ABOUT US SmarTone Telecommunications Holdings Limited (0315.HK), listed in Hong Kong since 1996 and a subsidiary of Sun Hung Kai Properties Limited, is a leading telecommunications provider with operating subsidiaries in Hong Kong and Macau, offering voice, multimedia and mobile broadband services, as well as fixed fibre broadband services for both consumer and corporate markets. SmarTone spearheaded 5G development in Hong Kong since May 2020, with the launch of its territory-wide 5G services. SmarTone is your smart partner that delivers a trusted and connected experience through our high-quality network, people-driven products and services combined with innovation, passion and understanding of customer needs. SmarTone differentiates our content, excellent customer service, business and consumer products for all our Hong Kong customers, allowing them to live and feel smarter everyday. This strong presence is also backed by expert technical know-how, over 30 stores across Hong Kong, our 5 core brands and our innovative business strategies arm. CONTENTS About Us Directors and Corporate Information 2 Financial Highlights 3 Business Highlights 4 Chairman’s Statement 8 Management Discussion and Analysis 10 Corporate Governance Report 13 Report of the Directors 24 Directors Profile 41 Staff Engagement 48 Community Engagement 50 Group Financial Summary 52 Independent Auditor’s Report 53 Consolidated Profit and Loss Account 59 Consolidated Statement of Comprehensive Income 60 Consolidated Balance Sheet 61 Consolidated Cash Flow Statement 63 Consolidated Statement of Changes in Equity 65 Notes to the Consolidated Financial Statements 67 ANNUAL REPORT 2019/20 REPORT ANNUAL 1 DIRECTORS AND CORPORATE INFORMATION Board of Directors Auditors * Mr. KWOK Ping-luen, Raymond PricewaterhouseCoopers Chairman Certified Public Accountants * Mr. CHEUNG Wing-yui 22nd Floor, Prince’s Building Deputy Chairman 10 Chater Road, Hong Kong Mr. FUNG Yuk-lun, Allen Deputy Chairman Hong Kong Share Registrar Mr. CHAU Kam-kun, Stephen * Mr. David Norman PRINCE Computershare Hong Kong Investor Services Limited * Mr. SIU Hon-wah, Thomas Shops 1712–1716, 17th Floor, Hopewell Centre * Mr. John Anthony MILLER 183 Queen’s Road East, Hong Kong ** Dr. LI Ka-cheung, Eric, JP ** Mr. NG Leung-sing, JP Principal Share Registrar ** Mr. GAN Fock-kin, Eric MUFG Fund Services (Bermuda) Limited SMARTONE TELECOMMUNICATIONS HOLDINGS LIMITED TELECOMMUNICATIONS SMARTONE ** Mrs. IP YEUNG See-ming, Christine 4th Floor North, Cedar House ** Mr. LAM Kwok-fung, Kenny 41 Cedar Avenue * Non-Executive Director Hamilton HM 12, Bermuda ** Independent Non-Executive Director Principal Bankers Company Secretary Standard Chartered Bank (Hong Kong) Limited Mr. MAK Yau-hing, Alvin The Hongkong and Shanghai Banking Corporation Limited Authorised Representatives Hang Sang Bank Limited Mr. CHAU Kam-kun, Stephen Mr. MAK Yau-hing, Alvin Legal Advisors to the Company As to Hong Kong law Registered Office Norton Rose Fulbright Clarendon House, 2 Church Street As to Bermuda law Hamilton HM 11, Bermuda Conyers, Dill & Pearman Head Office and Principal Place Bermuda Resident of Business Representative 31st Floor, Millennium City 2 Conyers Corporate Services (Bermuda) Limited 378 Kwun Tong Road, Kwun Tong Clarendon House, 2 Church Street Kowloon, Hong Kong Hamilton HM 11, Bermuda 2 FINANCIAL HIGHLIGHTS (Expressed in Hong Kong dollars in millions except per share amounts) Year ended or as at 30 June 2020 2019 Change Consolidated profit and loss account Revenues 6,986 8,415 (17%) Profit attributable to equity holders of the Company 379 632 (40%) Basic earnings per share ($) 0.34 0.56 (39%) Total dividends per share ($) 0.295 0.39 (24%) Consolidated balance sheet Total assets 10,432 9,883 6% Current liabilities (2,874) (2,673) 8% Total assets less current liabilities 7,558 7,210 5% Non-current liabilities (2,545) (2,133) 19% Non-controlling interests 20 (20) N/A Net assets 5,033 5,057 (0%) Share capital 112 112 (0%) Reserves 4,921 4,945 (0%) Total equity attributable to equity holders of the Company 5,033 5,057 (0%) Year ended 30 June 2020 2019 Change Consolidated cash flows Net cash inflow from operating activities 2,017 1,304 55% Interest received 85 70 21% Payment for purchase of fixed assets (540) (519) 4% Proceeds from disposal of financial assets at amortised cost 319 78 309% Payment of mobile licence fees (96) (62) 55% Dividends paid (389) (374) 4% Repayment of bank borrowings (net) (494) (128) 286% Principal elements of lease payments (758) – N/A Payment or prepayment for repurchase of shares (22) (58) (62%) Others (2) (2) 0% Net increase in short-term bank deposits, and cash and cash equivalents 120 309 (61%) Effect of foreign exchange rate changes 1 (7) N/A 2019/20 REPORT ANNUAL 121 302 (60%) 3 BUSINESS HIGHLIGHTS SmarTone marks a new milestone for the Hong Kong telecom industry and brings the best 5G network experience to consumers in Hong Kong, with the widest 5G network coverage. We continue to lead the market through technology leadership, innovation, customer centric strategy and digitalisation, bringing outstanding user experience and valuable services to our customers. 1. Technology Leadership SmarTone launched its world-class 5G service with the city’s widest network coverage through Dynamic Spectrum Sharing (DSS) to spearhead smart city development in Hong Kong. SMARTONE TELECOMMUNICATIONS HOLDINGS LIMITED TELECOMMUNICATIONS SMARTONE SmarTone “5G Experience Pod” brought a taste of the powerful 5G network and daily applications to the public. Collaboration with start-ups to put forth the SmarTone 5G Innovation Hub with a new wave of 5G live demo. ‘The Widest Coverage in HK’ is based on results obtained from SmarTone’s road test conducted on 3 September 2020. The road test covers major roads including expressways, trunk roads, tunnels and bridges in Hong Kong. 5G coverage is defined as spot with received 5G radio signal level not weaker 4 than -95dBm. The visual shown is for illustrating the coverage of our 5G network. Coverage may not be available in some locations. BUSINESS HIGHLIGHTS 2. Empowering Innovation SmarTone AR unlock 3D virtual characters and pets and bring them to real world with AR, to have fun with virtual characters and pets wherever you go. Cross-industry SmarTone Hackathon themed “5G & Smart City” attracted creative talents from around the world to realise their full potential in 5G technology idea. SmarTone Solutions injected the latest technology into end-to-end enterprise solutions to unleash the digital transformation of enterprises. SmartHome SmartHotel SmartWorks ANNUAL REPORT 2019/20 REPORT ANNUAL 5 BUSINESS HIGHLIGHTS 3. Customer-Centric Strategy Serving customers in different segments with a full range of services, unparalleled experiences and extraordinary privileges, amplifies our 5S standard for network experience in the mobile service industry. SMARTONE TELECOMMUNICATIONS HOLDINGS LIMITED TELECOMMUNICATIONS SMARTONE With the exceptional team performance in customer services, we garnered multiple accolades at the 2019 Service & Courtesy Award and Smiling Enterprise Award 2019/2020. A premium membership class has been discovering a world of prestige for customers, including birthday celebrations, selected offers, priority and privileges, refined experiences as well as flash surprises. 6 BUSINESS HIGHLIGHTS 4. Digitalisation Full digital brand “Birdie“ continues to partner with major brands to elevate its brand and loyalty amongst millennials as well as run promotions that benefit our customers. Chatbot continues to improve customer experience and enhance efficiency. Award-winning website and online store to offer a customer centric experience. ANNUAL REPORT 2019/20 REPORT ANNUAL 7 CHAIRMAN’S STATEMENT (Financial figures are expressed in Hong Kong dollars) Business review The year under review has been one of the most challenging in recent memory as the COVID-19 pandemic severely affected both business operations, as well as our customers’ way of life. The Group’s profitability suffered; the decline was primarily due to the collapse in roaming revenues (both inbound and outbound) as international travel was severely restricted. In addition, a fixed asset impairment of our subsidiary in Macau was recognised in view of business uncertainties and the impact of COVID-19. Underlying profit attributable to equity holders, which excludes a one-off cost adjustment in FY19 and the Macau impairment in FY20, dropped 24% from $581 million to $440 million. Reported profit attributable to equity holders was $379 million, 40% lower compared to the prior year profit of $632 million. The Company has made an impairment for our Macau business, mainly for the network assets. The Macau mobile telecom market is highly competitive and even more so under COVID-19. We face an unlevel playing field in our competition: very high backhaul costs from one predominant operator, and substantial government charges. We are SMARTONE TELECOMMUNICATIONS HOLDINGS LIMITED TELECOMMUNICATIONS SMARTONE currently conducting a strategic review on the viability of the business. To strengthen the resilience of the Company, management has already initiated a program of cost reduction and productivity improvement. The savings will primarily come from “non-network” related areas to ensure that the quality of the network, one of the key strengths of the Company, will not be impacted. Leaving the impact of roaming aside, the core business of SmarTone was resilient during the last financial year. The number of