 27).(o)
    
    Financial guarantees issued, provisions and contingent liabilities(i)
    
    Financial guarantees issuedFinancial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified
payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs
because a specified debtor fails to make payment when due in accordance with the terms of a debt
instrument.Where the Group issues a financial guarantee, the fair value of the guarantee (being the
transaction price, unless the fair value can otherwise be reliably estimated) is initially
recognized as deferred income within trade and other payables. Where consideration is received or
receivable for the issuance of the guarantee, the consideration is recognized in accordance with
the Groups policies applicable to that category of asset. Where no such consideration is
received or receivable, an immediate expense is recognized in profit or loss on initial
recognition of any deferred income.
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1
    
    Significant accounting policies (continued)(o)
    
    Financial guarantees issued, provisions and contingent liabilities (continued)(i)
    
    Financial guarantees issued (continued)The amount of the guarantee initially recognized as deferred income is amortized in profit or loss
over the term of the guarantee as income from financial guarantees issued. In addition,
provisions are recognized in accordance with note 1(o)(ii) if and when (i) it becomes probable
that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount
of that claim on the Group is expected to exceed the amount currently carried in trade and other
payables in respect of that guarantee i.e. the amount initially recognized, less accumulated
amortization.(ii)
    
    Other provisions and contingent liabilitiesProvisions are recognized for other liabilities of uncertain timing or amount when the Group has a
legal or constructive obligation arising as a result of a past event, it is probable that an
outflow of economic benefits will be required to settle the obligation and a reliable estimate can
be made. Where the time value of money is material, provisions are stated at the present value of
the expenditure expected to settle the obligation.Where it is not probable that an outflow of economic benefits will be required, or the amount
cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the
probability of outflow of economic benefits is remote. Possible obligations, whose existence will
only be confirmed by the occurrence or non-occurrence of one or more future events are also
disclosed as contingent liabilities unless the probability of outflow of economic benefits is
remote.(p)
    
    Employee benefits(i)
    
    Employee leave entitlementsEmployee entitlements to annual leave and long service leave are recognized when they accrue to
employees. A provision is made for the estimated liability for annual leave and long-service
leave as a result of services rendered by employees up to the balance sheet date.Employee entitlements to sick leave and maternity or paternity leave are not recognized until the time of leave.(ii)
    
    Profit sharing and bonus plansProvisions for profit sharing and bonus plans are recognized when the Group has a present legal or
constructive obligation as a result of services rendered by employees and a reliable estimate of
the obligation can be made.(iii)
    
    Retirement benefit costsThe Group contributes to defined contribution retirement schemes which are available to certain
employees. Contributions to the schemes by the Group are calculated as a percentage of employees
basic salaries and charged to profit or loss. The Groups contributions are reduced by
contributions forfeited by those employees who leave the scheme prior to vesting fully in the
contributions.The assets of the scheme are held in an independently administered fund that is separated from the Groups assets.(iv)
    
    Share-based paymentsThe fair value of share options granted to employees is recognized as an employee cost with a
corresponding increase in capital reserve within equity. The fair value is measured at grant date
using the Black-Scholes option pricing model or Monte Carlo model, taking into account the terms
and conditions upon which the options were granted. Where the employees have to meet vesting
conditions before becoming unconditionally entitled to the share options, the total estimated fair
value of the share options is spread over the vesting period, taking into account the probability
that the options will vest.During the vesting period, the number of share options that is expected to vest is reviewed. Any
adjustment to the cumulative fair value recognized in prior years is charged/credited to profit or
loss, unless the original employee expenses qualify for recognition as an asset, with a
corresponding adjustment to the capital reserve. On vesting date, the amount recognized as an
expense is adjusted to reflect the actual number of share options that vest (with a corresponding
adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting
conditions that relate to the market price of the Companys shares. The amount related to share
options expense is recorded in the capital reserve until either the option is exercised or the
option expires.
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1
    
    Significant accounting policies (continued)(q)
    
    Deferred taxationDeferred taxation is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the
financial statements. Taxation rates enacted or substantively enacted at the balance sheet date
are used to measure deferred tax assets and liabilities.Deferred tax assets are recognized to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilized.Deferred taxation is provided on temporary differences arising on investments in subsidiaries
except where the timing of the reversal of the temporary difference can be controlled and it is
probable that the temporary difference will not be reversed in the foreseeable future.(r)
    
    Senior notesLong-term debt, representing senior notes, is recognized initially at fair value less incidental
costs of issuance. Subsequent to initial recognition, the senior notes are stated at amortized
cost with the difference between amortized cost and redemption value recognized in profit or loss
over the period of borrowings using the effective interest method.(s)
    
    Trade and other payablesTrade and other payables are initially recognized at fair value. Except for financial guarantee
liabilities measured in accordance with note 1(o), trade and other payables are subsequently
stated at amortized cost unless the effect of discounting would be immaterial, in which case they
are stated at cost.(t)
    
    Revenue recognition(i)
    
    Revenue for the provision of international telecommunications and fixed telecommunications
network services is recognized, when an arrangement exists, service is rendered, the fee is
fixed or determinable, and collectibility is probable.(ii)
    
    Tariff-free period granted to subscribers of fixed telecommunications network services are
recognized in profit or loss rateably over the term of the service subscription agreement.
Unbilled revenue represents revenue recognized in accordance with the requirement in note
1(t)(i) that has not been billed to the subscriber.(iii)
    
    Amount received in advance for the provision of fixed telecommunications network services
is deferred and included under deferred service revenue, and subsequently recognized as
revenue on a straight-line basis over the related service period.(iv)
    
    Interest income is recognized as it accrues using the effective interest method.(v)
    
    Rental income receivable under operating leases is recognized in profit or loss in equal
installments over the periods covered by the lease term. Lease incentives granted are
recognized in profit or loss as an integral part of the aggregate net lease payments
receivable.(u)
    
    Borrowing costsBorrowing costs that are directly attributable to the acquisition, construction or production of
an asset that necessarily takes a substantial period of time to get ready for its intended use or
sale are capitalized as part of the cost of that asset.All other borrowing costs are charged to profit or loss in the year in which they are incurred.(v)
    
    Segment reportingIn accordance with the Groups internal financial reporting, the Group has determined that the
primary reporting format is business segment and secondary reporting format is geographical
segment.Segment assets consist primarily of goodwill, fixed assets, receivables and cash. Segment
liabilities comprise operating liabilities and exclude items such as taxation and certain
corporate borrowings. Capital expenditure comprises additions to fixed assets.In respect of geographical segment reporting, sales are reported based on the country in which the
customer is located. Total assets and capital expenditure are reported based on where the assets
are located.
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1
    
    Significant accounting policies (continued)(w)
    
    Accounting for barter transactionsWhen goods or services are exchanged for goods or services which are of a similar nature and
value, the exchange is not regarded as a revenue generating transaction.When goods are sold or services are rendered in exchange for dissimilar goods or services, the
exchange is regarded as a transaction which generates revenue. The revenue is measured at the
fair value of the goods or services received, adjusted by the amount of any cash or cash
equivalents transferred. When the fair value of the goods or services received cannot be measured
reliably, the revenue is measured at the fair value of the goods or services rendered, adjusted by
the amount of any cash or cash equivalents transferred.(x)
    
    Related partiesFor the purposes of these financial statements, a party is considered to be related to the Group
if:
 (i)
    
    the party has the ability, directly or indirectly through one or more intermediaries, to
control the Group or exercise significant influence over the Group in making financial and
operating policy decisions, or has joint control over the Group;(ii)
    
    the Group and the party are subject to common control;(iii)
    
    the party is an associate of the Group or a joint venture in which the Group is a venturer;(iv)
    
    the party is a member of key management personnel of the Group or the Groups parent, or a
close family member of such an individual, or is an entity under the control, joint control
or significant influence of such individuals;(v)
    
    the party is a close family member of a party referred to in (i) or is an entity under the
control, joint control or significant influence of such individuals; or(vi)
    
    the party is a post-employment benefit plan which is for the benefit of employees of the
Group or of any entity that is a related party of the Group.
 Close family members of an individual are those family members who may be expected to influence,
or be influenced by, that individual in their dealings with the entity.2
    
    Revenue and segment informationThe Group is principally engaged in the provision of international telecommunications services and
fixed telecommunications network services to customers in Hong Kong and Canada. Revenues
recognized during the year are as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000RevenueInternational telecommunications services
    
    
    247,359
    
    
    
    291,943Fixed telecommunications network
services (note 2(c))
    
    
    1,230,880
    
    
    
    1,011,0381,478,239
    
    
    
    1,302,981
 (a)
    
    Primary reporting format  business segmentsThe Group is organized on a worldwide basis into two business segments:
 - International telecommunications
    
    :
    
    provision of international long distance calls services- Fixed telecommunications network
    
    :
    

provision
of dial up and broadband Internet access services , local
voice-over-IP services, IP-TV services and corporate data
services
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2
    
    Revenue and segment information (continued)(a)
    
    Primary reporting format  business segments (continued)The Groups inter-segment transactions mainly consist of provision of leased lines services.
These transactions were entered into on similar terms as those contracted with third parties.
 2009International
    
    
    Fixedtele-
    
    
    tele-communications
    
    
    communicationsservices
    
    
    network services
    
    
    Elimination
    
    
    GroupHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000Revenue- External sales
    
    
    247,359
    
    
    
    1,230,880
    
    
    
    
    
    
    
    1,478,239- Inter-segment sales
    
    
    5,669
    
    
    
    19,784
    
    
    
    (25,453
    )
    
    
    253,028
    
    
    
    1,250,664
    
    
    
    (25,453
    )
    
    
    1,478,239Segment results
    
    
    61,631
    
    
    
    203,515
    
    
    
    
    
    
    
    265,146Other revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,540Finance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,127
    )Profit before taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251,559Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,730
    )Net profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212,829
 2008International
    
    
    Fixedtele-
    
    
    tele-communications
    
    
    communicationsservices
    
    
    network services
    
    
    Elimination
    
    
    GroupHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000Revenue- External sales
    
    
    291,943
    
    
    
    1,011,038
    
    
    
    
    
    
    
    1,302,981- Inter-segment sales
    
    
    5,692
    
    
    
    22,680
    
    
    
    (28,372
    )
    
    
    297,635
    
    
    
    1,033,718
    
    
    
    (28,372
    )
    
    
    1,302,981Segment results
    
    
    63,225
    
    
    
    95,295
    
    
    
    
    
    
    
    158,520Other revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,989Finance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75,137
    )Profit before taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,372Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,818Net profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,190
 F-14




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##### Table of Contents



2
    
    Revenue and segment information (continued)(a)
    
    Primary reporting format  business segments (continued)
 2009International
    
    
    Fixedtele-
    
    
    tele-communications
    
    
    communicationsservices
    
    
    network services
    
    
    GroupHK$000
    
    
    HK$000
    
    
    HK$000Segment assets
    
    
    297,516
    
    
    
    1,487,528
    
    
    
    1,785,044Segment liabilities
    
    
    81,194
    
    
    
    295,035
    
    
    
    376,229Unallocated liabilities
    
    
    
    
    
    
    
    
    
    
    180,288Total liabilities
    
    
    
    
    
    
    
    
    
    
    556,517Capital expenditure incurred during the year
    
    
    1,820
    
    
    
    284,914
    
    
    
    286,734Depreciation for the year
    
    
    15,154
    
    
    
    191,087
    
    
    
    206,241
 2008International
    
    
    Fixedtele-
    
    
    tele-communications
    
    
    communicationsservices
    
    
    network services
    
    
    GroupHK$000
    
    
    HK$000
    
    
    HK$000Segment assets
    
    
    426,781
    
    
    
    1,627,300
    
    
    
    2,054,081Unallocated assets
    
    
    
    
    
    
    
    
    
    
    26,335Total assets
    
    
    
    
    
    
    
    
    
    
    2,080,416Segment liabilities
    
    
    80,756
    
    
    
    276,771
    
    
    
    357,527Unallocated liabilities
    
    
    
    
    
    
    
    
    
    
    690,282Total liabilities
    
    
    
    
    
    
    
    
    
    
    1,047,809Capital expenditure incurred during the year
    
    
    4,293
    
    
    
    207,391
    
    
    
    211,684Depreciation for the year
    
    
    19,587
    
    
    
    190,464
    
    
    
    210,051
 F-15




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##### Table of Contents



2
    
    Revenue and segment information (continued)
 (b)
    
    Secondary reporting format  geographical segmentsThe Groups two business segments are managed in two main geographical areas:
 
 In disclosing information on the basis of geographical segments, revenue and segment results are
disclosed based on the geographical location of customers. Total assets and capital expenditure
are disclosed based on the geographical location of the assets.
 There were no sales between the geographical segments.
 2009Segment
    
    
    Total
    
    
    CapitalRevenue
    
    
    results
    
    
    assets
    
    
    expenditureHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000Hong Kong
    
    
    1,461,715
    
    
    
    264,859
    
    
    
    1,768,643
    
    
    
    286,193Canada
    
    
    16,524
    
    
    
    287
    
    
    
    16,401
    
    
    
    5411,478,239
    
    
    
    265,146
    
    
    
    1,785,044
    
    
    
    286,734
 2008Segment
    
    
    Total
    
    
    CapitalRevenue
    
    
    results
    
    
    assets
    
    
    expenditureHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000Hong Kong
    
    
    1,281,069
    
    
    
    157,485
    
    
    
    2,040,496
    
    
    
    211,482Canada
    
    
    21,912
    
    
    
    1,035
    
    
    
    13,585
    
    
    
    2021,302,981
    
    
    
    158,520
    
    
    
    2,054,081
    
    
    
    211,684Unallocated assets
    
    
    
    
    
    
    
    
    
    
    26,335Total assets
    
    
    
    
    
    
    
    
    
    
    2,080,416
 F-16




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##### Table of Contents



2
    
    Revenue and segment information (continued)(c)
    
    Hong Kong Broadband Network Limited (HKBN), a wholly-owned subsidiary of the Company, is a
Fixed Telecommunications Network Services (FTNS) licensee and provides interconnection
services to enable delivery of telecommunications service to customers of different
operators. Since the FTNS license was granted by the Telecommunication Authority (TA) and
interconnection services have been provided, HKBN has been billing mobile operators for the
interconnection services provided to them and recognizing revenue (mobile interconnection
charges) based on managements best estimate of the amounts to be collected. In prior
years, majority of the mobile operators rejected HKBNs demand for payment of the mobile
interconnection charges. As a result of non-payment by certain mobile operators, in 2004,
the Group requested the TA to make a determination (the 2004 Determination) on the level of
mobile interconnection charges payable by one of the mobile operators (mobile operator
under dispute) to HKBN; and the effective date of the determined mobile interconnection
charges.In June 2007, TA issued the 2004 Determination which set out the rates of mobile interconnection
charge payable by the mobile operator under dispute for interconnection services provided by HKBN
for the period from April 1, 2002 to August 31, 2004 and the mobile operator under dispute paid
mobile interconnection charge for the relevant period accordingly.Subsequent to June 2007, HKBN entered into contractual agreements with several mobile operators
which agreed to pay mobile interconnection charges based on the 2004 Determination for the period
from April 1, 2002 to August 31, 2004 and with respect to the period after August 31, 2004 at the
interim rate stated in the contractual agreements. The interim rate is subject to adjustment based
on further determination to be issued by the TA.In February 2008, since certain mobile operators had still not yet settled their mobile
interconnection charges for interconnection services provided by HKBN, HKBN requested TA to make a
new determination on the rate of mobile interconnection charge and interest thereon with those
operators.In September 2008, TA indicated that it accepted HKBNs request for determination on the rate of
mobile interconnection charges for the period from April 1, 2002 to April 26, 2009 payable by the
mobile operators that have not reached contractual agreements with HKBN, and the rate for the
period from September 1, 2004 to April 26, 2009 payable by those mobile operators that have
reached contractual agreements with HKBN, and the interest rate thereon (the 2008
Determination). As at August 31, 2009, the 2008 Determination was still in progress.For the year ended August 31, 2009, the Group recognized revenue related to mobile interconnection
charges of HK$20,558,000 (2008: HK$29,568,000) representing the amount of mobile interconnection
charges management expects to collect.3
    
    Network costsNetwork costs mainly include interconnection charges paid to local and overseas carriers, leased
line rentals, program fees, and production costs for the IP-TV service, and do not include
depreciation charge which is included in other operating expenses.The Group estimates the Universal Services Contributions (USC) payable to PCCW-HKT to fund the
costs of network development in remote areas in Hong Kong and includes such estimated costs as part
of the network costs. TA periodically reviews that actual costs of such developments and revises
the amounts owed to PCCW-HKT or to be refunded by PCCW-HKT to the USC contributing parties.On December 28, 2007, TA issued a statement (the 2007 TA Statement) on the USC and confirmed the
actual contribution level for the period from January 1, 2005 to June 30, 2007. Based on the 2007
TA Statement, HK$7,617,000 was recorded as a reduction against the network costs of the Group for
the year ended August 31, 2008.On April 8, 2009, TA issued a statement (the 2009 TA Statement) on the USC and confirmed the
actual contribution level for the period from July 1, 2007 to June 30, 2008. Based on the 2009 TA
Statement, no additional payment or refund of USC from PCCW-HKT was required.The actual contribution level for the period subsequent to June 30, 2008 has not yet been confirmed
by TA.
 F-17




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##### Table of Contents



4
    
    Profit before taxationProfit before taxation is arrived at after charging/(crediting) the following:
 (a)
    
    Other operating expenses
 2009
    
    
    2008HK$000
    
    
    HK$000Advertising and marketing expenses
    
    
    299,794
    
    
    
    307,743Amortization of deferred expenditure (note 15)
    
    
    53,160
    
    
    
    33,777Auditors remuneration
    
    
    3,455
    
    
    
    3,687Depreciation of owned fixed assets
    
    
    205,624
    
    
    
    209,464Depreciation of fixed assets held under finance
lease
    
    
    617
    
    
    
    587Operating lease charges in respect of land and
buildings
    
    
    17,010
    
    
    
    13,296Operating lease charges in respect of equipment
    
    
    42
    
    
    
    50Provision for doubtful debts (note 16(b))
    
    
    12,103
    
    
    
    14,293Loss on disposal of fixed assets
    
    
    1,016
    
    
    
    1,431Staff costs (note 4(d))
    
    
    302,279
    
    
    
    247,460Others
    
    
    142,864
    
    
    
    134,3061,037,964
    
    
    
    966,094
 (b)
    
    Other revenues
 2009
    
    
    2008HK$000
    
    
    HK$000Interest income
    
    
    (4,869
    )
    
    
    (15,596
    )Other income (note)
    
    
    (36,671
    )
    
    
    (9,393
    )(41,540
    )
    
    
    (24,989
    )
 
 Note:
    
    Included in other income was the gain on extinguishment of the 10-year senior
notes of HK$31,371,000 (2008: HK$2,582,000) for the year ended August 31, 2009.
 (c)
    
    Finance costs
 2009
    
    
    2008HK$000
    
    
    HK$000Interest element of finance leases
    
    
    27
    
    
    
    34Interest on 10-year senior notes
    
    
    52,670
    
    
    
    70,010Amortization of incidental issuance costs
    
    
    1,545
    
    
    
    1,665Other borrowing cost
    
    
    885
    
    
    
    3,42855,127
    
    
    
    75,137
 (d)
    
    Staff costs
 2009
    
    
    2008HK$000
    
    
    HK$000Wages and salaries
    
    
    278,905
    
    
    
    226,097Provision for annual leave
    
    
    613
    
    
    
    2,642Equity settled share-based transaction
    
    
    4,768
    
    
    
    4,114Retirement benefit costs  defined contribution
plans (note 8)
    
    
    34,614
    
    
    
    29,738Less: staff costs capitalized as fixed assets
    
    
    (16,621
    )
    
    
    (15,131
    )302,279
    
    
    
    247,460
 Staff costs include directors emoluments and research and development cost of HK$10,824,000
(2008: HK$9,593,000) but exclude staff costs of HK$13,461,000 (2008: HK$14,482,000) recorded
in network costs and HK$214,272,000 (2008: HK$194,724,000) recorded in advertising and
marketing expenses.
 F-18




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##### Table of Contents



4
    
    Profit before taxation (continued)
 (e)
    
    Other items
 2009
    
    
    2008HK$000
    
    
    HK$000Gain on extinguishment of 10-year
senior notes (note 22(a))
    
    
    (31,371
    )
    
    
    (2,582
    )Net exchange gain
    
    
    (3,038
    )
    
    
    (1,923
    )Realized and unrealized gain on other
financial assets
    
    
    (189
    )
    
    
    (3,284
    )Realized loss on derivative financial instruments
    
    
    
    
    
    
    1,039Realized gain on long-term bank deposit
    
    
    
    
    
    
    (1,185
    )
 5
    
    Income tax (expense)/ benefitHong Kong profits tax has been provided at the rate of 16.5% (2008: 16.5%) on the estimated
assessable profit for the year. Taxation on overseas profits has been calculated on the estimated
assessable profit for the year at the income tax rates prevailing in the overseas countries in
which the Group operates.The amount of income tax (expense)/ benefit in the consolidated income statement represents:
 2009
    
    
    2008HK$000
    
    
    HK$000Current taxation:- Hong Kong profits tax
    
    
    
    
    
    
    (391
    )- Overseas taxation
    
    
    (1,622
    )
    
    
    (1,929
    )- Under-provision of overseas taxation in prior years
    
    
    
    
    
    
    (2,552
    )Deferred taxation:- Origination and reversal of temporary differences (note 21)
    
    
    (37,108
    )
    
    
    (4,645
    )- Recognition of previously unrecognized tax losses (note 21)
    
    
    
    
    
    
    26,335Income tax (expense)/ benefit
    
    
    (38,730
    )
    
    
    16,818
 The Groups income tax (expense)/ benefit differs from the theoretical amount that would arise
using profits before taxation at applicable tax rates as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Profit before taxation
    
    
    251,559
    
    
    
    108,372Notional tax on profit before taxation, calculated
at the prevailing tax rates applicable to profit
in the countries concerned
    
    
    (42,240
    )
    
    
    (18,927
    )Effect of gain on extinguishment of 10-year
senior notes not subject to taxation
    
    
    5,176
    
    
    
    426Effect of non-taxable income
    
    
    1,466
    
    
    
    3,452Effect of non-deductible expenses
    
    
    (3,648
    )
    
    
    (6,353
    )Effect of recognition of prior year unrecognized
tax losses (note)
    
    
    
    
    
    
    26,335Effect of utilization of prior year unrecognized
tax losses
    
    
    518
    
    
    
    12,013Under-provision in prior years
    
    
    
    
    
    
    (2,552
    )Effect of share based payment
    
    
    
    
    
    
    2,324Effect of tax losses not recognized
    
    
    
    
    
    
    (74
    )Others
    
    
    (2
    )
    
    
    174Income tax (expense)/ benefit
    
    
    (38,730
    )
    
    
    16,818
 
 Note:
    
    Management projects future taxable income by considering all available information,
including tax planning strategies, historical taxable income, and the expiration period of
the unused tax losses carry forwards of each of the Company and its subsidiaries. During
the year ended August 31, 2008, taking into consideration of the results of operations,
management assessed that it is probable that sufficient future taxable profits will be
generated to utilize the unused tax losses of HK$159,606,000 which resulted in the
recognition of deferred tax assets of HK$26,335,000.
 F-19




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##### Table of Contents



6
    
    Dividends(a)
    
    Dividends payable to equity shareholders of the Company attributable to the year
 2009
    
    
    2008HK$000
    
    
    HK$000Interim dividend declared and paid of HK3 cents per
ordinary share (2008: HK4 cents per ordinary share)
    
    
    19,904
    
    
    
    25,602Final dividend proposed after the balance sheet date,
of 16 cents per ordinary share (2008: HK2 cents
per ordinary share)
    
    
    106,269
    
    
    
    13,012126,173
    
    
    
    38,614
 The final dividend proposed after the balance sheet date has not been recognized as a liability at
the balance sheet date.(b)
    
    Dividends attributable to the previous financial year, approved and paid during the year:
 2009
    
    
    2008HK$000
    
    
    HK$000Final dividend in respect of the financial year ended August 31, 2008,
approved and paid of HK2 cents per ordinary share (2008: HK4 cents
per ordinary share in respect of financial year ended August 31, 2007)
    
    
    13,014
    
    
    
    25,082
 During the year ended August 31, 2009, a scrip dividend option was offered to all shareholders
excluding shareholders with registered addresses outside Hong Kong who were entitled to the final
dividend in respect of the financial year ended August 31, 2008. 12,212,142 shares were issued
during the year ended August 31, 2009 to the shareholders who
had elected to receive all or part
of their entitlement to dividends in the form of scrip.7
    
    Earnings per share
 2009
    
    
    2008HK$000
    
    
    HK$000Profit attributable to shareholders
    
    
    212,829
    
    
    
    125,190
 Weighted average number of ordinary shares
 2009
    
    
    2008Number
    
    
    Numberof shares
    
    
    of shares000
    
    
    000Issued ordinary shares at the beginning of the year
    
    
    650,622
    
    
    
    616,503Effect of scrip dividend issued
    
    
    6,256
    
    
    
    7,353Effect of share options exercised
    
    
    329
    
    
    
    10,159Effect of shares repurchased and cancelled
    
    
    (6
    )
    
    
    Weighted average number of ordinary shares
at the end of the year (basic)
    
    
    657,201
    
    
    
    634,015Incremental shares from assumed exercise
of share options
    
    
    11,183
    
    
    
    23,982Weighted average number of ordinary shares
at the end of the year (diluted)
    
    
    668,384
    
    
    
    657,997Basic earnings per share
    
    HK32.4
    cents
    
    HK19.7
    centsDiluted earnings per share
    
    HK31.8
    cents
    
    HK19.0
    cents
 F-20




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##### Table of Contents



8
    
    Retirement benefit costsThe Group contributes to an Occupational Retirement Scheme (the ORSO Scheme), a defined
contribution retirement scheme, which is available to some of its employees in Hong Kong. Under
the ORSO Scheme, the employees are required to contribute 5% of their monthly salaries, while the
Groups contributions are calculated at 10% and 5% of the monthly salaries of senior management
staff and all other staff respectively. The employees are entitled to 100% of the employers
contributions after 10 years of completed service, or at a reduced scale after completion of 3 to
9 years service. Contributions to the ORSO Scheme are reduced by contributions forfeited by
those employees who leave the ORSO Scheme prior to vesting fully in the Groups contributions.A mandatory provident fund scheme (the MPF Scheme) has been established under the Hong Kong
Mandatory Provident Fund Scheme Ordinance in December 2000. The then existing employees of the
Group in Hong Kong could elect to join the MPF Scheme, while all new employees joining the Group
in Hong Kong from then onwards are required to join the MPF Scheme. Both the Group and the
employees are required to contribute 5% of each individuals relevant income with a maximum amount
of HK$1,000 per month as a mandatory contribution. Employers mandatory contributions are 100%
vested in the employees as soon as they are paid to the MPF Scheme. Senior employees may also
elect to join a Mutual Voluntary Plan (the Mutual Plan) in which both the Group and the
employee, on top of the MPF Scheme mandatory contributions, make a voluntary contribution to the
extent of contributions that would have been made under the ORSO Scheme.Pursuant to the relevant regulations in Peoples Republic of China (the PRC), the Group
contributes to a defined contribution retirement scheme organized by the local social security
bureau for each employee of the subsidiary in PRC at the rate of 20% of a standard salary base as
determined by the local social security bureau. The Group has no other obligation to make
payments in respect of retirement benefits of these employees.The retirement schemes for staff of the Group in other countries follow the local statutory
requirements of the respective countries.The aggregate employers contributions, net of forfeited contributions, which have been dealt with
in the consolidated income statement during the year are as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Gross contributions
    
    
    34,614
    
    
    
    29,738
 At August 31, 2009, there was no forfeited contribution available to offset future contributions
by the Group to the ORSO Scheme (2008: Nil).9
    
    Directors and senior managements emoluments(a)
    
    Directors remunerationThe remuneration of each director for the year ended August 31, 2009 is set out below:
 Employerscontributionto definedDiscretionary
    
    
    Share-based
    
    
    contributionName of director
    
    Fee
    
    
    Salary
    
    
    bonuses
    
    
    payment
    
    
    scheme
    
    
    TotalHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000Wong Wai Kay, Ricky
    
    
    
    
    
    
    6,712
    
    
    
    1,500
    
    
    
    193
    
    
    
    670
    
    
    
    9,075Cheung Chi Kin, Paul
    
    
    
    
    
    
    6,714
    
    
    
    1,500
    
    
    
    193
    
    
    
    670
    
    
    
    9,077Yeung Chu Kwong,
William
    
    
    
    
    
    
    7,049
    
    
    
    1,000
    
    
    
    1,764
    
    
    
    456
    
    
    
    10,269Lai Ni Quiaque
    
    
    
    
    
    
    2,403
    
    
    
    550
    
    
    
    1,141
    
    
    
    240
    
    
    
    4,334Cheng Mo Chi, Moses
    
    
    160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160Lee Hon Ying, John
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176Chan Kin Man
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Peh Jefferson Tun Lu
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Total
    
    
    666
    
    
    
    22,878
    
    
    
    4,550
    
    
    
    3,291
    
    
    
    2,036
    
    
    
    33,421
 F-21




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##### Table of Contents



9
    
    Directors and senior managements emoluments (continued)(a)
    
    Directors remuneration (continued)The remuneration of each director for the year ended August 31, 2008 is set out below:
 Employerscontributionto definedDiscretionary
    
    
    Share-based
    
    
    contributionName of director
    
    Fee
    
    
    Salary
    
    
    bonuses
    
    
    payment
    
    
    scheme
    
    
    TotalHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000Wong Wai Kay, Ricky
    
    
    
    
    
    
    6,482
    
    
    
    1,054
    
    
    
    558
    
    
    
    648
    
    
    
    8,742Cheung Chi Kin, Paul
    
    
    
    
    
    
    6,482
    
    
    
    1,054
    
    
    
    558
    
    
    
    648
    
    
    
    8,742Lai Ni Quiaque
    
    
    
    
    
    
    2,250
    
    
    
    225
    
    
    
    809
    
    
    
    225
    
    
    
    3,509Cheng Mo Chi, Moses
    
    
    152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152Lee Hon Ying, John
    
    
    168
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168Chan Kin Man
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158Peh Jefferson Tun Lu
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158Total
    
    
    636
    
    
    
    15,214
    
    
    
    2,333
    
    
    
    1,925
    
    
    
    1,521
    
    
    
    21,629
 No director waived any emoluments in respect of the years ended August 31, 2008 and 2009.The share-based payment represents the expenses determined based on the fair value of share
options granted to certain directors under the Companys share option scheme. Fair value of share
options is estimated in accordance with the Groups significant accounting policies in note 1. The
details of the benefits in kind are disclosed in note 10.(b)
    
    Five highest paid individualsThe five individuals whose emoluments were the highest in the Group for the year include four
(2008: three) directors whose emoluments are reflected in the analysis presented above. The
emoluments payable to the remaining one (2008: two) individual during the year are as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Basic salaries, other allowances and
benefits in kind
    
    
    2,515
    
    
    
    8,512Discretionary bonuses
    
    
    150
    
    
    
    1,137Share-based payments
    
    
    332
    
    
    
    1,316Retirement benefit costs  defined
contribution plans
    
    
    106
    
    
    
    5893,103
    
    
    
    11,554
 The emoluments fell within the following band:
 Number of individual2009
    
    
    2008HK$2,500,001  HK$3,000,000
    
    
    
    
    
    
    1HK$3,000,001  HK$4,000,000
    
    
    1
    
    
    
    HK$9,000,001  HK$10,000,000
    
    
    
    
    
    
    1
 F-22




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##### Table of Contents



10
    
    Equity settled share-based transactionsThe Company operates a share option scheme (the 2002 Share Option Scheme) which was adopted by
shareholders of the Company on December 23, 2002 whereby the directors may, at their discretion,
invite eligible participants to receive options to subscribe for shares subject to the terms and
conditions stipulated therein.Under the 2002 Share Option Scheme, the Company may grant options to employees (including
executive, non-executive and independent non-executive directors), suppliers and professional
advisers to subscribe for shares of the Company. The maximum number of options authorized under
the 2002 Share Option Scheme may not, when aggregated with any shares subject to any other
executive and employee share option scheme, exceed 10% of the Companys issued share capital on
the date of adoption. The exercise price of the option is determined by the Companys board of
directors at a price not less than the highest of (a) the par value of a share; (b) the average
closing price of the Companys shares for five trading days preceding the grant date; and (c) the
closing price of the Companys shares on the date of grant. The 2002 Share Option Scheme is valid
and effective for a ten year period up to December 22, 2012 subject to earlier termination by the
Company by resolution in general meeting or by the board of directors. The period during which the
option may be exercised will be determined by the board of directors at its discretion, save that
no option may be exercised after more than ten years from the date of grant.(a)
    
    The terms and conditions of the optionsOptions that existed during the year ended August 31, 2009 are as follows, whereby all options are
settled by physical delivery of shares:
 Number
    
    
    Vesting
    
    
    Exercisableof option
    
    
    conditions
    
    
    period2002 Share Option SchemeOptions granted to directors:-January 5, 2005
    
    
    16,183,208
    
    
    Condition 1
    
    On or prior to October 20, 2014-May 22, 2006
    
    
    15,178,466
    
    
    Condition 1
    
    On or prior to May 21, 2016-February 6, 2008
    
    
    6,044,791
    
    
    Condition 3
    
    On or prior to December 23, 2012-February 11, 2008
    
    
    6,044,791
    
    
    Condition 2
    
    On or prior to December 23, 2012Options granted to employees:-October 21, 2004
    
    
    7,606,712
    
    
    Condition 1
    
    On or prior to October 20, 2014-May 22, 2006
    
    
    7,314,455
    
    
    Condition 1
    
    On or prior to May 21, 2016-August 3, 2006
    
    
    40,540
    
    
    Condition 1
    
    On or prior to August 2, 2016-November 22, 2006
    
    
    136,545
    
    
    Condition 1
    
    On or prior to November 14, 2016-February 15, 2008
    
    
    1,007,465
    
    
    Condition 3
    
    On or prior to December 23, 2012-March 11, 2008
    
    
    302,240
    
    
    Condition 1
    
    On or prior to December 23, 2012-May 2, 2008
    
    
    1,007,465
    
    
    Condition 3
    
    On or prior to December 23, 2012Total share options
    
    
    60,866,678
 F-23




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##### Table of Contents



10
    
    Equity settled share-based transactions (continued)(a)
    
    The terms and conditions of the options (continued)Options that existed during the year ended August 31, 2008 are as follows, whereby all options are
settled by physical delivery of shares:
 Number
    
    
    Vesting
    
    
    Exercisableof option
    
    
    conditions
    
    
    period2002 Share Option SchemeOptions granted to directors:-June 3, 2004
    
    
    6,000,000
    
    
    Condition 1
    
    On or prior to June 2, 2014-January 5, 2005
    
    
    16,106,956
    
    
    Condition 1
    
    On or prior to October 20, 2014-May 22, 2006
    
    
    15,093,585
    
    
    Condition 1
    
    On or prior to May 21, 2016-February 11, 2008
    
    
    6,016,309
    
    
    Condition 2
    
    On or prior to December 23, 2012Options granted to employees:-October 21, 2004
    
    
    8,393,399
    
    
    Condition 1
    
    On or prior to October 20, 2014-October 3, 2005
    
    
    1,000,000
    
    
    Condition 1
    
    On or prior to September 30, 2015-May 22, 2006
    
    
    14,012,937
    
    
    Condition 1
    
    On or prior to May 21, 2016-July 3, 2006
    
    
    702,769
    
    
    Condition 1
    
    On or prior to July 2, 2016-August 3, 2006
    
    
    70,468
    
    
    Condition 1
    
    On or prior to August 2, 2016-November 22, 2006
    
    
    200,902
    
    
    Condition 1
    
    On or prior to November 14, 2016-May 23, 2007
    
    
    100,396
    
    
    Condition 1
    
    On or prior to June 11, 2017-December 12, 2007
    
    
    1,003,956
    
    
    Condition 1
    
    On or prior to December 23, 2012-February 6, 2008
    
    
    6,016,309
    
    
    Condition 3
    
    On or prior to December 23, 2012-February 15, 2008
    
    
    4,010,873
    
    
    Condition 3
    
    On or prior to December 23, 2012-March 11, 2008
    
    
    300,816
    
    
    Condition 1
    
    On or prior to December 23, 2012-May 2, 2008
    
    
    1,002,718
    
    
    Condition 3
    
    On or prior to December 23, 2012Total share options
    
    
    80,032,393
 The vesting conditions of the respective share option grant are as follows:Condition 1Options granted will be vested in one year or evenly vested over a period of two to three years.
Options are awarded without performance conditions and are exercisable provided the participants
have remained employed by the end of respective vesting periods.Condition 2Vesting of the options is conditional upon the market price
of the Companys shares reaching a target level over the
period from the close of trading in Hong Kong on November 22, 2007 to November 21, 2010. Options
granted are vested immediately or evenly over a period of three years from the date of fulfillment
of the market condition.Condition 3Vesting of the options is conditional upon the performance of the participants. Options granted
are vested over a period of three to four years from the date of fulfillment of the performance
condition.
 F-24




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##### Table of Contents



10
    
    Equity settled share-based transactions (continued)(b)
    
    The number and weighted average exercise prices of share options are as follows:
 2009
    
    
    2008Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageexercise
    
    
    Number of
    
    
    exercise
    
    
    Number ofprice
    
    
    options
    
    
    price
    
    
    optionsHK$
    
    
    
    
    
    
    HK$2002 Share Option SchemeOutstanding at the beginning
of the year
    
    
    1.27
    
    
    
    60,581,214
    
    
    
    1.09
    
    
    
    61,350,000Adjustment to number of options
for 2007 Final Dividend (note (i))
    
    
    
    
    
    
    
    
    
    
    1.10
    
    
    
    204,922Adjustment to number of options
for 2008 Interim Dividend (note (ii))
    
    
    
    
    
    
    
    
    
    
    1.28
    
    
    
    177,471Adjustment to number of options
for 2008 Final Dividend (note (iii))
    
    
    1.27
    
    
    
    285,464
    
    
    
    
    
    
    
    Granted during the year
    
    
    
    
    
    
    
    
    
    
    1.84
    
    
    
    18,300,000Exercised during the year
    
    
    0.99
    
    
    
    (1,416,005
    )
    
    
    1.07
    
    
    
    (14,052,268
    )Lapsed during the year
    
    
    1.65
    
    
    
    (483,442
    )
    
    
    1.63
    
    
    
    (5,398,911
    )Outstanding at the end of the year
    
    
    1.27
    
    
    
    58,967,231
    
    
    
    1.27
    
    
    
    60,581,214Exercisable at the end of the year
    
    
    1.12
    
    
    
    45,849,756
    
    
    
    1.22
    
    
    
    36,463,198
 The weighted average share price at the date of exercise for the share options exercised during the
year was HK$0.99 (2008: HK$1.07).The options outstanding at August 31, 2009 had a weighted exercise price of HK$1.27 (2008: HK$1.27)
and a weighted average remaining contractual life of 5 years (2008: 7 years).
 
  (i)
    
    As a result of allotment of 11,227,213 new shares to shareholders who elected to receive the
2007 Final Dividend in shares on February 4, 2008, the exercise price of and the number of
share subject to the 51,805,000 share options outstanding on December 21, 2007 (being the
Record Date for determining the entitlement of 2007 Final Dividend) were adjusted pursuant to
the 2002 Share Option Scheme with effect from February 4, 2008.(ii)
    
    As a result of allotment of 8,838,938 new shares to shareholders who elected to receive the
2008 Interim Dividend in shares on July 23, 2008, the exercise price of and the number of
share subject to the 65,296,047 share options outstanding on June 6, 2008 (being the Record
Date for determining the entitlement of 2008 Interim Dividend) were adjusted pursuant to the
2002 Share Option Scheme with effect from July 23, 2008.(iii)
    
    As a result of allotment of 12,212,142 new shares to shareholders who elected to receive the
2008 Final Dividend in shares on February 25, 2009, the exercise price of and the number of
share subject to the 60,299,426 share options outstanding on December 19, 2008 (being the
Record Date for determining the entitlement of 2008 Final Dividend) were adjusted pursuant to
the 2002 Share Option Scheme with effect from February 25, 2009. (c)
    
    Fair value of share options and assumptionsIn determining the value of the share options granted, the Black-Scholes Model has been used except
for the option granted on February 11, 2008 which has adopted the Monte Carlo Model. Both models
are one of the most generally accepted methodologies used to calculate the value of options. The
variables of the models include expected life of the options, risk-free interest rate, expected
volatility and expected dividend of the shares of the Company.Both models require input of highly subjective assumptions, including the expected stock
volatility. Since the Companys share options have characteristics significantly different from
those of traded options, changes in subjective inputs may materially affect the estimated fair
value of the options granted.
 F-25




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##### Table of Contents



11
    
    Goodwill
 HK$000Cost and carrying amount:At August 31, 2009/2008
    
    
    1,066
 Impairment tests for cash-generating units containing goodwillGoodwill is allocated to the Groups cash-generating units (CGU) identified according to country
of operation and business segment as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Fixed telecommunications network service segment
    
    
    1,066
    
    
    
    1,066
 The recoverable amount of the CGU exceeds its carrying amount. The recoverable amount of the CGU
is determined based on value-in-use calculations. These calculations use cash flow projections
based on financial budgets approved by management covering a five-year period. Cash flows for the
five-year period are estimated based on average growth rates of 15% and a pre-tax discount rate of
18%. Cash flows beyond the five year period are assumed to remain constant. The estimated growth
rates used are comparable to the growth rate for the industry.The key assumption used in the value-in-use calculation is the annual growth of the turnover of
the fixed telecommunications network services, which is determined based on the past performance
and managements expectation for market development. The discount rate used is pre-tax and
reflects specific risks relating to the fixed telecommunication services segment.Any adverse change in the key assumption could reduce the recoverable amount below carrying
amount.
 F-26




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##### Table of Contents



12
    
    Fixed assets
 Telecom-munications,Leasehold
    
    
    
    
    
    
    Furniture,
    
    
    computerInvestment
    
    
    land and
    
    
    Leasehold
    
    
    fixtures
    
    
    and office
    
    
    Motorproperty
    
    
    buildings
    
    
    improvements
    
    
    and fittings
    
    
    equipment
    
    
    vehicles
    
    
    TotalHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000Cost:At September 1, 2008
    
    
    5,197
    
    
    
    84,244
    
    
    
    84,577
    
    
    
    19,575
    
    
    
    2,644,281
    
    
    
    12,624
    
    
    
    2,850,498Additions
    
    
    
    
    
    
    6,667
    
    
    
    16,663
    
    
    
    416
    
    
    
    262,796
    
    
    
    192
    
    
    
    286,734Disposals
    
    
    
    
    
    
    
    
    
    
    (630
    )
    
    
    (30
    )
    
    
    (55,118
    )
    
    
    (43
    )
    
    
    (55,821
    )Exchange adjustments
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    (76
    )
    
    
    (1,515
    )
    
    
    
    
    
    
    (1,754
    )At August 31, 2009
    
    
    5,197
    
    
    
    90,911
    
    
    
    100,447
    
    
    
    19,885
    
    
    
    2,850,444
    
    
    
    12,773
    
    
    
    3,079,657Accumulated depreciation:At September 1, 2008
    
    
    2,205
    
    
    
    10,727
    
    
    
    61,269
    
    
    
    15,596
    
    
    
    1,522,739
    
    
    
    6,563
    
    
    
    1,619,099Charge for the year
    
    
    104
    
    
    
    1,739
    
    
    
    8,286
    
    
    
    1,508
    
    
    
    192,925
    
    
    
    1,679
    
    
    
    206,241Disposals
    
    
    
    
    
    
    
    
    
    
    (294
    )
    
    
    (29
    )
    
    
    (46,214
    )
    
    
    (19
    )
    
    
    (46,556
    )Exchange adjustments
    
    
    
    
    
    
    
    
    
    
    (159
    )
    
    
    (58
    )
    
    
    (1,290
    )
    
    
    
    
    
    
    (1,507
    )At August 31, 2009
    
    
    2,309
    
    
    
    12,466
    
    
    
    69,102
    
    
    
    17,017
    
    
    
    1,668,160
    
    
    
    8,223
    
    
    
    1,777,277Net book value:At August 31, 2009
    
    
    2,888
    
    
    
    78,445
    
    
    
    31,345
    
    
    
    2,868
    
    
    
    1,182,284
    
    
    
    4,550
    
    
    
    1,302,380Cost:At September 1, 2007
    
    
    5,197
    
    
    
    79,598
    
    
    
    80,638
    
    
    
    17,419
    
    
    
    2,475,775
    
    
    
    6,818
    
    
    
    2,665,445Additions
    
    
    
    
    
    
    4,646
    
    
    
    2,469
    
    
    
    2,189
    
    
    
    196,230
    
    
    
    6,150
    
    
    
    211,684Disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (478
    )
    
    
    (30,564
    )
    
    
    (344
    )
    
    
    (31,386
    )Exchange adjustments
    
    
    
    
    
    
    
    
    
    
    1,470
    
    
    
    445
    
    
    
    2,840
    
    
    
    
    
    
    
    4,755At August 31, 2008
    
    
    5,197
    
    
    
    84,244
    
    
    
    84,577
    
    
    
    19,575
    
    
    
    2,644,281
    
    
    
    12,624
    
    
    
    2,850,498Accumulated depreciation:At September 1, 2007
    
    
    2,101
    
    
    
    9,123
    
    
    
    50,309
    
    
    
    13,952
    
    
    
    1,346,854
    
    
    
    5,883
    
    
    
    1,428,222Charge for the year
    
    
    104
    
    
    
    1,604
    
    
    
    9,626
    
    
    
    1,617
    
    
    
    196,198
    
    
    
    902
    
    
    
    210,051Disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (286
    )
    
    
    (22,390
    )
    
    
    (222
    )
    
    
    (22,898
    )Exchange adjustments
    
    
    
    
    
    
    
    
    
    
    1,334
    
    
    
    313
    
    
    
    2,077
    
    
    
    
    
    
    
    3,724At August 31, 2008
    
    
    2,205
    
    
    
    10,727
    
    
    
    61,269
    
    
    
    15,596
    
    
    
    1,522,739
    
    
    
    6,563
    
    
    
    1,619,099Net book value:At August 31, 2008
    
    
    2,992
    
    
    
    73,517
    
    
    
    23,308
    
    
    
    3,979
    
    
    
    1,121,542
    
    
    
    6,061
    
    
    
    1,231,399
 F-27




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##### Table of Contents



12
    
    Fixed assets (continued)(a)
    
    The Groups total future aggregate lease income receivable under non-cancellable operating
lease are as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Leases in respect of investment property which are receivable:- Within 1 year
    
    
    258
    
    
    
    258- After 1 year but within 5 years
    
    
    
    
    
    
    258258
    
    
    
    516Leases in respect of telecommunications facilities and
computer equipment which are receivable:- Within 1 year
    
    
    1,566
    
    
    
    979- After 1 year but within 5 years
    
    
    1,071
    
    
    
    2922,637
    
    
    
    1,2712,895
    
    
    
    1,787
 (b)
    
    At August 31, 2009, the fair value of the investment property approximates its carrying
value. Management estimated the fair value of the investment property based on its open market
value.(c)
    
    The net book value of interests in leasehold land and buildings and investment property
situated in Hong Kong are analyzed as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Leases of between 10 to 50 years
    
    
    81,333
    
    
    
    76,509
 Representing:
 2009
    
    
    2008HK$000
    
    
    HK$000Leasehold land and building carried
at cost
    
    
    78,445
    
    
    
    73,517Investment property carried at cost
less impairment loss
    
    
    2,888
    
    
    
    2,99281,333
    
    
    
    76,509
 (d)
    
    In addition to the leasehold land and buildings classified as being held under a finance
lease, the Group leases telecommunications, computer and office equipment under finance
leases expiring from one to six years. At the end of the lease term the Group has the option
to purchase the equipment at a price deemed to be a bargain purchase option. None of the
leases included contingent rental.At August 31, 2009, the net book value of telecommunications, computer and office equipment under
finance lease held by the Group amounted to HK$1,289,000 (2008: HK$1,411,000).
 F-28




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##### Table of Contents



13
    
    Principal subsidiariesThe following is a list of the principal subsidiaries which principally affected the results,
assets or liabilities of the Group at August 31, 2009:
 Principalactivities
    
    ParticularsPlace of
    
    and place of
    
    of issued
    
    Percentage ofName
    
    incorporation
    
    operations
    
    share capital
    
    interest heldAttitude Holdings
Limited
    
    British Virgin
Islands
    
    Inactive
    
    Ordinary
US$1
    
    
    100Automedia Holdings
Limited
    
    British Virgin
Islands
    
    Investment holding in Hong Kong
    
    Ordinary
US$1
    
    
    * 100City Telecom (B.C.)
Inc.
    
    Canada
    
    Provision of
international
telecommunications
and dial-up
internet access
services in
Canada
    
    Common
Canadian
dollar
(CAD)
501,000
    
    
    100City Telecom
(Canada) Inc.
    
    Canada
    
    Leasing and
maintenance of
switching equipment
and provision of
operational services
in Canada
    
    Common
CAD100
    
    
    100City Telecom Inc.
    
    Canada
    
    Provision of
international
telecommunications
and dial-up internet
access services in
Canada
    
    Common
CAD1,000
    
    
    100City Telecom
International
Limited
    
    British Virgin
Islands
    
    Investment holding in Hong Kong
    
    Ordinary
US$5,294
    
    
    * 100Credibility Holdings
Limited
    
    British Virgin
Islands
    
    Investment holding in Hong Kong
    
    Ordinary
US$1
    
    
    * 100
 
 F-29




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##### Table of Contents



13
    
    Principal subsidiaries (continued)The following is a list of the principal subsidiaries which principally affected the results,
assets or liabilities of the Group at August 31, 2009: (continued)
 Principalactivities
    
    ParticularsPlace of
    
    and place of
    
    of issued
    
    Percentage ofName
    
    incorporation
    
    operations
    
    share capital
    
    interest heldCTI Guangzhou
Customer Services
Co. Ltd.
(translated from
the registered name
in Chinese)
    
    PRC
    
    Provision of
administrative
support services
in the PRC
    
    Paid in
capital of
HK$8,000,000
    
    
    * 100CTI Marketing 
Company Limited
    
    Hong Kong
    
    Inactive
    
    Ordinary
HK$10,000
    
    
    100Golden Trinity 
Holdings Limited
    
    British Virgin
Islands
    
    Investment holding
in
 Hong Kong
    
    Ordinary
US$1
    
    
    * 100Hong Kong 
Broadband 
Network Limited
    
    Hong Kong
    
    Provision of
international
telecommunications
and fixed
telecommunications
network services in
Hong Kong
    
    Ordinary
HK$383,049
    
    
    100IDD 1600 Company 
Limited
    
    Hong Kong
    
    Provision of
international
telecommunications
services in Hong Kong
    
    Ordinary
HK$2
    
    
    100SGBN Singapore
Broadband
Network Pte.
Limited
    
    Singapore
    
    Inactive
    
    Ordinary
Singapore
dollar
(SG$) 1
    
    
    * 100
 
 *
    
    Shares held directly by the Company. 
 F-30




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##### Table of Contents



14
    
Other financial assets
 2009
    
    
    2008HK$000
    
    
    HK$000Debt securities, at fair value
and unlisted outside
Hong Kong
    
    
    
    
    
    
    27,997
 Note:The balance as at August 31, 2008 was an investment in debt security with principal
amount of US$3,000,000. During the year ended August 31, 2009, the debt security matured.15
    
    Deferred expenditure
 2009
    
    
    2008HK$000
    
    
    HK$000Balance as at the beginning of the year
    
    
    56,095
    
    
    
    21,367Additions during the year
    
    
    46,525
    
    
    
    68,505Less: amortization charge for the year (note 4(a))
    
    
    (53,160
    )
    
    
    (33,777
    )49,460
    
    
    
    56,095Current portion
    
    
    (36,674
    )
    
    
    (40,704
    )Balance as at the end of the year
    
    
    12,786
    
    
    
    15,391
 Deferred expenditure represents costs incurred to acquire subscribers of the services
offered by the Group, which is treated as customer acquisition costs and are amortized over
the period of the underlying service subscription agreements.16
    
    Accounts receivable, other receivables, deposits and prepayments
 2009
    
    
    2008HK$000
    
    
    HK$000Accounts receivable
    
    
    123,352
    
    
    
    152,227Less: Allowance for doubtful
debts
    
    
    (3,160
    )
    
    
    (11,944
    )120,192
    
    
    
    140,283Other receivables, deposits
and prepayments
    
    
    69,765
    
    
    
    82,726189,957
    
    
    
    223,009
 F-31




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##### Table of Contents



16
    
    Accounts receivable, other receivables, deposits and prepayments (continued)(a)
    
    Aging analysisThe aging analysis of accounts receivable is as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Current - 30 days
    
    
    32,427
    
    
    
    45,46231 - 60 days
    
    
    13,663
    
    
    
    17,50761 - 90 days
    
    
    3,953
    
    
    
    7,249Over 90 days
    
    
    73,309
    
    
    
    82,009123,352
    
    
    
    152,227
 The majority of the Groups accounts receivable are due within 30 days from the date of
billings. Subscribers with receivable that are more than 3 months overdue are requested to
settle all outstanding balance before further credit is granted.(b)
    
    Impairment of accounts receivableImpairment losses in respect of accounts receivable are recorded using an allowance
account unless the Group is satisfied that recovery of the amount is remote, in which case
the impairment loss is written off against accounts receivable directly (see note
1(i)(i)).The movement in the allowance for doubtful debts during the year including both specific
and collective loss components is as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Balance as at the beginning
of the year
    
    
    11,944
    
    
    
    22,392Impairment loss recognized
    
    
    12,103
    
    
    
    14,293Uncollectible amounts
written off
    
    
    (20,887
    )
    
    
    (24,741
    )Balance as at the end of
the year
    
    
    3,160
    
    
    
    11,944
 (c)
    
    Accounts receivable that are not impairedThe aging analysis of accounts receivable that are neither individually nor collectively
considered to be impaired are as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Neither past due nor impaired
    
    
    32,427
    
    
    
    45,4620 - 30 past due
    
    
    13,663
    
    
    
    17,50731 - 60 past due
    
    
    3,953
    
    
    
    7,249Over 60 past due
    
    
    70,149
    
    
    
    70,065120,192
    
    
    
    140,283
 Receivables that were neither past duenor impaired relate to a wide range of
customers for whom there was no recent history of default.The amounts over 60 days past due for the Group included receivable relating to mobile
interconnection charges of HK$68,802,000 as at August 31, 2009 (August 31, 2008:
HK$64,407,000) (see note 2(c)).
 F-32




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##### Table of Contents



16
    
    Accounts receivable, other receivables, deposits and prepayments (continued)(c)
    
    Accounts receivable that are not impaired (continued)Other accounts receivable that were past due but not impaired relate to a number of
independent customers that have a good track record with the Group. Based on past
experience, management believes that no impairment allowance is necessary in respect of
these balances as there has not been a significant change in credit quality and the
balances are still considered fully recoverable. The Group does not hold collateral over
these balances.(d)
    
    Other receivables, deposits and prepaymentsOther receivables, deposits and prepayments consist of deposits for purchase of fixed
assets, rental deposit, interest receivable, unbilled revenue, prepayment and other
receivables.17
    
    Cash at bank and in hand
 2009
    
    
    2008HK$000
    
    
    HK$000Time deposits with banks and
other financial institutions
    
    
    77,500
    
    
    
    264,943Cash at bank and in hand
    
    
    143,552
    
    
    
    156,667Cash at bank and in hand in
the balance sheet
    
    
    221,052
    
    
    
    421,610
 18
    
    Accounts payable, other payables and accrued charges
 2009
    
    
    2008HK$000
    
    
    HK$000Accounts payable
    
    
    37,555
    
    
    
    52,324Other payables and accrued
charges
    
    
    206,487
    
    
    
    178,114244,042
    
    
    
    230,438
 (a)
    
    The aging analysis of the accounts payable was as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Current - 30 days
    
    
    12,621
    
    
    
    18,80231 - 60 days
    
    
    1,778
    
    
    
    4,02561 - 90 days
    
    
    189
    
    
    
    8,334Over 90 days
    
    
    22,967
    
    
    
    21,16337,555
    
    
    
    52,324
 (b)
    
    Other payables and accrued chargesOther payables and accrued charges primarily consist of accrual for staff salaries and
bonus, carrier fees and charges, payable for purchase of fixed assets, advertising and
promotional expenses as well as interest payable in respect of the 10-year senior notes.19
    
    Deferred service revenueDeferred service revenue primarily includes service fees received from customers in
advance for the Groups fixed telecommunications network services. Service fees received
in advance is deferred and recognized as revenue on a straight-line basis over the related
contract period.
 F-33




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##### Table of Contents



20
    
    Capital and reserves
 CapitalShare
    
    
    Share
    
    
    Capital
    
    
    redemption
    
    
    Retained
    
    
    Exchangecapital
    
    
    premium
    
    
    reserve
    
    
    reserve
    
    
    profits
    
    
    reserve
    
    
    TotalHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000At September 1, 2008
    
    
    65,062
    
    
    
    670,717
    
    
    
    19,013
    
    
    
    
    
    
    
    275,025
    
    
    
    2,790
    
    
    
    1,032,607Profit attributable to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212,829
    
    
    
    
    
    
    
    212,829Dividend paid in respect of previous year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,108
    )
    
    
    
    
    
    
    (3,108
    )Shares issued in respect of scrip
dividend of previous year
    
    
    1,221
    
    
    
    8,685
    
    
    
    
    
    
    
    
    
    
    
    (9,906
    )
    
    
    
    
    
    
    Dividend paid in respect of current year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,904
    )
    
    
    
    
    
    
    (19,904
    )Shares issued upon exercise of share option
    
    
    142
    
    
    
    1,806
    
    
    
    (549
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,399Equity settled share-based transactions
    
    
    
    
    
    
    
    
    
    
    4,768
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,768Exchange adjustments on translation
of the financial statements of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    70Repurchase and cancellation of ordinary
shares
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    (134
    )
    
    
    
    
    
    
    (134
    )At August 31, 2009
    
    
    66,418
    
    
    
    681,208
    
    
    
    23,232
    
    
    
    7
    
    
    
    454,802
    
    
    
    2,860
    
    
    
    1,228,527
 Share
    
    
    Share
    
    
    Capital
    
    
    Retained
    
    
    Exchangecapital
    
    
    premium
    
    
    reserve
    
    
    profits
    
    
    reserve
    
    
    TotalHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000At September 1, 2007
    
    
    61,650
    
    
    
    622,433
    
    
    
    18,109
    
    
    
    200,519
    
    
    
    1,171
    
    
    
    903,882Profit attributable to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,190
    
    
    
    
    
    
    
    125,190Dividend paid in respect of previous year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,915
    )
    
    
    
    
    
    
    (5,915
    )Shares issued in respect of scrip
dividend of previous year
    
    
    1,123
    
    
    
    18,044
    
    
    
    
    
    
    
    (19,167
    )
    
    
    
    
    
    
    Dividend paid in respect of current year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,371
    )
    
    
    
    
    
    
    (11,371
    )Shares issued in respect of scrip
dividend of current year
    
    
    884
    
    
    
    13,347
    
    
    
    
    
    
    
    (14,231
    )
    
    
    
    
    
    
    Shares issued upon exercise of share option
    
    
    1,405
    
    
    
    16,893
    
    
    
    (3,300
    )
    
    
    
    
    
    
    
    
    
    
    14,998Equity settled share-based transactions
    
    
    
    
    
    
    
    
    
    
    4,204
    
    
    
    
    
    
    
    
    
    
    
    4,204Exchange adjustments on translation
of the financial statements of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,619
    
    
    
    1,619At August 31, 2008
    
    
    65,062
    
    
    
    670,717
    
    
    
    19,013
    
    
    
    275,025
    
    
    
    2,790
    
    
    
    1,032,607
 F-34




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##### Table of Contents



20
    
    Capital and reserves (continued)Nature and purpose of reserves(i)
    
    Share premiumThe application of the share premium account is governed by Sections 48B of the Hong Kong Companies Ordinance.(ii)
    
    Capital reserveThe capital reserve comprises the fair value of the actual or estimated number of unexercised
share options granted to employees of the Group that was recognized in accordance with the
accounting policy adopted for share based payment in note 1(p).(iii)
    
    PRC statutory reserveIn accordance with Accounting Regulations for Business Enterprises, foreign investment enterprises
in the PRC are required to transfer at least 10% of their profit after taxation, as determined
under accounting principles generally accepted in the PRC (PRC GAAP) to the general reserve
until the balance of the general reserve is equal to 50% of their registered capital.For the year ended August 31, 2009, CTI Guangzhou Customer Services Co Ltd (CTIGZ), a
wholly-owned subsidiary of the Group, made appropriation to the statutory reserve of RMB510,000
(2008: RMB324,000). The accumulated balance of the statutory reserve maintained at the CTIGZ as
at August 31, 2009 was RMB1,415,000 (2008: RMB905,000). The statutory reserve can be used to
reduce previous years losses and to increase the capital of the subsidiary.(iv)
    
    Exchange reserveThe exchange reserve comprises all foreign exchange differences arising from the translation of
the financial statements of foreign operations. The reserve is dealt with in accordance with the
accounting policies set out in note 1(d)(ii).(a)
    
    Share capital
 2009
    
    
    2008No. of
    
    
    Amount
    
    
    No. of
    
    
    AmountShares
    
    
    HK$000
    
    
    shares
    
    
    HK$000Authorized:Ordinary shares of HK$0.10 each
    
    
    2,000,000,000
    
    
    
    200,000
    
    
    
    2,000,000,000
    
    
    
    200,000Issued and fully paid:Ordinary shares of HK$0.10 eachAt the beginning of
the year
    
    
    650,621,823
    
    
    
    65,062
    
    
    
    616,503,404
    
    
    
    61,650Shares issued in respect of
scrip dividend of the
previous year (note (i))
    
    
    12,212,142
    
    
    
    1,221
    
    
    
    11,227,213
    
    
    
    1,123Shares issued in respect of
scrip dividend of the
current year (note (ii))
    
    
    
    
    
    
    
    
    
    
    8,838,938
    
    
    
    884Shares issued upon
exercise of share
options (note (iii))
    
    
    1,416,005
    
    
    
    142
    
    
    
    14,052,268
    
    
    
    1,405Repurchase and cancellation of
ordinary shares
    
    
    (70,000
    )
    
    
    (7
    )
    
    
    
    
    
    
    At the end of the year
    
    
    664,179,970
    
    
    
    66,418
    
    
    
    650,621,823
    
    
    
    65,062
    (i)
    
    On February 25, 2009, the Company issued and allotted 12,212,142 ordinary shares to
shareholders who elected to receive the 2008 final dividend in shares pursuant to the scrip
dividend scheme announced by the Company on January 9, 2009. These shares rank pari passu
with the existing shares of the Company in all respects.On February 4, 2008, the Company issued and allotted 11,227,213 ordinary shares to
shareholders who elected to receive, the 2007 final dividend in shares pursuant to the scrip
dividend scheme announced by the Company on January 4, 2008. These shares rank pari passu
with the existing shares of the Company in all respects.
 F-35




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##### Table of Contents



20
    
    Capital and reserves (continued)(a)
    
    Share capital (continued)Notes: (continued)
 (ii)
    
    On July 23, 2008, the Company issued and allotted 8,838,938 ordinary shares to shareholder,
who elected to receive the 2008 interim dividend in shares pursuant to the scrip dividend
scheme announced by the Company on June 19, 2008. These shares rank pari passu with the
existing shares of the Company in all respects.(iii)
    
    During the year ended August 31, 2009, 1,416,005 ordinary shares (2008: 14,052,268 ordinary shares) were issued at a weighted average price of HK$0.99 per ordinary share (2008: HK$1.07
per ordinary share) to share option holders who had exercised their options. These shares so
issued rank pari passu with the then existing ordinary shares in issue.(iv)
    
    The movement of outstanding share options during the year was as follows:
 AdjustmentNumber
    
    
    
    
    
    
    to number
    
    
    
    
    
    
    
    
    
    
    Numberof share
    
    
    
    
    
    
    of options
    
    
    
    
    
    
    
    
    
    
    of shareoptions
    
    
    
    
    
    
    for 2008
    
    
    
    
    
    
    
    
    
    
    optionsExercise
    
    
    outstanding at
    
    
    
    
    
    
    final
    
    
    
    
    
    
    
    
    
    
    outstandingprice
    
    
    September 1,
    
    
    
    
    
    
    dividend
    
    
    
    
    
    
    
    
    
    
    at August 31,Date of grant
    
    per share
    
    
    2008
    
    
    Granted
    
    
    (note (i))
    
    
    Exercised
    
    
    Lapsed
    
    
    2009October 21, 2004
    
    HK$1.5224
    
    
    7,571,582
    
    
    
    
    
    
    
    35,130
    
    
    
    546,184
    
    
    
    151,001
    
    
    
    6,909,527January 5, 2005
    
    HK$1.5224
    
    
    16,106,956
    
    
    
    
    
    
    
    76,252
    
    
    
    
    
    
    
    
    
    
    
    16,183,208May 22, 2006
    
    HK$0.6523
    
    
    22,387,555
    
    
    
    
    
    
    
    105,366
    
    
    
    869,821
    
    
    
    30,201
    
    
    
    21,592,899August 3, 2006
    
    HK$0.7018
    
    
    40,349
    
    
    
    
    
    
    
    191
    
    
    
    
    
    
    
    
    
    
    
    40,540November 22, 2006
    
    HK$0.7216
    
    
    135,902
    
    
    
    
    
    
    
    643
    
    
    
    
    
    
    
    
    
    
    
    136,545February 6, 2008
    
    HK$1.7568
    
    
    6,016,309
    
    
    
    
    
    
    
    28,482
    
    
    
    
    
    
    
    
    
    
    
    6,044,791February 11, 2008
    
    HK$1.8660
    
    
    6,016,309
    
    
    
    
    
    
    
    28,482
    
    
    
    
    
    
    
    
    
    
    
    6,044,791February 15, 2008
    
    HK$1.7568
    
    
    1,002,718
    
    
    
    
    
    
    
    4,747
    
    
    
    
    
    
    
    
    
    
    
    1,007,465March 11, 2008
    
    HK$1.8164
    
    
    300,816
    
    
    
    
    
    
    
    1,424
    
    
    
    
    
    
    
    302,240
    
    
    
    May 2, 2008
    
    HK$1.7866
    
    
    1,002,718
    
    
    
    
    
    
    
    4,747
    
    
    
    
    
    
    
    
    
    
    
    1,007,46560,581,214
    
    
    
    
    
    
    
    285,464
    
    
    
    1,416,005
    
    
    
    483,442
    
    
    
    58,967,231
 During the year ended August 31, 2009, no options were granted under the 2002 Share Option
Scheme.Each option entitles the holder to subscribe for one share of HK$0.10 each in the Company at a
predetermined exercise price.
 
 F-36




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##### Table of Contents



20
    
    Capital and reserves (continued)(b)
    
    Capital managementThe Groups primary objectives when managing capital are to maintain a reasonable
capital structure, safeguard the Groups ability to continue as a going concern, and
to provide returns for shareholders.The Group manages the amount of capital in proportion to risk, and makes adjustments
to its capital structure through the amount of dividend payment to shareholders,
issuance of scrip and new shares, and managing its debt portfolio in conjunction with
cash flow requirements, taking into account its future financial obligations and
commitments.The Group monitors its capital structure by reviewing its net debt to net asset
gearing ratio. For this purpose, the Group defines net debt as total loans less cash
at bank and in hand and long-term bank deposits.The net debt to net asset gearing ratio as at August 31, 2009 and 2008 are as
follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Unsecured- 10-year senior notes due 2015
    
    
    162,586
    
    
    
    683,242- Obligation under finance lease
    
    
    732
    
    
    
    376Total loans
    
    
    163,318
    
    
    
    683,618Less: Cash and bank balances
    
    
    (221,052
    )
    
    
    (421,610
    )Net (cash)/debt
    
    
    (57,734
    )
    
    
    262,008Net asset
    
    
    1,228,527
    
    
    
    1,032,607Net debt to net asset gearing ratio
    
    
    
    
    
    
    0.25
 The decrease in net debt to net asset gearing ratio is mainly due to the repurchase
of the 10-year senior notes (see note 22(a)).Neither the Company nor any of its subsidiaries are currently subject to externally
imposed capital requirements.21
    
    Deferred taxationDeferred tax assets are recognized to the extent it is probable that future taxable
profits will be generated against which the temporary differences can be utilized.The components of deferred tax assets/(liabilities) recognized in the balance sheet
and the movements are as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Balance as at the beginning
of the year
    
    
    21,398
    
    
    
    (291
    )Exchange differences
    
    
    1
    
    
    
    (1
    )Deferred taxation (charged)/credited
to income statement- relating to the origination and
reversal of temporary
differences (note 5)
    
    
    (37,108
    )
    
    
    (4,645
    )- relating to the recognition of
unrecognized tax losses in
prior years (note 5)
    
    
    
    
    
    
    26,335Balance as at the end of the year
    
    
    (15,709
    )
    
    
    21,398
 F-37




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##### Table of Contents



21
    
    Deferred taxation (continued)As at August 31, 2009, the Group has not recognized deferred tax assets in respect of unused tax
losses of HK$8,154,000 (2008: HK$9,518,000) because it is not probable that future taxable
profits can be generated to utilize the tax losses. All tax losses are subject to agreement with
local tax authorities.
 2009
    
    
    2008HK$000
    
    
    HK$000After 5 years
    
    
    2,455
    
    
    
    3,810No expiry date
    
    
    5,699
    
    
    
    5,7088,154
    
    
    
    9,518
 The movement in deferred tax assets and liabilities (prior to offsetting of balances within the
same taxation jurisdiction) during the year is as follows:
 Accelerated depreciation allowance2009
    
    
    2008HK$000
    
    
    HK$000Deferred tax liabilitiesAt the beginning of the year
    
    
    (126,447
    )
    
    
    (134,910
    )(Charged)/credited to consolidated income statement
    
    
    (5,326
    )
    
    
    8,463Exchange differences
    
    
    7
    
    
    
    At the end of the year
    
    
    (131,766
    )
    
    
    (126,447
    )
 Tax losses2009
    
    
    2008HK$000
    
    
    HK$000Deferred tax assetsAt the beginning of the year
    
    
    147,845
    
    
    
    134,619(Charged)/credited to consolidated income statement
    
    
    (31,782
    )
    
    
    13,227Exchange differences
    
    
    (6
    )
    
    
    (1
    )At the end of the year
    
    
    116,057
    
    
    
    147,845
 Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable
right to set off current tax assets against current tax liabilities and when the deferred tax
assets and the deferred tax liabilities relate to income taxes levied by the same taxation
authority on the same taxable entity. The following amounts, determined after appropriate
offsetting, are shown in the balance sheet:
 2009
    
    
    2008HK$000
    
    
    HK$000Deferred tax assets
    
    
    
    
    
    
    26,335Deferred tax liabilities
    
    
    (15,709
    )
    
    
    (4,937
    )(15,709
    )
    
    
    21,398
 F-38




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##### Table of Contents



22
    
    Long-term debt and other liabilities
 2009
    
    
    2008HK$000
    
    
    HK$00010-year senior notes due 2015
(note (a))
    
    
    162,586
    
    
    
    683,242Obligation under finance lease
(note (b))
    
    
    732
    
    
    
    376163,318
    
    
    
    683,618Current portion of
- obligation under finance lease
    
    
    (202
    )
    
    
    (121
    )163,116
    
    
    
    683,497
 At August 31, 2009, the Groups long-term debt and other liabilities were repayable as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Long-term debt and other liabilities,
repayable:- 10-year senior notes due 2015- after the fifth year
    
    
    162,586
    
    
    
    683,242Obligations under finance lease- Within 1 year
    
    
    202
    
    
    
    121- After 1 year but within 2 years
    
    
    197
    
    
    
    129- After 2 years but within 5 years
    
    
    263
    
    
    
    126- After 5 years
    
    
    70
    
    
    
    732
    
    
    
    376Less: Current portion of obligations
under finance lease
    
    
    (202
    )
    
    
    (121
    )530
    
    
    
    255163,116
    
    
    
    683,497
 
  (a)
    
    On January 20, 2005, the Company issued unsecured 10-year senior fixed rates notes (the
10-year senior notes) with a principle amount of US$125 million at an issue price equal to
100 per cent of the principal amount. The 10-year senior notes mature on February 1, 2015
and bear interest at the fixed rate of 8.75% per annum payable semi-annually on February 1
and August 1 of each year, commencing August 1, 2005.The 10-year senior notes are unconditionally and irrevocably guaranteed on a joint and
several basis by the Companys subsidiaries (other than CTI Guangzhou Customer Services
Company Limited) as subsidiary guarantors.During the year ended August 31, 2009, the Group repurchased a portion of the 10-year senior
notes with a cumulative principal value of US$67,990,000 through tender offers in April 2009
and July 2009. The total consideration paid including transaction cost and accrued interest
was approximately US$65,139,000. The gain on extinguishment of the 10-year senior notes was
US$4,048,000 (equivalent to HK$31,371,000) which has been recorded in other revenues of the
consolidated income statement.As at August 31, 2009, the principal amount of the 10-year senior notes remaining in issue
after the repurchase was US$21,363,000 (equivalent to HK$165,563,000). The amortized cost
of the 10-year senior notes was US$20,979,000 (equivalent to HK$162,586,000) as at August
31, 2009.The effective interest rate of the 10-year senior notes for the year ended August 31, 2009
is 9.2% (2008: 9.2%) per annum.
 F-39




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##### Table of Contents



22
    
    Long-term debt and other liabilities (continued)Notes: (continued)
 (b)
    
    At August 31, 2009, the Group had obligations under finance leases repayable as follows:
 2009
    
    
    2008Present
    
    
    
    
    
    
    
    
    
    
    Presentvalue
    
    
    Interest
    
    
    
    
    
    
    value
    
    
    Interestof the
    
    
    expense
    
    
    Total
    
    
    of the
    
    
    expense
    
    
    Totalminimum
    
    
    relating to
    
    
    minimum
    
    
    minimum
    
    
    relating to
    
    
    minimumlease
    
    
    future
    
    
    lease
    
    
    lease
    
    
    future
    
    
    leasepayments
    
    
    periods
    
    
    payments
    
    
    payments
    
    
    periods
    
    
    paymentsHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000Within 1 year
    
    
    202
    
    
    
    35
    
    
    
    237
    
    
    
    121
    
    
    
    21
    
    
    
    142After 1 year but
within 2 years
    
    
    197
    
    
    
    22
    
    
    
    219
    
    
    
    129
    
    
    
    13
    
    
    
    142After 2 years but
within 5 years
    
    
    263
    
    
    
    30
    
    
    
    293
    
    
    
    126
    
    
    
    4
    
    
    
    130After 5 years
    
    
    70
    
    
    
    1
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    530
    
    
    
    53
    
    
    
    583
    
    
    
    255
    
    
    
    17
    
    
    
    272732
    
    
    
    88
    
    
    
    820
    
    
    
    376
    
    
    
    38
    
    
    
    414
 23
    
    Notes to the consolidated cash flow statement(a)
    
    Reconciliation of profit before taxation to net cash inflow from operations
 2009
    
    
    2008HK$000
    
    
    HK$000Profit before taxation
    
    
    251,559
    
    
    
    108,372Depreciation of owned fixed assets
    
    
    205,624
    
    
    
    209,464Depreciation of fixed assets held under finance lease
    
    
    617
    
    
    
    587Amortization of deferred expenditure
    
    
    53,160
    
    
    
    33,777Interest income
    
    
    (4,869
    )
    
    
    (15,596
    )Interest element of finance lease
    
    
    27
    
    
    
    34Loss on disposal of fixed assets
    
    
    1,016
    
    
    
    1,431Realized and unrealized gain on other financial assets
    
    
    (189
    )
    
    
    (3,284
    )Realized gain on long term bank deposit
    
    
    
    
    
    
    (1,185
    )Realized loss on derivative financial instrument
    
    
    
    
    
    
    1,039Equity settled share-based transactions
    
    
    4,768
    
    
    
    4,204Gain on extinguishment of 10-year senior notes
    
    
    (31,371
    )
    
    
    (2,582
    )Interest, amortization and exchange difference
on 10-year senior notes
    
    
    49,214
    
    
    
    72,640Net cash inflow before working capital changes
    
    
    529,556
    
    
    
    408,901(Increase)/ decrease in long-term receivable and
prepayment
    
    
    (505
    )
    
    
    1,346Decrease in accounts receivable, other
receivables, deposits and prepayments
    
    
    33,052
    
    
    
    6,914Decrease in inventories
    
    
    
    
    
    
    477Increase in deferred expenditure
    
    
    (46,525
    )
    
    
    (68,505
    )Increase/ (decrease) in accounts payable, other payables,
accrued charges and deposits received
    
    
    17,419
    
    
    
    (12,567
    )Increase in deferred service revenue
    
    
    4,621
    
    
    
    46,247Net cash inflow from operations
    
    
    537,618
    
    
    
    382,813
 F-40




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##### Table of Contents



23
    
    Notes to the consolidated cash flow statement (continued)(b)
    
    Analysis of changes in financing during the year
 Share capital(including share
    
    
    Obligationspremium and
    
    
    Under finance
    
    
    10-yearcapital reserve)
    
    
    lease
    
    
    senior notesHK$000
    
    
    HK$000
    
    
    HK$000Balance at September 1, 2007
    
    
    702,192
    
    
    
    1,210
    
    
    
    952,593Issue of new shares
    
    
    14,998
    
    
    
    
    
    
    
    Share issued in respect of scrip dividend
    
    
    33,398
    
    
    
    
    
    
    
    Repayment of capital element of finance lease
    
    
    
    
    
    
    (834
    )
    
    
    Repurchase of 10-year senior notes
    
    
    
    
    
    
    
    
    
    
    (269,399
    )Gain on extinguishment of 10-year senior notes
    
    
    
    
    
    
    
    
    
    
    (2,582
    )Amortization of incidental issuance costs
    
    
    
    
    
    
    
    
    
    
    1,665Equity settled share-based transactions
    
    
    4,204
    
    
    
    
    
    
    
    Effect of foreign exchange rate changes
    
    
    
    
    
    
    
    
    
    
    965Balance at August 31, 2008
    
    
    754,792
    
    
    
    376
    
    
    
    683,242Balance at September 1, 2008
    
    
    754,792
    
    
    
    376
    
    
    
    683,242Issue of new shares
    
    
    1,399
    
    
    
    
    
    
    
    Repurchase and cancellation of ordinary shares
    
    
    (7
    )
    
    
    
    
    
    
    Share issued in respect of scrip dividend
    
    
    9,906
    
    
    
    
    
    
    
    Purchase of fixed assets under finance lease
    
    
    
    
    
    
    494
    
    
    
    Repayment of capital element of finance lease
    
    
    
    
    
    
    (138
    )
    
    
    Repurchase of 10-year senior notes
    
    
    
    
    
    
    
    
    
    
    (485,829
    )Gain on extinguishment of 10-year senior notes
    
    
    
    
    
    
    
    
    
    
    (31,371
    )Amortization of incidental issuance costs
    
    
    
    
    
    
    
    
    
    
    1,545Equity settled share-based transactions
    
    
    4,768
    
    
    
    
    
    
    
    Effect of foreign exchange rate changes
    
    
    
    
    
    
    
    
    
    
    (5,001
    )Balance at August 31, 2009
    
    
    770,858
    
    
    
    732
    
    
    
    162,586
 24
    
    Financial instrumentsExposure to credit, liquidity, interest rate and currency risks arises in the normal course of the
Groups business. These risks are limited by the Groups financial management policies and
practices described below.(a)
    
    Credit riskThe Groups credit risk is primarily attributable to accounts receivable and other receivables,
and debt investments. Management has a credit policy in place and the exposure to the credit risk
is monitored on an ongoing basis.In respect of accounts receivable and other receivables, credit evaluations are performed on all
customers requiring credit over a certain amount. These evaluations focus on the customers past
history of making payments when due and current ability to pay, and take into account information
specific to the customer as well as pertaining to the economic environment in which the customer
locates. These receivables are due within 30 days from the date of billing. Subscribers with
receivables that are more than 3 months overdue are requested to settle all outstanding balances
before any further credit is granted. The Group generally does not obtain collateral from
customers.The Groups exposure to credit risk is influenced mainly by individual characteristics of each
customer. The default risk of the country in which customer locates also has an influence on
credit risk but to a lesser extent. Concentrations of credit risk with respect to accounts
receivable are limited due to the Groups customer base being large and unrelated. As such,
management does not expect any significant losses of accounts receivable that have not been
provided for by way of allowances as disclosed in note 16.The maximum exposure to credit risk is represented by the carrying amount of each financial asset
after deducting any impairment allowance, in the balance sheet. Except for the financial
guarantee given by the Group as disclosed in note 25, the Group does not provide any other
guarantees which expose the Group to credit risk. The maximum exposure to credit risk in respect
of these financial guarantees at the balance sheet date is disclosed in note 25.Further quantitative disclosures in respect of the Groups exposure to credit risk arising from
accounts receivable are set out in note 16.
 
 F-41




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##### Table of Contents



24
    
    Financial instruments (continued)(b)
    
    Liquidity riskThe Group has a cash management policy, which includes the short term investment of cash surpluses
and the raising of loans and other borrowings to cover expected cash demands. The Groups policy
is to regularly monitor current and expected liquidity requirements and its compliance with lending
covenants, to ensure that it maintains sufficient cash and readily realizable marketable securities
and adequate amount of committed credit facilities from major financial institutions to meet its
liquidity requirements in the short and long term. Due to the dynamic nature of the underlying
business, the Group aims to maintain flexibility in funding by maintaining committed credit lines
available.The following table details the remaining contractual maturities at the balance sheet date of the
Groups financial liabilities, which are based on undiscounted cash flows (including interest) and
the earliest date the Group are required to pay.
 2009
    
    
    2008Total
    
    
    
    
    
    
    More than
    
    
    More than
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    More than
    
    
    More thancontractual
    
    
    Within
    
    
    1 year but
    
    
    2 years but
    
    
    
    
    
    
    
    
    
    
    contractual
    
    
    Within
    
    
    1 year but
    
    
    2 years butCarrying
    
    
    undiscounted
    
    
    1 year or
    
    
    less than
    
    
    less than
    
    
    More than
    
    
    Carrying
    
    
    undiscounted
    
    
    1 year or
    
    
    less than
    
    
    Less than
    
    
    More thanamount
    
    
    cash flow
    
    
    on demand
    
    
    2 years
    
    
    5 years
    
    
    5 years
    
    
    amount
    
    
    cash flow
    
    
    on demand
    
    
    2 years
    
    
    5 years
    
    
    5 yearsHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$000Current liabilitiesAccounts payable
    
    
    37,555
    
    
    
    37,555
    
    
    
    37,555
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,324
    
    
    
    52,324
    
    
    
    52,324
    
    
    
    
    
    
    
    
    
    
    
    Other payables and
accrued charges
    
    
    206,487
    
    
    
    206,487
    
    
    
    206,487
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178,114
    
    
    
    178,114
    
    
    
    178,114
    
    
    
    
    
    
    
    
    
    
    
    Deposits received
    
    
    16,385
    
    
    
    16,385
    
    
    
    16,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,264
    
    
    
    16,264
    
    
    
    16,264
    
    
    
    
    
    
    
    
    
    
    
    Obligations under
finance leases
    
    
    202
    
    
    
    237
    
    
    
    237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121
    
    
    
    142
    
    
    
    142
    
    
    
    
    
    
    
    
    
    
    
    Tax payable
    
    
    1,993
    
    
    
    1,993
    
    
    
    1,993
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,103
    
    
    
    2,103
    
    
    
    2,103
    
    
    
    
    
    
    
    
    
    
    
    Non current liabilities10-year senior notes
    
    
    162,586
    
    
    
    244,117
    
    
    
    14,489
    
    
    
    14,489
    
    
    
    43,467
    
    
    
    171,672
    
    
    
    683,242
    
    
    
    1,093,852
    
    
    
    61,012
    
    
    
    61,012
    
    
    
    183,036
    
    
    
    788,792Obligation under
finance leases
    
    
    530
    
    
    
    583
    
    
    
    
    
    
    
    219
    
    
    
    293
    
    
    
    71
    
    
    
    255
    
    
    
    272
    
    
    
    
    
    
    
    142
    
    
    
    130
    
    
    
    425,738
    
    
    
    507,357
    
    
    
    277,146
    
    
    
    14,708
    
    
    
    43,760
    
    
    
    171,743
    
    
    
    932,423
    
    
    
    1,343,071
    
    
    
    309,959
    
    
    
    61,154
    
    
    
    183,166
    
    
    
    788,792
 F-42




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##### Table of Contents



24
    
    Financial instruments (continued)(c)
    
    Interest rate riskThe Groups interest-rate risk arises mainly from its 10-year senior notes which bear interest at
the fixed rate of 8.75% per annum. Borrowings issued at fixed rate expose the Group to fair value
interest-rate risk.(i)
    
    Interest rate profileThe following table details the interest rate profile of the Groups borrowings at the balance
sheet date.
 2009
    
    
    2008Effective
    
    
    
    
    
    
    Effectiveinterest
    
    
    
    
    
    
    interestrate
    
    
    
    
    
    
    rate%
    
    
    HK$000
    
    
    %
    
    
    HK$000Fixed rate
borrowings:10-year senior notes
    
    
    9.2
    
    
    
    162,586
    
    
    
    9.2
    
    
    
    683,242Obligations under
finance lease
    
    
    5.6
    
    
    
    732
    
    
    
    6.8
    
    
    
    376163,318
    
    
    
    
    
    
    
    683,618
 (ii)
    
    Sensitivity analysisManagement determines that the Groups exposure of interest rate risk was not significant and hence
no sensitivity analysis is prepared.(d)
    
    Foreign currency riskAll the Groups monetary assets and liabilities are primarily denominated in either Hong Kong
dollars or United States dollars. Given the exchange rate of the Hong Kong dollar to the U.S.
dollar has remained close to the current pegged rate of HKD7.80 = USD1.00 since 1983, management
does not expect significant foreign exchange gains or losses between the two currencies.The Group is also exposed to a certain amount of foreign exchange risk based on fluctuations
between the Hong Kong dollars and the Renminbi arising from its operations in the PRC. In order
to limit this foreign currency risk exposure, the Group maintained Renminbi cash balance that
approximate two to three months of operating cash flows.(i)
    
    Exposure to currency riskThe following table details the Groups exposure at the balance sheet date to currency risk
arising from recognized assets or liabilities denominated in a currency other than the functional
currency of the entity to which they relate.
 2009
    
    
    2008United
    
    
    
    
    
    
    
    
    
    
    UnitedStates
    
    
    Japanese
    
    
    Canadian
    
    
    States
    
    
    Japanese
    
    
    CanadianDollars
    
    
    Yen
    
    
    Dollars
    
    
    Dollars
    
    
    Yen
    
    
    Dollars000
    
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000Cash at bank and in hand
and pledged bank
deposits
    
    
    11,599
    
    
    
    696
    
    
    
    282
    
    
    
    22,330
    
    
    
    1,099
    
    
    
    176Accounts payable
    
    
    (3,183
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    Other payables and
accrued charges
    
    
    (390
    )
    
    
    
    
    
    
    
    
    
    
    (3,390
    )
    
    
    
    
    
    
    10-year senior notes
    
    
    (20,979
    )
    
    
    
    
    
    
    
    
    
    
    (87,483
    )
    
    
    
    
    
    
    Overall net exposure
    
    
    (12,953
    )
    
    
    696
    
    
    
    282
    
    
    
    (71,043
    )
    
    
    1,099
    
    
    
    176
 (ii)
    
    Sensitivity analysisManagement determines that the Groups exposure of foreign currency risk was not significant and
hence no sensitivity analysis is prepared.
 F-43




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##### Table of Contents



24
    
    Financial instruments (continued)(e)
    
    Fair valuesExcept for the following instruments, all financial instruments are carried at amounts not
materially different from their fair values as at August 31, 2009 and 2008:
 2009
    
    
    2008Carrying
    
    
    
    
    
    
    Carryingamount
    
    
    Fair value
    
    
    amount
    
    
    Fair valueHK$000
    
    
    HK$000
    
    
    HK$000
    
    
    HK$00010-year senior notes
    
    
    162,586
    
    
    
    157,285
    
    
    
    683,242
    
    
    
    672,236
 (f)
    
    Estimation of fair valuesFair value of financial instruments is estimated as follows:
 (i)
    
    The fair value of the 10-year senior notes is determined based on quoted market price.(ii)
    
    Accounts receivable, other receivables, deposits and prepayments, pledged bank deposit, cash
at bank and in hand, accounts payable, and other payables and accrued charges are assumed to
approximate their fair values as they can be realized or settled within twelve months after
the balance sheet date.
 25
    
    Contingent liabilities
 2009
    
    
    2008HK$000
    
    
    HK$000Bank guarantees provided
to suppliers (notes 27(i) and (ii))
    
    
    2,490
    
    
    
    24,671Bank guarantee in lieu of payment
of utility deposits (note 27(iii))
    
    
    5,272
    
    
    
    5,2727,762
    
    
    
    29,943
 26
    
    Commitments(a)
    
    Capital commitments
 2009
    
    
    2008HK$000
    
    
    HK$000Purchase of telecommunications,
computer and office equipment- contracted but not provided for
    
    
    150,099
    
    
    
    143,888
 (b)
    
    Commitments under operating leasesAt August 31, 2009 and 2008, the Group has future aggregate minimum lease payments under
non-cancellable operating leases as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Leases in respect of land and
buildings which are payable:- Within 1 year
    
    
    21,387
    
    
    
    16,472- After 1 year but within 5 years
    
    
    13,802
    
    
    
    11,64535,189
    
    
    
    28,117Leases in respect of
telecommunications facilities
and computer equipment which are payable- Within 1 year
    
    
    45,321
    
    
    
    38,623- After
1 year but within 5 years
    
    
    9,600
    
    
    
    12,876- After 5 years
    
    
    6,271
    
    
    
    7,38461,192
    
    
    
    58,88396,381
    
    
    
    87,000
 F-44




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##### Table of Contents



26
    
    Commitments (continued)(c)
    
    Program fee commitmentsThe Group entered into several long-term agreements with program content providers for the rights
to use certain program contents in the Groups IP-TV services. Minimum amounts of program fees to
be paid by the Group are as follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Program fee in respect of program rights
which are payable:- Within 1 year
    
    
    9,094
    
    
    
    6,583- After 1 year but within 5 years
    
    
    6,238
    
    
    
    27915,332
    
    
    
    6,862
 27
    
    Pledge of assetsAs at August 31, 2009, the Group has pledged bank deposits of US$650,000 (equivalent to
HK$5,038,000) and HK$10,000,000 as security for the following significant banking facilities:
 (i)
    
    bank facility of US$650,000 (equivalent to HK$5,038,000) granted by a bank for issuance of
bank guarantees to third party suppliers, letters of credit, short-term loan, overdraft,
foreign exchange and interest rate hedging arrangements. As of August 31, 2009, bank
guarantees of HK$500,000 were issued against this bank facility (2008: HK$20,371,000);(ii)
    
    bank guarantees of HK$1,990,000 (2008: HK$4,300,000) issued by the bank to third party
suppliers of the Company and one of its subsidiaries for payment of certain products and
services procured by the Group from these third party suppliers; and(iii)
    
    bank guarantees of HK$5,272,000 (2008: HK$5,272,000) issued by the bank to certain utility
vendors of the Group in lieu of payment of utility deposits.
 As at August 31, 2008, the Group had pledged bank deposits of US$9,900,000 (equivalent of
HK$77,319,000) and HK$10,000,000 as security of the above significant banking facilities.28
    
    Material related party transactionsIn addition to the transactions and balances disclosed elsewhere in these financial statements,
the Group entered into the following material related party transactions.Key management personnel remunerationRemuneration for key management personnel, including amounts paid to the Companys directors as
disclosed in note 9(a) and certain of the highest paid employees as disclosed in note 9(b), is as
follows:
 2009
    
    
    2008HK$000
    
    
    HK$000Short-term employee benefits
    
    
    34,687
    
    
    
    28,850Post-employment benefits
    
    
    2,614
    
    
    
    2,425Equity compensation benefits
    
    
    4,071
    
    
    
    3,66441,372
    
    
    
    34,939
 29
    
    Comparative figureCertain comparative figures have been reclassified to conform with the current years presentation.
 F-45




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##### Table of Contents



30
    
    Accounting estimates and judgments
 Key sources of estimation uncertaintyNotes 10 and 24 contain information about the assumptions and risk factors relating to fair value
of share options and financial instruments. Other key sources of estimation uncertainty are as
follows:Impairment loss for doubtful accountsThe Group maintains impairment loss for doubtful accounts based upon evaluation of the
recoverability of the accounts receivable and other receivables which takes into account the
historical write-off experience and recovery rates. If the financial condition of the customers
were to deteriorate, additional impairment may be required.DepreciationDepreciation is calculated to write off the cost of items of property, plant and equipment, less
their estimated residual value, if any, using the straight-line method over their estimated useful
lives. The Group reviews the estimated useful lives of the assets annually in order to determine
the amount of depreciation expense to be recorded during any reporting period. The useful lives
are based on the Groups historical experience with similar assets and takes into account
anticipated technological changes. The depreciation expense for future periods is adjusted if
there are significant changes from previous estimates.Deferred taxAt August 31, 2009, the Group has recognized a deferred tax asset in relation to tax losses carry
forward as set out in note 21. The realisability of the deferred tax asset depends on whether it
is probable that future taxable profits will be available against which the asset can be utilized.
In assessing the need to recognize a deferred tax asset, management consider all available
evidence, including projected future taxable income, tax planning strategies, historical taxable
income, and the expiration periods of the tax losses. In cases where the actual future taxable
profits are less than expected, a reversal of deferred tax asset may arise, which will be
recognized in the income statement for the period in which such a reversal takes place.
 31
    
    Possible impact of amendments, new standards and interpretations issued but not yet
effective for the year ended August 31, 2009
 Up to the date of issue of these financial statements, the IASB has issued a number of amendments,
new standards and interpretations which are not yet effective for the year ended August 31, 2009
and which have not been adopted in these financial statements.The Group is in the process of making an assessment of what the impact of these amendments, new
standards and new interpretations is expected to be in the period of initial application. So far
it has concluded that the adoption of the following developments is unlikely to have significant
impact on the Groups results of operations and financial position.
 Effective foraccounting periodsbeginning on or afterIAS 1 (Revised)
    
    Presentation of financial statements
    
    January 1, 2009IAS 23 (Revised)
    
    Borrowing costs
    
    January 1, 2009IFRS 8
    
    Operating segments
    
    January 1, 2009
 F-46




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##### Table of Contents



32
    
    Supplemental guarantors consolidated financial informationThe senior notes mentioned above in note 22 are fully, irrevocably and unconditionally guaranteed,
jointly and severally, on a senior unsecured basis by all of the subsidiaries of City Telecom
(H.K.) Limited (collectively defined as Guarantor Subsidiaries), except CTI Guangzhou Customer
Services Co. Ltd. in the PRC (Non-guarantor Subsidiary).The condensed consolidated financial information is presented below and should be read in
connection with the consolidated financial statements of City Telecom (H.K.) Limited prepared
under IFRSs. Separate financial statements of the Guarantor Subsidiaries are not
presented because the Guarantor Subsidiaries are wholly-owned and have fully and unconditionally
guaranteed the Notes on a joint and several basis.The following condensed consolidated financial information presents the consolidated
balance sheets as of August 31, 2008 and 2009 and the related consolidated income
statements and cash flow statements for the years ended August 31, 2008 and 2009 of (a) City
Telecom (H.K.) Limited, the parent; (b) the Guarantor Subsidiaries on a combined basis; (c) the
Non-guarantor Subsidiary; (d) eliminating entries; and (e) the total consolidated amounts.
 F-47




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##### Table of Contents



32
    
    Supplemental guarantors consolidated financial information (continued)Consolidated balance sheet as of August 31, 2009
 CityTelecom
    
    
    
    
    
    Non-(H.K.)
    
    Guarantor
    
    guarantor
    
    Eliminating
    
    ConsolidatedLimited
    
    subsidiaries
    
    subsidiary
    
    entries
    
    totalHK$000
    
    HK$000
    
    HK$000
    
    HK$000
    
    HK$000Non-current assetsInvestments in subsidiaries (note)
    
    
    1,258,726
    
    
    
    228,875
    
    
    
    
    
    
    
    (1,487,601
    )
    
    
    Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,066
    
    
    
    1,066Fixed assets
    
    
    74,688
    
    
    
    1,221,172
    
    
    
    6,520
    
    
    
    
    
    
    
    1,302,380Long term receivable and prepayment
    
    
    
    
    
    
    16,573
    
    
    
    
    
    
    
    (10,482
    )
    
    
    6,091Deferred expenditure
    
    
    
    
    
    
    12,786
    
    
    
    
    
    
    
    
    
    
    
    12,7861,333,414
    
    
    
    1,479,406
    
    
    
    6,520
    
    
    
    
    
    
    
    1,322,323Current assetsAccounts receivable
    
    
    9,220
    
    
    
    110,972
    
    
    
    
    
    
    
    
    
    
    
    120,192Other receivables, deposits and prepayments
    
    
    3,393
    
    
    
    67,584
    
    
    
    2,492
    
    
    
    (3,704
    )
    
    
    69,765Deferred expenditure
    
    
    
    
    
    
    36,674
    
    
    
    
    
    
    
    
    
    
    
    36,674Pledged bank deposits
    
    
    15,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,038Cash at bank and in hand
    
    
    119,419
    
    
    
    74,197
    
    
    
    27,436
    
    
    
    
    
    
    
    221,052147,070
    
    
    
    289,427
    
    
    
    29,928
    
    
    
    
    
    
    
    462,721Current liabilitiesAmounts due to subsidiaries/ fellow subsidiaries
    
    
    10,830
    
    
    
    905,460
    
    
    
    4,427
    
    
    
    (920,717
    )
    
    
    Accounts payable
    
    
    20,484
    
    
    
    17,071
    
    
    
    
    
    
    
    
    
    
    
    37,555Other payables and accrued charges
    
    
    23,530
    
    
    
    172,676
    
    
    
    10,281
    
    
    
    
    
    
    
    206,487Deposits received
    
    
    7,886
    
    
    
    8,499
    
    
    
    
    
    
    
    
    
    
    
    16,385Deferred service revenue
    
    
    10,848
    
    
    
    107,904
    
    
    
    
    
    
    
    (3,682
    )
    
    
    115,070Tax payable
    
    
    356
    
    
    
    496
    
    
    
    1,141
    
    
    
    
    
    
    
    1,993Current portion  obligation under finance leases
    
    
    193
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    20274,127
    
    
    
    1,212,115
    
    
    
    15,849
    
    
    
    
    
    
    
    377,692Net current assets/ (liabilities)
    
    
    72,943
    
    
    
    (922,688
    )
    
    
    14,079
    
    
    
    
    
    
    
    85,029Total assets less current liabilities
    
    
    1,406,357
    
    
    
    556,718
    
    
    
    20,599
    
    
    
    
    
    
    
    1,407,352Non-current liabilitiesDeferred tax liabilities
    
    
    7,047
    
    
    
    8,662
    
    
    
    
    
    
    
    
    
    
    
    15,709Long-term deferred service revenue
    
    
    10,535
    
    
    
    
    
    
    
    
    
    
    
    (10,535
    )
    
    
    Long-term debt and other liabilities
    
    
    163,108
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    163,116180,690
    
    
    
    8,670
    
    
    
    
    
    
    
    
    
    
    
    178,825Net assets
    
    
    1,225,667
    
    
    
    548,048
    
    
    
    20,599
    
    
    
    
    
    
    
    1,228,527Capital and reservesShare capital
    
    
    66,418
    
    
    
    15,485
    
    
    
    8,131
    
    
    
    (23,616
    )
    
    
    66,418Reserves
    
    
    1,159,249
    
    
    
    532,563
    
    
    
    12,468
    
    
    
    (542,171
    )
    
    
    1,162,109Total equity attributable to equity shareholders of the Company
    
    
    1,225,667
    
    
    
    548,048
    
    
    
    20,599
    
    
    
    
    
    
    
    1,228,527
 
 Note:
    
    The amounts of investment in subsidiaries and retained profits at
City Telecom (H.K.) Limited level have included the share of net
assets of its subsidiaries using the equity method of accounting. F-48




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##### Table of Contents



32
    
    Supplemental guarantors consolidated financial information (continued)Consolidated balance sheet as of August 31, 2008
 CityTelecom
    
    
    
    
    
    Non-(H.K.)
    
    Guarantor
    
    guarantor
    
    Eliminating
    
    ConsolidatedLimited
    
    subsidiaries
    
    subsidiary
    
    entries
    
    totalHK$000
    
    HK$000
    
    HK$000
    
    HK$000
    
    HK$000Non-current assetsInvestments in subsidiaries (note)
    
    
    1,499,437
    
    
    
    260,399
    
    
    
    
    
    
    
    (1,759,836
    )
    
    
    Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,066
    
    
    
    1,066Fixed assets
    
    
    87,483
    
    
    
    1,135,394
    
    
    
    8,522
    
    
    
    
    
    
    
    1,231,399Long term receivable and prepayment
    
    
    
    
    
    
    19,773
    
    
    
    
    
    
    
    (14,187
    )
    
    
    5,586Deferred expenditure
    
    
    
    
    
    
    15,391
    
    
    
    
    
    
    
    
    
    
    
    15,391Deferred tax assets
    
    
    
    
    
    
    26,335
    
    
    
    
    
    
    
    
    
    
    
    26,3351,586,920
    
    
    
    1,457,292
    
    
    
    8,522
    
    
    
    
    
    
    
    1,279,777Current assetsAccounts receivable
    
    
    11,418
    
    
    
    128,865
    
    
    
    
    
    
    
    
    
    
    
    140,283Other receivables, deposits and prepayments
    
    
    3,378
    
    
    
    80,293
    
    
    
    2,759
    
    
    
    (3,704
    )
    
    
    82,726Deferred expenditure
    
    
    
    
    
    
    40,704
    
    
    
    
    
    
    
    
    
    
    
    40,704Other financial assets
    
    
    27,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,997Pledged bank deposits
    
    
    87,319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,319Cash at bank and in hand
    
    
    90,386
    
    
    
    263,386
    
    
    
    67,838
    
    
    
    
    
    
    
    421,610220,498
    
    
    
    513,248
    
    
    
    70,597
    
    
    
    
    
    
    
    800,639Current liabilitiesAmounts due to subsidiaries/ fellow subsidiaries
    
    
    10,830
    
    
    
    1,316,410
    
    
    
    51,059
    
    
    
    (1,378,299
    )
    
    
    Accounts payable
    
    
    26,440
    
    
    
    25,884
    
    
    
    
    
    
    
    
    
    
    
    52,324Other payables and accrued charges
    
    
    17,831
    
    
    
    149,548
    
    
    
    10,735
    
    
    
    
    
    
    
    178,114Deposits received
    
    
    7,943
    
    
    
    8,321
    
    
    
    
    
    
    
    
    
    
    
    16,264Deferred service revenue
    
    
    11,172
    
    
    
    102,678
    
    
    
    
    
    
    
    (3,401
    )
    
    
    110,449Tax payable
    
    
    356
    
    
    
    496
    
    
    
    1,251
    
    
    
    
    
    
    
    2,103Current portion  obligation under finance leases
    
    
    112
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    12174,684
    
    
    
    1,603,346
    
    
    
    63,045
    
    
    
    
    
    
    
    359,375Net current assets/ (liabilities)
    
    
    145,814
    
    
    
    (1,090,098
    )
    
    
    7,552
    
    
    
    
    
    
    
    441,264Total assets less current liabilities
    
    
    1,732,734
    
    
    
    367,194
    
    
    
    16,074
    
    
    
    
    
    
    
    1,721,041Non-current liabilitiesDeferred tax liabilities
    
    
    4,937
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,937Long-term deferred service revenue
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    (14,500
    )
    
    
    Long-term debt and other liabilities
    
    
    683,480
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    683,497702,917
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    688,434Net assets
    
    
    1,029,817
    
    
    
    367,177
    
    
    
    16,074
    
    
    
    
    
    
    
    1,032,607Capital and reservesShare capital
    
    
    65,062
    
    
    
    15,485
    
    
    
    8,131
    
    
    
    (23,616
    )
    
    
    65,062Reserves
    
    
    964,755
    
    
    
    351,692
    
    
    
    7,943
    
    
    
    (356,845
    )
    
    
    967,545Total equity attributable to equity shareholders of the Company
    
    
    1,029,817
    
    
    
    367,177
    
    
    
    16,074
    
    
    
    
    
    
    
    1,032,607
 
 Note:
    
    The amounts of investment in subsidiaries and retained profits at
City Telecom (H.K.) Limited level have included the share of net
assets of its subsidiaries using the equity method of accounting. 
 F-49




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##### Table of Contents



32
    
    Supplemental guarantors consolidated financial information (continued)Consolidated income statement for the year ended August 31, 2009
 CityTelecom
    
    
    
    
    
    Non-(H.K.)
    
    Guarantor
    
    guarantor
    
    Eliminating
    
    ConsolidatedLimited
    
    subsidiaries
    
    subsidiary
    
    entries
    
    TotalHK$000
    
    HK$000
    
    HK$000
    
    HK$000
    
    HK$000Revenue
    
    
    95,386
    
    
    
    1,390,697
    
    
    
    142,603
    
    
    
    (150,447
    )
    
    
    1,478,239Network costs
    
    
    (29,973
    )
    
    
    (177,655
    )
    
    
    
    
    
    
    32,499
    
    
    
    (175,129
    )Other operating expenses
    
    
    (90,557
    )
    
    
    (959,960
    )
    
    
    (136,750
    )
    
    
    149,303
    
    
    
    (1,037,964
    )Other revenues
    
    
    108,933
    
    
    
    31,684
    
    
    
    576
    
    
    
    (99,653
    )
    
    
    41,540Finance costs
    
    
    (54,241
    )
    
    
    (69,017
    )
    
    
    
    
    
    
    68,131
    
    
    
    (55,127
    )Share of net profit from subsidiaries (note)
    
    
    185,391
    
    
    
    
    
    
    
    
    
    
    
    (185,391
    )
    
    
    Profit before taxation
    
    
    214,939
    
    
    
    215,749
    
    
    
    6,429
    
    
    
    
    
    
    
    251,559Income tax expense
    
    
    (2,110
    )
    
    
    (34,998
    )
    
    
    (1,622
    )
    
    
    
    
    
    
    (38,730
    )Net profit
    
    
    212,829
    
    
    
    180,751
    
    
    
    4,807
    
    
    
    
    
    
    
    212,829
 
 Note:
    
    The net profit amounts at City Telecom (H.K.) Limited level have
included the share of net profit of its subsidiaries using the
equity method of accounting. Consolidated income statement for the year ended August 31, 2008
 CityTelecom
    
    
    
    
    
    Non-(H.K.)
    
    Guarantor
    
    guarantor
    
    Eliminating
    
    ConsolidatedLimited
    
    subsidiaries
    
    subsidiary
    
    entries
    
    TotalHK$000
    
    HK$000
    
    HK$000
    
    HK$000
    
    HK$000Revenue
    
    
    116,130
    
    
    
    1,283,296
    
    
    
    135,374
    
    
    
    (231,819
    )
    
    
    1,302,981Network costs
    
    
    (28,398
    )
    
    
    (184,851
    )
    
    
    
    
    
    
    34,882
    
    
    
    (178,367
    )Other operating expenses
    
    
    (87,551
    )
    
    
    (978,990
    )
    
    
    (130,481
    )
    
    
    230,928
    
    
    
    (966,094
    )Other revenues
    
    
    93,494
    
    
    
    37,752
    
    
    
    1,336
    
    
    
    (107,593
    )
    
    
    24,989Finance costs
    
    
    (71,702
    )
    
    
    (71,753
    )
    
    
    
    
    
    
    68,318
    
    
    
    (75,137
    )Share of net profit from subsidiaries (note)
    
    
    108,154
    
    
    
    
    
    
    
    
    
    
    
    (108,154
    )
    
    
    Profit before taxation
    
    
    130,127
    
    
    
    85,454
    
    
    
    6,229
    
    
    
    
    
    
    
    108,372Income tax (expense)/benefit
    
    
    (4,937
    )
    
    
    26,306
    
    
    
    (4,551
    )
    
    
    
    
    
    
    16,818Net profit
    
    
    125,190
    
    
    
    111,760
    
    
    
    1,678
    
    
    
    
    
    
    
    125,190
 
 Note:
    
    The net profit amounts at City Telecom (H.K.) Limited level have
included the share of net profit of its subsidiaries using the
equity method of accounting. F-50




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##### Table of Contents



32
    
    Supplemental guarantors consolidated financial information (continued)Condensed consolidated cash flow statement for the year ended August 31, 2009
 CityTelecom
    
    
    
    
    
    Non-(H.K.)
    
    Guarantor
    
    guarantor
    
    Eliminating
    
    ConsolidatedLimited
    
    subsidiaries
    
    subsidiary
    
    entries
    
    totalHK$000
    
    HK$000
    
    HK$000
    
    HK$000
    
    HK$000Net cash inflow/(outflow) from operating
activities
    
    
    487,691
    
    
    
    87,358
    
    
    
    (38,930
    )
    
    
    (233
    )
    
    
    535,886Net cash inflow/(outflow) from investing
activities
    
    
    101,605
    
    
    
    (276,843
    )
    
    
    (1,250
    )
    
    
    
    
    
    
    (176,488
    )Net cash outflow from financing activities
    
    
    (560,397
    )
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (560,407
    )Increase/(decrease) in cash at bank and in
hand
    
    
    28,899
    
    
    
    (189,495
    )
    
    
    (40,180
    )
    
    
    
    
    
    
    (201,009
    )Cash at bank in hand at September 1, 2008
    
    
    90,386
    
    
    
    263,386
    
    
    
    67,838
    
    
    
    
    
    
    
    421,610Effects of foreign exchange rates changes
    
    
    134
    
    
    
    306
    
    
    
    (222
    )
    
    
    233
    
    
    
    451Cash at bank and in hand at August 31, 2009
    
    
    119,419
    
    
    
    74,197
    
    
    
    27,436
    
    
    
    
    
    
    
    221,052
 Condensed consolidated cash flow statement for the year ended August 31, 2008
 CityTelecom
    
    
    
    
    
    Non-(H.K.)
    
    Guarantor
    
    guarantor
    
    Eliminating
    
    ConsolidatedLimited
    
    subsidiaries
    
    subsidiary
    
    entries
    
    totalHK$000
    
    HK$000
    
    HK$000
    
    HK$000
    
    HK$000Net cash inflow from operating activities
    
    
    193,028
    
    
    
    125,511
    
    
    
    59,866
    
    
    
    158
    
    
    
    378,563Net cash inflow/(outflow) from investing
activities
    
    
    18,775
    
    
    
    (164,222
    )
    
    
    (2,303
    )
    
    
    
    
    
    
    (147,750
    )Net cash outflow from financing activities
    
    
    (341,813
    )
    
    
    (737
    )
    
    
    
    
    
    
    
    
    
    
    (342,550
    )(Decrease)/increase in cash at bank and in
hand
    
    
    (130,010
    )
    
    
    (39,448
    )
    
    
    57,563
    
    
    
    
    
    
    
    (111,737
    )Cash at bank and in hand at September 1,
2007
    
    
    220,531
    
    
    
    303,227
    
    
    
    9,136
    
    
    
    
    
    
    
    532,894Effects of foreign exchange rates changes
    
    
    (135
    )
    
    
    (393
    )
    
    
    1,139
    
    
    
    (158
    )
    
    
    453Cash at bank and in hand at August 31, 2008
    
    
    90,386
    
    
    
    263,386
    
    
    
    67,838
    
    
    
    
    
    
    
    421,610
 F-51




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##### Table of Contents



SIGNATURE
  CITY TELECOM (H.K.) LIMITEDBy:
    
    /s/ Yeung Chu Kwong, WilliamName:
    
    Yeung Chu Kwong, WilliamTitle:
    
    Chief Executive OfficerBy:
    
    /s/ Lai Ni QuiaqueName:
    
    Lai Ni QuiaqueTitle:
    
    Chief Financial Officer