Annual Report 2019 Stronger As ONE
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(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, 2013 2016 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 2018 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 2019 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. * 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 004 This is HKBN Group 008 Shareholder Letter 012 Board of Directors and Senior Management 020 Our Strategy Our Performance 024 Key Financial and Operational Summary 028 Management Discussion and Analysis 032 Report of the Directors 044 Customers 060 Talents 078 Suppliers Annual Report 2019 082 Community 094 Environment Our Governance 102 Corporate Governance Report 001 Other Information 117 Auditor’s Report 127 Financial Statements and Notes to Financial Statements 234 Five Year Summary 236 Corporate Information 237 References to HKEX ESG Reporting Guide 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 2019 at a Glance Financial Performance EBITDA growth* 29% Revenue growth % Annual Report 2019 45 Enterprise Revenue growth 002 30% Adjusted Free Cash Flow growth 69% HKBN Ltd. Community Number of hours volunteered 412 2,676 Volunteers Environment Waste recovery rate 15.69% Reduction of total carbon emissions in Hong Kong 60.31% operations in Hong Kong operations * Year-on-year increase 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 Network covers 7,200 2.4 million commercial homes buildings & facilities Annual Report 2019 003 878,000 277,000 HKBN Ltd. Activated mobile subscriptions Residential broadband (residential market) subscriptions 35.8% Market share of 103,000 residential broadband Enterprise customers services as of 30 June 2019 Talents Over Total training hours provided 330 Over Co-Owners (Co-Ownership Plan II) 4,400 Talents 103,093 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 Annual Report 2019 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 004 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’. HKBN Ltd. 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 Annual Report 2019 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. 005 Tri-carrier Network Diversity + One-stop ICT Advantage With our completed integration of WTT, HKBN Ltd. 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. * Please refer to the notes on page 11 for further details. This is HKBN Group 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. Diverse ICT solutions and bespoke Multi-play services for households: Annual Report 2019 services for enterprises: High Speed Fibre Broadband High-speed Fibre Business Broadband Managed Wi-Fi with Home Data Connectivity 006 Network Security and Parental Control Voice communication Home Telephone Mobile Services Mobile Services Integrated Cloud Services Over-The-Top Entertainment & Data Centre Services Music Streaming HKBN Ltd. Managed Wi-Fi Information Security Business Continuity System Integration HKBN Recurring Billing Relationships in in 1HK families3 HK1 active2 companies This is HKBN Group 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 Annual Report 2019 in the amount of between 2 and 12 months of salary to acquire HKBN stock. Through this dual role as both investors and Talents, our Co-Owners are incentivised with ‘skin in the game’ to watch 007 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 330 over 330 Co-Owners under Co-Ownership Plan II. In August 2019, an overwhelming majority