China Telecom Corp Ltd (CHA)

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China Telecom Corporation Limited (CHA)

FY08 Interim Results Call

August 28, 2008, 12:00 PM ET


Ma Yimin - Manager Director of IR

Wang Xiaochu - Chairman and CEO

Shang Bing - President and COO

Wu Andi - Executive Director, EVP and CFO



Ma Yimin - Manager Director of Investor Relations

Good afternoon, ladies and gentlemen. I am Ma Yimin, the Managing Director of Investor Relations of China Telecom Corporation Limited. On behalf of the company’s management, I would like to welcome you all to this presentation for the 2008 Interim Results. This presentation will be conducted in Mandarin with simultaneous English interpretation.

Consecutive interpretation will be provided in Q&A section. Please be reminded to set your cell phone to silent mode or switch it off during this presentation.

First of all, may I introduce the management of our company, Mr. Wang Xiaochu, Chairman and CEO; Mr. Shang Bing, President and COO; and, Madam Wu Andi, Executive Vice President and CFO. Thank you for coming and hope you find this presentation useful.

I will now invite Chairman Wang to give you an overview of… on the overall performance of the company in the first half of ‘08.

Wang Xiaochu - Chairman and Chief Executive Officer

Good afternoon, ladies and gentlemen. I’m very pleased to meet you all within this short period of time and introduce to you the company’s results in the first half of 2008. This presentation is divided into three sections. First of all, I will introduce the overall performance. This will be followed by Mr. Shang and Madam Wu who will present to you the business performance and financial performance, respectively.

In the first half of ‘08, the MIIT, NDRC, and Ministry of Finance issued the announcement on the beginning of the institutional reform of the telecommunications sector. The long-awaited industry restructuring was put into effect, which would enable us to accelerate the process of moving into the mobile industry and commencing full service offering.

In the first half of the year, imbalanced competitive landscape in the telecommunications market as well as two major natural disasters of snowstorm and earthquake had negatively affect the company. In the face of pressure and challenges, we adhered to deepening the transformation and proactively taking measures to stabilize the fundamentals.

The overall performance showed the following four highlights. First, the company operating revenue remained stable through transformation. Second, we adhered profitable operations to support the company’s sustainable development. Third, we commenced the acquisition of CDMA business as well as prepared in advance for full service operations. Fourth, we continued to optimize the CapEx structure to further enhance the company’s competitiveness.

In the first half of ‘08, operating revenue was RMB89.406 billion, an increase of 1.5% year-on-year from the comparable KPIs. We exclude the impact of the natural disasters of snowstorm and earthquake and the new income tax law. The snowstorm and earthquake brought the negative impact and the positive impact is come from the new income tax law and we exclude this impact, The company’s EBITDA was RMB45.968 billion, a growth of 1.9% and EBITDA margin remained at a relatively high level of 51.4%.

Net profit was RMB12.181 billion, an increase of 0.8% year-on-year. Net add of broadband subscribers was 4.3 million and access lines in services dropped by 5.44 million. This table showed IFRS-based financial results, which include upfront connection fees.

In the first half of this year, the snowstorm in the southern region and earthquake leads to loss to the company. It is unfortunate that in the year we got two natural disasters and caused losses to the company of which assets write-off and maintenance costs due to snowstorm were about RMB370 million and 200 million respectively.

Assets write-off and maintenance cost caused by earthquake were about RMB1 billion and RMB130 million respectively. As a result, the company’s EBITDA for the first half of the year reduced by RMB1.7 billion, net profit reduced by RMB1.281 billion and CapEx spend increased by about RMB2.2 billion.

In the first half of the year, non-voice business was the main growth driver for the company’s revenue, contributing RMB8.047 billion which offsets the decline in the voice business revenue and show steady growth of total revenue of RMB1.315 billion. The transformation businesses, Internet and data business as well as VAS and integrated information services, they showed rapid growth and contribute revenues of RMB5.256 billion and RMB2.88 billion respectively, driving the revenue growth by 6.0 and 3.3 percentage points. They are now the major growth drivers of the company.

After several years of acceleration and implementation, the results of strategic transformation continued to expand and consolidate. In the first half of the year, revenue from non-voice business was RMB38.896 billion, a growth of 26.1% year-on-year, accounting for 43.5% of the total revenue, an increase of 8.5 percentage points over the year in which Internet and data business brought RMB24.534 billion revenue, an increase of 27.3% from last year, accounting for 27.4% of total revenue.

Revenue from VAS and integrated information services reached RMB11.987 billion, an increase of 31.6%, accounting for 13.4% of total revenue. Revenue from voice business in the first half of the year was RMB50.51 billion, a decline of 11.8% from last year. High growth in non-voice business over the years has rationalized the company’s revenue structure. The change in growth drivers further enhanced the company’s ability to offset the operating risks and achieve sustainable development.

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