2003 Interim Report
Disclaimer Certain statements contained in this document may be viewed as forwardlooking 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 involve 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 filed with the U.S. Securities and Exchange Commission (the SEC ) and the Company s other filing with the SEC. 2
Management Zhou Deqiang Chang Xiaobing Wu Andi Zhang Jiping Li Li Ping Chairman & CEO President EVP & CFO EVP EVP & Company Secretary 3
Content 2003 Interim Summary Business Review Financial Review 4
2003 Interim Summary
First Half of 2003: Sustained Healthy Growth (1) Net Profit RMB 9.26 bn 9.2% RMB 23.06 bn EBITDA 10.2% RMB 39.54 bn Operating Revenues 7.2% 16.8% Local Subs Broadband Subs 210.7% 62.20 m 2.56 m 1 All growth rates in this chart are figures YoY 6
Wire-line Telephone Service Showed Great Growth Potential (1) Accelerated Urbanisation (2) Increasing Disposable Income per Capita (2) 48.1% 47.2% 46.4% RMB 6,755 6,255 7,161 2000 2001 2002 2000 2001 2002 (2) Source: provincial statistics bureaus Sustained Subscriber Growth Million 48.48 56.86 62.20 (1) All figures are for our service regions 2001.12 2002.12 2003.6 7
Wire-line Telephone Service Showed Great Growth Potential (continued) New Subs of Wireless Local Access Service Per-line Investment for Wireless Local Access Service Thousand RMB 2,176 1,200-16.7% 1,000 1,008 750 1H2003 1H2002 2H2002 2002 1H2003 8
Broadband Internet Service Experienced Explosive Growth Internet Service Revenue 2002 Broadband Household Penetration Rate (1) RMB: Million 6.8% 59% 4.5% 5.5% 2,669 42% 2,110 1,665 16% 3.9% 1H2002 2H2002 1H2003 Korea HK Singapore Our Service Regions Internet service s contribution to operating revenues (1) Source: IDC 9
Risk in Long Distance Service Moderated Traffic Volume Market Share Revenue Share of Long Distance 84% 64% 69% 59% 55% 54% 63.4% 52.6% 31.5% 26.3% 23.3% 21.9% 2001 1H2002 2H2002 1H2003 2000 2001 2002 1H2003 DLD IDD 10
First Half of 2003: Challenges & Opportunities Strong drivers for growth Steady wire-line service with great potential Fast growing broadband service, a major driver of growth Burgeoning VAS a powerful revenue growth contributor Challenges from competition : More significant mobile substitution Fiercer competition in the long distance market Our strategies Market segmentation and distribution channel enhancement Extended local branch companies BPR initiatives Strengthened overall budget management and performance evaluation Acquisition of quality assets for external growth 11
Business Review
2003 Interim Results Overview Revenue RMB: Million 1H2002 1H2003 % Total 36,868 39,536 7.2% Among: Local 17,517 18,488 5.5% Revenue Share 1H2002 8.3% 3.3% 10.4% 6.8% 47.5% Data & Internet 2,511 3,643 45.1% DLD & IDD 8,749 8,653-1.1% 1H2003 23.7% 9.3% 7.0% 5.9% LL& Interconnection 3,827 3,662-4.3% VAS & Others 1,206 2,322 92.5% 9.2% 46.8% Local 21.9% Data & Internet LD LL & Interconnection Upfront Others 13
Local Telephone Subscriber Growth Local Subscribers New Local Subscribers Million Million 5.34 56.9 3.2 3.0 8.5 62.2 5.4 3.5 9.1 4.77 1.01 0.05 1.00 3.61 0.75 1.08 2.18 0.43 0.60 42.1 44.2 2.71 0.49 2.13 1.29 2002.12 2003.6 1H2002 2H2002 1H2003 Residential Enterprise Public Telephones Wireless Local Access 14
Local Voice Usage Growth Local Usage Usage Growth Under Pressure Pulses in billions 111.6 26.3 110.7 17.3% 22.0 16.8% 85.3 88.7 9.6% 3.9% 1H2002 Local voice usage Dial-up usage 1H2003 2002 1H2003 Growth rate of local voice usage Growth rate of local subscribers 15
Data & Internet Services Revenue of Data & Internet Revenue Share of Data & Internet RMB: Million 45.1% 3,643 9.2% 3,053 974 7.9% 2,511 6.8% 943 2.4% 846 2.3% 2.4% 1,665 2,110 2,669 4.5% 5.5% 6.8% 2H2002 1H2003 2H2002 1H2002 1H2002 1H2003 Internet Managed Data 16
Broadband Service Grew Rapidly Broadband Subscribers ADSL Per-line Investment & ARPU Thousand 2,562 RMB 1,300-27% 210.7% 950 1,379 824-8% 2002.12 2002.6 2003.6 2002 1H2003 ADSL per-line investment Growth rate of ARPU for ADSL 17
Risk in Long Distance Service Moderated DLD Traffic Volume DLD Revenue Minutes in billions RMB: Million 55% 54% 52.6% -2.3% 7,148 7,217 6,985 16.8% 16.3 17.3 19.1 1H2002 2H2002 1H2003 1H2002 2H2002 1H2003 Market share in terms of traffic volume 18
International Long Distance Service IDD Traffic Volume IDD Revenue Minutes in millions RMB: Million 69% 59% 63.4% 4.2% 16.7% 1,601 1,684 1,668 610 715 712 1H2002 2H2002 1H2003 1H2002 2H2002 1H2003 Market share in terms of traffic volume 19
Leased Line & Interconnection Revenue form Interconnection Revenue from Leased Line Service RMB: Million RMB: Million 2,272 2,091 2,253-9.4% 1,391 1,217 1,289 1,555 1,540 1,409 881 874 964 1H2002 2H2002 1H2003 1H2002 2H2002 1H2003 Net interconnection revenue Interconnection expenses 20
Operating Strategies & Distribution Channels Strategies for Customer Acquisition & Retention New Products Development Distribution Channels & IT System CTG-MBOSS Construction Usage-focused Marketing Strategies Pricing Strategies 21
Operating Strategies & Distribution Channels (continued) New Buildings& New Communities Strategy Sub.&Project 1 0 0 0 Strategy Key Account Manager 1A-5A Key Accounts Key Account Manager 0 C U S T O M E R Key Account Department High Value Business Sub. Bu s i n ess S u b Business Sub. Agents Business Sub.Department C E N T E R Community Low-end H Business o t l Sub. i n e Rural Low-end Business Sub. A Flowing Subscribers g e n Flowing Sub.Department Sales Managers c i e s Public Sub.Department Rural Contract Agents Community Managers Rural Public Subscribers Community Public Sub. 1 0 0 0 0 C U S T O M E R C E N T E R 22
Financial Review 23
Healthy Growth of Revenue & Net Profit RMB: Billion Revenue EBITDA Net Profit 36.868 7.2% 39.536 20.928 10.2% 23.057 8.483 9.2% 9.260 1H2002 1H2003 1H2002 1H2003 1H2002 1H2003 24
Disciplined Operating Expenses & Improved Profitability Operating Expenses & Operating Profit Margin Cash Opex & EBITDA Margin RMB: Billion 29.6% 25.970 30.9% 27.338 RMB: Billion 56.8% 15.940 58.3% 16.479 1H2002 1H2003 1H2002 1H2003 Operating Expenses Operating Profit Margin Cash Opex EBITDA Margin 25
Cost Structure More Rationalized RMB: Million 1H2002 1H2003 Depreciation & Amortisation Operating Expenses Total 25,970 27,338 5.3% 10,030 10,859 8.3% Operating Expenses Share 1H2002 5.4% 13.1% 38.6% 12.2% etwork Operations & Support 7,973 6,551-17.8% 1H2003 30.7% 4.8% SG&A 3,170 3,527 11.3% Personnel Interconnection Charges & Others 3,393 5,091 50.6% 1,404 1,310-6.7% 18.6% 39.7% 12.9% 24.0% D&A Network O&s SG&A Personnel Interconnection & Others 26
Network Operations & Support, SG&A Network O&S SG&A RMB: Million 7,973-17.8% 6,551 RMB: Million 11.3% 35,27 3,170 427-6.2% 955 2,743 2,572 1H2002 1H2003 1H2002 1H2003 Advertisement & Promotion Others 27
Capital Expenditure Capital Expenditure RMB: Billion 40.0 28.9 25.0 9.6 2001 2002 2003E 1H2003 28
Solid Capital Structure RMB: Million Short Term Debt Long Term Debt Total Debt Shareholders Equity Total Capitalization Cash & Cash Equivalents Net Debt Total Debt / Total Capitalization EBIT/Interest Expense 2002.12 2003.6 21,394 18,597 4,853 4,937 26,247 23,534 125,008 133,595 151,255 157,129 16,423 17,835 9,824 5,699 17.4% 15.0% 39 38 29
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Extract from unaudited consolidated statement of income for the 6 months ended 30 June 2003 Appendix I (RMB million) 1H2002 1H2003 Operating Revenues 36,868 39,536 Operating Expenses 25,970 27,338 Depreciation and amortisation 10,030 10,859 Network operations and support 7,973 6,551 SG&A 3,170 3,527 Personnel 3,393 5,091 Others 1,404 1,310 Operating Profit 10,898 12,198 Net Finance Cost 421 176 Taxation 1,965 2,743 Profit attributable to shareholders 8,483 9,260 EBITDA 20,928 23,057 31
Extract from unaudited consolidated balance sheet at 30 June 2003 Appendix II (RMB million) Audited Unaudited at 31 Decem ber 2002 at 30 June 2003 Cash and Cash Equivalents 16,425 17,835 Other Current Assets 10,077 10,736 Non-current Assets 184,350 183,078 Total Assets 210,852 211,649 Current Liabilities 57,627 51,511 Non-current Liabilities 27,083 25,368 Total Liabilities 84,710 76,879 Minority Interests 1,134 1,175 Shareholder's Equity 125,008 133,595 32