China Telecom JP Morgan China Conference 2006 Ms. Wu Andi CFO of China Telecom 26 April 2006 Beijing
Forward-Looking Statements Certain statements contained in this document may be viewed as forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 (as amended) and Section 21E of the U.S. Securities Exchange Act of 1934 (as amended). Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of China Telecom Corporation Limited (the Company ) to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company s most recent Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission (the SEC ) and in the Company s other filings with the SEC.
Highlights of 2005 Performance Solid Operating Performance Steady growth in revenue and net profit Strong Free Cash Flow Supportive of future investment and enhanced cash return to shareholders Effective CAPEX Control Ensuring investment return and sustainable growth Strategic Transformation on Track To secure a promising prospect
Key Performance Indicators of 2005 (Excl. Connection Fees) Continuous growth in subscribers, revenue and net profit 2004 2005 Growth Access Lines in Service (Mil) 186.65 210.09 12.6% Broadband Subs (Mil) 13.84 21.02 51.9% Operating Revenue (RMB Mil) 152,754 162,529 6.4% EBITDA (RMB Mil) 78,542 81,825 4.2% EBITDA Margin 51.4% 50.3% -1.1pp Net Profit * (RMB Mil) 19,565 21,131 8.0% EPS (RMB) 0.248 0.261 5.2% DPS (HKD) 0.065 0.075 15.4% Note: * Net profit used hereinafter represents profit attributable to equity holders of the company. Unless otherwise stated, all financial data used hereinafter exclude upfront connection fees.
Key Performance Indicators of 1Q 2006 1Q 2006* Access Lines in Service (Mil) Net Adds of Access Lines in Service (Mil) Broadband Subs (Mil) Net Adds of Broadband Subs (Mil) Operating Revenue (RMB Mil) Annual Growth of Operating Revenue EBITDA (RMB Mil) EBITDA Margin Net Profit (RMB Mil) 215.18 5.09 23.16 2.14 41,760 7.3% 22,339 53.5% 5,908 Steady growth in subscribers and revenue Benefited from the seasonal strength, EBITDA margin was raised to 53.5% * All data of 1Q 2006 used hereinafter were un-audited.
Operating Revenue RMB Mil Operating Revenue 41,700 41,060 40,849 41,760 38,920 RMB 41.76 billion of operating revenue in 1Q 2006, an increase of 7.3%, over the same period of 2005 Revenue from voice business stabilizing Internet access and VAS remain as key drivers for revenue growth 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006
Continued Growth in Access Lines Net Adds of Access Lines Composition of Net Adds of Access Lines Mil 7.30 2005 21.2% 4.83 4.46 3.23 5.09 2.45 63.6% 8.1% 7.1% 1Q2006 0.53 0.67 1.28 2.65 1.77 0.46 0.41 0.35 0.35 0.94 0.76 0.39 0.28 1.97 48.1% 38.7% 2Q2005 3Q2005 4Q2005 1Q2006 5.5% 7.7% Residential Enterprise Public Telephone PAS
PAS PAS Subscribers Strategies and Progress Mil 15.9% 22.6% 27.2% 57.1 27.7% 59.5 Enhance revenue from VAS over PAS 1Q2006: more than 100% 42.2 Reduce PAS investment plan 2006: more than 50% 25.6 Lower handset subsidy 2003 2004 2005 1Q2006 PAS Subs/Access Lines in Service Improve PAS network utilization 1Q2006: about 70% Strengthen bundling with other services
Voice Usage Local Voice Usage Pulse in Bil -1.1% Domestic Long Distance Usage Minute in Bil +7.9% International Long Distance Usage Minute in Bil +2.6% 107.82 106.65 21.33 23.02 0.38 0.39 1Q2005 1Q2006 1Q2005 1Q2006 1Q2005 1Q2006 Implementing targeted marketing and bundled services to maintain voice usage stable
Robust Broadband Business Mil Net Adds of Broadband Subs Broadband market is growing strongly in a sustainable way 2.14 1.88 1.65 1.80 1.85 To double broadband subscribers in 3-4 years Broadband ARPU in 1Q 2006 remained relatively stable 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 Improve high-end users contribution by differentiated services
Rapid Growing VAS Major VAS Major Growth of VAS Revenue in 1Q 2006 Caller ID Penetration rate: 64.2%, 1.6pp SMS 135% Usage: 74% Color Ring Tone Penetration rate: 39%, 7pp Telephone Information Service Integrated Information Services 26% 24% 29% Include: BestTone, China V-Net, BizNavigator and system integration Caller ID Telephone Information Service SMS & Color Ring Tone Integrated Information Services
Favorable Start-up of Integrated Information Services Daily Call-in Usage of BestTone BizNavigator Subscriber Pulse in Mil Thousand 2.68 +6.3% 2.85 +7.7% 3.07 44 +4.6% 46 +8.7% 51 2006.1 2006.2 2006.3 2006.1 2006.2 2006.3
Development Measures for 2006 Facing enormous pressure on revenue growth, due to intensified mobile substitution Endeavor to stabilize voice business and, continuously develop broadband business, VAS and integrated information services Controlled cash cost to maintain EBITDA margin at relatively high level
Stringent Cost Control Ensuring steady growth of profitability Continuously reduce capital expenditure, lower the ratio of depreciation and amortization to revenue Enhance the control on repair costs, personnel and administrative expenses Optimize finance structure to reduce finance cost Issued RMB 10bn 6-month Short Term Commercial Paper (2.54% p.a.) in October 2005 Issued RMB 20bn 1-year Short Term Commercial Paper (3.05% p.a.) in April 2006
Strengthen Internal Control Continue to strengthen internal control and reinforce management towards international best practices The operational management has been tested and evaluated in accordance with the internal control policy per COSO system Reducing corporate risk and further enhancing operating efficiency Continuously improving information disclosure and perfecting corporate governance
Promising Prospect Diverse market demand for telecommunications Maximize shareholders value Informationalization accelerating Technological advancement Achieve robust financial results Triple-play and Fixed-Mobile Convergence Expand integrated information service Enrich video communication business Increase contribution of non-voice business Strengthen development of Internet access & VAS Stringent control on investment Rapid economic growth Fully leverage existing resources to consolidate traditional fixed line business