Work in progress on the painting commissioned by Hongkong Telecom as a gift for the people of Hong Kong and the government of the new Hong Kong Special Administrative Region, 1 July 1997. Noted architectural artist Ben Johnson spent almost two years in the creation of this showpiece, which measures 6 X 12 feet. The cover of this Report shows a portion of the original black and white working drawing. Corporate profile Hongkong Telecom is Hong Kong’s major full service telecommunications provider, marketing a complete range of quality voice and data telecommunications services backed by a state-of-the-art fully digital fibre-optic network. The Company has several ‘world-firsts’ for telecommunications, and is actively developing leading-edge applications for interactive multimedia services technology. International telecommunications are facilitated by the Company’s sophisticated network of fibre-optic cable and satellite connections. CONTENTS Hongkong Telecom is 59% owned by Cable & Wireless which is 2 Financial highlights the world’s fourth largest carrier of international traffic, provides 4 Shareholder information mobile communications in more than 30 countries and operates 6 Directors and senior management the world’s largest, most advanced cableship fleet. The 8 Chairman’s statement combination of Cable & Wireless’ worldwide expertise and 10 Chief Executive’s report Hongkong Telecom’s regional experience makes us a powerful 15 Operational review global force. 24 Financial review Hongkong Telecom shares are listed on the Hong Kong Stock 32 Directors’ report Exchange and in the form of American Depositary Receipts on 34 Notice of annual general meeting the New York and Pacific Stock Exchanges. Hongkong Telecom 35 Report of the auditors this year had turnover of some $33 billion. 36 Consolidated profit and loss account 37 Balance sheets The Company truly lives its corporate philosophy: “What can 38 Consolidated cash flow statement be imagined, can be achieved.” 39 Notes to the financial statements 55 Principal subsidiary and associated companies 56 Supplementary information for ADR holders 58 Ten-year financial review 60 Ten-year statistical review 62 Milestones 63 Glossary of terms Financial highlights 1997 1996 Growth Turnover $M 32,578 29,405 10.8% Operating profit $M 12,203 11,093 10.0% Profit attributable to shareholders $M 11,178 9,939 12.5% Earnings per share cents 97.2 88.8 9.5% Dividend per share cents 76.3 67.8 12.5% Dividend payout % 78.5 76.3 – Turnover $ billion 21.6 24.3 26.9 29.4 32.6 2 ’93 ’94 ’95 ’96 ’97 Operating profit Profit attributable to shareholders $ billion $ billion 6.4 7.6 8.7 9.9 7.3 8.6 9.8 11.2 11.1 12.2 ’93 ’94 ’95 ’96 ’97 ’93 ’94 ’95 ’96 ’97 HONGKONG TELECOM ANNUAL REPORT 1997 ANALYSIS OF TURNOVER AND OPERATING PROFIT For the year ended 31 March Turnover Operating Profit 1997 1996 1997 1996 $M $M $M $M Telecommunications services 29,804 26,537 11,859 10,430 Equipment sales and rental 1,860 1,806 75 362 Computer, engineering and other services 914 1,062 269 301 32,578 29,405 12,203 11,093 Earnings per share cents 57.7 67.8 78.0 88.8 97.2 ’93 ’94 ’95 ’96 ’97 3 Dividend per share Dividend payout cents % 76.0 75.3 75.3 76.3 78.5 59.3 43.4 51.0 67.8 76.3 ’95 ’97 ’93 ’94 ’96 ’95 ’93 ’94 ’96 ’97 Shareholder information FINANCIAL CALENDAR Financial Year Ended Annual General Meeting ...................................... 4 July 1997 31 March 1997 Final Dividend payable on or about .....................11 July 1997 Dividend payable to ADR holders on or about .... 25 July 1997 Financial Year Ending Interim Results announcement ..................... November 1997 31 March 1998 1998 Interim Dividend payable ...................... December 1997 Annual Results announcement ............................... May 1998 Report and financial statements published .............. June 1998 Annual General Meeting ........................................ July 1998 1998 Final Dividend payable .................................. July 1998 LISTINGS Hongkong Telecom shares are listed on the Hong Kong, New York and Pacific Stock Exchanges. The listings on the New York and Pacific Exchanges are in the form of American Depositary Receipts (ADRs). 4 Hongkong Telecom is subject to the regulations of the United States Securities and Exchange Commission (SEC) as they apply to foreign companies whose securities are registered with the SEC. As required by the United States securities laws, Hongkong Telecom will file an annual report on Form 20-F with the SEC before 30 September 1997. Once filed, a copy of the Form 20-F may be obtained from either of the following: Kin Yu Thomas E McDonnell Group Manager, Investor Relations Vice President, Investor Relations Hong Kong Telecommunications Limited Hong Kong Telecommunications Limited 37th Floor, Hongkong Telecom Tower 777 Third Avenue, 35th Floor TaiKoo Place, 979 King’s Road New York, NY 10017, USA Quarry Bay, Hong Kong Telephone: +212 407 2050 PO Box 9896 GPO Hong Kong Fax: +212 593 9069 Telephone: +852 2888 6373 Fax: +852 2962 5003 HONGKONG TELECOM ANNUAL REPORT 1997 DIVIDEND COMPANY SECRETARY David N Prince Subject to approval by shareholders at the forthcoming Annual General Meeting, the proposed REGISTERED OFFICE final dividend for the year ended 31 March 1997 will be payable on or about 11 July 1997 to 39th Floor shareholders who are registered in Hong Kong with Central Registration Hong Kong Limited at Hongkong Telecom Tower TaiKoo Place, 979 King’s Road the close of business on 30 May 1997. Shareholders will again be offered a scrip alternative to Quarry Bay, Hong Kong Telephone: 2888 2888 the cash dividend. Fax: 2877 8877 Email: [email protected] This dividend will be payable on or about 25 July 1997 to ADR holders who are registered with Telex: 73240 HKTC HX the Company’s ADR Depositary, Citibank, N.A., at the close of business on 29 May 1997. REGISTRARS Central Registration Hong Kong Limited SUPPLEMENTARY INFORMATION FOR ADR HOLDERS Rooms 1901-5, Hopewell Centre Shares in Hongkong Telecom are listed in the United States in the form of ADRs under 183 Queen’s Road East, Hong Kong the sponsorship of its depositary agent, Citibank, N.A. Each ADR is equivalent to ADR DEPOSITARY Citibank, N.A. 10 ordinary shares of the Company. 111 Wall Street 5 New York, NY 10043, USA No tax is payable in Hong Kong by withholding or otherwise except in respect of dividends Telephone: 1 800 422 2066 (toll free) payable to certain persons carrying on a trade, profession or business in Hong Kong. ADR holders unsure of their tax position should consult their independent tax adviser. ADR holders registered on the books of the ADR Depositary in New York at close of business on 29 May 1997 can vote by proxy at the Annual General Meeting by completing a voting instruction card which will be sent to them. Alternatively, an ADR holder may appoint a discretionary proxy, usually the Chairman of the Meeting, by marking the designated box on the voting instruction card. Additional information and specific enquiries concerning Hongkong Telecom ADRs should be directed to the Company’s ADR Depositary at the address shown above. Other enquiries regarding the Company should be addressed to either: Tom McDonnell, Vice President, Investor Relations or Kin Yu, Group Manager, Investor Relations, at the addresses given on page 4. Directors and senior management Dr N Brian Smith* CBE Linus W L Cheung JP Chairman Chief Executive Dr Brian Smith, age 69, was appointed Linus Cheung Wing Lam, age 49, has Chairman of Hongkong Telecom in been Chief Executive of Hongkong November 1995 and has also served as Telecom since March 1994 with overall Chairman of Cable and Wireless plc responsibility for the Company’s from November 1995. A Non-Executive operations in Hong Kong, China and the Director of Cable and Wireless plc for region. He is a Director of Hongkong six years, 1989-95, he has also been the Telecom and was named an Executive Non-Executive Chairman of British Director of Cable and Wireless plc in Airport Authority plc since August January 1995. Mr Cheung serves on the 1991. He is a fellow of the Chartered Governor’s Business Council and is the Institute of Marketing and a Chairman of the Management Board of Companion of the British Institute of the School of Business at the University Management. Dr Smith was appointed of Hong Kong. Prior to joining Hongkong a Commander of the British Empire in Telecom, Mr Cheung was Deputy June 1980. Managing Director of Cathay Pacific Airways Limited. Dr The Hon David K P Li* Richard H Brown* OBE, JP Non-Executive Deputy Chairman Non-Executive Deputy Chairman Richard Brown, age 50, was appointed David Li, age 58, has been Deputy Non-Executive Deputy Chairman of Chairman of Hongkong Telecom since Hongkong Telecom in August 1996 December 1987. He is also Chairman and following his appointment, in July 1996, Chief Executive of the Bank of East Asia. as Chief Executive of Cable and Dr Li represents the Finance Constituency Wireless plc. He was formerly President in the Legislative Council of Hong Kong and and Chief Executive of H & R Block, also serves on the Provisional Legislature, Inc, the parent company of which will replace the Legislative Council in CompuServe. Prior to joining H & R July 1997. He is also a Member of the Block, he was Vice Chairman of Exchange Fund Advisory Committee, Ameritech Corporation. In a Banking Advisory Committee, and Hong telecommunications career spanning 27 6 Kong Association of Banks (Executive years, he has also worked with Ohio Bell Committee), as well as Chairman of the and Sprint Corporation. Chinese Banks’ Association.