Disclosure of Further Corporate Information

Transcription

1 Cororate Information Set out below is information disclosed ursuant to the Rules Governing the Listing of Securities (the "Listing Rules") on The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"):- Commentary on Annual Results (I) Review of 1999 results The Grou generates most of its turnover from subscrition fees charged to our ay-tv customers for basic, remium and ay-er-view services, installation and other suort services. It also derives additional revenues from advertising income, satellite television systems services and rogramme guide sales. In 1999, the Grou began to generate revenues from Internet services with the launch of its dial u access service in March. With the receit of its FTNS licence in January 2000, the Grou has commenced to offer high seed broadband Internet services and exects that this service will be one of the key drivers of future revenue growth. Turnover for the Grou increased by 7% in 1999 to HK$1,346 million, as comared with HK$1,262 million recorded in The increase was due to revenues of HK$38 million generated from our Internet services, and an increase of HK$46 million in TV related revenues rimarily as a result of the solid subscriber growth achieved during the difficult economic conditions which revailed during most of the year. The Grou continued to tightly control its oerating costs in Oerating exenses (excluding network rental exense) declined marginally overall to HK$1,740 million from HK$1,761 million in the revious year. Programming costs decreased 6% to HK$550 million in Programming costs as a ercentage of turnover decreased to 41% from 46% in Selling, general and administrative exenses decreased by 3% to HK$324 million. Both rogramming costs and selling, general and administrative exenses declined rimarily due to reduced staff and overhead costs resulting from streamlining of oerations and roductivity imrovements. Network and other oerating exenses (excluding network rental exense) increased 13% to HK$246 million due mainly to telecommunications and other costs incurred with the start u of Internet services. Earnings before interest, taxes, dereciation and amortisation (excluding network rental revenues and exenses but including amortisation of rogramming library) or EBITDA, a key indicator of financial erformance for comanies in the cable and telecommunications industries, increased by 81% from HK$125 million to HK$225 million. The EBITDA margin increased from 10% in 1998 to 17% in Oerating loss was HK$303 million, reresenting a 22% imrovement from the HK$389 million reorted for Prior to the reorganisation ("Reorganisation") for its ublic offering, the Grou leased its fibre network to New T&T Hong Kong Limited ("New T&T"), which in turn sub-leased a art of the fibre network back to the Grou. As a result, the Grou derived network rental income and incurred network rental exenses. As art of the Reorganisation, the Grou transferred to New T&T the art of the network that New T&T requires for its oerations and terminated the network lease and sub-lease arrangements. Consequently, network rental income and exenses have ceased from October 1999 onwards. Interest income of HK$11 million was generated from the net roceeds from the initial ublic offering. Finance exenses amounted to HK$90 million, or 73% lower than the HK$332 million recorded in The decrease was rimarily due to an increase in the noninterest bearing amount of shareholder's loans during the year and their subsequent reayment in November. The Grou recorded a loss attributable to shareholders of HK$387 million for the year, an imrovement of 46% from the HK$720 million reorted in Loss er share was HK$0.24 comared to HK$0.45 for the revious year. 25>

2 Cororate Information < continued > See Chief Executive Officer's Reort on ages 10 to 24 for further oerating information on the Grou's various business units. The consolidated net asset value of the Grou at December 31, 1999 was HK$2,083 million, or HK$1.03 er share. (II) Liquidity and caital structure The Grou successfully comleted its initial ublic offering in November 1999 and issued 414 million shares to raise HK$4,123 million in net roceeds. Net cash generated from the offering after reayment of shareholder's loans amounted to HK$1,571 million. As at December 31, 1999, the ratio of net debt to total assets was 6%. The current ratio of the Grou was 216%, as the Grou had current assets of HK$1,756 million comared to current liabilities of HK$815 million. The net amount of cash on hand was HK$1,594 million, most of which was conservatively invested in term deosits with financial institutions. The cash will be more than sufficient to fund the Grou's oerational and caital exenditure requirements going forward and will rovide a strong financial base for the Grou to ursue new services and investment oortunities. The Grou had issued interest bearing convertible bonds of HK$1,800 million by the end of The term of the bonds is four years from November 24, 1999, with interest ayable at the rate of 4% er annum. During 1999, net cash generated from the Grou's oerating activities amounted to HK$487 million, an increase of 27% from the HK$383 million in Cash outflow from investing activities totalled HK$482 million, an increase of 9% from the revious year. The main areas of investing activities consist of the build out of fibre trunk and additional in-building coaxial networks, subscriber installations, urchase of decoders, and acquisition of rights for sorts events and movies. (III) Alication of roceeds from caital raising Out of the net roceeds of HK$4,123 million raised in the global offering of shares of the Comany as a result of its initial ublic offering in November 1999, HK$2,552 million has been used towards reayment of the shareholder's loans and the remaining roceeds of HK$1,571 million are to be used for caital exenditure and general cororate urose. To the extent that the net roceeds are not immediately used, they are laced on short-term deosit with banks or other financial institutions. 26>

3 > Disclosure of Further Cororate Information Emoluments of Directors and Five Highest Paid Directors/Emloyees (I) (a) Directors Aggregate emoluments Details of emoluments of the Directors of the Comany are set out in Note 7 to the Accounts on age 63. (b) Bandings The emoluments in resect of the year ended December 31, 1999 of all the Directors of the Comany in office during the year were in the following ranges:- Bands (in HK$) Number Nil - $1,000,000 5 $4,500,001 - $5,000, All of the Director's emoluments disclosed above were aid directly by The Wharf (Holdings) Limited ("Wharf") (or its wholly-owned subsidiaries) to the relevant Directors. With effect from November 1, 1999, Wharf (or its wholly-owned subsidiaries) commenced to recover such costs from the Grou by charging a management fee (see Note 29 (xiv) to the Accounts on age 77). (II) Indeendent non-executive Directors' emoluments No Directors' fees and other reimbursements or emoluments were aid to indeendent non-executive Directors of the Comany for the year ended December 31, (III) Emloyees Set out below are analyses of the emoluments (excluding amounts, if any, aid or ayable by way of commissions on sales generated by the emloyees concerned) for the year ended December 31, 1999 of 4 emloyees of the Grou who, not being Directors of the Comany, are among the to five highest aid individuals (including Directors of the Comany and other emloyees of the Grou) emloyed by the Grou. (a) Aggregate Emoluments HK$ Million (1) basic salaries, housing allowances, other allowances, and benefits in kind 7.8 (2) deemed rofit on share otion exercise (3) contributions to ension schemes 0.7 (4) discretionary bonuses and/or erformance-related bonuses 4.3 (5) comensation for loss of office (6) inducement for joining the Grou Total >

4 Cororate Information < continued > (b) Bandings Bands (in HK$) Number $2,500,001 - $3,000,000 1 $3,000,001 - $3,500,000 2 $3,500,001 - $4,000, Biograhical Details of Directors and Senior Managers (I) Directors Gonzaga W. J. Li, Chairman (Age: 70) Mr. Li has been a Director and the Chairman of the Comany since Setember Mr. Li is also the chairman of Wharf, Wheelock and Comany Limited ("Wheelock"), Modern Terminals Limited, Harbour Centre Develoment Limited ("HCDL"), Beauforte Investors Cororation Limited ("BIC"), The Cross-Harbour Tunnel Comany, Limited ("CHT"), New Asia Realty and Trust Comany, Limited, Realty Develoment Cororation Limited and Marco Polo Develoments Limited in Singaore. Furthermore, he is a director of WF Investment Partners Limited, which, as well as each of Wharf and Wheelock, is deemed under the Securities (Disclosure of Interests) Ordinance of Hong Kong (the "SDI Ordinance") to have an interest in the share caital of the Comany discloseable to the Comany under the rovisions of Part II of the SDI Ordinance. Stehen T. H. Ng, Deuty Chairman, President and Chief Executive Officer (Age: 47) Mr. Ng has been a Director, Deuty Chairman, President and Chief Executive Officer of the Comany since Setember He is the chairman and managing director of New T&T and the Chairman, President and Chief Executive Officer of Hong Kong Cable Television Limited ("HKC") and led the successful bid for and subsequent imlementation of Hong Kong's first cable TV licence. Mr. Ng is also the deuty chairman and managing director of Wharf and vice chairman of Wheelock. Furthermore, he is a director of Wharf Communications Investments Limited ("Wharf Communications") and WF Investment Partners Limited, both of which, as well as Wharf and Wheelock, are each deemed under the SDI Ordinance to have an interest in the share caital of the Comany discloseable to the Comany under the rovisions of Part II of the SDI Ordinance. 28>

5 > Disclosure of Further Cororate Information Fa-Kuang Hu, CBE, JP, Director (Age: 76) Mr. Hu has been a Director of the Comany since Setember He has also been a director of CHT since Mr. Hu is also the chairman of Ryoden Develoment Limited and is a director of Hysan Develoment Comany Limited. John T. Hung, SBS, JP, Director (Age: 61) Mr. Hung has been a Director of the Comany since Setember Mr. Hung is an executive director of Wharf. He is also the managing director of Wheelock and Western Harbour Tunnel Comany Limited and the vice-chairman of HKC. He is also a director of Marco Polo Develoments Limited in Singaore. He serves as the Government aointed chairman of the Hong Kong Sorts Develoment Board. Furthermore, he is a director of Wharf Communications, which, as well as Wharf and Wheelock, are each deemed under the SDI Ordinance to have an interest in the share caital of the Comany discloseable to the Comany under the rovisions of Part II of the SDI Ordinance. Anthony J. N. Russell, Director (Age: 59) Mr. Russell has been a Director of the Comany since Setember 1999 and was a director of Lane Crawford International Limited from February 28, 1998 to Setember 1, Mr. Russell is also a director of Leefung Asco Printers Holdings Limited and was emloyed by the Hongkong and Shanghai Banking Cororation Grou from 1973 to During this eriod, he held, inter alia, the ositions of managing director of Wardley Investment Services Limited (now known as HSBC Asset Management Asia Pacific Limited) and subsequently within the Bank as Chief Executive Officer - China. Paul Y. C. Tsui, Director (Age: 53) Mr. Tsui has been a Director of the Comany since Setember Mr. Tsui is also a director of Wheelock, BIC, CHT, HCDL, as well as being the grou financial controller of Wheelock and Wharf. Furthermore, he is a director of Wharf Communications, which, as well as Wheelock, are each deemed under the SDI Ordinance to have an interest in the share caital of the Comany discloseable to the Comany under the rovisions of Part II of the SDI Ordinance. (II) Senior Management Stehen T. H. Ng, Deuty Chairman, President and Chief Executive Officer (Age: 47) Vincent T. Y. Lam, Vice President - Technology and Network Services (Age: 49) Mr. Lam joined Wharf Communications in 1992 as Vice President - Planning, to lead the investment in ay-tv, telecommunications, and related oerations in Hong Kong and China made by the Grou's Cable TV arm, HKC. In 1995, Mr. Lam was aointed chief oerating officer of Wharf Communications Network Limited ("WCN"), resonsible for the rollout and deloyment of cable network infrastructure in Hong Kong. In 1999, Mr. Lam became Strategic Planning Director, HKC, resonsible for the Comany's legal, regulatory and long-term lanning. Mr. Lam has over 20 years of exerience in the telecommunications industry in the United States and Asia. Prior to joining Wharf Communications, Mr. Lam was general manager of business develoment in Asia for U.S. West International. 29>

6 Cororate Information < continued > Samuel S. F. Wong, Vice President - Finance and Cororate Develoment (Age: 38) Mr. Wong joined HKC in 1993 and was aointed Cororate Finance Director in He became Finance and Cororate Develoment Director in 1997 to head u the new Finance and Cororate Develoment Deartment with resonsibilities for finance, lanning, investment rojects, develoment of new services and commercial dealings with acquired channels. Mr. Wong reviously worked in Toronto, Canada with the investment and cororate banking grou of the Bank of Nova Scotia and as a chartered accountant with Price Waterhouse. Garmen K. Y. Chan, Vice President - External Affairs (Age: 46) Mr. Chan joined Wharf Communications in 1995 as External Affairs Director. He is resonsible for formulating and imlementing regulatory and external affairs strategies and action lans for Wharf Communications and HKC. Mr. Chan came from a diverse media background in Hong Kong, having held key ositions in English newsaers and local television stations. Mr. Chan was a media consultant rior to joining HKC. Eric Lo, Vice President - Cable Subscrition Services (Age: 49) Mr. Lo joined HKC in 1993 as Marketing and Sales Director to create and manage HKC's marketing and sales organisation. He was aointed Cable Oerations Director in Mr. Lo has an extensive background in consumer marketing. Prior to joining HKC, Mr. Lo was associated with American Exress, Sears Roebuck and The Bank of Montreal. May M. G. Fung, Vice President - Programming Services (Age: 56) Ms. Fung joined HKC in 1992 and was aointed Television Oerations Director in She is resonsible for the administration of TV oerations at HKC. Prior to joining HKC, Ms. Fung worked at Television Broadcasts Limited ("TVB") from 1967 and has over 30 years' exerience in television, media and communications. Benjamin W. S. Tong, Vice President - Multimedia Services (Age: 50) Mr. Tong joined HKC in 1995 to manage the Marketing and Sales Deartment in the Cable Oerations Division. He was aointed Cable Multimedia Services Director in August 1999 to lead the develoment of the Grou's high-seed Internet access service. Mr. Tong has over 20 years of marketing and sales exerience in Hong Kong, China and Taiwan. Prior to joining HKC, Mr. Tong was Marketing and Sales Director in Taiwan for American Exress. Antony S. H. Law, Vice President - Advertising and Licensing (Age: 42) Mr. Law joined HKC as Sales Manager in 1996 to hel create a home shoing channel. He was aointed Marketing Manager in 1997 to manage airtime marketing and sales activities. In 1999, Mr. Law became Controller - Airtime Marketing and Sales. Prior to joining HKC, Mr. Law has over 9 years of exerience in commercial airtime sales with TVB. 30>

7 > Disclosure of Further Cororate Information Roger C. Y. Lo, Vice President - Human and Information Resources (Age: 48) Mr. Lo joined HKC in 1996 as Human Resources Director. He has over 20 years of exerience in human resources management in a variety of industries. Prior to joining HKC, Mr. Lo was Vice President and Regional Resources Manager for the Asia-Pacific region for The Chase Manhattan Bank. Simon K. K. Yu, Vice President - Administration and Audit (Age: 46) Mr. Yu joined the Wharf Grou in 1987 and has held various ositions in the Wharf Grou (assistant cost audit manager of Wharf Proerties Limited and cost audit manager of Wharf). He was aointed Cororate Controller-Oerations of Wharf Communications in 1992, resonsible for oerations, accounting, finance, control, administration and ersonnel. In 1996, Mr. Yu was aointed Administration and Audit Director of HKC. Retirement Scheme The rincial retirement scheme oerated by the Grou is a defined contribution retirement scheme for its emloyees, established under a trust deed. Other fellow subsidiaries of the Grou also articiate in the scheme. The scheme is funded by contributions from emloyees and emloyers. The emloyees and emloyers contribute resectively to the scheme sums which reresent ercentages of the emloyees' salaries as defined under the trust deed. Forfeited contributions may be utilised by the emloyers to reduce contributions. The Grou's total retirement scheme costs charged to the rofit and loss account during the year ended December 31, 1999 amounted to HK$28,964,682 (1998: HK$11,356,013) which were incurred after utilisation of forfeitures to reduce the Grou's contributions of HK$5,570,254 (1998: HK$18,375,937). At December 31, 1999, the amount of forfeitures available to the Grou to be utilised to offset its future contributions amounted to HK$131,281. Major Customers & Suliers For the year ended December 31, 1999: (I) the aggregate amount of urchases (not including the urchases of items which are of a caital nature) attributable to the Grou's five largest suliers reresented less than 30 er cent of the Grou's total urchases; and (II) the aggregate amount of turnover attributable to the Grou's five largest customers reresented less than 30 er cent of the Grou's total turnover. 31>

8 Cororate Information < continued > Connected Transactions Set out below is information relating to connected transactions (the "Connected Transactions") between the Grou and Wharf and its subsidiaries (together, the "Wharf Grou") (the Comany is a 79.45% subsidiary of Wharf) which are required under conditional waivers granted by the Hong Kong Stock Exchange to be disclosed in the Annual Reort and Accounts of the Comany: (I) Proerty 1. Headquarters Pursuant to various assignment and novation agreements dated November 1, 1999 and various tenancy/licence agreements with members of the Wharf Grou, the Grou rents or is licensed to use the following remises: (a) Factory 3 on G/F and 4/F to 12/F (inclusive) of Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, Hong Kong ("Cable TV Tower"). The current monthly rental and management fee are HK$2,073,363 and HK$288,501, resectively. The rental eriod will exire on August 31, (b) Portions of 1/F and 2/F of Cable TV Tower. For each floor, the monthly rental is HK$12,600 and HK$9,064, resectively, and the monthly management fee is HK$3,150 and HK$2,266, resectively. The rental eriod for ortions of the 1/F and 2/F of Cable TV Tower will exire at the end of Setember and October 2002, resectively. (c) Units 1-7 on 40/F and storeroom 3 on the roof to of Cable TV Tower. The licences are renewable on a monthly basis and the current monthly licence fee and monthly management fee are HK$263,585 and HK$30,123, resectively. (d) Various car-arking and lorry-arking saces in Cable TV Tower. The licences are renewable on a monthly basis and the monthly licence fee for each of the car-arking and lorry-arking saces is HK$2,750 and HK$4,000, resectively. The aggregate rental, licence fee and management fee aid for the above-mentioned roerties for the year ended December 31, 1999 was HK$34,597, Pursuant to a licence agreement dated December 20, 1996, New T&T, a wholly-owned subsidiary of Wharf, was granted a licence to occuy the northern ortion of the 12/F of Cable TV Tower from January 1, 1997 and ays a fixed monthly licence fee of HK$147,869 to the Comany's wholly-owned subsidiary, HKC. The licence is renewable on a monthly basis and either arty may terminate the licence by giving to the other fifteen days' notice in writing. The licence fee received for the year ended December 31, 1999 was HK$1,774, >

9 > Disclosure of Further Cororate Information 3. The Grou has obtained a licence from Rudfield Comany Limited (a wholly-owned subsidiary of Wharf) to use each of the following roerties: (a) Unit B2, G/F, Kwok Wing House, Nos , Tung Choi Street, Kowloon for a term commencing Aril 1, 1999 and ending March 31, 2000 (with an otion to renew for one year) at a monthly licence fee of HK$60,000; (b) Sho No. 23, G/F, Golden Building, No Fuk Wa Street, Kowloon for a term commencing June 1, 1999 and ending May 31, 2001 (with an otion to renew for one year) at a monthly licence fee of HK$45,000; and (c) Worksho No. E13, 11/F, Block E of Tsing Yi Industrial Centre Phase II, Nos.1-33 Cheung Tat Road, Tsing Yi, New Territories for a eriod of 10 years from October 4, 1999 at a current monthly licence fee of HK$9,420. The aggregate licence fee aid for the above-mentioned roerties for the year ended December 31, 1999 was aroximately HK$825, Car-arking HKC has rented car-arking saces under the management of Metroark Limited ("Metroark"), a wholly-owned subsidiary of Wharf. The monthly fee ayable to Metroark for each car-arking sace at Chai Wan Kok Street, Tsuen Wan is HK$1,610. Until the end of January 1999, the Grou also aid a monthly car-arking fee to Metroark of HK$1,500 er car-arking sace at Tsuen Wan Pier and HK$2,800 er car-arking sace at World Trade Square. The car-arking fee aid by HKC to Metroark for the year ended December 31, 1999 was HK$1,832,394. (II) Comuter services 1. COL Limited ("COL"), a wholly-owned subsidiary of Wharf, rovides information technology services to HKC. These services were rovided to HKC on substantially the same terms as the services are rovided to other indeendent customers of COL. The service fees ayable to COL deend uon the tyes of services required by and rovided to the Grou which include, inter alia, maintenance and suort services for the subscriber management system, the comuter network and other comuter hardware and software. The service fees aid by HKC to COL for the year ended December 31, 1999 were HK$8,346, Pursuant to an agreement dated August 1, 1993 and an addendum, COL rovides billing services to HKC for a eriod of 36 months commencing March 1, 1998 at a minimum monthly service fee of HK$200,000. The service fee is to be revised annually for inflation, according to 50 er cent. of the changes in the "CPI B" index. The services are rovided to HKC on substantially the same terms as the services are rovided to other indeendent customers of COL. The service fees aid by HKC to COL for the year ended December 31, 1999 were HK$6,080, >

10 Cororate Information < continued > (III) Network 1. MTRC Contracts - Installation and Maintenance of Network within MTR System Wharf Communications entered into an agreement (the "1992 Agreement") with Mass Transit Railway Cororation ("MTRC") in 1992 for the construction of a fibre otic network within the MTR System. A subsequent agreement was entered into between Wharf Communications and MTRC in 1998 (the "1998 Agreement") to deal with the additional works required to exand network caacity. A letter of agreement dated Setember 28, 1999 (the "Letter of Agreement") and two novation agreements dated October 21, 1999 (the "Novation Agreements") were entered into between Wharf Communications, HKC, New T&T and MTRC under which the arties agreed to, inter alia, the following: (a) the network constructed under the 1992 Agreement and the 1998 Agreement be divided into a fixed telecommunication network ("FTNS Network") and a cable television network ("CATV Network"); and (b) New T&T would assume all the obligations of Wharf Communications for the FTNS Network under the 1992 Agreement and the 1998 Agreement while HKC would assume all the obligations of Wharf Communications for the CATV Network under such Agreements. Under the Novation Agreements, New T&T and HKC further agreed in rincile to grant a joint and several indemnity in favour of MTRC for any claims which MTRC may have against Wharf Communications under the 1992 Agreement and the 1998 Agreement, resectively, where such claims relate to obligations of Wharf Communications which have been assumed by either New T&T or HKC under the Novation Agreements. Pursuant to a deed of indemnity dated November 1, 1999, Wharf Communications has undertaken to indemnify HKC against all claims and liabilities which HKC may sustain or incur under the 1992 Agreement or the 1998 Agreement or the Novation Agreements to the extent that such liabilities arose from the acts or omissions of Wharf Communications or are referable to the conduct of any of the directors of Wharf Communications on or before the date of the relevant Novation Agreements. 2. Agreement for the Maintenance and Sharing of Ducts, Cables and Ancillary Equiment On November 1, 1999, HKC and New T&T entered into an agreement for the maintenance (but not the sharing) of both existing and new ducts, cables and ancillary equiment and the sharing of existing ducts, cables and ancillary equiment (the "Duct and Cable Sharing Agreement"). The Duct and Cable Sharing Agreement contains detailed rinciles agreed between the arties for maintenance and reair charges. For the year ended December 31, 1999, an amount of HK$3,212,000 was charged by HKC against New T&T in relation to reair and maintenance works for ducts and cables. 34>

11 > Disclosure of Further Cororate Information 3. Internet Access Services The Grou is engaged in the business of roviding dial-u Internet access services. In order to rovide such a service, the Grou has leased datalines from New T&T to route traffic to the Tsuen Wan office. The Grou has also incurred PNETS charges ayable to New T&T. Datalines are also leased from New T&T for sub-leasing to a cororate customer. The leased datalines and PNETS charges for the year ended December 31, 1999 were HK$6,391, Project Management Services Agreement On November 1, 1999, WCN and New T&T entered into a roject management services agreement (the "Project Services Agreement"). Under the Project Services Agreement, WCN rovides such roject management services to New T&T from time to time as required by New T&T. The Project Services Agreement rovides that, for each roject managed by it, WCN will charge New T&T a roject management fee which is equivalent to 15 er cent. of the aggregate costs of materials and contractors for the relevant roject. The roject management fees received by the Grou for the year ended December 31, 1999 were HK$604, Interim Agreement for the Construction and Sharing of Ducts On February 26, 1997, HKC, New T&T, Hong Kong Telehone Comany Limited (now known as Cable & Wireless HKT Telehone Limited), Hutchison Communications Limited (now known as Hutchison Global Crossing Limited) and New World Telehone Limited entered into an interim agreement relating to the shared construction, use and maintenance of ducts for telecommunications cables and equiment. The arties are in the rocess of negotiating a final agreement. The ayments by the Grou to New T&T under the interim agreement for the year ended December 31, 1999 were HK$48,327. (IV) Advertising services HKC rovides air-time advertising services to New T&T on the same terms as those services are rovided to indeendent customers of HKC. The advertising service revenue received by HKC from New T&T for the year ended December 31, 1999 was HK$1,091, >

12 Cororate Information < continued > (V) Management services As art of the Reorganisation, the Grou entered into a management services agreement with Wharf Limited (a wholly-owned subsidiary of Wharf) roviding for the allocation of costs and exenses to be incurred in the future by Wharf Limited to the Grou. The services rovided by Wharf Limited to the Grou include cororate secretarial services, treasury services, rovision of management ersonnel and other general cororate services. The annual service fees ayable by the Grou for the year ended December 31, 1999 were HK$2,600,000. (VI) Convertible bonds As art of the Reorganisation, certain convertible bonds ("Convertible Bonds") for an amount of HK$1.8 billion were issued by the Comany to Wharf Communications on terms set out in a deed oll dated November 18, The Convertible Bonds carry interest at the rate of 4 er cent. er annum and the interest ayable to Wharf Communications was HK$7,400,000 for the year ended December 31, During the 4-year term of the Convertible Bonds, Wharf Communications may, at any time, subject to the Comany's minimum ublic float requirement, exercise the rights under the Convertible Bonds to convert the whole or art of the Convertible Bonds into new Shares in accordance with the terms and conditions of the deed oll. (VII) Conditional waiver granted by The Hong Kong Stock Exchange As all of the Connected Transactions will be conducted on an ongoing basis, it is considered that strict comliance with the relevant requirements relating to the Connected Transactions under Chater 14 of the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the "Requirements") would be imractical. On alication by the Comany, it was granted a conditional waiver from strict comliance with the Requirements in resect of the Connected Transactions. (VIII) Confirmation from the Directors The Directors, including the indeendent non-executive Directors, of the Comany have reviewed the Connected Transactions and confirmed that :- 1. the Connected Transactions were: (i) entered into by the Grou in the ordinary and usual course of its business; (ii) conducted either (A) on normal commercial terms (which exression will be alied by reference to Connected Transactions of a similar nature and to be made by similar entities) or (B) (where there is no available comarison) on terms that are fair and reasonable so far as the shareholders of the Comany are concerned; and (iii) entered into either (A) in accordance with the terms of the agreements governing such Connected Transactions or (B) (where there are no such agreements) on terms no less favourable than those available to or from indeendent third arties; 36>

13 > Disclosure of Further Cororate Information 2. in resect of each of the Connected Transactions, the aggregate amount of Connected Transactions within each such category for the financial year ended December 31, 1999 of the Comany did not exceed the relevant ca amounts (the "Ca Amounts") stated below: Transaction stated in aragrah numbered Ca amounts (I)1 (I)2 (I)3 (I)4 (II)1 (II)2 (III)2 (III)3 (III)4 (III)5 (IV) (V) (VI) 3.5% of the Grou's turnover for the immediately receding year 1% of the Grou's turnover for the immediately receding year 1% of the Grou's turnover for the immediately receding year 1% of the Grou's turnover for the immediately receding year 2% of the Grou's turnover for the immediately receding year 1% of the Grou's turnover for the immediately receding year 2% of the Grou's turnover for the immediately receding year 13% of the Grou's turnover for the immediately receding year HK$40 million HK$16 million 1% of the Grou's turnover for the immediately receding year 1% of the Grou's turnover for the immediately receding year HK$88 million 37>

14 Cororate Information < continued > The Year 2000 Issue Many currently issued comuter systems and software roducts were originally coded to accet or recognise only two digit entries in the date code field. These systems and software roducts would need to accet four digit entries to distinguish 21st century from 20th century dates. As a result, comuter systems and software used by many comanies might need to be ugraded to comly with Year 2000 requirements or risk system failure or miscalculations which may cause disrutions to normal business activities. The Grou has conducted a comrehensive assessment on systems and software used and its value chain that could be affected by Year 2000 issue to ensure that the imact would be minimised. A steering committee headed by the Grou Directors was formed in early 1998 and all milestones have been set and met. In addition, various working grous have been established to address the issue and they have been reorting to the steering committee for rogress monitoring. The Grou has comleted all critical rojects and Year 2000 related tasks including the ugrading and, where aroriate, relacement of existing systems and software to ensure Year 2000 readiness. The comanies comrising the Grou achieved Year 2000 comliance by Setember Key oerating units of the Grou have formulated their Year 2000 contingency lans to detail their rocedures in dealing with ossible interrutions arising from the Year 2000 issue. A Year 2000 Command Centre and a management team have also been established to oerate at the office during Year 2000 critical dates. The Grou's systems and software have assed the transition to 21st century without roblems. Since 1997, it has been the olicy of the comanies comrising the Grou to include a Year 2000 comliant warranty clause in all contracts and urchase orders. In addition to ersonnel costs associated with time sent by the emloyees of the Grou, the Grou has sent a total of aroximately HK$2.7 million to rectify the roblem. All these exenses incurred for Year 2000 comliance are recognised as exenses when incurred excet for those incurred for the relacement of hardware and software which enhance the caacity and caability of major systems which are caitalised and amortised according to general accounting ractices. 38>

15 > Disclosure of Further Cororate Information Directors' Interests in Cometing Business Set out below is information disclosed ursuant to aragrah 8.10 of the Listing Rules of the Hong Kong Stock Exchange. Two Directors of the Comany, namely, Messrs. S. T. H. Ng and P. Y. C. Tsui, being also directors of New T&T, a wholly-owned subsidiary of Wharf, are considered as having an interest in New T&T under aragrah 8.10 of the Listing Rules. Part of the communications businesses carried on by New T&T constitutes a cometing business of the Grou. New T&T currently holds a FTNS licence to rovide, inter alia, local and international telecommunications services. New T&T is therefore a otential cometitor of the Grou for the rovision of data services at the resent and voice services in the future. However, the Grou focuses on residential subscribers who are connected by its HFC network while New T&T's focus has since the initial ublic offering of the Comany's shares in November 1999 been mainly on the business market. In order to rotect the interests of the Grou, rior to the date of listing of shares of the Comany on the Hong Kong Stock Exchange, each of Wharf and Wharf Communications has covenanted with the Comany, subject to certain conditions, not to, and to use its best endeavours to rocure that none of the directly or indirectly held subsidiaries (including New T&T) and associated comanies of Wharf will, either alone or jointly with any other arty, directly or indirectly carry on, or be engaged or concerned or interested in or assist, any business in Hong Kong which would comete directly or indirectly with the ay-tv and cable modem services businesses of the Grou from time to time. The Grou considers that its interests in the relevant sector of its communications businesses is adequately safeguarded and the Grou is caable of carrying on its communications businesses indeendently of New T&T. For further safeguarding the interests of the Grou, the indeendent non-executive Directors and the Audit Committee of the Comany would on a regular basis review the business and oerational results of the Grou to ensure, inter alia, that the Grou's communications businesses are and continue to be run on the basis that they are indeendent of, and at arm's length from, that of the Wharf grou. 39>