HKBN LTD. (incorporated in the Cayman Islands with limited liability)
Stock Code:1310
Stronger as ONE
Annual Report 2019
Stronger as ONE
For all businesses, change is constant. Every day, customers and markets are increasingly demanding more of it. At HKBN, we firmly believe that to succeed - and, yes, even survive - we must evolve relentlessly. Broader coverage. More innovation. The latest technologies. And with the digital world sprouting exciting new possibilities, we're delivering even better products, services and solutions to make daily life easier and doing business far more profitable.
To achieve all this, we've embraced an accelerated expansion of our expertise through corporate acquisitions - spurring change on the inside. By uniquely combining the elite strengths of past acquisitions and mergers - Y5Zone, NWT, ICG and WTT - and soon adding JOS to our bench (pending shareholders' approval), we have transformed our competitiveness and capabilities to create one united, stronger HKBN - ready to disrupt and lead the market.
20132016
*
2018
2019
* JOS acquisition is subject to shareholders' approval
Unless otherwise stated, all monetary figures from this report are in Hong Kong dollars. This report is published in both English and Chinese. Where the English and the Chinese texts conflict, the English text prevails.
Contents
002 2019 at a Glance
Our Company
- This is HKBN Group
- Shareholder Letter
- Board of Directors and Senior Management
- Our Strategy
Our Performance
- Key Financial and Operational Summary
- Management Discussion and Analysis
- Report of the Directors
- Customers
- Talents
- Suppliers
- Community
- Environment
Our Governance
102 Corporate Governance Report
Other Information
117 Auditor's Report
- Financial Statements and Notes to Financial Statements
- Five Year Summary
- Corporate Information
- References to HKEX ESG Reporting Guide
Annual Report 2019
001
HKBN Ltd.
Representing different facets of HKBN's integrated operations, Talents featured on cover: (From left) Samuel Hui, Co-Owner and Head of Digital
Anita Chau, Director - Major Accounts, Enterprise Solutions
Will Chung, Senior Unit Manager - Customer Service, Residential Solutions Jacky Lo, Co-Owner and Manager - Technical Service
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HKBN Ltd.
2019 at a Glance
Financial Performance
29%
Revenue growth
30%
Adjusted Free Cash Flow growth
Community
Number of
hours volunteered
2,676
EBITDA growth*
45%
Enterprise Revenue growth
69%
412
Volunteers
Environment
Waste recovery rate
15.69%
Reduction of total | 60.31% |
in Hong Kong | |
carbon emissions | |
operations | in Hong Kong operations |
- Year-on-yearincrease in the financial performance indicated above is based on the corresponding financial information reported in FY18 and FY19, where FY19 includes the operating results of WTT Holding Corp and its subsidiaries ("WTT Group") for the four months ended 31 August 2019.
2019 at a Glance
Customers
Network covers over | million | ||||||||||||||||||||||
7,200 | |||||||||||||||||||||||
Network covers | |||||||||||||||||||||||
commercial | 2.4 | homes | |||||||||||||||||||||
buildings & facilities | |||||||||||||||||||||||
878,000 | 277,000 |
Residential broadband | Activated mobile subscriptions |
(residential market) | |
subscriptions | |
103,000 | 35.8% | |||
services as of | ||||
Market share of | ||||
residential broadband | ||||
Enterprise customers | 30 June 2019 | |||
Talents | ||||
Over | ||||
Co-Owners(Co330-Ownership Plan II) | Total training | |||
4,400 | hours provided | |||
Over | 103,093 | |||
Talents |
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HKBN Ltd.
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HKBN Ltd.
Our Company
This is HKBN Group
Driven by a
Passionate Pursuit of Purposeful Profits,
we strive to become Hong Kong's most preferred Information and Communications Technology ("ICT") solutions provider.
Since 1999, we have transformed from a fledgling start-up into one of Hong Kong's largest ICT solutions providers. Throughout this journey of incredible change, our goal has remained the same: give customers the best, most innovative and reliable service possible, delivered at highly competitive prices. This has allowed us to build long-lasting relationships as we continuously improve how customers live, learn, work and play.
At HKBN, we are innovators, managers, marketers, technologists, Co-Owners, mothers, husbands, sons, daughters and much more. While we wear many different hats, what we share in common is the love for the city we call home, our Hong Kong.
Whether it is connecting millions of Hong Kongers and thousands of businesses through a wide range of premier ICT solutions, or the efforts we undertake to empower self-sustenance for underprivileged communities, we greet each day as a chance to realise our Core Purpose: 'Make our Hong Kong a Better Place to Live'.
Purpose at HKBN
We believe the role of PURPOSE, when unleashed by more businesses, can have a transformative effect to make the world a better place. We actively encourage more people to realise a future where purpose becomes the driving factor for private business. At every possible occasion, we do our best to inspire different stakeholders to join this purposeful profit evolution.
Given the context of our Core Purpose, 'Make our Hong Kong a Better Place to Live', we believe HKBN's business is better served when we are PURPOSE + PROFIT driven rather than PROFIT-only focused. By no coincidence, this purpose functions as an integrated failsafe which guarantees that HKBN delivers the best of all possibilities for customers. As a result, our offerings always maintain an exceptional level of desirability, driving better uptake and better profits overall.
Make our Hong Kong
a Better Place to Live
This is HKBN Group
From Telco to One-stop ICT Solutions Provider
Through past acquisitions* like Y5Zone (Wi-Fi specialist) in 2013, NWT (telecom and ICT service provider) in 2016, ICG (cloud specialist) in 2018, WTT (telecom and ICT service provider) in 2019 and, pending shareholders' approval, JOS (technology partner and system integrator), HKBN will evolve from a telco into a fully-fledged integrated one-stop ICT business. As a result, we're acquiring some of the most elite industry experts to augment our strengths and create new areas of specialisation. And in the past several months, our teams have worked extremely fast to integrate infrastructure, solutions, operations, and expertise for maximum competitive enhancement.
As the world changes, customers won't be content with just connectivity. They want possibilities - and more of it. Thanks to our enhanced Talent force and expanded scope of services, HKBN is armed to deliver far more. More innovation. More compelling value. We're on it! For enterprise customers in all industries, we're ready to change everything - empowering better possibilities via cutting-edge technology solutions, IT expertise, system integration capabilities and more - in a faster timeframe.
Tri-carrier Network Diversity +
One-stop ICT Advantage
With our completed integration of WTT, HKBN is now the only carrier in Hong Kong powered by tri-carrier fibre networks. This ultra-resilient fibre network advantage offers unprecedented route diversity and reliability - comprising three networks from HKBN, NWT and WTT worth over $15 billion invested. For businesses, particularly those who operate or depend on mission-critical applications, we offer network resilience that is intelligently built-in and always on.
Couple that with our one-stop capabilities to deliver powerful, scalable ICT solutions - from Internet and data connectivity, cloud solutions, information security to managed services, data centre services, business continuity and system integration and so on - and we're perfectly positioned to enable businesses to do and achieve more for their customers.
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HKBN Ltd.
* Please refer to the notes on page 11 for further details.
What we do
HKBN transforms the way people and businesses connect
and do more in the digital era
As a leading provider of premier ICT solutions, our work contributes indispensably to making Hong Kong
a modern, thriving interconnected society. HKBN's comprehensive range of products and services
ensures that customers can rely on us to stay connected and to do business better.
Multi-play services for households:
High Speed Fibre Broadband
Managed Wi-Fi with Home
Network Security and Parental Control
Home Telephone
Mobile Services
Over-The-Top Entertainment &
Music Streaming
Diverse ICT solutions and bespoke services for enterprises:
High-speed Fibre Business Broadband Data Connectivity
Voice communication
Mobile Services
Integrated Cloud Services
Data Centre Services
Managed Wi-Fi
Information Security
Business Continuity
System Integration
HKBN Recurring
Billing Relationships
1in 31in 2
HK families | HK active companies |
Over
Our Co-Ownership Structure
HKBN is the only telecom carrier in Hong Kong driven by Co-Owners who have a vested financial interest to grow our business, surpass the competition, and to deliver amazing shareholder returns.
Our leadership is powered by unique Co-Ownership | |
Plans which allows all supervisory and management | |
level Talents to voluntarily invest their own savings | |
in the amount of between 2 and 12 months of | |
salary to acquire HKBN stock. Through this dual | |
330 | role as both investors and Talents, our Co-Owners |
are incentivised with 'skin in the game' to watch | |
over all aspects of HKBN's performance and | |
competitiveness. Far from typical, our dedicated | |
Co-Owners always have the Group's best interest | |
at heart. During this fiscal year period, HKBN had | |
over 330 Co-Owners under Co-Ownership Plan II. | |
Co-Owners run HKBN | In August 2019, an overwhelming majority of our |
with skin in the game | shareholders approved Co-Ownership Plan III Plus, |
which will kickstart in FY20, offering more than 1,000 | |
Talents out of about 4,400 the opportunity to become | |
Co-Owners of HKBN. |
From every facet of HKBN's business and operations, our 300+ Co-Owners are aligned in their motivation for growth and success.
Our Company
Shareholder Letter
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HKBN Ltd.
NiQ Lai | William Yeung |
Co-Owner and Chief Executive Officer | Co-Owner and Executive Vice-chairman |
Shareholder Letter
Dear Fellow Shareholders,
Through fully integrating a sequence of transactions
- Y5Zone(Note 1) in 2013, NWT(Note 2) in 2016, ICG(Note 3) in 2018, WTT(Note 4) in 2019 and JOS(Note 5) (pending shareholders' approval in 2019), we will completely transform HKBN. At our IPO in 2015, we were residential broadband centric with just over $2 billion revenue, whereas today, we have become enterprise centric after a series of business combinations with revenue of over $5 billion. With our new suite of capabilities, our objective is to transform from a commodity provider of telecom services into the leading integrated ICT (Information and Communications Technology) partner across residential and enterprise segments, i.e. we are now far more than merely a fixed-line telecom carrier.
Our "Best of Breed"
Management Diversity
Core to our integration is our "Best of Breed" approach, i.e. we retain and promote Talents based on mindset and capability rather than whether they are from
the acquiring or acquired company. Today, our management team is by far the most diverse amongst our peers, with an awesome mix of veteran and fresh perspectives originating from within HKBN as well as
through Talents who joined from acquisitions, merger or regular recruitment in the past few years, which makes us far more ready to take advantage of rapid technology changes. Furthermore, the majority of our newly acquired senior executives intend to join us as Co-Owners as part of our upcoming Co-Ownership Plan III Plus, putting skin in the game towards one common goal.
Table: Profile of HKBN's top 64 executives (top 1.4% of the Group), i.e. Associate Directors and above, as at September 2019.
Company of Origin | Total | % of Team | ||
HKBN | ||||
More than 5 years with HKBN | 29 | 45% | ||
5 years or less with HKBN | 7 | 11% | ||
WTT | 16 | 25% | ||
NWT | 5 | 8% | ||
Y5Zone | 3 | 5% | ||
ICG | 4 | 6% | ||
Total | 64 | 100% | ||
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HKBN Ltd.
Comprising elites from HKBN and Y5Zone, NWT, ICG and WTT, HKBN management team is by far the most diverse and agile amongst our industry to meet challenges head-on.
Shareholder Letter
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HKBN Ltd.
Our Co-Ownership Legal Unfair Competitive Advantage ("LUCA")
At HKBN, our major LUCA is our Co-Ownership culture. With money and time, all other elements of our Company can be replicated by our competitors, but our culture is almost impossible to recreate. Our current Co-Ownership Plan III Plus is essentially a
3% of HKBN market capitalisation incentive which requires both incredible shareholder generosity to accept possible dilution AND incredible management audacity to personally buy the base shares upfront so as to qualify to earn matching free bonus shares by achieving aspirational goals for cumulative AFF/share of between $2.53-3.03 between FY19-21, versus $0.57 attained in FY18. In short, for Co-Owners to achieve our Co-Ownership Plan III Plus incentive range, we must deliver significant growth in AFF/share in the 3-year period from FY19-21; given our matured market, this means we need to achieve assertive market share gains and operating efficiency gains.
At the current total market capitalisation of $22 billion(Note 6), 3% is worth approximately $700 million. Assuming a doubling of the Co-Ownership Plan
- take-uprate to, say, 700 Co-Owners, this incentive represents an average of approximately $1 million per Co-Ownership Plan III Plus Co-Owner if we can max-out on the incentive parameters. In short, this is how we create distributed wealth for our shareholders, including our Co-Owners.
Our pain/GAIN Alignment
In addition to our Group alignment via Co-Ownership, we offer additional project related alignment via our unique pain/GAIN incentive. HKBN, like any company, has limited resources, so we must have a way for resource prioritisation. For a specific project, if the project team feels strongly about the return, our pain/GAIN scheme allows the team leaders to "underwrite" the project KPIs with a part of their salary (the pain), such that if the KPIs are achieved or exceeded, they will get a multiple of their pain back as GAIN. Conversely if they fail to meet the target, their committed salary will be taken away as pain and donated to a charity of their choice. In short, when we set pain/GAIN KPIs, we have real skin in the game.
Stock Price Chart = Co-Owner Families' Net Worth
For salaried employees, the following HKBN stock price chart is just a detached graphic, whereas for our 330 plus Co-Owners, the chart represents a big part of our families' net worth. At HKBN, we think and execute in the 3-4 year Co-Ownership trenches rather than the half-yearly reporting focus of our competitor peers.
Chart: Total Returns Since HKBN IPO Vs Hang Sang Index
(Rebased) | HKBN (with dividends) 2 | |||||
Performance of HKBN vs. Hang Seng 1 | ||||||
Hang Seng Index 3 | Announced JOS | |||||
200 | Regulatory approval on | acquisition | ||||
Announced HKBN- | HKBN-WTT merger | +80.6%HKBN | ||||
180 | WTT merger | |||||
Launched | Announced NWT | Launched | ||||
160 | acquisition | MVNO | 69.1% | |||
OTT | ||||||
Excess | ||||||
140 | return | |||||
120 | ||||||
100 | +11.5% HSI | |||||
80 | ||||||
60 | Current | |||||
IPO | 2016 | 2017 | 2018 | 2019 | ||
(Mar 2015) | (Oct 2019) |
Source: HKBN's disclosure, FactSet
Note: Based on market data as of Oct 23, 2019; 1 Both of HKBN share price and Hang Seng Index were rebased to 100 on Mar 12, 2015; 2 Includes accumulated DPS based on actual timing of dividends payment; 3 Hang Seng Index reflects cash dividend or distribution in the total return index counterpart as reinvestment on the ex-date
Shareholder Letter
We hope that the above gives you a sense of what makes our HKBN culture unique. Post JOS completion, we look forward to welcoming Mark Lunt - Group Managing Director of JOS, Eric Or - Managing Director, JOS Greater China, and Stanley Chiu - JOS Group Financial Controller as Co-Owners and pain/GAIN participants.
Sincerely yours,
William YEUNG | NiQ LAI |
Co-Owner and Executive Vice-chairman | Co-Owner and Chief Executive Officer |
Notes:
- HKBN Group Limited ("HKBNGL"), an indirect wholly-owned subsidiary of the Company, acquired the entire issued share capital of Y5Zone Limited in 2013 (the "Y5Zone").
- HKBNGL acquired the entire issued share capital of Concord Ideas Ltd. and Simple Click Investments Limited on 31 March 2016 (the "NWT").
- HKBNGL acquired the entire issued share capital of HKBN Enterprise Solutions Cloud Services Limited (formerly known as "I Consulting Group Limited") on 8 May 2018 (the "ICG").
- Metropolitan Light Company Limited ("MLCL"), a direct wholly-owned subsidiary of the Company, acquired the entire issued share capital of WTT Holding Corp on 30 April 2019 (the "WTT Merger" or "WTT").
- HKBNGL proposed to acquire the entire issued share capital of Jardine OneSolution Holdings (C.I.) Limited, Adura Hong Kong Limited and Adura Cyber Security Services Pte Ltd on 23 August 2019 (the "JOS"). For details, please refer to the section under "Significant Investments, Acquisitions and Disposal" on page 31.
- Assuming full Vendor Loan Notes conversion, i.e. 1.479 billion shares x $14.94 stock price as at the close of trading on 23 October 2019.
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HKBN Ltd.
Our Company
Board of Directors and Senior Management
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Board of Directors and Senior Management
Chairman and Independent Non-executive Director
Mr. Bradley Jay HORWITZ, aged 64, was appointed as an Independent Non-executive Director, the Chairman of the board of directors of the Company (the "Board") and a member of the Audit Committee and the Nomination Committee of the Company on 6 February 2015. Mr. Horwitz has over 30 years of experience in the wireless and telecommunication industry. Mr. Horwitz founded Trilogy International Partners in 2005 and has been the President and the Chief Executive Officer of the company since it was founded. Trilogy International Partners was established to acquire wireless international assets in Haiti and Bolivia and to develop additional international wireless assets, primarily in South America and the Caribbean. Prior to establishing Trilogy International Partners, Mr. Horwitz served as the President of Western Wireless International, having founded the company in 1995 while also serving as the Executive Vice President of Western Wireless Corporation. Previously, Mr. Horwitz was the founder and the Chief Operating Officer of SmarTone Mobile Communications Limited. Mr. Horwitz also worked in various management capacities for McCaw Cellular including serving as the Vice President of International Operations and the Director of Business Development. Mr. Horwitz presently serves as the Director of the Center for Global Development and the Mobile Giving Foundation. Mr. Horwitz graduated from San Diego State University, U.S. with a Bachelor of Science Degree in August 1978.
1 | 2 | 3 | 4 | 1. | Zubin Jamshed IRANI | ||
Non-executive Director | |||||||
5 | 6 | 7 | 8 | 2. | Yee Kwan Quinn LAW | ||
Independent Non-executive Director | |||||||
3. | Bradley Jay HORWITZ | ||||||
Chairman and Independent Non-executive Director | |||||||
4. | Stanley CHOW | ||||||
Independent Non-executive Director | |||||||
5. | Teck Chien KONG | ||||||
Non-executive Director |
6. William YEUNG
Executive Director
7. Deborah Keiko ORIDA
Non-executive Director
8. NiQ LAI
Executive Director
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Board of Directors and Senior Management
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Executive Directors
Mr. Chu Kwong YEUNG (also known as William YEUNG), aged 58, is the Executive Vice-chairman,an Executive Director, the Chairman of the Nomination Committee and a member of the Remuneration Committee of the Company. Mr. Yeung joined the Group in October 2005 as the Chief Operating Officer, overseeing customer engagement, relationship management and network development. In November 2008, Mr. Yeung was appointed as the Chief Executive Officer with the responsibility of developing corporate strategies and overseeing operations. On 1 September 2018, Mr. Yeung was appointed as the Executive Vice-chairman,stepping up to focus on engaging key strategic partners and exploring new business opportunities for the Group. Prior to joining the Group, Mr. Yeung was the Director of customers division
at SmarTone Mobile Communications Limited, and served as a police inspector with the Hong Kong Police Force. Mr. Yeung obtained a Bachelor of Arts Degree from Hong Kong Baptist University in December 1992 and obtained a Master of Business Administration Degree from the University of Strathclyde, U.K. in November 1995 and a Master of Science Degree in Electronic Commerce and Internet Computing from the University of Hong Kong in November 2001. In 2010, Mr. Yeung was recognised as Champion of Human Resources by The Hong Kong HRM Awards. Mr. Yeung is a proud Co-Owner of the Company.
Mr. Ni Quiaque LAI (also known as NiQ LAI), aged 49, is the Chief Executive Officer of the Group, and an Executive Director of the Company. Mr. Lai joined the Group in 2004 and has rich experience in the telecommunications, research and finance industries. Mr. Lai was appointed as the Chief Financial Officer in 2006, the Chief Talent & Financial Officer in 2016 and the Chief Operating Officer in 2017. Mr. Lai took the helm as the Chief Executive Officer in September 2018, leading all HKBN Talents to deliver world class products and services to make our Hong Kong a better place to live. Prior to joining the Group, Mr. Lai was an analyst and the Director and the Head
of Asia Telecom Research for Credit Suisse, where he was involved in numerous global fund raising initiatives for a wide range of Asian telecom carriers. Prior to Credit Suisse, Mr. Lai held positions in HKT, as a strategic planning manager, and Kleinwort Benson Securities (Asia). He is currently a member of Advisory Board of Shyam Spectra Private Limited (formerly known as "Citycom Networks Pvt. Ltd.") and the Director of Cambodian Children's Fund (Hong Kong) Limited. Mr. Lai graduated from the University of Western Australia with a Bachelor of Commerce Degree in April 1990 and obtained an Executive Master of Business Administration Degree from Kellogg- HKUST, Hong Kong in June 2009. Mr. Lai is a fellow member of Hong Kong Institute of Certified Public Accountants (HKICPA) and CPA Australia. In 2009, he was recognised as Champion of Human Resources by The Hong Kong HRM Awards, and was selected by Global Telecoms Business in 2013 as one of the Top 50 CFOs in the industry to watch. In March 2016, he was recognised as 1st for Best CFO by FinanceAsia Survey of Asia's Best Companies 2016 (Hong Kong). Mr. Lai is a proud Co-Owner of the Company.
Board of Directors and Senior Management
Non-executive Directors
Ms. Deborah Keiko ORIDA, aged 52, was appointed as a Non-executive Director and a member of the Nomination Committee of the Company with effect from 20 November 2015. Ms. Orida is the Senior Managing Director & Global Head of Active Equities at Canada Pension Plan Investment Board ("CPPIB"), a substantial shareholder (as defined in Part XV of the Securities and Futures Ordinance (the "SFO")) of the Company. Ms. Orida joined CPPIB in 2009 in Toronto and has held senior leadership roles, including Managing Director, Head of Relationship Investments International, covering Europe and Asia, and was most recently Managing Director and Head of Private Equity Asia. Ms. Orida is responsible for leading the global Active Equities department, which includes Active Fundamental Equities, Relationship Investments, Thematic Investing, Fundamental Equities Asia, Direct Equity Investments Latin America and Sustainable Investing. Prior to joining CPPIB, Ms. Orida was an investment banker at Goldman Sachs & Co. in New York and Toronto where she advised management teams and boards on mergers and acquisitions and financing transactions. Prior to Goldman Sachs & Co., Ms. Orida was a securities lawyer at Blake, Cassels
- Graydon in Toronto. Ms. Orida previously served on the Board of Directors of Nord Anglia Education and the Board of Directors of the Investment Committee of the Bridgepoint Health Foundation and was the Chair of the Board of Directors of Vitalhub Corp., a mobile healthcare startup company. Ms. Orida holds a Master of Business Administration from The Wharton School, and a Bachelor of Laws and a Bachelor of Arts from Queen's University, Canada.
Mr. Zubin Jamshed IRANI, aged 47, was appointed as a Non-executive Director, a member of the Audit Committee and a member of Remuneration Committee of the Company on 30 April 2019. Mr. Irani is a Partner with TPG Capital and leads the Asia Operations Group. He brings over 20 years of experience in building strong teams, driving performance and managing change within businesses. At TPG Capital, Mr. Irani
has worked in the consumer, healthcare, financial services, telecom and technology sectors. Prior to TPG Capital, Mr. Irani was with United Technologies Corporation ("UTC") where he led the business in India which included Carrier Air-conditioning and Refrigeration, Otis Elevators and UTC Fire & Security. Mr. Irani started his career at McKinsey & Company and worked in the Cleveland, Detroit, Copenhagen and Mumbai offices, serving several multi-national clients with a focus on automotive, industrial and post-merger management. Mr. Irani holds a Masters in Materials Science and Engineering from Massachusetts Institute of Technology, U.S. and a Bachelor of Technology
in Materials Engineering from Indian Institute of Technology Kanpur, India.
Mr. Teck Chien KONG, aged 44, was appointed as a Non-executive Director and a member of the Nomination Committee of the Company on 30 April 2019. Mr. Kong is a Partner at MBK Partners and is based in Hong Kong. With extensive investment experiences in both the telecommunication and media industries, he has led MBK Partners' investments in WTT Holding Corp, China Network Systems Co., Ltd. and Gala TV Corp. Prior to MBK Partners, Mr. Kong spent five years at Carlyle Asia Partners, where he was Vice President and co-head of the Singapore office, and three years in the investment banking division at Salomon Smith Barney in New York and Hong Kong. Mr. Kong currently serves on the Board of Directors of, among others, Apex International Corporation, Teamsport Topco Limited, Siyanli Co. Ltd., and Wendu Education & Technology Group Limited, and has experience serving on Board of Directors of Beijing Bowei Airport Support Limited, China Network Systems Co., Ltd., Gala TV Corp., GSE Investment Corporation, Luye Pharma Group Ltd and HKBN Enterprise Solutions HK Limited (formerly known as WTT HK Limited). Mr. Kong holds a Bachelor of Business Administration from the University of Michigan Business School, U.S., and has completed an executive management programme at Harvard Business School, U.S.
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HKBN Ltd.
Board of Directors and Senior Management
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Independent Non-executive Directors
Mr. Stanley CHOW, aged 55, was appointed as an Independent Non-executive Director, the Chairman of the Remuneration Committee and a member of the Audit Committee and the Nomination Committee of the Company on 6 February 2015. Mr. Chow has over 21 years of experience as a corporate lawyer in Hong Kong and Canada, including over 18 years of experience
in dealing with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") (the "Listing Rules") during his time in private practice and as a senior manager in the Stock Exchange's Listing Division. Mr. Chow is currently a Non-executive Director of PuraPharm Corporation Limited (stock code: 1498), a company which is listed on the Main Board of the Stock Exchange. Mr. Chow was a partner in the Hong Kong office of Latham & Watkins, an international law firm, from March 2009 to February 2014 where he was the local department chair of the corporate department in Hong Kong. He was also a member of the firm's Initiatives Committee from March 2012 to February 2014. Prior to joining Latham & Watkins, Mr. Chow practised law with Allen & Overy, another international law firm, from November 1996 to January 2009 where he was a partner in its Hong Kong office for over 8 years. As a corporate lawyer in Hong Kong, Mr. Chow has advised on a broad range of corporate finance and mergers and acquisitions transactions, including in the context of the Stock Exchange and the Listing Rules. Prior to Mr. Chow's time in private practice, he was a senior manager in the Stock Exchange's Listing Division from May 1995 to October 1996 and also practised law with Canadian law firms in Hong Kong and Canada. Mr. Chow was a member of The Law Society of Hong Kong's Company Law Committee from August 2011 to October 2018, and was admitted as a solicitor in Hong Kong in 1995 and in England and Wales in 1994. He was also admitted as a barrister and solicitor in British Columbia, Canada in 1994 and in Ontario, Canada in 1991. Mr. Chow graduated from Queen's University, Canada with a Bachelor of Commerce (Honours) Degree in May 1986 and obtained a Juris Doctor with Honour Standing from the University of Toronto, Canada in June 1989.
Mr. Yee Kwan Quinn LAW, SBS, JP, aged 66, was appointed as an Independent Non-executiveDirector, the Chairman of the Audit Committee and a member of the Remuneration Committee and the Nomination Committee of the Company on 6 February 2015.
Mr. Law is currently an Independent Non-executive Director of Bank of Tianjin Co., Ltd. (stock code: 1578), ENN Energy Holdings Limited (stock code: 2688) and BOC Hong Kong (Holdings) Limited (stock code: 2388), all of which are listed on the Main Board of the Stock Exchange. Mr. Law also presently serves as an advisor of the Hong Kong Business Accountants Association, and he was previously the Director and the Vice President of such Association. Mr. Law
has been a member of the Court of the Hong Kong University of Science and Technology since 4 October 2018. Mr. Law ceased to be the Deputy Chairman
of Professional Conduct Committee of the Hong Kong Institute of Certified Public Accountants on 31 December 2018. From 1 August 2012 to 31 July 2018, Mr. Law was a council member cum Audit Committee Chairman at the Hong Kong University of Science and Technology. From 1 March 2008 to 28 February 2013, Mr. Law was the Deputy Chairman and the Managing Director of the Urban Renewal Authority, a statutory organisation in Hong Kong. Mr. Law is a Fellow of the Hong Kong Institute of Certified Public Accountants and is also a Fellow of the Association of Chartered Certified Accountants. Mr. Law was admitted as an Associate of the Institute of Chartered Secretaries and Administrators on 11 November 1980. In view of Mr. Law's experience in reviewing or analysing audited financial statements of private and public companies, the Directors believe that Mr. Law has the appropriate accounting or related financial management expertise for the purposes of Rule 3.10 of the Listing Rules.
Board of Directors and Senior Management
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HKBN Ltd.
8 | 1. | Almira CHAN | ||
Chief Strategy Officer | ||||
7 | 5 | |||
6 | 2. | Agnes TAN | ||
Chief Legal Officer | ||||
4 | 3. | Billy YEUNG | ||
1 | 2 | Co-Owner and Chief Executive Officer - Enterprise Solutions | ||
3 | 4. | William YEUNG | ||
Co-Owner and Executive Vice-chairman |
- Elinor SHIU
Co-Owner and Chief Marketing Officer - Residential Solutions - Eric HO
Co-Owner and Chief Information Officer - NiQ LAI
Co-Owner and Chief Executive Officer - Andrew WONG
Co-Owner and Chief Financial Officer
Board of Directors and Senior Management
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HKBN Ltd.
Senior Management
Mr. William YEUNG, his biographical details are set out on page 14.
Mr. NiQ LAI, his biographical details are set out on page 14.
Mr. Tak Wa William YEUNG (also known as Billy YEUNG), aged 53, the Chief Executive Officer - Enterprise Solutions of the Group. Billy joined the Group in January 2013 and leads a team of sales professionals to service corporates of all sizes and carrier customers. In 1995, he pioneered the Netplus regional Internet backbone for telecommunication carriers in Asia Pacific. While at PCCW, he developed the Netvigator Internet service. In 2004, Billy branched out to spearhead Y5Zone in Hong Kong. In nine years, he steered the company to become one of the largest wholesale Wi-Fisuppliers in Hong Kong, which was acquired by HKBN Group Limited in January 2013. Billy holds a Master of Business Administration Degree from the University of Birmingham, U.K. Billy is a proud Co-Ownerof the Company.
Mr. Chan Fai HO (also known as Eric HO), aged 62, the Chief Information Officer of the Group. Eric joined the Group in July 2012 and is responsible for the Group's information technology strategy development and leads the IT Department to optimise business support and processes through IT system development, integration and management. Prior to joining HKBN, Eric was the Head of IT and Service Platform at SmarTone Mobile Communications Limited, and before that, he held senior IT positions at Huawei Software Technology, Emperor International Holdings, Westpac, CSL and Bank of America. He was awarded CIO of the Year (Medium Enterprise) jointly conferred by Computerworld Hong Kong and CIO Connect in 2013. Eric is a Certified Information Security Manager (CISM) and holds a Bachelor's Degree in Science from the University of Hong Kong, a Master Degree
in Business Administration from Oklahoma City University, U.S., and a Master in Accountancy Degree from Charles Sturt University, Australia. Eric is a proud Co-Owner of the Company.
Mr. Yue Kit Andrew WONG (also known as Andrew WONG), aged 40, the Chief Financial Officer of the Group and the Company Secretary of the Company. Andrew joined the Group in 2006. He has extensive experience in the external auditing, accounting and finance, internal control and compliance. He leverages over 16 years of auditing and finance experience to guide his leadership of the Group's finance and investor relations endeavours. Andrew holds a Bachelor's Degree in Accounting and Law from the University of Manchester, U.K. and an Executive Master of Business Administration Degree from the Chinese University of Hong Kong. He is also a member of the Hong Kong Institute of Certified Public Accountants. Andrew is a proud Co-Ownerof the Company.
Ms. Wing Yee CHAN (also known as Almira CHAN),
aged 53, the Chief Strategy Officer of the Group. Almira's dream job was an accountant. After graduation, Almira joined PricewaterhouseCoopers, where she began her professional life as an accountant. Following this experience, she joined Atos Origin and Wharf T&T (later renamed WTT).
In her 30-year journey from an Audit Assistant at PricewaterhouseCoopers to CFO at WTT, she has undertaken a wide range of responsibilities, including management of Accounting & Finance, Investor Relations and Building Access for network rollout. Whilst Almira's dreams have come true, she remains as motivated as ever to evolve beyond her comfort zone. Following the integration of HKBN and WTT, she was appointed Chief Strategy Officer in July 2019. In her current role, Almira leads the development and implementation of HKBN's overall corporate strategy including business development and joint ventures, strategic investments, acquisitions and divestitures. Fully inspired, she sees this newly created role
as a new challenge. With a wealth of financial management experience, coupled with a passion for the telecommunications technology industry, she is determined to help the company reach a new peak. Almira holds an Honours Diploma in Accountancy from Lingnan College and is a qualified accountant and
a member of The Chartered Association of Certified Accountants. She is also a member of the Hong Kong Institute of Certified Public Accountants. Almira has committed to become a proud Co-Owner of the Company.
Board of Directors and Senior Management
Senior Management
Ms. Yung Yin SHIU (also known as Elinor SHIU),
aged 48, the Chief Marketing Officer - Residential Solutions of the Group. A home-grown Talent in every sense of the word, Elinor joined the Group in 1994 as a Marketing Trainee and was appointed as Chief Marketing Officer - Residential Solutions in March 2019 to lead the marketing strategies and operations of HKBN residential market business. Working her way up, she is one of the key individuals credited for growing HKBN from a startup of less than 100 Talents to a powerhouse in the telecommunications industry with over 4,400 Talents today. In 2002, Elinor left the Group for a brief two-year intermission with HGC, where she focused on corporate marketing. She rejoined HKBN in 2004. Throughout her years with HKBN, Elinor earned wide-ranging exposure across various business areas and functional teams. Her array of experiences extended from marketing for residential and corporate sectors, all the way to overall business management for HKBN's residential business. In 2008, she was appointed as a Mini-CEO and was granted the mantle to oversee the Group's business in Kowloon East district, managing 25%
of the Group's residential business revenue in Hong Kong. After five successful years of leadership under her belt, Elinor transformed from a seasoned marketer into an experienced management executive driven
to become HKBN's CXO of the future. In 2018, she was appointed as Head of Residential Marketing, steering digitalisation and omni-channel customer experience, as well as the Group's highly successful transformation from a broadband provider into the quad-play provider of choice for Hong Kongers. With her appointment as CMO - Residential Solutions, Elinor is relentlessly driving HKBN's growth as a showcase of best practices for the telco industry. She holds an Executive Master of Business Administration Degree from The Chinese University of Hong Kong. Elinor is a proud Co-Owner of the Company.
Ms. Kok Peng Agnes TAN (also known as Agnes TAN), aged 60, the Chief Legal Officer of the Group. Born and raised in Malaysia, Agnes furthered her studies in Australia. In 1994, she relocated to Hong Kong and began her telecommunications journey that covered all facets of legal, policy, regulatory and interconnection issues. She was a primogenitor in competing with the incumbent when the Hong Kong government deregulated the local fixed-linemarket in 1995 with the issuance of additional local fixed telecommunication network services licences. Over the years, Agnes has actively engaged with the regulator and industry players for a pro-competitionregulatory and interconnection regime. Prior to the WTT Merger, Agnes was WTT's Vice President, Legal, Regulatory and Carrier Affairs. In her current capacity, Agnes brings over her extensive experience to advance HKBN Group's interests in legal and regulatory areas. Before relocating to Hong Kong, Agnes worked in Australia specialising in technology licensing, intellectual property rights protection and their commercialisation. Agnes holds a Bachelor of Commerce (Marketing) from the University of New South Wales and a Bachelor of Laws from the Australian National University. Agnes is Chair, Legal Committee, Hong Kong General Chamber of Commerce; and President, Regulatory Issues Group, Communications Association of Hong Kong. She is also a member of the Telecommunications Regulatory Affairs Advisory Committee, Office of the Communications Authority. Outside of work Agnes enjoys travelling and reading. Her favourite sport
is skiing, as it requires focus or the risk of serious injury. If she were not a lawyer, she would likely be found enjoying more creative and 'hands-on' pursuits including pottery, painting, and home décor. Agnes has committed to become a proud Co-Owner of the Company.
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HKBN Ltd.
Our Company
Our Strategy
From how we operate to the decisions we take; our ultimate purpose seeks to
"Make our Hong Kong a Better Place to Live".
Being a purpose-driven company means we also measure
success in ways beyond financial performance.
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HKBN Ltd.
Customers
As a company, we have always sought out market inadequacies and followed up with action to do better.
In terms of our business, a legacy of delivering innovation as well as exceptional product and service experiences has provided customers with vast improvements to the way they live, learn, work and play.
Talents
As an employer in Hong Kong and mainland China, we take great pride - and lead by example - in how HKBN Talents are treated as priority number one. Through a range of initiatives, we provide Talents with excellent work flexibility to enjoy life and perform efficiently, as well as offer development and entrepreneurship opportunities that ensure they flourish professionally.
Suppliers | Community | Environment |
The relationships | By actively embracing | As a technology-based |
which exist between | our role in the | company, our goal is |
HKBN and our | community, we | to be smarter for the |
business partners | believe HKBN has | good of our planet. |
and suppliers are | a responsibility to | This we achieve by |
built on mutual trust, | uplift and empower, | utilising the latest eco- |
respect, fairness and | especially for people | friendly solutions and |
rigorous compliance | of underprivileged | ideas to help us realise |
of the respective | circumstances. Above | better results in energy |
laws and regulations. | all, our approach, | consumption, waste |
Paramount is the | which we term | reduction, recycling, |
concept of win-win | Corporate Social | carbon footprint |
partnerships. To this | Investment ("CSI"), | reduction and more. |
end, we want all our | favours investing | |
partners and suppliers | and collaboration | |
to work with us to make | over philanthropic | |
money together, rather | donations. | |
than off each other. |
Our ESG Commitment
In everything we do, and in every decision we take, "Make our Hong Kong a Better Place to Live" is omnipresent at all times. With this core purpose driving us, HKBN is built on making purposeful profits. We believe our business is best served by creating positive social impact. When we do this right, our Talents will have passion to execute, and profits will follow.
Our Environment, Social and Governance ("ESG") policy is purposely aligned with our Group's overall corporate strategy. This approach ensures that in all aspects
of our business, actions are rigorously executed with society, environment and corporate governance that aim to go beyond merely fulfilling legal and regulatory requirements embedded. As such, ESG factors play a major role in shaping the underlying drivers which define our sustainable growth. For us, ESG serves both to inform our strategies and to measure our performance in five key stakeholder areas. They are:
Innovation for Customers Total Rewards for Talents
Responsible & Win-Win Supply Chain Partnerships Technology & Expertise for Community Betterment Minimising Environmental Footprint
By striving to address these prioritised goals (please refer to the ESG Framework on page 21 for details,) we can better improve HKBN's prospects for business, mitigate the risks affecting the Group, as well as enhance our reputation. When these issues are addressed, overall performance will increase to deliver profits in a purposeful way.
In preparing this report, we have adhered to the reporting principles and provisions set forth by the Hong Kong Stock Exchange's ESG "comply or explain" guidelines. Unless specifically stated otherwise, the scope of ESG reporting herein covers all aspects of our HKBN Group operations in Hong Kong, Shenzhen and Guangzhou. Due to our integration with WTT, which began in May 2019 and was largely completed at the end of August 2019, our ESG reporting for FY19 does not contain figures relating to WTT operations.
Our Strategy
HKBN ESG FRAMEWORK
Innovation for | Total Rewards | |
Customers | for Talents | |
Make Our | ||
Hong Kong | ||
a Better Place | ||
Minimising | to Live | Responsible & Win- |
Environmental | Win Supply Chain | |
Footprint | Partnership | |
Technology & Expertise | ||
for Community Betterment |
Pursue Purposeful Profits
With HKBN Co-Ownership, we drive disruptive innovation to harvest substantial and sustainable
benefits for Hong Kong and our stakeholders. Throughout this journey, our aim is to work
beyond mere compliance with laws and regulations.
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HKBN Ltd.
Innovation for Customers
Innovate for better and more accessible services Uphold fair and transparent marketing communication
Improve customer privacy protection Promote healthy content & usage
Minimising Environmental Footprint
Increase energy efficiency of overall operations Minimise overall waste impact
Total Rewards for Talents
Champion LIFE-work priority & life-long development
HKBN Co-Ownership fosters interest alignment for sustainable business growth and service excellence
Create pride & passion by pursuing difference- making purpose for Hong Kong
Incentivise excellence via performance- based remuneration
Technology & Expertise for
Community Betterment
Utilise HKBN's expertise in technology & business to make sustainable social impact Empower Talents to serve the Hong Kong community
Responsible & Win-Win
Supply Chain Partnership
Procure responsibly and ethically Pursue long-termwin-win relationships with suppliers
Our Strategy
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022
Our Material Approach
Through our materiality approach, we provide a transparent window into HKBN's pertinent economic, social and governance aspects to address and report upon. Viewed in their entirety, our strategy and performance in the material issues demonstrates how we tackle ESG-related aspects which are considered most important to the Group and our stakeholders.
Communicating and listening to our stakeholders helps enlighten our understanding of key priorities from a sustainability perspective. In FY17, we appointed an independent consultant to administer a comprehensive materiality assessment on the environment, social and governance aspects of HKBN. Informing this process, online surveys, focus group workshops and interviews have been regularly
conducted with different external stakeholders (i.e. customers, suppliers, community partners and regulators) and internal stakeholders (i.e. Co-Owners and non-Co-Owner Talents). From these exercises, we identified a number of material issues and formulated priorities important to our company (please refer to the table on the next page for details).
To effectively reflect changes in our business (e.g. operational integration with WTT), as well as evolving stakeholder concerns, we engaged an external consultant in August 2019 to kick-start a new round of materiality assessments. The results will guide us to formulate an up-to-date ESG strategy against identified material issues for the next fiscal year. The results of these materiality assessments will be published in our 2020 annual report.
HKBN Ltd.
Our ESG Governance Structure
1 | 2 | 3 | 4 | |||
Business Units | ESG Taskforce | Management | Board of Directors | |||
Committee | ||||||
- At the execution level, representatives from different business units drive and coordinate actions, as well as review progress made towards our ESG commitments.
- Led by the Head of Talent Engagement & Corporate Social Investment (CSI), the ESG Taskforce consists of representatives from the CSI, Internal Audit & Risk, Talent & Organization Development, and Corporate Communications departments, which co-ordinates ESG planning and implementation throughout HKBN, including guiding and collaborating with business units to deliver and monitor progress on the pre-set ESG goals and objectives. The Taskforce conducts periodic review with business units, reports on ESG performance to the Management Committee (MC) and benchmarks latest ESG trends that impact HKBN's ESG strategy.
- Our MC, led by the CEO and composed of our c-suite executives, is responsible for formulating HKBN's ESG strategy. Together they oversee the development, execution and reporting of our ESG performance. The MC provides ESG updates to the Board of Directors on a regular basis.
- The Board of Directors oversees and is accountable for HKBN's ESG strategy, development and performance.
Our Strategy
The following table highlights the many issues identified as important to our Group from the perspective of sustainability:
Our Priorities
Stakeholder | Key Priorities | Other Priorities |
Customers | Service reliability, coverage and affordability | Accessibility for information and assistance |
Provide best value to customers and make services | Offer great customer experience through the | |
more accessible to those living in locations | appropriate channels for information and service | |
currently not served by our network coverage | Promote innovation and embed innovation | |
Fair and transparent marketing and | in our services | |
advertising approach | Offer disruptive customer experiences and new | |
Empower potential and current customers to | service options via applying innovative technology | |
make informed decisions regarding our services | Safeguard customer health and product safety | |
and products | Ensure all HKBN products and services are safe | |
Customer privacy | and healthy for our customers | |
Treat customer data with utmost priority and | ||
ensure customer privacy is protected at all times | ||
Talents | LIFE-work priority | Co-Ownership |
Empower Talents to enjoy happy, healthy and | Align HKBN Talent interests with shareholders to | |
productive lives which drive HKBN's capabilities to | drive business success | |
innovate and stay competitive | Talent development | |
Fairly rewarded remuneration | Empower Talents to grow and develop | |
Drive excellence in Talent performance via "pay for | ||
performance" culture |
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HKBN Ltd.
Suppliers &
Business
Partners
Effective communication and understanding of partner and supplier satisfaction
Establish long-termwin-win partnership with suppliers and business partners
Ensure compliance with HKBN's supplier code of conduct
Align suppliers'/business partners' practices with HKBN's ESG practices to drive responsible and purposeful profits
Community Technology for Good
Leverage HKBN's competitive advantage in technology to promote cyber wellness and narrow the digital divide in local communities
Talent volunteering
Leverage Talent expertise to contribute to the local community
Environment Carbon emissions reduction
Fight climate change by smart and efficient use of energy
Waste minimisation
Enable an integrated waste system to contribute towards a sustainable planet
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HKBN Ltd.
Our Performance
Key Financial and Operational Summary
Table 1: Financial highlights
For the year ended | ||||||||
31 August | 31 August | Change | ||||||
2019 | 2018 | YoY | ||||||
Key financials ($' 000) | ||||||||
Revenue | 5,107,637 | 3,948,952 | +29% | |||||
- Residential | 2,472,707 | 2,278,241 | +9% | |||||
- Enterprise | 2,324,329 | 1,379,183 | +69% | |||||
- Product | 310,601 | 291,528 | +7% | |||||
Profit for the year | 214,527 | 396,897 | -46% | |||||
Adjusted Net Profit 1,2 | 538,175 | 575,423 | -6% | |||||
EBITDA 1,3 | 1,709,348 | 1,179,588 | +45% | |||||
EBITDA margin 1,4 | 33.5% | 29.9% | +3.6pp | |||||
Adjusted Free Cash Flow 1,5 | 750,170 | 578,499 | +30% | |||||
Reconciliation of Adjusted Net Profit 1,2 | ||||||||
Profit for the year | 214,527 | 396,897 | -46% | |||||
Amortisation of intangible assets | 283,776 | 129,627 | >100% | |||||
Deferred tax arising from amortisation of | ||||||||
intangible assets | (45,599) | (20,164) | >100% | |||||
Originating fee for banking facility expired | - | 49,275 | -100% | |||||
Transaction costs in connection with business | ||||||||
combination | 75,608 | 1,757 | >100% | |||||
Transaction costs in connection with proposed | ||||||||
business combination | 9,863 | 18,031 | -45% | |||||
Adjusted Net Profit | 538,175 | 575,423 | -6% | |||||
Key Financial and Operational Summary
For the year ended | ||||||||
31 August | 31 August | Change | ||||||
2019 | 2018 | YoY | ||||||
Reconciliation of EBITDA & Adjusted Free Cash Flow 1,3,5 | ||||||||
Profit for the year | 214,527 | 396,897 | -46% | |||||
Finance costs | 259,271 | 117,288 | >100% | |||||
Interest income | (4,083) | (1,641) | >100% | |||||
Income tax | 94,835 | 92,371 | +3% | |||||
Depreciation | 534,758 | 425,258 | +26% | |||||
Amortisation of intangible assets | 283,776 | 129,627 | >100% | |||||
Amortisation of customer acquisition and | ||||||||
retention costs | 240,793 | - | n/a | |||||
Transaction costs in connection with | ||||||||
business combination | 75,608 | 1,757 | >100% | |||||
Transaction costs in connection with | ||||||||
proposed business combination | 9,863 | 18,031 | -45% | |||||
EBITDA | 1,709,348 | 1,179,588 | +45% | |||||
Capital expenditure* | (413,860) | (394,480) | +5% | |||||
Net interest paid | (276,802) | (101,935) | >100% | |||||
Other non-cash items | 3,525 | 1,324 | >100% | |||||
Income tax paid | (117,396) | (116,234) | +1% | |||||
Customer acquisition and retention costs | (231,901) | - | n/a | |||||
Changes in working capital | 77,256 | 10,236 | >100% | |||||
Adjusted Free Cash Flow | 750,170 | 578,499 | +30% | |||||
Notes: The Group had changed its accounting policies with effect from 1 September 2018 as a result of adopting HKFRS 15, Revenue from Contracts with Customers ("HKFRS 15"). In previous reporting periods, the incremental costs of obtaining telecommunications service contracts were recognised in the consolidated income statement when incurred. Under HKFRS 15, certain incremental costs were required to be capitalised as an asset when incurred, and amortised over expected customer relationship period. Please refer to note 1(c)(ii) on pages 137 to 142 for further details.
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025
HKBN Ltd.
- Excluded $191 million payment for the purchase of properties in Shatin and excluded $296 million paid on acquisition of Cosmo True Limited, a property holding company holding the two network centres currently occupied by the Group, which were completed in September 2018.
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HKBN Ltd.
Key Financial and Operational Summary
Table 2: Operational highlights
For the year ended | ||||||||
31 August | 31 August | Change | ||||||
2019 | 2018 | YoY | ||||||
Residential business | ||||||||
Fixed telecommunications network services business | ||||||||
Residential homes passed (' 000) | 2,360 | 2,297 | +3% | |||||
Subscriptions (' 000) | ||||||||
- Broadband | 878 | 860 | +2% | |||||
- Voice | 500 | 500 | -0% | |||||
Market share 6 | ||||||||
- Broadband | 35.8% | 36.1% | -0.3pp | |||||
- Voice | 21.9% | 21.8% | +0.1pp | |||||
Broadband churn rate 7 | 0.9% | 1.1% | -0.2pp | |||||
Residential ARPU 8 | $185 | $176 | +5% | |||||
Mobile business | ||||||||
Subscriptions (' 000) | 277 | 265 | +5% | |||||
- Mobile (without broadband services) | 133 | 137 | -3% | |||||
- Mobile (with broadband services) | 144 | 128 | +13% | |||||
Mobile ARPU | ||||||||
- Mobile (without broadband services)11 | $148 | $147 | +1% | |||||
- Mobile (with broadband services)12 | $312 | $321 | -3% | |||||
Residential customers (' 000) | 1,019 | 1,017 | +0% | |||||
Enterprise business | ||||||||
Commercial building coverage (' 000) | 7.2 | 2.4 | >100% | |||||
Subscriptions (' 000) | ||||||||
- Broadband | 116 | 57 | >100% | |||||
- Voice | 454 | 140 | >100% | |||||
Market share 6 | ||||||||
- Broadband | 36.5% | 19.2% | +17.3pp | |||||
- Voice | 25.3% | 7.7% | +17.6pp | |||||
Enterprise customers (' 000)13 | 103 | 57 | +81% | |||||
Broadband churn rate 9 | 1.3% | 1.2% | +0.1pp | |||||
Enterprise ARPU 10 | $1,742 | $1,510 | +15% | |||||
Total full-time permanent Talents | 4,131 | 2,981 | +39% | |||||
Key Financial and Operational Summary
Notes:
- EBITDA, EBITDA margin, Adjusted Free Cash Flow and Adjusted Net Profit are not measures of performance under Hong Kong Financial Reporting Standards ("HKFRSs"). These measures do not represent, and should not be used as substitutes for, net income or cash flows from operations as determined in accordance with HKFRSs. These measures are not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements. In addition, our definitions of these measures may not be comparable to other similarly titled measures used by other companies.
- Adjusted Net Profit means profit for the period plus amortisation of intangible assets (net of deferred tax credit and direct cost incurred in corresponding period) and other non-recurring item. Other non-recurring item, in the period under review, include transaction costs in connection with business combination and transaction costs in connection with proposed business combination.
- EBITDA means profit for the period plus finance costs, income tax expense, depreciation and amortisation of intangible assets (net of direct cost incurred in corresponding period), amortisation of customer acquisition and retention cost, transaction costs
in connection with business combination, transaction costs in connection with proposed business combination and less interest income. - EBITDA margin means EBITDA divided by revenue.
- Adjusted Free Cash Flow means EBITDA less capital expenditure, customer acquisition and retention costs, net interest paid and tax paid, and adjusted by changes in working capital and other non-cash items. Working capital includes other non-current assets, inventories, trade receivables, other receivables, deposits and prepayments, contract assets, amounts due from joint ventures, amounts due to joint ventures, trade payables, contract liabilities, deposits received and deferred services revenue. Other non-cash items, in the period under review, include amortisation of obligations under granting of rights and Co-Ownership Plan II related non-cash items.
- Our market share in broadband or voice services in Hong Kong, for residential or enterprise business, is calculated by dividing the number of broadband or voice subscriptions we have at
a given point in time by the total number of corresponding broadband or voice subscriptions recorded by the Office of the Communications Authority ("OFCA") at the same point in time. Based on the latest disclosure from OFCA for June 2019 market data, total market figures from January 2016 to November 2016 were revised to reflect the adjustments filed by the Internet Service Provider(s). - Calculated by dividing the sum of the monthly broadband churn rate for each month of the given financial period by the number of months in the financial period. Monthly broadband churn rate is calculated by the sum of the number of residential broadband subscription terminations in a month divided by the average number of residential broadband subscriptions during the respective month and multiplying the result by 100%.
-
ARPU means average revenue per user per month. Calculated by dividing the revenue generated in the relevant period from services subscribed by residential broadband subscribers, which include broadband services and any bundled voice, IP-TV and/ or other entertainment services (excluding revenue from IDD and mobile services), by the number of average residential broadband subscriptions and further dividing by the number of months in the relevant period. Average residential broadband subscriptions are calculated by dividing the sum of such subscriptions at
the beginning of the period and the end of the period by two. Our use and computation of residential ARPU may differ from the industry definition of ARPU due to our tracking of revenue
generated from all services subscribed by residential broadband subscribers. We believe this gives us a better tool for observing the performance of our business as we track our residential ARPU on a bundled rather than standalone basis.
- Calculated by dividing the sum of the monthly broadband churn rate for each month of the given financial period by the number of months in the period. Monthly broadband churn rate is calculated by the sum of the number of enterprise broadband subscription terminations in a month divided by the average number of enterprise broadband subscriptions during the respective month and multiplying the result by 100%.
- ARPU means average revenue per user per month. Calculated by dividing the revenue generated in the relevant period from the enterprise telecom business (excluding revenue from IDD and mobile services) by the average number of enterprise customers and further dividing by the number of months in the relevant period. Average number of enterprise customers is calculated by dividing the sum of enterprise customers at the beginning of the period and the end of the period by two. This metric may be distorted by the impact of certain particularly large contracts we have with enterprise customers. Enterprise ARPU calculation for the year ended 31 August 2019 includes the relevant revenue and average number of enterprise customers of WTT Group for the four months ended 31 August 2019 and those for HKBN for twelve months ended 31 August 2019. As such, the enterprise ARPU may be different if WTT Group's full year information was used. For information, the Enterprise ARPU for the Group for the month August 2019 was $2,356.
- Mobile (without broadband services) ARPU means average revenue per user per month. Calculated by dividing the revenue generated in the relevant period from services subscribed by residential mobile subscribers (without broadband services), which include all services revenue (excluding IDD and broadband services), by the number of average residential mobile subscriptions (without broadband services) and further dividing by the number of months in the relevant period. Average residential mobile subscriptions (without broadband services) are calculated by dividing the sum of such subscriptions at the beginning of the period and the end of the period by two. Our use and computation of Mobile (without broadband services) ARPU may differ from the industry definition of ARPU due to our tracking of revenue generated from all services subscribed by residential mobile subscribers (without broadband services). We believe this gives us a better tool for observing the performance of our business as we track our residential mobile ARPU on a bundled rather than standalone basis.
- Mobile (with broadband services) ARPU means average revenue per user per month. Calculated by dividing the revenue generated in the relevant period from services subscribed by residential mobile subscribers (with broadband services), which include all services revenue (excluding IDD services), by the number of average residential mobile subscriptions (with broadband services) and further dividing by the number of months in the relevant period. Average residential mobile subscriptions (with broadband services) are calculated by dividing the sum of such subscriptions at the beginning of the period and the end of the period by two. Our use and computation of Mobile (with broadband services) ARPU may differ from the industry definition of ARPU due to our tracking of revenue generated from all services subscribed by residential mobile subscribers (with broadband services). We believe this gives us a better tool for observing the performance of our business as we track our residential mobile ARPU on a bundled rather than standalone basis.
- Enterprise customers means total number of enterprise customers excluding IDD and mobile customers.
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HKBN Ltd.
Our Performance
Management Discussion and Analysis
Annual Report 2019
028
HKBN Ltd.
Business Review
The Group continued to deliver a solid set of operational and financial results for the year ended
31 August 2019. HKBN completed the WTT Merger on
30 April 2019 and transformed to the second largest ICT company in Hong Kong. Residential business continued to thrive as we relentlessly delivered customer-focused, integrated and high value-for- money services to our customers, which rewarded the Group with higher ARPU at a low monthly churn rate in return. As a result of consolidating four months of results of WTT Group, our Group revenue, EBITDA and Adjusted Free Cash Flow ("AFF") increased year-on- year by 29%, 45% and 30%, respectively, to $5,108 million, $1,709 million and $750 million.
Enterprise revenue increased by 69% year-on- year to $2,324 million after consolidating four months of operating results of WTT Group in FY19. Enterprise revenue, before accounting for WTT Group, increased by 17% year-on-year to $1,619 million. During the year, total number of enterprise customers doubled to 103,000 while our enterprise ARPU improved from $1,510 to $1,742. The WTT Merger increased both our presence and capabilities in the enterprise segment, which has enabled us to provide integrated ICT solutions
at competitive value to a much larger customer base. We see many more growth opportunities as we streamline our combined operations and fully exploit the upsell potential through integration.
Residential revenue grew by 9% year-on-year to $2,473 million as a result of the successful execution of our multi-play strategy that increased ARPU while improved customer stickiness. Our customer base has shown good receptiveness of our quad-play offerings whereby our triple/quad-play upsell has reached 50% of our total broadband customers as of 31 August 2019. Historical full base residential ARPU has increased by 5% year-on-year, from $176/ month in FY18 to $185/month in FY19, while our monthly churn rate remained low. Our market share by broadband subscriptions decreased slightly
to 36% as at 30 June 2019 (based on the latest available OFCA statistics).
Over-the-top ("OTT") services continued to be the key contributor to our quad- play strategy, whereby the majority of our residential broadband customers have already ordered at least one OTT set-top box to meet their entertainment needs. Our successful penetration into the OTT market has fostered the growth in subscription revenue as it provide the opportunity for us to offer new and exciting content for customers at competitive prices.
As always, the Group will continue to extend our integrated multi-play price strategy to deliver unprecedented household savings and service convenience to disrupt the legacy broadband, fixed- voice, content and mobile standalone segments.
Product revenue increased by 7% year-on-year to $311 million, mainly represented by the sale of smartphone products that complements our mobile business.
Network costs and costs of sales increased by 47% year-on-year to $1,834 million mainly due to the consolidation of four months of WTT Group's operating results. The increase primarily includes the increase in network cost and other cost of services by 59% year- on-year to $1,545 million which was mainly driven by the continued expansion in the enterprise businesses, mobile service subscription and OTT related content costs. Network costs and costs of sales increased
by 31% year-on-year to $1,630 million, excluding the contribution from WTT Group.
Other operating expenses increased by 29% year-on- year from $2,117 million to $2,735 million mainly due to the consolidation of four months of WTT Group's operating results. The increase primarily includes the increase in amortisation of intangible assets by 126% year-on-year to $276 million, the increase in transaction costs in connection with completed and proposed business combination by 332% year-on-year to $85 million and the increase in Talent costs by 42% year-on-year to $693 million.
Other operating expenses, excluding the contribution from WTT Group and transaction costs in connection with business combinations, increased by 1.6% year- on-year to $2,130 million. The slight increase was due to ongoing operational efficiency initiatives.
Management Discussion and Analysis
Finance costs increased by 121% year-on-year from $117 million to $259 million mainly due to the interest on senior notes of $103 million from the WTT Merger.
Income tax increased by 3% year-on-year from $92 million to $95 million. The expected credit losses on trade receivables recognised as the result of adopting HKFRS 9 and finance costs were not tax deductible. Income tax as a percentage of profit before taxation, after adjusting for these finance costs and non- deductible expenses (the "effective tax rate") was approximately 15% and 15%, respectively, for the FY19 and FY18. The effective tax rate was lower than the statutory income tax rate due to the utilisation of tax losses that were not previously recognised as deferred tax assets.
As the result of the aforementioned factors, profit attributable to equity shareholders decreased by 46% year-on-year from $397 million to $215 million.
Adjusted Net Profit, excluding the impact of amortisation of intangible assets, non-recurring finance costs and non-recurring items, decreased by 6% year-on-year to $538 million. This was mainly due to the fair value gain on interest-rate swap of $59 million in FY18 turned to a loss of $12 million in FY19.
AFF rose by 30% year-on-year to $750 million mainly due to the consolidation of four months of WTT Group's operating results, leading to a increase in EBITDA and inflow from working capital. The adoption of HKFRS 15 did not have any impact on AFF. The positive impact on EBITDA of $241 million was due to the exclusion of the amortisation of customer acquisition and retention costs from EBITDA, which is substantially deducted back for the calculation of AFF.
Market competition continues to be intense for our existing business. We shall focus on harvesting our substantially invested network and our monthly billing relationship by upselling more services through OTT and mobile partnerships, as well as driving sustainable growth in revenue, EBITDA and AFF through the following initiatives:
Further penetrate the enterprise market through our broad range of business-imperative services and more network capacity;
Seamlessly execute the integration of WTT Group, in order to maximise the potential synergy benefits and to better serve the business community; Management targets to achieve $300 millions synergy per annum by the year ending 31 August 2021;
Continue to cultivate our Talent-oriented Co- Ownership culture that aligns risks and rewards with shareholders by extending the invitation to a broader Talent base at HKBN/WTT Group in the revamped Co-Ownership Plan III Plus;
To expand our quad-play bundle plans to multi- play to drive ARPU and subscription growth and disrupt the legacy broadband, fixed-voice, multimedia content and mobile standalone services; and
To further lower finance costs by refinancing relatively expensive senior notes and deleverage to below 4x net debt to EBITDA ratio to enjoy a better interest rate grid of existing bank facility. Management intends to partially redeem up to 20% of the senior notes via cheaper financing.
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HKBN Ltd.
Outlook
The successful WTT Merger and the proposed JOS acquisition shall bring the combined Group's business to new heights, in terms of extended customer reach, wider service offerings and enhanced market competition in the enterprise space. HKBN had proven success in integrating several add-on acquisitions since listing in 2015. As both businesses are highly complementary, we are confident that the combined organisation shall deliver both operational and financial synergies to shareholders.
Management Discussion and Analysis
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HKBN Ltd.
Liquidity and Capital Resources
As at 31 August 2019, the Group had total cash and cash equivalents of $663 million (31 August 2018: $373 million) and gross debt (principal amount of outstanding borrowing) of $9,712 million (31 August 2018: $3,900 million), which led to a net debt position of $9,049 million (31 August 2018: $3,527 million). The significant increase in gross debt is mainly due to the consolidation of WTT Group's US$670 million (equivalent to $5,232 million) senior note in FY19.
The Group's gearing ratio, which was expressed as a ratio of the gross debt over total equity, was 1.3x as at 31 August 2019 (31 August 2018: 3.8x).
The Group's net debt to EBITDA ratio as computed in accordance with the term of the Group's various loan facilities is approximately 4.2x (31 August 2018: 3.0x). The significant increase in net debt to EBITDA ratio is mainly due to the US$670 million (equivalent to $5,232 million) senior notes.
Cash and cash equivalents consisted of cash at bank and in hand. There was no pledged bank deposit as at 31 August 2019 and 31 August 2018. As at 31 August 2019, the Group had an undrawn revolving credit facility of $200 million (31 August 2018: $200 million).
Under the liquidity and capital resources condition as at 31 August 2019, the Group can fund its capital expenditures and working capital requirements for the period with internal resources and the available banking facilities.
Hedging
The Group's policy is to partially hedge the interest rate risk arising from the variable interest rates of the debt instruments and facilities by entering into interest-rate swaps. The Chief Executive Officer and Chief Financial Officer are primarily responsible for overseeing the hedging activities. Under their guidance, the Group's finance team is responsible for planning, executing and monitoring the hedging activities. The Group would not enter into hedging arrangements for speculative purposes.
The Group entered into an interest-rate swap arrangement in the principal amount of $2,635 million with an international financial institution for a term of 1.8 years from 31 August 2018 to 29 May 2020. Benefiting from the hedging arrangement, the Group substantially fixed the HIBOR interest rate exposure at 2.26% per annum.
This interest-rate swap arrangement is recognised initially at fair value and remeasured at the end of each reporting period. The interest-rate swap does not qualify for hedge accounting under HKFRS 9, Financial instruments, and therefore, it is accounted for as held for trading and measured at fair value through profit or loss.
Charge on Group Assets
As at 31 August 2019 and 31 August 2018, no assets of the Group were pledged to secure its loans and banking facilities.
Contingent Liabilities
As at 31 August 2019, the Group had total contingent liabilities of $8 million (31 August 2018: $7 million) in respect of bank guarantees provided to suppliers and utility vendors in lieu of payment of utility deposits.
Exchange Rates
All of the Group's monetary assets and liabilities are primarily denominated in either Hong Kong dollars ("HKD") or United States dollars ("USD"). Given the exchange rate of the HKD to the USD 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 HKD and the Renminbi arising from its operations. In order to limit this foreign currency risk exposure, the Group ensures that the net exposure is kept to an acceptable level of buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.
Management Discussion and Analysis
Significant Investments,
Acquisitions and Disposals
On 7 August 2018, the Company, MLCL, TPG Wireman, L.P. ("TPG Wireman") and Twin Holding Ltd ("Twin Holding") entered into a merger agreement (the "Merger Agreement"), pursuant to which, among other things, MLCL conditionally agreed to purchase, and TPG Wireman and Twin Holding conditionally agreed to sell, the entire issued share capital in WTT Holding Corp for an aggregate consideration
of $5,489,756,860, of which: (i) $3,548,819,204 would be satisfied by the allotment and issuance of consideration shares; and (ii) $1,940,937,656 would be satisfied by issuance of vendor loan notes (the "Vendor Loan Notes"). The condition precedents as set out in the Merger Agreement were satisfied and completion of the WTT Merger took place on 30 April 2019. Following the completion of the WTT Merger,
-
152,966,345 consideration shares have been duly allotted and issued by the Company to each of TPG Wireman and Twin Holding; (ii) the Vendor Loan Notes with an aggregate principal amount of $1,940,937,656 have been issued, with a principal amount of $970,468,828 being issued to each of TPG Wireman and Twin Holding; and (iii) WTT Holding Corp has become direct wholly-owned subsidiary of MLCL and indirect wholly-owned subsidiary of the Company. As the accounting for the aggregate consideration was determined with reference to the market price of the ordinary shares of the Company on the completion date at $14.04 (as compared to $11.60, which is the reference share price in determining the consideration and also the conversion price of the Vendor Loan Notes), the goodwill recognised for WTT Merger at the completion date is larger than what it would be. Please refer to the announcements of the Company dated
7 August 2018, 18 January 2019, 17 April 2019, 30 April 2019, and the circular of the Company dated 26 October 2018 for further details.
On 23 August 2019, HKBNGL (as purchaser) and JTH (as seller), amongst others, entered into the share purchase agreement (the "Share Purchase Agreement"), pursuant to which, among other things, HKBNGL has conditionally agreed to purchase, and JTH has conditionally agreed to sell, the entire issued share capital of Jardine OneSolution Holdings (C.I.) Limited, Adura Hong Kong Limited and Adura Cyber Security Services Pte Ltd (collectively, the "Target Companies") for a consideration of US$50,000,000 (equivalent to $393,500,000) in cash (subject to certain closing and post-closing adjustments). Jardine Technology Holdings Limited has agreed to guarantee to HKBNGL the proper and punctual performance
by JTH of its obligations under the Share Purchase Agreement. MLCL has agreed to guarantee to JTH the proper and punctual performance by HKBNGL of its obligations under the Share Purchase Agreement. Upon satisfaction of the condition precedent(s)
as set out in the Share Purchase Agreement, the Target Companies will become direct wholly-owned subsidiaries of HKBNGL and indirect wholly-owned subsidiaries of the Company. Please refer to the announcement of the Company dated 23 August 2019 for further details.
Save as disclosed, the Group did not make any significant investments, acquisitions or disposals in relation to its subsidiaries and associated companies during the year ended 31 August 2019.
Talent Remuneration
As at 31 August 2019, the Group had 4,131 permanent full-time Talents (31 August 2018: 2,981 Talents).
The Group provides remuneration package consisting of basic salary, bonus and other benefits. Bonus payments are discretionary and dependent on both the Group's and individual performances. The Group also provides comprehensive medical insurance coverage, competitive retirement benefits schemes, and Talent training programmes.
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HKBN Ltd.
Annual Report 2019
Our Performance
Report of the Directors
The Directors are pleased to present their report and the audited consolidated financial statements for the year ended 31 August 2019.
Principal Activities
HKBN Ltd. (the "Company", together with its subsidiaries, the "Group") is an investment holding company. The Group is a leading ICT services provider in Hong Kong. With extensive fibre-optic networks, the Group offers a comprehensive range of premier ICT services to both enterprise and residential markets, including broadband, data connectivity, managed Wi-Fi, mobile, voice communications, integrated cloud solutions, data centre services, information security services, business continuity and system integration.
risks that may adversely affect the Group's operation and performance are identified and corresponding measures are in place to mitigate those risks. For key risks related to the Group's businesses and to the industries in which the Group operates, please refer to the chapter headed "Corporate Governance Report" on pages 102 to 116. If any of these events occur, the Group's businesses, financial conditions, results of operations and/or prospects of the Group could be materially and adversely affected. These key risks are by no means exhaustive or comprehensive, and there may be other risks, in addition to those highlighted, which are not known by the Group or which may not appear significant now but could turn out to be so in the future.
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HKBN Ltd.
Business Review
A fair review of the business of the Group and a discussion and analysis of the Group's performance during the year, and the future developments of the Group's business, are set out in the chapters headed "Shareholder Letter" and "Management Discussion and Analysis" on pages 8 to 11 and pages 28 to 31 of this annual report respectively.
Analysis Using Financial Key
Performance Indicators
Details of the financial key performance indicators can be found in the chapters headed "Key Financial and Operational Summary" and "Management Discussion and Analysis" on pages 24 to 27 and pages 28 to 31 of this annual report respectively.
Principal Risks and Uncertainties
The Directors are aware that the Group is exposed to a variety of risks, some are specific to the industry in which the Group operates while others are common risks that most businesses face. Procedures have been established by the Directors to ensure significant
Environmental Policies and Performance
As an environmentally responsible business, HKBN has a role to constantly explore policy which prioritises energy efficiency to reduce any negative impact on the environment. We have integrated environmental considerations into our business process, as well
as minimise our generation of waste with a vision to "Make our Hong Kong a Better Place to Live".
With the implementation of our Environmental Policy since 2017, we have adopted various initiatives to continually improve our energy efficiency and minimise our generation of waste. Aiming to facilitate a greener and more sustainable future, we have been working on several energy reduction initiatives via collaboration and innovation. In addition, we have collaborated with our vendors, partners and community to "reduce-at-source", minimising waste by reducing consumption and encouraging reuse and recycling.
More information about the Group's environmental performance is set out in the chapter headed "Environment" on pages 94 to 101 of this annual report.
Report of the Directors
Relationships with Key Stakeholders
Talents
At HKBN, people are Talents, not staff. Talents are our investment, with each individual possessing his or her own respective skills and values. Our sustained success is attributed to a very simple philosophy, that is to provide the very best value, experience and opportunities to Talents so as to attract, retain and motivate the very best to work for our Company. In this light, we seek to not only comply with but exceed the legal requirements set by the Employment Ordinance and other laws and regulations related to employee welfare and working conditions, with a view to inspiring other companies to follow and make Hong Kong a better place to work.
Following the WTT integration, with a more enlarged scale, HKBN has begun aiming to achieve synergy and break down silos. After going through a journey that includes Townhall meeting, open house, office tours and two-way communication sessions, ex-WTT Talents have gotten to understand more about HKBN and embrace our unique culture.
Under the Sex Discrimination Ordinance, Family Status Discrimination Ordinance and Race Discrimination Ordinance, it is unlawful for any person or organisation to discriminate against another person (male or female) on the basis of gender, marital status, pregnancy or family status or; discriminate, harass or vilify a person on the grounds of their ethnicity. At HKBN, we are committed to preventing discrimination and treating all acts of discrimination with zero tolerance. Likewise, forced labour of any kind is not allowed. In line with the Employment Ordinance, we will not employ any children aged under 13. For the protection of children (under the age of 15) and young persons (aged 15 but under 18), the Company shall only employ young Talents in strict compliance with the Employment of Children Regulations and the Employment of Young Persons (Industry) Regulations.
All Talents who suffer injury arising out of and during work are covered by and entitled to compensation which exceeds the legal requirements stipulated under the related provision of the Employees' Compensation Ordinance.
Our '9am to 5pm Flexible Working Hour Policy' allows our Talents to work 8 hours (including a
1-hour-and-15-minute lunch break) instead of the typical 9-hour standard. Under Flexi Working Hours arrangement, non-shift Talents can decide to start their working day between 8:30am to 10:00am.
All non-shift duty Talents may also enjoy a 1-hour and 15-minute lunch break taken flexibly between 12:00pm and 2:30pm. In addition, full-time Talents who are not required to provide on-site support duties, may apply, subject to supervisor approval, to work via mobile office during normal working days.
Adhering to Total Rewards viz. Strict performance-based monetary rewards, we have in place a fair and effective performance appraisal system and incentive bonus schemes. Every year, we identify the bottom 5% of our underachieving performers and invite them to undergo an enhancement programme. If their performance remains out of alignment, they are asked to leave. Through this, the Group is better equipped to concentrate on nurturing and rewarding our top 95% performers.
More information of the Group's Talent culture can be found in the chapters headed "Customers" and "Talents" on pages 44 to 59 and pages 60 to 77 of this annual report respectively.
Customers
For the residential market, HKBN believes a strong customer engagement strategy will foster brand growth and loyalty. Providing a high-quality customer experience is an important component in our strategy. In a customer-in way, great customer service is not just about making the customer happy, but to make life easier for them. Our dual 14-daycooling-off periods and 180-day deferred start bill option for designated services let customers enjoy peace-of-mind after service registration and after service installation has completed.
To make customer experiences as quick and effortless as possible, HKBN stays on top of the latest customer service trends by investing in multichannel support technology. Self-service portals, payment kiosks,
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HKBN Ltd.
Report of the Directors
dynamic interactive voice response system, interactive and organised FAQ section are in place for customers who prefer to solve their own problems without having to interact with a sales or service agent. Customers who prefer human interaction can contact us easily through live chat, social media, telephone, email or correspondence. Armed with complete and real-time information about customers via our Customer Relationship Management ("CRM") system, customer requests are dealt promptly on first contact. We encourage customers to interact and share their feedback with us. Customer satisfaction surveys are in place to measure customer's satisfaction level with our company's products, services or experiences.
Since 2016, our Residential Service Hotline Service has been granted service Quality Management Certificate ("HKQAA"). Additionally, we won five Corporate Gold Awards ("HKCCA") in 2018:
Mystery Caller Assessment Award - Residential Service Hotline (six consecutive years)
Mystery Caller Assessment Award - Residential VIP Hotline (four consecutive years)
Mystery Caller Assessment Award - Online Customer Service
Mystery Caller Assessment Award - Number Porting Hotline
Mystery Caller Assessment Award - Number Porting Hotline - Best IVRS
In addition, we received around 2,500 written compliments praising the outstanding work of our customer service agents and service technicians throughout the years. All these are indicative of our high-quality services and commitment to customers.
For the enterprise market, customers today are demanding greater mobility in their telecom services, more product options, customised with total solutions and better ways to connect with their business and operations round-the-clock. To meet the needs for
a broad array of customers across different sectors and markets, ranging from local retailers, SMEs to multinational corporates as well as international carriers, our highly motivated and engaged Enterprise Solutions teams are striving to improve the overall quality of our services and enhance the agility of our service processes. To meet this challenging business
environment, we continued to invest to improve our digital capabilities and are always looking for ways to enhance pre-sales and after-sales processes aimed at delivering qualities services.
With the merger with WTT, we believe an agile approach to customer processes is what we need to support enterprise customers while offering total business solutions. Last year, we started working with our world class CRM solution partner to prepare for the journey to embrace the coming changes and enable the full integration of customers data for end-to-end customer experience and plan for digitalisation initiatives in the coming two years.
Details of our customer-focused initiatives are set out in the chapter headed "Customers" on pages 44 to 59.
Suppliers
HKBN is committed to conducting our supplier procurement activities with the highest standards of quality and integrity. Our Procurement Policy sets out a consistent approach with comprehensive guideline which we require all Talents to comply with when undertaking any sourcing activities. Diversity of sourcing is essential to driving our vision in making Hong Kong a better place to live. Whenever possible, HKBN prefers any opportunity to diversify partnerships with a proclivity to choose social enterprise suppliers.
With the strong foundation set by our corporate core value, sustainable procurement plays an important role in our Corporate Social Investment strategy which is expounded in our Group's Procurement Policy. We expect our suppliers either to comply with our Supplier Code of Conduct or have their own business code of conduct that meets our requirements and a similar approach is expected for their suppliers and subcontractors.
The Group has introduced criticality assessment and added measurements and considerations on supplier sustainability concerning Environment, Labour, Health and Safety in our supplier selection processes. More information about our Group's Procurement Policy and approaches is set out in the chapter headed "Suppliers" on pages 78 and 81 of this annual report.
Report of the Directors
Compliance with Applicable Laws and Regulations which have a Significant Impact on the Group
The Group and its activities are subject to various applicable legal and regulatory requirements. They include the Telecommunications Ordinance (Cap. 106), the Trade Descriptions Ordinance (Cap. 362), the Personal Data (Privacy) Ordinance (Cap. 486), the Competition Ordinance (Cap. 619), the Employment Ordinance (Cap. 57) and the Listing Rules. Through the implementation of various internal controls and approval procedures, and appropriate in-house training provided to different units within the Group, the Company has complied in all material respects with all relevant laws and regulations that have significant impact on the operations of the Group for the year ended 31 August 2019. During the year ended 31 August 2019, the Group has organised training sessions on "Overview on Intellectual Property Law" for managerial and above level Talents from all departments, as well as for Talents of Marketing and Talent Engagement departments. Likewise, training on "What You Need To Know About Competition Ordinance" was undertaken by managerial and above level Talents from all departments.
Personal Data Privacy Ordinance ("PDPO")
The Group's collection, holding, processing or use of personal data in its usual and ordinary course of business is required to comply with relevant requirements of
the PDPO. To prevent a breach of personal data from occurring, protective measures as well as training sessions and meetings with relevant business and operation units had been held to ensure that we are securely equipped and compliant with the law.
Telecommunications Ordinance ("TO")
As licensees under the TO, and in the interests of the public, the Group is required to operate in compliance with the TO and relevant licence conditions including providing satisfactory level of service, certain interconnection services and share facilities owned by them. If licensees fail to comply with the TO or relevant licence conditions, fines may be imposed by the Communications Authority ("CA").
Trade Descriptions Ordinance ("TDO")
The CA has concurrent jurisdiction with the Customs and Excise Department in the enforcement of the TDO. False trade descriptions of goods and services, misleading omissions, bait advertising, etc., are prohibited under the TDO. If any of the aforesaid offences are committed, it may result in criminal prosecution and fine and imprisonment may be imposed. To ensure compliance with the TDO, all sales and marketing materials are reviewed to ensure compliance and refresher training sessions are offered to sales and marketing units from time to time.
Competition Ordinance ("CO")
The CA has concurrent jurisdiction with the Competition Commission ("CC") in the enforcement of the CO, namely, in relation to telecommunications and broadcasting licensees. Under the CO, agreements or concerted practices between undertakings that have the object or effect of preventing, restricting or distorting competition in Hong Kong are prohibited. Likewise, an undertaking that has a substantial degree of market power is also prohibited from abusing its power through engaging in conduct that has the object or effect of preventing, restricting
or distorting competition in Hong Kong. Failure to comply with these competition rules could result in the Competition Tribunal imposing a fine of up to 10% of the gross Hong Kong turnover of the Group (up to three years) and Directors may be disqualified for up to five years. To ensure compliance with the CO, training sessions were conducted for all business units before the CO came into effect on December 2015, a further update session was conducted in September 2017 for managerial and above level Talents whilst a compliance guideline manual was prepared for Talents involved with sales, marketing, business tenders, pricing, contracts and strategy formation.
Annual Report 2019
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HKBN Ltd.
Report of the Directors
Annual Report 2019
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HKBN Ltd.
Consolidated Financial Statements
The financial performance of the Group for the year ended 31 August 2019 and the financial position of the Group as at that date are set out in the consolidated financial statements on pages 127 to 233 of this annual report.
Recommended Dividend
The Directors now recommend the payment of a final dividend of 36 cents per ordinary share (2018: 30 cents per ordinary share) to the shareholders on 6 January 2020, amounting to approximately $472,176,000 (2018: $301,700,000).
The dividend policy of the Company is to pay dividends in an amount of not less than 90% of the AFF with an intention to pay 100% of the AFF in respect of the relevant year/period, after adjusting for potential debt repayment, if required.
The dividend will be funded by the contribution of the Group (including the four months AFF contribution from WTT Group) and the surplus cash accumulated at WTT Group up to the completion of WTT Merger. Based on the terms and conditions of the Vendor Loan Notes, the holders of Vendor Loan Notes were entitled to receive a cash amount payable by the Company equal to $60,235,996 based on the 36 cents final dividend per ordinary share declared by the Company for the twelve months ended on 31 August 2019, as if the holders of the Vendor Loan Notes were holders of 167,322,212 ordinary shares in the Company as of the record date for such final dividend. Such cash amount will be paid by the Company to the holders of Vendor Loan Notes on 6 January 2020, being the date on which the 2019 final dividend will be paid by the Company.
Subsidiaries and Joint Ventures
Details of the principal subsidiaries and joint ventures of the Group as at 31 August 2019 are set out in notes 12 and 13 to the "Notes to the Financial Statements", respectively.
Share Capital
Details of the movements in share capital of the Company during the year are set out in note 28 to the "Notes to the Financial Statements".
Financial Summary
A summary of the results and of the assets, equity and liabilities of the Group for the last five financial years/period is set out on pages 234 and 235 of this annual report.
Retirement Schemes
Details of the retirement schemes of the Group are set out in note 8 to the "Notes to the Financial Statements".
Bank Loan
Particulars of bank loan of the Group as at 31 August 2019 are set out in note 20 to the "Notes to the Financial Statements".
Donations
During the year ended 31 August 2019, the Group made charitable and other donations of approximately $1,056,000 (2018: $1,298,000).
Distributable Reserves of the Company
As at 31 August 2019, the Company's reserves available for distribution to shareholders were $5,334,175,000 (2018: $1,097,491,000).
Under the Companies Law (2018 Revision) of the Cayman Islands and the articles of association of the Company (the "Articles"), no dividend shall be declared or payable except out of the profits and reserves of the Company lawfully available for distribution including share premium.
Report of the Directors
Directors and Directors' Service Contracts
The Directors of the Company during the year ended 31 August 2019 and up to the date of this report are:
Chairman and Independent Non-executive Director
Executive Directors
Non-executive Directors
Independent Non-executive Directors
Name of Director
Mr. Bradley Jay HORWITZ 2,4
Mr. Chu Kwong YEUNG 3,6
Mr. Ni Quiaque LAI
Ms. Deborah Keiko ORIDA 4
Mr. Zubin Jamshed IRANI 2,6
Mr. Teck Chien KONG 4
Mr. Stanley CHOW 2,4,5
Mr. Yee Kwan Quinn LAW, SBS, JP 1,4,6
Annual Report 2019
Note: | |||||
1 | Chairman of Audit Committee | 2 | Member of Audit Committee | 3 | Chairman of Nomination Committee |
4 | Member of Nomination Committee | 5 | Chairman of Remuneration Committee | 6 | Member of Remuneration Committee |
037
A full list of names of the Directors of the Group's subsidiaries can be found in the Company's website at www.hkbnltd.net under "Our Company/Corporate Governance".
Currently, all Directors are subject to retirement by rotation at least every three years and re-election in accordance with the Listing Rules and the Articles.
At least one-third of Directors shall retire from office every year at the Company's annual general meeting.
In accordance with article 16.18 of the Articles, Mr. Ni Quiaque LAI, an Executive Director of the Company, Mr. Zubin Jamshed IRANI and Mr. Teck Chien KONG, the Non-executive Directors of the Company, and Mr. Yee Kwan Quinn LAW, an Independent Non-executive Director of the Company, shall retire from office at the forthcoming annual general meeting and shall be eligible for re-election. All remaining Directors shall continue in office.
The Company has received, from each of the Independent Non-executive Directors, a confirmation of his independence pursuant to Rule 3.13 of the Listing Rules. The Company considers that all of the Independent Non-executive Directors are independent.
No Directors proposed for re-election at the forthcoming annual general meeting have service contracts with the Company or any of its subsidiaries which are not determinable by the Group within one year without payment of compensation, other than statutory compensation.
Management Contracts
No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year ended 31 August 2019.
HKBN Ltd.
Report of the Directors
Directors' and Chief Executives' Interests in Securities
Annual Report 2019
As at 31 August 2019, the Directors and chief executives of the Company had the following interests and short positions in the shares, underlying shares (in respect of positions held pursuant to equity derivatives), and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken
or deemed to have under such provisions of the SFO); or (b) were required, pursuant to Section 352 of the SFO to be entered in the register maintained by the Company referred to therein; or (c) were otherwise required to be notified to the Company and the Stock Exchange pursuant to the "Model Code for Securities Transactions by Directors of Listed Issuers" (the "Model Code") set out in Appendix 10 of the Listing Rules:
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HKBN Ltd.
Long Position
Ordinary shares of $0.0001 each in the Company
Percentage of | ||||||
the issued share | ||||||
Number of | capital of the | |||||
Name of Director | shares held | Company | ||||
Mr. Bradley Jay HORWITZ | 450,000 | 0.03% | ||||
Mr. Chu Kwong YEUNG | 27,086,427 | 2.07% | ||||
Mr. Ni Quiaque LAI | 32,997,122 | 2.52% | ||||
Mr. Teck Chien KONG (Note 1) | 236,627,451 | 18.04% | ||||
Note:
1. Mr. Teck Chien KONG, through corporations directly and indirectly controlled by him, namely MBK Partners JC GP, Inc., MBK Partners JC GP, L.P., MBK Partners JC, L.P. and Twin Holding Ltd held 236,627,451 ordinary shares of the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.
Other than the interests disclosed above, none of the Directors nor the chief executives nor their associates had any interests or short positions in any shares, underlying shares (in respect of positions held pursuant to equity derivatives) or debentures of the Company or any of its associated corporations as at 31 August 2019.
Interests in Competing Business
During the year ended 31 August 2019, none of the Directors are considered to have an interest in any business which competes or is likely to compete, either directly or indirectly, with the businesses of the Group.
Report of the Directors
Restricted Share Unit Schemes
To attract, retain and motivate skilled and experienced Talents, the Company adopted three Co-Ownership plans, namely Co-Ownership Plan II, Co-Ownership Plan III and Co-Ownership Plan III Plus on 21 February 2015, 15 December 2017 and 4 September 2019 respectively. Co-Ownership is a powerful expression of the commitment and belief our Talents have in the Group. Unlike the more traditional approach of giving stock options to a very limited group of senior executives, the Company's Co-Ownership is open to all supervisors and above level Talents, spanning the Group's operations including but not limited to Hong Kong, Guangzhou and Shenzhen.
Co-Ownership Plan II
Co-Ownership Plan II is a restricted share unit scheme adopted by the Company on 21 February 2015. The plan has a matching ratio of 7:3 (i.e. 3 restricted share units ("RSUs") would be granted by the Company for every 7 purchased shares), and the vesting schedule would also be 25%-25%-50% upon each anniversary over 3 years after the date of grant. The maximum investment amount of each participant is limited to one year of the annual compensation package.
The total number of shares that may underlie the RSUs granted pursuant to the Co-Ownership Plan II shall be
- 10% of the shares in issue on 12 March 2015 (the "Listing Date"), the date on which the Company was listed on the Stock Exchange or (ii) 10% or less of the
shares in issue as at the date following the date of approval of the renewed limit (as the case may be). The Co-Ownership Plan II shall be valid and effective for the period commencing on the Listing Date and expiring on the tenth anniversary thereof or such earlier date as it is terminated in accordance with the terms of the Co- Ownership Plan II, after which period no further RSUs shall be offered or granted.
In order to enable the Co-Ownership Plan II trustee to release shares to participants upon vesting of each RSU, the Company allotted and issued, on the Listing Date, by way of capitalisation issue 5,666,666 shares to the Co-Ownership Plan II trustee. Such shares represented approximately 0.56% of the total issued share capital of the Company on the Listing Date. The Co-Ownership Plan II trustee will hold such shares on trust until their release to participants upon vesting of the RSUs.
As at 31 August 2019, we now have over 330 Co- Owners, representing a majority of our supervisors and above level Talents which constitutes over 7% of our entire workforce. On their own volition, they invested their personal savings in the amount of between two to twelve months of salary to acquire the Company's shares at full market price. The shares are then matched with free shares at a certain ratio vested over three years.
Annual Report 2019
039
HKBN Ltd.
Details of movements of the Co-Ownership Plan II during the year ended 31 August 2019 are as follows:
Number of RSUs | ||||||||||||
To be vested on 24 January/ | ||||||||||||
As at 1 | Granted | Forfeited | Vested | As at 31 | 30 January/26 February/20 July | |||||||
Date of | September | during | during | during | August | (As at 31 August 2019) | ||||||
Participants | grant | Granted | 2018 | the year | the year | the year | 2019 | 2020 | 2021 | 2022 | ||
Other Participants | 20 November 2015 | 158,567 | 3,239 | - | - | 3,239 | - | - | - | - | ||
Chu Kwong YEUNG | 20 June 2016 | 194,556 | 97,278 | - | - | 97,278 | - | - | - | - | ||
Ni Quiaque LAI | 20 June 2016 | 134,241 | 67,121 | - | - | 67,121 | - | - | - | - | ||
Other Participants | 20 June 2016 | 1,752,685 | 705,543 | - | 48,472 | 657,071 | - | - | - | - | ||
Other Participants | 24 January 2017 | 400,472 | 263,190 | - | 38,658 | 75,693 | 148,839 | 148,839 | - | - | ||
Other Participants | 20 July 2017 | 252,635 | 166,814 | - | - | 55,599 | 111,215 | 111,215 | - | - | ||
Other Participants | 30 January 2019 | 329,330 | - | 329,330 | 37,238 | - | 292,092 | 73,006 | 73,006 | 146,080 | ||
Other Participants | 26 February 2019 | 126,410 | - | 126,410 | - | - | 126,410 | 31,591 | 31,591 | 63,228 | ||
Total | 3,348,896 | 1,303,185 | 455,740 | 124,368 | 956,001 | 678,556 | 364,651 | 104,597 | 209,308 |
Report of the Directors
Annual Report 2019
040
HKBN Ltd.
Co-Ownership Plan III
To provide additional means for the Company to incentivise Talents and to recognise the continual support of relevant Talents to the Group and their effort in promoting the Group's long-term growth and development, the Company adopted the Co-Ownership Plan III on 15 December 2017. Please refer to the announcement of the Company dated 2 November 2017 and the circular of the Company dated 16 November 2017 for details of the Co-Ownership Plan III.
However, by reason of (i) the occurrence of an M&A event (i.e. WTT Merger) and that the aspirational target of the adjusted available cash per share for distribution is different for the enlarged group after the WTT Merger and (ii) no grant of restricted share unit has been made under the plan since its adoption, on 21 June 2019, the Board resolved to terminate the Co-Ownership Plan III (pursuant to the terms of the Co-Ownership Plan III), and to adopt the Co-Ownership Plan III Plus as a replacement.
Co-Ownership Plan III Plus
Co-Ownership Plan III Plus is a replacement of Co- Ownership Plan III which was adopted by the Company on 4 September 2019.
Under the Co-Ownership Plan III Plus, the granting of the RSUs to the eligible participants depends on the level of the adjusted available cash per share for distribution achieved, on a cumulative basis, during the 2019, 2020 and 2021 financial years. The minimum level of the adjusted available cash per share for distribution required to be achieved by the Company before any RSU will be granted is an amount in excess of $2.53 on a cumulative basis over the 2019, 2020 and 2021 financial years of the Company. If the adjusted available cash per share for distribution,
on a cumulative basis, over the 2019, 2020 and 2021 financial years of the Company reaches $3.03, RSUs will be granted to the grantees on the basis that the grantees would, subject to the satisfaction of the vesting conditions and on the vesting date, receive 1.33 award share for every purchased share. The granting of the RSUs will occur earlier than the publication
of the annual results of the Company for the 2021 financial year if the maximum targeted accumulated adjusted available cash per share for distribution is
achieved prior to the end of the 2021 financial year. Accumulated adjusted available cash per share for distribution in excess of $3.03 will not give rise to any further entitlement.
Additionally, Co-Ownership Plan III Plus also contains a Corporate Social Investment element whereby the HKBN Talent CSI Fund Limited (the "Charitable Fund") is included as a participant in the scheme. Pursuant to the scheme rules of Co-Ownership Plan III Plus, the Executive Directors of the Company agree to donate a total of 4,000,000 shares to the Charitable Fund. With their contributions to the Charitable Fund, the Co-Ownership Plan III Plus would reserve RSUs to be contributed to the Charitable Fund with respect to the 4,000,000 shares donated by the Executive Directors, and such RSUs will entitle the Charitable Fund to receive not more than 5,320,000 awarded shares under the terms of the scheme. Talents may, at their own discretion, make contributions to the Charitable Fund by directing the plan trustee to transfer any part of their awarded shares receivable upon the vesting of the RSUs to the Charitable Fund. The Company considers that this charitable element of the scheme would support the Company's core purpose of making our Hong Kong a better place to live.
Please refer to the announcement of the Company dated 21 June 2019 and the circular of the Company dated 29 July 2019 for details of the Co-Ownership Plan III Plus.
As at 31 August 2019, there are approximately 1,000 Talents that are eligible to participate in Co-Ownership Plan III Plus, representing approximately 24% of the total number of existing employees of the Group and no invitations or grants under the Co-Ownership Plan III Plus have been made.
Arrangements to Purchase Shares or Debentures
Saved as disclosed in the "Restricted Share Unit Schemes" above, at no time during the year ended 31 August 2019 was the Company or any of its subsidiaries, a party to any arrangements to enable the Directors
of the Company to acquire benefits by means of the acquisition of shares in, or debt securities (including debentures) of, the Company or any other body corporate.
Report of the Directors
Interests of Substantial Shareholders
As at 31 August 2019, to the best knowledge of the Directors and chief executives of the Company, the following persons (other than any Directors or chief executives of the Company) were substantial shareholders, had notified the Company of their relevant interests in shares and underlying shares
(in respect of positions held pursuant to equity derivatives) representing 5% or more of the issued share capital of the Company which were required to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO, or which were required to be recorded in the register required to be kept under Section 336 of Part XV of the SFO:
2019
Long Position
Ordinary shares of $0.0001 each in the Company
Percentage of | |||||||||
Number of | the issued | ||||||||
ordinary shares | voting shares | ||||||||
Name of shareholder | Note | beneficially held | of the Company | ||||||
Canada Pension Plan Investment Board | (a) | 182,405,000 | 13.91% | ||||||
GIC Private Limited | (b) | 87,284,797 | 6.65% | ||||||
The Capital Group Companies, Inc. | (c) | 72,989,500 | 5.57% | ||||||
Matthews International Capital Management, LLC | (d) | 71,121,908 | 5.42% | ||||||
David BONDERMAN | (e) | 236,627,451 | 18.04% | ||||||
James George COULTER | (f) | 236,627,451 | 18.04% | ||||||
Michael ByungJu KIM | (g) | 236,627,451 | 18.04% | ||||||
Teck Chien KONG | (h) | 236,627,451 | 18.04% | ||||||
Notes:
- Canada Pension Plan Investment Board is the beneficial owner of 182,405,000 ordinary shares of the Company.
- 87,284,797 ordinary shares are held by GIC Private Limited in the capacity of investment manager.
- The Capital Group Companies, Inc. through its subsidiaries, namely Capital International, Inc., Capital International Sarl, and Capital Research and Management Company held 4,139,000 ordinary shares, 6,664,500 ordinary shares and 62,186,000 ordinary shares of the Company respectively, and is accordingly deemed to be interested in the respective ordinary shares held by the aforesaid companies.
- 71,121,908 ordinary shares are controlled by Matthews International Capital Management, LLC in the capacity of investment manager.
- Mr. David BONDERMAN, through corporations directly and indirectly controlled by him, namely TPG Asia Advisors VI, Inc. and TPG Wireman, L.P., held 236,627,451 ordinary shares in the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.
- Mr. James George COULTER, through corporations directly and indirectly controlled by him, namely TPG Asia Advisors VI, Inc. and TPG Wireman, L.P., held 236,627,451 ordinary shares in the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.
- Mr. Michael ByungJu KIM, through corporations directly and indirectly controlled by him, namely MBK GP III, Inc., MBK Partners GP III, L.P., MBK Partners Fund III, L.P., MBK Partners JC, L.P. and Twin Holding Ltd held 236,627,451 ordinary shares of the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.
- Mr. Teck Chien KONG, through corporations directly and indirectly controlled by him, namely MBK Partners JC GP, Inc., MBK Partners JC GP, L.P., MBK Partners JC, L.P. and Twin Holding Ltd held 236,627,451 ordinary shares of the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.
Annual Report
041
HKBN Ltd.
Annual Report 2019
042
HKBN Ltd.
Report of the Directors
Other than the interests disclosed above, the Company has not been notified of any other relevant interests or short positions in the shares or underlying shares (in respect of positions held pursuant to equity derivatives) of the Company as at 31 August 2019.
Related Party Transactions
Certain related party transactions as disclosed in note 34 to the "Notes to the Financial Statements" for the year ended 31 August 2019 did not constitute connected transaction or continuing connected transaction as defined under Chapter 14A of the Listing Rules.
Connected Transactions
On 21 June 2019, the Board approved to adopt the Co-Ownership Plan III Plus as a replacement of Co- Ownership Plan III to attract, retain and motivate skilled and experienced Talents. After getting the approval by the independent shareholders at the extraordinary general meeting of the Company on 19 August 2019 and the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the new shares under the RSUs of the Company in September 2019, the Company adopted the Co- Ownership Plan III Plus on 4 September 2019.
According to the Co-Ownership Plan III Plus, the Company may invite all the eligible Talents to participate the scheme, which includes 8 connected participants who are directors or chief executive of the Company, or directors or chief executive of the Group's subsidiaries as at 23 June 2019. As the connected participants are connected persons of the Company, the granting of any RSU to the connected participants under the Co-Ownership Plan III Plus would constitute connected transaction of the Company under Chapter 14A of the Listing Rules. Please refer to the announcement of the Company dated 21 June 2019 and the circular of the Company dated 29 July 2019 for details.
Major Customers and Suppliers
For the year ended 31 August 2019, the aggregate amount of revenue attributable to the Group's five largest customers were approximately 8.8% of the Group's total revenue and the revenue attributable to the Group's largest customer were approximately 2.8% of the Group's total revenue.
For the year ended 31 August 2019, the aggregate amount of purchases and costs incurred attributable to the Group's five largest suppliers were approximately 40.8% of the Group's total purchases and costs incurred, and purchases and costs incurred from the largest supplier accounted for approximately 14.9% of the total purchases and costs incurred.
At no time during the year, did a Director, an associate of a Director or a shareholder of the Company, which to the knowledge of the Directors owns more than 5% of the Company's issued share capital, have an interest in the share capital of any of the five largest customers or suppliers of the Group.
Update on Directors' Information under Rule 13.51B(1) of the Listing Rules
Pursuant to Rule 13.51B(1) of the Listing Rules, the changes in information of the Directors of the Company since the publication of the Company's 2019 interim report are set out below:
Mr. Teck Chien KONG, a Non-executive Director of the Company, is appointed as a director of Wendu Education & Technology Group Limited and certain of its group companies with effect from 31 July 2019.
Purchase, Sale or Redemption of the Company's Listed Securities
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the year ended 31 August 2019.
Directors' Emoluments and Five Highest Paid Individuals
The emoluments of the Directors of the Company are recommended by the Remuneration Committee and are decided by the Board, having regard to the Group's operating results, individual performance and comparable market statistics. Details of the remuneration of the Directors and those of the five highest paid individuals of the Group for the year ended 31 August 2019 are set out in notes 5 and 6 to the "Notes to the Financial Statements", respectively.
Report of the Directors
Pre-emptive Right
There are no provisions for pre-emptive rights under the Company's Articles, or the laws of Cayman Islands, which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.
Corporate Governance
The Company is committed to maintaining a high standard of corporate governance practices. Information on the corporate governance practices adopted by the Company is set out in the chapter headed "Corporate Governance Report" on pages 102 to 116 of this annual report.
Sufficiency of Public Float
On the basis of information that is publicly available to the Company and within the knowledge of
the Directors of the Company, the Company has maintained a sufficient public float as required under the Listing Rules during the year ended 31 August 2019 and up to the date of this annual report.
Indemnity of Directors
A permitted indemnity provision (as defined in section 469 of the Hong Kong Companies Ordinance) for the benefit of the Directors of the Company is currently in force and was in force throughout this year.
Subsequent Event
On 23 August 2019, HKBNGL (as purchaser) and JTH (as seller), amongst others, entered into the Share Purchase Agreement, pursuant to which, among other things, HKBNGL has conditionally agreed to purchase, and JTH has conditionally agreed to sell, the entire issued share capital of the Target Companies for a consideration of US$50,000,000 (equivalent
to $393,500,000) in cash (subject to certain closing and post-closing adjustments). Jardine Technology Holdings Limited has agreed to guarantee to HKBNGL the proper and punctual performance by JTH of its obligations under the Share Purchase Agreement. MLCL has agreed to guarantee to JTH the proper and punctual performance by HKBNGL of its obligations under the Share Purchase Agreement. Upon satisfaction of the condition precedent(s) as set out in the Share Purchase Agreement, the Target Companies will become direct wholly-owned subsidiaries of
HKBNGL and indirect wholly-owned subsidiaries of the Company. The proposed transaction was not yet completed as at the date of this annual report and no adjustments have been made to this annual report as a result of the above event.
On 16 September 2019, MLCL completed a conditional redemption of 10% of the senior notes due 2022 at a redemption price of 103% plus accrued and unpaid interest. Immediately upon the completion of the conditional redemption, US$603,000,000 (equivalent to $4,745,610,000) in aggregate principal amount of the senior notes remained outstanding. The redemption was completed using the Group's internal resources.
On 25 September 2019, Hong Kong Broadband Network Limited, an indirect wholly-owned subsidiary of the Company, obtained a $1,000,000,000 uncommitted revolving loan facility from a bank in Hong Kong that bears interest at Hong Kong Inter- bank Offered Rate plus a margin per annum on the utilised amount.
Professional Tax Advice
Recommended
If the shareholders of the Company are unsure about the taxation implications of purchasing, holding, disposing of, dealing in, or the exercise of any rights in relation to the shares of the Company, they are advised to consult an expert.
Auditor
The financial statements have been audited by KPMG who shall retire and being eligible, offer itself for re-appointment at the forthcoming annual general meeting of the Company.
On behalf of the Board
Mr. William YEUNG
Executive Director
Hong Kong, 24 October 2019
Annual Report 2019
043
HKBN Ltd.
Elaine Lau
Shop Ambassador
Better for Customers
Every day, we connect customers with all the best possibilities offered by the digital world. And we do it tirelessly with a smile.
Our Performance
Customers
Annual Report 2019
046
HKBN Ltd.
Mindful that our success begins with customers, we work endlessly not only to inject disruptive features and appeal across our products, services, solutions and experiences, but we also make sure factors like reliability, transparency, quality and safety are embedded in all our offerings.
Service Reliability
Reliability of our services is an important attribute that helps reinforce customer trust in HKBN.
Network Performance
To ensure that our fibre network service is outstanding and reliable, HKBN's Network Operation Centre ("NOC") works around-the-clock to monitor and manage our performance. In FY19, overall network availability was at 99.9864% for residential customers. For our enterprise customers, network availability reached 99.9985%. With the integration of WTT,
we standardised operational workflow for better alignment across our various NOCs beginning in FY20.
Protocols and escalation guidelines are in place to ensure rigorous monitoring of network performance across different service platforms. Above all, our prime objective is to mitigate any impact or potential impact to customers, as well as ensure timely communication with affected stakeholders. In addition, we're developing a Centralised Alarm System ("CAS") to better consolidate our existing alarms protocols for improved network surveillance capabilities and effectiveness.
On 8 June 2019, some customers experienced an IP telephony and Internet service degradation caused by software instability of the route processors. The problem was fixed by the vendor on the same day. In order to prevent reoccurrence of similar incidents, we undertook a thorough review and enhancement measures across our entire network and all relevant systems supported by the vendor. We have also commenced an exercise to review, audit and enhance network architecture, configuration and vendor diversity.
99.9985%
network availability for enterprise customers
99.9864%
network availability for residential customers
Customers
Maintaining service reliability is | During on-site service visits, Talents like | |
a critical part of Calvin Tam's (our | HKBN Service Technician Wong Wing- | |
District Service Engineer) daily | hong count on exceptional technical | |
responsibilities. | know-how to assist customers. | |
Annual Report 2019
047
Expanded Network Coverage
To make our high-value services more widely available for households and companies, we continued expanding our fibre network coverage across different parts of Hong Kong. In FY19, we extended our coverage to over 62,000 additional homes, 23% of which are in rural areas, including villages not previously served by high-speed fibre broadband services. To facilitate growth of our Enterprise Solutions business, 334 commercial buildings were added to our network coverage this year, in addition to the network coverage of WTT. As at the end of FY19, our fibre network reached a total of about 2.4 million homes and over 7,200 commercial buildings and facilities in Hong Kong.
Network Improvements & Upgrades
As our fibre network remains a vital aspect of HKBN's business, we invest considerable effort and resources to maintain reliability as well as future-proof its capabilities. During the reporting period, the following measures were undertaken:
Streamlined network operations and holistically upgraded resilience levels (phasing in multi- vendor IP core network)
Restructured operations by creating two dedicated NOCs to explicitly focus on Residential Solutions and Enterprise Solutions needs
A new 5G mobile backhaul network infrastructure is being built to meet 5G rollout needs from mobile network operators
Launched Hong Kong's first carrier hosted SIP trunk to enable voice for Microsoft Teams direct route solution
Launched 2Gbps broadband service with Home Gateway
Developed automated service provisioning to reduce provisioning lead time
Offer customers tri-carrier network diversity, providing ultra-high network resilience and network reliability
HKBN Ltd.
Annual Report 2019
048
HKBN Ltd.
Customers
Integrating for
Growth
Immediately after merging with WTT, we identified everything that needed to be done and structured a special Merger Integration Team, comprising representatives from each key function layer of HKBN and WTT, led by Billy Yeung, our Co-Owner and CEO - Enterprise Solutions. Moving as quickly as possible and without losing objectivity about crucial priorities, our task force worked through the complications to align and synergise two distinct entities across a broad spectrum of specialties that are crucial to our service quality and business development.
Merger Integration Team (MIT)
Any kind of business integration process involves a large number of decisions and processes running concurrently in a relatively short time frame - and ours was an accelerated one of just four months (early May to late August 2019). As such, decisions must be closely coordinated with priorities aligned. Mindful of these challenges, MIT was formed as a close working team to actively ensure everyone is always on track, is
Our agile MIT comprised a broad range of elite Talents from both HKBN and WTT.
adequately supported or has the resources they need. Weekly meetings were held throughout the process to ensure timelines and milestones are met on 30-day,60-day,100-day plans.
MIT adopted the following principles in the integration process:
Integrate for growth (not just for operational synergies and cost-savings)
Clearly define MIT responsibilities and key tasks
Maintain mutual respect for Talents from both companies
Identify restructure leaders and their key functions
Adhere to strict timelines
Time taken to complete integration after merger
9 months
5 months*
NWT WTT
- Due to lessons learned from NWT integration in 2016
From day one, our plan was not just to achieve operational synergy in terms of scale or scope, but rather to enhance HKBN Enterprise Solutions' ("HKBNES") upside for growth. A good example is how we've been able to leverage WTT's substantially-invested network infrastructure into a competitive advantage. We're creating new opportunities to engage business customers who desire ultra-high resilience with Hong Kong's first-evertri-carrier fibre network - powered by networks from HKBN, NWT and WTT. Through this integration, we've crucially expanded our Talent base with comprehensive professional expertise that strengthens HKBN Group's scope of capabilities to deliver the very best end-to-end ICT solutions for customers of all sizes and industry sectors in Hong Kong.
Billy Yeung
Co-Owner and CEO - Enterprise Solutions
Customers
As part of our integration efforts, a new tagline
- Unleashing the Power of Business - was introduced for HKBN Enterprise Solutions. (From left) Our new Enterprise Solutions commanders are Karina Tsoi, Henry Li, Mikron Ng, Doris Chan, Adrian Watt, Andy Lau and Clio Ip.
Annual Report 2019
With adverts placed throughout Hong Kong's busiest CBD areas and public transport, we asserted our ambition to become the ICT solutions provider of choice.
Key tasks completed:
WTT renamed as HKBN Enterprise Solutions HK Limited
Analysis and integration of customer profiles and accounts (we now have 103,000 enterprise customers, up from 57,000 in FY18)
Integration for tri-carrier network diversity
Product/service portfolio reviewed, consolidated and integrated for maximum synergy
Operations, business support and customer service aligned
Talent remuneration and benefits aligned
IT system and platform reviewed and integrated Financial reporting and billing consolidation
049
HKBN Ltd.
Almira Chan, Chief Strategy Officer and Clio Ip (right), Co-Owner and Director - Mobile Business, Enterprise Solutions were instrumental co-leaders of MIT.
All the key integration tasks were completed extremely fast - about four months. Whilst both companies were different in terms of culture and the way we operated, the process was smooth because we afforded much consideration to our Talents. Early on, we identified leaders out of the restructure and worked together with these key stakeholders to adjust our integration plan based on emergent needs, for maximum effectiveness. Throughout the integration process - as a Talent-first company
- we made sure to engage Talents, via various meetings and talks organised by our Talent Management and other functional teams, to ease nervousness about how they would fit into the 'new' organisation. Because HKBN's entrepreneurial culture is built around Talents and unleashing their potential, bridging the gap between both companies and getting buy-in was high on our list of priorities.
Clio Ip
Co-Owner and MIT Co-Leader
Customers
Annual Report 2019
050
HKBN Ltd.
Reliable Partners, Reliable Service
For the interest of our customers, we work closely with business partners to maintain reliability of our varied services. SmarTone and China Mobile Hong Kong ("CMHK"), the two Mobile Network Operators ("MNO") who support our Mobile Virtual Network Operator ("MVNO") service, promise to provide the same level of service quality as they would for their own mobile customers.
Our Network Operation Centre maintains close communication with the corresponding network operation centres of the abovementioned MNOs to get timely mobile service performance updates. For OTT services, apart from direct NOC-to-NOC communication, we undertake regular technical reviews and receive quarterly reports from TVB, our OTT platform partner. Service Level Agreements ("SLA") and network escalation procedures with key business partners exist which help shorten recovery time and minimise impact during service interruptions, outages or other issues. To safeguard service reliability
and continuity, business partners are stipulated to maintain service quality via clearly-defined terms for service availability, stability, support and system maintenance response obligations. In relationships
where we provide network services for our partners, we maintain similar agreement obligations and measures to ensure reliability and continuity. And when networking issues arise, we provide backup support as needed.
Reliability on the Frontlines
Our Certified Professional Engineers ("CPE") team is responsible for installation and maintenance of our broadband service. To gauge the quality of service provided by our residential CPE Talents, electronic surveys are automatically sent one day after every installation or maintenance visit completed. In FY19, our team received an average overall customer satisfaction score of 5.64 out of 6 (5.61 out of 6 in FY18).
94%
customer satisfaction score for our Certified Professional Engineers
Our highly trained CPE Talents are fully committed to serving customers with excellence, dependability and expertise.
Customers
Serving on the frontlines means our CPEs are also uniquely positioned to respond to recurring customer issues and even pre-empt them. In FY19, our CPE team proactively visited a total of 116 residential buildings to perform pre-emptive maintenance. Choosing sites that have had the highest ratio of maintenance orders, these free-of-charge visits saw our CPEs perform inspections on equipment and cabling - and remedies as they are needed.
Service Affordability
True to our Core Purpose to "Make our Hong Kong a Better Place to Live", we believe broader accessibility to world class telecommunications is essential in
a strong, prosperous society. For this reason, we continue to set the price ceiling for our 100Mbps residential fibre broadband service at 1% of Hong Kong's median household income.
As a company committed to bringing customers the best value for their money, we constantly track, analyse and benchmark market trends. But rather than follow legacy market practices, our disruptive DNA has led us to tailor services for the benefit of consumers.
During the reporting period, we undertook the following to enhance the value-for-money appeal of our services:
Working closely with our MNO and OTT partners, we offered mobile customers 12/24 months free access to enjoy entertainment content via the myTV SUPER App (a value of $68/month)
Starting from 1 April 2019, our CMHK mobile customers can enjoy free 5GB or even unlimited local data per month to watch content via the myTV SUPER App
In collaboration with Microsoft, we offered Hong Kong's first MS Cloud-based Phone System to enterprise customers at the price of $928 for 100Mbps broadband, three Microsoft 365 licenses and three phone systems
A special pricing discount for our Microsoft bundle was offered to NGOs, social enterprises and members of Hong Kong Council of Social Service ("HKCSS")
As a socially engaged company, we fully support the contributions made by NGOs and social enterprises. To play our part, we offer special pricing of our services to NGOs, underprivileged people, members of the HKCSS, one of the largest social welfare organisations affiliated with over 460 social welfare agency members, and more. For more details, please refer to page 87 of this report.
Annual Report 2019
051
HKBN Ltd.
To promote our Microsoft Cloud-based Phone System bundle offer, we launched a strategic marketing blitz aimed at a broad spectrum of business customers.
Customers
Annual Report 2019
052
HKBN Ltd.
Customer Privacy
Our customers trust us with their personal data, and we take data privacy protection as a top priority. We have a stringent privacy policy governing how we collect, use and manage customer information. Our Internal Audit and Risk Department also commissions certified professionals to conduct periodic reviews of our security systems. Customers can pose their enquiries or complaints about data privacy via telephone hotline, email, fax or letter. We target to investigate and respond to enquiries within seven days.
As a result of strong, decisive measures introduced last year to implement industry-leading data collection and retention practices, as well as a comprehensive series of network security enhancement initiatives, we no longer store full credit card numbers. We have completely removed from our database 6 digits (out of the full 16 digits) for credit card numbers belonging to our existing customers and practice 'tokenisation' to limit the exchange of sensitive data when processing credit card payments. Furthermore, we altered the way each customer's Hong Kong Identity Card ("HKID") number is stored. To this end, HKID numbers are now only partially visible via our front-line system.
Mindful that Talents have a critical role in protecting both HKBN and our customers' data, we focused heavily on training and augmenting security awareness. In FY19, the following initiatives were implemented:
A total of seven phishing awareness assessments were conducted for all HKBN Talents. As a result of these seven assessments, our Talents showed clear improvements in their awareness towards phishing emails. During the first phishing email assessment conducted in April 2019, 8.3% of Talents were duped by our exercise, while an average of 5.8% of Talents failed our last three assessments conducted in July and August 2019. To further improve our phishing vigilance, more training of this kind will be initiated throughout FY20
Two Cyber Security Roadshow sessions were held in March 2019 to arouse mass awareness with over 600 Talents attending in-person or viewing the live-webcast
Since July 2019, all ex-WTT Talents (integrated as part of our WTT Merger) in Hong Kong and mainland China, and new joiners must undergo security awareness training and pass our examination
During the reporting period, we further strengthened our information security capabilities via the following:
Chartered an information security consultant to introduce a long-term risk assessment process that can better predict and prevent cybersecurity threats
Conducted numerous tests to check HKBN's response to unexpected cyber attacks
Redesigned and implemented the network infrastructure enhancements based on the audit recommendations made by our external security consultant
2,733hours
cyber security training
Customers
Following the incident of unauthorised access to an inactive database which occurred in April 2018, the Privacy Commissioner for Personal Data published an investigation report on the incident and issued an enforcement notice on 21 February 2019, wherein Hong Kong Broadband Network Limited was required to take specified actions within 90 days. In May 2019, we have fulfilled those requirements and reported them to the Privacy Commissioner for Personal Data.
During the reporting period, there was no other substantiated legal case of non-compliance with the related laws and regulations.
Innovation
To augment our speed and flexibility for change, we continued to embrace the Agile methodology, a development approach which enables projects to evolve collaboratively, and importantly, quickly respond to evolving market requirements. This is helping to pave the way for faster delivery and continual improvements of our products and services.
Taking advantage of technology and software advance- ments,we're also deploying tools like AI, cloud and data analytics for wide-use applications that boost productivity, operational efficiency and enhance overall customer experiences.
In a highly unique way, our pain/GAIN initiative adopts an entrepreneurial risk/reward approach that encourages our Talents to put innovative ideas
into practice. Whenever Talents feel extra confident about an out-of-the-box idea, we invite them to back the execution of their plans by investing part of their salary. Like our approach to Co-Ownership, this scheme potently delivers alignment between Talents and shareholders (refer to page 10 for details).
Altogether, these measures serve as foundations to supercharge - and even reinvent - how we disrupt legacy practices.
Home Gateway 2.0
In November 2018, we launched the new Home Gateway, an unprecedented service that combines 2Gbps broadband, Wi-Fi capabilities, home telephone functionality, HomeGuard Network Security and Parental Control in one easy to use device. Powered by Trend Micro, a global leader in threat intelligence and security solutions, the embedded HomeGuard service redefines home network security with builtin enterprise-level protection, as well as parental controls so that children are properly safeguarded from cyber risks and threats.
Working in collaboration with Disney, we rolled out a city-wide campaign asking consumers to vote for their favourite limited-edition Home Gateway designs, featuring iconic Disney and MARVEL characters. As a result, four stunning Home Gateway designs were chosen (two launched in September 2019 and two more are set to launch in November 2019). Along with these highly desirable designs, Home Gateway was further expanded with new offers and bandwidth options for both 1Gbps and 2Gbps service.
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In collaboration with Disney, we introduced an all-new look for routers with ultra-cool Home Gateway designs featuring Toy Story and MARVEL characters.
Customers
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More for Customers
To improve desirability of our offerings, throughout FY19 we worked to deliver a wide variety of enhancements and premium bundles. These include:
myTV SUPER free upgrade for over 10,000 customers to enjoy premium content (Sony, BBC, Blue Ant, and more)
January 2019: we bundled thousands of free movie tickets with our mobile service plans
March 2019: we launched a variety of new international sports content (beIN Sports, NBA, etc.)
March 2019: we launched new movie and documentary content (Hollywood Movie, Gold Scene, Discovery)
April 2019: myTV Gold package was launched to replace our Supreme Package with a higher variety of content
April 2019: our CMHK mobile customers can enjoy free 5GB/unlimited monthly local data to watch content on myTV SUPER App
July 2019: we bundled thousands of free movie tickets with our mobile service plans
In collaboration with myTV SUPER, we offered our Enterprise Solutions customers significant discount coupons to advertise commercials on myTV SUPER
In collaboration with big big channel, we offered our Enterprise Solutions customers significant discount coupons for promotional event hosting/ management solutions by big big channel
Tri-carrier Network Diversity
Following our completed integration with WTT, we are now the only service provider in Hong Kong with the capabilities to offer tri-carrier fibre networks (HKBN
- NWT + WTT). Leveraging this as a competitive advantage, we are now uniquely positioned to offer business customers a cost effective network diversity solution which automatically mitigates the risk of Internet and data connectivity interruption.
HKBN Enterprise Solutions
Cloud Services
Over the past several years, we've worked hard to establish ourselves as a leader in digital and cloud services. The opportunities to help enterprises - small, medium and large - achieve far better performance and efficiencies are spurring an accelerated focus from us to deliver on Hong Kong's inevitable digital transformation.
Following our May 2018 acquisition of ICG, which was rebranded (since October 2019) as HKBN Enterprise Solutions Cloud Services, we've built on our strengths to provide complete end-to-end professional multi- cloud consulting, implementation and managed services.
To help customers innovate by taking full advantage of the powerful capabilities, our Cloud Services business focuses on the following:
Public Cloud
We provide comprehensive services in multi and hybrid cloud selection, architecture design and deployment.
Cloud Solutions
Combining our unique tri-carrier advantage in connectivity with cloud, mobility and data centre capabilities, we can move up the stack from managed services to a variety of advanced cloud solutions that range from infrastructure to the application layer. This includes Connectivity + Cloud, Storage + Data Platform, Next-genAI-based Cloud Security, and Cloud Native Development.
Customers
Digital Journey Transformation
Through cutting-edge expertise, we help enterprises identify their IT strengths and weaknesses - and close the gap via cloud transformation.
In September 2019, we introduced an online acquisition portal where enterprise customers can now easily subscribe to bundle offers of Business Broadband, Business Voice, and Mobile Services
Fair And Transparent Sales & Marketing
Our long term success is built on a relationship of trust and integrity. For this crucial reason, our objective
is to ensure that customers can make well informed decisions when choosing our products, services and solutions.
Standard policies and procedures are in place to ensure that all our marketing materials are compliant with the Trade Descriptions Ordinance, intellectual property laws and other pertinent ordinances. Before any marketing material is made available to customers, they must first be properly vetted and approved by our legal and/or senior management teams.
During the reporting period, there was no substantiated case of non-compliance against relevant advertising regulations.
To further enhance customer access and understanding of our pricing, charges and more, continuous improvements were made to our online platforms in FY19. These include:
For Enterprise Solutions customers, we developed an online platform which provides transparent pricing for our products and services
In January 2019, we invited a legal consultant to share tips and advice on the legal pitfalls on pertinent topics like Trade Descriptions, Defamation, Copyright & Trademark infringement
Selling Responsibly
At HKBN, we put heavy emphasis on training and service quality for all Talents involved with sales of our products and services.
All our sales-related Talents are required to undergo comprehensive training covering product/service knowledge, sales techniques, company policy and ethics. Crucially, Talents must pass an assessment before being permitted to interact with our customers.
For existing sales Talents, on-the-job training and refresher trainings are regularly provided to ensure they are always adequately prepared. To ensure that accurate information is relayed to customers, our telesales Talents operate with the support of pre- approved scripts and detailed procedural guidelines.
As a further safeguard, performance of our frontline sales teams is carefully monitored by team leaders as well as our Quality Management team. Internal policy and procedures ensure disciplinary actions are enforced whenever a Talent deliberately gives misleading information or behaves inappropriately.
Proper Handling of Complaints
We take customer feedback and complaints about HKBN services very seriously. Each complaint, once received, is assigned a case number and Customer Service Talent who handles investigation and follow- up. Once the investigation is completed, our Talent will provide a reply to the complainant. Cases are settled and closed after follow-up actions have been taken and the customer expresses satisfaction (within a targeted resolution time of seven days). On a daily basis, our Customer Service Talents will prepare reports of unsettled complaint cases and send them to our Customer Service management team for review and possible escalation.
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Customers
Customer Accessibility to
Information and Assistance
Customers can easily reach us to obtain information or service assistance via a multitude of online and offline channels. Upon activating their subscribed service, customers can use My HKBN mobile app or our website to conveniently check information such as service contract terms and obligations, pricing, our latest offers, plan terms and conditions, and much more.
Residential Customer Service:
Through our customer service hotline, online platform, email and other channels, customers can get help quickly and easily. In terms of FY19 performance, our enquiry hotline answered 94% of all calls within its normal operating hours (9am to 1am), performance for FY18 was 95%. For our online chat service, which first launched in February 2018, our target is to answer 80% of inquiries within normal operating hours (9am to 9pm). In FY19, we achieved a performance of 83%. To expand our customer service reach and effectiveness, we launched a 24x7 Facebook chatbot in January 2019 to answer basic enquiries. Since January, this service has helped 1,940 users.
For emails, our target is to respond to 95% of all customer enquiries within a 4-hour window (during normal operating hours of 9am-9pm). In FY19, we exceeded our goals with a 99% performance.
Gauging customer approval is extremely important to us. Upon completing each enquiry made to our customer service hotline, customers are asked to rate their satisfaction on a scale of 1 to 6. With a target score of 5.5 out of 6, we outperformed in FY19 with an average score of 5.71 (5.64 in FY18).
For service complaints, we follow a standard policy governing how we handle customer dissatisfaction. Our Customer Service team will carry out immediate investigation, aiming to provide a proper resolution within seven days.
94%
of hotline calls answered during normal operating hours
Like Elaine Wu, our customer service representatives are always ready with expert knowledge to answer calls.
Enterprise Solutions Customer Service:
To better address the needs of Enterprise Solutions customers, we offer various channels and convenient options where information and help can be easily accessed. These include:
Dedicated account managers & account servicing relationship executives who oversee service and support
Website and HKBNES e-newsletter
Monthly e-surveys conducted to gather feedback about the quality of our products and solutions from customers
Customers
HKBNES My Account and other managed services portals enable customers to check monthly usage, download user forms, make amendments online to service settings and account information
Our customer service hotline answered 91% of all calls during normal working hours in FY19, an increase of 8%, compared to 83% for FY18
Improving User Experiences
Listening to customers helps us understand what they desire. The following highlights the many ways we gather practical feedback for improvement:
Monitor and analyse market information, benchmarking global best practices
Use our multitude of online and offline channels to collect and understand customer behaviour
Use surveys to regularly measure and monitor customer satisfaction
On a monthly and quarterly basis, we conduct reviews of our brand using YouGov metrics in areas like brand awareness, advertising awareness, purchase consideration, corporate reputation and more
Service satisfaction surveys are conducted on a quarterly basis to monitor customer feedback on a range of experiences for both mobile and fixed broadband services (for full details, please refer to the chart provided below)
Enterprise Solutions customers are regularly invited to participate in our e-surveys and comprehensive telephone surveys
In FY19, 780 Enterprise Solutions customers provided feedback on HKBNES' products and services. The average score achieved was 7.79 out of 10 for "products in use" (an increase of 6.7%, up from 7.3 in FY18) and 7.79 out of 10 for "overall performance of products and services" (an increase of 3.8%, up from 7.5 in FY18)
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Customer satisfaction survey results on HKBN mobile services (rated from 1 to 5):
SIM card | Sales' | |||||||||||||||||
Registration | redemption | Network | Network | Voice | Customer | Technical | Overall | |||||||||||
procedure | method | service | speed | stability | quality | service | support | Evaluation | ||||||||||
Average rating | ||||||||||||||||||
in FY19 | 4.6 | 4.8 | 4.7 | 4.2 | 4.2 | 4.5 | 4.5 | 4.4 | 4.4 | |||||||||
Customer satisfaction survey results on HKBN fixed line services (rated from 1 to 5):
Sales' | Certified | Local | Overseas | |||||||||||||
Customer | Technical | Professional | Network | Network | Network | Overall | ||||||||||
service | services | Support | Engineers | Speed | Speed | Stability | Evaluation | |||||||||
Average rating | ||||||||||||||||
in FY19 | 4.7 | 4.7 | 4.6 | 4.9 | 4.6 | 4.1 | 4.4 | 4.6 | ||||||||
Customers
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To further improve how we monitor and enhance service reliability, our Customer Service team keeps track of customer complaints and swiftly communicates any suspected problems with our Network Operations team to take prompt action. In the event of service outage or scheduled maintenance, we take immediate action to inform customers via announcements on our website, hotline and social media platforms.
Customer Health and Product Safety
HKBN is committed to providing products and services which comply fully with the legal and regulatory requirements for consumer safety. Towards this goal, we will only do business with ethical and environmentally responsible suppliers. This means, at a minimum, suppliers who do business with us must comply with Hong Kong's laws and regulations.
Early involvement with our suppliers throughout the product design stage helps ensure our requirements for quality, compliance with international safety regulations and standards, as well as sustainability metrics, are met.
In addition, new suppliers are required to provide certificates or reports from a third-party testing laboratory verifying that their products have passed relevant safety tests.
For our OTT content, we understand that a wide range of programmes are provided by our OTT partner, TVB. Viewers can select and watch these programmes via set-top box, computer or mobile device. Mindful of this, we make sure that parental controls are available for all age-restricted content.
During the reporting period, no substantiated non- compliance court cases relating to product health and safety occurred.
Product Safety Protocol
If we receive any report of alleged safety issue with our Internet service, the case will be immediately escalated to our Network Operation Centre, who will investigate and, if needed, arrange for our Certified Professional Engineers to perform on-site inspection/ maintenance within 24 hours.
Certified Professional Engineers
All HKBN broadband engineers are required to complete the following courses before we confirm them as permanent Talents:
-
Construction Industry Safety Training Certificate
Granted by HKSAR Occupational Safety & Health Council, this certification provides the relevant health and safety training for construction industry professionals. - Safety Training
To maintain a consistent level of service and safety awareness from our CPE team, newly joined Talents are required to participate in various workshops and courses. Throughout FY19, 52 new Talents attended courses on "Emergency and Emotion Handling". Conducted by our CPE Quality Assurance team, the courses provided training on how to deal with safety incidents, the proper escalation procedures to take, and how Talents should best manage emotions when interacting with customers.
Customers
Awards and Recognition
Hong Kong Call Centre Association
HKCCA Awards 2018 - Mystery Caller Assessment Awards
Best IVRS
Residential VIP Hotline (Gold) (four consecutive years)
Residential Service Hotline (Gold) (six consecutive years)
Online Customer Service (Gold)
Number Porting Hotline (Gold)
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Economic Digest
The Best SME Partners 2018 -
Corporate Telecommunications
Service Provider
e-zone
e-brand awards - The Best DX Partners
HKBN Ltd.
Adele Chu | Kennedy Yeung |
Network Technician | |
Senior Manager - Talent & | |
Kay Wong | |
Organization Development | |
Senior Technical | |
Support Executive |
Talents
Leading the
Way
Talents are fundamental to every aspect of HKBN's strategy and success. We prioritise enablement in every possible way to ensure our Talents live and work with purpose.
Our Performance
Talents
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Whilst financial remuneration is important, HKBN Talents benefit from a broad range of inducements that are unique to our company.
Total Rewards
A career at HKBN entails Total Rewards for Talents that aren't strictly monetary in nature. Our Talents know that by embracing our Core Purpose to "Make our Hong Kong a Better Place to Live", we're striving to pioneer benefits for Hong Kong society. We also uphold Talents as priority number one - substantiated by how we treat our Talents with respect, offer exceptional flexibility and employment benefits, and provide them with copious opportunities to grow professionally. By championing objectivity in our pay structure, Talents understand all contributions they make will be fairly rewarded. In an analogous way, our Co-Ownership culture gives Talents a one-of-a-kind opportunity to prosper as part owners of the company they serve.
All combined, these compelling elements ensure that HKBN Talents come to work thoroughly engaged with a sense of pride and passion to perform. From HKBN's perspective, this holistic Total Rewards dynamic is fundamental to our unique strategy of attracting, cultivating, incentivising and retaining the best Talents for success.
LIFE-work Priority
Mindful that Talents play a decisive role in our overall success, we strive to ensure they can work and enjoy happy, fulfilled lives. While many are still grappling with work-life balance, we uphold LIFE-work priority. As a principle, we maintain that personal well-being and family should always come first - when Talents can spend quality time with friends and family, we believe they arrive at work more motivated to perform.
For these practical reasons, we continue to provide HKBN Talents with a broad array of highly progressive leave benefits, far beyond the obligations stipulated by law. On the whole, our entitlement policies provide the equivalent of about 38 additional days off annually for each Talent. Examples of our excellent leave benefits include those for our expecting mothers who are afforded 16 weeks of full- pay leave (Hong Kong law requires only 10 weeks at 4/5th pay). Similarly, our Paternity Leave gives new dads 14 days of full-pay leave (Hong Kong law requires employers provide 5 days of paid leave). Rather than the typical 9am to 6pm schedule, our normal workday begins at 9am and ends at 5pm.
Benefits & Alignment
Ever since the WTT Merger was completed in April 2019, we began a comprehensive integration process of our two companies, aiming to harness improved operational synergies as well as to break down legacy silos between teams and departments. Over the past several months, we carried out numerous efforts, including organising Talent townhall meetings in Hong Kong and Guangzhou, communication sessions with leaders and focus groups, to ensure all ex-WTT Talents feel welcomed as part of one unified HKBN.
One key result of integration is that we've consolidated Talent benefits. Our 'newly joined HKBNers' in Hong Kong now enjoy all the same leave benefits as all Hong Kong based HKBN Talents, including shortened work hours of 9am- 5pm, 16 weeks full-paid Maternity Leave, 14 days full-paid Paternity Leave, Grandparent Leave, and monthly half-day off Friday. Leave benefits that were unique to WTT, like Birthday Leave, were also incorporated for all HKBN Talents to enjoy.
38 | additional days off |
Talentannually for each |
Talents
The following table highlights our comprehensive benefits and entitlements which exceed our legal obligation:
35hrs
TGIF
2 days
Shortened working hours*
Without cutting pay, we shortened working hours from 8 to 7 hours daily, for a total of 35 hours per week, beginning July 2015
Flexible working hours
Talents enjoy the choice to begin work between 8:30 a.m. to 10 a.m.
A 17-day public holiday entitlement for all Talents*
All HKBN Talents, regardless of job, rank or seniority, enjoy 17 days of public holidays annually
Half-day leave during important festive occasions
On the eve of festive holidays, Talents enjoy a half-dayleave to spend more time and celebrate with family and friends
Monthly Half-day off Friday*
Once a month, everyone is encouraged to leave the office half day earlier
Family Care Leave
One day of paid leave so that Talents can spend quality time together with family
Exam Leave*
Talents can apply for up to five days of paid Exam Leave annually, two of which can be used to help their children study
Volunteer Leave*
Two days of paid leave for Talents who volunteer for Corporate Social Investment
Marriage Leave*
Five days of paid Marriage Leave
Upgraded Maternity Leave*
16 weeks of full-pay Maternity Leave
Upgraded Paternity Leave*
14 days of full-pay Paternity Leave
Anniversary Leave
One day of paid leave during the month of a Talents' joining to celebrate his/ her contributions for a completed year of service
2-for-1 Bonus Leave
Talents can flexibly choose to exchange two days of leave for one day of pay, for up to 10 days of leave annually
Sabbatical Leave
Talents can apply for up to one year of no-pay Sabbatical Leave as an opportunity to pursue a personal goal or dream
Birthday Leave
Talents enjoy one day of paid leave during his/her birth month to celebrate with family and friends
Dating Leave#
One day of paid leave for shift-duty Talents
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- Applicable to Hong Kong operations only
- Applicable to Mainland China operations only
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Talents
When I first joined HKBN as part of the WTT Merger, there was a bit of anxiety about the uncertainty. But to my pleasant surprise, I became very impressed by the level of respect and care given to every Talent - LIFE-work priority isn't a hollow promise, but rather a way of life! As the mother of a 10-year old boy, I've already used Exam Leave to study with my child and get through the stress of school examinations.
Elsie Lam
Senior Web Designer
LIFE-work Priority: Work Flexibility | unexpected situations such as typhoon and large-scale |
Championing LIFE-work priority means we respect | traffic disruptions. We allowed Talents to work from |
our Talents by practising work flexibility whenever the | home or at our mobile office locations, or leave office |
need arises. Throughout FY19 we've continued to be | earlier if personal safety was a concern. |
flexible and accommodating in response to events and |
Festive Activities with Family
During FY19, thanks to our Talent activity sponsorship scheme, "Let's Go FUNd", over 700 gifts were given to encourage HKBN fathers to enjoy quality time with their fathers/mothers and sons/daughters.
With a similar aim, we organised "Thanks to Family" themed events for our Guangzhou Talents to strengthen relationships during Mother's Day and Father's Day.
Mother's Day Cooking
Family Competition:
Talents and their family members made delicious food at home and brought their creations to the office for sharing. Serving as judges, our fellow Talents selected the best dishes and awarded prizes to the winners.
Father's Day Green
Family Event:
Forming teams with their kids, our Talents embarked on a mission to clean up a local park.
To celebrate Mother's Day, we organised a cooking workshop for Talents to make traditional lucky buns.
Talents
Having a good mood and adequate rest is important to health. I'm happy that HKBN supports LIFE-work priority - it motivates me to enhance efficiency to complete my work within working hours, so that I can spend great time with my friends and family.
Moon Chung
Co-Owner and Assistant Manager -
Talent & Organization Development
(based in Guangzhou)
Bring Family to HKBN
To help strengthen the bond between Talents and their families, this July we turned our "Monthly Half-day off Friday" into a special family day. We invited family members to our offices in Hong Kong to get a firsthand appreciation of what we do, as well as take part in various fun activities.
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Fairly Rewarding Our Talents
By using a pay-for-performance approach, our Talents are compensated in a fair and objective manner. By rewarding high performers with more bonus and higher salary increments, we recognise and encourage HKBN Talents to deliver better, high quality work. Conversely, as a rule, we terminate the bottom 5% non-performers of our total salary base every year if they fail to
show improvement after undergoing a performance enhancement programme.
Individual performance is assessed based on two main factors: WHAT has been achieved (KPIs) and HOW it was achieved (Core Value or Leadership Attributes). "Core Value" and "Leadership Attributes" define the expected knowledge, skills and behaviours which serve to catalyse outstanding performance, and are used as the benchmarks to measure how each Talent has effectively performed in his/her position.
Our performance reviews comprise self-assessment, supervisory evaluation, review meetings and company- wide performance calibration at the department or senior management level. The rated results serve
as a reference and criterion from which annual salary reviews, discretionary bonus allocations and promotion nominations are based upon.
As always, we reward high performers with better year-end bonuses, salary increments and potential job promotion opportunities. At the same time, annual salary increment and/or bonus will NOT be given to the 5% of our bottommost performers, while a lower-than- average salary increment and bonus will be granted to those rated as under-performers. To effectively boost excellence, we also invite poor performers to undergo a Performance Improvement Plan which ranges in length from three to six months. When no performance improvement is exhibited, Talents are then asked to leave the company.
HKBN Ltd.
In September 2018, 250 of our best performing Talents from Hong Kong and Guangzhou were rewarded with a trip to Tokyo, Japan.
Talents
Last year, I was rated as a bottom 5% performer and was asked to improve within a three month window. In those three months, I underwent the Performance Improvement Plan and worked hard to make big changes. As a result, I transformed into a top 10% performing Talent this year and even earned myself a job promotion!
Alex Ng
Account Manager - Commercial Sales, Enterprise Solutions
Annual Report 2019
On top of the year-end performance reviews, we also have a variety of monetary reward mechanisms designed to motivate delivery of our company goals, key business strategies and KPIs. These can range from short-term rewards such as monthly commissions and an array of incentives to long- term rewards like annual KPI bonuses, pain/GAIN investment schemes (refer to page 10 and page 53 for details) and our Co-Ownership Plan.
Mainland China Talent Development
For most Hong Kong-based companies with operations in mainland China, it is unusual to offer local staff the opportunities to progress into
management positions. The typical approach simply reserves such roles to Hong Kong employees stationed in mainland China. At HKBN, we see things differently.
Since 2015, we have pursued a focused strategy to develop and promote local Talents into management positions. By providing locally-hired Talents with a clear development and leadership path, our operations can benefit from greatly motivated individuals, increased group morale and a management team that is sympathetic to local perspectives. As a result, we've enhanced opportunities for high potential Talents via a variety of Talent development programmes. Accordingly, this has transformed the makeup of our Guangzhou leadership team, which now comprises six local leaders. In January 2019, a Guangzhou Talent was promoted to be our first locally nurtured Associate Director, whilst in March 2019, we also promoted 26 Guangzhou Talents to supervisory-level positions.
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HKBN Ltd.
As a sign of our local leadership development, we now have six locally nurtured Talents comprising our Guangzhou management leaders.
Annual Report 2019
Talents
Becoming a Co-Owner has made me reflect on what I can do for HKBN, instead of asking what HKBN can do for me. As a cybersecurity professional who has put skin in the game, my stake in HKBN motivates me to think big and embrace every challenge with passion!
Kaho Fung
Co-Owner and Assistant Manager -
Information Security
068
HKBN Ltd.
Co-Ownership Opportunity
To attract, retain and motivate skilled and experienced Talents, we adopted Co-Ownership Plan II on 21 February 2015. Co-Ownership is a powerful expression of the commitment and belief our Talents have in the Group. Unlike the more traditional approach of giving stock options to a very limited group of senior executives, our Co-Ownership is open to all supervisors-and-above level Talents, spanning the Group's operations across Hong Kong and mainland China. Under Co-Ownership Plan II, we now have over 330 Co-Owners, representing a majority of our supervisors-and above level Talents. Through this dual role as both investor and Talent,
our Co-Owners perform with an unmatched level of responsibility and passion.
Under the plan, individual Talents invested their personal savings in the amount of between two and twelve months of salary to buy the company's shares at full market price. The shares are then matched with free shares at a certain ratio vested over three years.
To extend the performance-inducing impact that Co- Ownership brings for both Talents and HKBN's long- term growth, we proposed, and subsequently received approval from shareholders for Co-Ownership Plan
- Plus ("CO3+") on 19 August 2019. As at 31 August 2019, about 1,000 Talents are eligible to participate in CO3+, representing approximately 22% of our Group's total number of Talents. For details of CO3+, please refer to our announcement dated 21 June 2019 and the circular dated 26 July 2019.
Facts about our Talents
40% | Female | 44% |
Male | 26% | |
Gender | Age Group | |
1% | ||
7% | ||
60% | 22% | |
92% | Full-Time Permanent | 58% |
Part-Time | ||
Contractual | ||
Employment | Location | |
Type | ||
7% | ||
1% | 42% |
<30
30-39
40-49
50-59 >59
Hong Kong Mainland China
Our Open
Culture for
Talents
At HKBN, a vehement embrace of open communication and total engagement means our Talents are always well-informed about key strategy directions impacting our business.
Rather than be passive onlookers in our evolution and growth, HKBN Talents are empowered as well as expected to think, perform and collaborate like a united team of aspiring entrepreneurs.
At our Enterprise Solutions FY20 Kick-off, over
Ready to rock, Talents showed their enthusiasm to deliver at our Residential Services FY20 Kick-off event.
Shortly after our merger with WTT was completed, we organised a town hall meeting to welcome everyone on board our integrated team.
At our annual Vappy Parties in Hong Kong and Guangzhou, fun and games are always on the ticket.
1,000 ES Talents can't wait to take our business to new heights.
No challenge is ever too tough for our Talents, not even the fabled Spartan Race! | Retro cosplay at its groovy best from our December 2018 Vappy Party. | |
Following our merger with WTT, Talents stood proud with paddles as symbols of unity (one team, one dragon boat, one HKBN) at our Talent Meetings in Hong Kong and Guangzhou.
13 October (1310 being the number of our stock code and the wavelength of fibre optics) was Global HKBN Day, which we celebrated in Hong Kong and Guangzhou
After braving through super typhoon Mangkhut to ensure critical HKBN services could operate normally, we thanked our core teams with a delicious sushi feast.
Letting off stress from work, our Talents were treated to play sessions at eSports Stadium, Asia's largest e-sports arena.
through awesome activities, prizes, rewards and more.
Our Field Service Engineering Talents are always ready to serve enterprise customers.
Talents
Talent Development
Investing in life-long development remains a crucial example of how we treat Talents as priority number one. Our commitment in this area is to ensure that our Talents have all the development opportunities
and tools to stay ahead of the game in today's ever- changing business and technology environments. We strongly believe in proactive learning. As such, our goal is to engage Talents and empower them to build on their strengths, realise their dreams and live a purposeful life.
The following table highlights the amount of training we provided for Talents throughout FY19:
Total Training Hours | ||
Leadership & | ||
Operations-related training | skills-related training | Compliance-related training |
84,487 (81,100 in FY18) | 11,294 (9,989 in FY18) | 7,312 (3,095 in FY18) |
Becoming Hong Kong's Most Cloud Proficient ICT Company
We are taking a bold step to establish ourselves as Hong Kong's most cloud-proficient ICT solutions provider with the most professionally-certified cloud experts. As a sign of this determination, 1,300 HKBN Talents have now received their cloud certifications. This company-wide learning initiative augments our Talents with a competitive edge to advise and help businesses better understand the full potential of cloud technology.
To date, about 120 Talents have received cloud certifications from Amazon Web Services ("AWS") and/ or Microsoft Azure. These expertise upgrades have equipped our Talents with knowledge to guide and support our customers through their digital and cloud transformations.
1,300
HKBN Talents received cloud certifications
I began my career as a leader of eight and now I lead a team of 120 Technical Engineers. One of my proudest achievements at HKBN is that I personally groomed 80% of my direct-report subordinates from the junior level into supervisory-level Talents. They have now developed into team leaders, each managing 30-40 Talents!
Van Leung
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HKBN Ltd.
Co-Owner and Manager -
Technical Service, Enterprise Solutions
Talents
Huawei Shenzhen Visit
In April 2019, over 80 Talents joined our company visit to Huawei's global headquarters in Shenzhen. Our group was hosted by representatives from Huawei, who shared behind-the-scenes insights into business, technology and Talent strategies that are vital to its success.
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At Huawei headquarters, our Talents got a sneak peek at | Company visits help give our Talents inspiring new | |
some of the latest breakthroughs in telecommunications and | benchmarking perspectives to think beyond HKBN. | |
robotics technology. | ||
Leadership Development
On top of a comprehensive array of training across product, leadership and compliance, our long-term development goal emphasises three key leadership competencies: leading disruption, empowerment and purposeful leadership. Through these concepts, we unleash the full potential of our Talents to achieve purposeful profits.
From junior level to the most senior level Talents, these three key leadership competencies ensure that all HKBN Talents are not only well equipped as leaders who think and act innovatively, but are also eager to pass on their knowledge for subordinates and peers, as well as find ways to give back for society.
Over the years, our Be a Pioneer programme has helped launch the careers of numerous Talents into management-level positions.
Next Station: University II
For ambitious Talents who missed out on a university education, our flagship development programme, Next Station: University ("NSU") has touched the lives of over 60 Talents with a life-changing opportunity to earn an internationally recognised bachelor's degree. With the company's full support, Talents who graduate make a significant step forward in transforming their career prospects. This year, after a 3-year journey of dedication, 34 Talents have completed their studies and earned an internationally recognised bachelor's degree in business from Wrexham Glyndw^ r University.
Be a Pioneer
"Be a Pioneer Programme" is our flagship development programme which aims to nurture Talents with management potential through entrepreneurship and innovation development. A series of development courses are offered to help unleash each participant's potential in design thinking, leadership profiling, innovation leadership and finance.
Talents
HKBN Enterprise Solutions Cloud Services Future CXO programme
To identify and develop the next generation of leaders, we initiated the HKBN Enterprise Solutions Cloud Services Future CXO programme in June 2019. This 2-year fast track programme will help us develop high potential Talents into capable team leaders. Extensive on-the-job training, coaching and various project assignments will be given as part of this challenge. Rotations to different departments will give young Talents the chance to assess their ICT strengths and interests and carve out a preferred career path. As at August 2019, four future CXO candidates have been chosen for the programme.
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This year, our 16 Summer Innovators (selected from over 1,500 applicants) got to expand their horizons through inspiring opportunities from inside HKBN and beyond HKBN.
Workplace Health & Safety
Success of our business hinges greatly on how we ensure that Talents can work in a healthy and safe environment. To achieve this, we espoused policies for an occupational health and safety management system that are regularly reviewed and tested across a diverse variety of conditions. In general, our objective is to establish a vigilant view over safety. This ensures that identification of hazards, assessment of risks, and the implementation of necessary control measures are undertaken on a regular and timely basis. At all times, we committed the appropriate resources to implement and maintain these standards, and worked diligently to comply with all health and safety regulations such as Occupational Safety and Health Regulation, Cap509A of the laws of Hong Kong, Occupational Safety and Health (Display Screen Equipment) Regulation, Cap509B of the laws of Hong Kong and Construction Sites (Safety) Regulation, Cap59I of the laws of Hong Kong.
Safety Committee
Since 2017, an in-house Safety Committee, comprising Talents from several technical and Talent engagement departments, functions to formulate our Occupational Safety & Health Management Strategy. Through regular review meetings, we define the monitoring and review mechanisms from which our health and safety objectives are met. In March 2019, we responded to safety concerns by tailoring a number of new training courses like Dog Safety Training and Driver Safety Training for our individual frontline teams.
Talents
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Safety as a Priority
In 2019, we continued to work with a certified safety consultant to manage occupational health and safety via exercises that include workplace safety inspection across office, data centre, warehouse, canteen and retail shops, as well as risk assessments, surprise inspections of network installation sites, and in-house safety training provided for frontline teams. To reinforce health and safety management, we undertook regular and occasional safety inspections at various of workplace and network installation sites. Upon receiving the inspection reports, we reviewed existing work procedures and facilities to make improvements where necessary. Furthermore, Talents and relevant contractors are required to undergo mandatory safety certification training.
In 2019, we offered a wide range of training to enhance Talent awareness about building a safe and healthy workplace environment, as well as how to prevent accidents from happening. We provided Talents, new joiners and contractors with over 40 sessions and 3,316 hours of health and safety-related training. The number of work-related injuries that occurred in FY19 decreased by 5% compared to FY18.
To improve safety in the workplace, all office premises are now equipped with Automated External Defibrillators (AED) for resuscitation. Coinciding with this, we provided AED training to over 158 Talents. We also offered certification in first aid training and elementary first aid training. At present, 52 Talents are recognised as qualified first aiders, whilst over 169 Talents attended the elementary first aid training.
During FY19, we provided health and safety training in the following areas:
Fire safety
Certification in first aid
Elementary first aid
Automated external defibrillation
Height work safety
Dog safety
Driver safety
Accident investigation
Safety management
Health and Wellness
To uphold LIFE-work priority, we initiated wellness programmes like a workplace massage day to increase motivation and productivity. In addition, to encourage healthier lifestyles, we offered various fitness courses on Pilates, fit ball, Tabata and circuit training, as well as a series of health talks about eczema & skin allergies and more.
Mindful that good air and water quality is important, we participated in the Hong Kong Government's Indoor Air Quality (IAQ) Certification Scheme and the Quality Water Recognition Assessment. An IAQ Assessment was carried out in May and June 2019 at all three of our office premises. All premises were rated as "good class" by the IAQ Certificates. In addition, we upgraded our drinking water system with a neutralising filter to improve quality. A water assessment was conducted in June and August 2019 at all three of our office premises. Subsequently, our drinking water was rated as good in quality.
During FY19, our performance in health and safety in Hong Kong is encapsulated by the following:
Number of Fatalities: Nil | Injury rate: 1.51 | Lost days rate: 103.12 |
- Injury rate calculation: total number of work injury (28) x total working hours for 100 full-time Talents (200,000)/total working hours for all Talents (3,650,790)
- Lost day rate calculation: total number of lost days (1,882) x total working hours for 100 full-time Talents (200,000)/total working hours for all Talents (3,650,790)
Talents
During the reporting period, there were four court cases involving HKBN in relation to compliance with the Occupational Safety and Health Ordinance and the Occupational Safety and Health Regulations. One of these cases has been withdrawn, whilst court proceedings of the other three cases have concluded with immaterial fines imposed on us.
The following describes the details pertaining to some of these incidents:
On 28 April 2018, two Talents were diagnosed to have suffered carbon monoxide poisoning after using electricity generators in a hub centre. They received medical treatment and were discharged the same day. It was found that the ventilation in the premises was inadequate.
After the incident, we took immediate remedial actions and improvements to avoid similar cases from reoccurring. These actions included review and revision of the operational procedure for using electricity generators (with endorsement by a safety consultant); making available harmful gas detectors; the provision of applied training to all technicians on an annual basis; quarterly surprise checks on hub sites by our safety consultant beginning in December 2018; and annual drills for technicians to gain practical knowledge in handling similar incidents.
Awards and Recognition
On 25 May 2018, an Occupational Safety Officer of the Labour Department conducted a visit at our workplace in Chuan Kei Factory Building in Kwai Chung. The Safety Officer noted that one of the exit doors of the premises was padlocked which was in violation of safety requirements. Shortly after the initial inspection, we made improvements to avoid any similar incidents from reoccurring.
Every year, we provide Talents with the skill to save lives through first-aid training.
Guided by a safety expert, we organised a workshop on safety for various Talents.
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CTgoodjobs | HR Asia |
Most Innovative | Best HR Awards - | Best Companies |
Employer Brand - | Best Compensations | To Work For In |
Silver Awards | & Benefits Award | Asia 2019 |
Winning Partnerships
Our business is better because we maintain honest and fair relationships with partners and suppliers. Rather than profit off one another, the aim is to prosper together - win-win.
Karen Chan
Senior Manager - Business Development & Partnership
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Our Performance
Suppliers
Above all, the primary objective of our sourcing activities is to ensure continuity of our product and service supply, which we accomplish by maintaining strong and effective relationships between our business units and suppliers in a fair, open, transparent and mutually beneficial win-win manner. Building a long-term relationship with our suppliers requires two-way dialogue, and this cannot be done without trust, communication and shared values which include business ethics, integrity and commitment to deliver world-class products and services.
Assessing Supplier Performance
Supplier performance plays a crucial role in our operations. By working closely with suppliers, we can operate smoothly, as well as become equipped with the resilience capabilities to provide outstanding service for customers. As such, we value our suppliers like an extension of our operations and consider them as business partners. A supplier management framework, first introduced in 2015, provides us with a systematic and consistent approach to review, track and correct actions - ensuring risks are mitigated in a proactive manner.
For a more robust assessment of supplier performance, we've incorporated criteria to determine supplier criticality on a project by project basis. Key factors considered include assessments made on impact to customers, operations, legal and regulatory, sustainability and reputation. Such assessments help us identify potential risks much earlier and mitigate hazards proactively. Importantly, these assessments provide
Effective Communications
Engaging suppliers for their feedback gives us a better understanding about their views and needs, as well as areas that can be improved. Towards the end of 2018, we invited suppliers to participate in our supplier satisfaction survey. 45% of suppliers who responded said they valued the long-term relationship, while 23% saw their commitment to deliver excellent services to HKBN as a critical factor. Through this highly detailed survey (the full results are made available to our various functional teams), we've gained better insights into a broad array of challenges faced by suppliers and will use the results to improve the way we engage and collaborate.
2018 Supplier Satisfaction Survey
What suppliers value most when doing business with us:
4.5% | 23% | |
4.5% | Commitment | |
5% | Quality | |
1% | Long Term Relationship | |
Flexibility | ||
Values | Trust | |
Communication | ||
Other | ||
45% | 17% |
Top Challenges for Suppliers:
a solid indication of how we monitor and measure a supplier's performance, as well as manage relationships.
Through entering into supplier contracts and service level agreements (SLA), we clearly specify mutual commitments, rights and obligations, role and responsibilities of our suppliers and business partners. In addition, key performance indicators and other time-bound deliverables are also clearly set.
17% | 26% |
15% | |
8% | Challenges |
20% | 13% |
Understanding
Business Requirement
Understanding
Technical Requirement
Delivery Lead-time
Becoming an
Approved Supplier
Getting the Right
Person to talk to
Other
Suppliers
Led by Elinor Shiu Co-Owner and CMO - Residential Services, (2nd from right), our Marketing team leveraged a collaboration with Disney to create four ultra-cool MARVEL and Toy Story-themed Home Gateway devices.
Innovation & Flexibility
Rather crucially, we champion innovative and creative ideas whenever they can best serve the interest of our company and those of our suppliers. In a process that favours flexibility, our aim is not to necessarily seek better prices, but rather a better deal based
on strategic requisition costs. As an example, this flexibility enables us to accept resource exchanges
- whereby we exchange our ICT services for goods and services that we may need at a given time - as a means of payment. This is done with the cooperation of our sales and functional teams, who work closely to help specify and evaluate our suppliers' needs as well as ours. Past examples of such resource exchanges included the procurement of conferencing facilities, food & beverage services, serviced offices and co- working space, indoor activity parks, etc.
(From left) Microsoft Hong Kong and Macau General Manager Cally Chan, Microsoft Greater China Region Chairman and CEO Alain Crozier, HKBN Co-Owner and Executive Vice-chairman William Yeung, and HKBN Co-Owner and CEO - Enterprise Solutions Billy Yeung celebrate our collaboration to pioneer voice and video- conferencing enabled M365 and O365 solutions in Hong Kong.
Aligning Suppliers with HKBN's Values
As a company committed to sustainability, we actively work with suppliers who favour and operate on the principles of sustainable development. Over the past several years, we have integrated sustainable procurement practices into our supplier chain activities. Examples of this include the requirement for environmental, health and safety provisions in our supplier contracts and purchase orders. Similarly, we have added sustainability measurements as a part of our sourcing assessment process.
For the purpose of diversity, HKBN endeavours to provide sourcing opportunities, when possible, to a broader range of businesses like social enterprise suppliers. Through such practices, we aim to create a positive impact for environment, social, ethical and economic reasons.
A Supplier Code of Conduct ("SCoC") concerning corporate governance, environment protection, health and safety standards and fair labour conditions was implemented in 2018. Through this, suppliers are expected to either comply with our SCoC or have their own code of conduct which espouses a similar approach of expectations for their respective suppliers and subcontractors. To ensure that suppliers understand our SCoC, we require each supplier to endorse the SCoC. Relevant provisions in relation to the SCoC are also included in our standard supplier agreement.
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Hei Liu
Co-Owner and Assistant Manager - Project Management, also an active Talent volunteer since 2015
Sandy Wong
Manager - Corporate
Social Investment
Tracy Chan
Co-Owner and Officer -
Corporate Social Investment
Community Investment
We have a role in making tomorrow better than today. Our Talents provide time and expertise to invest in sustainable opportunities for people from local communities.
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Our Performance
Community
In everything we do, and in every decision we take, "Make our Hong Kong a Better Place to Live" is omnipresent at all times. As such, HKBN has a big role to play in creating a better Hong Kong for everyone. The most direct way we achieve this is through purposeful initiatives aimed at our local communities.
Going beyond pure philanthropy, we strive to ensure that people, especially youths and the underprivileged, can benefit by way of sustainability and empowerment. Rather than corporate social responsibility, we passionately embrace Corporate Social Investment ("CSI") to focus our corporate resources and Talent expertise as drivers to boost betterment for individuals and communities in a sustainable way.
Throughout this CSI journey, we're actively giving back through technology empowerment, Talent volunteerism and cooperative partnerships with social enterprises. Along the way, we have worked closely with HKBN Talent CSI Fund, our independently operated charity organisation funded by our Co-Owners.
Cyber Wellness
The digital world is shaping and transforming the way we live. However, digital media and new technologies, when used improperly, may expose us, especially younger people, to risks like cyber security, data privacy, cyber bullying and excessive screen time on digital devices. During the reporting period, we worked with local primary schools to offer systematic learning modules which empower children to safely and responsibly navigate the cyber world.
Net's Be Wise
In 2018, HKBN and HKBN Talent CSI Fund partnered with Junior Achievement Hong Kong to launch the
18-month Net's Be Wise programme. This initiative enhances the "Digital Intelligence" ("DQ") of primary school students aged 8-12. As at the end of this reporting period, a total of 24 schools and 2,617 students participated to acquire eight digital citizenship competencies through DQ World's online learning platform and offline school workshops.
Technology for Good
Every day, HKBN connects and impacts the lives of millions in Hong Kong. Mindful of this, one of our CSI strategy's core focus is to leverage technological expertise to help mitigate social issues and address social needs within the community. By teaming up with like-minded social partners, as well as mobilising our own Talents and services, we are working towards a better and safer future.
Enhanced
Digital
Intelligence of
2,617students
Scan the QR code for a video about Net's Be Wise
Community
Encouragingly, students who completed the DQ World online learning platform experienced material improvements as their DQ scores rose by 11-24%, whilst an average score of 100 was achieved. A score of 100, according to DQ Institute, is classified as "Satisfactory", meaning the participants are above average in the safe and responsible use of digital devices and media.
An average DQ score of 100was achieved
Throughout the programme, our students learned how to distinguish the authenticity of online information. They will cross-check different media to confirm the source of information. They have also learnt to show empathy, questioning themselves when posting negative comments just for the sake of revenge. I am very glad to see they have become more aware about the online world's cyber risks.
Mr. So Lap Ming
HKKKWA Sun Fong Chung Primary School teacher
I find browsing online fun. The information is interesting. That's why I will keep surfing online and have trouble controlling my screen time. Through the programme, I learnt I can't spend so much time online, otherwise it can hurt my eyes! I am now determined to reduce my screen time!
Ka Yu
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Sacred Heart Canossian School student
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Community
Cyber Wellness for Parents
Mindful that involvement from parents plays a crucial role in a child's cyber wellness development, various initiatives were introduced by HKBN and HKBN Talent CSI Fund to better facilitate parental engagement. Through these, our aim is to encourage parents to play a bigger role in helping children navigate digital challenges via real-world encounters. During the reporting period, the following were organised:
Net's Be Wise Charity Family Harbour Cruise
This event invited 80 parent-child pairings to board the "World Star" cruise and enjoy a 2-hour offline cyber wellness experience and learning workshop in November 2018. Scan the QR code for a video of our cruise.
Net's Be Wise Detective Game x
Dyeing Experience
Running from April to July 2019 under the guidance of our facilitators, this event allowed over 50 parent-child pairings to role-play as "detectives" to investigate the disappearance of a missing dye master. Participants learned how to manage their digital footprint and espouse a more critical view towards cyber information.
Cyber Wellness Seminar for Parents
Through various sessions held at schools, Talents from our Product Development and Management teams shared tips on cyber risks and security to equip parents with requisite awareness to face evolving online challenges.
Community
Narrowing Digital Divides
As the world increasingly goes digital, there remain groups of people at risk of being left behind. Enhancing tech accessibility, affordability and people's ability to use technology has become one of our top CSI priorities. For the underprivileged, we seek to make the digital world more accessible through knowledge sharing from our Talents, as well as via fair and reasonable pricing of our services.
Affordable Broadband for the Underprivileged
In 2019, we teamed up with Web Organic, a social enterprise wholly owned by the Hong Kong Council of Social Service to initiate a "Broadband Service Concession Scheme for Elderly from Low-income Families", providing broadband service at a fixed and affordable monthly price for three years. Likewise, we are exploring opportunities to extend our broadband service concessions to more community groups in need.
PC Doctor 2.0
Led by our Certificate Professional Engineers (CPE) and Facilities Services Engineers (FSE) Talents, our PC Doctors programme provides service to diagnose and fix computers, as well as offer IT classes free of charge for Hong Kong's underprivileged families.
In 2019, we continued to expand the scope of our PC Doctors to provide cyber wellness knowledge to local families with children aged 3-16. Under this new arrangement, our CPE and FSE Talents have volunteered to make scheduled home visits, conduct basic Internet security and personal digital device privacy checks.
PC Doctors have delivered
1,236.5hours
of service since May 2015
for
888
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families and individuals
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Community
Talent Volunteering
Talents are encouraged to give back by participating in volunteering activities. Every year, Talents who volunteer their time for socially-good causes are rewarded with up to two days of paid Volunteer Leave. As such, volunteerism at HKBN has continued to grow year after year. In FY19, our total number of volunteers in Hong Kong increased to 412, a 68.2% jump compared to the previous year. All combined, we contributed 2,676 volunteer hours for our communities (versus 2,239 hours in FY18). And as a sign that our culture of giving back is growing, we recorded a record-high rise in new volunteers. Out of these 412 volunteers, 65% (i.e. 268) joined for the first time.
Our total number of volunteers Volunteer hours contributed
412 2,676
It is more blessed to give than receive. Inspired by HKBN's team of volunteers, I've discovered a passion for volunteering. The satisfaction from putting smiles on the faces of people in need is incredible. It's wonderful to be able to take a timeout from work and still make a difference by helping the community!
Maggie Liu
Co-Owner and Senior Manager,
Major Account Relations, Enterprise Solutions
Team Building X Volunteering
From past experiences, we know that Talents can quickly build excellent chemistry through mission-based volunteer activities. This motivated us to introduce a "Team up for the Community" volunteering series, supercharging the way we serve the community whilst strengthening team camaraderie - win-win.
During FY19, we organised 17 tailor-made volunteer activities for 15 different teams, tasking them on missions which included role-playing with primary school students to practice presentation skills, helping children experience a day as "office assistant", and installing smart home devices for elderly to improve their quality of life.
Community
Team Up
for the Community
A great example of how we've fused mission-based volunteer activities with team building, one of our participating teams of "Team Up for the Community", Information Technology (Enterprise Solutions), mobilised over 50 teammates to spend a day at Mui Wo, a remote neighborhood on the outlying island of Lantau. They utilised their IT expertise to assist an under-resourced kindergarten, which include playing online programming games with students, renovating the school facilities and conducting computer check-ups for Mui Wo's residents. This meaningful day not only brought benefits to the kindergarten, but also added extra value of building bonds among our IT teammates.
Kim Ping Yeung, our Co-Owner and Associate Director
- Information Technology said, "It is rare that our IT Talents from Kwai Chung, Kowloon Bay and
Guangzhou office have the chance to get together. Spending a day in Mui Wo is a wonderful opportunity for us to bond better through making good use of our IT expertise to serve persons in need."
Other than utilising expertise, our Talents also extended their caring to address community needs. Our HKBN Enterprise Solutions Major Account Relations team and Information Technology Corporate System Support team spent four afternoons visiting seniors who live alone in Kwu Tung, a remote rural area. They noticed that, due to plans for the area's redevelopment, the seniors were extremely concerned about relocating to public housing. As a result, our teams organised a Sheung Shui public housing visit tour to familiarise the Kwu Tung seniors to the nearby surroundings and facilities.
"HKBN volunteers helped us tour the area where I will soon be moving to. I am now better prepared and feel less anxious," said Ms. Ko, a senior from Kwu Tung.
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HKBN Ltd.
Scan the QR code for a video about Team Up for the Community
wellness experience and learning workshop in November 2018.
Community
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Knowledge Transfer
As the saying goes: Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. By transferring our knowledge and empowering beneficiaries, we aim to engender sustainable good for society. Examples of this include:
In collaboration with the Hong Kong General Chamber of Social Enterprises, Anthony Fung, our Co-Owner and Senior Manager - Finance, delivered a series of finance management workshops throughout FY19 to help enhance operational capabilities for social enterprises. Similarly, since 2015, CY Chan, our Co- Owner and Head of Talent Engagement & Corporate Social Investment, has applied his Talent management and training expertise to help a non-profit organisation develop a performance evaluation mechanism for
volunteer recruitment purposes. Anthony Fung, our Co-Owner and Senior Manager
- Finance, shared his knowledge in finance to help individuals operating social enterprises.
HKBN Ltd.
110Over
Talents
participated
HKBN Volunteer Day 2018
Continuing our momentum to give back on a grand scale, we again organised our Volunteer Day in October 2018. This year, over 110 Talents transformed into dream-makers, helping nine vulnerable groups, ranging from the vision and mobility-impaired to underprivileged ethnic minority girls and students at a primary school, to accomplish some 'impossible' milestones.
Social Enterprise Partnership
Hand in hand with students, our volunteers created a beautiful mural inside ELCHK Hung Hom Lutheran Primary School.
Making dreams come true, our volunteers accompanied a group of seniors on a cycling trip to Shenzhen.
Community
We custom-built a football gantry so that the students of | Nothing beats the joy of helping others from our local | |
Man Kiu Primary School could enjoy activities on campus. | communities. | |
$ 13.06million
in ethical consumption
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HKBN Ltd.
Social enterprises are increasingly playing a bigger role in making society better. For this reason, we've committed efforts to promote, support or collaborate with social enterprises. Our goal is to empower and enable them to thrive and become self- sustainable, and, when possible, help create self- reliant employment opportunities for the socially disadvantaged.
As one of our signature social enterprise collaborations, HKBN's partnership with iEnterprise, which began in 2014, offers gainful employment opportunities to a team of physically disabled individuals, who handle our 1083 telephone hotline enquiry service. Since 2018, the scope of this collaboration has been extended to include our online chat service.
We also made concerted efforts to engage our customers with both ethical consumption and social enterprises. This year, we purchased gift certificates from "Live Smart", a social enterprise associated with the Hong Kong Society of Rehabilitation which sells rehabilitation supplies and groceries. Our customers can choose to receive these gift certificates as bonus premiums for joining or renewing our telecom services.
During the reporting period, we participated in the "DE Empower" programme organised by Dialogue Experience, a social enterprise which helps People of Differences create social impact. Through this, we offered Talents with disabilities a 6-month job immersion experience, allowing them the chance to grow from employment inside a conventional work environment.
Since 2013, the total accumulated amount we've spent on ethical consumption was $13.06 million, a considerable increase from $10.74 million, our accumulated ethical consumption in 2018.
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Community
CSI in Mainland China
This fiscal year, our teams in Guangzhou echoed our difference-making via volunteer initiatives aimed at different community beneficiaries. In 2019, 122 Guangzhou Talents volunteered on CSI initiatives.
Charity Begins with Books
In December 2018, our Guangzhou Talents pooled their resources to purchase 500 new books. The books were donated to a local primary school in Guangzhou for the long-term benefit of thousands of children.
122
Guangzhou Talents volunteered on CSI initiatives
HKBN Ltd.
Books can unlock the hopes, dreams and imagination of our next generation.
Our Talents in Guangzhou gave back by donating 500 books for school children.
Donated 500new books
Meeting Guide Dogs
In June 2019, our volunteers collaborated with South China Guide Dogs Demonstration Base for an opportunity to better understand the daily lives of the visually-impaired, as well as meet the guide dogs who assist them. In addition, we worked with volunteers from Guangdong University of Foreign Studies, assisting their IT students to develop a mobile app and website module for attracting more volunteers for South China Guide Dogs Demonstration Base.
Via our CSI initiative in mainland China, our Talents learned a lot more about the struggles of visually-impaired individuals.
Community
Serving as gracious hosts, our Guangzhou Talents helped children of migrant workers feel more at ease about life in an unfamiliar city.
World Vision Young Seedling Project
In July 2019, we participated in World Vision's "Young Seedling Project''. This initiative focuses on children of migrant workers with the aim of helping them through life skills enhancement, community integration, parent-child relationships, mental health and more. Putting their fluency of Cantonese to use, our Talent volunteers served as guides in a series of learning activities designed to build a sense of belonging via Cantonese culture.
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Awards
Awards & Recognition
2018 Tsuen Wan & Kwai Tsing District Caring Shop and Company Award Scheme - Caring Shop and Company Award
Constituent Member of Hang Seng Corporate
Sustainability Benchmark Index
HKQAA CSR Plus Mark
Social Capital Builder
Logo Awards 2018
The 9th Hong Kong Outstanding Corporate Citizenship Award - Bronze Award (Enterprise)
Tithe Ethical Consumption Movement 2018 (TECM 2018) - SE Supporter Plus Award
Conferred by
Social Welfare Department - Tsuen Wan / Kwai Tsing District Social Welfare Office
Hang Seng Indexes Company Limited
Hong Kong Quality Assurance Agency
The Community Investment and Inclusion Fund of the Labour and Welfare Bureau
Hong Kong Productivity Council
The Fullness Social Enterprises Society
HKBN Ltd.
P L U S
HKQAA CSR INDEX
Benson Ma
Assistant Officer - Administration
Smarter Approach to Green
To tackle pressing environmental challenges, we're looking beyond traditional methods. Our embrace of technology and smart solutions is transforming the way we consume and conserve.
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HKBN Ltd.
Our Performance
Environment
HKBN is committed to protecting and reducing our impact on the environment. As a technology business, our main environmental footprint source is our use of electricity to power our general operations and networks, and the waste that is generated out of these activities. Cognisant of this, we're focused on exploring newer, better and more innovative ways to improve energy efficiency and minimise waste generation.
Mindful that concerns about the environment are a key issue for our various stakeholders (garnered via feedback from stakeholder engagement and materiality assessment exercises), our commitment to mitigate our eco-impact ensures that responsible environmental practices and continual improvements are always embedded in our daily operations.
Our CO2 emissions reduction goal is set with assistance from our energy consultant with the adoption of a databased KPI target setting methodology. Performance reviews with functional units were carried out regularly to monitor progress and identify discrepancies, if any, between the actual performance data and the expected outcome. Corresponding corrective measures are implemented as needed.
Pre-assurance of Environmental Performance
We appointed an external consultant to conduct pre- assurance reviews for our environmental-related data in Hong Kong. This exercise provided us with insights in the quality of our data and served as a valuable internal management tool of our environmental data collection process and subsequent disclosure. In the reporting period, we began extending our environmental data collection practice to our mainland China operations. Because integration with WTT
also expands our operational scope in the mainland, our environmental footprint and performance will also change as a result. In light of this, we believe the most prudent way forward is to consolidate all environmental data (combined from Hong Kong and mainland China's operations) for reporting in FY20. As such, all of the environmental-related initiatives, data and performance contained in this report does not cover our operations in mainland China. For energy consumption, we appointed an energy consultant to verify our energy utilisation in Hong Kong.
Smart Energy Efficiency
A key pillar of our environmental strategy is based on innovation and collaboration. This approach, which champions new solutions and enhancements to operational workflow, ensures that ingenuity and smart ideas play an increasingly bigger role in how much we improve year-on-year. With this guiding us, we have strived to enhance our energy efficiency via the following eco-initiatives:
Environment Performance Dashboard
To ensure our emissions reduction target is achievable, Talents play a deciding factor. Knowing this, we customised an environment dashboard so that performance across a variety of metric indicators can be dynamically visualised to help Talents track, monitor and analyse progress.
"Something from Nothing"
The Something from Nothing project has continued to make huge improvements in our overall energy footprint. This highly pioneering initiative, which we began in 2016, saw us collaborate with an energy consultant to improve overall energy efficiency. In a smart and unique way, Something from Nothing required no initial capital investment from HKBN, despite numerous energy efficiency upgrades implemented at our offices and data centre operations. Investments for all incurred retrofitting was fully funded by our consultant, who shared a fraction of our energy cost savings as compensation.
Thanks to the higher efficiency of replaced equipment as well as new workflow enhancements, Something from Nothing's performance has, to date, exceeded our energy and cost saving targets.
Environment
The following table highlights the considerable energy savings achieved:
Something from Nothing initiative
LED lighting replacement at HKBN office CRAC Unit Fan Retrofit (operating since 2016)
LED lighting replacement at two data centres CRAC Unit Fan Retrofit (operating since 2017)
Chiller replacement at HKBN office (operating since 2018)
Accumulated energy savings (As at July 2019)
2,054,404 kWh (Roughly 80% reduction annually)
948,392 kWh (Roughly 22% reduction annually)
640,124 kWh (Roughly 28% reduction annually)
Annual Report 2019
Like the excellent performance achieved in the past two years, we plan to expand Something from Nothing's scope to other office premises, data centres and network related areas - prompted by our completed acquisition (and integration) of WTT's operations.
Other Energy Saving Initiatives
To provide a better and greener place to work, we also made some relatively small but impactful modifications that included:
Adding heat resistant window films in office area
Readjusting office temperature to maintain at between 24oC - 26oC
Installing lighting motion sensors in most common-use areas
With these adjustments in place, this fiscal year we have achieved 10.18% reduction in indirect energy intensity when compared to the last fiscal year.
IoT Energy Consumption Optimisation and Management
A way that we're effectively improving energy efficiency is through energy upgrades powered by smart tech solutions. Since 2018, we have adopted an IoT approach to control our lighting and air conditioning systems at one of our office floors. This has enabled our Talents to manage lighting and ventilation for individual zones via mobile application - making it easy to switch off illumination or air conditioning at lunch or after normal working hours.
As a direct result, we extended use of this IoT solution to other floors in FY19 and achieved 36% annual energy reduction.
Achieved
36%
annual energy reduction
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HKBN Ltd.
Environment
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HKBN Ltd.
Key environmental data for FY19
Greenhouse gas emissions1 | 27,856.3 tCO2 e | |
Scope 1 emission 2 | 166.48 tCO2 e | |
Scope 2 emission 3 | 27,490.06 tCO2 e | |
Scope 3 emission 4 | 199.78 tCO2 e | |
Greenhouse gas emissions intensity | 5.45 tCO2 e / $ million revenue | |
Direct energy consumption 5 | 605,949 kWh | |
Direct energy intensity | 118.63 kWh / $ million revenue | |
Indirect energy consumption 6 | 53,337,342 kWh | |
Indirect energy intensity | 10,441.92 kWh / $ million revenue | |
Water consumption 7 | 2,401 m3 | |
Water intensity | 0.47 m3 / $ million revenue | |
Hazardous waste generated 8 | 105.04 tonnes | |
Hazardous waste intensity | 0.02 tonnes / $ million revenue | |
Non-hazardous waste generated 9 | 103.31 tonnes | |
Non-hazardous waste intensity | 0.02 tonnes / $ million revenue | |
Waste diverted 10 | 62.31 tonnes | |
- The environmental data provided above is based on operations owned and controlled in Hong Kong including offices, shops, data centres, hub sites and switch rooms.
- Carbon emissions generated from the operation owned and controlled in Hong Kong including offices, shops, data centres, hub sites and switch rooms.
- Scope 1 emissions are direct GHG emissions from sources that are owned or controlled by HKBN such as emissions from fuel of company vehicles and genset, the refrigerant of air conditioning and chiller.
3 Scope 2 emissions are indirect GHG emission resulting from the generation of electricity purchases by HKBN.
-
Scope 3 emissions included indirect GHG emissions from sources not owned or directly controlled by HKBN but related to our activities such
as office paper usage and oversea transportation. - Vehicle, generator and mobile generator fuel consumption are included in the direct energy consumption.
- Electricity purchases are included in the indirect energy consumption.
- Water consumption included waters used in offices, data centres and shop (Yuen Long). Since there is no water supply in hub sites and switch rooms, so this part is not included.
- Hazardous waste generated is included uninterruptible power system and lighting tube only.
- Non-hazardouswaste included construction waste and general waste in offices, shops and data centres.
- Waste diverted included paper, plastic, metal, wooden, e-waste and glass. Overall waste diversion rate in FY19 is 60.31%.
For FY19, our scope 1 emissions rose by 25.15% over FY18 mainly due to an overall expansion of our business operations. Scope 2 emissions dropped 5.39% from our FY18 performance as calculation of the emission factor was adjusted to 0.51kg CO2e/kWh (versus 0.54kg CO2e/kWh for FY18) by Hong Kong's two main electricity providers, CLP and Hong Kong Electric. Scope 3 emissions fell 56.97% versus FY18 because of concerted efforts to reduce business travel throughout the year.
Direct energy consumption and indirect energy consumption rose by 26.69% and 0.08% respectively over FY18, primarily due to an expansion of our business and the number of Talents. Water consumption fell 10.18% versus FY18 as a result of ongoing educational efforts to alter the usage habits of our Talents. Hazardous waste generated increased 25.07% over FY18, mainly because of data centre usage (end of product lifecycle/ maintenance). Encouragingly, our non-hazardous waste generated fell 22.28% versus FY18 due to comprehensive
efforts to recycle, reduce and reuse across our operations. As a sign of progress in this area, our non- hazardous waste diversion rate rose 5% over FY18's performance.
Consumption and Waste Management
Operational waste, e-waste and packaging are the main sources of waste generated by us. To effectively minimise waste, we continued to focus on a 4R (reduce, reuse, recycle and replace) strategy, and by collaborating with our supplier and partners.
Aiming for "reduction-at-source", we've strived to reduce our resource footprint at the operational level and have identified viable recovery channels to divert waste via other recycling options. A regular review structure helps manage and handle operational waste, making sure recyclable materials are properly collected and processed. During the reporting period, our waste diversion rate was 60.31% which is 5% higher than the previous year.
Environment
Paper Reduction
As a responsible company, we have made every effort to reduce the environmental impact of our paper usage. With an aim to reduce, we developed workflow systems that eliminate the use of paper and physical documentation, fostering an electronic paperless workflow internally for Talents and various online platforms externally for customers. New for 2019, digital signboards were installed in our office premises to replace paper-based internal memos, notices
and more. All in all, our paper consumption during the reporting period was 21,590 kg, a 41% reduction compared to the previous year.
plastic drinking straws, we provide reusable cutlery to reduce reliance on disposables.
During the reporting period, we set up leftover food and coffee waste collection boxes. The recovered food waste is then transferred by our vendor to become renewable energy, whilst the ground coffee beans are upcycled into planting pots or other items. In addition, a food composting machine has been introduced in one of our office floors to turn leftover to compost. Through the above measures, we have successfully recovered 3,720 kg of foodstuff waste.
Annual Report 2019
Zero Waste Pantry and Green Canteen
Since 2016, we have concentrated on several initiatives to create a "zero waste pantry" in our offices. Talents are encouraged to eliminate the use of disposable cutlery. Besides discouraging the use of
3,720kg
of foodstuff waste recovered
099
We are very conscious that personal consumption habits can have a big impact on the environment. To this end, we encouraged Talents to eat smart via the following:
Zero-leftover Lunch
Through this workshop, our Talents made their own DIY edible cutlery and fruit tea using leftover fruit and utilised design thinking processes to brainstorm and identify solutions to minimise leftovers and wastage.
A Week of Blemished Fruit | Veggie Meal |
To convince our Talents that | Vegetarian diets can have an excellent |
blemished fruits are just as tasty | impact as meat production incurs higher |
and nutritious, our in-house | levels of carbon emissions! In June 2019, |
canteen included ripened fruit as | our Talents were encouraged to enjoy |
part of its lunch menu. | veggie meals at our in-house canteen or |
external caterers. |
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Environment
Annual Report 2019
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HKBN Ltd.
Electronic and Hazardous
Waste Recycling
As a technology business, electronic waste and waste from lead-acid batteries are significant by-products of our operation. In 2018, we recovered 5.79 tonnes of regulated electrical equipment (REE) such as refriger- ators, televisions, computers, printers, scanners and monitors for recycling in accordance with the Producer Responsibility Scheme on Waste Electrical and Electronic Equipment (WPRS) of the HKSAR Gov- ernment. Additionally, a collection box for lithium-ion batteries was installed to facilitate recycling.
In the handling of operational waste, we work with licensed chemical waste collectors. Beginning 2019, we have committed ourselves to work with a battery recycler to collect waste lead-acid battery (WLABs) from our uninterruptible power system for safe disposal and recycling.
Uniform Design & Packaging
To minimise waste associated with our Talent uniforms, we've asked our vendors to go plastic-free in 2019 - no plastic wrap or tags! In total, this change has saved around 3,500 plastic bags annually.
Green with the Community
Whilst going green internally is vital, a broader more powerful change can occur teaming up with our communities.
5.79
tonnes of electrical equipment recovered
Barter Exchange
Programme
To encourage a "use less, waste less" practice, we organised barter exchanges in our office and collected over 200 items that included household products, kitchenware, stationery and toys. Some of these items will be donated to our local communities.
"Suit for You" Collection Programme
We collected 60 sets of used business suits and formal work clothing and donated them to help university students, graduates and students with special education needs who live on very tight budgets.
"The second-hand suit let me dress and present myself more. At interview, first impressions are important. Therefore, being well dressed could show your confidence and your understanding of the post."
Ricky Ng, student beneficiary
Mooncake and X'mas Hamper Collection
To minimise festive wastage, we encouraged Talents to donate excess mooncakes, Christmas and festive foods to those in need, and invited our business partners to reallocate their mooncake budgets toward charity.
Sustainable Sanitary Pads Workshop
Due to poverty, half of all women in Kenya cannot afford sanitary pads. We arranged a workshop with SAWAfrica and used surplus fabrics to make sustainable sanitary pads, which were subsequently delivered to women in Kenya.
Environment
During FY19, there was no substantiated case of non-compliance with environmental laws or regulations relating to emissions. In terms of waste management, we have complied with Waste Disposal (Chemical Waste) (General) Regulation (Cap. 354C of the Laws of Hong Kong) and the Hazardous Chemicals Control Ordinance (Cap. 595 of the Laws of Hong Kong).
Championing eco-engagement, we organised a fun workshop demonstrating how Talents could use smart mobile technology to grow and care for their very own plants.
Annual Report 2019
Awards
Awards & Recognition
Hong Kong Awards for Environmental Excellence (Media and Communication) - Gold Award
Carbon Care Label - Level 3
Hong Kong Green Organization
WasteWi$e Certificate
Charter on External Lighting
Energy Saving Charter 2019 and 4T Charter
The Green Mid-Autumn Festival Food Saving Pledge
Food Wise Charter
Conferred by
Environmental Campaign Committee
CarbonCare InnoLab
Environmental Campaign Committee
Environmental Campaign Committee
Environment Bureau
Environment Bureau
Food Grace
Environmental Protection Department
101
HKBN Ltd.
Our Governance
Corporate Governance Report
Annual Report 2019
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HKBN Ltd.
The Directors are pleased to present this "Corporate Governance Report" for the year ended 31 August 2019.
Corporate Governance Practices
The Company is committed to the establishment of a good standard of corporate governance practices by emphasising transparency, accountability and responsibility to our stakeholders, which are considered essential to safeguard the integrity of the Group's operations and maintain stakeholder trust in the Company.
Corporate Governance Practices and Corporate Governance Code
The Company has complied with all the code provisions as set out in the "Corporate Governance Code and Corporate Governance Report" (the "CG Code") contained in Appendix 14 to the Listing Rules on the Stock Exchange throughout the year ended 31 August 2019 except for the following deviation:
Code Provision A.5.1 of the CG Code provides that the Nomination Committee should be chaired by the Chairman of the Board or an Independent Non- executive Director and comprise a majority of Independent Non-executive Directors. However, the Nomination Committee of the Company is chaired by Mr. Chu Kwong YEUNG, an Executive Director of the Company. By considering that each Independent Non-executive Director of the Company has been appointed as the Chairman of the Board, Audit Committee and Remuneration Committee respectively, the Board appointed Mr. Yeung as the Chairman of the Nomination Committee to make sure that each Director, especially the Independent Non-executive Directors could dedicate sufficient time to perform their respective role. Since Mr. Yeung is involved
in the day-to-day management of the Company and can provide valuable insight on the suitability of a proposed Director, the Board considers that he is capable of assuming the responsibility of the Chairman of the Nomination Committee by leading the process of identifying suitable candidates and making recommendations to the Board.
In respect of the composition, although the Nomination Committee does not comprise a majority of Independent Non-executive Directors of the Company (i.e. current composition of Nomination Committee is three Independent Non-executive Directors, two Non- executive Directors and one Executive Director), it would not materially and negatively affect the role
of the Nomination Committee, which is to make recommendations to the Board impartially, rather than itself having the power to make decisions or take actions regarding nomination and/or removal of the Directors of the Company. Furthermore, the two Non- executive Directors and one Executive Director who sit on the Nomination Committee are valuable because of their industry related experience, hence they could give valuable comments on and make good selections on nominations for the Board or senior management of the Company.
Board of Directors
Roles and Responsibilities
The overall management of the Company's business is vested in the Board. The Board takes responsibility to oversee all major matters of the Company, including the formulation and approval of all policy matters, overall strategies, internal control and risk management systems, and monitoring the performance of the senior management. The Directors make decisions objectively in the interests of the Company.
Physical Board meetings are normally held. Matters which are immaterial and may not cause potential conflicts of interest will be dealt with by way of written resolutions. The Company Secretary prepares minutes which are recorded in sufficient detail of matters considered by the Board and the decisions reached, with the final version open for inspection at any reasonable notice by any Director. The Chairman seeks to ensure that all Directors are properly briefed on issues arising at Board meetings with reasonable advance notice.
The day-to-day management, administration and operation of the Company are delegated to the Executive Vice-chairman, Chief Executive Officer and the senior management of the Group. The delegated functions and work tasks are periodically reviewed.
Corporate Governance Report
Board Composition
The Board currently comprises eight Directors, including two Executive Directors (Mr. Chu Kwong YEUNG and Mr. Ni Quiaque LAI), three Non-executive Directors (Ms. Deborah Keiko ORIDA, Mr. Zubin Jamshed IRANI and Mr. Teck Chien KONG) and three Independent Non-executive Directors (Mr. Bradley Jay HORWITZ (Chairman), Mr. Stanley CHOW and Mr. Yee Kwan Quinn LAW). The Directors' biographical details are set out in the "Board of Directors and Senior Management" chapter on pages 12 to 19. None of the members of the Board are related to one another.
Chairman and Chief Executive Officer
As at 31 August 2019, the roles of the Chairman and the Chief Executive Officer are served by Mr. Bradley Jay HORWITZ and Mr. Ni Quiaque LAI respectively. The Chairman is responsible for leadership of the Board and for ensuring that the Board functions effectively and acts in the best interests of the Company. In performing the role of Chairman, responsibilities mainly include:
- providing leadership and ensuring effective performance by the Board of its responsibilities, including that it acts in the Company's best interests;
- ensuring that all key and appropriate issues are discussed by the Board in a timely manner;
- leading the Board in establishing good corporate governance practices and procedures for the Group;
- encouraging constructive and timely communication between the Board and the management; and
- ensuring effective communication with shareholders and ensuring that their views are communicated to the Board.
Subject to specific delegations by the Board from time to time, in performing the role of Chief Executive Officer, responsibilities include:
- leading the management in the daily operations of the Group;
- recommending policies, business plans and strategic directions for the Board's approval;
- ensuring that strategies and policies approved by the Board are effectively implemented; and
- keeping the Board informed of material developments in the Group's business.
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HKBN Ltd.
Independent Non-executive Directors
During the year ended 31 August 2019, the Board at all times met the requirements of the Listing Rules relating to the appointment of at least three Independent Non-executive Directors with at least one Independent Non-executive Director possessing appropriate professional qualifications, or accounting or related financial management expertise, and appointed Independent Non-executive Directors representing at least one-third of the Board.
In addition, the Company has received from each of the Independent Non-executive Directors a confirmation of their independence for the year ended 31 August 2019 pursuant to Rule 3.13 of the Listing Rules, and considered all of them to be independent.
Appointment and Re-Election of Directors
The appointment of a new Director is made on the recommendation of the Nomination Committee and the Board and by the shareholders in a general meeting. Any Director who is appointed by the Board to fill a casual vacancy on the Board shall retire at the first general meeting after appointment. Any Director who is appointed as an addition to their number shall hold office only until the next following annual general meeting.
Currently, all Directors are subject to retirement by rotation at least every three years and re-election in accordance with the provision of the Listing Rules and the Articles. At least one-third of Directors shall retire from office every year at the Company's annual general meeting.
Directors' Training
According to the code provision A.6.5 of the CG Code, all Directors should participate in continuous professional development to develop and refresh their knowledge and skills to ensure that their contribution to the Board remains informed and relevant. As such, briefing materials are provided to each newly appointed Director (if any) to ensure that the Director is familiar with the role of the Board, the legal and other duties and responsibilities necessitated as Director as well as the business and corporate governance practices of the Company.
All Directors have provided a record of the training they received during the year ended 31 August 2019 to the Company, which includes attending professional seminars, trainings organised by the Company Secretary and/or reading materials relevant to the Company's business or to the Directors' duties and responsibilities.
Directors' Liability Insurance and Indemnity
The Company maintains appropriate liability insurance to indemnify its Directors for their liabilities arising out of corporate activities. The insurance coverage is reviewed on an annual basis. During the year ended 31 August 2019, no claim was made against the Directors.
Corporate Governance Report
Meetings
The Board meets on a regular and on an ad hoc basis, as required by business needs. The attendance of each Director at the Board meetings, committee meetings and general meetings during the year ended 31 August 2019 is set out in the following table:
Audit | Remuneration | Nomination | |||||||||||||||||||
Board | Committee | Committee | Committee | General | |||||||||||||||||
Meeting | Meeting | Meeting | Meeting | Meeting | |||||||||||||||||
Number of Meetings Attended/Held (1) | |||||||||||||||||||||
Chairman and Independent | |||||||||||||||||||||
Non-executive Director | |||||||||||||||||||||
Mr. Bradley Jay HORWITZ | 6/8 | 3/3 | 2/4(2) | 1/1 | 0/3 | ||||||||||||||||
Executive Directors | |||||||||||||||||||||
Mr. Chu Kwong YEUNG | 8/8 | 3/3(2) | 4/4 | 1/1 | 2/3 | ||||||||||||||||
Mr. Ni Quiaque LAI | 8/8 | 3/3(2) | 4/4(2) | 1/1(2) | 3/3 | ||||||||||||||||
Non-executive Directors | |||||||||||||||||||||
Ms. Deborah Keiko ORIDA | 7/8 | 1/3(2) | 1/4(2) | 1/1 | 0/3 | ||||||||||||||||
Mr. Zubin Jamshed IRANI(3) | 4/8 | 1/3 | 1/4 | N/A | 0/3 | ||||||||||||||||
Mr. Teck Chien KONG(3) | 4/8 | N/A | 1/4(2) | 0/1 | 0/3 | ||||||||||||||||
Independent Non-executive | |||||||||||||||||||||
Directors | |||||||||||||||||||||
Mr. Stanley CHOW | 6/8 | 3/3 | 4/4 | 1/1 | 3/3 | ||||||||||||||||
Mr. Yee Kwan Quinn LAW | 7/8 | 3/3 | 4/4 | 1/1 | 3/3 | ||||||||||||||||
Notes:
- Directors may attend meetings in person, or by means of telephone or video conference in accordance with the Articles. The figures exclude resolutions in writing signed by all Directors.
- By invitation
- Mr. Zubin Jamshed IRANI and Mr. Teck Chien KONG were appointed as the Non-executive Directors of the Company on 30 April 2019. During the period from 30 April 2019 to 31 August 2019, there were four Board Meetings, one Audit Committee Meeting, two Remuneration Committee Meetings, nil Nomination Committee Meeting and one General Meeting.
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Corporate Governance Report
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HKBN Ltd.
Board Committees
The Board has established three Board committees, namely the Remuneration Committee, the Nomination Committee and the Audit Committee.
Remuneration Committee
The Remuneration Committee was established with written terms of reference which are available for view on the Company's website and the website of Hong Kong Exchanges and Clearing Limited ("HKEX").
The Remuneration Committee currently comprises four members, namely Mr. Stanley CHOW, Mr. Yee Kwan Quinn LAW, Mr. Chu Kwong YEUNG and Mr. Zubin Jamshed IRANI. The Chairman of the Remuneration Committee is Mr. Stanley CHOW, an Independent Non-executive Director of the Company.
The primary responsibilities of the Remuneration Committee are to make recommendations to the Board on the Company's policy and structure for all Directors' and senior management's remuneration, make recommendations to the Board on the remuneration packages of individual Executive Directors and senior management, make recommendations to the Board on the remuneration of Non-executive Director
and Independent Non-executive Directors and the Company's Co-Ownership Plan(s), and review and approve the compensation arrangement for Directors and senior management in the event of loss or termination of office.
During the year ended 31 August 2019, the Remuneration Committee held four physical meetings to review the remuneration package and discretionary bonus of Directors, senior management and Talents, review the remuneration policy of the Company, as well as proposed the adoption of Co-Ownership Plan III Plus and made recommendations for the Board's approval.
Pursuant to B.1.5 of the CG Code, the remuneration of the members of the senior management by band for the year ended 31 August 2019 is set out in note 6 to the "Notes to the Financial Statements".
Nomination Committee
The Board has a Nomination Committee with written terms of reference in compliance with the CG Code, except for the deviation of Code Provision A.5.1 of the CG Code (please refer to the section under "Corporate Governance Practices and Corporate Governance Code" on page 102 for details), setting out the duties and authority of the Nomination Committee. The terms of reference of the Nomination Committee are available for view on the Company's website and HKEX's website.
The Nomination Committee currently comprises six members, namely Mr. Stanley CHOW, Mr. Bradley Jay HORWITZ, Ms. Deborah Keiko ORIDA, Mr. Yee Kwan Quinn LAW, Mr. Chu Kwong YEUNG and Mr. Teck Chien KONG. The Chairman of the Nomination Committee is Mr. Chu Kwong YEUNG, an Executive Director of the Company.
The principal duties of the Nomination Committee are to review the structure, size and composition of the Board and the Board committees, review the Nomination Policy and the Board Diversity Policy on a regular basis to ensure their continued effectiveness, make recommendations on any proposed changes to the Board to complement the Company's corporate strategy, identify individuals suitably qualified to become Directors and select or make recommendations to the Board on the selection of individuals nominated for directorships, assess the independence of Independent Non-executive Directors of the Company, and make recommendations to
the Board on the appointment or re-appointment of Directors and succession planning for Directors.
During the year ended 31 August 2019, the Nomination Committee held one physical meeting to assess
the independence of Independent Non-executive Directors, consider the re-election of the retiring Directors at the forthcoming annual general meeting of the Company, as well as review the composition of the Board.
Corporate Governance Report
Nomination Policy
The policy sets out the criteria, procedures and process to be adopted when considering candidates to be appointed or re-appointed as directors. The main provision of the policy is set out below:
Nomination Criteria
When selecting a candidate to be nominated for directorship or re-appointment, considerations will be given to the following:
- age, gender, skills, knowledge, experience, expertise, professional and educational qualifications, background and other personal qualities of the candidate;
- effect on the Board's composition and diversity;
- ability and commitment of the candidate to devote sufficient time to effectively carry out his/her duties. In this regard, the number and
nature of offices held by the candidate in public companies or organisations, and other executive appointments or significant commitments should be considered;
- potential/actual conflicts of interest that may arise if the candidate is selected;
- the contributions that the candidate is expected to bring;
- independence of the candidate; and
- other factors considered to be relevant on a case by case basis.
Nomination Procedures and Process
The following is a summary of the nomination procedures and process adopted by the Company for newly appointed or re-appointed Directors based on the criteria set out above.
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HKBN Ltd.
Shareholders
Vote on the Directors' election at the Company's annual general meeting
Board
Deliberates and decides on the appointment based upon the recommendation of the Nomination Committee
Newly appointed Directors may only hold office until the next annual general meeting of the Company under the Articles. If eligible, they would stand for election by the shareholders at the first annual general meeting following their appointment. A circular accompanying the notice of the annual general meeting containing all relevant information would be sent to shareholders by the Board.
Nomination Committee
Identifies or selects candidates, with or without assistance from external agencies or the Company, pursuant to the criteria set out above
May use any process it deems appropriate to evaluate the candidates, which may include personal interviews, background checks, presentations, written submissions by the candidate or third-party reference
Provides all relevant information and makes recommendation to the Board, including the terms and conditions of the appointment
Corporate Governance Report
Annual Report 2019
Board Diversity Policy
The Company recognises the benefit and value of diversity across the organisation, and endorses the view that a diverse Board, with a breadth of perspective, is one of the key drivers of an effective Board. The main part of the policy is set out below:
In considering and reviewing board composition, both the Nomination Committee and the Board will consider the benefits of all aspects of diversity, including age, gender, skills, knowledge, cultural, experience, expert- ise, professional and educational qualifications, background and other personal qualities of the directors. While the ultimate decision on all Board
appointments would be based on meritocracy and the contributions that the Director candidate is expected to bring, considerable weight would be given to ensuring a diverse Board with balanced composition.
During the year ended 31 August 2019, the Nomination Committee and the Board considered that the composition of the Board was balanced and diversified.
The policy will be reviewed periodically to ensure it remains relevant to the Company's needs and reflects both regulatory requirements and good corporate governance practices.
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An analysis of the Board's current composition based on the measurable objectives is set out below:
GenderDesignation
Ethnicity | Age Group |
HKBN Ltd.
Executive Directors
Male
7 2 Directors
Directors
Non-executive Directors
3 Directors
Female
Chinese
5Directors
Non-Chinese
41-50
3 Directors
51-60
3 Directors
1 | Director | Independent | |
Non-executive Directors | |||
3 | Directors | ||
Educational Background | |||
Business | |||
Science | Administration | ||
3Directors | 4Directors | ||
Arts | Commerce | ||
2Directors | 2Directors | ||
Accounting & | |||
Finance | Legal | ||
2Directors | 2Directors | ||
3 | Directors | 61-70 | |
2 | Directors | ||
Business Experience | |||
Telecommunications | Legal | ||
4Directors | 2Directors | ||
Accounting & | |||
Banking | Finance | ||
3Directors | 2Directors | ||
Corporate Governance Report
Audit Committee
The Audit Committee was established with written terms of reference which are available for view on the Company's website and HKEX's website.
The Audit Committee currently comprises four members, namely Mr. Yee Kwan Quinn LAW, Mr. Stanley CHOW, Mr. Bradley Jay HORWITZ and Mr. Zubin Jamshed IRANI. The Chairman of the Audit Committee is Mr. Yee Kwan Quinn LAW, an Independent Non-executive Director of the Company. The majority of the Audit Committee members are Independent Non-executive Directors. None of the members of the Audit Committee are a former partner of the Company's existing external auditor.
The Audit Committee meets, at least twice a year, with the external auditor to discuss their audit plan and any area of major audit and internal control concern during the audit or review. At least twice a year the Audit Committee meets with the external auditor without the presence of any Executive Directors.
The Audit Committee is mainly responsible for making recommendations to the Board on the appointment, reappointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor and any questions of
its resignation or dismissal, review of the Company's financial information and oversight of the Company's financial reporting system, risk management system and internal control system and procedures. It is also responsible for reviewing the interim and annual results of the Company.
The audited consolidated financial statements for the year ended 31 August 2019 have been reviewed by the Audit Committee.
During the year ended 31 August 2019, the Audit Committee held three physical meetings with the following summary of work performed:
reviewed the audited consolidated financial statements, the annual report and the annual results announcement for the year ended 31 August 2018 and recommended them for the Board's approval;
reviewed and approved the reappointment of KPMG as the Company's auditor, with a recommendation to the Board for the reappointment of KPMG at the 2018 Annual General Meeting;
reviewed the internal audit work plan, risk management and internal control systems of the Group during the year;
reviewed the interim report and the interim results announcement for the six months ended 28 February 2019 and recommended them for the Board's approval; and
discussed the audit plan with the external auditor and reviewed the professional fees for the audit services.
Corporate Governance Functions
The Board is primarily responsible for performing the corporate governance functions of the Company, including the following, which are contained in the Corporate Governance Manual adopted by the Board on 6 February 2015 and updated on 28 May 2019:
developing and reviewing the Company's policies and practices on corporate governance and making recommendations to the Board; reviewing and monitoring the training and continuous professional development of Directors and senior management;
reviewing and monitoring the Company's policies and practices on compliance with legal and regulatory requirements;
developing, reviewing and monitoring this policy and any other codes of conduct or policies applicable to Talents, Directors and officers of the Company; and
reviewing the Company's compliance with the CG Code and disclosure in the Corporate Governance Report.
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HKBN Ltd.
Corporate Governance Report
Risk Management and Internal Controls
Our risk management structure is based on the best practice model known as the "Three Lines of Defence"
model. This framework and its process are designed to manage and mitigate risks rather than eliminate all risks. As such, it does not provide absolute protection against unpredictable risk or uncontrollable events such as natural catastrophes, fraud, and errors of judgement.
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First Line of Defence
Risk Management
Risk | Internal Control | Reporting |
Identification | and Enhancement |
Second Line of Defence
Risk Oversight
Monitor | Communicate | |
and Review | and Improve | |
Risk Monitoring | Risk Review | Risk Reporting |
Third Line of Defence
Independent Assurance
Internal Assurance
External Assurance
Corporate Governance Report
First Line of Defence - Risk Management
The Group's operation management includes company policies, risk identification and mitigation, and internal control procedures.
Leaders from different departments are responsible for performing risk assessment, risk ranking, establishing and implementing mitigating actions and reporting to the Internal Risk Management Team (the "IRM") on a yearly basis through the Departmental Risk Register.
Internal Control
The Group adopted an integrated framework of internal controls consistent with the "Committee of Sponsoring Organisations of the Treadway Commission" framework (the "framework"). Under this framework, management is responsible for the design, implementation and maintenance of internal controls to ensure appropriate policies and control procedures have been designed and established to safeguard our assets against improper use or disposal; ensuring that relevant laws, rules and regulations are adhered to and complied with; and that reliable financial and accounting records are maintained in accordance with relevant accounting standards and regulatory reporting requirements. Departmental Operating Procedures are established for major operations.
What Could Go Wrong ("WCGW") are identified and controls are established to mitigate those risks. The Company Policy and Business Conduct regulates the behaviour of our Talents which permeate the Group's integrity and ethical values as fundamental principles.
Anti-bribery,Anti-corruption and Conflict of Interest Policy outline our expected conduct to ensure we are always in compliance with anti-corruptionlaws, such as the Prevention of Bribery Ordinance (Cap.201) ("the Ordinance"). This includes compliance with all laws, domestic and foreign, prohibiting improper payment, gifts or inducement s of any kind to and received from any person, including officials in the private or public sector, customers and suppliers. Training is provided to all new joiners and refresher training also provided to selected departments. During FY19, 8 trainings were provided for over 600 Talents. Any suspected cases are investigated by Audit and Risk Department and result is reported directly to Audit Committee. Appropriate action will be taken on a case by case basis. During FY19, there was no material legal action against the Group for non-complianceof any related laws and regulations.
A Speak Up Policy is in place to facilitate Talents and other stakeholders to report concerns to us about suspected unethical behaviour or malpractice in confidence and without fear of reprisal, victimisation, subsequent discrimination, disadvantage or dismissal. Audit and Risk Department is responsible for undertaking any investigation. Result is reported to Audit Committee directly and appropriate actions will be taken.
An updated Information Security Team was established during the year, mainly responsible for establishing security policies and procedures, implement hardware and software contents for network security, and monitor for threats to our system. By ensuring the design of IT and network infrastructure is aligned with the best security practices, it reduces the security related risks for the Company. In FY19, the team has updated the Information Security Policy which outlines a set of rules about maintaining the confidentiality, integrity, and availability of the Company's information and establishes the responsibilities for all Talents, contractors and third-party users in relation to information security.
Cybersecurity
Numerous security measures were applied and carried out by our Information Technology and Information Security Departments. From network segmentation to end-point protections and continuous vulnerability scanning on our network and applications have been implemented to ensure we have identified any risks in our systems.
Human error is an inherent risk in any cybersecurity issue. In light of this, we have raised security awareness of our Talents through ongoing training and phishing simulations. Security training is incorporated as part of each newly joined Talent's training.
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Corporate Governance Report
Second Line of Defence - Risk Oversight
The second line of defence is overseen by the Internal Risk Management Team ("IRM") whose composition comprises nominated department heads and executives. The team is responsible for (i) understanding risks that are affecting the Group, and (ii) ensuring major risks are addressed with appropriate actions.
Internal Risk Management Team ("IRM") ensures appropriate actions are taken on risks affecting the Group's business, operations and ESG related issues. The IRM team meets twice a year and from time to time when needed to review risks affecting the Group's operation. The Group Risk Register is the result of a top down risk assessment from the corporate level and is complemented by a bottom up approach of separate risk registers reported by different departments.
Third Line of Defence - Independent Assurance
The Group's internal audit function is performed by the Audit and Risk Department ("ARD"). It is responsible for conducting independent reviews of the adequacy and effectiveness of the Group's internal control and risk management systems. It also assists management in assessing the risks inherent in particular businesses or functional areas, including fraud or corruption, and conducts reviews or audits to provide reasonable, though not absolute, assurance that adequate governance and controls are in place to address such risks. The ARD has a reporting line to the Chief Executive Officer and has direct access to the Chairman of the Audit Committee.
Internal audit reports on control effectiveness are submitted to the Audit Committee in line with the agreed audit plan. The annual audit plan is prepared based on the major risks identified during the latest risk review. This audit plan is subject to changes according to the outcome of continuous risk review processes, and any proposed changes to the audit plan will be communicated to and approved by the Audit Committee accordingly.
External Assurance and Consultation
External auditor and consultants further supplement the third line of defence by providing independent assessment on the Group's processes, especially with respect to the significant risks and control issues identified over the financial reporting process.
Risk Management and Principal Risks
It is our commitment to launch services quickly and meet market demands at a fast pace to pursue long-term growth in our business. Because we embrace risk as an inherent component in our daily operation, we take an "enterprise-wide approach" for the management of key business risks. This approach provides consistent processes to identify, assess, treat, monitor and communicate key risks.
Corporate Governance Report
Principal Risks
The Group faces several risks and uncertainties which, if not properly managed, could create an adverse exposure for the Group. Through the effectiveness of risk management, risks are managed with appropriate mitigation measures in place to minimise the exposure. In FY19, the Group has identified the following principal risks:
Risk Context Establishment and Risk Identification
Risk criteria is assessed based on our Group's objectives. Following this, we examine our strategic planning process and daily management of the business to identify
internal and external events that may affect the achievement of the Group's objectives
Risk Monitoring and Reporting
Once an appropriate risk treatment has been determined, department heads and the IRM perform ongoing and periodic monitoring of the risks and ensure that appropriate responses, controls and preventive actions are in place
Risk Evaluation
Identify the cause and source of the risks, and rank the potential impact on business and likelihood of a risk occurring both quantitatively and qualitatively
- 2
- 3
Risk Treatment
(Mitigation and Action)
Treatment is identified and determined as to whether or not it reduces the residual risk to an acceptable level, if not, further treatments are considered until the residual risks are reduced to an acceptable level
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Potential risks | Potential impact | Mitigating actions | ||
Market | ||||
The Group operates in | The effects of competition on | Proactively monitor market conditions | ||
markets which may be | our business are uncertain and | Conduct responsive project manage- | ||
subject to pricing and other | are dependent on a variety of | ment to allow flexible allocation | ||
competitive pressures. | factors, including economic | of resources for strategy changes | ||
conditions, regulatory development, | Closely monitor price levels and act | |||
technological development, the | accordingly | |||
behaviour of customers and | ||||
competitors, and the effectiveness | ||||
of the measures we adopt in | ||||
response to the competition we face. | ||||
Financial (Interest Rate Risk) |
A significant amount of indebtedness and the majority of our indebtedness bear floating interest rates determined by reference to HIBOR, which is subject to market movements and may increase in the future.
Any significant increase in interest rates could increase our finance costs and adversely affect our profitability.
Continue to enter into interest-rate swaps to hedge against our interest rate risks
Proactively monitor interest rates and act upon the changes to mini- mise the risks (Details are set out in note 31(c) to the "Notes to the Financial Statements".)
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Corporate Governance Report
Potential risks | Potential impact | Mitigating actions | ||
Operations | ||||
The continuity of our services | Any damage to or failure in our | An effective and efficient Information | ||
is highly dependent on the | network or such infrastructure | Technology Policy and IT Security | ||
proper functioning of our | could adversely affect our | Policy are in place | ||
network and infrastructure | business. | Continuous monitoring of network | ||
as well as proper handling of | status | |||
customer data. | Leakage of customer data could | Continuously update the incident | ||
adversely affect the Group's | response and business recovery | |||
reputation, operations and | policy and procedures and conduct | |||
financial performance. | drills | |||
Undertake frequent reviews of | ||||
our network security and perform | ||||
periodic upgrades of our network | ||||
Provide network/IT security | ||||
awareness training for all Talents | ||||
Continuously review and update | ||||
our customer data collection and | ||||
retention policy | ||||
People | ||||
The Group's success is | The loss of key personnel, or | The Group has a succession | ||
dependent upon continued | the inability to find additional | planning strategy in place for key | ||
service from Talents | qualified personnel, could | management positions | ||
employed by our Group. | materially and adversely affect the | |||
Group's prospects and results of | ||||
operations. | ||||
Technology | ||||
The telecommunications | If we cannot implement new | A network strategy plan is in place | ||
industry is characterised by | technology expediently and offer | to enhance network agility and | ||
rapidly changing technology | new services demanded by our | our ability to cope with evolving | ||
and industry standards, | customers in a timely manner and | technology | ||
evolving customer demands | at competitive prices, our business, | New services are provided to | ||
and services with increasingly | financial conditions, operations | customers by partnering with | ||
short life cycles. | and prospects could be adversely | industry leaders | ||
affected. | ||||
Legal & Regulatory | ||||
The Group operates in | Failure to comply with applicable | Audit and Risk Department will | ||
markets and industries which | legal and regulatory requirements | conduct compliance review on | ||
require compliance with legal | may adversely affect the Group's | business activities and new | ||
and regulatory requirements. | reputation, operations and | initiatives where appropriate | ||
financial performance. | Legal and Regulatory Department | |||
(LRD) will review contracts before | ||||
their execution | ||||
On-going trainings on legal and | ||||
regulatory compliance will be | ||||
provided to Talents to promote | ||||
awareness and ensure compliance | ||||
Corporate Governance Report
Board Confirmation
The Board has considered and endorsed the Audit Committee's assessment of the effectiveness of risk management and controls systems in the Group. During the year ended 31 August 2019, there was no area of concern identified which might materially affect the operational, financial reporting and compliance controls of the Group, and that the existing risk management and internal control systems remain effective and adequate.
Auditor's Remuneration
During the year ended 31 August 2019, the remuneration paid or payable to the Company's external auditor, KPMG, is set out as follows:
$' 000 | ||
Audit services | 5,665 | |
Other services(Note) | 4,695 | |
10,360 | ||
Note: Other service fee includes the review of the Group's interim financial report amounting to $635,000, tax advisory service amounting to $210,000 and other professional fees mainly in connection with business combination and proposed business combination amounting to $3,850,000.
Directors' Responsibility and Auditor's Responsibility in respect of Financial Statements
The statement of the Directors' responsibility and auditor's statement of reporting responsibilities in respect of the financial statements of the Group for the year ended 31 August 2019 are set out on pages 124 to 126 of this annual report.
Model Code for
Securities Transactions
The Company has adopted the Model Code as its own code of conduct regarding securities transactions by Directors of the Company. Having made specific enquiries with all Directors, they confirmed that they have complied with the required standard as set out in the Model Code for the year ended 31 August 2019.
Communication with Shareholders
Shareholders' Rights
The general meetings of the Company provide a communication channel between the shareholders and the Board. An annual general meeting of the Company is held each year at a location as may be determined by the Board. Each general meeting, other than an annual general meeting, is called an extraordinary general meeting. The Board may whenever it deems fit convene extraordinary general meetings. Any vote of the shareholders at a general meeting must be taken by poll except where the Chairman of the general meeting, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted by a show of hands.
Procedures for Shareholders to Convene an Extraordinary General Meeting
An extraordinary general meeting could be convened on the written requisition of any two or more members or any one member which is a recognised clearing house (or its nominee(s)) deposited at the principal office of the Company in Hong Kong specifying the objects of the meeting and signed by the requisit- ionists, provided that such requisitionists held as at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company which carries the right of voting at general meetings of the Company. If the Board does not within 21 days from the date of deposit of the requisition proceed duly to convene the meeting to be held within a further 21 days, the requisitionist(s) themselves or any of them representing more than one-half of the total voting rights of all of them, may convene the general meeting in the same manner, as nearly as possible, as that
in which meetings may be convened by the Board provided that any meeting so convened shall not be held after the expiration of three months from the date of deposit of the requisition, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to them by the Company.
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Corporate Governance Report
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Procedures for Sending Enquiries to the Board
The enquiries must be in writing with the detailed contact information of the requisitionists and deposited with the Board or the Company Secretary at the Company's principal place of business in Hong Kong as below:
HKBN Ltd.
12th Floor, Trans Asia Centre
18 Kin Hong Street, Kwai Chung
New Territories
Hong Kong
Procedures for Shareholders to Put Forward Proposals at Shareholders' Meetings
There are no provisions in the Company's Articles or the Companies Law of the Cayman Islands for shareholders to put forward new resolutions at general meetings. Shareholders who wish to put forward a new resolution may request the Company to convene a general meeting in accordance with the procedures set out on page 115 in the paragraph under "Procedures for Shareholders to Convene an Extraordinary General Meeting". Detailed procedure for shareholders to propose a person for election as a Director is available under the Corporate Governance section of the Company's website.
Shareholder Communication Policy
The Company has adopted a Shareholder Communication Policy to set out the Company's procedures in providing shareholders and the investment community with ready, equal and timely access to balanced and understandable information about the Company, in order to help shareholders exercise their rights in an informed manner, and to allow shareholders and the investment community to engage actively with the Company.
Dividend Policy
The Company seeks to provide stable and sustainable returns to the shareholders. In determining the dividend pay-out, a number of factors will be considered including return to shareholders, cash needed for the Group's business operations, expansion and inventory, capital expenditure requirements and funding for other business opportunities, as well as a healthy financial buffer for unforeseen market circumstances.
The Company's dividend policy is to pay dividends in an amount of not less than 90% of the AFF with an intention to pay 100% of the AFF in respect of the relevant year/period, after adjusting for potential debt repayment, if required.
The Board will review the policy and dividend pay-out ratio as appropriate from time to time.
Information Disclosure and
Investor Relations
The Board and the Company maintain an on-going dialogue with the Company's shareholders and the investment community mainly through the Company's financial reports, annual general meeting and other general meetings that may be convened, as well as by making available all the disclosures submitted to the Stock Exchange and its corporate communications and other corporate publications on the Company's website.
Constitutional Documents
The constitutional documents of the Company were adopted by special resolution passed on 21 February 2015 and effective on the Listing Date. There is
no change on the constitutional documents of the Company during the year ended 31 August 2019.
Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd.
(Incorporated in the Cayman Islands with limited liability)
Opinion
We have audited the consolidated financial statements of HKBN Ltd. ("the Company") and its subsidiaries ("the Group") set out on pages 127 to 233, which comprise the consolidated statement of financial position as at 31 August 2019, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 August 2019 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.
Basis for opinion
We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code") together with any ethical requirements that are relevant to our audit of the consolidated financial statements in the Cayman Islands, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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HKBN Ltd.
2019
Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd. (continued)
(Incorporated in the Cayman Islands with limited liability)
Key audit matters (continued)
Accounting for the acquisition of WTT Holding Corp
Refer to note 30 and accounting policies in note 1(f) to the consolidated financial statements.
The Key Audit Matter | How the matter was addressed in our audit |
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HKBN Ltd.
On 30 April 2019, the Group acquired the entire issued share capital of WTT Holding Corp ("the WTT Acquisition") for consideration of $6,644 million, of which (i) $4,295 million was satisfied by allotment and issuance of the Company's shares; and (ii) $2,349 million was satisfied by issuance of the vendor loan notes ( the "Vendor Loan Notes").
Goodwill arising from the WTT Acquisition, which represented the excess of the consideration paid over the Group's share of the fair value of the identifiable net assets of the acquired entities.
The fair values of the identifiable assets and liabilities acquired in the WTT Acquisition was assessed by the directors based on an independent valuation prepared by a firm of external valuers. The assessment of fair values required the exercise of significant judgements and estimation, particularly in relation to the forecast of future performance of the businesses acquired.
inspecting the sale and purchase agreements and evaluating management's accounting treatment for the WTT Acquisition with reference to the terms set out in the sale and purchase agreements and the requirements of the prevailing accounting standards;
obtaining and inspecting the valuation assessments prepared by the external valuers engaged by the Group and on which management's assessment of the fair values of the assets and liabilities acquired was based;
assessing the external valuers' qualifications, experience and expertise in the assets being valued and considering their objectivity and independence;
with the assistance of our internal valuation specialists, assessing the valuation methodologies adopted by the external valuers with reference to industry standards and the requirements of the prevailing accounting standards, and challenging the assumptions and critical judgements which impacted their valuation by comparing these assumptions and critical judgements with market data and the Group's business plan supporting the WTT Acquisition;
Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd. (continued)
(Incorporated in the Cayman Islands with limited liability)
Key audit matters (continued)
Accounting for the acquisition of WTT Holding Corp (continued)
Refer to note 30 and accounting policies in note 1(f) to the consolidated financial statements.
The Key Audit Matter | How the matter was addressed in our audit |
2019
We identified the accounting for the WTT Acquisition as a key audit matter because the transaction was significant to the consolidated financial statements and because assessing the fair values of the assets and liabilities acquired can be inherently subjective and requires significant judgements and estimation which increase the risk of error or potential management bias.
evaluating the information provided by management to the external valuers by inspecting the underlying contracts and relevant underlying documentation;
evaluating management's assessment of the estimated useful lives of (i) brand and trademark;
- customer relationships and (iii) backlog, with reference to future operating plans and our knowledge of the industry; and
assessing the disclosures in the consolidated financial statements in respect of the WTT Acquisition with reference to the requirements of the prevailing accounting standards.
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Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd. (continued)
(Incorporated in the Cayman Islands with limited liability)
Key audit matters (continued)
Assessing of potential impairment of goodwill, intangible assets and property, plant and equipment ("PP&E")
Refer to notes 9, 10 and 11 and accounting policies in notes 1(f), 1(h) and 1(i) to the consolidated financial statements.
The Key Audit Matter | How the matter was addressed in our audit |
The carrying values of the Group's goodwill, intangible | Our audit procedures to assess potential impairment |
assets and PP&E as at 31 August 2019, which amounted | of goodwill, intangible assets and PP&E included the |
to $8,788 million, $4,639 million and $4,342 million, | following: |
respectively and were contained in one cash-generating | |
unit ("CGU") identified by management, the fixed | evaluating the Group's identification of CGUs and |
telecommunications network services. | the value of goodwill, intangible assets and PP&E |
allocated to the fixed telecommunications network | |
Management performs an annual impairment | services CGU and assessing the methodology |
assessment of its goodwill and the associated intangible | applied by management in the preparation of the |
assets and PP&E. Management compares the carrying | discounted cashflow forecast with reference to |
values of the CGU to which the goodwill, intangible | the requirements of the prevailing accounting |
assets and PP&E have been allocated against a | standards; |
discounted cashflow forecast to determine the amount | |
of impairment loss which should be recognised, if any. | evaluating the discounted cashflow forecast |
prepared by management by comparing | |
The preparation of a discounted cashflow forecast | specific data and significant assumptions in the |
involves the exercise of significant management | discounted cashflow forecast with the financial |
judgement, particularly in estimating the long term | budget which was approved by the Board of |
revenue growth rates and the discount rates applied. | directors. Our evaluation has taken into account |
our understanding of the Group's future business | |
plans and the telecommunication sector; | |
Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd. (continued)
(Incorporated in the Cayman Islands with limited liability)
Key audit matters (continued)
Assessing potential impairment of goodwill, intangible assets and property, plant and equipment ("PP&E") (continued)
Refer to notes 9, 10 and 11 and accounting policies in notes 1(f), 1(h) and 1(i) to the consolidated financial statements.
The Key Audit Matter | How the matter was addressed in our audit |
Report 2019
We identified assessing the potential impairment of goodwill, intangible assets and PP&E as a key audit matter because the impairment assessment prepared by management is complex and contains judgemental assumptions, particularly the long term revenue growth rate and discount rate applied, which could be subject to management bias in their selection.
comparing the revenue and operating costs included in prior year's discounted cashflow forecast with the current year's performance in order to assess the reasonableness of prior year's forecast and making enquiries of management as to the reasons for any significant variation identified;
comparing the long term revenue growth rate and discount rate adopted in the discounted cashflow forecast with that of comparable companies and external market data; and
obtaining from management sensitivity analysis of long term revenue growth rate and the discount rate adopted in the discounted cashflow forecast and assessing the impact of changes in these key assumptions to the conclusions reached in the impairment assessment and whether there were any indicators of management bias.
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2019
Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd. (continued)
(Incorporated in the Cayman Islands with limited liability)
Key audit matters (continued)
Revenue recognition
Refer to note 2 and accounting policies in note 1(v) to the consolidated financial statements.
The Key Audit Matter | How the matter was addressed in our audit |
Annual Report
122
The Group's revenue, which comprises primarily income from fixed telecommunications network services, international telecommunications services, mobile services and product sales, totalled $5,108 million for the year ended 31 August 2019.
The accuracy of revenue recorded in the consolidated financial statements is an inherent risk because the group's billing systems are complex, and process large volumes of data including a variety of service packages with price changes in the year.
Our audit procedures to assess the recognition of revenue included the following:
with the assistance of our information technology specialists, evaluating the design, implementation and operating effectiveness of key internal controls with particular emphasis on:
- the capturing and recording of data usage;
- authorising rate changes; and
HKBN Ltd.
- calculating amounts billed to customers.
assessing the design, implementation and operating effectiveness of key non-automated internal controls over the revenue recognition process;
reconciling revenue recognised in the telecom billing system to the general ledger and assessing whether the reconciling items were properly supported by underlying documentation, on a sample basis;
Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd. (continued)
(Incorporated in the Cayman Islands with limited liability)
Key audit matters (continued)
Revenue recognition (continued)
Refer to note 2 and accounting policies in note 1(v) to the consolidated financial statements.
The Key Audit Matter | How the matter was addressed in our audit |
2019
Significant management judgement can be required in determining the appropriate measurement and timing of recognition of different elements of revenue within bundled sales packages, which may include telecommunication services and telecommunication products, and complex settings are required in the Group's information technology ("IT") systems to achieve the appropriate allocation of prices for the different elements of revenue.
We identified revenue recognition as a key audit matter because it involves management judgement and complex IT systems, both of which give rise to an inherent risk that revenue could be recorded in the incorrect period or could be subject to manipulation to meet targets or expectations.
assessing, on a sample basis, the standalone selling prices determined by management for each distinct service and product offered in bundled sales packages, by comparison with the observable prices for such services or products when the Group sells such services or products separately in similar circumstances and to similar customers;
evaluating journal entries posted to revenue accounts, on a specific risk-based sample basis, and comparing the details of these journals entries with relevant underlying documentation, which included reports generated from the telecom billing system; and
comparing cash receipts from customers during the year and subsequent to the financial year end with invoices issued to customers during the year, on a sample basis.
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Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd. (continued)
(Incorporated in the Cayman Islands with limited liability)
Information other than the consolidated financial statements and auditor's report thereon
The directors are responsible for the other information. The other information comprises all the information included in the annual report, other than the consolidated financial statements and our auditor's report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the consolidated financial statements
The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group's financial reporting process.
Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd. (continued)
(Incorporated in the Cayman Islands with limited liability)
Auditor's responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in
the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
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125
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126
HKBN Ltd.
Auditor's Report
Independent auditor's report to the shareholders of HKBN Ltd. (continued)
(Incorporated in the Cayman Islands with limited liability)
Auditor's responsibilities for the audit of the consolidated financial statements (continued)
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards.
From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is Yip Ka Ming, Alice.
KPMG
Certified Public Accountants
8th Floor, Prince's Building 10 Chater Road Central, Hong Kong
24 October 2019
Consolidated Income Statement
For the year ended 31 August 2019 (Expressed in Hong Kong dollars)
2019 | 2018 | ||
(Note) | |||
Note | $' 000 | $' 000 | |
Revenue | 2 | 5,107,637 | 3,948,952 |
Other net income | 3(a) | 29,926 | 22,315 |
Network costs and costs of sales | (1,834,054) | (1,247,031) | |
Other operating expenses | 3(b) | (2,734,600) | (2,116,987) |
Finance costs | 3(d) | (259,271) | (117,288) |
Share of losses of joint ventures | 13(b) | (276) | (693) |
Profit before taxation | 3 | 309,362 | 489,268 |
Income tax | 4 | (94,835) | (92,371) |
Profit for the year attributable to equity shareholders | |||
of the Company | 214,527 | 396,897 | |
Earnings per share | 7 | ||
Basic | 19.4 cents | 39.6 cents | |
Diluted | 18.4 cents | 39.6 cents | |
Note: The Group has initially applied HKFRS 15 and HKFRS 9 at 1 September 2018. Under the transition methods chosen, comparative information is not restated. See note 1(c).
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HKBN Ltd.
The notes on pages 133 to 233 form part of these financial statements. Details of dividend payable to equity shareholders of the Company attributable to the profit for the year are set out in note 28(b).
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HKBN Ltd.
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2019 (Expressed in Hong Kong dollars)
2019 | 2018 | |
(Note) | ||
$' 000 | $' 000 | |
Profit for the year | 214,527 | 396,897 |
Other comprehensive income for the year | ||
Item that may be reclassified subsequently to profit or loss: | ||
Exchange differences on translation of financial statements | ||
of subsidiaries outside Hong Kong, with nil tax effect | (6,198) | (4,718) |
Total comprehensive income for the year attributable to | ||
equity shareholders of the Company | 208,329 | 392,179 |
Note: The Group has initially applied HKFRS 15 and HKFRS 9 at 1 September 2018. Under the transition methods chosen, comparative information is not restated. See note 1(c).
The notes on pages 133 to 233 form part of these financial statements.
Consolidated Statement of Financial Position
At 31 August 2019 (Expressed in Hong Kong dollars)
2019 | 2018 | ||
(Note) | |||
Note | $' 000 | $' 000 | |
(Restated) | |||
Non-current assets | |||
Goodwill | 9 | 8,788,319 | 1,801,393 |
Intangible assets | 10 | 4,638,643 | 1,453,588 |
Property, plant and equipment | 11 | 4,341,590 | 2,293,950 |
Investment properties | 11 | 222,041 | - |
Customer acquisition and retention costs | 15 | 598,030 | - |
Contract assets | 16 | 4,740 | - |
Interest in joint ventures | 13 | 9,429 | 8,095 |
Other non-current assets | 14 | 32,105 | 64,950 |
18,634,897 | 5,621,976 | ||
Current assets | |||
Inventories | 15 | 29,168 | 32,704 |
Trade receivables | 17 | 557,439 | 247,210 |
Other receivables, deposits and prepayments | 17 | 240,894 | 292,646 |
Contract assets | 16 | 241,717 | - |
Amounts due from joint ventures | 22 | 15,093 | 8,544 |
Cash and cash equivalents | 18 | 662,816 | 373,293 |
1,747,127 | 954,397 | ||
Current liabilities | |||
Trade payables | 19 | 365,976 | 138,918 |
Other payables and accrued charges - current portion | 19 | 907,317 | 461,373 |
Contract liabilities - current portion | 16 | 219,763 | - |
Deposits received | 72,443 | 69,343 | |
Deferred services revenue - current portion | - | 98,653 | |
Obligations under granting of rights - current portion | 26 | 9,024 | 9,024 |
Amounts due to joint ventures | 22 | 10,750 | 10,000 |
Contingent consideration - current portion | 27 | 1,371 | 11,471 |
Tax payable | 24 | 158,480 | 109,410 |
1,745,124 | 908,192 | ||
Net current assets | 2,003 | 46,205 | |
Total assets less current liabilities | 18,636,900 | 5,668,181 | |
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Consolidated Statement of Financial Position
At 31 August 2019 (continued) (Expressed in Hong Kong dollars)
2019 | 2018 | ||
(Note) | |||
Note | $' 000 | $' 000 | |
(Restated) | |||
Non-current liabilities | |||
Other payables and accrued charges - long-term portion | 19 | 143,600 | 201,266 |
Contract liabilities - long-term portion | 16 | 187,690 | - |
Deferred services revenue - long-term portion | - | 79,371 | |
Obligations under granting of rights - long-term portion | 26 | 15,795 | 24,819 |
Deferred tax liabilities | 25 | 1,131,440 | 408,218 |
Contingent consideration - long-term portion | 27 | 28,278 | 28,236 |
Provision for reinstatement costs | 50,146 | 15,643 | |
Bank loans | 20 | 4,454,253 | 3,873,716 |
Senior notes | 21 | 5,169,137 | - |
11,180,339 | 4,631,269 | ||
NET ASSETS | 7,456,561 | 1,036,912 | |
CAPITAL AND RESERVES | |||
Share capital | 28(c) | 132 | 101 |
Reserves | 7,456,429 | 1,036,811 | |
TOTAL EQUITY | 7,456,561 | 1,036,912 | |
Note: The Group has initially applied HKFRS 15 and HKFRS 9 at 1 September 2018. Under the transition methods chosen, comparative information is not restated. See note 1(c). Additionally, the comparative information in respect of the year ended 31 August 2018 has been restated as a result of finalised purchase price allocation of prior year acquisition as set out in note 1(b)(i).
Approved and authorised for issue by the board of directors on 24 October 2019.
) | ||
Chu Kwong YEUNG | ) | |
) | Directors | |
Ni Quiaque LAI | ) | |
) | ||
) |
The notes on pages 133 to 233 form part of these financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 August 2019
(Expressed in Hong Kong dollars)
Attributable to equity shareholders of the Company and holders of Vendor Loan Notes | |||||||||
Share | Share | Vendor Loan | Capital | Other | Retained | Exchange | |||
capital | premium | Notes | reserve | reserve | profits | reserve | Total | ||
Note | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
Balance 1 September 2017 | 101 | 105,880 | - | 27,192 | 596,420 | 403,382 | (4,087) | 1,128,888 | |
Changes in equity for the year ended | |||||||||
31 August 2018: | |||||||||
Profit for the year | - | - | - | - | - | 396,897 | - | 396,897 | |
Other comprehensive income | - | - | - | - | - | - | (4,718) | (4,718) | |
Total comprehensive income | - | - | - | - | - | 396,897 | (4,718) | 392,179 | |
Dividend approved to equity | |||||||||
shareholder of the Company | |||||||||
in respect of the previous year | 28(b)(ii) | - | (105,880) | - | - | - | (125,423) | - | (231,303) |
Dividend declared to equity | |||||||||
shareholder of the Company | |||||||||
in respect of the current year | 28(b)(i) | - | - | - | - | - | (261,473) | - | (261,473) |
Equity-settledshare-based | |||||||||
transactions | 23(a) | - | - | - | 8,621 | - | - | - | 8,621 |
Balance at 31 August 2018 (Note) | 101 | - | - | 35,813 | 596,420 | 413,383 | (8,805) | 1,036,912 | |
Impact on initial application of HKFRS 15 | - | - | - | - | - | 368,256 | - | 368,256 | |
Adjusted balance at 1 September 2018 | 101 | - | - | 35,813 | 596,420 | 781,639 | (8,805) | 1,405,168 | |
Changes in equity for the year ended | |||||||||
31 August 2019: | |||||||||
Profit for the year | - | - | - | - | - | 214,527 | - | 214,527 | |
Other comprehensive income | - | - | - | - | - | - | (6,198) | (6,198) | |
Total comprehensive income | - | - | - | - | - | 214,527 | (6,198) | 208,329 | |
Issue of ordinary shares | 28(c) | 31 | 4,295,264 | - | - | - | - | - | 4,295,295 |
Issue of Vendor Loan Notes | 29 | - | - | 2,349,204 | - | - | - | - | 2,349,204 |
Dividend approved to equity | |||||||||
shareholders of the Company | |||||||||
in respect of the previous year | 28(b)(ii) | - | - | - | - | - | (301,700) | - | (301,700) |
Dividend declared to equity | |||||||||
shareholders of the Company | |||||||||
in respect of the current year | 28(b)(i) | - | (445,944) | - | - | - | - | - | (445,944) |
Distribution to holders | |||||||||
of Vendor Loan Notes | - | (56,890) | - | - | - | - | - | (56,890) | |
Equity-settledshare-based transactions | 23(a) | - | - | - | 3,099 | - | - | - | 3,099 |
Balance at 31 August 2019 | 132 | 3,792,430 | 2,349,204 | 38,912 | 596,420 | 694,466 | (15,003) | 7,456,561 | |
Note: The Group has initially applied HKFRS 15 and HKFRS 9 at 1 September 2018. Under the transition methods chosen, comparative information is not restated. See note 1(c).
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The notes on pages 133 to 233 form part of these financial statements.
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HKBN Ltd.
Consolidated Cash Flow Statement
For the year ended 31 August 2019 (Expressed in Hong Kong dollars)
2019 | 2018 | ||
(Note) | |||
Note | $' 000 | $' 000 | |
Operating activities | |||
Cash generated from operations | 18(b) | 1,469,569 | 1,192,771 |
Tax paid: | |||
- Hong Kong Profits Tax paid | (111,512) | (111,177) | |
- Tax paid outside Hong Kong | (5,884) | (5,057) | |
Net cash generated from operating activities | 1,352,173 | 1,076,537 | |
Investing activities | |||
Payment for the purchase of property, plant and equipment | (413,860) | (433,301) | |
Payment for the purchase of investment properties | (191,431) | - | |
Proceeds from sale of property, plant and equipment | 4,795 | 1,913 | |
Payment for contingent consideration | (11,600) | (19,324) | |
Payment for acquisition of subsidiaries | 30(c) | (296,390) | (9,501) |
Cash from acquisition of subsidiaries | 30(a) | 355,172 | - |
Payment for investment in joint ventures | (810) | - | |
Interest received | 4,083 | 1,641 | |
Net cash used in investing activities | (550,041) | (458,572) | |
Financing activities | |||
Proceeds from bank loans | 18(c) | 974,365 | - |
Repayment of bank loans | 18(c) | (400,000) | (2,792) |
Interest paid on interest-rate swap | 18(c) | (8,850) | (6,833) |
Interest paid on bank loans | 18(c) | (126,915) | (96,743) |
Interest paid on senior notes | 18(c) | (144,636) | - |
Transaction costs paid for bank loans | 18(c) | (484) | (29,859) |
Dividend paid to the equity shareholders of the Company | (747,644) | (492,777) | |
Dividend paid to the holders of Vendor Loan Notes | (56,890) | - | |
Net cash used in financing activities | (511,054) | (629,004) | |
Net increase/(decrease) in cash and cash equivalents | 291,078 | (11,039) | |
Cash and cash equivalents at the beginning of the year | 18(a) | 373,293 | 385,052 |
Effect of foreign exchange rate changes | (1,555) | (720) | |
Cash and cash equivalents at the end of the year | 18(a) | 662,816 | 373,293 |
Note: The Group has initially applied HKFRS 15 and HKFRS 9 at 1 September 2018. Under the transition methods chosen, comparative information is not restated. See note 1(c).
The notes on pages 133 to 233 form part of these financial statements.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies
(a) Statement of compliance
These financial statements have been prepared in accordance with all applicable 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 and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing
the Listing of Securities on The Stock Exchange of Hong Kong Limited. Significant accounting policies adopted by the Group are disclosed below.
The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 1(c) provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.
(b) Basis of preparation of the financial statements
The consolidated financial statements for the year ended 31 August 2019 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in joint ventures.
The measurement basis used in the preparation of the financial statements is the historical cost basis except that contingent consideration, share-based payments and derivative financial instruments are stated at their fair values as explained in the accounting policies set out below in notes 1(f), 1(s) and 1(g).
The preparation of financial statements in conformity with HKFRSs requires management to make judgements, 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 judgements about 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 recognised 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.
Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in note 37.
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Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Basis of preparation of the financial statements (continued)
-
Restatement of prior year's financial statements as a result of finalised purchase price allocation of prior year acquisition
During the year ended 31 August 2018, the Group acquired the entire shares of I Consulting Group Limited ("ICG") and its subsidiary ("ICG Acquisition") of which the valuations have not been completed and the respective fair values of the identifiable net assets and goodwill were determined provisionally.
During the year ended 31 August 2019, the Group made certain fair value adjustments, with reference to the finalised independent valuation, to the carrying amounts of the identifiable assets and liabilities of ICG and its subsidiary as a result of completing the initial accounting. The adjustments to the fair values at the acquisition date of the identifiable net assets were made as if initial accounting had been completed on the acquisition date. The amortisation of the respective assets subsequent to the acquisition date was not adjusted as the financial impact is not material. Accordingly no restated consolidated income statement and consolidated statement of comprehensive income for the year ended 31 August 2018 is presented.
The above restatements relate to acquisition which was effected during the year ended 31 August 2018 and hence have no financial impact on the consolidated financial position as at 1 September 2017. Accordingly no restated consolidated statement of financial position as at 1 September 2017 is presented.
Restated consolidated statement of financial position as at 31 August 2018
-
Restatement of prior year's financial statements as a result of finalised purchase price allocation of prior year acquisition
As originally | |||
stated | Adjustments | As restated | |
$' 000 | $' 000 | $' 000 | |
Total non-current assets | 5,626,776 | (4,800) | 5,621,976 |
Total current assets | 954,397 | - | 954,397 |
Total current liabilities | (915,318) | 7,126 | (908,192) |
Total non-current liabilities | (4,628,943) | (2,326) | (4,631,269) |
Total equity attributable to equity | |||
shareholders of the Company | 1,036,912 | - | 1,036,912 |
Details of the financial line items as restated in the consolidated statement of financial position as at 31 August 2018 include the following:
As originally | |||
stated | Adjustments | As restated | |
$' 000 | $' 000 | $' 000 | |
Non-current assets | |||
Goodwill | 1,804,904 | (3,511) | 1,801,393 |
Intangible assets | 1,454,877 | (1,289) | 1,453,588 |
Current liabilities | |||
Contingent consideration - current portion | (18,597) | 7,126 | (11,471) |
Non-current liabilities | |||
Deferred tax liabilities | (408,431) | 213 | (408,218) |
Contingent consideration - long-term portion | (25,697) | (2,539) | (28,236) |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(c) Change in accounting policies
The HKICPA has issued a number of new HKFRSs, and amendments to HKFRSs that are first effective for the current accounting period of the Group. Of these, the following developments are relevant to the Group's financial statements:
- HKFRS 9, Financial instruments
- HKFRS 15, Revenue from contracts with customers
- HK(IFRIC) 22, Foreign currency transactions and advance consideration
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.
-
HKFRS 9, Financial instruments
HKFRS 9 replaces HKAS 39, Financial instruments: recognition and measurement. It sets out the requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financialitems.
The Group has applied HKFRS 9 retrospectively to items that existed at 1 September 2018 in accordance with the transition requirements. The Group has recognised the cumulative effect of initial application as an adjustment to the opening equity at 1 September 2018. Therefore, comparative information continues to be reported under HKAS 39.
Details of the nature and effect of the changes to previous accounting policies and the transition approach are set out below: - Classification of financial assets and financial liabilities
HKFRS 9 categories financial assets into three principal classification categories: measured at amortised cost, at fair value through other comprehensive income (FVOCI) and at fair value through profit or loss (FVPL). These supersede HKAS 39's categories of held-to-maturity investments, loans and receivables, available-for-sale financial assets and financial assets measured at FVPL. The classification of financial assets under HKFRS 9 is based on the business model under which the financial asset is managed and its contractual cash flow characteristics. Under HKFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are not separated from the host. Instead, the hybrid instrument as a whole is assessed for classification.
- Classification of financial assets and financial liabilities
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Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Change in accounting policies (continued)
- HKFRS 9, Financial instruments (continued)
-
Classification of financial assets and financial liabilities (continued)
For an explanation of how the Group classifies and measures financial assets and recognises related gains and losses under HKFRS 9, see respective accounting policies in notes 1(g), (k)(i),
(n) and (r).
-
Classification of financial assets and financial liabilities (continued)
Except for (i) other receivables, deposits and prepayments of $150,949,000 were reclassified to contract assets at 1 September 2018 and (ii) deferred services revenue of $178,024,000 were reclassified to contract liabilities at 1 September 2018 as a result of the initial application of HKFRS 15 (see note 1(c)), the measurement categories for all financial assets and financial liabilities of the Group remain the same.
The carrying amounts for all financial assets and financial liabilities at 1 September 2018 have not been impacted by the initial application of HKFRS 9.
The Group did not designate or de-designate any financial asset or financial liability at FVPL at 1 September 2018.
-
Credit losses
HKFRS 9 replaces the "incurred loss" model in HKAS 39 with the "expected credit loss" (ECL) model. The ECL model requires an ongoing measurement of credit risk associated with a financial asset and therefore recognises ECLs earlier than under the "incurred loss" accounting model in HKAS 39.
The Group applies the new ECL model to financial assets measured at amortised cost (including cash and cash equivalents, trade receivables and other receivables, deposits and prepayments) and contract assets as defined in HKFRS 15 (see note 1(c)).
Financial assets measured at fair value, including derivative financial assets, are not subject to the ECL assessment.
For further details on the Group's accounting policy for accounting for credit losses, see note 1(k)(i) and (ii).
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Change in accounting policies (continued)
- HKFRS 9, Financial instruments (continued)
-
Transition
Changes in accounting policies resulting from the adoption of HKFRS 9 have been applied retrospectively, except as described below: - Information relating to comparative periods has not been restated, the information presented for the year ended 31 August 2018 continues to be reported under HKAS 39.
- If, at the date of initial application, the assessment of whether there has been a significant increase in credit risk since initial recognition would have involved undue cost or effort, a lifetime ECL has been recognised for that financial instrument.
-
Transition
-
HKFRS 15, Revenue from contracts with customers
HKFRS 15 establishes a comprehensive framework for recognising revenue and some costs from contracts with customers. HKFRS 15 replaces HKAS 18, Revenue, which covered revenue arising from sale of goods and rendering of services, and HKAS 11, Construction contracts, which specified the accounting for construction contracts.
HKFRS 15 also introduces additional qualitative and quantitative disclosure requirements which aim to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The Group has elected to use the cumulative effect transition method and has recognised the cumulative effect of initial application as an adjustment to the opening balance of equity at 1 September 2018. Therefore, comparative information has not been restated and continues to be reported under HKASs 11 and 18. As allowed by HKFRS 15, the Group has applied the new requirements only to contracts that were not completed before 1 September 2018.
The following table summarises the impact of transition to HKFRS 15 on retained profits and the related tax impact at 1 September 2018:
$' 000 | |
Retained profits | |
Capitalisation of contract costs (note 15(b)) | 433,755 |
Related tax | (65,499) |
Net increase in retained profits at 1 September 2018 | 368,256 |
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Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Change in accounting policies (continued)
-
HKFRS 15, Revenue from contracts with customers (continued)
Further details of the nature and effect of the changes on previous accounting policies are set out below: - Timing of revenue recognition and selling price allocation for multiple element sale contracts The adoption of HKFRS 15 mainly affects the accounting treatment of the Group's sale contracts with customers in which the Group has multiple performance obligations to customers, such as provision of telecommunication services, sale of products and gifts offered in the contracts.
Previously, revenue from sale of products and gifts offered in the contracts was generally recognised at a point in time when the risks and rewards of ownership of the products had passed to the customers. Residual value method was used to determine the fair value of the delivered element by deducting the fair value of the undelivered element from the total contract consideration.
Under HKFRS 15, the total transaction price receivable from customers in multiple element sale contracts is allocated among all identified performance obligations of the Group in proportion to their respective standalone selling price.
Accordingly, although the total revenue being recognised for a multiple element sale contract over the contract period is unchanged, the amount and timing of revenue recognition for individual performance obligations would be different after the adoption of HKFRS 15. The revenue being allocated to products and gifts is recognised upon the delivery to customers, which is generally upfront upon entering into the sale contracts. The revenue allocated to telecommunications and other services is recognised when services are rendered, which is generally over the contract period.
This change in accounting policy had no material impact on opening balances as at 1 September 2018. However, in future periods it may have a material impact, depending on the amount and timing of revenue recognition for individual performance obligations of the Group's multiple element sale contracts.
- Timing of revenue recognition and selling price allocation for multiple element sale contracts The adoption of HKFRS 15 mainly affects the accounting treatment of the Group's sale contracts with customers in which the Group has multiple performance obligations to customers, such as provision of telecommunication services, sale of products and gifts offered in the contracts.
-
HKFRS 15, Revenue from contracts with customers (continued)
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Change in accounting policies (continued)
- HKFRS 15, Revenue from contracts with customers (continued)
-
Capitalisation of contract costs
The Group previously recognised (i) customer acquisition costs and (ii) customer retention costs as other operating expenses when they were incurred. Under HKFRS 15, the Group is required to capitalise these customer acquisition and retention costs when they are incremental and are expected to be recovered, unless the expected amortisation period is one year or less from the date of initial recognition of the asset, in which case the customer acquisition and retention costs can be expensed when incurred. Capitalised customer acquisition and retention costs are charged to profit or loss when the revenue from the related revenue is recognised and are included as costs of sales and services at that time. As a result of this change in accounting policy, the Group has made adjustments to opening balances at 1 September 2018 which increased customer acquisition and retention costs by $433,755,000, increased deferred tax liabilities by $65,499,000 and increased retained profits by $368,256,000. - Presentation of contract assets and liabilities
Under HKFRS 15, a receivable is recognised only if the Group has an unconditional right to consideration. If the Group recognises the related revenue before receiving the consideration or being unconditionally entitled to the consideration for the promised goods and services in the contract, then the entitlement to consideration is classified as a contract asset. Similarly, a contract liability, rather than a payable, is recognised when a customer pays consideration, or is contractually required to pay consideration and the amount is already due, before the Group recognises the related revenue. For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis.
Previously, contract balances were presented in the consolidated statement of financial position under "other receivables, deposits and prepayments" and "deferred services revenue" respectively.
To reflect these changes in presentation, the Group has made the following adjustments at 1 September 2018, as a result of the adoption of HKFRS 15: - Amount of $150,949,000 which was previously included in other receivables, deposits and prepayments (note 17) is now included under contract assets (note 16(a));
- Amount of $98,653,000 which was previously included in deferred services revenue - current portion is now included under contract liabilities - current portion (note 16(b)); and
- Amount of $79,371,000 which was previously included in deferred services revenue - long-term portion is now included under contract liabilities - long-term portion (note 16(b)).
-
Capitalisation of contract costs
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Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Change in accounting policies (continued)
- HKFRS 15, Revenue from contracts with customers (continued)
-
Disclosure of the estimated impact on the amounts reported in respect of the year ended 31 August 2019 as a result of the adoption of HKFRS 15 on 1 September 2018
The following tables summarise the estimated impact of adoption of HKFRS 15 on the Group's consolidated financial statements for the year ended 31 August 2019, by comparing the amounts reported under HKFRS 15 in these consolidated financial statements with estimates of the hypothetical amounts that would have been recognised under HKAS 18 and HKAS 11 if those superseded standards had continued to apply to 2019 instead of HKFRS 15. These tables show only those line items impacted by the adoption of HKFRS 15:
-
Disclosure of the estimated impact on the amounts reported in respect of the year ended 31 August 2019 as a result of the adoption of HKFRS 15 on 1 September 2018
Difference: | |||
Amounts | Estimated | ||
reported in | Hypothetical | impact of | |
accordance | amounts | adoption of | |
with | under HKASs | HKFRS 15 | |
HKFRS 15 | 18 and 11 | on 2019 | |
(A) | (B) | (A) - (B) | |
$' 000 | $' 000 | $' 000 | |
Line items in the consolidated income | |||
statement for year ended | |||
31 August 2019 impacted by the | |||
adoption of HKFRS 15: | |||
Other operating expenses | (2,734,600) | (2,725,708) | (8,892) |
Profit before taxation | 309,362 | 318,254 | (8,892) |
Income tax | (94,835) | (98,848) | 4,013 |
Profit for the year | 214,527 | 219,406 | (4,879) |
Profit attributable to equity | |||
shareholders of the Company | 214,527 | 219,406 | (4,879) |
Earnings per share ($ cents) | |||
Basic | 19.4 | 19.8 | (0.4) |
Diluted | 18.4 | 18.8 | (0.4) |
Line items in the consolidated statement | |||
of comprehensive income for the year | |||
ended 31 August 2019 impacted by the | |||
adoption of HKFRS 15: | |||
Total comprehensive income | 208,329 | 213,208 | (4,879) |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Change in accounting policies (continued)
- HKFRS 15, Revenue from contracts with customers (continued)
- Disclosure of the estimated impact on the amounts reported in respect of the year ended 31 August 2019 as a result of the adoption of HKFRS 15 on 1 September 2018 (continued)
Difference: | |||
Amounts | Hypothetical | Estimated | |
reported in | amounts | impact of | |
accordance | under | adoption of | |
with | HKASs 18 | HKFRS 15 | |
HKFRS 15 | and 11 | on 2019 | |
(A) | (B) | (A) - (B) | |
$' 000 | $' 000 | $' 000 | |
Line items in the consolidated statement | |||
of financial position as at 31 August | |||
2019 impacted by the adoption of | |||
HKFRS 15: | |||
Customer acquisition and retention costs | 598,030 | - | 598,030 |
Contract assets | 4,740 | - | 4,740 |
Trade receivables | - | 4,740 | (4,740) |
Total non-current assets | 18,634,897 | 18,036,867 | 598,030 |
Trade receivables | 557,439 | 568,245 | (10,806) |
Contract assets | 241,717 | - | 241,717 |
Other receivables, deposits and | |||
prepayments | 240,894 | 471,805 | (230,911) |
Total current assets | 1,747,127 | 1,747,127 | - |
Contract liabilities - current portion | (219,763) | - | (219,763) |
Deferred services revenue | |||
- current portion | - | (219,763) | 219,763 |
Total current liabilities | (1,745,124) | (1,745,124) | - |
Net current assets | 2,003 | 2,003 | - |
Total assets less current liabilities | 18,636,900 | 18,038,870 | 598,030 |
Contract liabilities - long-term portion | (187,690) | - | (187,690) |
Deferred services revenue - long-term | |||
portion | - | (187,690) | 187,690 |
Deferred tax liabilities | (1,131,440) | (1,069,954) | (61,486) |
Total non-current liabilities | (11,180,339) | (11,118,853) | (61,486) |
Net assets | 7,456,561 | 6,920,017 | 536,544 |
Reserves | 7,456,429 | 6,919,885 | 536,544 |
Total equity attributable to equity | |||
shareholders of the Company | 7,456,561 | 6,920,017 | 536,544 |
Annual Report 2019
141
HKBN Ltd.
Annual Report 2019
142
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Change in accounting policies (continued)
- HKFRS 15, Revenue from contracts with customers (continued)
- Disclosure of the estimated impact on the amounts reported in respect of the year ended 31 August 2019 as a result of the adoption of HKFRS 15 on 1 September 2018 (continued)
Difference: | |||
Amounts | Estimated | ||
reported in | Hypothetical | impact of | |
accordance | amounts | adoption of | |
with | under HKASs | HKFRS 15 | |
HKFRS 15 | 18 and 11 | on 2019 | |
(A) | (B) | (A) - (B) | |
$' 000 | $' 000 | $' 000 | |
Line items in the reconciliation of profit | |||
before taxation to cash generated | |||
from operations for year ended | |||
31 August 2019 (note 18(b)) impacted | |||
by the adoption of HKFRS 15: | |||
Profit before taxation | 309,362 | 318,254 | (8,892) |
Increase in trade receivables | (2,922) | (18,468) | 15,546 |
Increase in contract assets | (24,938) | - | (24,938) |
Increase in other receivables, deposits | |||
and prepayments | (45,334) | (54,726) | 9,392 |
Increase in customer acquisition and | |||
retention costs | 8,892 | - | 8,892 |
Decrease in deferred services revenue | - | (6,292) | 6,292 |
Decrease in contract liabilities | (6,292) | - | (6,292) |
The significant differences arise as a result of the changes in accounting policies described above.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Change in accounting policies (continued)
-
HK(IFRIC) 22, Foreign currency transactions and advance consideration
This interpretation provides guidance on determining "the date of the transaction" for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) arising from a transaction in which an entity receives or pays advance consideration in a foreign currency.
The Interpretation clarifies that "the date of the transaction" is the date on initial recognition of the non-monetary asset or liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance of recognising the related item, the date of the transaction for each payment or receipt should be determined in this way. The adoption of HK(IFRIC) 22 does not have any material impact on the financial position and the financial result of the Group.
-
HK(IFRIC) 22, Foreign currency transactions and advance consideration
- Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.
An 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, transactions and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions
are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.
When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in a joint venture (see note 1(e)).
In the Company's statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (see note 1(k)), unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale).
Annual Report 2019
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HKBN Ltd.
Annual Report 2019
144
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(e) Joint ventures
A joint venture is an arrangement whereby the Group and other parties contractually agree to share control of the arrangement, and have rights to the net assets of the arrangement.
An investment in a joint venture is accounted for in the consolidated financial statements under the equity method, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group's share of the acquisition-date fair values of the investee's identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group's share of the investee's net assets and any impairment loss relating to the investment (see notes 1(f) and (k)). Any acquisition-date excess over cost, the Group's share of the post-acquisition,post-tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group's share of the post-acquisitionpost-tax items of the investees' other comprehensive income is recognised in the consolidated statement of comprehensive income.
When the Group's share of losses exceeds its interest in the joint venture, the Group's interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group's interest is the carrying amount of the investment under the equity method together with the Group's long-term interests that in substance form part of the Group's net investment in the joint venture.
Unrealised profits and losses resulting from transactions between the Group and its joint venture are eliminated to the extent of the Group's interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.
When the Group ceases to have joint control over a joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(f) Business combination and goodwill
The Group applies the acquisition method to account for business combination. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments made against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with HKFRS 9 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.
Goodwill represents the excess of
- the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group's previously held equity interest in the acquiree; over
- the net fair value of the acquiree's identifiable assets and liabilities measured as at the acquisition date.
When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.
Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 1(k)).
On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.
Annual Report 2019
145
HKBN Ltd.
Annual Report 2019
146
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(g) Derivative financial instruments
Derivative financial instruments are recognised initially at fair value. At the end of each reporting period the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss.
(h) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 1(k)).
Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.
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, being no more than 50 years after the date of completion
- Leasehold improvements are depreciated over the shorter of the unexpired term of the lease and their estimated useful lives
- Leasehold land classified as held under finance leases is depreciated over the unexpired term of lease
- | Cable | 5 - 25 years |
- Furniture, fixtures and fittings | 4 - 5 years | |
- Telecommunications, computer and office equipment | 4 - 25 years | |
- | Motor vehicles | 4 - 5 years |
- Investment properties are depreciated over the shorter of the unexpired term of lease and their estimated useful lives, being no more than 50 years after the date of completion
Where 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.
Major costs incurred in restoring property, plant and equipment to their normal working condition are charged to profit or loss. Major improvements are capitalised and depreciated over their expected useful lives to the Group.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(i) Intangible assets (other than goodwill)
Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 1(k)).
Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis or diminishing balance method or unit of production method over the assets' estimated useful lives. The major intangible assets with finite useful lives are amortised from the date of acquisition and their estimated useful lives are as follows:
- Customer relationship - FTNS business | 14 - 18 years | |
- Customer relationship - International telecommunications services ("IDD") business | 14 years | |
- Customer relationship - Broadband wireless ("Wi-Fi") connectivity business | 18 years | |
- Customers relationship - Cloud services | 7 years | |
- Customers relationship - IT business | 7 | - 18 years |
- Brand and trademark - "HKBN" & "WTT" for FTNS business | 11 | - 20 years |
- Brand and trademark - "IDD0030", "IDD1666", "IDD007" & "IDD1507" for IDD business | 11 | - 14 years |
- Brand and trademark - "Y5Zone" for Wi-Fi business | 20 years | |
- Brand and trademark - "ICG" for Cloud services | 11 years | |
- Brand and trademark - "WTT" for IT business | 11 years | |
- Backlog | 1.5 years |
Both the period and method of amortisation are reviewed annually.
Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above.
Annual Report 2019
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HKBN Ltd.
Annual Report 2019
148
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(j) Leased assets
An 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.
-
Classification of assets leased to the Group
Assets 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 with the following exceptions: - land held for own use under an operating lease, the fair value of which 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. For these purposes, the inception of the lease is the time that the lease was first entered into by the Group, or taken over from the previous leasee.
-
Operating lease charges
Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.
The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term. - Sale and leaseback transactions
A sale and leaseback transaction involves the sale of an asset by the Group and the leasing of the same asset back to the Group. The lease payments and the sale price are usually interdependent as they are negotiated as a package. Sale and leaseback arrangements that result in substantially all of the risks and rewards of ownership of assets being transferred to the lessor are accounted for as operating leases. Any excess of sales proceeds over the carrying amount is recognised in profit or loss as gain on disposal, if the sales prices and lease back arrangements for these transactions are determined based on the prevailing market prices. Payments made under operating leases are charged to profit or loss on a straight-line basis over the lease periods.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Credit losses and impairment of assets
- Credit losses from financial instruments and contract assets
-
Policy applicable from 1 September 2018
The Group recognises a loss allowance for expected credit losses (ECLs) on financial assets measured at amortised cost (including cash and cash equivalents, trade receivables and other receivables, deposits and prepayments) and contract assets as defined in HKFRS 15 (see note 1 (m)).
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).
The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material: - trade receivables, other receivables, deposits and prepayments and contract assets: effective interest rate determined at initial recognition or an approximation thereof; and
- variable-ratefinancial assets: current effective interest rate.
-
Policy applicable from 1 September 2018
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.
Annual Report 2019
149
HKBN Ltd.
Annual Report 2019
150
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Credit losses and impairment of assets (continued)
- Credit losses from financial instruments and contract assets (continued)
- Policy applicable from 1 September 2018 (continued) ECLs are measured on either of the following bases:
- 12-monthECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
- lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.
Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.
For all other financial instruments, the Group recognises a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.
Significant increases in credit risk
In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Group considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or (ii) the financial asset is 90 days past due. The Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Credit losses and impairment of assets (continued)
- Credit losses from financial instruments and contract assets (continued)
-
Policy applicable from 1 September 2018 (continued) Significant increases in credit risk (continued)
In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition: - failure to make payments of principal or interest on their contractually due dates;
- an actual or expected significant deterioration in a financial instrument's external or internal credit rating (if available);
- an actual or expected significant deterioration in the operating results of the debtor; and
- existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor's ability to meet its obligation to the Group.
-
Policy applicable from 1 September 2018 (continued) Significant increases in credit risk (continued)
Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings.
ECLs are remeasured at each reporting date to reflect changes in the financial instrument's credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.
Annual Report 2019
151
HKBN Ltd.
Annual Report 2019
152
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Credit losses and impairment of assets (continued)
- Credit losses from financial instruments and contract assets (continued)
-
Policy applicable from 1 September 2018 (continued) Basis of calculation of interest income
Interest income recognised in accordance with note 1 (v)(vi) is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset.
At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable events: - significant financial difficulties of the debtor;
- a breach of contract, such as a default or delinquency in interest or principal payments;
- it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation; or
- significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.
-
Policy applicable from 1 September 2018 (continued) Basis of calculation of interest income
Write-off policy
The gross carrying amount of a financial asset or contract asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.
Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs.
-
Policy applicable prior to 1 September 2018
Prior to 1 September 2018 an "incurred loss" model was used to measure impairment losses on financial assets not classified as at FVPL (e.g. trade receivables, other receivables, deposits and prepayments). Under the "incurred loss" model, an impairment loss was recognised only when there was objective evidence of impairment. Objective evidence of impairment included:
- significant financial difficulties of the debtor;
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Credit losses and impairment of assets (continued)
- Credit losses from financial instruments and contract assets (continued)
- Policy applicable prior to 1 September 2018 (continued)
- a breach of contract, such as a default or delinquency in interest or principal payments;
- it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
- significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and
- a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
If any such evidence existed, an impairment loss was determined and recognised as follows:
-
For trade receivables and other financial assets carried at amortised cost, impairment loss was 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, where the effect of discounting was material. This assessment was made collectively where these financial assets shared similar risk characteristics, such as similar past due status, and had not been individually assessed as impaired. Future cash flows for financial assets which were assessed for impairment collectively were based on historical loss experience for assets with credit risk characteristics similar to the collective group.
If in a subsequent period the amount of an impairment loss decreased and the decrease could be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss was reversed through profit or loss. A reversal of an impairment loss was only recognised to the extent that it did not result in the asset's carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.
When the recovery of a trade debtor or other financial assets carried at amortised cost was considered doubtful but not remote, associated impairment losses were recorded using an allowance account. When the Group was satisfied that recovery was remote, the amount considered irrecoverable was written off against the gross carrying amount of those assets directly. Subsequent recoveries of amounts previously charged to the allowance account were reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly were recognised in profit or loss.
Annual Report 2019
153
HKBN Ltd.
Annual Report 2019
154
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Credit losses and impairment of assets (continued)
-
Credit losses from financial guarantees issued
Financial 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.
Financial guarantees issued are initially recognised within "trade and other payables" at fair value, which is determined by reference to fees charged in an arm's length transaction for similar services, when such information is obtainable, or to interest rate differentials, by comparing the actual rates charged by lenders when the guarantee is made available with the estimated rates that lenders would have charged, had the guarantees not been available, where reliable estimates of such information can be made. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised 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 recognised in profit or loss on initial recognition of any deferred income.
Subsequent to initial recognition, the amount initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. - Policy applicable from 1 September 2018
The Group monitors the risk that the specified debtor will default on the contract and recognises a provision when ECLs on the financial guarantees are determined to be higher than the amount carried in "trade and other payables" in respect of the guarantees (i.e. the amount initially recognised, less accumulated amortisation).
To determine ECLs, the Group considers changes in the risk of default of the specified debtor since the issuance of the guarantee. A 12-month ECL is measured unless the risk that the specified debtor will default has increased significantly since the guarantee is issued, in which case a lifetime ECL is measured. The same definition of default and the same assessment of significant increase in credit risk as described in note 1(k)(i) apply.
As the Group is required to make payments only in the event of a default by the specified debtor in accordance with the terms of the instrument that is guaranteed, an ECL is estimated based on the expected payments to reimburse the holder for a credit loss that it incurs less any amount that the Group expects to receive from the holder of the guarantee, the specified debtor or any other party. The amount is then discounted using the current risk-free rate adjusted for risks specific to the cash flows.
- Policy applicable from 1 September 2018
-
Credit losses from financial guarantees issued
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Credit losses and impairment of assets (continued)
- Credit losses from financial guarantees issued (continued)
-
Policy applicable prior to 1 September 2018
Prior to 1 September 2018, a provision would be recognised if and when it became probable that (i) the holder of the guarantee would call upon the Group under the guarantee and (ii) the amount of the claim on the Group was expected to exceed the amount carried in "trade and other payables" in respect of the guarantee.
-
Policy applicable prior to 1 September 2018
- Impairment of other non-current assets
Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:
- property, plant and equipment;
- intangible assets;
- customer acquisition and retention costs;
- goodwill; and
- investments in subsidiaries in the Company's statement of financial position.
If any such indication exists, the asset's recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.
- Calculation of recoverable amount
The recoverable amount of an asset is the greater of its fair value less costs of disposal 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 the 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).
Annual Report 2019
155
HKBN Ltd.
Annual Report 2019
156
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Credit losses and impairment of assets (continued)
- Impairment of other non-current assets (continued)
- Recognition of impairment losses
An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised 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 of disposal (if measurable) or value in use (if determinable). - Reversals of impairment losses
In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable 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 recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.
- Recognition of impairment losses
- Interim financial reporting and impairment
Under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see notes 1(k)(i) and (ii)).
Impairment losses recognised in an interim period in respect of goodwill are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates.
- Inventories and other contract costs
-
Inventories
Inventories are carried at the lower of cost and net realisable value.
Cost is calculated using the first in, first out cost formula and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
-
Inventories
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Inventories and other contract costs (continued)
-
Inventories (continued)
When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised.
The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. - Other contract costs
Other contract costs are either the incremental costs of obtaining a contract with a customer or the costs to fulfil a contract with a customer which are not capitalised as inventory (see note 1(l)(i)), other property, plant and equipment (see note 1(h)) or intangible assets (see note 1(i)).
Incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained e.g. an incremental sales commission. Incremental costs of obtaining a contract are capitalised when incurred if the costs relate to revenue which will be recognised in a future reporting period and the costs are expected to be recovered. Other costs of obtaining a contract are expensed when incurred.
Costs to fulfil a contract are capitalised if the costs relate directly to an existing contract or to a specifically identifiable anticipated contract; generate or enhance resources that will be used to provide goods or services in the future; and are expected to be recovered. Costs that relate directly to an existing contract or to a specifically identifiable anticipated contract may include direct labour, direct materials, allocations of costs, costs that are explicitly chargeable to the customer and other costs that are incurred only because the Group entered into the contract (for example, payments to sub-contractors). Other costs of fulfilling a contract, which are not capitalised as inventory, other property, plant and equipment or intangible assets, are expensed as incurred.
Capitalised contract costs are stated at cost less accumulated amortisation and impairment losses. Impairment losses are recognised to the extent that the carrying amount of the contract cost asset exceeds the net of (i) remaining amount of consideration that the Group expects to receive in exchange for the goods or services to which the asset relates, less (ii) any costs that relate directly to providing those goods or services that have not yet been recognised as expenses.
Amortisation of capitalised contract costs is charged to profit or loss when the revenue to which the asset relates is recognised. The accounting policy for revenue recognition is set out in note 1(v).
-
Inventories (continued)
Annual Report 2019
157
HKBN Ltd.
Annual Report 2019
158
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(m) Contract assets and contract liabilities
A contract asset is recognised when the Group recognises revenue (see note 1(v)) before being unconditionally entitled to the consideration under the payment terms set out in the contract. Contract assets are assessed for ECLs in accordance with the policy set out in note 1(k)(i) and are reclassified to receivables when the right to the consideration has become unconditional (see note 1(n)).
A contract liability is recognised when the customer pays consideration before the Group recognises the related revenue (see note 1(v)). A contract liability would also be recognised if the Group has an unconditional right to receive consideration before the Group recognises the related revenue. In such cases, a corresponding receivable would also be recognised (see note 1(n)).
For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis.
When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method (see note 1(v)).
Policy prior to 1 September 2018
In the comparative period, contract balances were included under "other receivables, deposits and prepayments" (as assets) or "deferred services revenue - current portion" and "deferred services revenue
- long-term portion" (as a liability) on a contract-by-contract basis. Progress billings not yet paid by the customer were included under "other receivables, deposits and prepayments". Amounts received before the related work was performed were included under "deferred services revenue - current portion" and "deferred services revenue - long-term portion". These balances have been reclassified on 1 September 2018 as shown in note 16 (see note 1(c)(ii)).
- Trade and other receivables
A receivable is recognised when the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due. If revenue has been recognised before the Group has an unconditional right to receive consideration, the amount is presented as a contract asset (see note 1(m)).
Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see note 1(k)(i)).
(o) Interest-bearing borrowings
Interest-bearing borrowings are measured initially at fair value less transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method. Interest expense is recognised in accordance with the Group's accounting policy for borrowing costs (see note 1(y)).
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(p) Trade and other payables
Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in accordance with note 1(k)(ii), trade and other payables are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.
(q) Obligations under granting of rights
The obligations under granting of rights to use the Group's services on a free of charge basis as part and parcel of a business combination are recognised initially at fair value. The obligations are amortised over the period which the rights are granted, as follows:
- Rights to use of telecommunications services | 10 years |
(r) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement. Cash and cash equivalents are assessed for ECLs in accordance with the policy set out in note 1(k)(i).
- Talent benefits
-
Short term Talent benefits
Salaries, paid annual leave and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by Talents. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. - Profit sharing and bonus plans
Provisions for profit sharing and bonus plans are recognised when the Group has a present legal or constructive obligation as a result of services rendered by Talents and a reliable estimate of the obligation can be made. - Retirement benefit costs
The Group contributes to defined contribution retirement schemes which are available to certain Talents. Contributions to the schemes by the Group are calculated as a percentage of Talents' basic salaries and charged to profit or loss. The Group's contributions are reduced by contributions forfeited by those Talents 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.
-
Short term Talent benefits
Annual Report 2019
159
HKBN Ltd.
Annual Report 2019
160
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Talent benefits (continued)
- Share-basedpayments
- Equity-settledshare-based payments
The fair value of Restricted Share Units ("RSUs") granted to Talents of the Group in Hong Kong under the Co-Ownership Plan II is recognised as a Talent cost with a corresponding increase in a capital reserve within equity. The fair value is measured at grant date using the binomial lattice model, taking into account the terms and conditions upon which the RSUs were granted. Where the Talents have to meet vesting conditions before becoming unconditionally entitled to the RSUs, the total estimated fair value of the RSUs is spread over the vesting period, taking into account the probability that the RSUs will vest.
During the vesting period, the number of RSUs that is expected to vest is reviewed. Any resulting adjustment to the cumulative fair value recognised in prior years is charged/credited to the profit or loss for the year of the review, unless the original Talent expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of RSUs 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 service condition. The equity amount is recognised in the capital reserve until the RSUs are vested (when it is included in the amount recognised in share premium for the shares vested). - Cash-settledshare-based payments
The fair value of the amount payable to Talents of the Group in the People's Republic of China (the "PRC") in respect of RSUs under the Co-Ownership Plan II, which are to be settled in cash and based on the price of the equity instruments of the Company, is recognised as a Talent cost with a corresponding increase in liabilities. Where the Talents have to meet vesting conditions before becoming unconditionally entitled to payment, the total estimated fair value of the RSUs is spread over the vesting period, taking into account the probability that the RSUs will vest. The liability is remeasured at the end of each reporting period and at settlement date. Any changes in the fair value of the liability are recognised as Talent costs in profit or loss. - Share-basedpayments among group entities
In the Company's statement of financial position, the Company recognises the fair value of the RSUs granted by the Company to the subsidiaries as a capital contribution to the subsidiaries with an increase in its investments in the subsidiaries. The Company recognises the reimbursement by the subsidiaries of this capital contribution by recognising a recharge asset and a corresponding adjustment (credit) to the carrying amount of the investments in the subsidiaries.
- Equity-settledshare-based payments
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(t) Income tax
Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.
The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.
The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted.
Annual Report 2019
161
HKBN Ltd.
Annual Report 2019
162
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(t) Income tax (continued)
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.
Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.
Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:
- in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
- in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
- the same taxable entity; or
- different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.
- Provisions, contingent liabilities and onerous contracts
-
Contingent liabilities assumed in business combinations
Contingent liabilities assumed in a business combination which are present obligations at the date of acquisition are initially recognised at fair value, provided the fair value can be reliably measured. After their initial recognition at fair value, such contingent liabilities are recognised at the higher of the amount initially recognised, less accumulated amortisation where appropriate, and the amount that would be determined in accordance with note 1(u)(ii). - Provisions and contingent liabilities
Provisions are recognised for other liabilities of uncertain timing or amount when the Group or the Company 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.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Provisions, contingent liabilities and onerous contracts (continued)
-
Provisions and contingent liabilities (continued)
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.
-
Provisions and contingent liabilities (continued)
- Revenue and other income
Income is classified by the Group as revenue when it arises from the sale of goods, the provision of services or the use by others of the Group's assets under leases in the ordinary course of the Group's business.
Revenue is recognised when control over a product or service is transferred to the customer, or the lessee has the right to use the asset, at the amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.
Where the contract contains a financing component which provides a significant financing benefit to the customer for more than 12 months, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction with the customer, and interest income is accrued separately under the effective interest method. Where the contract contains a financing component which provides a significant financing benefit to the Group, revenue recognised under that contract includes the interest expense accreted on the contract liability under the effective interest method. The Group takes advantage of the practical expedient in paragraph 63 of HKFRS 15 and does not adjust the consideration for any effects of a significant financing component if the period of financing is 12 months or less.
Further details of the Group's revenue and other income recognition policies are as follows:
Annual Report 2019
163
HKBN Ltd.
Annual Report 2019
164
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Revenue and other income (continued)
-
Revenue for the provision of international telecommunications and fixed telecommunications network service
Revenue is recognised over time on the basis of units of traffic/data processed and/or contracted fees for telecommunications services that have been provided and based on the relative fair value of the services rendered. Tariff-free period granted to customers are recognised in profit or loss rateably over the term of the service subscription agreement. Amount received in advance for the provision of services is deferred and included under contract liabilities and subsequently recognised as revenue over the related service period.
Revenue from international telecommunications and fixed telecommunications services was recognised on a similar basis in the comparative period. - Product revenue
Revenue is recognised when the customer takes possession of and accepts the goods. If the goods are a partial fulfilment of a contract covering other goods and/or services, then the amount of revenue recognised is an appropriate proportion of the total transaction price under the contract, allocated between all the goods and services promised under the contract on a relative stand-alone selling price basis.
Revenue for sale of goods was recognised on a similar basis in the comparative period. - Revenue from system integration services
Revenue from a fixed price contract is recognised using the percentage of completion method, measured by reference to the percentage of contract costs incurred to date to estimated total contract costs for the contract. When the outcome of a contract cannot be estimated reliably, revenue is recognised only to the extent that it is probable the contract costs incurred will be recoverable. Accumulated experience is used to estimate the variable consideration to the extent that it is highly probable that a significant reversal will not occur, using the expected value method, to be included in the transaction price.
If at any time the costs to complete the contract are estimated to exceed the remaining amount of the consideration under the contract, then a provision is recognised in accordance with the policy set out in note 1(u)(ii). - Rental income from operating leases
Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.
-
Revenue for the provision of international telecommunications and fixed telecommunications network service
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Revenue and other income (continued)
-
Dividends
Dividend income from unlisted investments is recognised when the shareholder's right to receive payment is established. - Interest income
Interest income is recognised as it accrues using the effective interest method.
-
Dividends
(w)Research and development costs
Research and development costs of new services and enhancements to existing services are charged to profit or loss as incurred.
(x) Translation of foreign currencies
The Group's functional currency is Hong Kong dollars. Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or loss.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was measured.
The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items, including goodwill and fair value adjustments arising from acquisition, are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.
On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognised.
(y) Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.
Annual Report 2019
165
HKBN Ltd.
Annual Report 2019
166
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
- Related parties
- A person, or a close member of that person's family, is related to the Group if that person:
- has control or joint control over the Group;
- has significant influence over the Group; or
- is a member of the key management personnel of the Group.
- An entity is related to the Group if any of the following conditions applies:
- The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
- One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
- Both entities are joint ventures of the same third party.
- One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
- The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.
- The entity is controlled or jointly controlled by a person identified in (a).
- A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
- The entity, or any member of a group of which it is a part, provides key management personnel services to the Group.
Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.
(aa)Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position where there is a legally enforceable right to set off the recognised amount and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
1 Significant accounting policies (continued)
(ab)Segment reporting
Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group's most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group's various lines of business and geographical locations.
Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.
The Group's management assesses the performance and allocates the resources of the Group as a whole, as all of the Group's activities are considered to be primarily the operation of fixed telecommunications network services. Therefore, management considers there is only one operating segment under the requirements of HKFRS 8, Operating Segments. In this regard, no segment information is presented.
No geographic information is shown as the revenue and profit from operations of the Group are primarily derived from its activities in Hong Kong.
2 Revenue
The principal activities of the Group are provision of fixed telecommunications network services, international telecommunications services and mobile services to residential and enterprise customers in Hong Kong, system integration services and product sales.
Revenue represents revenue from fixed telecommunications network services, international telecommunications services and mobile services to residential and enterprise customers in Hong Kong, system integration services and product sales.
Annual Report 2019
167
HKBN Ltd.
Annual Report 2019
168
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
2 Revenue (continued)
(i) Disaggregation of revenue
Disaggregation of revenue from contracts with customer by major products and services lines is as follows:
2019 | 2018 | |
$' 000 | $' 000 | |
Disaggregated by major products or service lines: | ||
Fixed telecommunications network services | 3,535,948 | 2,823,270 |
International telecommunications services | 633,176 | 413,200 |
Other services | 627,912 | 420,954 |
Fees from provision of telecommunications services | 4,797,036 | 3,657,424 |
Product revenue | 310,601 | 291,528 |
5,107,637 | 3,948,952 | |
Disaggregated by major categories: | ||
Residential revenue | 2,472,707 | 2,278,241 |
Enterprise revenue | 2,324,329 | 1,379,183 |
Product revenue | 310,601 | 291,528 |
5,107,637 | 3,948,952 | |
The Group's customer base is diversified and no individual customer with whom transactions have exceeded 10% of the Group's revenue.
During the years ended 31 August 2019 and 2018, product revenue is recognised at a point-in-time and revenue from the provision of telecommunications services is substantially recognised over time.
(ii) Revenue expected to be recognised in the future arising from contracts with customers in existence at the reporting date
As at 31 August 2019, the aggregated amount of the transaction price allocated to the remaining performance obligations under the Group's existing contracts is $2,999,416,000. This amount represents revenue expected to be recognised in the future from contracts for products or services entered into
by the customers with the Group. The Group will recognise the expected revenue in future when or as the service is performed or as the work is completed, which is expected to occur over the next 12 to 180 months.
The Group has applied the practical expedient in paragraph 121 of HKFRS 15 to its contracts for products or services such that the above information does not include information about revenue that the Group will be entitled to when it satisfies the remaining performance obligations under the contracts for products or services that had an original expected duration of one year or less.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
3 Profit before taxation
Profit before taxation is arrived at after charging/(crediting):
2019 | 2018 | ||
$' 000 | $' 000 | ||
(a) | Other net income | ||
Interest income | (4,083) | (1,641) | |
Net foreign exchange (gain)/loss | (3,484) | 105 | |
Amortisation of obligations under granting of rights (note 26) | (9,024) | (9,024) | |
Change in fair value of contingent consideration (note 31) | 1,542 | 437 | |
Other income | (14,877) | (12,192) | |
(29,926) | (22,315) | ||
(b) | Other operating expenses | ||
Advertising and marketing expenses | 373,137 | 605,149 | |
Amortisation of customer acquisition and retention costs | 240,793 | - | |
Depreciation (note 11) | 534,758 | 425,258 | |
Loss/(gain) on disposal of property, plant and equipment, net | 119 | (203) | |
Impairment losses on trade receivables (note 31(a)) | 52,759 | 39,693 | |
Talent costs (note 3(c)) | 693,104 | 489,816 | |
Amortisation of intangible assets | 276,355 | 122,207 | |
Transaction costs in connection with business combination | 75,608 | 1,757 | |
Transaction costs in connection with | |||
proposed business combination | 9,863 | 18,031 | |
Others | 478,104 | 415,279 | |
2,734,600 | 2,116,987 | ||
(c) | Talent costs | ||
Salaries, wages and other benefits | 1,137,395 | 893,939 | |
Contributions to defined contribution retirement plan | 71,685 | 58,329 | |
Equity-settledshare-based payment expenses (note 23(a)) | 3,099 | 8,621 | |
Cash-settledshare-based payment expenses (note 23(b)) | 797 | 1,290 | |
1,212,976 | 962,179 | ||
Less: Talent costs capitalised as property, plant and equipment | (45,133) | (31,924) | |
Talent costs included in advertising and | |||
marketing expenses and amortisation of | |||
customer acquisition and retention costs | (474,739) | (440,439) | |
693,104 | 489,816 | ||
Talent costs include all compensation and benefits paid to and accrued for all individuals employed by the Group, including directors.
Annual Report 2019
169
HKBN Ltd.
Annual Report 2019
170
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
3 Profit before taxation (continued)
2019 | 2018 | ||
$' 000 | $' 000 | ||
(d) | Finance costs | ||
Interest on bank loans | 134,909 | 119,711 | |
Interest on senior notes | 103,424 | - | |
Interest on interest-rate swaps, net | 8,850 | 6,833 | |
Fair value loss/(gain) on interest-rate swaps | 12,088 | (58,531) | |
Originating fee for banking facility expired (note 20) | - | 49,275 | |
259,271 | 117,288 | ||
(e) | Other items | ||
Amortisation of intangible assets (note 10) | 347,962 | 172,576 | |
Operating lease charges in respect of land and buildings: | |||
minimum lease payments | 92,783 | 60,436 | |
Operating lease charges in respect of telecommunications | |||
facilities and computer equipment: minimum lease payments | 343,699 | 264,681 | |
Auditor's remuneration | |||
-audit services | 5,665 | 2,975 | |
-review services | 635 | 325 | |
-tax services | 210 | 190 | |
-other services | 3,850 | 4,620 | |
Research and development costs | 28,076 | 25,045 | |
Cost of inventories | 288,782 | 272,946 | |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
4 Income tax in the consolidated income statement
(a) Taxation in the consolidated income statement represents:
2019 | 2018 | |
$' 000 | $' 000 | |
Current tax - Hong Kong Profits Tax | ||
Provision for the year | 146,864 | 104,960 |
Over-provision in respect of prior years | (51) | (29) |
Current tax - Outside Hong Kong | ||
Provision for the year | 5,812 | 5,060 |
Deferred tax | ||
Origination and reversal of temporary differences (note 25) | (57,790) | (17,620) |
94,835 | 92,371 | |
The provision for Hong Kong Profits Tax for 2019 is calculated at 16.5% (2018: 16.5%) of the estimated assessable profits for the year.
Income tax expense for the current taxation outside Hong Kong is mainly related to the income tax in the PRC. The Corporate Income Tax rate applicable to the subsidiaries located in the PRC is 25% (2018: 25%) for the year.
- Reconciliation between tax expense and accounting profit at applicable tax rates:
2019 | 2018 | |
$' 000 | $' 000 | |
Profit before taxation | 309,362 | 489,268 |
Notional tax on profit before taxation, calculated at the rates | ||
applicable to profits in the tax jurisdictions concerned | 52,543 | 82,349 |
Tax effect of non-deductible expenses | 57,569 | 28,337 |
Tax effect of non-taxable income | (749) | (2,976) |
Tax effect of tax losses not recognised in prior years | ||
utilised during the year | (20,506) | (17,346) |
Tax effect of unused tax losses not recognised | 2,719 | 546 |
Others | 3,259 | 1,461 |
Actual tax expense | 94,835 | 92,371 |
Annual Report 2019
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HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
5 Directors' emoluments
Directors' emoluments disclosed pursuant to section 383(1) of the Hong Kong Companies Ordinance and Part
2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follows:
2019 | |||||||
Salaries, | |||||||
allowances | Retirement | Share-based | |||||
Directors' | and benefits | Discretionary | scheme | payments | |||
fees | in kind | bonuses | contributions | Sub-total | (note (i)) | Total | |
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
Executive directors | |||||||
Mr. Chu Kwong YEUNG | - | 8,838 | 1,616 | 998 | 11,452 | 267 | 11,719 |
Mr. Ni Quiaque LAI | - | 6,649 | 1,076 | 665 | 8,390 | 183 | 8,573 |
Non-executive directors | |||||||
Ms. Deborah Keiko ORIDA | - | - | - | - | - | - | - |
Mr. Zubin Jamshed IRANI | |||||||
(appointed on 30 April 2019) | - | - | - | - | - | - | - |
Mr. Teck Chien KONG | |||||||
(appointed on 30 April 2019) | - | - | - | - | - | - | - |
Independent non-executive directors | |||||||
Mr. Bradley Jay HORWITZ | 543 | - | - | - | 543 | - | 543 |
Mr. Stanley CHOW | 543 | - | - | - | 543 | - | 543 |
Mr. Yee Kwan Quinn LAW | 543 | - | - | - | 543 | - | 543 |
1,629 | 15,487 | 2,692 | 1,663 | 21,471 | 450 | 21,921 | |
2018 | |||||||
Salaries, | |||||||
allowances | Retirement | Share-based | |||||
Directors' | and benefits | Discretionary | scheme | payments | |||
fees | in kind | bonuses | contributions | Sub-total | (note (i)) | Total | |
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
Executive directors | |||||||
Mr. Chu Kwong YEUNG | - | 9,542 | 1,560 | 956 | 12,058 | 793 | 12,851 |
Mr. Ni Quiaque LAI | - | 6,283 | 1,040 | 637 | 7,960 | 537 | 8,497 |
Non-executive director | |||||||
Ms. Deborah Keiko ORIDA | - | - | - | - | - | - | - |
Independent non-executive directors | |||||||
Mr. Bradley Jay HORWITZ | 388 | - | - | - | 388 | - | 388 |
Mr. Stanley CHOW | 388 | - | - | - | 388 | - | 388 |
Mr. Yee Kwan Quinn LAW | 388 | - | - | - | 388 | - | 388 |
1,164 | 15,825 | 2,600 | 1,593 | 21,182 | 1,330 | 22,512 | |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
5 Directors' emoluments (continued)
Notes:
- These represent the estimated value of RSUs granted to the directors under the Company's Co-Ownership Plan II ("the Plan"). The value of these RSUs is measured according to the Group's accounting policies for share-based payment transactions as set out in note 1(s)(iv). The details of these benefits in kind, including the principal terms and number of RSUs granted, are disclosed in note 23.
During the year ended 31 August 2019, there were no amounts paid or payable by the Group to the directors or any of the highest paid individual set out in note 6 below as an inducement to join or upon joining the Group or as a compensation for loss of office (2018: Nil). There was no arrangement under which a director waived or agreed to waive any remuneration during the year ended 31 August 2019 (2018: Nil).
6 Individuals with highest emoluments
Of the five individuals with the highest emoluments, two (2018: two) are directors whose emoluments are
disclosed in note 5. The aggregate of the emoluments in respect of the other three (2018: three) individuals are as follows:
2019 | 2018 | |
$' 000 | $' 000 | |
Salaries and other emoluments | 10,566 | 11,118 |
Discretionary bonuses | 4,708 | 2,503 |
Share-based payments | 173 | 774 |
Retirement scheme contributions | 867 | 845 |
16,314 | 15,240 | |
The emoluments of the three (2018: three) individuals with the highest emoluments are within the following bands:
2019 | 2018 | |
Number of | Number of | |
individuals | individuals | |
$3,500,001 - $4,000,000 | 1 | - |
$4,000,001 - $4,500,000 | - | 1 |
$4,500,001 - $5,000,000 | - | 1 |
$5,000,001 - $5,500,000 | 1 | - |
$5,500,001 - $6,500,000 | - | 1 |
$6,500,001 - $7,500,000 | 1 | - |
3 | 3 | |
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HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
7 Earnings per share
(a) Basic earnings per share
The calculation of basic earnings per share is based on the profit attributable to ordinary equity shareholders of the Company of $214,527,000 (2018: $396,897,000) and the weighted average number of ordinary shares in issue less shares held for the Co-Ownership Plan II, of 1,106,828,000 ordinary shares (2018: 1,002,116,000 ordinary shares) which is calculated as follows:
2019 | 2018 | |
' 000 | ' 000 | |
Issued ordinary shares at 1 September | 1,005,666 | 1,005,666 |
Less: shares held for the Co-Ownership Plan II | (5,666) | (5,666) |
Add: effect of the Co-Ownership Plan II RSUs vested | 3,733 | 2,116 |
Add: effect of issue of new shares (note 28(c)) | 103,095 | - |
Weighted average number of ordinary shares less shares | ||
held for the Co-Ownership Plan II | 1,106,828 | 1,002,116 |
(b) Diluted earnings per share
The calculation of diluted earnings per share is based on the profit attributable to ordinary equity shareholders of the Company $214,527,000 (2018: $396,897,000) and the weighted average number of ordinary shares in issue less shares held for the Co-Ownership Plan II after adjusting for the dilutive effect of the Company's Co-Ownership Plan II and Vendor Loan Notes, calculated as follows:
2019 | 2018 | |
' 000 | ' 000 | |
Weighted average number of ordinary shares less | ||
shares held for the Co-Ownership Plan II | 1,106,828 | 1,002,116 |
Add: effect of the Co-Ownership Plan II | 269 | 1,185 |
Add: effect of the Vendor Loan Notes | 56,385 | - |
Weighted average number of ordinary shares (diluted) | 1,163,482 | 1,003,301 |
8 Retirement benefit costs
The Group contributes to an Occupational Retirement Scheme (the "ORSO Scheme"), a defined contribution retirement scheme, which is available to some of its Talents in Hong Kong. Under the ORSO Scheme,
the Talents 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 Talents and other Talents respectively. The Talents 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 Talents who leave the ORSO Scheme prior to vesting fully in the Group's contributions.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
8 Retirement benefit costs (continued)
A mandatory provident fund scheme (the "MPF Scheme") has been established under the Hong Kong Mandatory Provident Fund Scheme Ordinance in December 2000. The existing Talents of the Group in Hong Kong could elect to join the MPF Scheme, while all new Talents joining the Group in Hong Kong from then onwards are required to join the MPF Scheme. Both the Group and the Talents are required to contribute
5% of each individual's relevant income with a maximum amount of $1,250 per month before 1 June 2014, and commenced from 1 June 2014, the maximum amount has been increased to $1,500, as a mandatory contribution. Employer's mandatory contributions are 100% vested in the Talents as soon as they are paid to the MPF Scheme. Senior Talents may also elect to join a Mutual Voluntary Plan (the "Mutual Plan") in which both the Group and senior Talents, 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. During the year, forfeited contributions totaling $438,000 (2018: $1,113,000) were used to reduce the current year's level of contributions and $Nil was available at 31 August 2019 (2018: $Nil) to reduce future year's contributions.
Pursuant to the relevant regulations in the PRC, the Group contributes to a defined contribution retirement scheme organised by the local social security bureau for each Talent of the subsidiary in the PRC at the rate of 20% of a standard salary base as determined by the local social security bureau, the rate has been decreased to 14% effective from 1 January 2015 to 31 December 2019. The Group has no other obligation to make payments in respect of retirement benefits of these Talents.
9 Goodwill
$' 000 | |
Cost: | |
At 1 September 2016, 31 August 2017 and 1 September 2017 | 1,771,969 |
Acquisition of subsidiaries, as restated (note 30) | 29,424 |
At 31 August 2018 and 1 September 2018, as restated | 1,801,393 |
Acquisition of subsidiaries (note 30) | 6,986,926 |
At 31 August 2019 | 8,788,319 |
Accumulated impairment losses: | |
At 1 September 2017, 31 August 2018, 1 September 2018 and 31 August 2019 | - |
Carrying amount: | |
At 31 August 2019 | 8,788,319 |
At 31 August 2018, as restated | 1,801,393 |
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Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
9 Goodwill (continued)
Impairment tests for cash-generating units containing goodwill
Goodwill is allocated to the Group's cash-generating unit ("CGU") identified as follows:
20192018
$' 000 $' 000 (Restated)
Telecommunications network services segment | 8,788,319 | 1,801,393 |
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 an average annual growth rate of revenue of 6% (2018: 8%) and a pre-tax discount rate of 12% (2018: 10%). Cash flows beyond the five-year period, matching with the useful lives of the assets employed, are extrapolated using a long-term growth rate of 2% (2018:
2%). 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 average annual growth rate of revenue of the fixed telecommunications network services (including Wi-Fi connectivity 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 telecommunications network services segment. Any adverse change in the key assumptions could reduce the recoverable amount below carrying amount.
10 Intangible assets
Customer relationship | Brand and trademark | ||||||||||||
Other | |||||||||||||
For FTNS | For IDD | For Wi-Fi | For Cloud | For IT | For FTNS | For IDD | For Wi-Fi | For Cloud | For IT | intangible | |||
business | business | business | business | business | business | business | business | business | business | Backlog | assets | Total | |
$' 000 | $' 000 | $' 000 | $' 000 | $' 000 | $' 000 | $' 000 | $' 000 | $' 000 | $' 000 | $' 000 | $' 000 | $' 000 | |
Cost: | |||||||||||||
At 1 September 2017 | 1,190,597 | 164,000 | 9,296 | - | - | 471,000 | 8,000 | 7,721 | - | - | - | 399,778 | 2,250,392 |
Acquisition of subsidiaries, | |||||||||||||
as restated (note 30) | - | - | - | 1,229 | - | - | - | - | 12,228 | - | - | - | 13,457 |
At 31 August 2018, as restated | 1,190,597 | 164,000 | 9,296 | 1,229 | - | 471,000 | 8,000 | 7,721 | 12,228 | - | - | 399,778 | 2,263,849 |
Acquisition of subsidiaries | |||||||||||||
(note 30) | 1,695,432 | - | - | - | 486,543 | 990,205 | 40,819 | - | - | 106,041 | 213,977 | - | 3,533,017 |
At 31 August 2019 | 2,886,029 | 164,000 | 9,296 | 1,229 | 486,543 | 1,461,205 | 48,819 | 7,721 | 12,228 | 106,041 | 213,977 | 399,778 | 5,796,866 |
Accumulated amortisation: | |||||||||||||
At 1 September 2017 | 401,954 | 61,498 | 2,408 | - | - | 123,638 | 3,003 | 1,801 | - | - | - | 43,383 | 637,685 |
Charge for the year | 85,043 | 11,714 | 516 | 248 | - | 23,550 | 572 | 386 | 178 | - | - | 50,369 | 172,576 |
At 31 August 2018 | 486,997 | 73,212 | 2,924 | 248 | - | 147,188 | 3,575 | 2,187 | 178 | - | - | 93,752 | 810,261 |
At 1 September 2018 | 486,997 | 73,212 | 2,924 | 248 | - | 147,188 | 3,575 | 2,187 | 178 | - | - | 93,752 | 810,261 |
Charge for the year | 117,291 | 11,714 | 516 | 176 | 9,254 | 79,748 | 3,474 | 386 | 1,007 | 6,018 | 46,771 | 71,607 | 347,962 |
At 31 August 2019 | 604,288 | 84,926 | 3,440 | 424 | 9,254 | 226,936 | 7,049 | 2,573 | 1,185 | 6,018 | 46,771 | 165,359 | 1,158,223 |
Net book value: | |||||||||||||
At 31 August 2019 | 2,281,741 | 79,074 | 5,856 | 805 | 477,289 | 1,234,269 | 41,770 | 5,148 | 11,043 | 100,023 | 167,206 | 234,419 | 4,638,643 |
At 31 August 2018, as restated | 703,600 | 90,788 | 6,372 | 981 | - | 323,812 | 4,425 | 5,534 | 12,050 | - | - | 306,026 | 1,453,588 |
indicated) otherwise unless dollars Kong Hong in (Expressed | Statements Financial the to Notes |
HKBN Ltd.
177
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HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
10 Intangible assets (continued)
The identifiable intangible assets recognised by the Group upon the business combinations completed on 30 May 2012, 4 January 2013, 31 March 2016, 30 May 2018 and 30 April 2019 include:
- Customer relationship of FTNS and IDD business
- Brand and trademark of FTNS and IDD business, including "HKBN", "WTT", "IDD1666", "IDD0030", "IDD007", "IDD1507"
- Customer relationship of Wi-Fi business
- Brand and trademark of Wi-Fi business
- Customer relationship of Cloud business
- Brand and trademark of Cloud business
- Customer relationship of IT business
- Brand and trademark of IT business
- Backlog of FTNS business
The fair value of the intangible assets at the dates of completion of the business combinations were appraised by independent valuers.
Other intangible assets include contractual right to receive future benefits and licences.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
11 Property, plant and equipment
Leasehold | Furniture, | Telecommunications, | |||||||
land and | Leasehold | fixtures | computer and | Motor | Sub- | Investment | |||
Cable | buildings | improvements | and fittings | office equipment | vehicles | total | properties | Total | |
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
Cost: | |||||||||
At 1 September 2017 | 52,412 | 36,148 | 66,898 | 4,981 | 3,847,215 | 3,567 | 4,011,221 | - | 4,011,221 |
Exchange adjustments | - | - | (279) | (93) | (669) | - | (1,041) | - | (1,041) |
Acquisition of subsidiaries | |||||||||
(note 30) | - | - | - | 22 | 213 | - | 235 | - | 235 |
Additions | 37 | - | 14,442 | 735 | 416,026 | - | 431,240 | - | 431,240 |
Disposals | - | - | (1,779) | (17) | (30,535) | - | (32,331) | - | (32,331) |
At 31 August 2018 | 52,449 | 36,148 | 79,282 | 5,628 | 4,232,250 | 3,567 | 4,409,324 | - | 4,409,324 |
At 1 September 2018 | 52,449 | 36,148 | 79,282 | 5,628 | 4,232,250 | 3,567 | 4,409,324 | - | 4,409,324 |
Exchange adjustments | - | - | (796) | (138) | (1,354) | - | (2,288) | - | (2,288) |
Acquisition of subsidiaries | |||||||||
(note 30) | - | 348,226 | 21,101 | 1,065 | 1,792,905 | 488 | 2,163,785 | - | 2,163,785 |
Additions | - | - | 6,147 | 877 | 407,712 | 1,972 | 416,708 | 229,371 | 646,079 |
Disposals | - | - | (5,118) | (126) | (15,419) | (1,364) | (22,027) | - | (22,027) |
At 31 August 2019 | 52,449 | 384,374 | 100,616 | 7,306 | 6,416,094 | 4,663 | 6,965,502 | 229,371 | 7,194,873 |
Accumulated depreciation: |
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179
HKBN Ltd.
At 1 September 2017 Exchange adjustments Charge for the year Written back on disposals
At 31 August 2018
At 1 September 2018 Exchange adjustments Charge for the year Written back on disposals
At 31 August 2019
Net book value:
42,906 | 3,119 | 26,734 | 2,500 | 1,644,656 | 1,516 | 1,721,431 | - | 1,721,431 |
- | - | (224) | (48) | (422) | - | (694) | - | (694) |
3,219 | 1,008 | 8,765 | 767 | 410,619 | 880 | 425,258 | - | 425,258 |
- | - | (1,779) | (16) | (28,826) | - | (30,621) | - | (30,621) |
46,125 | 4,127 | 33,496 | 3,203 | 2,026,027 | 2,396 | 2,115,374 | - | 2,115,374 |
46,125 | 4,127 | 33,496 | 3,203 | 2,026,027 | 2,396 | 2,115,374 | - | 2,115,374 |
- | - | (728) | (85) | (964) | - | (1,777) | - | (1,777) |
286 | 11,825 | 13,602 | 1,008 | 499,995 | 712 | 527,428 | 7,330 | 534,758 |
- | - | (3,649) | (88) | (12,379) | (997) | (17,113) | - | (17,113) |
46,411 | 15,952 | 42,721 | 4,038 | 2,512,679 | 2,111 | 2,623,912 | 7,330 | 2,631,242 |
At 31 August 2019 | 6,038 | 368,422 | 57,895 | 3,268 | 3,903,415 | 2,552 | 4,341,590 | 222,041 | 4,563,631 |
At 31 August 2018 | 6,324 | 32,021 | 45,786 | 2,425 | 2,206,223 | 1,171 | 2,293,950 | - | 2,293,950 |
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HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
11 Property, plant and equipment (continued)
The analysis of net book values of properties of the Group is as follows: | ||
2019 | 2018 | |
$' 000 | $' 000 | |
In Hong Kong | ||
- short-term leases | 31,116 | 12,938 |
- medium-term leases | 556,840 | 16,511 |
- long-term leases | 2,507 | 2,572 |
590,463 | 32,021 | |
Representing: | ||
- Leasehold land and building carried at cost | 368,422 | 32,021 |
- Investment properties carried at cost | 222,041 | - |
590,463 | 32,021 | |
At 31 August 2019 and 2018, the Group has certain agreements with third parties (the "Contract Parties") in which the Group would provide its network capacity to the Contract Parties in certain period, and in exchange, the Contract Parties would provide the Group the right to use the network capacity of the Contract Parties in the same period. The directors of the Group consider that since the arrangements involve exchange of a similar nature and value, the exchange is not recognised as a transaction which generates revenue, and accordingly, the network capacity of the Contract Parties under the agreements have not been recognised as an asset and no revenue or deferred revenue have been recognised in the financial statements of the Group.
12 Investments in subsidiaries
The following is a list of principal subsidiaries of the Group. The class of shares held is ordinary unless otherwise stated.
Place of | Particulars of | Percentage of | ||
incorporation/ | issued and paid | ownership | Principal activities | |
Name of company | establishment | up share capital | interest held | and place of operation |
Advance Tech Developments Limited | British Virgin | US$1 | 100 | Inactive |
Islands ("BVI") | ||||
Broadband Wireless Access Limited | Hong Kong | 1 share | 100 | Inactive |
COL LIMITED | Hong Kong | 40,000 shares | 100 | Provision of data processing/ |
data centre services in | ||||
Hong Kong | ||||
COLCON Limited | Hong Kong | 1 share | 100 | Inactive |
Concord Ideas Ltd. | BVI | US$10 | 100 | Investment holding in Hong Kong |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
12 Investments in subsidiaries (continued)
Place of | Particulars of | Percentage of | ||
incorporation/ | issued and paid | ownership | Principal activities | |
Name of company | establishment | up share capital | interest held | and place of operation |
COSMO TRUE LIMITED | BVI | US$1 | 100 | Property investment |
in Hong Kong | ||||
CREDIBILITY HOLDINGS LIMITED | BVI | US$1 | 100 | Inactive |
Crown Master Enterprises Limited | Hong Kong | 1 share | 100 | Investment holding in Hong Kong |
DYNAMIC FUTURE INVESTMENTS LIMITED | Hong Kong | 1 share | 100 | Property holding |
ec Plus Limited | Hong Kong | 1 share | 100 | Inactive |
EC TELECOM LIMITED | Hong Kong | 2 shares | 100 | Provision of telecommunication |
services in Hong Kong | ||||
Excel Profit Management Limited | BVI | US$1 | 100 | Inactive |
Gorgeous Investments Limited | Hong Kong | 1 share | 100 | Inactive |
Guangzhou Cangxun Electron Technology | PRC# | $1,000,000 | 100 | Provision of telecommunication |
Service Limited Company* | services in the PRC | |||
Guangzhou City Telecom Customer | PRC# | $8,000,000 | 100 | Provision of administrative |
Services Co. Ltd.* | support services in the PRC | |||
Guangzhou HK Enterprises Information | PRC# | US$200,000 | 100 | Provision of system |
Technology Limited*1 | integration services in the PRC | |||
HKBN Enterprise Solutions eBusiness | Hong Kong | 1 share | 100 | Provision of eBusiness |
Limited (formerly known as WTT | services in Hong Kong | |||
eBusiness Limited) | ||||
HKBN Enterprise Solutions HK Limited | Hong Kong | 1,752,079,583 | 100 | Provision of telecommunication |
("HKBNESHKL") (formerly known | shares | services in Hong Kong | ||
as WTT HK Limited) | ||||
HKBN Enterprise Solutions Limited | Hong Kong | 10,000,000 | 100 | Provision of telecommunication |
shares | services in Hong Kong |
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Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
12 Investments in subsidiaries (continued)
Place of | Particulars of | Percentage of | ||
incorporation/ | issued and paid | ownership | Principal activities | |
Name of company | establishment | up share capital | interest held | and place of operation |
HKBN Enterprise Solutions Net Limited | Hong Kong | 2 shares | 100 | Inactive |
(formerly known as WTT Net Limited) | ||||
HKBN Enterprise Solutions Outsourcing | Hong Kong | 1 share | 100 | Provision of outsourcing |
Services Limited (formerly known as | services in Hong Kong | |||
WTT Outsourcing Services Limited) | ||||
HKBN Group Limited ("HKBNGL") | BVI | US$5,294 | 100 | Investment holding in Hong Kong |
HKBN International Limited | BVI | US$1 | 100 | License holding in Taiwan |
Hong Kong Broadband Network Limited | Hong Kong | 383,049 shares | 100 | Provision of fixed |
("HKBN") | telecommunications network | |||
services and international | ||||
telecommunications services | ||||
in Hong Kong and | ||||
product sales | ||||
I Consulting Group Limited ("ICG")2 | Hong Kong | 100 shares | 100 | Provision of cloud solutions |
services in Hong Kong | ||||
Jiuxin (Guangzhou) Electron Technology | PRC# | $1,300,000 | 100 | Provision of telecommunication |
Service Limited Company* | services in the PRC | |||
Metropolitan Light Company Limited | Cayman Islands | US$1,000 | 100 | Investment holding in Hong Kong |
Metropolitan Light (HK) Company Limited | Hong Kong | 400,000 shares | 100 | Investment holding in the PRC |
Mirapoint Asia Limited | Hong Kong | 1 share | 100 | Distribution of email and |
related products in Hong Kong | ||||
NetPro Services Limited | Hong Kong | 1 share | 100 | Inactive |
NEW FORCE CUSTOMER SERVICES | Hong Kong | 2 shares | 100 | Investment holding in the PRC |
LIMITED |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
12 Investments in subsidiaries (continued)
Place of | Particulars of | Percentage of | ||
incorporation/ | issued and paid | ownership | Principal activities | |
Name of company | establishment | up share capital | interest held | and place of operation |
NEW IMPACT CUSTOMER SERVICES | Hong Kong | 2 shares | 100 | Investment holding in the PRC |
LIMITED | ||||
ONE.TEL LIMITED | Hong Kong | 10,000 shares | 100 | Provision of telecommunication |
services in Hong Kong | ||||
ONETEL.NET LIMITED | Hong Kong | 1,000 shares | 100 | Provision of telecommunication |
services in Hong Kong | ||||
PIHK Network Limited | Hong Kong | 42,829,601 | 100 | Provision of telecommunication |
shares | services in Hong Kong | |||
Region Best Profits Limited | BVI | US$1 | 100 | Inactive |
SKY LEADER LIMITED | Hong Kong | 2 shares | 100 | Provision of telecommunication |
services in Hong Kong | ||||
Super Advance Technology Limited | BVI | US$1 | 100 | Inactive |
THE I CONSULTING LIMITED | Hong Kong | 1 share | 100 | Dormant |
UTMOST POWER LIMITED | Hong Kong | 1 share | 100 | Property holding |
Wharf Col (Shanghai) Ltd.* | PRC# | US$700,000 | 100 | Provision of data processing/ |
data centre services in the PRC | ||||
Wise Millennium Assets Limited+ | BVI | US$1 | 100 | Inactive |
WTT Cayman Corp ("WTTC")3 | Cayman Islands | US$1 | 100 | Investment holding in Hong Kong |
WTT Development Ltd ("WTTD")4 | Cayman Islands | US$0.01 | 100 | Investment holding in Hong Kong |
WTT (Macau) Limited5 | Macau | MOP$25,000 | 100 | Inactive |
WTT Global Limited^ | Hong Kong | 10,000 shares | 100 | Inactive |
WTT Mobility Limited^ | Hong Kong | 10,000 shares | 100 | Inactive |
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HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
12 Investments in subsidiaries (continued)
Place of | Particulars of | Percentage of | ||
incorporation/ | issued and paid | ownership | Principal activities | |
Name of company | establishment | up share capital | interest held | and place of operation |
WTTO (Jiangmen) Information Processing | PRC# | $1,000,000 | 100 | Provision of outsourcing |
Services Co.* | services in the PRC | |||
WTTO Information Processing Service | PRC# | $1,240,000 | 100 | Provision of outsourcing |
Company Limited* | services in the PRC | |||
Y5Zone Limited | Hong Kong | 2 shares | 100 | Provision of Wi-Fi connectivity |
in Hong Kong | ||||
- The English names are translated for reference only. The official names of these entities are in Chinese.
- Under the striking-off process.
- Under the de-registration process.
- Wholly-ownedforeign enterprise registered under the PRC law.
1 The company has been dissolved with effect from 27 August 2019.
- The company has changed its company name to HKBN Enterprise Solutions Could Services Limited with effect from 30 September 2019.
- The company has changed its company name to HKBN Enterprise Solutions Cayman Corp with effect from 2 September 2019.
- The company has changed its company name to HKBN Enterprise Solutions Development Ltd with effect from 2 September 2019.
- The company has been dissolved with effect from 11 September 2019.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
13 Interest in joint ventures
- Details of the Group's interest in the joint ventures, which are accounted for using the equity method in the consolidated financial statements, are as follows:
Percentage | Principal | ||||
Form of | Place of | Particulars of | of ownership | activities and | |
business | incorporation/ | issued and paid | interest held | place of | |
Name of joint venture | structure | establishment | up capital | by a subsidiary | operation |
BROADBANDgo Company Limited | Limited liability | Hong Kong | 100 shares | 60 | Provision of |
("BROADBANDgo") | company | broadband and | |||
Wi-Fi services | |||||
in Hong Kong | |||||
HomePlus (Hong Kong) Limited | Limited liability | Hong Kong | 100,000 shares | 50 | Provision of |
("HomePlus") | company | retail and | |||
telecommunication | |||||
services | |||||
in Hong Kong | |||||
Nova FinTech Limited ("Nova") | Limited liability | Hong Kong | 160,000 shares | 37.5 | Provision of |
company | financial | ||||
technology services | |||||
in Hong Kong | |||||
TGgo Company Limited ("TGgo") | Limited liability | Hong Kong | 100 shares | 40 | Provision of |
company | cloud computing | ||||
services | |||||
in Hong Kong | |||||
BROADBANDgo, TGgo, Home Plus and Nova are unlisted corporate entities whose quoted market prices are not available. In the opinion of the directors, these are arrangements whereby the Group and other parties contractually agree to share control of the arrangements, and have rights to the net assets of the arrangements. Accordingly, these investments have been accounted for as joint ventures.
Annual Report 2019
185
HKBN Ltd.
Annual Report 2019
186
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
13 Interest in joint ventures (Continued)
(b) Aggregate information of joint ventures that are not individually material:
2019 | 2018 | |
$' 000 | $' 000 | |
Aggregate carrying amount of individually immaterial joint | ||
ventures in the consolidated financial statements | 9,429 | 8,095 |
Aggregate amounts of the Group's share of those joint ventures' | ||
- Loss for the year | (276) | (693) |
- Other comprehensive income | - | - |
- Total comprehensive income | (276) | (693) |
14 Other non-current assets
Other non-current assets mainly comprise prepayments and deposits for purchase of property, plant and equipment. The amounts are neither past due nor impaired.
15 Inventories and customer acquisition and retention costs
(a) Inventories
Inventories in the consolidated statement of financial position comprise finished goods. The amount of inventories recognised as an expense and included in profit or loss represents carrying amount of inventories sold (see note 3(e)).
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
15 Inventories and customer acquisition and retention costs (Continued)
(b) Customer acquisition and retention costs
$' 000 | |
Cost: | |
At 1 September 2017 and 31 August 2018 | - |
Changes in accounting policies (note 1 (c)(ii)) | 433,755 |
At 1 September 2018 | 433,755 |
Acquisitions of subsidiaries (note 30) | 173,166 |
Additions | 231,902 |
At 31 August 2019 | 838,823 |
Accumulated amortisation: | |
At 1 September, 31 August 2018 and 1 September 2018 | - |
Charge for the year | 240,793 |
At 31 August 2019 | 240,793 |
Carrying amount: | |
$' 000 | |
At 31 August 2019 | 598,030 |
At 31 August 2018 | - |
Customer acquisition and retention costs capitalised as at 31 August 2019 relate to the (i) customer acquisition costs paid to talents or agents whose selling activities resulted in customers entering into contracts for the provision of telecommunications services which the contract periods are over 12 months at the reporting date and (ii) customer retention costs incurred in fulfilling a contract with a customer which the contract periods are over 12 months at the reporting date to generate or enhance resources of the Group that will be used in satisfying performance obligations in the future.
Customer acquisition costs and customer retention costs are recognised as part of "other operating expenses" in the consolidated income statement in the period in which revenue from the related contracts is recognised.
There was no impairment in relation to the customer acquisition and retention costs capitalised during the year.
Annual Report 2019
187
HKBN Ltd.
Annual Report 2019
188
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
16 Contract assets and contract liabilities
(a) Contract assets
31 August | 1 September | 31 August | ||
2019 | 2018 | 2018 | ||
Notes | $' 000 | $' 000 | $' 000 | |
Arising from international | ||||
telecommunications services | (ii), (iii) | 91,405 | 26,570 | - |
Arising from product revenue bundled | ||||
with telecommunication services | (ii), (iii) | 139,506 | 124,379 | - |
Arising from system integration | ||||
services | (ii), (iii) | 15,546 | - | - |
246,457 | 150,949 | - | ||
Represented by: | ||||
Non-current portion | 4,740 | - | - | |
Current portion | 241,717 | 150,949 | - | |
246,457 | 150,949 | - | ||
Receivables from contracts with | ||||
customers within the scope of | ||||
HKFRS 15, which are included in | ||||
"Trade receivables, other receivables, | ||||
deposits and prepayments" | 557,439 | 247,210 | ||
Notes:
- The Group has initially applied HKFRS 9 and HKFRS 15 using the cumulative effect method and adjusted the opening balances as at 1 September 2018.
- Upon the adoption of HKFRS 9, no opening adjustment was made as at 1 September 2018 in respect of recognising additional ECLs on contract assets.
- Upon the adoption of HKFRS 15, amounts previously included under "Other receivables, deposits and prepayments" (see note 17) for which the Group's entitlement to the consideration was conditional on transferring certain promised services, achieving certain milestones or satisfactory completion of verification and reconciliation works, were reclassified to contract assets (see note 1(c)(ii)).
Typical payment terms which impact on the amount of contract assets recognised are as follows:
-
International telecommunications services
The Group provides international telecommunications services to telecommunications operators. The Group and certain telecommunications operators enter into contracts with minimum commitments on either transaction amount or unit of traffic to be processed and contract term would usually last for over three months. Such contracts involve large amount of transactions and both parties are required to verify and reconcile the transactions details received from counter party against their own records. Once the verification and reconciliation work have been completed, the Group will issue an invoice to the telecommunications operator. The Group's right to the consideration is generally unconditional upon the completion of verification and reconciliation work from both parties as well as the issuance of invoice.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
16 Contract assets and contract liabilities (continued)
- Contract assets (continued)
-
Sales of equipment and mobile handsets bundled with services
The Group offers packages to the customer which include the bundle sales of products and provision of services. In this situation, the customer pays to the Group in accordance with the predetermined payment schedule. If the performance obligations fulfilled by the Group exceed the total payments received to date, a contract asset is recognised. The contract assets are transferred to receivables when the Group's rights to the contract consideration become unconditional. - System integration services
System integration services is one of the services to enterprise customers. The Group's project based system integration services include payment schedules which require stage payments over the project period once milestones are reached. This gives rise to contract assets when the revenue recognised on the project exceeds the amount of the payment made by customer.
-
Sales of equipment and mobile handsets bundled with services
All of the current contract assets are expected to be recovered within one year.
(b) Contract liabilities
31 August | 1 September | 31 August | ||
2019 | 2018 | 2018 | ||
Notes | $' 000 | $' 000 | $' 000 | |
Indefeasible right of use ("IRU") | ||||
arrangement | ||||
- Billing in advance of performance | 92,171 | - | - | |
Other telecommunications services | ||||
- Billing in advance of performance | (ii) | 315,282 | 178,024 | - |
407,453 | 178,024 | - | ||
Represented by: | ||||
- Non-current portion | 187,690 | 79,371 | - | |
- Current portion | 219,763 | 98,653 | - | |
407,453 | 178,024 | - | ||
Notes:
- The Group has initially applied HKFRS 15 using the cumulative effect method and adjusted the opening balance as at 1 September 2018.
- Upon the adoption of HKFRS 15, amounts previously included under "deferred services revenue" were reclassified to contract liabilities (see note 1 (c)(ii)).
Typical payment terms which impact on the amount of contract liabilities recognised are as follows:
IRU arrangements
Annual Report 2019
189
HKBN Ltd.
The Group received 100% of the contract value when they sign the IRU arrangement contract with customer. This consideration is recognised as contract liabilities upon receipt.
Annual Report 2019
190
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
16 Contract assets and contract liabilities (continued)
(b) Contract liabilities (continued)
Other telecommunications services - Billing in advance of performance
The Group's telecommunication services normally include payment schedules which require advance payments from customers for the services. This gives rises to contract liabilities until revenue recognised on the services are provided.
Movements in contract liabilities
$' 000 | |
Balance at 1 September 2018 | 178,024 |
Acquisition of subsidiary | 235,720 |
Decrease in contract liabilities as a result of recognising revenue during the year | |
that was included in the contract liabilities at the beginning of the period | (3,744,156) |
Decrease in contract liabilities as a result of billings in advance of IRU arrangements | (4,148) |
Increase in contract liabilities as a result of billings in advance of | |
the provision of other telecommunications services | 3,742,013 |
Balance at 31 August 2019 | 407,453 |
The amount of billings in advance of performance and upfront installation fees received in advance expected to be recognised as income after more than one year is $187,690,000 (2018: $79,731,000 which were included under "deferred services revenue").
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
17 Trade receivables, other receivables, deposits and prepayments
31 August | 1 September | 31 August | ||
2019 | 2018 | 2018 | ||
Notes | $' 000 | $' 000 | $' 000 | |
Trade debtors, net of loss allowances | (i) | 557,439 | 247,210 | 247,210 |
Other receivables, deposits and prepayments | (ii) | 240,894 | 141,697 | 292,646 |
798,333 | 388,907 | 539,856 | ||
Notes:
- Upon the adoption of HKFRS 9, no opening adjustment as at 1 September 2018 was made in respect of recognising additional ECLs on trade debtors (see note 1(c)(i)).
- Upon the adoption of HKFRS 15, certain amounts from customers for international telecommunications services, product revenue bundled with telecommunication services and system integration services were reclassified to contract assets and disclosed in note 16(a) (see note 1(c)(i)).
The amount of the Group's other receivables, deposits and prepayments expected to be recovered or recognised as expense after more than one year is $23,528,000 (2018: $18,002,000). All of the remaining other receivables, deposits and prepayments are expected to be recovered or recognised as expense within one year.
The amount of the interest-rate swap included in other receivables, deposits and prepayment is $ Nil (2018: $2,073,000).
Ageing analysis
As of the end of the reporting period, the ageing analysis of trade receivables, based on the invoice date and net of loss allowance, is as follows:
2019 | 2018 | |
$' 000 | $' 000 | |
Within 30 days | 217,558 | 117,261 |
31 to 60 days | 113,655 | 52,844 |
61 to 90 days | 59,638 | 25,968 |
Over 90 days | 166,588 | 51,137 |
557,439 | 247,210 | |
The majority of the Group's trade receivables is due within 30 days from the date of billing. Further details on the Group's credit policy are set out in note 31(a).
Annual Report 2019
191
HKBN Ltd.
Annual Report 2019
192
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
18 Cash and cash equivalents
(a) Cash and cash equivalents comprise:
2019 | 2018 | |
$' 000 | $' 000 | |
Cash at bank and in hand | 662,816 | 373,293 |
(b) Reconciliation of profit before taxation to cash generated from operations:
2019 | 2018 | ||
(Note) | |||
Note | $' 000 | $' 000 | |
Profit before taxation | 309,362 | 489,268 | |
Adjustments for: | |||
Amortisation of intangible assets | 10 | 347,962 | 172,576 |
Depreciation | 3(b) | 534,758 | 425,258 |
Amortisation of obligations under granting of rights | 3(a) | (9,024) | (9,024) |
Amortisation of customer acquisition | |||
and retention costs | 3(b) | 240,793 | - |
Interest income | 3(a) | (4,083) | (1,641) |
Finance costs | 3(d) | 259,271 | 117,288 |
Loss/(gain) on disposal of property, | |||
plant and equipment, net | 3(b) | 119 | (203) |
Change in fair value of contingent consideration | 3(a) | 1,542 | 437 |
Foreign exchange gain | (4,134) | (3,649) | |
Share of losses of joint ventures | 13(b) | 276 | 693 |
Equity-settledshare-based payment expenses | 3(c) | 3,099 | 8,621 |
Changes in working capital: | |||
(Increase)/decrease in other non-current assets | (1,187) | 6,720 | |
Decrease/(increase) in inventories | 12,962 | (20,880) | |
Increase in trade receivables | (2,922) | (38,507) | |
Increase in other receivables, | |||
deposits and prepayments | (45,334) | (21,855) | |
Increase in customer acquisition and retention costs | (231,901) | - | |
Increase in contract assets | (24,938) | - | |
(Increase)/decrease in amounts due | |||
from joint ventures | (6,549) | 700 | |
Decrease in amount due to joint ventures | (50) | - | |
Increase in trade payables | 151,168 | 37,610 | |
(Decrease)/increase in other payables | |||
and accrued charges | (55,727) | 15,739 | |
Increase in deposits received | 398 | 10,405 | |
Decrease in contract liabilities | (6,292) | - | |
Increase in deferred services revenue | - | 3,215 | |
Cash generated from operations | 1,469,569 | 1,192,771 | |
Note: The Group has initially applied HKFRS 15 and HKFRS 9 at 1 September 2018. Under the transition methods chosen, comparative information is not restated. See note 1(c).
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
18 Cash and cash equivalents (continued)
(c) Reconciliation of liabilities arising from financing activities:
The table below details changes in the Group's liabilities from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the Group's consolidated cash flow statement as financing activities.
Interest-rate | |||||
swap | |||||
(included | |||||
in other | |||||
receivables | |||||
or other | |||||
payables) | Senior | Accrued | |||
(Note 17 | Bank loans | notes | borrowing | ||
and 19) | (Note 20) | (Note 21) | costs(*) | Total | |
$' 000 | $' 000 | $' 000 | $' 000 | $' 000 | |
At 1 September 2018 | (12,024) | 3,873,716 | - | - | 3,861,692 |
Changes from financing cash | |||||
flows: | |||||
Proceeds from bank loans, | |||||
net of transaction costs | - | 974,365 | - | - | 974,365 |
Repayment of bank loans | - | (400,000) | - | - | (400,000) |
Transaction costs for bank | |||||
loans paid | - | (484) | - | - | (484) |
Interest paid | (8,850) | - | - | (271,551) | (280,401) |
Total changes from financing | |||||
cash flows | (20,874) | 4,447,597 | - | (271,551) | 4,155,172 |
Changes in fair value | 12,088 | - | - | - | 12,088 |
Other changes: | |||||
Interest expenses | 8,850 | - | - | 225,433 | 234,283 |
Finance cost paid | - | 6,656 | 5,944 | - | 12,600 |
Acquisition of subsidiaries | |||||
(note 30) | - | - | 5,163,193 | 127,344 | 5,290,537 |
At 31 August 2019 | 64 | 4,454,253 | 5,169,137 | 81,226 | 9,704,680 |
Annual Report 2019
193
HKBN Ltd.
- Accrued borrowing costs are included in "Other payables and accrued changes - current portion" in the consolidated statement of financial position.
Annual Report 2019
194
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
18 Cash and cash equivalents (continued)
(c) Reconciliation of liabilities arising from financing activities: (continued)
Interest-rate | |||||
swap | |||||
(included | |||||
in other | |||||
receivables | |||||
or other | |||||
payables) | Senior | Accrued | |||
(Note 17 | Bank loans | notes | borrowing | ||
and 19) | (Note 20) | (Note 21) | costs(*) | Total | |
$' 000 | $' 000 | $' 000 | $' 000 | $' 000 | |
At 1 September 2017 | 46,507 | 3,831,332 | - | - | 3,877,839 |
Changes from financing cash | |||||
flows: | |||||
Repayment of bank loans | - | (2,792) | - | - | (2,792) |
Interest paid | (6,833) | (96,743) | - | - | (103,576) |
Transaction costs for bank | |||||
loans paid | - | (29,859) | - | - | (29,859) |
Total changes from financing | |||||
cash flows | 39,674 | 3,701,938 | - | - | 3,741,612 |
Changes in fair value | (58,531) | - | - | - | (58,531) |
Other changes: | |||||
Interest expenses | 6,833 | 119,711 | - | - | 126,544 |
Origination fee for banking | |||||
facility expired | - | 49,275 | - | - | 49,275 |
Acquisition of subsidiaries | |||||
(note 30) | - | 2,792 | - | - | 2,792 |
At 31 August 2018 | (12,024) | 3,873,716 | - | - | 3,861,692 |
- Accrued borrowing costs are included in "Other payables and accrued changes - current portion" in the consolidated statement of financial position.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
19 Trade payables, other payables and accrued charges
2019 | 2018 | |
$' 000 | $' 000 | |
Trade payables | 365,976 | 138,918 |
Other payables and accrued charges | ||
- Current portion | 907,317 | 461,373 |
- Long-term portion | 143,600 | 201,266 |
1,416,893 | 801,557 | |
All trade payables, other payables and accrued charges are expected to be settled within one year, except other payables and accrued charges of $143,600,000 (2018: $201,266,000) are expected to be settled after more than one year and are classified as non-current liabilities.
The amount of the interest-rate swap included in other payables and accrued charges is $64,000 (2018: $Nil).
As of the end of the reporting period, the ageing analysis of trade payables, based on the invoice date, is as follows:
2019 | 2018 | |
$' 000 | $' 000 | |
Within 30 days | 124,247 | 46,123 |
31 to 60 days | 46,783 | 9,786 |
61 to 90 days | 35,734 | 31,038 |
Over 90 days | 159,212 | 51,971 |
365,976 | 138,918 | |
In 2015, the Group entered into an interest-rate swap with an notional amount of $2,635,000,000 and with a maturity date on 23 August 2018, to hedge the floating interest rate arisen from the bank loans (see note 20).
In 2017, the Group entered into a new interest-rate swap with effective date on 31 August 2019, to hedge the floating interest rate after the maturity of the current interest-rate swap. The new interest-rate swap has a notional amount of $2,635,000,000 and with a maturity date on 29 May 2020.
Under these arrangements, the Group pays a fixed rate interest on the notional amount on a quarterly basis, net of a floating rate interest at 3-month Hong Kong Inter-bank Offered Rate ("HIBOR") in the corresponding period.
These swaps are recognised initially at fair value and remeasured at the end of each reporting period. These interest-rate swaps do not qualify for hedge accounting under HKFRS 9, Financial instruments, and therefore, it is accounted for as held for trading and measured at fair value through profit or loss.
Annual Report 2019
195
HKBN Ltd.
Annual Report 2019
196
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
20 Bank loans
(a) The analysis of the carrying amount of bank loans is as follows:
20192018
$' 000 $' 000
Non-current liabilities
Long-term bank loans | 4,454,253 | 3,873,716 |
(b) As at 31 August 2019, the bank loans were repayable as follows:
2019 | 2018 | |
$' 000 | $' 000 | |
Bank loans (unsecured) | ||
Within 1 year on demand | - | - |
After 1 year but within 2 years | - | - |
After 2 years but within 5 years | 4,454,253 | 3,873,716 |
4,454,253 | 3,873,716 | |
- On 21 November 2016, the Group has term and revolving credit facilities agreement of $4,100,000,000 in aggregate with various international banks and drawn down a bank loan with a principal amount of $3,900,000,000 at HIBOR plus a margin of 1.35% per annum payable quarterly. At 25 May 2018, the expiry date of the term and revolving credit facilities was extended from 28 November 2021 to 23 May 2023 ("The New Bank Loan"). The New Bank Loan is interest-bearing at HIBOR plus a margin of 1.05% per annum payable quarterly.
Upon renewal, the original term and revolving credit facilities agreement were deemed extinguished and the unamortised transaction costs of $49,275,000 were recognised as finance costs (see note 3(d)) in the consolidated income statement for the year ended 31 August 2018. The New Bank Loan is unsecured and covered by a cross guarantee arrangement issued by the Company, MLCL, HKBNGL, HKBN, WTTD, WTTC, HKBNESHKL and COL Limited, and repayable in full upon maturity on 25 May 2023.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
20 Bank loans (continued)
- As at 31 August 2019, the bank loans were repayable as follows: (continued)
-
On 10 October 2018, HKBN entered into a facility agreement with Hang Seng Bank Limited for a five-year term loan of $580,000,000 that bears interest at HIBOR plus a margin per annum. The facility was fully utilised on 11 October 2018. The loan is unsecured and covered by a cross guarantee arrangement issued by the Company, MLCL, HKBNGL and HKBN, and repayable in full upon maturity on 10 October 2023.
The bank loans are recognised initially at fair value less attributable transactions costs. Subsequent to initial recognition, the bank loans are stated at amortised cost with any difference between the amount initially recognised and interest payable using the effective interest method.
To calculate the effective interest in each reporting period, the effective interest rate is applied to the amortised cost of the bank loan at the end of the previous reporting period.
The effective interest rate of the bank loans as of 31 August 2019 is 3.25% per annum (2018: 3.21%)
and the amortised cost of the bank loans is $4,454,253,000 (2018: $3,873,716,000).
-
On 10 October 2018, HKBN entered into a facility agreement with Hang Seng Bank Limited for a five-year term loan of $580,000,000 that bears interest at HIBOR plus a margin per annum. The facility was fully utilised on 11 October 2018. The loan is unsecured and covered by a cross guarantee arrangement issued by the Company, MLCL, HKBNGL and HKBN, and repayable in full upon maturity on 10 October 2023.
21 Senior notes
On 21 November 2017, WTT Investment Ltd (the "Predecessor Issuer") issued senior notes with a nominal value of US$670,000,000 (equivalent to $5,232,091,000) that will mature on 21 November 2022. The notes were denominated and settled in the United States Dollar, and bore coupon at 5.5% per annum payable semi-annually on 21 May and 21 November in each year commencing on 21 May 2018. The senior notes were recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, the senior notes were stated at amortised cost with any difference between the amount initially recognised and the redemption value being recognised in profit or loss over the period of the senior notes, together with any interest and fees payable, using the effective interest method.
The effective interest rate for the senior notes for the year ended 31 August 2019 is 5.9% per annum.
On 28 May 2019, MLCL assumed the obligations of the Predecessor Issuer.
The senior notes are guaranteed by the Group's subsidiaries.
22 Amounts due from/(to) joint ventures
Annual Report 2019
197
HKBN Ltd.
The amounts due from/(to) joint ventures are unsecured, interest free and recoverable/(repayable) on demand.
Annual Report 2019
198
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
23 Share-based transactions
(a) Equity-settledshare-based transactions
On 21 February 2015, the Company adopted the Co-Ownership Plan II (the "Plan") and granted RSUs to directors and Talents of the Group in Hong Kong. The purpose of the Plan is to attract, retain and motivate skilled and experienced Talents of the Group. The RSUs are the contingent rights to receive the Company's shares at the relevant matching ratio in respect of any shares purchased by the Talents, subject to certain terms, conditions and undertakings. The shares are held on trust by the appointed trustee until their release to the beneficiaries upon the vesting of the RSUs.
On 29 June 2015 and 18 August 2015, 2,723,000 RSUs and 133,000 RSUs were granted to directors and Talents of the Group in Hong Kong by the Company under the Plan respectively. The directors estimated the weighted average fair value of each RSU at the grant dates to be $8.50.
On 20 November 2015, 158,000 RSUs were granted to Talents of the Group in Hong Kong by the Company under the Plan. The directors estimated the weighted average fair value of each RSU at the grant date to be $10.28.
On 20 June 2016, 2,082,000 RSUs were granted to directors and Talents of the Group in Hong Kong by the Company under the Plan. The directors estimated the weighted average fair value of each RSU at the grant date to be $8.10.
On 24 January 2017, 258,000 RSUs were granted to Talents of the Group in Hong Kong by the Company under the Plan. The directors estimated the weighted average fair value of each RSU at the grant date to be $8.35.
On 20 July 2017, 253,000 RSUs were granted to Talents of the Group in Hong Kong by the Company under the Plan. The directors estimated the weighted average fair value of each RSU at grant date to be $7.20.
On 30 January 2019, 329,000 RSUs were granted to Talents of the Group in Hong Kong by the Company under the Plan. The directors estimated the weighted average fair value of each RSU of grant date to be $8.90
On 26 February 2019, 31,000 RSUs were granted to Talents of the Group in Hong Kong by the Company under the Plan. The directors estimated the weighted average fair value of each RSU of grant date to be $8.21.
Equity-settledshare-based payment expenses of $3,099,000 (2018: $8,621,000) were recognised as Talent costs in the consolidated income statement (see note 3(c)) for the year ended 31 August 2019 and the remaining expenses related to the RSUs are to be recognised in the years ending 31 August 2020, 2021 and 2022 based on the respective vesting periods.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
23 Share-based transactions (continued)
- Equity-settledshare-based transactions (continued)
- The major terms and conditions of the grants are as follows:
Number of | ||
instruments | Vesting conditions | |
' 000 | ||
RSUs granted to directors: | ||
-on 29 June 2015 | 397 | notes (i) and (ix) |
-on 20 June 2016 | 329 | notes (ii) and (ix) |
RSUs granted to Talents: | ||
-on 29 June 2015 | 2,326 | notes (i) and (ix) |
-on 18 August 2015 | 133 | notes (ii) and (ix) |
-on 20 November 2015 | 158 | notes (v) and (ix) |
-on 20 June 2016 | 1,753 | notes (iv) and (ix) |
-on 24 January 2017 | 258 | notes (v) and (ix) |
-on 20 July 2017 | 253 | notes (vi) and (ix) |
-on 30 January 2019 | 329 | notes (vii) and (ix) |
-on 26 February 2019 | 31 | notes (viii) and (ix) |
Total RSUs granted | 5,967 | |
Notes:
-
The RSUs granted have a vesting period of three years as follows:
- 25% of RSUs shall vest on 29 June 2016; - 25% of RSUs shall vest on 29 June 2017; and
- 50% of RSUs shall vest on 29 June 2018.
- The RSUs granted have a vesting period of three years as follows:
- 25% of RSUs shall vest on 18 August 2016;
- 25% of RSUs shall vest on 18 August 2017; and
- 50% of RSUs shall vest on 18 August 2018.
- The RSUs granted have a vesting period of three years as follows:
- 25% of RSUs shall vest on 20 November 2016;
- 25% of RSUs shall vest on 20 November 2017; and
- 50% of RSUs shall vest on 20 November 2018.
- The RSUs granted have a vesting period of three years as follows:
- 25% of RSUs shall vest on 20 June 2017;
- 25% of RSUs shall vest on 20 June 2018; and
- 50% of RSUs shall vest on 20 June 2019.
- The RSUs granted have a vesting period of three years as follows:
- 25% of RSUs shall vest on 24 January 2018;
- 25% of RSUs shall vest on 24 January 2019; and
- 50% of RSUs shall vest on 24 January 2020.
Annual Report 2019
199
HKBN Ltd.
Annual Report 2019
200
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
23 Share-based transactions (continued)
- Equity-settledshare-based transactions (continued)
- The RSUs granted have a vesting period of three years as follows:
- 25% of RSUs shall vest on 20 July 2018;
- 25% of RSUs shall vest on 20 July 2019; and
- 50% of RSUs shall vest on 20 July 2020.
- The RSUs granted have a vesting period of three years as follows:
- 25% of RSUs shall vest on 30 January 2020;
- 25% of RSUs shall vest on 30 January 2021; and
- 50% of RSUs shall vest on 30 January 2022.
- The RSUs granted have a vesting period of three years as follows:
- 25% of RSUs shall vest on 26 February 2020;
- 25% of RSUs shall vest on 26 February 2021; and
- 50% of RSUs shall vest on 26 February 2022.
- Directors and Talents who leave the Group prior to full vesting would forfeit their right to any unvested RSUs.
- The movement of the RSUs is as follows:
Number of RSUs | |||
2019 | 2018 | ||
' 000 | ' 000 | ||
Outstanding at the beginning of the year | 1,200 | 3,136 | |
Granted during the year | 361 | - | |
Vested during the year | (922) | (1,751) | |
Forfeited during the year | (122) | (185) | |
Outstanding at the end of the year | 517 | 1,200 | |
The fair value of services received in return for RSUs granted is measured by reference to the fair value of RSUs granted. The estimate of the fair value of the RSUs granted is measured based on a binomial lattice model.
The expected dividends during the vesting period have been taken into account when measuring the fair value of the RSUs. The dividends paid from the Company's ordinary shares underlying the RSUs would be accrued and paid to the RSUs plan participants upon vested.
RSUs were granted under a service condition. This condition has not been taken into account in the grant date fair value measurement of the services received. There were no market conditions associated with the RSUs granted.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
23 Share-based transactions (continued)
(b) Cash-settledshare-based transaction
On 24 January 2017, 142,000 RSUs were granted to Talents of the Group in the PRC which are to be settled in cash. The directors estimated the weighted average fair value of each RSU at 31 August 2019 to be $10.40 (2018: $8.48).
On 26 February 2019, 95,000 RSUs were granted to Talents of the Group in the PRC which are to be settled in cash. The directors estimated the weighted average fair value of each RSU at 31 August 2019 to be $9.38.
The amount payable to the Talents in respect of those RSUs is accounted for under cash-settledshare-based payment in accordance with the accounting policy set out in note 1(s)(iv)(b).
Cash-settledshare-based payment expenses of $797,000 (2018: $1,290,000) were recognised as Talent costs in the consolidated income statement (see note 3(c)) for the year ended 31 August 2019 and the remaining expenses related to the RSUs are to be recognised in the years ending 31 August 2020, 2021 and 2022 based on the respective vesting periods.
The liability is remeasured at the end of each reporting period and at settlement date. Any changes in the fair value of the liability are recognised as Talent costs in profit or loss.
24 Current taxation in the consolidated statement of financial position
Current taxation in the consolidated statement of financial position represents:
2019 | 2018 | |
$' 000 | $' 000 | |
Provision for Hong Kong Profits Tax for the year | 146,864 | 104,960 |
Balance of Profits Tax provision relating to prior years | 8,922 | 2,632 |
155,786 | 107,592 | |
Provision for tax outside Hong Kong | 2,694 | 1,818 |
158,480 | 109,410 | |
Annual Report 2019
201
HKBN Ltd.
Annual Report 2019
202
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
25 Deferred tax in the consolidated statement of financial position
(a) Deferred tax liabilities and assets recognised:
The components of deferred tax (liabilities)/assets recognised in the consolidated statement of financial position and the movements during the year are as follows:
Depreciation | Amortisation | ||||||
allowances | of obligations | ||||||
in excess of | Amortisation | under | |||||
the related | of intangible | granting | Contract | Credit loss | |||
depreciation | assets | of rights | Costs | allowance | Others | Total | |
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
Deferred tax arising from: | |||||||
At 1 September 2017 | (224,905) | (207,291) | 7,073 | - | - | 1,505 | (423,618) |
Acquisition of subsidiaries, | |||||||
as restated (note 30) | - | (2,220) | - | - | - | - | (2,220) |
Credited/(charged) to | |||||||
profit or loss | 394 | 20,164 | (1,489) | - | - | (1,449) | 17,620 |
At 31 August 2018, | |||||||
as restated | (224,511) | (189,347) | 5,584 | - | - | 56 | (408,218) |
Impact on initial application | |||||||
of HKFRS 15 | - | - | - | (65,499) | - | - | (65,499) |
At 1 September 2018 | (224,511) | (189,347) | 5,584 | (65,499) | - | 56 | (473,717) |
Acquisition of subsidiaries | |||||||
(note 30) | (140,109) | (582,949) | - | - | 7,545 | - | (715,513) |
Credited/(charged) to | |||||||
profit or loss | 4,462 | 45,599 | (1,489) | 4,013 | 5,090 | 115 | 57,790 |
At 31 August 2019 | (360,158) | (726,697) | 4,095 | (61,486) | 12,635 | 171 | (1,131,440) |
(b) Deferred tax assets not recognised
In accordance with the accounting policy set out in note 1(t), the Group had not recognised deferred tax assets in respect of cumulative tax losses of $2,686,931,000 (2018: $2,808,203,000) as it was not probable that future taxable profits against which the losses can be utilised will be available in the relevant tax jurisdiction and entity. The tax losses did not expire under current tax legislation.
At 31 August 2019, temporary differences relating to the undistributed profits of the Group's PRC subsidiaries amounted to RMB119,364,000 (equivalent to $130,894,000) (2018: RMB105,527,000 (equivalent to $120,914,000)). Deferred tax liabilities amounted to 10% (or 5% if tax treaty is available) of the undistributed profits have not been recognised in respect of the tax that would be payable on the distribution of these retained profits as the Company controls the dividend policy of the subsidiaries and it has been determined that it is probable that these profits will not be distributed in the foreseeable future.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
26 Obligations under granting of rights
2019 | 2018 | |
$' 000 | $' 000 | |
At the beginning of the year | 33,843 | 42,867 |
Amortisation for the year (note 3(a)) | (9,024) | (9,024) |
At the end of the year | 24,819 | 33,843 |
Less: Current portion | (9,024) | (9,024) |
Non-current portion | 15,795 | 24,819 |
As part and parcel of the business combination on 30 May 2012, the Group granted Hong Kong Television Network Limited ("HKTV") the telecommunication business rights to use of certain telecommunication services from the Group for a term of 10 years from 30 May 2012 to 30 May 2022. The Group recognised the obligations in connection with the granting of such rights at fair value at the date of business combination. The amortisation of the obligations is charged to profit or loss on a straight-line basis over 10 years.
27 Contingent consideration
-
On 31 March 2016, the Group acquired the entire issued share capital of Concord Ideas Ltd. and Simple Click Investments Limited and the contingent consideration in respect of the acquisition of Concord Ideas Ltd. and Simple Click Investments Limited was measured at fair value at acquisition date ("Concord Acquisition"). The fair value of the contingent consideration was determined by the discounted cash flow valuation method. The expected payment was determined by considering the forecast amount
of cash rebates to New World Telephone Holdings Limited for services provided by the Group to New World Development Company Limited and Chow Tai Fook Enterprises Limited and their subsidiaries and related parties based on 50% of settled invoices up to $50,000,000 in aggregate. The Concord Acquisition contingent consideration has been fully settled during the year.
Annual Report 2019
203
HKBN Ltd.
Annual Report 2019
204
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
27 Contingent consideration (continued)
-
On 30 May 2018, the Group acquired the entire issued share capital of I Consulting Group Limited and its' subsidiary ("ICG Acquisition") and the contingent consideration in respect of the acquisition of ICG was measured at fair value at acquisition date and was account for as part of the consideration transferred in the business combination as set out in note 30(b).
As at 31 August 2018, the fair values of acquired assets, liabilities and goodwill for of I Consulting Group Limited and its subsidiary ("ICG Group") have been determined on a provisional basis, pending finalisation of the post-acquisition review of the fair values of the acquired net assets.
During the year ended 31 August 2019, the fair values of the acquired assets and liabilities disclosed as provisional at 31 August 2018 in respect of ICG Group were finalised giving rise to a decrease in goodwill of $3,511,000, intangible assets of $1,289,000, deferred tax liabilities of $213,000 and contingent consideration of $4,587,000, respectively.
The fair value of the contingent consideration was determined by the discounted cash flow valuation method. The expected payment was determined by considering the adjusted fund flow of ICG Group for the period from 31 May 2018 to 31 March 2023 up to $200,000,000 in aggregate. The directors estimated the fair value of the contingent consideration as at 31 August 2019 to be $29,649,000 (2018 (restated): $28,236,000). - The contingent consideration payable is classified as a financial liability and its fair value is re-measured at the end of each reporting period. Any changes in fair value are recognised in profit or loss.
The contingent consideration payable within one year and over one year from 31 August 2019 amounted to $1,371,000 (2018 (restated): $11,471,000) and $28,278,000 (2018 (restated): $28,236,000), respectively. During the year, change in fair value of $1,542,000 (2018: $437,000) was recognised in profit or loss during the year ended 31 August 2019.
The fair value as at 31 August 2019 is determined considering the expected payment and discounted to present value using the corresponding discount rate of the consideration of ICG Acquisition of 5.0% (2018 (restated): 5.0%).
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
28 Capital, reserves and dividends
(a) Movements in components of equity
The reconciliation between the opening and closing balances of each component of the Group's consolidated equity is set out in the consolidated statement of changes in equity. Details of the changes in the Company's individual components of equity between the beginning and the end of the year are set out below:
The Company
Share | Share | Vendor | Capital | Retained | |||
capital | premium | Loan Notes | reserve | profits | Total | ||
Note | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
Balance at 1 September 2017 | 101 | 105,880 | - | 27,192 | 993,503 | 1,126,676 | |
Changes in equity for the year | |||||||
ended 31 August 2018: | |||||||
Profit and total comprehensive | |||||||
income for the year | - | - | - | - | 490,884 | 490,884 | |
Dividend approved in respect of | |||||||
the previous year | 28(b)(ii) | - | (105,880) | - | - | (125,423) | (231,303) |
Dividend declared in respect of | |||||||
the current year | 28(b)(i) | - | - | - | - | (261,473) | (261,473) |
Equity-settledshare-based transactions | 23(a) | - | - | - | 8,621 | - | 8,621 |
Balance at 31 August 2018 and 1 | |||||||
September 2018 | 101 | - | - | 35,813 | 1,097,491 | 1,133,405 | |
Changes in equity for the year | |||||||
ended 31 August 2019: | |||||||
Issue of ordinary shares | 28(c) | 31 | 4,295,264 | - | - | - | 4,295,295 |
Issue of Vendor Loan Notes | 29 | - | - | 2,349,204 | - | - | 2,349,204 |
Profit and total comprehensive | |||||||
income for the year | - | - | - | - | 745,954 | 745,954 | |
Dividend approved to equity shareholders | |||||||
of the Company in respect | |||||||
of the previous year | 28(b)(ii) | - | - | - | - | (301,700) | (301,700) |
Dividend declared to equity shareholders | |||||||
of the Company in respect | |||||||
of the current year | 28(b)(i) | - | (445,944) | - | - | - | (445,944) |
Distribution to holders of Vendor Loan Notes | - | (56,890) | - | - | - | (56,980) | |
Equity-settledshare-based transactions | 23(a) | - | - | - | 3,099 | - | 3,099 |
Balance at 31 August 2019 | |||||||
132 | 3,792,430 | 2,349,204 | 38,912 | 1,541,745 | 7,722,423 | ||
Annual Report 2019
205
HKBN Ltd.
Annual Report 2019
206
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
28 Capital, reserves and dividends (continued)
- Dividends
- Dividend payable to equity shareholders of the Company attributable to the year
2019 | 2018 | |
$' 000 | $' 000 | |
Interim dividend declared and paid of 34 cents per ordinary | ||
share (2018: 26 cents per ordinary share) | 445,944 | 261,473 |
Final dividend proposed after the end of the reporting | ||
period of 36 cents per ordinary share | ||
(2018: 30 cents per ordinary share) | 472,176 | 301,700 |
918,120 | 563,173 | |
The final dividend proposed after the end of the reporting period has not been recognised as a liability at the end of the reporting period.
- Dividend payable to equity shareholders of the Company attributable to the previous financial year, approved and paid during the year
2019 | 2018 | |
$' 000 | $' 000 | |
Final dividend in respect of the previous financial year, | ||
approved and paid during the year, of 30 cents per ordinary | ||
share (2018: 23 cents per ordinary share) | 301,700 | 231,303 |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
28 Capital, reserves and dividends (continued)
(c) Share capital
No. of shares | $' 000 | |
Authorised: | ||
At 1 September 2017, 31 August 2018, | ||
1 September 2018 and 31 August 2019 | 3,800,000,000 | 380 |
Ordinary shares, issued and fully paid: | ||
At 1 September 2017, 31 August 2018, 1 September 2018 | 1,005,666,000 | 101 |
Issue of new shares (note) | 305,933,000 | 31 |
At 31 August 2019 | 1,311,599,000 | 132 |
Note: On 30 April 2019, the Group completed the acquisition of 100% equity interest of WTT Group (note 30). Part of the consideration was settled by the allotment and issue of 305,932,690 shares of $0.0001 each of the Company. The shares were issued on 30 April 2019 and the aggregate fair value of the shares issued, based on the quoted price of the shares on that date, was amounted to $4,295,295,000.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company's residual assets.
- Nature and purpose of reserves
-
Share premium
The application of the share premium account is governed by Section 34(2) of the Companies Law (2013 Revision) of the Cayman Islands. Under the Companies Law of the Cayman Islands, the funds in the share premium account of the Company are distributable to shareholders of the Company provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of the business. - Capital reserve
The capital reserve represents the portion of the grant date fair value of RSUs granted to the directors and Talents of the Group in Hong Kong that has been recognised in accordance with the accounting policy adopted for share-based payments in note 1(s)(iv)(a). - Other reserve
As part of the group reorganisation, the entire issued share capital of MLCL was transferred to the Company in consideration for an issue of the Company share ("Share Transfer"). Upon completion of the Share Transfer, the excess amount between the consideration and share capital and share premium of MLCL was recorded in the other reserve.
-
Share premium
Annual Report 2019
207
HKBN Ltd.
Annual Report 2019
208
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
28 Capital, reserves and dividends (continued)
- Nature and purpose of reserves (continued)
-
Exchange reserve
The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of operations outside Hong Kong.
-
Exchange reserve
- Capital management
The Group's primary objectives when managing capital are to safeguard the Group's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing services commensurately with the level of risk and by securing access to finance at a reasonable cost.
The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.
The Group monitors its capital structure on the basis of a gearing ratio. For this purpose, gearing ratio is calculated as gross debt divided by total equity. Gross debt comprises the principal amount of outstanding borrowings.
The gearing ratio at 31 August 2019 and 2018 was as follows:
2019 | 2018 | ||
Note | $' 000 | $' 000 | |
Bank loans (principal amount) | 20 | 4,480,000 | 3,900,000 |
Senior notes | 21 | 5,232,091 | - |
Gross debt | 9,712,091 | 3,900,000 | |
Total equity | 7,456,561 | 1,036,912 | |
Gearing ratio | 130% | 376% | |
Neither the Company nor any of its subsidiaries were subject to externally imposed capital requirements during the years presented.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
29 Vendor Loan Notes
On 30 April 2019, the Company issued the Vendor Loan Notes with a nominal amount of $1,940,937,656 as part of the consideration of the WTT Acquisition (see note 30). The Vendor Loan Notes are zero coupon convertible notes which may be converted into new ordinary shares to be issued by the Company at the initial conversion price of $11.60 per share pursuant to the terms and conditions of the Vendor Loan Notes. The Vendor Loan Notes has no maturity date and the holders of the Vendor Loan Notes have the right to receive an amount equal to any dividends made by the Company on an as-converted basis. Therefore, the Vendor Loan Notes are classified as equity instruments and recorded in equity in the consolidated statement of financial position.
30 Business combination and acquisition of a subsidiary
a. Business combination during the year ended 31 August 2019
Pursuant to the merger agreement dated 7 August 2018, MLCL, acquired 100% equity interests in WTT Holding Corp, a company incorporated in the Cayman Islands, and its subsidiaries (together referred as "WTT Group") from TPG Wireman and Twin Holding (the "WTT Acquisition"). The consideration of the WTT Acquisition was settled by (i) allotment and issuance of 305,932,690 of the Company's shares and (ii) issuance of the Vendor Loan Notes in the principal amount of $1,940,937,656.
WTT Group is principally engaged in the provision of telecommunication services to business communications market primarily in Hong Kong through its wholly-owned subsidiary in Hong Kong, namely HKBN Enterprise Solutions HK Limited ("HKBNESHKL") (formerly known as WTT HK Limited). HKBNESHKL is an enterprise-focused fixed telecommunication services operator with significant fixed line infrastructure in Hong Kong, and over 20 years' track record of serving local and international businesses. The WTT Acquisition was completed on 30 April 2019.
$' 000 | |
Consideration transferred: | |
Allotment and issuance of new ordinary shares of the Company (note (a)) | 4,295,295 |
Issuance of the Vendor Loan Notes (note (b)) | 2,349,204 |
Aggregate consideration | 6,644,499 |
Add: Fair value of net liabilities acquired | 342,427 |
Goodwill on the WTT Acquisition | 6,986,926 |
Note (a): The fair value of the ordinary shares of the Company issued as consideration is determined by reference to the quoted market price of $14.04 per each of the ordinary shares of the Company at the date of completion of the WTT Acquisition.
Note (b): The Vendor Loan Notes may be converted into new ordinary shares to be issued by the Company at initial conversion price of $11.60 per share pursuant to the terms and conditions of the Vendor Loan Notes. At the date of completion of the WTT Acquisition based on the initial conversion price, the Vendor Loan Notes are convertible to 167,322,212 ordinary shares of the Company. Therefore, the fair value of the Vendor Loan Notes has been determined by reference to the quoted market price of $14.04 per each of the ordinary shares of the Company at the date of completion of the WTT Acquisition.
Annual Report 2019
209
HKBN Ltd.
Annual Report 2019
210
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
30 Business combination and acquisition of a subsidiary (continued)
a. Business combination during the year ended 31 August 2019 (continued)
The goodwill reflects synergies expected from leveraging network of the WTT Group and expected efficiencies from the combined company that will make the combined business a more efficient and effective competitor in Hong Kong. None of the goodwill is expected to be deductible for tax purposes.
The WTT Acquisition had the following effect on the Group's assets and liabilities on 30 April 2019, the completion date of the WTT Acquisition:
$' 000 | |
Intangible assets (note 10) | 3,533,017 |
Property, plant and equipment (note 11) | 1,834,490 |
Customer acquisition and retention costs (note 15) | 173,166 |
Other non-current assets | 23,668 |
Inventory | 9,425 |
Trade receivables | 306,675 |
Other receivables, deposits and prepayments | 88,625 |
Contract assets | 70,571 |
Cash and cash equivalents | 355,172 |
Trade payables | (75,890) |
Other payables and accrued charges - current portion | (494,994) |
Contract liabilities - current portion | (136,528) |
Deposits received | (2,703) |
Tax payable | (13,835) |
Contract liabilities - non-current portion | (99,192) |
Deferred tax liabilities (note 25) | (714,499) |
Provision for reinstatement costs | (36,402) |
Senior notes (note 18(c)) | (5,163,193) |
Fair value of net liabilities acquired | (342,427) |
Goodwill (note 9) | 6,986,926 |
Total consideration | 6,644,499 |
Cash consideration paid | - |
Cash and cash equivalents acquired | (355,172) |
Net cash inflow in respect of the WTT Acquisition during | |
the year ended 31 August 2019 | (355,172) |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
30 Business combination and acquisition of a subsidiary (continued)
a. Business combination during the year ended 31 August 2019 (continued)
Acquisition-related costs
Acquisition-related costs of approximately $75,608,000 and $16,181,000 were included in other operating expenses in the consolidated income statement for the years ended 31 August 2019 and 2018.
Revenue and profit contribution
The revenue and loss after taxation of $708,411,000 and $15,358,000 respectively included in the consolidated income statement were contributed by WTT Group from the date of the WTT Acquisition to 31 August 2019.
No separate sets of financial information for WTT Group were prepared for the period from 1 September 2018 to the date of the WTT Acquisition. As a result, it is impracticable for the Group to disclose the amounts of revenue and profit or loss after taxation of WTT Group as if the acquisition date for the business combination that occurred during the year had been as of 1 September 2018.
b. Business combination during the year ended 31 August 2018
On 30 May 2018, the Group acquired the entire shares of I Consulting Group Limited ("ICG") and its subsidiary ("ICG Acquisition"). ICG is primarily engaged in the provision of telecommunication services in Hong Kong.
The Group made an initial payment for acquisition totaling approximately $10,000,000 in cash and may have to make additional payments totaling up to approximately to $200,000,000 in cash if the businesses of ICG achieve certain financial milestones within a specified period. The fair value of this contingent consideration is estimated at approximately $29,649,000 (2018 (restated): $28,236,000) and has been included in the purchase price of ICG.
During the year ended 31 August 2018, the valuations have not been completed and the respective fair values of the identifiable net assets and goodwill were determined provisionally.
During the year ended 31 August 2019, the accounting for the ICG Acquisition was completed.
Annual Report 2019
211
HKBN Ltd.
Annual Report 2019
212
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
30 Business combination and acquisition of a subsidiary (continued)
b. Business combination during the year ended 31 August 2018 (continued)
The fair values of the assets and liabilities of ICG recognised at the acquisition date upon completion of the purchase price allocation are as follows:
$' 000 | |
(Restated) | |
Intangible assets (note 10) | 13,457 |
Property, plant and equipment (note 11) | 235 |
Trade receivables | 3,536 |
Other receivables, deposits and prepayments | 2,173 |
Tax recoverable | 222 |
Cash and cash equivalents | 499 |
Trade payables | (3,649) |
Other payables, accrued charges, deposits received and deferred services revenue | (2,649) |
Bank loans (note 18(c)) | (2,792) |
Deferred tax liabilities (note 25) | (2,220) |
Fair value of net assets acquired | 8,812 |
Goodwill (note 9) | 29,424 |
Total consideration | 38,236 |
Cash consideration | 10,000 |
Contingent consideration (note 27) | 28,236 |
Total consideration | 38,236 |
Cash consideration paid | 10,000 |
Cash and cash equivalents acquired | (499) |
Net cash outflow in respect of the acquisition during | |
the year ended 31 August 2018 | 9,501 |
Compared with the provisional purchase price allocation disclosed in the Group's consolidated financial statements as of and for the year ended 31 August 2018, the following items were restated:
As originally | |||
stated | As restated | Change | |
$' 000 | $' 000 | $' 000 | |
Goodwill | 32,935 | 29,424 | (3,511) |
Intangible assets | 14,746 | 13,457 | (1,289) |
Deferred tax liabilities | (2,433) | (2,220) | 213 |
Contingent consideration | (32,823) | (28,236) | 4,587 |
The respective profit or loss impact from the acquisition date to 31 August 2018 arising from the above restatement was not material.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
30 Business combination and acquisition of a subsidiary (continued)
b. Business combination during the year ended 31 August 2018 (continued)
The goodwill is attributable mainly to the skills and technical talent of ICG's work force and the synergies expected to be achieved from integrating ICG into the Group's existing telecommunication business. None of the goodwill recognised is expected to be deductible for tax purpose.
The revenue and loss after taxation of $10,518,000 and $3,229,000 respectively included in the consolidated financial statements were contributed by ICG from the date of acquisition to 31 August 2018.
No separate sets of financial information for ICG was prepared for the period from 1 September 2017 to the date of the acquisition. As a result, it is impracticable for the Group to disclose the amount of revenue and profit after taxation of ICG as if the acquisition date for the business combination that occurred during the year had been as of 1 September 2017.
c. Acquisition of a subsidiary during the year ended 31 August 2019
On 26 September 2018 ("CTL Acquisition date"), HKBNGL acquired the entire interest of Cosmo True Limited ("CTL") which is principally engaged in property investment in Hong Kong at a cash consideration of $329,219,000 ("CTL Acquisition").
The CTL Acquisition would help the Group to secure the location site of its own network centres, which save future rental expenses and avoid the need for relocation.
The major assets of CTL are property, plant and equipment which are leased by the Group, and accordingly, the transaction has been accounted as the acquisition of assets.
The following table summarises the consideration paid for CTL, the fair values of assets acquired and liabilities assumed at CTL Acquisition date.
$' 000 | |
Cash consideration | 329,219 |
Identifiable assets acquired and liabilities assumed: | |
Property, plant and equipment (note 11) | 329,295 |
Prepayments, deposits and other receivables | 439 |
Trade receivables | 631 |
Other payables and accruals | (132) |
Deferred tax liabilities (note 25) | (1,014) |
Total identifiable net assets | 329,219 |
An analysis of net cash outflow in respect of CTL Acquisition is as follows: | |
Total consideration | 329,219 |
Deposits paid as at 31 August 2018 | (32,829) |
Net cash outflow in respect of CTL Acquisition for the year ended 31 August 2019 | 296,390 |
Annual Report 2019
213
HKBN Ltd.
Annual Report 2019
214
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments
Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group's business.
The Group's exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.
(a) Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group's credit risk is primarily attributable to trade receivables and contract assets. The Group's exposure to credit risk arising from cash and cash equivalents is limited because the counterparties are banks and financial institutions with sound credit rating, for which the Group considers to have low credit risk.
Except for the financial guarantees given by the Group as set out in note 33, the Group does not provide any other guarantees which would expose the Group to credit risk. The maximum exposure to credit risk in respect of these financial guarantees at the end of the reporting period is disclosed in note 33.
Trade receivables and contract assets
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. Concentrations of credit risk with trade receivables and contract assets are limited due to Group's customer being large and unrelated.
Individual 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 operates. Trade receivables are due within 30 days from the date of billing. Subscribers with receivables that are more than 3 months past due are requested to settle all outstanding balances before any further credit is granted. Normally, the Group does not obtain collateral from customers.
The Group measures loss allowances for trade receivables and contract assets at an amount equal to lifetime ECLs, which is calculated using a provision matrix. As the Group's historical credit loss experience does not indicate significantly different loss patterns for different customer segments, the loss allowance based on past due status is not further distinguished between the Group's different customer bases.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
(a) Credit risk (continued)
Trade receivables and contract assets (continued)
The following table provides information about the group's exposure to credit risk and ECLs for trade receivables and contract assets as at 31 August 2019:
Gross | |||
Expected | carrying | Loss | |
loss rate | amount | allowance | |
% | $' 000 | $' 000 | |
Current (not past due) | 1.3 | 470,014 | 5,999 |
Less than 30 days past due | 6.5 | 121,492 | 7,837 |
31 to 60 days past due | 12.0 | 67,740 | 8,102 |
Over 60 days past due | 28.6 | 233,293 | 66,705 |
892,539 | 88,643 | ||
Expected loss rates are based on actual loss experience over the past 2 years. These rates are adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and the Group's view of economic conditions over the expected lives of the receivables.
Comparative information under HKAS 39
Prior to 1 September 2018, an impairment loss was recognised only when there was objective evidence of impairment (see note 1(k)(i) - policy applicable prior to 1 September 2018). At 31 August 2018, trade receivables of $24,939,000 was determined to be impaired. The aging analysis of trade debtors that were not considered to be impaired was as follows:
2018 | |
$' 000 | |
Neither past due nor impaired | 117,261 |
Less than 30 days past due | 52,844 |
31 to 60 days past due | 25,968 |
Over 60 days past due | 51,137 |
129,949 | |
247,210 | |
Receivables that were past due but not impaired related to a number of independent customers that had a good track record with the Group. Based on past experience, management believed that no impairment allowance was necessary in respect of these balances as there had been no significant change in credit quality and the balances were still considered fully recoverable.
Annual Report 2019
215
HKBN Ltd.
Annual Report 2019
216
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
(a) Credit risk (continued)
Trade receivables and contract assets (continued)
Movement in the loss allowance account in respect of trade receivables and contract assets during the year is as follows:
2019 | 2018 | |
$' 000 | $' 000 | |
Balance at 31 August under HKAS 39 and 1 September | ||
upon the initial application of HKFRS 9 (note) | 24,939 | 20,480 |
Through acquisition of subsidiaries | 44,975 | - |
Amounts written off during the year | (34,030) | (35,234) |
Impairment losses recognised during the year | 52,759 | 39,693 |
Balance at 31 August | 88,643 | 24,939 |
Note: Upon the adoption of HKFRS 9, no opening adjustment as at 1 September 2018 was made in respect of recognising additional ECLs on trade receivables and contract assets (see note 1(c)(i)).
(b) Liquidity risk
The 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 its current and expected liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.
The following table shows the remaining contractual maturities at the end of the reporting period of the Group's financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates) and the earliest date the Group is required to pay.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
(b) Liquidity risk (continued)
2019 | |||||
Contractual undiscounted cash outflow | |||||
Within | Carrying | ||||
1 year or | More | amount at | |||
on demand | than 1 year | Total | 31 August | ||
$' 000 | $' 000 | $' 000 | $' 000 | ||
Trade payables | 365,976 | - | 365,976 | 365,976 | |
Contract liabilities | 219,763 | 187,690 | 407,453 | 407,453 | |
Other payables and accrued charges | 907,317 | 143,600 | 1,050,917 | 1,050,917 | |
Deposits received | 72,443 | - | 72,443 | 72,443 | |
Amounts due to joint ventures | 10,750 | - | 10,750 | 10,750 | |
Contingent consideration | 1,371 | 28,278 | 29,649 | 29,649 | |
Bank loans | 139,202 | 4,867,621 | 5,006,823 | 4,454,253 | |
Senior notes | 805,865 | 5,326,265 | 6,132,130 | 5,169,137 | |
2,522,687 | 10,553,454 | 13,076,141 | 11,560,578 | ||
2018 | |||||
Contractual undiscounted cash outflow | |||||
Within | Carrying | ||||
1 year or | More | amount at | |||
on demand | than 1 year | Total | 31 August | ||
$' 000 | $' 000 | $' 000 | $' 000 | ||
(Restated) | |||||
Trade payables | 138,918 | - | 138,918 | 138,918 | |
Other payables and accrued charges | 461,373 | 201,266 | 662,639 | 662,639 | |
Deposits received | 69,343 | - | 69,343 | 69,343 | |
Amounts due to joint ventures | 10,000 | - | 10,000 | 10,000 | |
Contingent consideration, as restated | 11,471 | 28,236 | 39,707 | 39,707 | |
Bank loans | 117,307 | 4,338,052 | 4,455,359 | 3,873,716 | |
808,412 | 4,567,554 | 5,375,966 | 4,794,323 | ||
Annual Report 2019
217
HKBN Ltd.
Annual Report 2019
218
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
(c) Interest rate risk
The Group's interest rate risk arises primarily from bank loans and interest-rate swap. Financial instruments with variable interest rates expose the Group to cash flow interest rate risk. The Group's interest-bearing financial instruments are set out in (ii) below. The interest rates and terms of repayment of interest-bearing borrowings of the Group are disclosed in note 20 to the financial statements.
-
Hedging
An interest-rate swap, denominated in Hong Kong dollars ("HKD"), has been entered into achieve an appropriate mix of fixed and floating rate exposure consistent with the Group's policy. At 31 August 2019, the Group had interest-rate swaps with a notional contract amount of $2,635,000,000 (2018: $2,635,000,000) which were not designated as cash flow hedging instrument. The net fair value of swaps entered into by the Group at 31 August 2019 was $64,000 (2018: Asset of $12,024,000). The amount is recognised as derivative financial instrument and included in other payables and accrued charges (see note 19). - Interest-bearingfinancial instruments
The following table details the interest-bearing financial instruments of the Group at the end of the reporting period.
2019 | 2018 | |
$' 000 | $' 000 | |
Fixed rate instruments | ||
Senior notes | 5,169,137 | - |
Variable rate instruments | ||
Bank loans | 4,454,253 | 3,873,716 |
Derivative financial instrument - interest-rate swap | 64 | (12,024) |
4,454,317 | 3,861,692 | |
Total borrowings | 9,623,454 | 3,861,692 |
Fixed rate borrowings as a percentage of total borrowings | 54% | - |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
- Interest rate risk (continued)
-
Sensitivity analysis
At 31 August 2019, it is estimated that a general increase/decrease of 50 basis points (2018:
50 basis points) in interest rates, with all other variables held constant, would have increased/ decreased the Group's profit after tax and retained profits by approximately $12,528,000 (2018: $6,411,000). Other components of consolidated equity would not be affected by the changes in interest rates.
The sensitivity analysis above indicates the instantaneous change in the Group's profit after tax and retained profits that would arise assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to re-measure those financial instruments held by the Group which expose the Group to fair value interest rate risk at the end of the reporting period. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Group at the end of the reporting period, the impact on the Group's profit after tax and retained profits is estimated as an annualised impact on interest expenses of such a change in interest rate.
-
Sensitivity analysis
- Currency risk
All the Group's monetary assets and liabilities are primarily denominated in either HKD or USD. Given the exchange rate of the HKD to the USD 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 HKD and the Renminbi ("RMB") arising from its operations in the PRC. In order to limit this foreign currency risk exposure, the Group ensures that the net exposure is kept to an acceptable level of buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.
Annual Report 2019
219
HKBN Ltd.
Annual Report 2019
220
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
- Currency risk (continued)
-
Exposure to currency risk
The following table details the Group's exposure at the end of the reporting period to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate. For presentation purposes, the amounts of the exposure are shown in HKD, translated using the spot rate at the year end date.
-
Exposure to currency risk
2019 | 2018 | ||||
USD | RMB | USD | RMB | ||
$' 000 | $' 000 | $' 000 | $' 000 | ||
Cash and cash equivalents | 41,338 | 415 | 57,988 | 1,161 | |
Trade receivables | 115,739 | - | 49,480 | - | |
Trade payables | (152,679) | (443) | (59,850) | (274) | |
Other payables and accrued charges | (31,244) | (116,569) | (19,941) | (105,136) | |
Senior notes | (5,272,900) | - | - | - | |
Net exposure arising from | |||||
recognised assets and liabilities | (5,299,746) | (116,597) | 27,677 | (104,249) | |
- Sensitivity analysis
The Group's foreign currency risk is mainly concentrated on the fluctuation of the RMB against the HKD. It is assumed that the pegged rate between the HKD and the USD would be materially unaffected by any changes in movement in value of the USD against other currencies. The following table details the Group's sensitivity to a 10% increase or decrease in the HKD against the RMB. The sensitivity analysis includes only outstanding foreign currency denominated monetary items including inter-company payables and receivables within the Group which are denominated in
a currency other than the functional currencies of the lender or the borrower, and adjusts their translation at the year end for a 10% change in foreign currency rates. The analysis excludes differences that would result from the translation of the financial statements of foreign operations into the Group's presentation currency.
2019 | 2018 | |||||
Increase/ | Increase/ | |||||
(decrease) | (decrease) | |||||
in foreign | Impact | Impact on | in foreign | Impact | Impact on | |
exchange | on profit | retained | exchange | on profit | retained | |
rates | after tax | profits | rates | after tax | profits | |
$' 000 | $' 000 | $' 000 | $' 000 | |||
RMB | 10% | (9,771) | (9,771) | 10% | (8,709) | (8,709) |
(10)% | 9,771 | 9,771 | (10)% | 8,709 | 8,709 | |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
- Currency risk (continued)
-
Sensitivity analysis (continued)
Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the Group entities' profit after tax and equity measured in the respective functional currencies, translated into HKD at the exchange rate ruling at the end of the reporting period for presentation purposes.
The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group which expose the Group to foreign currency risk at the end of the reporting period, including inter-company payables and receivables within the Group which are denominated in a currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would result from the translation of the financial statements of operations outside Hong Kong into the Group's presentation currency. The analysis is performed on the same basis for 2018.
-
Sensitivity analysis (continued)
- Fair value measurement
-
Financial assets and liabilities measured at fair value
Fair value hierarchy
The following table presents the fair value of the Group's financial instruments measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows: - Level 1 valuations: Fair values measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date
- Level 2 valuations: Fair values measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available
- Level 3 valuations: Fair values measured using significant unobservable inputs
-
Financial assets and liabilities measured at fair value
Annual Report 2019
221
HKBN Ltd.
Annual Report 2019
222
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
- Fair value measurement (continued)
-
Financial assets and liabilities measured at fair value (continued)
Fair value hierarchy (continued)
-
Financial assets and liabilities measured at fair value (continued)
Fair value at | Fair value measurements as at | |||
31 August | 31 August 2019 categorised into | |||
2019 | Level 1 | Level 2 | Level 3 | |
$' 000 | $' 000 | $' 000 | $' 000 | |
Recurring fair value measurement | ||||
Financial liabilities: | ||||
Derivative financial instrument: | ||||
Interest-rate swap | 64 | - | 64 | - |
Contingent consideration | 29,649 | - | - | 29,649 |
Fair value at | Fair value measurements as at | |||
31 August | 31 August 2018 (restated) categorised into | |||
2018 | Level 1 | Level 2 | Level 3 | |
(Restated) | ||||
$' 000 | $' 000 | $' 000 | $' 000 | |
Recurring fair value measurement | ||||
Financial assets: | ||||
Derivative financial instrument: | ||||
Interest-rate swap | 12,024 | - | 12,024 | - |
Financial liabilities: | ||||
Contingent consideration, | ||||
as restated | 39,707 | - | - | 39,707 |
During the year ended 31 August 2019, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3 (year ended 31 August 2018: $Nil). The Group's policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
- Fair value measurement (continued)
-
Financial assets and liabilities measured at fair value (continued)
Valuation techniques and inputs used in Level 2 fair value measurement
The fair value of interest-rate swap is the estimated amount that the Group would receive or pay to terminate the swap at the end of the reporting period, taking into account current interest rates and the current creditworthiness of the swap counterparty.
Information about Level 3 fair value measurement
The fair value of the contingent consideration relating to the ICG Acquisition are determined considering the expected payment, discounted to present value using a risk-adjusted discount rate of 5% (2018 (restated): 5%), respectively.
The movement during the year in the balance of Level 3 fair value measurement is as follows:
-
Financial assets and liabilities measured at fair value (continued)
2019 | 2018 | |
$' 000 | $' 000 | |
(Restated) | ||
Contingent consideration | ||
At the beginning of the year | 39,707 | 30,358 |
Business combination and acquisition of a subsidiary (note 30) | - | 28,236 |
Settlement of contingent consideration for the year | (11,600) | (19,324) |
Change in fair value during the year | 1,542 | 437 |
At the end of the year | 29,649 | 39,707 |
Contingent consideration - current portion | 1,371 | 11,471 |
Contingent consideration - long-term portion | 28,278 | 28,236 |
Total contingent consideration | 29,649 | 39,707 |
- Financial assets and liabilities carried at other than fair value
The carrying amounts of the Group's financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 August 2019 and 2018.
Annual Report 2019
223
HKBN Ltd.
Annual Report 2019
224
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
31 Financial risk management and fair values of financial instruments (continued)
(f) Offsetting financial assets and financial liabilities
The Group enters into netting arrangements with its carriers. The outstanding transactions with these counterparties are settled on a net basis and result in offsetting the assets and liabilities in the statement of financial position.
2019 | |||
Net amounts | |||
Gross amounts | of financial | ||
of recognised | assets/ | ||
financial assets/ | (liabilities) | ||
(liabilities) | presented in the | ||
Gross amounts | offset in the | consolidated | |
of recognised | consolidated | statement | |
financial assets/ | statement of | of financial | |
(liabilities) | financial position | position | |
$' 000 | $' 000 | $' 000 | |
Trade receivables | 833,960 | (276,521) | 557,439 |
Trade payables | (642,497) | 276,521 | (365,976) |
2018 | |||
Net amounts | |||
Gross amounts | of financial | ||
of recognised | assets/ | ||
financial assets/ | (liabilities) | ||
(liabilities) | presented in the | ||
Gross amounts | offset in the | consolidated | |
of recognised | consolidated | statement | |
financial assets/ | statement of | of financial | |
(liabilities) | financial position | position | |
$' 000 | $' 000 | $' 000 | |
Trade receivables | 562,017 | (314,807) | 247,210 |
Trade payables | (453,725) | 314,807 | (138,918) |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
32 Commitments
(a) Capital commitments
At 31 August 2019, the Group had the following capital commitments: | |||
2019 | 2018 | ||
$' 000 | $' 000 | ||
Contracted but not provided for | |||
- Purchase of property, plant and equipment | 190,546 | 326,270 | |
- For an acquisition | - | 296,390 | |
- Redemption of senior notes | 552,131 | - | |
742,677 | 622,660 | ||
- Commitment under operating leases
- At 31 August 2019, the Group's total future minimum lease payments under non-cancellable operating leases are receivable as follows:
2019 | 2018 | |
$' 000 | $' 000 | |
Leases in respect of telecommunications facilities | ||
which are receivable: | ||
Within 1 year | 388,196 | 72,642 |
After 1 year but within 5 years | 294,775 | 103,607 |
After 5 years | 114,447 | 73,707 |
797,418 | 249,956 | |
Annual Report 2019
225
HKBN Ltd.
Annual Report 2019
226
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
32 Commitments (continued)
- Commitment under operating leases (continued)
- At 31 August 2019, the Group's total future minimum lease payments under non-cancellable operating leases are payable as follows:
2019 | 2018 | |
$' 000 | $' 000 | |
Leases in respect of land and buildings which are payable: | ||
Within 1 year | 106,887 | 52,054 |
After 1 year but within 5 years | 185,589 | 62,281 |
After 5 years | 129,254 | - |
421,730 | 114,335 | |
Leases in respect of telecommunications facilities and | ||
computer equipment which are payable: | ||
Within 1 year | 97,820 | 97,987 |
After 1 year but within 5 years | 12,221 | 6,629 |
After 5 years | - | - |
110,041 | 104,616 | |
The Group leases a number of land and buildings and telecommunications facilities and computer equipment under operating lease. The leases typically run for an initial period of six months to fifteen years, with an option to renew the lease when all terms are renegotiated. Lease payments are usually increased annually to reflect market rentals. None of these leases include contingent rentals.
33 Contingent liabilities
2019 | 2018 | |
$' 000 | $' 000 | |
Bank guarantee in lieu of payment of utility deposits | 7,913 | 7,105 |
At 31 August 2019, the directors did not consider it is probable that a claim will be made against the Group under any guarantees. The Group has not recognised any deferred income in respect of the guarantees issued as their fair value cannot be reliably measured and their transaction price was $Nil during the year (2018: $Nil).
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management believes that any resulting liabilities will not have a material adverse effect on the financial position or operating results of the Group.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
34 Material related party transactions
In addition to the transactions and balances disclosed elsewhere in these financial statements, the Group entered into the following material related party transactions:
(a) Key management personnel remuneration
Remuneration for key management personnel of the Group, including amounts paid to the directors of the Company as disclosed in note 5 and certain of the highest paid employees as disclosed in note 6, as follows:
2019 | 2018 | |
$' 000 | $' 000 | |
Short-term employee benefits | 40,108 | 32,532 |
Post-employment benefits | 3,001 | 2,631 |
Equity compensation benefits | 691 | 2,124 |
43,800 | 37,287 | |
Total remuneration is included in "Talent costs" (see note 3(c)).
- In connection with the acquisition of the telecommunication business by MLCL from HKTV, completed on 30 May 2012, the Group granted indefeasible rights of use in favour of HKTV allowing it to use certain capacity of the Group's network for a term of 20 years from 30 May 2012, on a free of charge basis. In addition, the Group agreed to provide certain telecommunication services to HKTV, at no additional cost, for a period of 10 years from 30 May 2012. The incremental costs associated with fulfilling the obligations under the granting of indefeasible rights of use to HKTV are expected to be insignificant to the Group. Accordingly, no provision was made by the Group in this connection.
Annual Report 2019
227
HKBN Ltd.
Annual Report 2019
228
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
35 Company-level statement of financial position
2019 | 2018 | ||
Note | $' 000 | $' 000 | |
Non-current assets | |||
Investments in subsidiaries | 1,164,002 | 1,163,205 | |
Other non-current assets | 117 | 348 | |
1,164,119 | 1,163,553 | ||
Current assets | |||
Other receivables, deposits and prepayments | 534 | 539 | |
Amounts due from subsidiaries | 6,654,102 | 6,504 | |
Cash and cash equivalents | 1,977 | 199 | |
6,656,613 | 7,242 | ||
Current liabilities | |||
Other payables and accrued charges | 4,079 | 2,922 | |
Amounts due to subsidiaries | 94,230 | 34,468 | |
98,309 | 37,390 | ||
Net current assets /(liabilities) | 6,558,304 | (30,148) | |
NET ASSETS | 7,722,423 | 1,133,405 | |
CAPITAL AND RESERVES | 28(a) | ||
Share capital | 132 | 101 | |
Reserves | 7,722,291 | 1,133,304 | |
TOTAL EQUITY | 7,722,423 | 1,133,405 | |
Approved and authorised for issue by the board of directors on 24 October 2019.
) | ||
Chu Kwong YEUNG | ) | |
) | Directors | |
Ni Quiaque LAI | ) | |
) |
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
36 Non-adjusting events after the reporting period
On 23 August 2019, HKBNGL, an indirect wholly-owned subsidiary of the Company, and JTH (BVI) Limited ("JTH"), amongst others, entered into the share purchase agreement (the "Share Purchase Agreement"), pursuant to which, among other things, HKBNGL has conditionally agreed to purchase, and JTH has conditionally agreed to sell, the entire issued share capital of Jardine OneSolution Holdings (C.I.) Limited, Adura Hong Kong Limited and Adura Cyber Security Services Pte Ltd (collectively, the "Target Companies") for a consideration of US$50,000,000 (equivalent to $393,500,000) in cash (subject to certain closing and post- closing adjustments). Jardine Technology Holdings Limited has agreed to guarantee to HKBNGL the proper and punctual performance by JTH of its obligations under the Share Purchase Agreement. MLCL, a wholly- owned subsidiary of the Company, has agreed to guarantee to JTH the proper and punctual performance
by HKBNGL of its obligations under the Share Purchase Agreement. Upon satisfaction of the condition precedent(s) as set out in the Share Purchase Agreement, the Target Companies will become direct wholly- owned subsidiaries of HKBNGL and indirect wholly-owned subsidiaries of the Company. The proposed transaction was not yet completed on the date of this report and no adjustments have been made to this annual report as a result of the above event.
On 16 September 2019, MLCL completed a conditional redemption of 10% of the senior notes due 2022 at a redemption price of 103% plus accrued and unpaid interest. Immediately upon the completion of the conditional redemption, US$603,000,000 (equivalent to $4,745,610,000) in aggregate principal amount of the senior notes remained outstanding. The redemption was completed using the Group's internal resources.
On 25 September 2019, HKBN, an indirect wholly-owned subsidiary of the Company, obtained a $1,000,000,000 uncommitted revolving loan facility from a bank in Hong Kong that bears interest at HIBOR plus a margin per annum on the utilised amount.
Annual Report 2019
229
HKBN Ltd.
Annual Report 2019
230
HKBN Ltd.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
37 Accounting judgement and estimates
Sources of estimation uncertainty
Note 31 contains information about the assumptions and their risk factors relating to financial instruments. Other key sources of estimation uncertainty are as follows:
-
Loss allowance for credit losses
The Group maintains impairment loss for doubtful debts based upon evaluation of the recoverability of the trade 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. - Depreciation
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. 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 taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates. - Useful lives of property, plant and equipment and intangible assets (other than goodwill)
The Group has significant property, plant and equipment and intangible assets (other than goodwill). The Group is required to estimate the useful lives of property, plant and equipment and intangible assets (other than goodwill) in order to ascertain the amount of depreciation and amortisation charges for each reporting period.
The useful lives are estimated at the time of purchase of these assets after considering future technology changes, business developments and the Group's strategies. The Group performs annual reviews to assess the appropriateness of the estimated useful lives. Such review takes into account any unexpected adverse changes in circumstances or events, including declines in projected operating results, negative industry or economic trends and rapid advancement in technology. The Group extends or shortens the useful lives and/or makes impairment provisions according to the results of the review.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
37 Accounting judgement and estimates (continued)
Sources of estimation uncertainty (continued)
-
Fair value of assets acquired and liabilities assumed upon acquisition
In connection with acquisition of subsidiaries, the assets acquired and liabilities assumed were adjusted to their estimated fair values on the date of acquisition. The determination of the values of assets acquired and liabilities assumed involves management's judgements and assumptions. The values of assets acquired and liabilities assumed were based on valuation report from independent professional qualified valuer. Such valuations were based on certain assumptions, which were subject to uncertainty and might materially differ from the actual results. Any change in such judgements and assumptions would affect the fair value of assets acquired and liabilities assumed. - Impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy set out in note 1(k)(iii).
The recoverable amount of an asset or a cash-generating unit has been determined based on its value-in-use. These calculations require the use of estimates. There are a number of assumptions and estimates involved for the preparation of cash flow projections for the period covered by the approved budget and the estimated terminal value. Key assumptions include the expected operating margin, growth rates and selection of discount rates, to reflect the risks-involved and the earnings multiple that can be realised for the estimated terminal value.
Management prepared the financial budgets reflecting actual performance and market development expectations. Judgement is required to determine key assumptions adopted in the cash flow projections and changes to key assumptions can significantly affect these cash flow projections and therefore the result of the impairment reviews. - Income tax
Determining income tax provisions involves judgement on the future tax treatment of certain transactions and interpretation of tax rules. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislation and practices.
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Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
38 Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 August 2019
Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective for the year ended 31 August 2019 and which have not been adopted in these financial statements. These include the following which may be relevant to the Group.
Effective for | |
accounting periods | |
beginning on or after | |
HKFRS 16, Leases | 1 January 2019 |
HK(IFRIC) 23, Uncertainty over income tax treatments | 1 January 2019 |
Annual Improvements to HKFRSs 2015-2017 Cycle | 1 January 2019 |
Amendments to HKAS 28, Long-term interest in associates and joint ventures | 1 January 2019 |
The Group is in the process of making an assessment of what the impact of these amendments, new standards and interpretations is expected to be in the period of initial application. So far the Group has identified some aspects of the HKFRS 16 which may have a significant impact on the consolidated financial statements. Further details of the expected impacts are discussed below. While the assessment has been substantially completed for HKFRS 16, the actual impact upon the initial adoption of this standard may differ as the assessment completed to date is based on the information currently available to the Group, and further impacts may be identified before the standard is initially applied in the Group's interim financial report for the six months ending 29 February 2020. The Group may also change its accounting policy elections, including the transition options, until the standard is initially applied in that financial report.
HKFRS 16, Leases
As disclosed in note 1(j), currently the Group classifies leases into finance leases and operating leases and accounts for the lease arrangements differently, depending on the classification of the lease. The Group enters into some leases as the lessor and others as the lessee.
HKFRS 16 is not expected to impact significantly on the way that lessors account for their rights and obligations under a lease. However, once HKFRS 16 is adopted, lessees will no longer distinguish between finance leases and operating leases. Instead, subject to practical expedients, lessees will account for all leases in a similar way to current finance lease accounting, i.e. at the commencement date of the lease the lessee will recognise and measure a lease liability at the present value of the minimum future lease payments and will recognise a corresponding "right-of-use" asset. After initial recognition of this asset and liability, the lessee will recognise interest expense accrued on the outstanding balance of the lease liability, and the depreciation of the right-of-use asset, instead of the current policy of recognising rental expenses incurred under operating leases on a systematic basis over the lease term. As a practical expedient, the lessee can elect not to apply this accounting model to short-term leases (i.e. where the lease term is 12 months or less) and to leases of low-value assets, in which case the rental expenses would continue to be recognised on a systematic basis over the lease term.
Notes to the Financial Statements
(Expressed in Hong Kong dollars unless otherwise indicated)
38 Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 August 2019 (continued)
HKFRS 16, Leases (continued)
HKFRS 16 will primarily affect the Group's accounting as a lessee of leases for properties, plant and equipment which are currently classified as operating leases. The application of the new accounting model is expected to lead to an increase in both assets and liabilities and to impact on the timing of the expense recognition in the statement of profit or loss over the period of the lease.
HKFRS 16 is effective for annual periods beginning on or after 1 September 2019. As allowed by HKFRS 16, the Group plans to use the practical expedient to grandfather the previous assessment of which existing arrangements are, or contain, leases. The Group will therefore apply the new definition of a lease in HKFRS 16 only to contracts that are entered into on or after the date of initial application. In addition, the Group plans to elect the practical expedient for not applying the new accounting model to short-term leases and leases of low-value assets.
The Group plans to elect to use the modified retrospective approach for the adoption of HKFRS 16 and will recognise the cumulative effect of initial application as an adjustment to the opening balance of equity at 1 September 2019 and will not restate the comparative information. As disclosed in note 32(b), at 31 August 2019 the Group's future minimum lease payments under non-cancellable operating leases amount to $421,730,000 and $110,041,000 for (i) land and buildings and (ii) telecommunications facilities and computer equipment respectively, the majority of which is payable either between 1 and 5 years after the reporting date or in more than 5 years. Upon the initial adoption of HKFRS 16, the opening balances of lease liabilities and the corresponding right-of-use assets will be adjusted to $360,136,000 and $318,406,000 respectively, after taking account the effects of discounting, as at 1 September 2019.
Other than the recognition of lease liabilities and right-of-use assets, the Group expects that the transition adjustments to be made upon the initial adoption of HKFRS 16 will not be material. However, the expected changes in accounting policies as described above could have a material impact on the Group's financial statement from 2019 onwards.
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HKBN Ltd.
Five year summary
(Expressed in Hong Kong dollars)
The following table summarises the consolidated results, assets and liabilities of the Group for the five years ended 31 August 2019.
Years ended 31 August | ||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||
$' 000 | $' 000 | $' 000 | $' 000 | $' 000 | ||
Results | ||||||
Revenue | 5,107,637 | 3,948,952 | 3,232,310 | 2,784,007 | 2,341,113 | |
Profit from operations | 568,909 | 607,249 | 465,396 | 476,645 | 449,980 | |
Finance costs | (259,271) | (117,288) | (210,740) | (141,891) | (260,023) | |
Share of profits/(losses) of associates | - | - | 3,418 | (15) | - | |
Share of losses of joint ventures | (276) | (693) | (920) | (185) | (107) | |
Profit before taxation | 309,362 | 489,268 | 257,154 | 334,554 | 189,850 | |
Income tax | (94,835) | (92,371) | (86,044) | (89,875) | (85,582) | |
Profit for the year | 214,527 | 396,897 | 171,110 | 244,679 | 104,268 | |
Five year summary (continued)
(Expressed in Hong Kong dollars)
As at 31 August | |||||
2019 | 2018 | 2017 | 2016 | 2015 | |
$' 000 | $' 000 | $' 000 | $' 000 | $' 000 | |
(Restated) | |||||
(note) | |||||
Assets and liabilities | |||||
Goodwill | 8,788,319 | 1,801,393 | 1,771,969 | 1,771,969 | 1,594,110 |
Intangible assets | 4,638,643 | 1,453,588 | 1,612,707 | 1,550,209 | 1,330,501 |
Property, plant and equipment | 4,341,590 | 2,293,950 | 2,289,790 | 2,419,890 | 1,969,803 |
Investment properties | 222,041 | - | - | - | - |
Customer acquisition and retention costs | 598,030 | - | - | - | - |
Contract assets | 4,740 | - | - | - | - |
Interest in associates | - | - | - | 7,473 | - |
Interest in joint ventures | 9,429 | 8,095 | 8,788 | 9,708 | 9,893 |
Other non-current assets | 32,105 | 64,950 | 24,600 | 19,618 | 19,503 |
Net current assets | 2,003 | 46,205 | 115,211 | 95 | 138,664 |
Total assets less current liabilities | 18,636,900 | 5,668,181 | 5,823,065 | 5,778,962 | 5,062,474 |
Other payables and accrued | |||||
charges - long-term portion | (143,600) | (201,266) | (293,748) | (99,008) | (13,413) |
Contract liabilities-long-term portion | (187,690) | - | - | - | - |
Deferred services revenue | |||||
- long-term portion | - | (79,371) | (92,752) | (55,923) | (13,844) |
Obligations under granting of | |||||
rights - long-term portion | (15,795) | (24,819) | (33,843) | (42,867) | (51,891) |
Deferred tax liabilities | (1,131,440) | (408,218) | (423,618) | (450,980) | (438,916) |
Contingent consideration | |||||
- long-term portion | (28,278) | (28,236) | (2,869) | (27,885) | - |
Provision for reinstatement costs | (50,146) | (15,643) | (16,015) | (17,644) | (11,334) |
Bank loans | (4,454,253) | (3,873,716) | (3,831,332) | (3,721,297) | (3,018,889) |
Senior notes | (5,169,137) | - | - | - | - |
NET ASSETS | 7,456,561 | 1,036,912 | 1,128,888 | 1,363,358 | 1,514,187 |
Capital and reserves | |||||
Share capital | 132 | 101 | 101 | 101 | 101 |
Reserves | 7,456,429 | 1,036,811 | 1,128,787 | 1,363,257 | 1,514,086 |
TOTAL EQUITY | 7,456,561 | 1,036,912 | 1,128,888 | 1,363,358 | 1,514,187 |
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HKBN Ltd.
Note; The financial figures for the year ended 31 August 2018 have been restated due to the completion of the purchase price allocation of certain business combinations took place the year ended 31 August 2018, as disclosed in note 1(b)(i) to the consolidated financial statements.
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HKBN Ltd.
Other Information
Corporate Information
Chairman and Independent Non-executive Director
Mr. Bradley Jay HORWITZ 2,4
Executive Directors
Mr. Chu Kwong YEUNG 3,6
Mr. Ni Quiaque LAI
Non-executive Directors
Ms. Deborah Keiko ORIDA 4
Mr. Zubin Jamshed IRANI 2,6
Mr. Teck Chien KONG 4
Independent Non-executive Directors
Mr. Stanley CHOW 2,4,5
Mr. Yee Kwan Quinn LAW, SBS, JP 1,4,6
- Chairman of Audit Committee
- Member of Audit Committee
- Chairman of Nomination Committee
- Member of Nomination Committee
- Chairman of Remuneration Committee
- Member of Remuneration Committee
Company Secretary
Mr. Yue Kit Andrew WONG
Authorised Representatives
Mr. Ni Quiaque LAI
Mr. Yue Kit Andrew WONG
Registered Office
P.O. Box 309
Ugland House
Grand Cayman KY1-1104
Cayman Islands
Head Office and Principal Place of Business in Hong Kong
12th Floor, Trans Asia Centre
18 Kin Hong Street, Kwai Chung
New Territories
Hong Kong
Auditor
KPMG
Certified Public Accountants
8th Floor, Prince's Building
10 Chater Road
Central
Hong Kong
Cayman Principal Share Registrar and Transfer Office
Maples Fund Services (Cayman) Limited
P.O. Box 1093
Boundary Hall
Cricket Square
Grand Cayman KY1-1102
Cayman Islands
Hong Kong Branch Share Registrar and Transfer Office
Computershare Hong Kong Investor Services Limited
Rooms 1712-1716, 17th Floor, Hopewell Centre
183 Queen's Road East
Wanchai
Hong Kong
Principal Bankers
Citibank, N.A., Hong Kong Branch
50th Floor, Champion Tower
3 Garden Road, Central
Hong Kong
Standard Chartered Bank (Hong Kong) Limited
3rd Floor, Standard Chartered Bank Building 4-4A Des Voeux Road Central
Hong Kong
Company's Website
www.hkbnltd.net
Stock Code
1310
Other Information
References to HKEX ESG Reporting Guide
Aspects and | ||||
General Disclosures | Descriptions | Related chapters/Notes | ||
A. Environmental | ||||
Aspect A1: Emissions | ||||
General Disclosure | Information on: | Our Strategy, Report of the | ||
Directors, Environment | ||||
(a) | the policies; and | |||
(b) | compliance with relevant laws and regulations that | |||
have a significant impact on the issuer | ||||
relating to air and greenhouse gas emissions, discharges | ||||
into water and land, and generation of hazardous and | ||||
non-hazardous waste. | ||||
KPIs | • | A1.1 The types of emissions and respective | • | Environment |
emissions data | ||||
• | A1.2 Greenhouse gas emissions in total (in tonnes) | • | Environment | |
and, where appropriate, intensity (e.g. per unit of | ||||
production volume, per facility) | ||||
• | A1.3 Total hazardous waste produced (in tonnes) | • | Environment | |
and, where appropriate, intensity (e.g. per unit of | ||||
production volume, per facility) | ||||
• | A1.4 Total non-hazardous waste produced (in | • | Environment | |
tonnes) and, where appropriate, intensity (e.g. per | ||||
unit of production volume, per facility) | ||||
• | A1.5 Description of measures to mitigate emissions | • | Environment | |
and results achieved | ||||
• | A1.6 Description of how hazardous and non- | • | Environment | |
hazardous wastes are handled, reduction initiatives | ||||
and results achieved | ||||
Aspect A2: Use of Resources | ||||
General Disclosure | Policies on the efficient use of resources, including | Our Strategy, Report of the | ||
energy, water and other raw materials. | Directors, Environment | |||
KPIs | • | A2.1 Direct and/or indirect energy consumption by | • | Environment |
type (e.g. electricity, gas or oil) in total (kWh in '000s) | ||||
and intensity (e.g. per unit of production volume, per | ||||
facility) | ||||
• | A2.2 Water consumption in total and intensity (e.g. | • | Environment | |
per unit of production volume, per facility) | ||||
• | A2.3 Description of energy use efficiency initiatives | • | Environment | |
and results achieved | ||||
• | A2.4 Description of whether there is any issue | • | Environment | |
in sourcing water that is fit for purpose, water | ||||
efficiency initiatives and results achieved | ||||
• | A2.5 Total packaging material used for finished | • | Environment | |
products (in tonnes) and, if applicable, with | ||||
reference to per unit produced |
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References to HKEX ESG Reporting Guide
Aspects and | ||||
General Disclosures | Descriptions | Related chapters/Notes | ||
Aspect A3: The Environment and Natural Resources | ||||
General Disclosure | Policies on minimising the issuer's significant impact on | Our Strategy, Report of the | ||
the environment and natural resources. | Directors, Environment | |||
KPIs | • | A3.1 Description of the significant impacts of | • | Environment |
activities on the environment and natural resources | ||||
and the actions taken to manage them | ||||
B. Social | ||||
Aspect B1: Employment | ||||
General Disclosure | Information on: | Our Strategy, Report of the | ||
Directors, Talents, Corporate | ||||
(a) | the policies; and | Governance Report | ||
(b) | compliance with relevant laws and regulations that | |||
have a significant impact on the issuer | ||||
relating to compensation and dismissal, recruitment | ||||
and promotion, working hours, rest periods, equal | ||||
opportunity, diversity, anti-discrimination, and other | ||||
benefits and welfare. | ||||
KPIs | • | B1.1 Total workforce by gender, employment type, | • Report of the Directors, | |
age group and geographical region | Talents, Corporate | |||
Governance Report | ||||
• | B1.2 Employee turnover rate by gender, age group | • This data is currently being | ||
and geographical region | consolidated, and will be | |||
disclosed once available | ||||
Aspect B2: Health and Safety | ||||
General Disclosure | Information on: | Our Strategy, Report of the | ||
Directors, Talents | ||||
(a) | the policies; and | |||
(b) | compliance with relevant laws and regulations that | |||
have a significant impact on the issuer | ||||
relating to providing a safe working environment and | ||||
protecting employees from occupational hazards. | ||||
KPIs | • | B2.1 Number and rate of work-related fatalities | • | Talents |
• | B2.2 Lost days due to work injury | • | Talents | |
• | B2.3 Description of occupational health and safety | • | Talents | |
measures adopted, how they are implemented and | ||||
monitored | ||||
Aspect B3: Development and Training | ||||
General Disclosure | Policies on improving employees' knowledge and skills | Our Strategy, Talents, Corporate | ||
for discharging duties at work. Description of training | Governance Report | |||
activities. | ||||
KPIs | • | B3.1 The percentage of employees trained by gender | • This data is currently being | |
and employee category | consolidated, and will be | |||
disclosed once available | ||||
• | B3.2 The average training hours completed per | • This data is currently being | ||
employee by gender and employee category | consolidated, and will be | |||
disclosed once available |
References to HKEX ESG Reporting Guide
Aspects and | |||
General Disclosures | Descriptions | Related chapters/Notes | |
Aspect B4: Labour Standards | |||
General Disclosure | Information on: | Our Strategy, Report of the | |
Directors, Talents, Corporate | |||
(a) | the policies; and | Governance Report | |
(b) | compliance with relevant laws and regulations that | ||
have a significant impact on the issuer | |||
relating to preventing child and forced labour. | |||
KPIs | • | B4.1 Description of measures to review employment | • Not material to HKBN's |
practices to avoid child and forced labour | business and therefore such | ||
data is not covered in this | |||
report | |||
• | B4.2 Description of steps taken to eliminate child | • Not material to HKBN's | |
and forced labour practices when discovered | business and therefore such | ||
data is not covered in this | |||
report | |||
Aspect B5: Supply Chain Management | |||
General Disclosure | Policies on managing environmental and social risks of | Our Strategy, Report of the | |
the supply chain. | Directors, Suppliers | ||
KPIs | • | B5.1 Number of suppliers by geographical region | • Not material to HKBN's |
business and therefore such | |||
data is not covered in this | |||
report | |||
• | B5.2 Description of practices relating to engaging | • This data is currently being | |
suppliers, number of suppliers where the practices | consolidated, and will be | ||
are being implemented, how they are implemented | disclosed once available | ||
and monitored | |||
Aspect B6: Product Responsibility | |||
General Disclosure | Information on: | Our Strategy, Report of the | |
Directors, Customer, Corporate | |||
(a) | the policies; and | Governance Report | |
(b) | compliance with relevant laws and regulations that | ||
have a significant impact on the issuer |
relating to health and safety, advertising, labelling and privacy matters relating to products and services provided and methods of redress.
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References to HKEX ESG Reporting Guide
Aspects and | ||||
General Disclosures | Descriptions | Related chapters/Notes | ||
KPIs | • | B6.1 Percentage of total products sold or shipped | • This data is currently being | |
subject to recalls for safety and health reasons | consolidated, and will be | |||
disclosed once available | ||||
• | B6.2 Number of products and service related | • This data is currently being | ||
complaints received and how they are dealt with | consolidated, and will be | |||
disclosed once available | ||||
• | B6.3 Description of practices relating to observing | • Report of the Directors, | ||
and protecting intellectual property rights | Corporate Governance | |||
Report | ||||
• | B6.4 Description of quality assurance process and | • This information is currently | ||
recall procedures | being collected, and will be | |||
disclosed once available | ||||
• | B6.5 Description of consumer data protection and | • Report of the Directors, | ||
privacy policies, how they are implemented and | Customer, Corporate | |||
monitored | Governance Report | |||
Aspect B7: Anti-corruption | ||||
General Disclosure | Information on: | Corporate Governance Report | ||
(a) | the policies; and | |||
(b) | compliance with relevant laws and regulations that | |||
have a significant impact on the issuer | ||||
relating to bribery, extortion, fraud and money | ||||
laundering. | ||||
KPIs | • | B7.1 Number of concluded legal cases regarding | • | Corporate Governance |
corrupt practices brought against the issuer or | Report | |||
its employees during the reporting period and the | ||||
outcomes of the cases | ||||
• | B7.2 Description of preventive measures and | • | Corporate Governance | |
whistleblowing procedures, how they are | Report | |||
implemented and monitored | ||||
Aspect B8: Community Investment | ||||
General Disclosure | Policies on community engagement to understand the | Our Strategy, Community | ||
needs of the communities where the issuer operates | ||||
and to ensure its activities take into consideration the | ||||
communities' interests. | ||||
KPIs | • | B8.1 Focus areas of contribution | • | Our Strategy, Community |
• | B8.2 Resources contributed to the focus areas | • | Community | |
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HKBN Ltd. published this content on 11 November 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 November 2019 04:09:05 UTC
