EX-1 2 a05-7612_1ex1.htm EX-1

Exhibit 1

 

 

CHINA UNICOM LIMITED (Stock Code: 762)

(Incorporated in Hong Kong with limited liability under the Hong Kong Companies Ordinance)

 

ANNOUNCEMENT

 

The Board is pleased to announce the unaudited results of the Group for the first quarter ended 31 March 2005.

 

GROUP RESULTS

 

China Unicom Limited (the “Company”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the “Group”) for the three months ended 31 March 2005.

 

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

For the three months ended 31 March 2005

 

 

 

 

 

Unaudited

 

 

 

 

 

For the three months
ended 31 March

 

 

 

Note

 

2005

 

2004

 

 

 

 

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

As restated

 

 

 

 

 

 

 

 

 

Operating revenue (Turnover):

 

 

 

 

 

 

 

GSM Business

 

1(iv)

 

12,058,447

 

11,849,478

 

CDMA Business

 

1(iv)

 

6,650,950

 

5,727,248

 

Data and Internet Business

 

 

 

832,002

 

940,016

 

Long Distance Business

 

 

 

439,154

 

369,485

 

Total service revenue

 

 

 

19,980,553

 

18,886,227

 

Sales of telecommunications products

 

1(iv)

 

874,499

 

599,713

 

Total operating revenue

 

3

 

20,855,052

 

19,485,940

 

Operating expenses:

 

 

 

 

 

 

 

Leased lines and network capacities

 

 

 

(2,170,161

)

(1,722,757

)

Interconnection charges

 

 

 

(1,948,975

)

(1,701,171

)

Depreciation and amortisation

 

1(ii), 1(iii)

 

(5,017,715

)

(4,561,235

)

Personnel

 

1(i)

 

(1,390,894

)

(1,114,896

)

Selling and marketing

 

1(iv)

 

(4,612,886

)

(4,569,592

)

General, administrative and other expenses

 

1(iii)

 

(2,721,435

)

(2,497,745

)

Cost of telecommunications products sold

 

1(iv)

 

(1,136,910

)

(804,969

)

Total operating expenses

 

3

 

(18,998,976

)

(16,972,365

)

Operating profit before interest income and net other income

 

 

 

1,856,076

 

2,513,575

 

Interest income

 

 

 

17,806

 

23,016

 

Other income, net

 

 

 

2,617

 

2,843

 

Operating profit

 

 

 

1,876,499

 

2,539,434

 

Finance costs

 

 

 

(343,384

)

(499,242

)

Profit before taxation

 

 

 

1,533,115

 

2,040,192

 

Taxation

 

1(iv)

 

(470,200

)

(602,482

)

Profit attributable to shareholders

 

1

 

1,062,915

 

1,437,710

 

Basic earnings per share (RMB)

 

1, 2

 

0.085

 

0.114

 

Diluted earnings per share (RMB)

 

1, 2

 

0.084

 

0.114

 

 

1



 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

As of 31 March 2005

 

 

 

 

 

Unaudited

 

Audited

 

 

 

Note

 

As of
31 March
2005

 

As of
31 December
2004

 

 

 

 

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

As restated

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment, net

 

1(iii)

 

116,964,939

 

118,492,120

 

Goodwill

 

1(ii)

 

3,143,983

 

3,136,557

 

Other assets

 

1(iii), 1(iv)

 

9,093,774

 

9,694,761

 

Deferred tax assets

 

1(iv)

 

575,327

 

465,512

 

 

 

 

 

129,778,023

 

131,788,950

 

Current assets

 

 

 

 

 

 

 

Amounts due from China United Telecommunications Corporation

 

 

 

44,690

 

61,401

 

Amounts due from related parties

 

 

 

155,445

 

193,048

 

Amounts due from domestic carriers

 

 

 

235,172

 

269,919

 

Prepayments and other current assets

 

 

 

4,291,372

 

3,059,714

 

Inventories

 

 

 

2,858,966

 

3,114,632

 

Accounts receivable, net

 

 

 

5,974,944

 

5,229,980

 

Short-term bank deposits

 

 

 

583,153

 

662,025

 

Bank balances and cash

 

 

 

5,019,151

 

4,655,464

 

 

 

 

 

19,162,893

 

17,246,183

 

Total assets

 

 

 

148,940,916

 

149,035,133

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Share capital

 

 

 

1,333,096

 

1,332,487

 

Share premium

 

 

 

52,573,248

 

52,546,294

 

Reserves

 

1(i)

 

2,297,629

 

2,259,295

 

Retained profits

 

 

 

 

 

 

 

Proposed final dividend

 

 

 

1,256,924

 

1,256,349

 

Others

 

1

 

16,117,581

 

15,047,816

 

 

 

 

 

73,578,478

 

72,442,241

 

Liabilities

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Long-term bank loans

 

 

 

26,533,146

 

26,137,188

 

Obligations under finance leases

 

 

 

357,626

 

488,956

 

Deferred revenue

 

1(iv)

 

3,635,503

 

3,840,493

 

Other long-term liabilities

 

 

 

2,161

 

2,578

 

 

 

 

 

30,528,436

 

30,469,215

 

Current liabilities

 

 

 

 

 

 

 

Payables and accrued liabilities

 

 

 

17,457,987

 

16,785,749

 

Amounts due to related parties

 

 

 

49,664

 

5,760

 

Amounts due to domestic carriers

 

 

 

990,171

 

948,574

 

Current portion of obligations under finance leases

 

 

 

861,551

 

938,189

 

Current portion of long-term bank loans

 

 

 

6,364,981

 

11,086,305

 

Taxes payable

 

 

 

586,021

 

395,688

 

Advances from customers

 

 

 

7,782,046

 

7,034,995

 

Short-term bank loans

 

 

 

10,741,581

 

8,928,417

 

 

 

 

 

44,834,002

 

46,123,677

 

Total liabilities

 

 

 

75,362,438

 

76,592,892

 

Total equity and liabilities

 

 

 

148,940,916

 

149,035,133

 

 

2



 

UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the three months ended 31 March 2005

 

 

 

 

 

Unaudited

 

 

 

 

 

For the three months
ended 31 March

 

 

 

Note

 

2005

 

2004

 

 

 

 

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

As restated

 

 

 

 

 

 

 

 

 

Net cash inflow from operations

 

(a)

 

7,239,087

 

6,146,121

 

Interest received

 

 

 

15,615

 

24,675

 

Interest paid

 

 

 

(464,977

)

(586,019

)

PRC income tax paid

 

 

 

(349,971

)

 

Net cash inflow from operating activities

 

 

 

6,439,754

 

5,584,777

 

Investing activities

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

(3,504,030

)

(3,257,334

)

Sale of property, plant and equipment

 

 

 

1,266

 

5,266

 

Decrease / (increase) in short-term bank deposits

 

 

 

78,872

 

(166

)

Payment of direct acquisition cost of Unicom New Century

 

 

 

 

(4,566

)

Payment of direct acquisition cost of Unicom New World

 

 

 

 

(11,234

)

Sale of New Guoxin

 

 

 

 

450,000

 

Purchase of other assets

 

 

 

(167,534

)

(51,241

)

Net cash outflow from investing activities

 

 

 

(3,591,426

)

(2,869,275

)

Financing activities

 

 

 

 

 

 

 

Proceeds from exercise of share options

 

 

 

27,563

 

55,306

 

Proceeds from short-term bank loans

 

 

 

4,527,977

 

2,188,451

 

Proceeds from long-term bank loans

 

 

 

2,581,292

 

5,147,809

 

Repayment of short-term bank loans

 

 

 

(2,714,814

)

(3,325,703

)

Repayment of long-term bank loans

 

 

 

(6,930,748

)

(3,710,417

)

Net cash (outflow) / inflow from financing activities

 

 

 

(2,508,730

)

355,446

 

Net increase in cash and cash equivalents

 

 

 

339,598

 

3,070,948

 

Cash and cash equivalents, beginning of period

 

 

 

4,629,553

 

9,169,936

 

Cash and cash equivalents, end of period

 

 

 

4,969,151

 

12,240,884

 

Analysis of the balances of cash and cash equivalents:

 

 

 

 

 

 

 

Cash balance

 

 

 

7,182

 

6,358

 

Bank balance

 

 

 

5,011,969

 

12,284,526

 

Less: Restricted bank deposits

 

(i)

 

(50,000

)

(50,000

)

 

 

 

 

4,969,151

 

12,240,884

 


Note (i):        As of 31 March 2005, approximately RMB50 million bank balances (31 December 2004: approximately RMB26 million) was restricted by the bank to secure for long-term bank loans.

 

3



 

(a)                                  The reconciliation of profit before taxation to net cash inflow from operations is as follows:

 

 

 

Unaudited

 

 

 

For the three months ended
31 March

 

 

 

2005

 

2004

 

 

 

RMB’000

 

RMB’000

 

 

 

 

 

As restated

 

 

 

 

 

 

 

Profit before taxation

 

1,533,115

 

2,040,192

 

Adjustments for:

 

 

 

 

 

Depreciation and amortisation

 

5,017,715

 

4,561,235

 

Amortisation of deferred customer acquisition costs of contractual CDMA subscribers

 

1,448,657

 

1,536,941

 

Interest income

 

(17,806

)

(23,016

)

Interest expense

 

335,762

 

492,485

 

(Profit) / loss on disposal of property, plant and equipment

 

(1,887

)

600

 

Provision for doubtful debts

 

428,015

 

637,370

 

Employee compensation costs related to share-based payments recognised based on fair value

 

38,334

 

8,803

 

 

 

 

 

 

 

Operating profit before working capital changes

 

8,781,905

 

9,254,610

 

Increase in accounts receivable

 

(1,172,979

)

(1,779,958

)

Decrease in inventories

 

255,666

 

48,154

 

Increase in other assets

 

(688,853

)

(631,865

)

Increase in prepayments and other current assets

 

(1,496,056

)

(1,022,996

)

Decrease in amounts due from domestic carriers

 

34,747

 

57,875

 

Decrease / (increase) in amounts due from related parties

 

37,603

 

(321,381

)

Decrease / (increase) in amounts due from China United Telecommunications Corporation

 

16,711

 

(312,729

)

Increase in payables and accrued liabilities

 

842,781

 

50,154

 

Increase in advances from customers

 

747,051

 

297,128

 

(Decrease) / increase in deferred revenue

 

(204,990

)

107,020

 

Increase in amounts due to domestic carriers

 

41,597

 

262,965

 

Increase in amounts due to related parties

 

43,904

 

137,144

 

Net cash inflow from operations

 

7,239,087

 

6,146,121

 

 

(b)                                 Supplemental information:

 

Payables to equipment suppliers for construction-in-progress during the three months ended 31 March 2005 decreased by approximately RMB449 million (for the three months ended 31 March 2004: approximately RMB191 million).

 

Notes (amounts expressed in RMB unless otherwise stated)

 

1.                                      Basis of presentation

 

China Unicom Limited (the “Company”) was incorporated in the Hong Kong Special Administrative Region (“Hong Kong”), the People’s Republic of China (the “PRC”) on 8 February 2000. The principal activities of the Company are investment holding and the Company’s subsidiaries are engaged in the provision of GSM and CDMA cellular, data, Internet and long distance services in the PRC. The GSM and CDMA business hereinafter collectively refer to as the “Cellular Business”. The Company and its subsidiaries are hereinafter referred to as the “Group”.

 

4



 

Adoption of the New Hong Kong Financial Reporting Standards (“New HKFRSs”)

 

The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards (“HKFRSs”) and Hong Kong Accounting Standards (“HKASs”), herein collectively referred to as the new HKFRSs, which are effective for accounting periods beginning on or after 1 January 2005. The Group adopted the new HKFRSs on 1 January 2005 and the above financial data included the impact upon adoption of these new HKFRSs. The adoption of the new HKFRSs resulted in the changes of accounting policies in the following major areas which affect the results of operations and financial position of the Group:

 

(i)                                    Share-based payment

 

Under HKFRS 2 “Share-based payment”, the Group is required to determine the fair value of all share-based payments to employees as remuneration and recognise an expense in the income statement. Under the specific transitional provisions of HKFRS 2, this treatment applies to equity-settled share-based payment transactions where shares, share options or other equity instruments were granted after 7 November 2002 and had not yet vested on 1 January 2005 and to liabilities arising from share-based payment transactions existing on 1 January 2005. This treatment resulted in an increase in personnel expenses as such items have not been recognised as expenses previously by the Group. The Group recognised stock-based employee compensation costs based on the estimated fair value of share options at the grant date by using the Black-Scholes Option pricing model, after taking into consideration of risk-free rate, expected life of option, expected dividend yield and volatility etc, which are expensed over the relevant vesting periods. For the three months ended 31 March 2005, adoption of HKFRS 2 resulted in a decrease in net profit by approximately RMB38 million (for the three months ended 31 March 2004: approximately RMB9 million). This treatment also resulted in an employee share-based compensation reserve as of 31 December 2004 of approximately RMB111 million with a corresponding decrease in the retained earnings as of 31 December 2004 of the same amount.

 

(ii)                                  Goodwill / Negative goodwill

 

Under HKFRS 3 “Business Combinations”, goodwill is no longer amortised but instead is subject impairment test on an annual basis or when there are indications of impairment. This policy is applied prospectively from 1 January 2005. This resulted in a change of the Group’s accounting policy applied previously under which goodwill was amortised over the beneficial period of 20 years and assessed for an indication of impairment at each balance sheet date. In accordance with the provision of HKFRS 3, the Group ceased amortisation of goodwill from 1 January 2005, and accumulated amortisation as at 31 December 2004 was eliminated against the cost of goodwill. As of 31 December 2004, the carrying amount of goodwill, net of accumulated amortisation, amounted to approximately RMB3,144 million and the amortisaton for the three months ended 31 March 2004 amounted to approximately RMB43 million.

 

Upon the adoption of HKFRS 3, negative goodwill previously recognised with carrying amount of approximately RMB7 million as of 31 December 2004, which represented the excess of fair values of the net identifiable assets and liabilities acquired over the purchase consideration at the date of acquisition, has been derecognised at 1 January 2005, with a corresponding adjustment to the opening balance of retained earnings of the Group.

 

As required under HKFRS 3, upon the adoption of HKFRS 3 from 1 January 2005, the Group also applied HKAS 36 “Impairment of assets” and HKAS 38 “Intangible assets” prospectively from the same date. The adoption of these accounting policies has no significant impact on the Group’s operating results for the three months ended 31 March 2005.

 

(iii)                               Land use right in the PRC

 

Under HKAS 17 “Leases”, land use right in the PRC is no longer accounted for as property, plant and equipment. Instead, it is reclassified as other assets - long-term prepayment of lease, which is stated at cost and recognised as an expense on a straight-line basis over the lease term. This policy was adopted by the Group from 1 January 2005 and applied retrospectively. As of 31 December 2004 and 31 March 2005, the carrying amount of land use right in the PRC amounted to approximately RMB412 million and RMB400 million respectively. This change has no material impact on the operating results of the Group.

 

5



 

(iv)                              Revenue

 

Upon adoption of the new HKFRSs, the Group changed its accounting policy for upfront non-refundable revenue, such as connection fee, which had previously been recognised upon completion of activation services. Effective from 1 January 2005, upfront non-refundable revenue and the related direct incremental cost incurred are deferred and recognised over the expected customer service periods. The expected customer service period for the Cellular Business is estimated based on the expected stabilised churn rates of subscribers. Management judges that this change of accounting policy provides reliable and more relevant information because it better reflects the economic effects of the transactions and is consistent with the accounting policy adopted for the Group’s financial information presented under generally accepted accounting principle in the United States of America.

 

This change of accounting policy has been accounted for retrospectively and the relevant comparatives have been restated. For the three months ended 31 March 2005, this treatment resulted in an increase of net profit by approximately RMB45 million (for the three months ended 31 March 2004: increase of net profit by approximately RMB49 million), and a decrease of the retained earnings as of 31 December 2004 by approximately RMB368 million.

 

The adoption of the new HKFRSs as discussed above has resulted in the changes of the opening retained earnings of the Group as summarised below:

 

 

 

Retained
profits

 

 

 

RMB million

 

 

 

 

 

Balance at 31 December 2004, as previously reported

 

16,783

 

Effects of changes of accounting policies upon adoption of the new HKFRSs:

 

 

 

- Share-based payment (Note (i))

 

(111

)

- Upfront non-refundable revenue and the related direct incremental cost (Note (iv))

 

(368

)

Balance at 31 December 2004, as restated

 

16,304

 

- Derecognition of negative goodwill (Note (ii))

 

7

 

Balance at 1 January 2005

 

16,311

 

 

2.                                       Basic and diluted earnings per share

 

Basic earnings per share for the three months ended 31 March 2005 and 2004 were computed by dividing the profit attributable to shareholders of approximately RMB1,062,915,000 and RMB1,437,710,000 (as restated) by the weighted average number of 12,566,069,461 shares and 12,558,240,685 shares during the periods respectively.

 

Diluted earnings per share for the three months ended 31 March 2005 and 2004 were computed by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the periods, after adjusting for the effects of the dilutive potential ordinary shares. All potential dilutive ordinary shares arose from share options granted under (i) the amended Pre-Global Offering Share Option Scheme; and (ii) the amended Share Option Scheme. For the three months ended 31 March 2005 and 2004, all potential dilutive shares, which if converted to ordinary shares would decrease profit attributable to the shareholders per share. The anti-dilutive shares arising from the share options of approximately 31,944,000 shares (2004: approximately 31,944,000 shares) were not included in the calculation of diluted earnings per share.

 

3.                                       Related party transactions

 

For the three months ended 31 March 2005, the Group incurred recurring related party transactions with its related parties of which approximately RMB64,006,000 (2004: approximately RMB47,602,000) were included in the operating revenue and approximately RMB2,578,157,000 (2004: approximately RMB1,665,969,000) were included in the operating expenses.

 

6



 

On 24 March 2005, the Company’s subsidiaries, China Unicom Corporation Limited and Unicom New World Telecommunications Corporation Limited entered into the new agreements of “New Comprehensive Service Agreement”, “New CDMA Lease”, “New Comprehensive Operator Services Agreement” and “New Guoxin Premises Leasing Agreement” with China United Telecommunications Corporation, Unicom New Horizon Mobile Corporation Limited and Unicom New Guoxin Telecommunication Corporation Limited to replace the old agreements. The new agreements would become effective from 1 January 2005 once approved by the forthcoming extraordinary shareholders’ meeting on 12 May 2005. The effects of these new connected transaction agreements have not yet been reflected in the unaudited condensed consolidated income statements for the three months ended 31 March 2005 of the Group.

 

FINANCIAL RESULTS’ OUTLINE

 

In pursuing our determined operational mission, the Company maintained the steady growth of its various business segments for the first quarter of 2005.

 

Operating revenue

 

Operating revenue for the first quarter of 2005 was RMB20.86 billion, among which service revenue was RMB19.98 billion.

 

Net additions of subscribers for GSM Cellular Business were 2.715 million for the first quarter. Service revenue achieved from this business was RMB12.06 billion. The average minutes of usage (“MOU”) per subscriber per month was 186.5 minutes and the average revenue per subscriber per month (“ARPU”) was RMB46.9.

 

Net additions of subscribers for CDMA Cellular Business were 1.618 million for the first quarter. Service revenue from this business was RMB6.65 billion. The average MOU per subscriber per month was 275.5 minutes and the ARPU was RMB77.5.

 

In the first quarter, the Company’s total minutes of outgoing international and domestic long distance calls reached 6.15 billion minutes. Internet subscribers were 10.033 million. Service revenue from Long Distance, Data and Internet Business was RMB1.27 billion.

 

Operating expenses

 

Operating expenses for the first quarter were RMB19.00 billion. Among the total operating expenses, depreciation and amortization expenses were RMB5.02 billion, selling and marketing expenses were RMB4.61 billion and general, administrative and other expenses were RMB2.72 billion.

 

Profit attributable to shareholders

 

The Company’s operating profit for the first quarter was RMB1.88 billion. Operating profit from GSM Cellular Business was RMB2.13 billion; Operating loss incurred by CDMA Cellular Business was RMB0.28 billion. Operating profit from Long Distance, Data and Internet Business was RMB0.06 billion.

 

Net profit for the first quarter of 2005 was RMB1.06 billion. The earnings per share for the first quarter were RMB0.085.

 

EBITDA(Note 1) for the first quarter of 2005 was RMB6.87 billion. EBITDA margin (EBITDA as a percentage of operating revenue) was 33.0%. Adding back the leasing expenses incurred for CDMA network capacities, EBITDA margin was 42.3%. GSM Cellular Business’s EBITDA margin was 51.8%. EBITDA margin of Long Distance, Data and Internet Business was 32.3%.

 

Note 1:                                EBITDA represented the net profit before deducting interest income, finance costs, net other income, taxation and depreciation and amortisation.

 

7



 

Prospects

 

In the first quarter of 2005, the Company faced with intense market competition. The Company insisted on market-orientated approach and strengthened basic management. Transformation of development model was propelled proactively. Business and revenue grew steadily. Tariff and ARPU were stabilised. Marketing expenses were also controlled effectively. The Company will continue to insist on rational, pragmatic and proactive development strategies. Emphasis will be paid to efficient development of the GSM and CDMA network. Advantages of being an integrated operator and in CDMA 1X wireless data service will be focused. Market competition order will be maintained. Corporate management will be strengthened in order to propel continued and stable development of the Company. Better return will thus be created to the shareholders.

 

Caution statement

 

The Board wishes to remind investors that the financial statements and the financial outlines for the first quarter ended 31 March 2005 are based on the Group’s internal records and management accounts. The financial statements for the first quarter ended 31 March 2005 have not been reviewed or audited by the auditors. The financial statements for the first quarter ended 31 March 2004 are extracted from the unaudited financial statements already disclosed by the Group and has been restated, and the financial statements for the year ended 31 December 2004 are extracted from the audited financial statements as contained in the 2004 Annual Report and has been restated. Investors are cautioned not to unduly rely on financial data, statistics and comparison for the first quarter ended 31 March 2005. In the meantime, Investors are advised to exercise caution in dealing in the shares of the Company.

 

The Board of Directors of the Company comprises of:

 

Executive Directors:

 

Chang Xiaobing, Shang Bing, Tong Jilu, Zhao Le, Lo Wing Yan, William and Ye Fengping

 

 

 

Non-executive Director:

 

Liu Yunjie

 

 

 

Independent Non-executive Directors:

 

Wu Jinglian, Craig O. McCaw (Alternate Director to Craig O. McCaw: C. James Judson), Shan Weijian and Cheung Wing Lam, Linus

 

 

By Order of the Board

 

CHINA UNICOM LIMITED
YEE FOO HEI

 

Company Secretary

 

Hong Kong, 28 April 2005

 

8