Hutchison Telecommunications (Australia) Limited ABN 15 003 677 227 A member of the Hutchison Telecommunications Group Building A, 207 Pacific Highway St Leonards NSW 2065 (02) 9964 4646 Tel: Fax: (02) 9964 4668 www.hutchison.com.au Companies Announcements Office Australian Securities Exchange Date: 31 March 2010 Subject: Annual Report 2009 The Company’s 2009 Annual Report incorporating the full year accounts for the period ended 31 December 2009 is attached. Yours faithfully Louise Sexton Company Secretary GAINING SCALE 2009 ANNUAL REPORT HutcHison teLecoMs (asX: Hta) is a Listed coMpany wHicH Has a 50 per cent interest in vodafone HutcHison austraLia pty LiMited (vHa). vHa offers MobiLe teLecoMMunications under tHe vodafone and 3 brands. HutcHison teLecoMs was Listed on tHe asX in 1999 and in 2003 LauncHed austraLia’s first 3g service, caLLed 3. vhA AwArded 2009 M&A deAl of The yeAr by insTo MAGAzine Australian Financial Markets agM detaiLs The AnnuAl GenerAl MeeTinG of huTchison will be held AT: The conference cenTre, buildinG A, 207 PAcific hiGhwAy, sT leonArds nsw 2065 dATe: TuesdAy, 4 MAy 2010 TiMe: 10AM y b d e c u d o r p d n a d e n g i s e d r o t s e v n i e t a n g i s e d HUTCHISON Te l eC O mS 2009 ANNUAl RePORT 02 HUTCHISON TeleCOmS AT A GlANCe 04 HUTCHISON CHAIrmAN’S repOrT 06 vHA CeO’S revIew 12 COmmUNITy & eNvIrONmeNT AT vHA 14 bOArd Of dIreCTOrS 16 COrpOrATe GOverNANCe 19 dIreCTOrS’ repOrT 28 AUdITOr’S INdepeNdeNCe deClArATION 29 fINANCIAl repOrT 34 NOTeS TO THe fINANCIAl STATemeNTS 72 dIreCTOrS’ deClArATION 73 INdepeNdeNT AUdITOr’S repOrT 75 SHAreHOlder INfOrmATION 76 COrpOrATe dIreCTOry 0 2 HUTCHISON TeleCOmS AT A GlANCe 1 9 0 8 0 9 1 2 9 9 9 1 0 0 0 2 2 0 0 2 3 0 0 2 STArTed wITH pAGING bUSINeSS, bell pAGING lAUNCHed THe OrANGe brANd ANd eNTered INTO A rOAmING AGreemeNT wITH TelSTrA CdmA lISTed ON THe ASX lAUNCHed CdmA NeTwOrk ACqUIred SpeCTrUm fOr 3G NeTwOrk beGAN TO bUIld 3G NeTwOrk lAUNCHed ‘3’, AUSTrAlIA’S fIrST 3G NeTwOrk HUTCHISON ANd VOdAfONe meRGeR ON 9 JUNe 2009, HUTCHISON ANd VOdAfONe meRGed THeIR TeleCOmmUNICATIONS bUSINeSS IN AUSTRAlIA (3 ANd VOdAfONe) IN A 50-50 JOINT VeNTURe CAlled VOdAfONe HUTCHISON AUSTRAlIA PTy lImITed (VHA). VHA IS A mUCH lARGeR SCAle bUSINeSS THAT OPeRATeS UNdeR bOTH THe 3 ANd VOdAfONe bRANdS IN AUSTRAlIA. WITH 6.895 mIllION CUSTOmeRS, VHA IS dedICATed TO PROVIdING 3 ANd VOdAfONe CUSTOmeRS WITH AN eVeN GReATeR CHOICe Of AffORdAble PROdUCTS ANd SeRVICeS. THe meRGeR AlSO bRINGS TOGeTHeR THe COmbINed GlObAl exPeRTISe, SCAle, ReSeARCH ANd deVelOPmeNT CAPAbIlITIeS, ANd SUPPORT Of HUTCHISON WHAmPOA ANd VOdAfONe GROUP TO eNAble VHA TO PROVIde THe beST POSSIble SeRVICe exPeRIeNCe TO AUSTRAlIAN CUSTOmeRS. CURReNT ANd fUTURe 3 ANd VOdAfONe CUSTOmeRS CAN lOOk fORWARd TO NeW ANd INNOVATIVe PROdUCTS ANd SeRVICeS, ANd CONTINUed ImPROVemeNTS IN NeTWORk PeRfORmANCe ANd COVeRAGe. VHA’S CeO’S ReVIeW 0 3 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 eNTered INTO A jOINT veNTUre wITH TelSTrA TO SHAre 3G rAdIO ACCeSS NeTwOrk CelebrATed Over 1 mIllION CUSTOmerS ON ‘3’ ClOSUre Of THe CdmA NeTwOrk rAISed A$2.85 bIllION frOm A rIGHTS ISSUe Of CONverTIble prefereNCe SHAreS TeleCOm New ZeAlANd TOOk A 10% STAke IN HUTCHISON AGreed TO eXpANd 3G COverAGe TO reACH 96% Of THe pOpUlATION wITH 3G rOAmING ON pArTS Of TelSTrA’S 850mHZ NeTwOrk eNTeRed INTO A 50-50 JOINT VeNTURe WITH VOdAfONe GROUP TO CReATe VOdAfONe HUTCHISON AUSTRAlIA OWNeRSHIP STRUCTURe The structure used to effect the merger resulted in vHA (formerly named Hutchison 3G Australia) being indirectly owned in equal shares by Hutchison Telecoms and the vodafone Group plc. vHA now owns the vodafone companies in Australia. vHA has exclusive licences to use the vodafone and 3 brands in Australia. Hutchison whampoa remains the majority shareholder of Hutchison Telecoms, with an 87.87% stake. #87.87% #10% #2.13% HUTCHISON wHAmpOA TeleCOm New ZeAlANd pUblIC SHAreHOlderS HUTCHISON TeleCOmS vOdAfONe GrOUp plc #50% #50% # Indirect ownership 0 4 Hutchison CHAIRmAN ’S RePORT 2009 WAS AN eVeNTfUl yeAR fOR HUTCHISON, WITH THe NATURe Of HUTCHISON’S INVeSTmeNT CHANGING dUe TO THe meRGeR Of HUTCHISON 3G AUSTRAlIA PTy lTd (H3GA) ANd VOdAfONe AUSTRAlIA lImITed (VAl). AS A ReSUlT Of THe meRGeR, HUTCHISON mOVed fROm HAVING A 100% INTeReST TO HAVING A 50% INTeReST IN H3GA (NOW ReNAmed VOdAfONe HUTCHISON AUSTRAlIA (VHA)) WHICH OPeRATeS THe COmbINed ‘3’ ANd VOdAfONe bUSINeSSeS IN AUSTRAlIA. key fINANCIAlS Hutchison recognised a profit of $587.3 million on the disposal of the 50% interest in the ‘3’ business. Subsequent to the merger, Hutchison disposed of its 850 Mhz spectrum to VHA recognising a profit on the disposal of $27.6 million. The net loss before gain on merger was $119.6 million, a $43.5 million improvement. As a result of the merger transaction, Hutchison ceased to consolidate the results of the operating entity and has started to equity account for its interest in VHA. The results for the year to 31 December 2009 represent 5 months of the former ‘3’ business and 7 months of an equity accounted result for VHA. Under equity accounting, revenue from VHA’s ordinary activities following the merger is not included in Hutchison’s consolidated revenues from ordinary activities, which is the principal reason Hutchison is reporting a decline in revenue from ordinary activities for the year of 50.8% to $799.4 million. All revenue of VHA following the merger is included in calculating the “share of net (losses)/ profits of joint venture partnership accounted for using the equity method” in Hutchison’s Statement of Comprehensive Income. Underlying Service Revenue attributable to Hutchison grew by 28.4% in 2009 to $1,884.5 million, reflecting good performance. Hutchison remained free cash flow positive for the full year. peOple ANd leAderSHIp I would like to thank the leadership of VHA and the Hutchison Board for their support. The performance and dedication of the group was instrumental in the successful completion of the merger transaction, which was recognised by Insto Magazine as the 2009 M&A Deal of the Year. HUTCHISON CHAIRmAN’S RePORT 0 5 2000 1500 1000 500 0 5 8 8 1 , 2,000 1,500 1,000 500 8 6 4 1 , 4 7 1 1 , 07 08 09 0 HTAL HTAL SHARE ServICe reveNUe HTAl SHARe – $ m IllION H TAl ’ S U Nd e r ly IN G Se r vI Ce r e v eN Ue Gr e w b y 28.4% TO $1,884.5 m IllION WITH THe meRGeR TRANSACTION COmPleTe IN THe fIRST HAlf Of THe yeAR, THe COmPANy NOW HAS AN INVeSTmeNT IN A dyNAmIC NeW CHAlleNGeR IN THe AUSTRAlIAN TeleCOmmUNICATIONS mARkeT THAT HAS THe CRITICAl SCAle TO COmPeTe mORe effeCTIVely. 2010 ANd beyONd Hutchison has a high degree of confidence in the prospects for its investment in VHA. The merger is expected to deliver cost synergies with a net present value of more than A$2 billion and progress in realising these synergies post-merger has been ahead of expectation. VHA has continued to grow the combined customers, revenue and margin basis of the Vodafone and 3 businesses and is in a good position to continue to grow market share and profitability in 2010. Hutchison also welcomes policies concerning the National Broadband Network, the allocation of mobile spectrum and the support and promotion of the digital economy and is optimistic that VHA will be enabled to expand both the scope and the geographic areas of its data and communications service offerings in Australia in the coming years. fok kin-ning, Canning CHAIrmAN 0 6 vH A CeO’S Re VIe W rUNNING OperATING eXpeNdITUre per CUSTOmer $/CUSTOmeRS 525 475 425 375 325 9 0 5 $ 4 7 4 $ 5 5 4 $ 07 08 HTAL 09 VHA fINANCIAl perfOrmANCe Through strong growth in customer numbers, revenue and margin and the benefits of scale beginning to emerge, VHA had a sound financial performance for the year ending 31 December 2009, with sustained growth in Total Service Revenue. In addition, EBITDA and CAPEX were in line with expectations, and VHA exited 2009 in a free cash flow positive position, excluding one-off merger costs. VHA’s capital expenditure in the year ending 31 December 2009 increased by 18% to $236.2 million. Despite the increase, capital expenditure as a percentage of service revenue was 12.5% compared with 13.6% in 2008, reflecting the early benefits of scale. VHA’s EBITDA, excluding one-off restructuring costs associated with the merger, increased by 19.6% to $227.8 million. EBITDA margin excluding one-off costs associated with the merger was 12.1%, down from 13.0% in 2008, primarily due to increased customer acquisition costs in the second half of the year. ImPROVemeNTS IN VHA’S key fINANCIAl ReSUlTS dURING 2009 WeRe dRIVeN by STRONG GROWTH IN CUSTOmeR NUmbeRS, ReVeNUe ANd mARGIN ANd THe beNefITS Of SCAle beGINNING TO emeRGe. 525 475 425 THe CReATION Of VHA IS THe beGINNING Of A NeW eRA IN THe AUSTRAlIAN TeleCOmmUNICATIONS INdUSTRy. WITH THe COmbINed SCAle, NeTWORk ANd ReTAIl CAPAbIlITIeS Of VOdAfONe ANd 3, VHA IS A STRONGeR bUSINeSS THAT IS COmmITTed TO PROVIdING beTTeR VAlUe, INNOVATIVe PROdUCTS ANd GOOd SeRVICe TO All ITS CUSTOmeRS. 325 375 VHA CeO’S ReVIeW 0 7 6,895,000 TOTAl CUS TO merS vHA mObIle CUSTOmer bASe CUSTOmeRS ‘000 5 9 8 6 , 1 1 3 6 , 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 6 3 0 2 , 8 0 8 1 , 8 7 5 1 , 5 0 4 1 , JUN 07 DEC 07 JUN 08 DEC 08 JUN 09 DEC 09 HTAL VHA merGer ANd TrANSfOrmATION In the second half of 2009 VHA worked hard to bring together the new business as well as maintaining its strong record in customer service and sales and revenue growth performance. VHA has made solid progress towards its merger cost synergy targets, many of which have already had a positive impact on bottom line. Looking to the year ahead VHA will focus on key areas of business integration including: • • • Structural and cultural changes to support the creation of one lower cost organisation; Consolidation of two Sydney offices into one premises and the move to a single sales office in each state; Consolidation of contact centre operations into Hobart and Mumbai; • Delivery of procurement savings through vendor selection and contract renegotiation; • Reduction in distribution costs and • • improvements in retail sales efficiencies; IT systems integration and start of transition to target platforms; and Increased utilisation of the Vodafone network assets for 3 customers. With a number of marketing, sales, customer service and IT systems projects underway in 2010, VHA will continue to move towards Vodafone as its primary brand in market. 56.8% O f C U S T O m e rS pO S Tp A Id meRG eR RebAl ANCed CUSTOmeR m Ix CUSTOmer GrOwTH CONTINUeS In 2009, Vodafone brought 3.97 million customers to VHA. During the year both Vodafone and 3 maintained strong growth in customer acquisition and retention. As at 31 December 2009, VHA’s net additions for the year stood at 890,000 customers, which is a 94.3% increase in net customers acquired by 3 in 2008. One of the customer growth highlights is VHA’s continued growth in mobile broadband, with 673,000 customers using mobile broadband USB modems and data cards as at 31 December 2009, representing a 133.7% increase from the previous year. In addition to this, a further 717,000 customers either subscribed to 3G services on their mobile handset or used their handset as a modem to access the internet. Strong demand for 3G services delivered a 45.9% increase in non-voice revenue to $677.3 million, non-voice services now contributing 36.7% or $20.48 of VHA’s Average Revenue Per User (ARPU) up from 31.2% at 31 December 2008. NON-VOICe SeRVICeS CONTRIbUTe TO 36.7% Of VHA’S ARPU The number of customers accessing Planet 3, Vodafone Live! and the internet reflects strong customer usage of Mobile Broadband and an increased appetite for 3G services and open internet access. Following the merger, VHA has seen the overall customer mix change significantly with a comparatively higher blend of prepaid customers. Postpaid customers now comprise 56.8% of VHA’s customer base. 7000 6000 5000 4000 3000 2000 1000 0 0 8 vHA Ce O’ S re vI e w CON TINUed O v e r 4,500 p eO p l e Ar e C Ur r eN Tly e m p lO y e d b y vH A vHA’S peOple I am pleased to report that the business has built a talented and hard-working team that has deep experience in the Australian mobile market and has been drawn from both the 3 and Vodafone businesses. This strong team is dedicated towards continuing to innovate and further improve services and experience for VHA’s customers. 2009 was a particularly challenging year for VHA’s employees with the combining of the Vodafone and 3 workforces. All staff should be commended for their patience during the year and their continuing commitment, professionalism, and focus on delivering results and improving performance for VHA’s customers. STreNGTHeNING NeTwOrk ASSeTS VHA is currently operating two networks. The 3GIS joint venture (with its partner, Telstra Corporation Limited) had 2,744 sites at 31 December 2009 with a footprint covering 56% of the population. During the year ending 31 December 2009 customers on the 3 network were provided with access to 3G roaming on parts of Telstra’s 850MHz network which allows 3’s customers to access 3G services in areas covering 96% of the Australian population. The Vodafone network has a total of 3,942 sites. During 2009, VHA completed the rollout of the Vodafone 3G regional network providing coverage to 94% of the population. Vodafone customers in upgraded areas can now access 3G services such as internet and email on their mobile phone or laptop via Vodafone Mobile Broadband. One of the key priorities for 2010 and beyond is to utilise these network assets as effectively as possible for VHA’s customers in conjunction with VHA’s network partners. 1400 1200 1000 800 600 400 200 0 VHA CeO’S ReVIeW 0 9 vHA eXeCUTIve TeAm 0 9 3 1 , 717 673 1,400 1,200 1,000 800 600 400 200 0 6 2 5 238 288 5 9 1 113 82 DEC 07 DEC 08 DEC 09 mObIle brOAdbANd & 3G dATA ON HANdSeT CUSTOmerS CUSTOmeRS ‘000 Mobile Broadband customers 3G Data on Handset customers Mobile Broadband customers = Mobile Broadband Cards, USB Modems and NetConnect Cards 3G Data on Handset customers = X-Series plans, Mobile Internet plans and phones used as a modem 673,000 mObIle brOAdb ANd SUb SCr IberS NIGel deWS CHIef eXeCUTIve OffICer dAVe bOORmAN CHIef fINANCIAl OffICer GReG bOURke dIreCTOr Of HUmAN reSOUrCeS JOHN CASey dIreCTOr Of mArkeTING NOel HAmIll dIreCTOr Of SAleS ANd dISTrIbUTION 10 TyRONe O’NeIll dIreCTOr Of COmmUNICATIONS ANd COrpOrATe AffAIrS (ACTING) ANdy ReeVeS CHIef TeCHNOlOGy OffICer lOUISe SexTON GrOUp GeNerAl COUNSel ANd COmpANy SeCreTAry GRANT STeVeNSON dIreCTOr Of INTeGrATION ANd depUTy CfO ZAC SUmmeRS dIreCTOr Of STrATeGy ANd bUSINeSS plANNING mICHAel yOUNG dIreCTOr Of CUSTOmer ServICe ANd eXperIeNCe vHA Ce O’S re vI e w CON TINUed 1.3% pOSTp AId CHUrN RemAINS l OW mOST reCOmmeNded VHA has the highest customer satisfaction in the industry and in 2010 VHA will place even more focus on its customers. VHA remains committed to giving customers the level of service that makes them recommend Vodafone and 3 to their family and friends. VHA has already introduced a best-in-market handset warranty and repair service for its customers, with free repair warranties of up to 24 months for most mobile phones and mobile broadband devices sold to Vodafone, 3 and Crazy John customers from 1 December 2009. VHA has had great success in innovation, and in 2009 the business was recognised by Money Magazine with four Best of the Best Awards across the Vodafone and 3 brands. These awards demonstrate the great value that VHA delivers its customers across prepay and postpaid products and services. Another important measurement of success in this area is the churn rate, and VHA will continue to work hard on value and service in order to maintain the industry’s lowest postpaid churn. VHA CeO’S ReVIeW 1 1 vHA w AS AwArded f OUr beST O f THe beST A wArd S by money mAGAZINe Continued innovation from VHA, coupled with sustained efforts to build upon its market- leading approach to customer service and customer satisfaction are expected to support growth in 2010. At a broad industry level VHA is seeking greater certainty from the Government and regulators on the spectrum renewal and reallocation in 2010. VHA is also anticipating clear, decisive steps to be taken on the National Broadband Network (NBN) in 2010, which it is hopeful will ultimately result in the provision of improved backhaul transmission capabilities at lower prices, allowing VHA to expand its product range and be a more effective competitor in the future across Australia. In summary, VHA will continue to grow the business in 2010, gaining further benefits of scale, continuing with integration projects and strengthening VHA’s underlying business performance. Nigel dews CHIef eXeCUTIve OffICer vHA lOOkING TO THe fUTUre During the year ahead, VHA will continue to strongly focus on business integration and strengthening the overall business performance. VHA expects continued growth in the customer base and further increases in the usage of 3G services to deliver strong operating performance in 2010. In addition to this, VHA expects to remain free cash flow positive in 2010, excluding one-off integration costs associated with the merger. Sourcing and marketing the best devices at the best prices remains an important factor and VHA will continue to leverage the international buying power and economies of scale of both Vodafone Group Plc and the Hutchison Whampoa Group. VHA foresees the penetration of smartphones in the customer base to increase through 2010 and expects the intense competition to continue to drive high handset subsidies. 12 COmmUNITy & eNVIRONmeNT AT VHA vodafone foundation Australia Walkabout Week for Red Dust was a highlight of the Foundation’s work in the second half of the year. During this Week over one third of VHA’s Sydney staff wore a pedometer and raised in excess of $26,000. In addition to this, over the Summer, 135 employees volunteered across Australia and raised $52,350 during the 3 mobile Test Series for the McGrath Foundation. With additional support through the Wicket & 6’s campaign and the Men of Cricket calendar, VHA donated over $160,000 to the McGrath Foundation. In 2009, VHA continued its active work in the community via the Vodafone Foundation Australia, which now brings together Vodafone and 3’s work with charities and not-for-profit organisations. The Foundation is committed to supporting people and charitable organisations to help reach their full potential. It looks to be innovative in all that it does and seeks ground breaking community projects. With an overwhelming desire from employees wanting to give back to the community, during the year amazing achievements were celebrated and partnerships formed with a range of charities and not-for-profit organisations including Australian Red Cross, McGrath Foundation, Red Dust, SANE Australia, Oxfam, SchoolAid, Youth Off The Streets, Mission Australia, Barnardos, KidsXpress, Variety, Oz Green and Conservation Volunteers Australia. COmmUNITy & eNVIRONmeNT AT VHA 13 VHA IS COmmITTed TO ACTING ReSPONSIbly ON beHAlf Of ITS CUSTOmeRS, STAff ANd SHAReHOldeRS, AS Well AS THe bROAdeR COmmUNITy – fOR CURReNT ANd fUTURe GeNeRATIONS – ANd THe eNVIRONmeNT. VHA AImS TO embed ReSPONSIble deCISION mAkING IN All leVelS Of THe ORGANISATION, SO emPlOyeeS ARe eqUIPPed WITH THe INfORmATION ANd TOOlS TO mAke THe RIGHT deCISIONS IN All mATTeRS. Corporate responsibility vHA bUSINeSS prINCIpleS VHA’s principles for how it operates include the following: • • • • • • • • supporting competition in a market economy, pursued in an ethical way; providing customers with safe, reliable products and services that represent good value for money; placing a high priority on health and safety for customers, staff and the broader community; ensuring protection of customers’ privacy and personal information; delivering responsible communication and advertising with all stakeholders; dealing with staff in a spirit of respect and fairness, and aiming to make VHA a great place to work; continuing environmentally sustainable business practices including taking measures to reduce VHA’s carbon emissions; seeking to influence positively matters of public policy, but not engaging in any party-political matters or making donations to political parties. eNvIrONmeNTAl perfOrmANCe VHA is committed to the sustainable management of all its operations and takes very seriously its responsibility to minimise its carbon footprint and impact on the environment. Minimising the business’s environmental impact means reducing carbon emissions and water consumption, minimising waste generation and maximising resource reuse and recovery. In 2009, 3 and Vodafone continued to deliver paperless bills to customers, saving over 151 million pieces of paper, which is the equivalent of 49,165 trees. At the year end, over 66% of VHA’s customers received their bills electronically. VHA supports and participates in MobileMuster, the official recycling program of the mobile phone industry. In 2009, 3 and Vodafone customers contributed over 33 tonnes of mobile phone handsets, batteries and accessories for recycling at MobileMuster collection points within 3 and Vodafone stores, Services Centres and other collection points around Australia. vHA wOrkplACe VHA has chosen the brightest and most passionate people to create a team that believes in exploring every exciting possibility. VHA strives to ensure its strong workforce of approximately 4,500 has everything it needs to meet the day-to-day challenges presented by the fast-paced and highly competitive environment in which VHA operates. The range of courses, training solutions and other development programs available, as well as face-to-face training solutions, provide VHA staff with the best training possible. VHA is also committed to supporting its employees through a range of industry leading initiatives and staff programs, including flexible work practices and an exciting, achievement- focused reward and recognition program. In the year ahead, VHA will focus on creating a new culture for the organisation, and continue to establish more ways to grow and develop greater employee spirit and engagement in what VHA does and how it does it. VHA is committed to maintaining a safe working environment for all VHA employees, contractors, visitors and members of the public who may be affected by VHA’s work. 14 bOARd Of dIReCTORS fOk kIN-NING, CANNING CHAIrmAN bARRy RObeRTS-THOmSON depUTy CHAIrmAN CHOW WOO mO fONG, SUSAN dIreCTOr JUSTIN HeRbeRT GARdeNeR dIreCTOr lAI kAI mING, dOmINIC dIreCTOr JOHN mICHAel SCANlON dIreCTOr fRANk JOHN SIxT dIreCTOr ROdeRICk JAmeS SNOdGRASS dIreCTOr bOARd Of dIReCTORS 15 Justin Herbert GARdeNeR (director) bec, fCA Justin H. Gardener, aged 73, has been a director of a number of private and publicly listed companies including Austar United Communications Limited (appointed 1999 and retired 2008). From 1961, and until his retirement in 1998, Mr Gardener held a variety of positions with Arthur Andersen, becoming a partner in 1972 and for the last ten years in a management and supervisory role for Asia Pacific. Mr Gardener was appointed as a Director on 2 July 1999. lAI kai ming, dominic (director) bSc, mbA Lai Kai Ming, Dominic, aged 56, has been an executive director of HWL since 2000, director since 1994 and deputy chairman since 2001 of HHR, and non-executive director of HTHKH since 2009. He has over 26 years of management experience in different industries. He holds a Bachelor of Science (Hons) degree and a Master’s degree in Business Administration. Mr Lai was appointed as a Director on 19 May 2004 and as an Alternate Director to Mrs Chow and Mr Sixt on 8 May 2006. John michael SCANlON (director) John Michael Scanlon, aged 68, is a special venture partner to Clarity Partners LLP, a private equity firm. From 1965 through to 1988 his career was with AT&T, primarily Bell Labs, rising to group vice president of AT&T. Mr Scanlon then went on to become president and general manager of Motorola’s Cellular Networks and Space Sector, founding CEO of Asia Global Crossing, CEO of Global Crossing and chairman and CEO of PrimeCo Cellular. Mr Scanlon was appointed as a Director on 11 July 2005. frank John SIxT (director) mA, lll Frank John Sixt, aged 58, has been an executive director since 1991 and group finance director since 1998 of HWL, non-executive chairman of TOM since 1999 and TOM Online Inc. (which ceased to be a public listed company in September 2007) since 2003, executive director of CKIH since 1996, HKEH since 1998, non-executive director of CKH since 1991, HTIL since 2004, HTHKH since 2009, and Director of Husky since 2000. He was previously a director of Partner from 1998 to 2009. He holds a Master’s degree in Arts and a Bachelor’s degree in Civil Law, and is a member of the Bar and of the Law Society of the Provinces of Quebec and Ontario, Canada. Mr Sixt was appointed as a Director on 12 January 1998 and as an Alternate Director to Mrs Chow and Mr Lai on 25 February 2008. Roderick James SNOdGRASS (director) bCA, CA Roderick James Snodgrass, aged 43, is Group Strategy Director of Telecom Corporation New Zealand (TCNZ). Mr Snodgrass joined TCNZ in 1998, after seven years in various strategy, business development and commercial roles in the oil and gas exploration and production industry. His previous positions within TCNZ have included General Manager Group Strategy and Development, General Manager Wired division, including TCNZ’s retail fixed-line voice, data and internet businesses and General Manager of Xtra, TCNZ’s online division, this following various financial, commercial and business development roles. He was a director of Xtra! Ltd from 2002 to 2006 and again from July 2008, a director of Yahoo!Xtra Ltd since January 2007, a director of Gen-I Australian Pty Ltd since June 2009 and a director of PowerTel Ltd and AAPT Ltd since February 2008. fOk kin-ning, Canning (Chairman) bA, dfm, CA (Aus) Fok Kin-ning, Canning, aged 58, has been an executive director since 1984 and group managing director since 1993 of Hutchison Whampoa Limited (“HWL”), director since 1992 and chairman since 2002 of Hutchison Harbour Ring Limited (“HHR”), non-executive chairman of Hutchison Telecommunications International Limited (“HTIL”) since 2004, Hutchison Telecommunications Hong Kong Holdings Limited (“HTHKH”) since 2009, executive director since 1985 and chairman since 2005 of Hongkong Electric Holdings Limited (“HKEH”), co-chairman of Husky Energy Inc. (“Husky”) since 2000, executive director and deputy chairman of Cheung Kong Infrastructure Holdings Limited (“CKIH”) since 1997, and non-executive director of Cheung Kong (Holdings) Limited (“CKH”) since 1985. He was previously the chairman of Partner Communications Company Ltd. (“Partner”) from 1998 to 2009. He holds a Bachelor of Arts degree and a Diploma in Financial Management, and is a member of the Australian Institute of Chartered Accountants. Mr Fok was appointed as a Director on 8 February 1999. barry RObeRTS-THOmSON (deputy Chairman) Barry Roberts-Thomson, aged 60, was the managing director of Hutchison from its inception in 1989 until September 2001. In his capacity as deputy chairman, Mr Roberts-Thomson represents Hutchison in government relations and strategic projects. Mr Roberts-Thomson was appointed as a Director on 14 February 1989. CHOW WOO mo fong, Susan (director) bSc Chow Woo Mo Fong, Susan, aged 56, has been an executive director since 1993 and deputy group managing director since 1998 of HWL, executive director of CKIH since 1997, HHR since 2001, non-executive director of HTIL since 2008, HKEH since 1996 (re-designated as executive director since 2006), TOM Group Limited (“TOM”) since 1999 and HTHKH since 2009. She was previously a director of Partner from 1998 to 2009. She is a solicitor and holds a Bachelor’s degree in Business Administration. Mrs Chow was appointed as a Director on 15 February 2006 and as an Alternate Director to Mr Fok, Mr Lai and Mr Sixt on 8 May 2006, 26 February 2007 and 4 May 2007 respectively. 16 Corporate Governance • Appointing the chief executive, evaluating performance and determining the remuneration of senior executives and ensuring that appropriate policies and procedures are in place for recruitment, training, remuneration and succession planning; and • Delegating to the chief executive the authority to manage and supervise the business of Hutchison including the making of all decisions regarding Hutchison’s operations that are not specifically reserved to the Board. The nature of these responsibilities has changed substantially since VHA ceased to be a subsidiary of the Company and there are no longer any executives employed by the Company. Composition of the board The Board comprises eight Directors whose appointment reflects the shareholdings of the Company and the need to ensure that the Company is run in the best interest of all shareholders. All the Directors, including the Chairman, Mr Fok, are non-executives. The Board has adopted the definition of independence contained in the Australian Securities Exchange (“ASX”) best practice recommendations. In light of this definition, the Board considers that independent Directors are not substantial shareholders or officers of substantial shareholders, have not been employed as an executive of Hutchison or its majority shareholder, nor are they associated with any significant supplier, customer or professional adviser of Hutchison. Further, an independent Director does not have any significant contractual relationship with Hutchison nor is there any business relationship which could materially interfere with a Director’s ability to act in the best interest of the Company. Mr Gardener and Mr Scanlon, being the only Directors who are not officers of a significant shareholder or have not been employed as an executive of Hutchison, are considered by the Board to be independent Directors. In light of the majority ownership by Hutchison Whampoa Limited (“HWL”), the Board has resolved that, at this stage, it is not in the best interests of the Company that a majority of Directors or the Chairman be independent. Subject to the Corporations Act 2001 requirements in relation to the retirement of Directors, the current Directors have not been appointed for a specified term. Details of the Directors’ experience is set out on page 15. In connection with their duties and responsibilities, Directors and Board committees have the right to seek independent professional advice at the Company's expense. Prior written notification to the Chairman is required. No formal procedure for performance evaluation of the Board and its members has been implemented as the Board considers that regular ongoing informal assessment is more appropriate. Accordingly consideration of the performance of the Board forms part of the regular Board process when the Board conducts deliberations without representatives of management present at each Board meeting. Committees The Board has two committees to assist in the implementation of its corporate governance practices and fiduciary and financial reporting and audit responsibilities. These are an Audit Committee and a Governance, Nomination and Compensation Committee. Each of these committees has its own charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the committee is to operate. Details of these charters are available on the Company’s website. Audit Committee The responsibility of the Audit Committee is to assist the Board in fulfilling its audit duties through review and supervision of Hutchison’s financial reporting process and internal control system. All members of the committee are non executive Directors and the composition of the committee meets the requirements of the ASX Listing Rules. The Audit Committee has appropriate financial expertise and knowledge of the telecommunications industry. Details of the committee members’ qualifications, expertise, experience and attendance at Audit Committee meetings are set out on pages 15 and 20. Hutchison Telecommunications (Australia) Limited (“HTAL” or “the Company”) and its Directors are committed to high standards of corporate governance. Set out below is a description of the Company’s main corporate governance practices which have been in place for the full year unless otherwise stated. board of directors and its Committees The Board has responsibility for approving the strategy and monitoring the implementation of the strategy and the performance of HTAL and its subsidiaries (the group of companies is referred to as “Hutchison” in this report), protecting the rights and interests of shareholders and is responsible for overall corporate governance. The Board has adopted a list of matters reserved to the Board which is available on the Company’s website. Some aspects of the day to day management of Hutchison is undertaken with the assistance of the Chief Executive Officer and senior management team of Vodafone Hutchison Australia Pty Limited (“VHA”), which is 50% owned by HTAL. The Board’s responsibilities include: • Reviewing and approving the strategic direction of Hutchison and establishing goals both short term and long term to ensure these strategic objectives are met and ensuring appropriate resources are available to meet these objectives; • Overseeing Hutchison, including its control and accountability systems; Ensuring the business risks facing Hutchison are identified and reviewing, ratifying and monitoring systems of risk management and internal compliance and control, codes of conduct and legal compliance; • • Monitoring the performance of • management against these goals and objectives and initiating corrective action when required; Ensuring that there are adequate internal controls and ethical standards of behaviour adopted and met within Hutchison; • Reviewing and approving annual • financial plans and monitoring corporate performance against both short term and long term financial plans; Ensuring that the business risks facing Hutchison are identified and that appropriate monitoring and reporting controls are in place to manage these risks; The Audit Committee considers the annual and interim financial statements of the Company and its subsidiaries and any other major financial statements prior to approval by the Board, and reviews standards of internal control and financial reporting within Hutchison. The Audit Committee is also responsible for overview of the relationship between Hutchison and its external auditors, including periodic review of performance and the terms of appointment of the auditors. This committee considers any matters relating to the financial affairs of Hutchison and its subsidiaries and any other matter referred to it by the Board. The main responsibilities delegated to the committee are to: • Consider and recommend to the Board the appointment and remuneration of the Company’s external auditors and to determine with the external auditors the nature and scope of the audit or review and approve audit or review plans; • Assess the performance and independence of the external auditors, taking into account factors which may impair the auditor’s judgement in audit matters related to the Company; • Review the interim and annual accounts of the Company before their submission to the Board; • Ensure Hutchison’s practices and procedures with respect to related party transactions are adequate for compliance with the relevant legal and stock exchange requirements; • Review the risk management practices and oversee the implementation and effectiveness of the risk management system; • Review with management and the external auditors the presentation and impact of significant risks and uncertainties associated with the business of Hutchison and their effects on the financial statements of Hutchison; and • Ensure corporate compliance with applicable legislation. The range of matters requiring consideration by the Audit Committee including the internal controls and risk management practices and systems has changed since VHA ceased to be a subsidiary of the Company and the Company no longer controls any operating entities. External auditors The performance of the external auditors is reviewed annually and applications for tender of external audit services will be requested as deemed appropriate. PricewaterhouseCoopers were appointed as the external auditors in 1998. It is PricewaterhouseCoopers policy to rotate audit engagement partners on listed companies every five years, and in accordance with that policy the current audit engagement partner was appointed in May 2009. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in note 27 to the financial statements. The Company’s policy in relation to awarding non-audit work to the external auditors requires that all proposed non-audit service assignments in excess of $100,000 will be approved by the Audit Committee and will only be awarded to the external auditors after completion of a competitive tendering process which demonstrates that the external auditors are the preferred service provider on the basis of an objective assessment of price, capabilities and commitment. It is the policy of the external auditors to provide an annual declaration of their independence to the Audit Committee. The external auditors are available for questioning at the Annual General Meeting. Governance, Nomination and Compensation Committee The committee comprises non-executive Directors and is chaired by the Chairman of the Board. Details of the committee members’ qualifications, expertise, experience and attendance at compensation committee meetings are set out on pages 15 and 20. Compensation responsibilities This committee is responsible for the review of remuneration and other benefits, and Hutchison’s policies in relation to recruitment and retention of staff, details of which are set out in the Directors’ Report on pages 19 to 27. This committee also reviews and makes recommendations to the Board on remuneration policies and other terms of employment applicable to the chief executive, senior executives and the Directors themselves. The committee will, where relevant, obtain independent advice from external consultants on the appropriateness of the remuneration policies of Hutchison. corporate governance 17 Executive remuneration, including that of Executive Directors, has been reviewed annually by the committee having regard to personal and corporate performance, contribution to long term growth and relevant comparative information. Details of the compensation philosophy and practice of the Company are set out in the Directors’ Report. The nature of these responsibilities has changed substantially since VHA ceased to be a subsidiary of the Company and there are no longer any executives employed by the Company. Governance and nomination responsibilities: Related to Board Performance and Evaluation • To periodically assess and provide recommendations to the Chairman of the Board on the effectiveness of the Board of Directors as a whole, the committees of the Board, the contribution of individual Directors, and assessment of Directors; • To periodically review the Company’s investor relations and public relations activities to ensure that procedures are in place for the effective monitoring of the shareholder base, receipt of shareholder feedback and response to shareholder concerns; • To oversee the maintenance of an induction and education programme for new Directors; • To ensure appropriate structures and procedures are in place so that the Board can function independently of management; • To review the mandates of the Board of Directors' committees and recommend appropriate changes to the Board; • To receive and consider any concerns of individual Directors relating to governance matters; and • To review all related party transactions to ensure they reflect market practice and are in the best interests of Hutchison. Related to the Board of Directors • To recommend to the Board criteria regarding personal qualifications for Board membership, such as background, experience, technical skills, affiliations and personal characteristics. 1 8 Related to Committees of the Board of Directors • To review from time to time and • recommend to the Board the types, terms of reference and composition of Board committees, the nominees as chair of the Board committees; and To review from time to time and make recommendations to the Board, with respect to the length of service of members on committees, meeting procedures, quorum and notice requirements, records and minutes, resignations and vacancies on committees. Business risk The Board acknowledges its responsibility for risk oversight and ensuring that significant business risks are appropriately managed, whilst acknowledging that such risks may not be wholly eliminated. Details of the Company’s risk management policy and internal compliance and control system are available on the Company’s website. The Audit Committee has been delegated responsibility as the primary body for risk oversight and for ensuring that appropriate risk management policies, systems and resources are in place. As all former operational activities of the Company are now undertaken in VHA, the associated risks are now in that entity. The Audit Committee receives and considers reports prepared by the risk management function of VHA, which provides independent reports to the VHA Audit Committee. The risk management function ensures that adequate mechanisms are in place to identify, assess and manage strategic, financial, operational and regulatory risks and that VHA corporate performance is reviewed across a broad range of issues. As HTAL no longer has executives performing the function of chief executive officer or chief financial officer, the Board has not received a declaration provided in accordance with section 295A of the Corporations Act. However, a declaration of this nature has been provided in respect of the VHA financial statements. Ethical standards The need to ensure a strong ethical culture within Hutchison has lead to greater emphasis on the development of a strong culture designed to ensure that all Directors, managers and employees act with the utmost integrity and objectivity in their dealings with all people that they come in contact with during their Hutchison working life. The corporate code of conduct, based upon the existing corporate values, has been updated to assist in maintaining this culture. This code applies to all Directors and employees and compliance with the values underlying the Company’s culture forms part of the performance appraisal of senior employees and sales managers. Details of this code are available on the Company’s website. Directors’ and senior executives’ dealings in HTAL shares The Company has the following policy in place regarding trading in its shares, (which currently only applies to Directors as the Company does not employ any senior executives): • • Directors discuss any proposed trade in HTAL shares with the Chairman prior to any trade; Senior executives discuss any proposed trade in shares with the Company Secretary or the chief executive officer prior to any trade. Unless there are unusual circumstances, trades in HTAL shares by Directors and senior executives are limited to the period of one month after the release of the Company’s half year and annual results to the ASX and from the lodgement of the Company’s annual report with the ASX up to one month after its annual general meeting. Directors and senior executives are prohibited from trading in HTAL shares if the Director or officer is in possession of price sensitive information or would be trading for a short term gain. All directors and managers within Hutchison have also been advised of their obligations in regard to price sensitive information, including to ensure that they do not communicate price sensitive information to any other person who is likely to buy or sell HTAL shares or communicate that information to another party. The Company’s existing practices are documented in a code, details of which are available on the Company’s website. Continuous disclosure and shareholder communication The Board strongly believes that the Company’s shareholders should be fully informed of all material matters that affect Hutchison in accordance with its continuous disclosure obligations. Financial reports and other significant information are available on the Company’s website for access by its shareholders and the broader community. Procedures are in place to review whether any price sensitive information has been inadvertently disclosed in any forum, and if so, this information is immediately released to the market. The Company Secretary, resident in Australia, has been appointed as the person responsible for communications with the ASX. The Company seeks to enhance its communication with shareholders through the introduction of new types of communication through cost effective electronic means, and the provision of significant information in addition to the reports required by legislation. The Company’s existing practices on information disclosure are documented in a policy, details of which are available on the Company’s website. Related party transactions Hutchison draws great strength from its relationship with HWL and other companies in the HWL Group in relation to both its financial support, management expertise, joint procurement programmes and shared research and development costs. The Board is aware of the need to represent all shareholders and to avoid conflicts of interest. Where there is a conflict of interest or the potential appearance of a conflict, affected Directors do not participate in the decision making process or vote on such matters. All commercial agreements with related parties are negotiated on arms’ length terms. Further information about the Company’s related party transactions is set out in note 30 to the Financial Statements. 19 Directors’ Report The Directors are pleased to present their report on the consolidated entity (“Hutchison”) consisting of Hutchison Telecommunications (Australia) Limited (“HTAL” or “Company”) and the entities it controlled at the end of or during the year ended 31 December 2009. Principal activities During the year, Hutchison’s principal activities included the ownership and operation of Australia’s first W-CDMA, third generation (3G) mobile network (branded “3”) across the five mainland capital cities and national capital Canberra, and a national paging and messaging service. On 9 June 2009, the Company finalised the merger of Hutchison 3G Australia Pty Limited (“H3GA”) and Vodafone Australia Limited (“Vodafone Australia”). As a result of the transaction, H3GA issued new ordinary shares equalling a 50% interest of the enlarged share capital of H3GA to Vodafone entities and the Vodafone Australia business merged with H3GA’s business. H3GA has been renamed Vodafone Hutchison Australia Pty Limited (“VHA”). From 9 June 2009, the interest in VHA is accounted for in the consolidated financial statements using the equity method. Dividends No dividend was declared or paid during the year. Review of operations Comments on the operations of Hutchison, results of those operations, the Company’s business strategies and its prospects for future years are contained in pages 2 to 13 of this report. Details of the financial position of the Company are contained in pages 30 to 71 of this report. Significant changes in the state of affairs and matters subsequent to the end of the financial year No other matter or circumstance has arisen since 31 December 2009 that has significantly affected, or may significantly affect: • Hutchison’s operations in future financial years; • the results of those operations in future financial years; or • Hutchison’s state of affairs in future financial years. Likely developments and expected results of operations Other than as set out in the reports on pages 4 to 11 of this report, further information on business strategies and the future prospects of the Company have not been included in this report because the Directors believe that it would be likely to result in unreasonable prejudice to Hutchison. Environmental regulation Hutchison’s operations and business activities are subject to environmental regulations under both Commonwealth and State legislation and the requirements of the Telecommunications Act 1997. Hutchison has adopted an environmental policy which includes clearly defined accountability and responsibility for compliance with legislation and for achieving specific environmental management objectives. Hutchison’s risk review and audit program is designed to ensure that Hutchison meets its obligations under current legislation. VHA’s operations and business activities are subject to environmental regulations under both Commonwealth and State legislation and the requirements of the Telecommunications Act 1997, particularly with regard to: the impact of the construction, maintenance and operation of transmission facilities; site contamination; and • • • waste management. Policies are in place to clearly define accountability and responsibility for compliance with legislation and for achieving specific environmental management objectives. The Directors are not aware of any material breaches of environmental regulations by Hutchison or by VHA. Directors The following persons were Directors of HTAL during the whole of the year ended 31 December 2009 and up to the date of this report: FOK Kin-ning, Canning Barry ROBERTS-THOMSON CHOW WOO Mo Fong, Susan Justin Herbert GARDENER LAI Kai Ming, Dominic John Michael SCANLON Frank John SIXT Roderick James SNODGRASS Mr Kevin Steven RUSSELL resigned as a Director with effect from 9 June 2009. Further information on the Directors is set out on page 15. 2 0 Director Fok Kin-ning, Canning other responsibilities Non-executive Chairman, Chairman of Governance, Nomination and Compensation Committee Barry Roberts-Thomson Deputy Chairman Chow Woo Mo Fong, Susan Member of Governance, Nomination and Compensation Committee Justin Herbert Gardener Lai Kai Ming, Dominic Kevin Steven Russell John Michael Scanlon Frank John Sixt Member of Governance, Nomination and Compensation Committee and Chairman of Audit Committee – – Member of Audit Committee Member of Audit Committee Roderick James Snodgrass – * Direct holding of 100,000 shares ** Direct holding of 4,540 shares particulars of Directors’ Interests in ordinary shares of HtaL 5,100,000* 83,918,337** – 1,030,358 – – – 1,000,000 – Note: Fok Kin-ning, Canning, holds a relevant interest in (i) 4,810,875 ordinary shares of HWL, a related body corporate of HTAL; (ii) 5,000,000 ordinary shares of HHR, a related body corporate of HTAL; (iii) a nominal amount of USD1,216,000 in the 6.50% Notes due 2013 issued by Hutchison Whampoa International (03/13) Limited, a related body corporate of HTAL; (iv) 1,202,380 ordinary shares of HTIL, a related body corporate of HTAL; (v) 1,202,380 ordinary shares of HTHKH, a related body corporate of HTAL; (vi) a nominal amount of USD4,000,000 in the 7.625% Notes due 2019 issued by Hutchison Whampoa International (09) Limited, a related body corporate of HTAL; and (vii) a nominal amount of USD4,000,000 in the 5.75% Notes due 2019 issued by Hutchison Whampoa International (09/19) Limited, a related body corporate of HTAL. Chow Woo Mo Fong, Susan holds a relevant interest in (i) 150,000 ordinary shares of HWL; (ii) 250,000 ordinary shares of HTIL; and (iii) 250,000 ordinary shares of HTHKH. Lai Kai Ming, Dominic holds a relevant interest in 50,000 ordinary shares of HWL. Frank John Sixt holds a relevant interest in (i) 50,000 ordinary shares of HWL; (ii) one ordinary share of Colonial Nominees Limited, a related body corporate of HTAL, on behalf of Hutchison International Limited; (iii) 17,000 American Depository Shares (each representing 15 ordinary shares) of HTIL; and (iv) 17,000 American Depositary Shares (each representing 15 ordinary shares) of HTHKH. Meetings of Directors The number of meetings of HTAL’s Board of Directors and each of the Board committees held during the year ended 31 December 2009 and the number of meetings attended by each Director were: Board Meetings held during the period as director Board Meetings attended audit committee Meetings held during the period as member audit committee of committee Meetings attended governance, nomination and governance, compensation nomination and committee Meetings compensation held during the period as member committee of the committee Meetings attended Fok Kin-ning, Canning Barry Roberts-Thomson Chow Woo Mo Fong, Susan Lai Kai Ming, Dominic Justin Herbert Gardener Kevin Steven Russell* John Michael Scanlon Frank John Sixt Roderick James Snodgrass * Resigned as a Director on 9 June 2009 12 12 12 12 12 8 12 12 12 12 12 12 12 12 8 11 12 12 N/A N/A N/A N/A 3 N/A 3 3 N/A N/A N/A N/A N/A 3 N/A 3 1 N/A 1 N/A 1 N/A 1 N/A N/A N/A N/A 1 N/A 1 N/A 1 N/A N/A N/A N/A DIrectors' report 21 Retirement, election and continuation in office of Directors Fok Kin-ning, Canning is a Director retiring by rotation in accordance with the Constitution who, being eligible, offers himself for re-election. Frank John Sixt is a Director retiring by rotation in accordance with the Constitution who, being eligible, offers himself for re-election. Company secretaries Edith SHIH BSE, MA, EdM, Solicitor, FCS, FCIS Ms Shih has over 12 years of experience as company secretary in listed companies and has been a Company Secretary of the Company since 1999. She has been the head group general counsel of HWL since 1993 and its company secretary since 1997. She is a qualified solicitor in Hong Kong, England and Wales and Victoria, Australia; and is also a Fellow of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries. Louise SEXTON BA, LLM, MBA(Exec) Ms Sexton has over 16 years’ experience as company secretary in listed companies and has been a Company Secretary of the Company since 1999. She is also General Counsel of the Company. Ms Sexton has practiced as a solicitor since 1983 with experience in government, private practice and in-house corporate practice. Remuneration report Following the merger of H3GA and Vodafone Australia, the Company’s employees, including all executives, working in the VHA business have ceased to be employees of the Company and have become employees of VHA. VHA is not a subsidiary of the Company and accordingly this report does not include any information relating to the employees or employment practices of VHA. As at 31 December 2009, the Company had 255 employees who are providing transition services to VHA. The Company no longer has any employees who are ‘key management personnel’. This report applies to employees of the Company only, and includes those who were key management personnel during the period to 9 June 2009. Compensation philosophy and practice The Governance, Nomination and Compensation Committee has been responsible for making recommendations to the Board on compensation policies and packages for all staff, including Board members and key management personnel of Hutchison. The Company’s compensation policy has been designed to ensure that remuneration strategies are competitive, innovative, support the business objectives and reflect company performance. The company performance is measured according to the achievement of key financial and non-financial measures as approved by the Board. Key management personnel’s remuneration packages were directly linked to these measures. Hutchison has been committed to ensuring it has compensation arrangements that reflect individual performance, overall contribution to the company performance and developments in the external market. Remuneration and other terms of employment for certain key management personnel were formalised in service agreements. Further details are included in the Corporate Governance Statement. Principles used to determine the nature and amount of remuneration The Company’s compensation policy has been designed to ensure that remuneration strategies are competitive, innovative and support the business objectives. The Company has been committed to ensuring it has compensation arrangements that reflect individual performance, overall contribution to the business and developments in the external market. Remuneration packages generally have involved a balance between fixed and performance based components, the latter being assessed against objectives which include both company and job specific financial and non-financial measures. These measures at the financial level were directly related to the key management’s contribution to meeting or exceeding the company’s income statement and balance sheet targets. At the non-financial level the measures reflected the contribution to achieving a range of key performance indicators as well as building a high performance company culture. These performance conditions were chosen to reflect an appropriate balance between achieving financial targets and building a business and organisation to be sustainable for the long term. 2 2 Directors’ fees The remuneration of the non-executive and independent Directors, J Gardener and J Scanlon, comprised of a fixed amount only and was not performance based. The non-executive and non-independent Directors, C Fok, S Chow, D Lai, K Russell, R Snodgrass and F Sixt, did not receive any remuneration for their services as Directors. The executive and non-independent Director, B Roberts-Thomson, did not receive any remuneration for his service as a Director. Retirement allowances for Directors No retirement allowances are payable to non-executive Directors. Key management personnel In addition to the Directors listed on page 19, the following persons were the key management personnel having authority and responsibility for planning, directing and controlling the activities of the Company for the period from 1 January 2009 to 9 June 2009: name N Dews T Finlayson N Hamill M Young position Chief Executive Officer Chief Financial Officer Director, Sales, Marketing and Product Director, Technology, Infrastructure and Services employer HTAL HTAL HTAL HTAL Key management personnel pay The key management personnel pay and reward framework had four components: • • • • base pay and benefits; short-term performance incentives; long-term incentives through participation in the HTAL Employee Option Plan; and other remuneration such as superannuation. The combination of these comprised the key management personnel’s total remuneration. Base pay Base pay was structured as a total employment cost package delivered as a mix of cash and prescribed non-financial benefits at the key management personnel’s discretion. Key management personnel were offered a competitive base pay that comprised the fixed component of pay and rewards. Base pay for key management personnel was reviewed annually to ensure the key management personnel’s pay was competitive with the market. A key management personnel’s pay was also reviewed on promotion. There was no guaranteed base pay increases fixed in any key management personnel’s contract. Benefits Motor vehicles were provided to certain key management personnel as part of their salary package. Retirement benefits Retirement benefits were delivered under the Retail Employees Superannuation Trust (Acumen). This fund is a defined contribution fund and is based on employer and employee contributions made to the fund. Short-term incentives Short-term incentive components of the remuneration package were assessed against objectives which include both company and job specific financial and non-financial measures for each key management personnel. These measures may include financial, customer service, product management, risk management and individual measures that support key company objectives. Each key management personnel had a target short-term incentive, the level of which was set depending on the accountabilities of the role and impact on organisation or business unit performance. Each year the remuneration committee considered the appropriate targets and key performance indicators to link to the short term incentive plan and the level of payout if targets were met. This included setting any maximum payout under the short term incentive plan and minimum levels of performance to trigger payment of the short term incentive. Each year, the Governance, Nomination and Compensation Committee considered the appropriate target levels and financial and non-financial measures of performance to link to the short-term incentives. This included setting any maximum amount for incentives, and minimum levels of performance to trigger payment of the incentives. DIrectors' report 23 Details of remuneration Details of the remuneration of each Director of HTAL and each of the key management personnel of the Company, including their personally-related entities, are set out in the following tables. Directors of HTAL 2009 name C Fok B Roberts-Thomsonˆ S Chow J Gardener D Lai K Russell* J Scanlon F Sixt R Snodgrass Total short-term benefits post – employment benefits share based payments cash salary and fees $ – 533,988 – 50,000 – – 50,000 – – 633,988 non-monetary cash bonus $ benefits superannuation $ $ options $ – – – – – – – – – – – 3,369 – – – – – – – 3,369 – 10,488 – 4,500 – – 4,500 – – 19,488 – – – – – – – – – – * Mr. Russell resigned as a Director on 9 June 2009. ˆ Mr. Roberts-Thomson ceased to receive remuneration from HTAL on 31 August 2009. 2008 name C Fok B Roberts-Thomson M Bogoievskiˆ S Chow J Gardener D Lai K Russell J Scanlon F Sixt R Snodgrass* Total short-term benefits post – employment benefits share based payments cash salary and fees $ – 400,000 – – 50,000 – – 50,000 – – 500,000 non-monetary cash bonus $ benefits superannuation $ $ options $ – – – – – – – – – – – – 5,053 – – – – – – – – 5,053 – 13,437 – – 4,500 – – 4,500 – – 22,437 – – – – – – – – – – – ˆ Mr Bogoievski resigned as a Director on 31 January 2008. * Mr Snodgrass was appointed as a Director on 15 February 2008. total $ – 547,845 – 54,500 – – 54,500 – – 656,845 total $ – 418,490 – – 54,500 – – 54,500 – – 527,490 24 Key management personnel and other executives of the Company 2009* short-term benefits post - employment benefits Long-term benefits share-based payments name N Dewsˆ M Youngˆ T Finlaysonˆ G Bourkeˆ N Hamillˆ Total cash salary and fees $ cash bonus $ 341,250 315,000 181,250 164,167 175,000 350,000 191,750 182,344 50,000 50,000 1,176,667 824,094 2008 short-term benefits name N Dews ˆ M Young ˆ T Finlayson ˆ G Bourke ˆ N Hamillˆ Total cash salary and fees $ cash bonus $ 819,000 756,000 435,000 394,000 420,000 500,000 283,500 163,125 147,750 131,250 2,824,000 1,225,625 170,265 non- $monetary benefits $ 33,355 31,272 2,105 2,105 2,105 70,942 non- monetary benefits $ 80,053 75,053 5,053 5,053 5,053 super- annuation $ Long service leave $ 6,872 6,872 6,872 6,872 6,872 34,360 10,554 1,796 7,454 3,149 475 23,428 options $ 68,056 25,384 20,307 15,231 20,307 total $ 810,087 572,074 400,332 241,524 254,759 149,285 2,278,776 post - employment benefits Long-term benefits share-based payments super- annuation $ Long service leave $ 13,437 13,437 13,437 13,437 13,437 67,185 20,744 34,736 11,883 14,372 2,603 84,338 options $ 124,292 40,773 32,619 24,464 32,619 total $ 1,557,526 1,203,499 661,117 599,076 604,962 254,767 4,626,180 * all key management personnel ceased to be employed by the Company on 9 June 2009. ˆ denotes one of the 5 highest paid executives of the Company, as required to be disclosed under Corporations Act 2001. Service agreements Remuneration and other terms of employment for the Chief Executive Officer, Chief Financial Officer and the other key management personnel were formalised in service agreements. Each of these agreements provided for the provision of performance related cash bonuses. A target bonus was set for each key management personnel and the amount paid could be lower or higher than the target. The payment of any bonus was at the absolute discretion of the Board. The bonus was based on both company and personal performance goals. The key management personnel, when eligible, could participate in the HTAL Employee Option Plan. The Chief Executive Officer and the Director, Technology and Customer Services were provided with a non-cash benefit in the provision of a motor vehicle and all the key management personnel were provided with car parking. The service agreements for all key management personnel were for no fixed term and upon early termination, other than for gross misconduct, N Dews was entitled to 6 months base salary, M Young and N Hamill 3 month base salary and T Finlayson 1 month base salary. On cessation of employment with the Company and commencement of employment with VHA, no termination benefits were paid to any employees, including the key management personnel. Remuneration was reviewed annually by the Governance, Nomination and Compensation Committee. Share-based compensation Options have been granted to Directors and executives under the HTAL Employee Option Plan which was approved by the Board on 4 June 2007. All permanent full-time, permanent part-time and casual employees who were selected by the Board to receive an invitation or approved for participation in the plan were eligible to participate in the plan. Options were granted under the plan for no consideration. Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share. The exercise price of options is the higher of the following: (a) the closing price of HTAL shares on the Australian Securities Exchange on the day on which the options are granted; and (b) the average closing price of HTAL shares for the five trading days immediately preceding the day on which the options are granted. Details of options over ordinary shares in the Company provided as remuneration to each of the key management personnel of the Company are shown above, in the key management personnel remuneration table. When exercisable, each option is convertible into one ordinary share of HTAL. No ordinary shares were issued on the exercise of options during the year to any of the Directors or key management personnel. DIrectors' report 2 5 Options holdings The number of options over ordinary shares in the Company held during the financial year by each of the key management personnel of the Company, including their personally-related entities, is set out below. Key management personnel of the Company name N Dews* T Finlayson* N Hamill* M Young* Balance at the start of the year granted during the year as remuneration exercised during the year vested and exercisable on ceasing to be expired Key Management Key Management personnel personnel Balance on ceasing to be a during the year 7,000,000 2,000,000 2,000,000 2,500,000 13,500,000 – – – – – – – – – – – – – – – 7,000,000 2,000,000 2,000,000 2,500,000 2,233,333 833,333 666,666 666,666 13,500,000 4,399,998 *all key management personnel ceased to be employed by the Company on 9 June 2009 No Directors were issued options during the year or hold options over the ordinary shares of the Company. No options are vested and unexercisable at the end of the year. The Board has resolved to allow the options held by any employees who have taken up employment with VHA to remain on their existing terms and conditions. Share holdings The number of shares in the Company held during the financial year by each Director and each of the key management personnel of the Company, including their personally-related entities, are set out below. Directors of HTAL ordinary shares name C Fok B Roberts-Thomson S Chow J Gardener D Lai K Russell J Scanlon F Sixt R Snodgrass * Direct holding of 100,000 shares ** Direct holding of 4,540 shares Key management personnel of the Company ordinary shares name N Dews T Finlayson N Hamill M Young Balance at the start of received during the year on the the year exercise of options converted into ordinary shares on 24 June 2009 5,100,000 83,916,297 – 902,858 – – – 1,000,000 – – – – – – – – – – – 2,040 – 127,500 – – – – – Balance at the end of the year 5,100,000* 83,918,337** – 1,030,358 – – – 1,000,000 – Balance at the start of the year 210,886 112,671 50,638 – received during the year on the exercise of options – – – – other changes during the year Balance at 9 June 2009 – – – – 210,886 112,671 50,638 – 2 6 Convertible preference shares The number of convertible preference shares in the Company held during the financial year by each Director and each of the key management personnel of the Company, including their personally-related entities, are set out below. Directors of HTAL convertible preference shares name C Fok B Roberts-Thomson S Chow J Gardener D Lai K Russell J Scanlon F Sixt R Snodgrass Key management personnel of the Company convertible preference shares name N Dews T Finlayson N Hamill M Young Balance at the start of the year received during the year on the exercise of options converted into ordinary shares Balance at the end of the year – 2,400 – 150,000 – – – – – – – – – – – – – – – 2,400 – 150,000 – – – – – – – – – – – – – – Balance at the start of the year 23,000 2,400 – – received during the year on the exercise of options converted into ordinary shares Balance at the end of the year – – – – 23,000 2,400 – – – – – – Shares under option Unissued ordinary shares of HTAL under option issued pursuant to the HTAL Employee Option Plan at the date of this report are as follows: grant Date 14 June 2007 14 November 2007 4 June 2008 expiry date 13 June 2012 13 June 2012 3 June 2013 Issue price of shares value at grant date $0.145 $0.200 $0.139 $0.14 $0.20 $0.14 number 24,300,000 300,000 300,000 Options will expire five years after issue. The options issued in 2007 are exercisable, subject to meeting performance hurdles, on the following dates: • 1/3rd on or after 1 July 2008 • 1/3rd on or after 1 January 2009 • 1/3rd on or after 1 January 2010 The options issued in 2008 are exercisable, subject to meeting performance hurdles, on or after 1 January 2010. No option holder has any right under the options to participate in any other share issue of HTAL or of any other entity. DIrectors' report 2 7 Rounding of amounts to nearest thousand dollars Hutchison is a company of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ report. Where noted, amounts in the Directors’ report and financial report have been rounded off to the nearest thousand dollars in accordance with that Class Order, or in certain cases to the nearest dollar. Auditor PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the Directors. Susan Chow Director 19 February 2010 Frank Sixt Director 19 February 2010 Shares issued on the exercise of options No ordinary shares of HTAL were issued during the year ended 31 December 2009 or up to the date of this report on the exercise of options granted under the HTAL Employee Option Plan. Loans to Directors and key management personnel There were no loans made to the Directors or to the key management personnel of the Company, including their personally related entities during the years ended 31 December 2009 and 31 December 2008. Other transactions with Directors and key management personnel There were no other transactions with Directors and the key management personnel for the years ended 31 December 2009 and 31 December 2008. Non-audit services HTAL may decide to employ the auditor, PricewaterhouseCoopers, on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company are important. The Board of Directors, in accordance with the advice received from the Audit Committee is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. Details of the amounts paid to PricewaterhouseCoopers for audit and non- audit services provided during the year are set out in note 27, Remuneration of auditors, on page 59 of this report. A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 28. Directors’ and officers’ liability insurance During the financial year, HWL paid a premium to insure the Directors and officers of Hutchison against loss or liability arising out of a claim for a wrongful act, including any costs, charges and expenses that may be incurred in defending any actions, suits, proceedings or claims. Proceedings on behalf of HTAL No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of HTAL, or to intervene in any proceedings to which HTAL is a party, for the purpose of taking responsibility on behalf of HTAL for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of HTAL with leave of the Court under section 237 of the Corporations Act 2001. 2 8 Auditor’s Independence Declaration pricewaterhousecoopers aBn 52 780 433 757 Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999 As lead auditor for the audit of Hutchison Telecommunications (Australia) Limited for the year ended 31 December 2009, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Hutchison Telecommunications (Australia) Limited and the entities it controlled during the period. D J Whale Partner pricewaterhousecoopers Sydney 19 February 2010 2 9 Financial Report for the year ended 31 December 2009 Contents Statements of Comprehensive Income Statements of Financial Position Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory Summary of significant accounting policies Revenue Gain on disposal arising from merger Other income / (expenses) Expenses Income tax expense Current assets – Cash and cash equivalents Current assets – Trade and other receivables Current assets – Inventories Derivative financial instruments Current assets – Other Non-current assets – Receivables Non-current assets – Investment accounted for using the equity method Non-current assets – Other financial assets Non-current assets – Property, plant and equipment Non-current assets – Intangible assets Non current assets – Other Current liabilities – Payables Current liabilities – Borrowings Current liabilities – Other financial liabilities Current liabilities – Provisions Current liabilities – Other Non-current liabilities – Provisions Contributed equity Reserves and accumulated losses Director and key management personnel disclosures Remuneration of auditors Contingencies Commitments Related party transactions Deed of Cross Guarantee Segment information Reconciliation of profit/ (loss) after income tax to net cash (outflows) / inflows from operating activities Disposal of a subsidiary Earnings per share Share-based payments Critical accounting estimates and judgements Events occurring after the reporting date Financial risk management 30 31 32 33 34 40 40 40 41 42 43 43 44 45 45 46 47 49 50 52 53 53 54 55 55 55 56 56 58 59 59 60 61 62 64 66 66 67 67 68 69 69 69 72 73 75 76 3 0 Statements of Comprehensive Income for the year ended 31 December 2009 notes 2 3 / 34 4 5 5 13 6 25 revenue Gain on disposal arising from merger Other income/ (expenses) Cost of interconnection and variable content costs Other direct costs of provision of telecommunication services and goods Cost of handsets sold Employee benefits expense Advertising and promotion expenses Other operating expenses Capitalisation of customer acquisition and retention costs Depreciation and amortisation expense Finance costs Share of net (losses)/ profits of joint venture partnership accounted for using the equity method profit/ (loss) before income tax Income tax expense profit/ (loss) for the year other comprehensive income Changes in the fair value of cash flow hedges, net of tax other comprehensive income for the year, net of tax total comprehensive income/ (expense) for the year attributable to members of Hutchison telecommunications (australia) Limited consoLIDateD parent entIty 2009* $’000 799,410 587,285 1,866 (216,863) (150,071) (185,510) (57,252) (22,870) (56,261) 20,055 (110,317) (393) 2008 $’000 1,623,289 – 3,786 (471,810) (326,871) (387,465) (129,546) (56,834) (111,167) 50,169 (258,571) (104,582) 2009 $’000 133,968 12,111 2,169 (504) (4,527) – (1,609) (207) (3,656) – (3,182) (125) (141,355) 6,500 – 467,724 – (163,102) – 134,438 – 467,724 (163,102) 134,438 (990) (990) – – – – 2008 $’000 151,882 – (243) (709) (6,968) – (3,167) (283) (322) – (7,637) (2,402) – 130,151 – 130,151 – – 466,734 (163,102) 134,438 130,151 cents cents earnings per share for profit / (loss) attributable to the ordinary equity holders of the company: Basic earnings per share Diluted earnings per share 35 35 6.27 5.85 (21.63) (21.63) *The results to 31 December 2009 represent 5 months consolidated results of HTAL and 7 months equity accounted result for VHA. The above statements of comprehensive income should be read in conjunction with the accompanying notes. Statements of Financial Position as at 31 December 2009 31 assets current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other Total Current Assets non-current assets Receivables Investment accounted for using the equity method Other financial assets Property, plant and equipment Intangible assets Other Total Non-Current Assets total assets LIaBILItIes current Liabilities Payables Borrowings Other financial liabilities Provisions Other Total Current Liabilities non-current Liabilities Provisions Total Non-Current Liabilities total Liabilities net assets eQUIty Contributed equity Reserves Accumulated losses total equity consoLIDateD parent entIty notes 2009 $’000 2008 $’000 2009 $’000 2008 $’000 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2,858 64,233 – – 163 134,685 351,542 60,244 990 44,146 2,858 64,230 – – 163 4,953 242,632 88 – 2,362 67,254 591,607 67,251 250,035 50,332 1,553,651 – – – – 205,320 8,535 – 1,039,648 912,030 2,828 50,332 – 3,664,656 – – – 2,442,950 – 1,649,418 29 33,501 – 1,603,983 2,168,361 3,714,988 4,125,898 1,671,237 2,759,968 3,782,239 4,375,933 8,805 – 286,954 – – 839,781 2,103 1,000,000 3,390 4,130 8,805 – 286,954 – – 16,186 – 1,000,000 3,330 2,555 295,759 1,849,404 295,759 1,022,071 – – 2,091 2,091 – – 2,091 2,091 295,759 1,851,495 295,759 1,024,162 1,375,478 908,473 3,486,480 3,351,771 24 25 25 4,204,488 70,841 (2,899,851) 4,204,488 71,560 (3,367,575) 4,204,488 15,954 (733,962) 4,204,488 15,683 (868,400) 1,375,478 908,473 3,486,480 3,351,771 The above statements of financial position should be read in conjunction with the accompanying notes. 3 2 Statements of Changes in Equity for the year ended 31 December 2009 consoLIDateD notes Balance at 1 January 2008 Loss for the year Changes in the fair value of cash flow hedges, net of tax total comprehensive income for the year Transactions with members in their capacity as members: Employee share options – value of employee services subtotal Balance at 31 December 2008 Balance at 1 January 2009 Profit for the year Changes in the fair value of cash flow hedges, net of tax total comprehensive income for the year Transactions with members in their capacity as members: Employee share options – value of employee services subtotal 25 25 25 25 attrIBUtaBLe to MeMBers of HUtcHIson teLecoMMUnIcatIons (aUstraLIa) LIMIteD contributed equity $’000 4,204,488 – – reserves $’000 69,755 – 990 retained profits/ (losses) $’000 (3,204,473) (163,102) – total equity $’000 1,069,770 (163,102) 990 4,204,488 70,745 (3,367,575) 907,658 – – 815 815 – – 815 815 4,204,488 71,560 (3,367,575) 908,473 4,204,488 – – 71,560 – (990) (3,367,575) 467,724 – 908,473 467,724 (990) 4,204,488 70,570 (2,899,851) 1,375,207 – – 271 271 – – 271 271 Balance at 31 December 2009 4,204,488 70,841 (2,899,851) 1,375,478 parent entIty Balance at 1 January 2008 Profit for the year notes contributed equity $’000 4,204,488 – reserves $’000 14,868 – retained profits/ (losses) $’000 total equity $’000 (998,551) 130,151 3,220,805 130,151 total comprehensive income for the year 4,204,488 14,868 (868,400) 3,350,956 Transactions with members in their capacity as members: Employee share options – value of employee services subtotal Balance at 31 December 2008 Balance at 1 January 2009 Profit for the year total comprehensive income for the year Transactions with members in their capacity as members: Employee share options – value of employee services subtotal 25 25 – – 815 815 – – 815 815 4,204,488 15,683 (868,400) 3,351,771 4,204,488 – 15,683 – (868,400) 134,438 3,351,771 134,438 4,204,488 15,683 (733,962) 3,486,209 – – 271 271 – – 271 271 Balance at 31 December 2009 4,204,488 15,954 (733,962) 3,486,480 The above statements of changes in equity should be read in conjunction with the accompanying notes. 3 3 Statements of Cash Flows for the year ended 31 December 2009 consoLIDateD parent entIty notes 2009* $’000 2008 $’000 2009 $’000 2008 $’000 cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Rental income Finance costs paid 894,146 (1,383,481) 1,785,441 (1,221,684) (489,335) 56,031 66 (393) 563,757 9,089 309 (128,533) 5,830 (691,411) (685,581) 121,154 – (6,528) net cash (outflows) / inflows from operating activities 33 (433,631) 444,622 (570,955) cash flows from Investing activities Payments for property, plant and equipment Proceeds from sale of other non-current assets Proceeds from sale of intangible assets Loans to jointly controlled entities or partnership Repayment of loans from jointly controlled entities or partnership Loans from / (to) subsidiaries Payments for intangible assets (74,525) 105 86,000 (69,186) 1,113,667 – (19,666) (152,785) 3,372 – (43,433) – – (50,167) – 105 86,000 (56,342) 1,113,667 13,963 – 21,310 (15,350) 5,960 372 – (6,957) (625) – – – – – (801,395) – net cash inflows / (outflows) from investing activities 1,036,395 (243,013) 1,157,393 (801,395) cash flows from financing activities Proceeds from borrowings – subsidiary Proceeds from borrowings – related parties Repayment of borrowings – bank loans Repayment of borrowings – related parties Repayment of finance lease net cash (outflows) / inflows from financing activities net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash disposed of with H3GA merger cash and cash equivalents at 31 December 20 20 20 34 124,513 55,000 – (768,046) (1,327) – 1,000,000 (1,100,000) – (1,818) 124,513 55,000 – (768,046) – – 1,000,000 (200,000) – – (589,860) (101,818) (588,533) 800,000 12,904 134,685 (144,731) 99,791 34,894 – 2,858 134,685 (2,095) 4,953 – 2,858 (2,020) 6,973 – 4,953 * The cash flows to 31 December 2009 represent 5 months consolidated results of HTAL and 7 months HTAL parent only cash flows. The above statements of cash flows should be read in conjunction with the accompanying notes. 3 4 Notes to the Financial Statements note 1. Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Hutchison Telecommunications (Australia) Limited as an individual entity (“Company” or “Parent Entity”) and the consolidated entity consisting of Hutchison Telecommunications (Australia) Limited and its subsidiaries (“the Consolidated Entity” or “the Group”). (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (“AIFRS”), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. Segment reporting AASB 8, Operating Segments, replaces AASB 114, Segment Reporting with effect from 1 January 2009. AASB 8 is a disclosure standard that requires the disclosure of the Consolidated Entity’s operating segments. It replaces the requirement under AASB 114 to determine primary (business) and secondary (geographical) reporting segments of the Consolidated Entity’s operations. Adoption of this standard did not have any effect on the Consolidated Entity’s results of operations or financial position. Going concern disclosures As at 31 December 2009, the Consolidated Entity and the Company, have a deficiency of net current assets of $229 million (2008: $1,258 million) and $229 million (2008: $772 million). The Consolidated Entity has also experienced operating losses during the financial year ended on 31 December 2009. Included in the Consolidated Entity’s and Company’s current liabilities is an amount of $287 million (2008: $1,000 million) which relates to an interest free financing facility provided from the ultimate parent entity, Hutchison Whampoa Limited (“HWL”), which is repayable on demand. HWL has confirmed its current intention to provide sufficient financial support to enable the Consolidated Entity and the Company to meet its financial obligations as and when they fall due. This undertaking is provided for a minimum period of twelve months from 19 February 2010. Consequently, the directors have prepared the financial statements on a going concern basis. Statement of compliance Australian Accounting Standards include AIFRS. Compliance with AIFRS ensures that the consolidated financial statements and notes of the Consolidated Entity comply with International Financial Reporting Standards (“IFRS”). The parent entity financial statements and notes also comply with IFRS. Historical cost convention These financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) which are stated at fair value, as explained in the significant accounting policies set out below. Critical accounting estimates The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires the Group to exercise its judgement in the process of applying the Consolidated Entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 37. (b) Principles of consolidation The consolidated financial statements include the financial statements of the Company and all subsidiaries made up to 31 December 2009. Subsidiaries are all those entities (including special purpose entities) over which the Consolidated Entity has the power to govern the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Consolidated Entity controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Consolidated Entity. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Consolidated Entity (refer to note 1(f)). The effects of all transactions between entities in the Consolidated Entity are eliminated. If a member of the Consolidated Entity uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. Investments in controlled entities in the Company are accounted for at cost. Investments in joint ventures are accounted for as set out in note 1(g). (c) Foreign currency translation (i) functional and presentation currency Items included in the financial statements of each of the Consolidated Entity’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Hutchison Telecommunications (Australia) Limited’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income, except when deferred in equity as qualifying cash flow hedges. (d) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Revenue is recognised for the major business activities as follows: (i) Telecommunication services Revenue from the provision of mobile telecommunication services with respect to voice, video, internet access, messaging and media services, including data services and information provision, is recognised when the service is rendered and, depending on the nature of the services, is recognised either at gross amount billed to the customer or the amount receivable as commission for facilitating the services. Revenue from the sales of prepaid mobile calling cards is recognised upon customer’s usage of the card or upon the expiry of the service period. (ii) Sale of handsets Revenue from sale of handsets is recognised at the date of despatch of goods, pursuant to the signing of the customer’s contract and when all the associated risks and rewards have passed to the customer. (iii) Interest income Interest income is recognised on a time proportion basis using the effective interest method. note 1. Summary of significant accounting policies continued (e) Income tax The income tax expense for the period is the tax payable on the current period’s taxable income based on the income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled. The relevant tax rate is applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Hutchison Telecommunications (Australia) Limited and its wholly owned Australian subsidiaries have not implemented the tax consolidation legislation. (f) Business combinations The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group‘s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income. (g) Joint ventures A joint venture is a contractual arrangement whereby the venturers undertake an economic activity which is subject to joint control and over which none of the participating parties has unilateral control. (i) Jointly controlled entity A jointly controlled entity is a joint venture which involves the establishment of a separate entity. The Consolidated Entity’s interest in the joint venture entity is accounted for in the consolidated financial statements using the equity method of accounting. Under this method the share of the profits or losses of the entity is recognised in the statement of comprehensive income, and the share of the movements in reserves is recognised in reserves in the statement of financial position. Profits or losses on transactions establishing the joint venture entity and transactions with the joint venture are eliminated to the extent of the Consolidated Entity’s ownership interest until such time as they are realised by the joint venture entity on consumption or sale, unless they relate to an unrealised loss that provides evidence of the impairment of an asset transferred. (ii) Jointly controlled assets The proportionate interests in the assets, liabilities, income and expenses of a jointly controlled asset have been incorporated in the financial statements under the appropriate headings. (h) Impairment of assets Goodwill is not subject to amortisation and is tested for impairment annually, or more frequently, if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. notes to tHe fInancIaL stateMents 3 5 Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). (i) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts, if any, are shown within bank borrowings in current liabilities on the statement of financial position. (j) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are generally due for settlement within 30 days. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Consolidated Entity will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is recognised in the statement of comprehensive income. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income within ‘other expenses’. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income. 3 6 note 1. Summary of significant accounting policies continued (k) Inventories Finished goods include handsets, devices and accessories and are stated at the lower of cost and net realisable value. Costs have been assigned to inventory quantities on hand at the statement of financial position date using the standard cost method. Costs comprise of purchase price and expenditure that is directly attributable to the acquisition of the handsets after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business and the estimated costs necessary to make the sale. (l) Derivative financial instruments and hedging activities Derivative financial instruments are utilised by the Group in the management of its foreign currency and interest rate exposures. The Group’s policy is not to utilise derivative financial instruments for trading or speculative purposes. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to fair value at each reporting date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Consolidated Entity designates certain derivatives as; (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow hedges). The Consolidated Entity documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Consolidated Entity also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. (i) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the statement of comprehensive income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. (ii) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income within other income or other expense. Amounts accumulated in equity are recycled in the statement of comprehensive income in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the statement of comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of comprehensive income. (m) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of forward exchange contracts is determined using forward exchange market rates at the statement of financial position date. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Consolidated Entity for similar financial instruments. (n) Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Consolidated Entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation is calculated on a straight- line basis to write off the depreciable amount of each item of property, plant and equipment over its expected useful life to the Consolidated Entity. The assets’ residual values and useful lives are reviewed at each statement of financial position date and adjusted if appropriate. Assets are depreciated from the date they are brought into commercial service, or in respect of internally constructed assets from the time the asset is completed and is available for commercial use. The expected useful lives are as follows: Buildings 40 years Computer equipment 4 to 10 years Furniture, fittings and office equipment Network equipment 4 to 7 years 3 to 40 years The depreciable amount of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the Consolidated Entity, whichever is the shorter. Leasehold improvements held at the reporting date are being amortised over 4 – 20 years. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(h)). Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the statement of comprehensive income. (o) Leases Leases of property, plant and equipment where the Consolidated Entity has substantially transferred all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long-term payables. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance lease balance outstanding. The interest element of the finance lease cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term. Leased assets held at the reporting date are being amortised over four years. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease income from operating leases is recognised in income on a straight-line basis over the lease term. note 1. Summary of significant accounting policies continued (p) Intangible assets (i) Spectrum licences and capitalised development costs Costs associated with acquiring spectrum licences are capitalised. The amortisation of capitalised development costs and the spectrum licences commenced upon the commercial readiness of the network. The spectrum licences and development costs are amortised on a straight-line basis over the periods of their expected benefit. The carrying values of these intangible assets are reviewed on a regular basis and written down to the recoverable amount where this is less than the carrying value (refer note 1(h)). All costs directly attributable to the construction of the network assets are capitalised as work in progress. All other incremental costs to the creation of an asset within the business are capitalised as development costs. (ii) Customer acquisition and retention costs The direct costs of establishing and renewing customer contracts, other than handset subsidies which are expensed when incurred, are recognised as an asset. The direct costs are amortised as other direct costs of provision of telecommunication services and goods over the lesser of the period during which the future economic benefits are expected to be obtained and the period of the contract. The direct costs include commissions paid for obtaining customer contracts and other incremental costs directly attributable to the acquisition and retention of customers. (iii) Transmission rights The Consolidated Entity’s right to use transmission capacity is measured at cost and amortised on a straight line basis over the term of the transmission lease. (iv) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Consolidated Entity’s share of the net identifiable assets of the acquired subsidiary/ associate/jointly controlled entity at the date of acquisition. Goodwill on acquisitions of subsidiaries/jointly controlled entity is included in intangible assets. Goodwill on acquisitions of associates/jointly controlled entity is included in investments in associates. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if, events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The expected useful lives of the intangible assets, other than goodwill, are as follows: Spectrum licences and capitalised development costs Customer acquisition and retention costs Transmission rights 12 to 15 years 2 to 3 years 13 years (q) Payables These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial period and which are unpaid. The amounts are unsecured and are usually paid or payable within 30 days of recognition. Interest bearing liabilities (r) Fixed rate loans are initially recognised at fair value, net of transaction costs incurred. Floating rate loans are initially recognised at cost, net of transaction costs incurred. Fixed and floating rate loans are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of comprehensive income over the period of the liability using the effective interest method. (s) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. Borrowing costs include: – interest on bank overdrafts and short- term and long-term borrowings; – amortisation of discounts or premiums relating to borrowings; – amortisation of ancillary costs incurred in connection with the arrangement of borrowings; – finance lease charges; and – certain exchange differences arising from foreign currency borrowings. (t) Provision for decommissioning costs A provision has been recognised for costs expected to be incurred on the expiration of the site leases and resulting decommissioning costs under the terms of lease obligations. The amount of the provision is the estimated cash flow expected to be required to fulfil the lease obligations discounted back to net present value. notes to tHe fInancIaL stateMents 3 7 (u) Employee benefits (i) Wages and salaries, and annual leave Liabilities for wages and salaries, including non-monetary benefits, and annual leave expected to be settled within 12 months of the reporting date are recognised in other creditors in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non- accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. (ii) Long service leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provision for employee benefits and is measured in accordance with (i) above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Bonus plan A liability for employee benefits in the form of a bonus plan is recognised in other creditors when there is no realistic alternative but to settle the liability and at least one of the following conditions is met: – – there are formal terms in the plan for determining the amount of the benefit; the amounts to be paid are determined before the time of completion of the financial report; or – past practice gives clear evidence of the amount of the obligation. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. (iv) Share-based payments Share-based compensation benefits are provided to employees via the Hutchison Telecommunications (Australia) Limited Employee Option Plan. Information relating to the Option Plan is set out in note 36. 3 8 note 1. Summary of significant accounting policies continued (v) Contributed equity Ordinary shares and convertible preference shares are classified as equity. Refer to note 24 for further information. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (w) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing: – the profit attributable to ordinary equity holders of the Company – by the weighted average number of ordinary shares outstanding during the financial year (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: – – the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (x) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (y) Rounding of amounts to nearest thousand dollars The Company is of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ report and financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar or cent. (z) New accounting standards and UIG interpretations The Consolidated Entity has adopted all of the new and revised effective/applicable standards, amendments and interpretations issued by the Australian Accounting Standards Board (“AASB”) that are relevant to the Consolidated Entity’s operations and mandatory for annual periods beginning on or after 1 January 2009. The adoption of these new and revised standards, amendments and interpretations has resulted in changes to the format of the Consolidated Entity’s financial statements in 2009 (including revised titles for these financial statements). Australian Accounting Standards and Interpretations thereof that have recently been amended but are not yet effective have not been adopted for the reporting period ended 31 December 2009. Australian Accounting Standards that have recently been amended but are not yet effective and have not been early adopted by the Consolidated Entity are outlined in the table following: Share options granted after 7 November 2002 and vested after 1 January 2005 The fair value of options granted under the Hutchison Telecommunications (Australia) Limited Executive Option Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at the grant date is independently determined using a Black- Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at the grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each statement of financial position date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital. The market value of shares issued to employees for no cash consideration under the employee share scheme is recognised as an employee benefits expense with a corresponding increase in equity when the employees become entitled to the shares. (v) Retirement benefits Retirement benefits are delivered under the Retail Employees Superannuation Trust, although employees have an option to choose other funds. This fund is a defined contribution fund and is based on employer and employee contributions made to the fund. Contributions are recognised as an expense as they become payable. note 1. Summary of significant accounting policies continued reference affected standard(s) AASB 3 (revised) AASB 3: Business Combinations AASB 107 AASB 117 AASB 107: Cash flow statements AASB 117: Leases notes to tHe fInancIaL stateMents 3 9 application date of standard* application date for consolidated entity 1 July 2009 1 January 2010 1 January 2010 1 January 2010 1 January 2010 1 January 2010 AASB 127 (revised) AASB 127: Consolidated and Separate Financial Statements 1 July 2009 1 January 2010 AASB 136 AASB 139 AASB 2008–3 AASB 136: Impairment of assets 1 January 2010 1 January 2010 AASB 139: Financial instruments recognition and measurement 1 January 2010 1 January 2010 Amendments to Australian Accounting Standards arising from AASB 3: Business Combinations and AASB 127: Consolidated and Separate Financial Statements 1 July 2009 1 January 2010 AASB 2008–6 Further amendments to Australian Accounting Standards arising from the annual improvements process 1 July 2009 1 January 2010 AASB 2008–8 Amendments to accounting for eligible hedged items 1 July 2009 1 January 2010 AASB 2009–4 AASB 2009–5 Amendments to Australian Accounting Standards arising from the Annual Improvements Process 1 July 2009 1 January 2010 Further amendments to Australian Accounting Standards arising from the Annual Improvements Process 1 January 2010 1 January 2010 AASB 2009–7 Editorial amendments to various accounting standards 1 July 2009 1 January 2010 AASB 2009–8 Amendments to group cash-settled share-based payments (AASB 2) 1 January 2010 1 January 2010 IFRIC 9 IFRIC 17 IFRIC 18 IFRIC 19 IFRS 5 IFRIC 9: Reassessment of embedded derivatives 1 July 2009 1 January 2010 IFRIC 17: Distributions of non-cash assets to owners 1 July 2009 1 January 2010 IFRIC 18: Transfers of assets from customers 1 July 2009 1 January 2010 IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments 1 July 2010 1 January 2011 IFRS 5: Non-current assets held for sale and discontinued operations (and consequential amendment to IFRS 1 First time adoption) 1 July 2009 1 January 2010 * Application date of the standard is for the reporting periods beginning on or after the date shown in the above table. The effect that the adoption of AASB3 (revised), AASB 127 (revised) and IFRIC 17 will have on the results and financial position of the Group will depend on the incidence and timing of business combinations occurring on or after 1 January 2010. The adoption of other standards and amendments listed above in future periods is not expected to result in substantial changes to the Group’s accounting policies. 4 0 note 2. Revenue from continuing operations Services Sale of handsets other revenue Interest Rental income note 3. Gain on disposal arising from merger Gain on disposal arising from merger consoLIDateD parent entIty 2009 $’000 2008 $’000 711,896 28,520 1,467,924 145,478 740,416 1,613,402 2009 $’000 7,201 397 7,598 2008 $’000 14,945 824 15,769 58,929 65 58,994 9,578 309 9,887 126,370 – 136,113 – 126,370 136,113 799,410 1,623,289 133,968 151,882 consoLIDateD parent entIty 2009 $’000 587,285 2008 $’000 2009 $’000 – 12,111 2008 $’000 – On 10 June 2009, the Company announced that the merger of its operating subsidiary, Hutchison 3G Australia Pty Ltd (H3GA) and Vodafone Australia Limited (VAL) had completed. As a result of the merger H3GA acquired 100% of VAL and issued shares to subsidiaries of Vodafone Group Plc resulting in the Vodafone entities holding 50% of the H3GA shares. H3GA has been renamed Vodafone Hutchison Australia Pty Limited (VHA). The interest in VHA is accounted for in the consolidated financial statements using the equity method. The gain on disposal arising from the merger for the consolidated entity of $587,285,000 represents the disposal of 50% of the group’s interest in H3GA following the merger of H3GA with VAL. The gain on disposal arising from the merger for the parent entity of $12,111,000 represents the disposal of its 850 MHz spectrum to VHA and merger costs. As a result of the completion of the transaction, HTAL has ceased to consolidate the results and net assets of H3GA and will equity account for its interest in the Jointly Controlled Entity, VHA, on an on-going basis. The consolidated statement of comprehensive income presented for the year ended 31 December 2009 therefore represents 5 months of the former ‘3’ business (H3GA) and 7 months of an equity accounted result for VHA. In future periods, all of the results of VHA will be reported as an equity accounted result. The consolidated statement of financial position presented as at 31 December 2009 includes the HTAL group’s equity investment in VHA together with current and non-current loans from the group to VHA. note 4. Other income/ (expenses) Dividend income Net foreign exchange gains / (losses) Net gain on sale of property consoLIDateD parent entIty 2009 $’000 – 1,790 76 1,866 2008 $’000 – 1,719 2,067 3,786 2009 $’000 2,009 84 76 2,169 2008 $’000 – (243) – (243) notes to tHe fInancIaL stateMents 41 note 5. Expenses Loss before income tax includes the following specific expenses: Finance costs Interest and finance charges paid / payable 393 104,582 125 2,402 consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Depreciation Buildings Fixtures, fittings and office equipment Computer equipment Computer equipment under finance lease Network equipment Network equipment – jointly controlled asset Assets under construction Total depreciation Amortisation Spectrum licence Capitalised development costs Customer acquisition and retention costs Customer acquisition costs written off Transmission capacity Total amortisation Total amortisation and depreciation Rental expense relating to operating leases – 1,609 14,888 482 9,328 8,149 25,045 59,501 29,032 248 16,594 3,512 1,430 50,816 20 5,323 40,564 1,156 22,046 19,620 42,409 131,138 77,485 596 36,872 9,417 3,063 127,433 110,317 258,571 – – – – – – – – 3,182 – – – – 3,182 3,182 – – – – – – – – 7,637 – – – – 7,637 7,637 Lease payments (included in “Other operating expenses”) 14,964 35,920 1,744 6,143 Provision for (write back of) / impairment loss of Current assets – Trade receivables (included in “Other operating expenses”) Non-current assets – Receivables (included in “Other operating expenses”) 13,843 (3,503) 10,340 19,134 283 19,417 (16) – (16) (205) – (205) 4 2 note 6. Income tax expense (a) Income tax expense Current tax Deferred tax Income tax expense consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 – – – – – – – – – – – – (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit / (loss) from operations before income tax expense 467,724 (163,102) 134,438 130,151 Tax at the Australian tax rate of 30% (2008: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Entertainment and other non-deductible expenses Stamp duty on shares-merger Profit/(loss) on disposal of H3GA shares Interest not deductible Share of net profit of jointly controlled entity Deferred tax / unrecognised tax losses Previously unrecognised tax losses now recouped to reduce current tax expense Previously unrecognised tax losses now recouped to reduce deferred tax expense Income tax expense 140,317 (48,931) 40,331 39,045 1,293 3,668 (159,610) – 42,406 (28,074) – – – – 183 – – 37,501 (1,950) 17,725 4,528 11,247 (15,775) 1,259 3,668 – – – (3,270) 41,988 (44,081) 2,093 2 – – – – (487) 38,560 (39,048) 488 – – – (c) Unrecognised tax losses Unused tax losses for which no deferred tax assets has been recognised 232,561 3,489,126 232,561 638,260 Potential tax benefit @ 30% 69,768 1,046,738 69,768 191,478 All unused tax losses were incurred by Australian entities. This benefit for tax losses will only be obtained if the specific entity carrying forward the tax losses derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised, and the company complies with the conditions for deductibility imposed by tax legislation. (d) Unrecognised deferred tax assets and liabilities i) Deferred tax asset There are temporary differences attributable to: Provisions Business related costs Utilisation of tax losses Set-off of deferred tax liability pursuant to set-off provisions Net deferred tax (liability) / asset ii) Deferred tax liability There are temporary differences attributable to: Property, plant and equipment and intangible assets Interest in jointly controlled entity Utilisation of tax losses Set-off of deferred tax asset pursuant to set-off provisions 1,841 7,262 9,103 (9,103) – – 31,102 491 31,593 231,387 (262,980) – – 43,254 43,254 (52,357) 9,103 (256,288) (6,692) (262,980) 231,387 31,593 1,868 7,226 9,094 (9,094) – – – – – (9,094) 9,094 Net deferred tax (liability) / asset – – – 6,109 491 6,600 (6,600) – – – – – (6,600) 6,600 – notes to tHe fInancIaL stateMents 4 3 note 7. Current assets – Cash and cash equivalents Cash at bank and in hand Short term deposits consoLIDateD parent entIty 2009 $’000 2,858 – 2,858 2008 $’000 84,685 50,000 134,685 2009 $’000 2,858 – 2,858 2008 $’000 4,953 – 4,953 Restrictions on cash at bank At 31 December 2009 cash at bank includes collateral for bank guarantees $nil (2008: $5,287,000) (note 28). Cash at bank has decreased due to the cash being disposed of through the H3GA merger. Short term deposits At 31 December 2009 there are short term deposits $nil (2008: $50,000,000). The weighted average interest rate was 3.37% p.a. in 2009 (2008: 6.94%).The short term deposits have been disposed of through the H3GA merger. note 8. Current assets – Trade and other receivables Trade receivables Less: Provision for impairment of receivables Other receivables Receivable from jointly controlled entities (note 30) Receivable from related entity (note 30) Receivable from subsidiaries (note 30) consoLIDateD parent entIty 2009 $’000 – – – – 61,934 2,299 – 64,233 2008 $’000 376,595 (25,817) 350,778 764 – – – 351,542 2009 $’000 – – – – 61,931 2,299 – 2008 $’000 4,307 (1,896) 2,411 223,903 – – 16,318 64,230 242,632 Receivable from subsidiaries and jointly controlled entities Further information relating to receivable from subsidiaries and jointly controlled entities is set out in note 30. (a) Aging of impaired trade receivables and trade receivables which are past due but not impaired As at 31 December 2009, current trade receivables of the Consolidated Entity and Parent Entity with a nominal value of $nil (2008: $25,817,000) and $nil (2008: $1,896,000) respectively were impaired. The amount of the provision for the Consolidated Entity and Parent Entity was $nil (2008: $25,817,000) and $nil (2008: $1,896,000) respectively. The individually impaired receivables mainly relate to retail customers which are provided for based on historical impairment averages. The ageing of these receivables is as follows: 1–3 months Over 3 months consoLIDateD parent entIty 2009 $’000 – – – 2008 $’000 17,073 8,744 25,817 2009 $’000 – – – 2008 $’000 76 1,820 1,896 As of 31 December 2009, current trade receivables of the Consolidated Entity and Parent Entity of $nil (2008: $41,682,000) and $nil (2008: $39,000) respectively were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of payment default. The ageing analysis of these trade receivables is as follows: 4 4 note 8. Current assets – Trade and other receivables continued 1–3 months Over 3 months consoLIDateD parent entIty 2009 $’000 – – – 2008 $’000 30,890 10,792 41,682 2009 $’000 – – – (b) Movements in the provision for impairment of current trade receivables were as follows: At 1 January Provision for impairment / (write back) recognised during the year Receivables disposed of / written off during the year as uncollectible consoLIDateD parent entIty 2009 $’000 25,817 13,843 (39,660) 2008 $’000 24,040 19,134 (17,357) – 25,817 2009 $’000 1,896 (16) (1,880) – 2008 $’000 39 – 39 2008 $’000 1,999 (205) 102 1,896 The creation and release of the provision for impaired receivables has been included in ‘other operating expenses’ in the statement of comprehensive income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these other classes, it is expected that these amounts will be received when due. (c) Credit risk The Consolidated Entity has no significant concentrations of credit risk. The Consolidated Entity has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. (d) Foreign exchange and interest rate risk Refer to note 12 for an analysis of the Consolidated Entity’s and Parent Entity’s current receivables denominated in various currencies. Refer to note 39 for an analysis of the Consolidated Entity’s exposure to foreign exchange risk in relation to trade and other receivables. A summarised analysis of the sensitivity of trade and other receivables to foreign exchange and interest rate risk can be found in note 39. (e) Fair value and credit risk Due to the short-term nature of these receivables, their carrying values are recognised initially at fair value and subsequently measured at amortised cost. This approximates to the fair value. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Consolidated Entity does not generally hold any collateral as security. Refer to note 39 for more information on the risk management policy of the Consolidated Entity. note 9. Current assets – Inventories Finished goods consoLIDateD parent entIty 2009 $’000 2008 $’000 – 60,244 2009 $’000 – 2008 $’000 88 Inventory expense Inventories recognised as expense under ‘cost of handsets sold’ in the statement of comprehensive income during the year ended 31 December 2009 amounted to $185,599,000 (2008: $387,785,000). There was $89,000 (2008: $320,000) related to write-down or provision for write-down of inventory. The expense has been included in ‘other direct costs of provision of telecommunication services and goods’ in the statement of comprehensive income. notes to tHe fInancIaL stateMents 4 5 note 10. Derivative financial instruments current assets Forward foreign exchange contracts – cash flow hedges (note (a)) consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 – 990 – – (a) Forward foreign exchange contracts – cash flow hedges As at 31 December 2009, the balance for the forward foreign exchange contracts is $nil (2008: $990) and represents the unrealised gains on forward foreign exchange contracts to sell Australian Dollars to buy US Dollars. There were no forward foreign exchange contracts as at 31 December 2009 because the balance was disposed of through the H3GA merger. During 2008, the Consolidated Entity paid Hutchison 3 Global Services Pvt. Ltd, which is a call centre in India owned by HWL, invoices denominated in US dollars. In order to protect against exchange rate movements, the Consolidated Entity entered into forward exchange contracts to purchase US dollars. These contracts were hedging highly probable forecasted purchases for the ensuing financial year. The contracts were timed to mature to coincide with the payment for the service provided by the call centre in India. The cash flows are expected to occur at various dates within six months from the reporting date. At the financial position date, the details of outstanding contracts are: Buy UsD Maturity : 0– 6 months notional principal amount sell australian dollars 2009 $’000 2008 $’000 average exchange rate 2009 2008 – 13,644 – 0.773 Amounts disclosed above represent currency sold, measured at the contracted rate. The portion of the gain or loss on the hedging instruments that is determined to be an effective hedge is recognised directly in equity. When the cash flows occur, the Consolidated Entity adjusts the initial measurement of the component recognised in the statement of financial position by the related amount deferred in equity. During the year ended 31 December 2009 a loss of $1,300,000 (2008: gain of $1,400,000) was transferred to other income in the statement of comprehensive income. (b) Credit risk exposures Credit risk arises from the potential failure of counterparties to meet their obligations under the respective contracts at maturity. This arises on forward foreign exchange contract with unrealised gains. The maximum exposure to credit risk at the reporting date is the carrying amount of these forward foreign exchange contracts in the consolidated statement of financial position. note 11. Current assets – Other Prepayments Other consoLIDateD parent entIty 2009 $’000 – 163 163 2008 $’000 43,981 165 44,146 2009 $’000 – 163 163 2008 $’000 2,199 163 2,362 4 6 note 12. Non–current assets – Receivables Trade receivables Less: Provision for impairment of receivables Other receivables Receivable from jointly controlled entities (note 30) Receivable from subsidiaries (note 30) consoLIDateD parent entIty 2009 $’000 – – – – 50,332 – 50,332 2008 $’000 35,609 (3,503) 32,106 173,214 – – 2009 $’000 – – – – 50,332 – 2008 $’000 – – – – – 2,442,950 205,320 50,332 2,442,950 Other receivables Included in other receivables is a loan to a jointly controlled entity. For further information refer to note 30. Receivable from jointly controlled entities Weighted average interest on the receivable from jointly controlled entities is charged at a rate of 8% p.a. Further information relating to receivable from jointly controlled entities is set out in note 30. Receivable from subsidiaries Weighted average interest on the receivable from subsidiaries is charged at a rate of Bank Bills Swap Yield (BBSY) plus 2.21% p.a. in 2008. Further information relating to receivable from subsidiaries is set out in note 30. (a) Movements in the provision for impairment of non-current trade receivables As at 31 December 2009 non-current trade receivables of the Consolidated Entity with a nominal value of $nil (2008: $3,503,000) were impaired. The amount of the provision was $nil (2008: $3,503,000). At 1 January Provision for impairment recognised during the year Receivables disposed of / written off during the year consoLIDateD parent entIty 2009 $’000 3,503 – (3,503) – 2008 $’000 3,220 283 – 3,503 2009 $’000 2008 $’000 – – – – – – The creation and release of the provision for impaired receivables has been included in ‘other operating expenses’ in the statement of comprehensive income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The other classes within non-current receivables do not contain impaired assets and are not past due. Based on the credit history of these other classes, it is expected that these amounts will be received when due. (b) Fair values The carrying values of non-current receivables at amortised cost approximated to fair value, based on cash flows discounted using 0% (2008: 7%). (c) Foreign currency and interest rate risk The carrying amounts of the Consolidated Entity’s and Parent Entity’s current and non-current receivables are denominated in the following currencies: Australian dollars British pounds US dollars Current receivables (note 8) Non-current receivables consoLIDateD parent entIty 2009 $’000 114,565 – – 2008 $’000 532,561 7 24,294 2009 $’000 114,562 – – 2008 $’000 2,685,552 – 30 114,565 556,862 114,562 2,685,582 64,233 50,332 351,542 205,320 64,230 50,332 242,632 2,442,950 114,565 556,862 114,562 2,685,582 For an analysis of the sensitivity of trade and other receivables to foreign exchange and interest rate risk refer to note 39. (d) Credit risk The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Consolidated Entity does not hold any collateral as security. Refer to note 39 for more information on the risk management policy of the Consolidated Entity. notes to tHe fInancIaL stateMents 4 7 note 13. Non-current assets – Investment accounted for using the equity method Interest in a jointly controlled entity consoLIDateD parent entIty 2009 $’000 1,553,651 2008 $’000 8,535 2009 $’000 – 2008 $’000 – Jointly controlled entity (a) Vodafone Hutchison Australia Pty Limited (“VHA”) On 9 June 2009 a subsidiary, H3GA merged with VAL and H3GA was renamed VHA. The interest in VHA is accounted for in the consolidated financial statements using the equity method. Information relating to the jointly controlled entity is set-out below. consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 share of the jointly controlled entity’s assets and liabilities Current assets Non-current assets total assets Current liabilities Non-current liabilities total liabilities net assets share of the jointly controlled entity’s revenue, expenses and results Revenues Expenses Loss for the period reconciliation of interest in a jointly controlled entity Initial investment at 9 June 2009 Loss for the period Net assets Goodwill (note 16) Gain on disposal of spectrum licence from HTAL to VHA, net of amortisation Interest in a jointly controlled entity at 31 December 2009 share of the jointly controlled entity’s commitments Lease commitments Capital commitments contingent liabilities relating to the jointly controlled entity 554,437 3,180,941 3,735,378 (1,557,664) (765,013) (2,322,677) 1,412,701 1,302,373 (1,446,553) (144,180) 1,556,881 (144,180) 1,412,701 165,321 (24,371) 1,553,651 478,327 123,770 602,097 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 4 8 Note 13. Non-current assets – Investment accounted for using the equity method continued Shares in jointly controlled entity Under the joint venture agreement described below each party has contributed $1 to the share capital of the entity. (b) 3 GIS Partnership (“3 GIS”) In December 2004 a controlled entity, VHA (formerly known as “H3GA”) established a 50% interest in a joint venture with Telstra OnAir Holdings Pty Limited named 3GIS. 3GIS’s principal activity is the operation and construction of 3G radio access network infrastructure. The interest in 3GIS is accounted for in the consolidated financial statements using the equity method until 9 June 2009. Following the merger between H3GA and VAL, from 10 June 2009 the 3GIS partnership is accounted for using the equity method in VHA’s consolidated financial statements. Information relating to the jointly controlled entity is set-out below. consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 share of the jointly controlled entity’s assets and liabilities Current assets Non-current assets total assets Current liabilities Non-current liabilities total liabilities net assets share of the jointly controlled entity’s revenue, expenses and results Revenues Expenses profit for the year share of the jointly controlled entity’s commitments Lease commitments Capital commitments contingent liabilities relating to the jointly controlled entity (c) total share of the jointly controlled entity’s revenue, expenses and results – – – – – – – 45,794 141,322 187,116 (10,997) (167,584) (178,581) 8,535 34,868 (32,043) 80,303 (73,803) 2,825 6,500 – – – – 121,063 – 121,063 – (141,355) 6,500 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – notes to tHe fInancIaL stateMents 4 9 note 14. Non-current assets – Other financial assets consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Non-traded investments Shares in controlled and jointly controlled entities (note (a)) – at cost – – 3,664,656 1,649,418 (a) Controlled and jointly controlled entities The consolidated financial statements incorporate the assets, liabilities and results of the following controlled and jointly controlled entities in accordance with the accounting policy described in note 1(b) and 1(g): name of entity Bell Organisation Pty Limited Bell Paging Pty Limited Bell Communications Pty Limited Lindian Pty Limited Erlington Pty Limited Hutchison Telephone Pty Limited HTAL Facilities Pty Limited Hutchison 3G Australia Holdings Pty Limited Vodafone Hutchison Australia Pty Limited (formerly Hutchison 3G Australia Pty Limited) H3GA Facilities Pty Limited H3GA Properties (No. 3) Pty Limited notes country of Incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia (a) (b) class of shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary equity Holding * 2009 % 2008 % 100 100 100 100 100 100 100 100 50 – – 100 100 100 100 100 100 100 100 100 100 100 * The proportion of ownership interest is equal to the proportion of voting power held. (a) This entity has been granted relief from the necessity to prepare financial reports in accordance with Class Order (98/1418) issued by the Australian Securities and Investments Commission. (b) This entity is accounted for in the consolidated financial statements using equity accounting for the year ended 31 December 2009. 5 0 note 15. Non-current assets – Property, plant and equipment consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Land and buildings At cost Less: accumulated depreciation Total land and buildings fixtures, fittings and office equipment At cost Less: accumulated depreciation Total fixtures, fittings and office equipment computer equipment At cost Less: accumulated depreciation Total computer equipment Computer equipment under finance lease Less: accumulated amortisation Total computer equipment under finance lease Total computer equipment network equipment At cost Less: accumulated depreciation Total network equipment network equipment – jointly controlled asset At net book value Less: accumulated depreciation Total network equipment – jointly controlled asset assets under construction Work in progress Less: accumulated depreciation Total work in progress total property, plant and equipment reconciliation of land and buildings Carrying amount at beginning of year Additions Disposals Depreciation (note 5) Carrying amount at end of year – – – – – – – – – – – – – – – – – – – – – – – 30 – (30) – – 30 – 30 116,358 (108,955) 7,403 467,173 (374,396) 92,777 16,742 (10,146) 6,596 99,373 701,617 (340,754) 360,863 356,249 (79,668) 276,581 384,446 (89,048) 295,398 1,039,648 1,335 – (1,285) (20) 30 – – – – – – – – – – – – – – – – – – – – – – – 29 – (29) – – 29 – 29 68,628 (68,628) – 74,923 (74,923) – – – – – 230,128 (230,128) – – – – 2,434 (2,434) – 29 29 – – – 29 notes to tHe fInancIaL stateMents 51 note 15. Non-current assets – Property, plant and equipment continued consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 reconciliation of fixtures, fittings and office equipment Carrying amount at beginning of year Additions Disposals through H3GA merger Depreciation (note 5) Carrying amount at end of year reconciliation of computer equipment Carrying amount at beginning of year Additions Disposals Disposals through H3GA merger Depreciation (note 5) Carrying amount at end of year reconciliation of computer equipment under finance lease Carrying amount at beginning of year Additions Disposals through H3GA merger Depreciation (note 5) Carrying amount at end of year reconciliation of network equipment Carrying amount at beginning of year Additions Disposals Disposals through H3GA merger Depreciation (note 5) Carrying amount at end of year reconciliation of network equipment – jointly controlled asset Carrying amount at beginning of year Additions Disposals through H3GA merger Depreciation (note 5) Carrying amount at end of year reconciliation of assets under construction Carrying amount at beginning of year Additions Disposals through H3GA merger Transfers out Depreciation (note 5) Carrying amount at end of year 7,403 9,820 (15,614) (1,609) – 92,777 54,643 (1,194) (131,338) (14,888) 10,125 2,601 – (5,323) 7,403 116,063 17,278 – – (40,564) – 92,777 6,596 – (6,114) (482) – 360,863 96,151 (346) (447,340) (9,328) 7,752 – – (1,156) 6,596 362,108 20,801 – – (22,046) – 360,863 276,581 – (268,432) (8,149) 296,201 – – (19,620) – 276,581 295,398 47,367 (157,106) (160,614) (25,045) 222,322 156,164 – (40,679) (42,409) – 295,398 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 5 2 note 16. Non-current assets – Intangible assets consoLIDateD parent entIty Spectrum licences at cost Less: accumulated amortisation Capitalised development costs Less: accumulated amortisation Customer acquisition and retention costs Less: accumulated amortisation Transmission capacity at cost Less: accumulated amortisation Goodwill Less: Provision for impairment reconciliation of spectrum licences Carrying amount at beginning of year Additions Disposals through H3GA merger Amortisation (note 5) Carrying amount at end of year reconciliation of capitalised development costs Carrying amount at beginning of year Additions Disposals through H3GA merger Amortisation (note 5) Carrying amount at end of year reconciliation of customer acquisition and retention costs Carrying amount at beginning of year Additions Write off (note 5) Disposals through H3GA merger Amortisation (note 5) Carrying amount at end of year reconciliation of transmission capacity Carrying amount at beginning of year Additions Disposals through H3GA merger Amortisation (note 5) Carrying amount at end of year 2009 $’000 – – – – – – – – – – – – – – – – 509,795 – (480,763) (29,032) 2008 $’000 953,067 (443,272) 509,795 66,052 (61,097) 4,955 159,023 (118,926) 40,097 38,794 (12,252) 26,542 330,641 – 330,641 912,030 587,280 – – (77,485) 2009 $’000 – – – – – – – – – – – – – – – – 33,501 – (30,319) (3,182) 2008 $’000 57,534 (24,033) 33,501 61,843 (61,843) – 49,793 (49,793) – – – – – – – 33,501 41,138 – – (7,637) – 509,795 – 33,501 4,955 – (4,707) (248) – 40,097 20,055 (3,512) (40,046) (16,594) 5,551 – – (596) 4,955 36,219 50,167 (9,417) – (36,872) – 40,097 26,542 – (25,112) (1,430) 29,605 – – (3,063) – 26,542 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – note 16. Non-current assets – Intangible assets continued reconciliation of goodwill Carrying amount at beginning of year Additions Disposals through H3GA merger Reclassification to investment as part of H3GA merger Carrying amount at end of year notes to tHe fInancIaL stateMents 5 3 consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 330,641 – (165,320) (165,321) 330,641 – – – – 330,641 – – – – – – – – – – Goodwill The goodwill of $330,641,000 arises from HTAL’s acquisition of a further 19.94% interest in H3GAH on 10 October 2007. On 9 June 2009, HTAL disposed of 50% of the goodwill as a result of H3GA’s merger with Vodafone Australia Limited. note 17. Non-current assets – Other Prepayments note 18. Current liabilities – Payables Trade creditors Other creditors Payables to related entity (note 30) consoLIDateD parent entIty 2009 $’000 – 2008 $’000 2,828 2009 $’000 – 2008 $’000 – consoLIDateD parent entIty 2009 $’000 105 8,700 – 8,805 2008 $’000 196,996 89,833 552,952 839,781 2009 $’000 105 8,700 – 8,805 2008 $’000 1,713 14,473 – 16,186 Payables to related entity Further information relating to payables to related entity is set out in note 30. (a) Foreign currency and interest rate risk The carrying amounts of the Consolidated Entity’s and Parent Entity’s trade and other payables are predominantly denominated in Australian Dollars: Australian Dollars Euro British Pounds Hong Kong Dollars US Dollars consoLIDateD parent entIty 2009 $’000 8,805 – – – – 8,805 2008 $’000 835,546 2,088 6 – 2,141 839,781 2009 $’000 8,805 – – – – 8,805 2008 $’000 16,186 – – – – 16,186 Refer to note 39 for an analysis of the Consolidated Entity’s exposure to foreign currency risk in relation to trade payables. A summarised analysis of the sensitivity of trade payables to foreign exchange and interest rate risk can be found in note 39. 5 4 note 19. Current liabilities – Borrowings secured Obligations under finance leases Unsecured Bank loans at amortised cost consoLIDateD parent entIty 2009 $’000 – – – 2008 $’000 2,103 – 2,103 2009 $’000 2008 $’000 – – – – – – (a) Obligations under finance leases Obligations under finance leases are secured against the underlying assets which revert to the lessor in case of default. The carrying value of the assets pledged as security is $nil (2008: $6,596,000) (note 15) representing leased computer equipment. (b) Fair value The carrying amounts and fair values of current and non-current borrowings of the Consolidated Entity at balance date are: secured Obligations under finance leases Unsecured Bank loans carrying amount $’000 2009 fair value $’000 carrying amount $’000 2008 fair value $’000 – – – – – – 2,103 2,103 – – 2,103 2,103 (i) On-balance sheet The fair value of current borrowings equals their carrying amount, as the impact of discounting is not material. (ii) Contingent liabilities The Parent Entity and certain controlled entities have potential financial liabilities which may arise from certain contingencies disclosed in note 28. As explained in the note, no material losses are anticipated in respect of any of those contingencies. (c) Risk exposures The following table sets out the Consolidated Entity’s exposure to interest rate risk for the year ending 31 December 2008, including the contractual repricing dates and the effective weighted average interest rate by maturity periods. In 2008 exposures arise from lease liabilities as all the bank loans were fully repaid during the year. There is no risk exposure in 2009 as all the bank loans were fully repaid in 2008 and there are no lease liabilities outstanding as at 31 December 2009. floating interest rate $’000 1 year or less $’000 over 1 to 2 years $’000 over 2 to 3 years $’000 over 3 to 4 years $’000 over 4 to 5 years $’000 over 5 years $’000 fixed interest rate – – – 2,103 2,103 6.99% – – – – – – – – – – – – – – – total $’000 2,103 2,103 6.99% 2008 Obligations under finance leases Weighted average interest rate (d) Fair value disclosures Details of the fair value of borrowings of the Consolidated Entity are set out in note 39. notes to tHe fInancIaL stateMents 5 5 note 20. Current liabilities – Other financial liabilities Loan from a related entity (note 30) 286,954 1,000,000 286,954 1,000,000 consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Loan from a related entity Further information relating to loan from a related entity is set out in note 30. The loan from a related entity is an interest free financing facility and is repayable on demand. (a) Financing arrangements Unrestricted access was available at balance date to the following lines of credit: other financial liabilities Total facilities Used at balance date Unused at balance date note 21. Current liabilities – Provisions Employee benefits consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 1,100,000 (286,954) 1,100,000 (1,000,000) 1,100,000 (286,954) 1,100,000 (1,000,000) 813,046 100,000 813,046 100,000 consoLIDateD parent entIty 2009 $’000 – 2008 $’000 3,390 2009 $’000 – 2008 $’000 3,330 Hutchison Telecommunications (Australia) Limited employees have been transferred to VHA (formerly H3GA) following the merger between H3GA and VAL. (a) Movement in provisions Movements in provision for employee benefits are as follows: At 1 January Transfer to VHA as at 9 June 2009 Amounts utilised during the year note 22. Current liabilities – Other Unearned income Loans from subsidiaries (note 30) consoLIDateD parent entIty 2009 $’000 3,390 (6,316) 2,926 – 2008 $’000 2,453 – 937 3,390 2009 $’000 3,330 (6,316) 2,986 – consoLIDateD parent entIty 2009 $’000 – – – 2008 $’000 4,130 – 4,130 2009 $’000 – – – 2008 $’000 2,396 – 934 3,330 2008 $’000 201 2,354 2,555 Loans from subsidiaries and related entity No interest is charged on the loans from subsidiaries and related entities. For further information refer to note 30. 5 6 note 23. Non-Current Liabilities – Provisions Employee benefits consoLIDateD parent entIty 2009 $’000 – 2008 $’000 2,091 2009 $’000 – 2008 $’000 2,091 Hutchison Telecommunications (Australia) Limited employees have been transferred to VHA (formerly H3GA) following the merger between H3GA and VAL. note 24. Contributed equity a) Share capital Ordinary shares (fully paid) Share capital Ordinary shares entitle the holder to participate in dividends and proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. (b) Convertible Preference Shares (“CPS”) Convertible preference shares consoLIDateD parent entIty 2009 shares 2008 shares 2009 $’000 2008 $’000 13,572,508,577 754,028,255 4,204,488 1,045,194 – 15,080,565,089 – 3,159,294 total contributed equity 13,572,508,577 15,834,593,344 4,204,488 4,204,488 The CPS: (a) were issued at 21 cents; (b) have no voting rights except in limited circumstances; (c) are convertible (at the option of the holder) into 0.85 ordinary shares for each CPS either: (i) after expiry of the two year non-conversion period during a conversion window of 10 business days commencing on the first day of each calendar quarter; or (ii) upon a takeover offer being made for HTAL; or (iii) upon a change of control of HTAL; or (iv) following an announcement by HTAL of a major disposal of its assets may be converted by HTAL into 0.85 ordinary shares in certain circumstances (d) will convert into 0.85 ordinary shares for each CPS five years after their date of issue; (e) rank ahead of ordinary shares in the event of a winding up, but are subordinated to secured debt; and (f) are entitled to a non-cumulative preferential dividend equal to 5% per annum of the issue price, subject to the directors determining in their discretion; that a dividend is payable under rule 5.1 of the Constitution of HTAL. On 24 June 2009, the CPS were converted into Ordinary Shares. On 10 June 2009, HTAL announced the completion between its subsidiary H3GA and Vodafone Australia Limited, pursuant to an arrangement between the Company and Vodafone Group Plc. Under the arrangement H3GAH entered into a joint venture with subsidiaries of Vodafone to own H3GA on a 50/50 basis. The joint venture was implemented on 9 June 2009 and resulted in the occurrence of a change of control event, which follows (c)(iii) above. note 24. Contributed equity continued (c) Movement in ordinary shares: Date Detail 01 January 2008 Opening balance 31 December 2008 Closing balance 01 January 2009 24 June 2009 Opening balance Conversion of CPS into ordinary shares 31 December 2009 Closing balance (d) Movement in convertible preference shares: Date Detail 01 January 2008 Opening balance 31 December 2008 Closing balance 01 January 2009 24 June 2009 Opening balance Conversion of CPS into ordinary shares 31 December 2009 Closing balance notes to tHe fInancIaL stateMents 57 number of shares 754,028,255 754,028,255 754,028,255 12,818,480,322 13,572,508,577 $’000 1,045,194 1,045,194 1,045,194 3,159,294 4,204,488 number of shares Issue price $’000 15,080,565,089 15,080,565,089 15,080,565,089 (15,080,565,089) – 0.21 3,159,294 0.21 0.21 3,159,294 3,159,294 (3,159,294) – (e) Options Information relating to the HTAL Employee Option plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year are set out in note 36. (f) Capital risk management The Consolidated Entity’s and the Parent Entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Consolidated Entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Consolidated Entity and the Parent Entity monitor capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘borrowings’ and ‘trade and other payables’ as shown in the statement of financial position) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the statement of financial position (including minority interest) plus net debt. The gearing ratios at 31 December 2009 and 31 December 2008 were as follows: Total payables, borrowings and other financial liabilities Less: cash and cash equivalents (note 7) Net debt Total equity Total capital gearing ratio consoLIDateD parent entIty 2009 $’000 2008 $’000 295,759 (2,858) 1,841,884 (134,685) 2009 $’000 295,759 (2,858) 292,901 1,375,478 1,707,199 908,473 292,901 3,486,480 2008 $’000 1,016,186 (4,953) 1,011,233 3,351,771 1,668,379 2,615,672 3,779,381 4,363,004 18% 65% 8% 23% The decrease in the gearing ratio during 2009 resulted primarily from the decrease in cash which was disposed though the H3GA merger during the year. 5 8 note 25. Reserves and accumulated losses (a) Reserves Capital reserve Hedging reserve – cash flow hedges Share-based payments reserve Movements: capital reserve There has been no movement in the capital reserve during the year. Hedging reserve – cash flow hedges Balance at 1 January Hedging movements Balance at 31 December share-based payments reserve Balance at 1 January Option expense Balance at 31 December (b) Accumulated losses Accumulated losses at 1 January Profit/ (loss) attributable to the members of Hutchison Telecommunications (Australia) Limited consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 54,887 – 15,954 70,841 54,887 990 15,683 71,560 – – 15,954 15,954 2008 $’000 – – 15,683 15,683 990 (990) – 15,683 271 15,954 – 990 990 14,868 815 15,683 – – – – – – 15,683 271 15,954 14,868 815 15,683 (3,367,575) (3,204,473) (868,400) (998,551) 467,724 (163,102) 134,438 130,151 Accumulated losses at 31 December (2,899,851) (3,367,575) (733,962) (868,400) (c) Nature and purpose of reserves Capital reserve The capital reserve relates to the surplus arising on initial consolidation of 19.9% stake in Hutchison 3G Australia Holdings Pty Limited. It is not distributable until realised. Hedging reserve – cash flow hedges The hedging reserve is used to record gains and losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in note 1(l)(ii). Amounts are recognised in the statement of comprehensive income when the associated hedged transaction affects profit and loss. Share-based payments reserve The share-based payments reserve is used to recognise: (a) the grant date fair value of options issued to employees but not exercised; and (b) the fair value of the 850 MHz spectrum licence assigned from TCNZ. The fair value was determined by reference to the fair value of the option granted to TCNZ. notes to tHe fInancIaL stateMents 5 9 note 26. Director and key management personnel disclosures (a) Key management personnel compensation Short term employee benefits Post employment benefits Long term benefits Share based payments consoLIDateD parent entIty 2009 $ 1,855,432 27,490 20,279 134,055 2008 $ 3,673,087 53,748 69,966 230,303 2,037,256 4,027,104 2009 $ 2008 $ – – – – – – – – – – Detailed remuneration disclosures including details of total remuneration, share options and shareholdings are provided on pages 21–26 of the Remuneration report in the Directors’ report. The decrease in key management personnel compensation in 2009 resulted primarily from the merger between H3GA (renamed VHA) and VAL. From 10 June 2009, the key management personnel have been transferred to VHA. (b) Loans to key management personnel There were no loans made to Directors or key management personnel of the Company, including their personally related entities during the years ended 31 December 2009 and 31 December 2008. (c) Other transactions with key management personnel There were no other transactions with the Directors or key management personnel of the Company for the years ended 31 December 2009 and 31 December 2008. note 27. Remuneration of auditors consoLIDateD parent entIty 2009 $ 2008 $ 2009 $ 2008 $ During the year fees paid to the auditor of the Parent Entity, its related practices and non-related audit firms for the following services: assurance services 1. Audit services Fees paid to PricewaterhouseCoopers Australian firm: Audit and review of financial reports and other audit work under the Corporations Act 2001 2. Other assurance services Fees paid to PricewaterhouseCoopers Australian firm: IT audit Accounting services Other assurance services Audit of regulatory returns Due diligence services 343,066 381,300 343,066 151,000 110,000 85,000 110,000 9,000 – 85,000 10,500 424,499 11,500 – 10,500 424,499 – 9,000 11,500 – Total remuneration for assurance services 973,065 511,800 863,065 171,500 taxation services Fees paid to PricewaterhouseCoopers Australian firm: Tax compliance services, including review of company tax returns Tax advice on recapitalisation Tax advice on merger 56,190 – 634,595 158,610 107,840 – 56,190 – 634,595 66,880 67,440 – 690,785 266,450 690,785 134,320 Total remuneration of PricewaterhouseCoopers Australia 1,663,850 778,250 1,553,850 305,820 It is the Consolidated Entity’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the Consolidated Entity are important. These assignments are principally tax advice and due diligence reporting on acquisitions. It is the Consolidated Entity’s policy to seek competitive tenders for all major consulting projects. 6 0 note 28. Contingencies Details and estimates of maximum amounts of contingent liabilities as at 31 December 2009 are as follows: guarantees Secured guarantees in respect of leases and loans of controlled entities Unsecured guarantees in respect of leases of controlled entities consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 – 7,858 7,858 5,287 32,053 37,340 – 7,858 7,858 3,350 32,053 35,403 The secured guarantees in respect of leases and loans of controlled entities are secured by cash collateral over the term of the leases. No material losses are anticipated in respect of any of the above contingent liabilities. The Directors are not aware of any other material contingent liabilities existing at the reporting date. notes to tHe fInancIaL stateMents 61 note 29. Commitments capital commitments Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities, payable: consoLIDateD parent entIty Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years 2009 $’000 – – – – 2008 $’000 49,929 22,925 – 72,854 Lease commitments Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable: 2009 $’000 2008 $’000 – – – – – – – – 2008 $’000 965 218 – 1,183 consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 136 220 – 356 28,072 69,818 9,997 107,887 136 220 – 356 356 107,887 356 1,183 operating leases Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years Representing: Non-cancellable operating leases The Consolidated Entity leases various sites, offices, retail shops and warehouses under non-cancellable operating leases expiring within one to eighteen years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. finance leases Commitments in relation to finance leases are payable as follows: Not later than 1 year Later than 1 year but not later than 5 years Minimum lease payments Less: Future finance charges Recognised as a liability Representing lease liabilities: Current (note 19) consoLIDateD parent entIty 2009 $’000 2008 $’000 2009 $’000 2008 $’000 – – – – – – – 2,156 – 2,156 (53) 2,103 2,103 2,103 – – – – – – – – – – – – – – The weighted average interest rate implicit in the leases is 0% (2008: 6.99%). The Consolidated Entity leases various computer equipment with a carrying value of $nil (2008: $6,596,000) (note 15) under finance leases which expire within one to four years. Under the terms of the leases, the Consolidated Entity has the option to acquire the leased assets for an agreed amount or an agreed fair value as detailed in the lease agreement. 6 2 note 30. Related party transactions (a) Parent entities The holding company and Australian parent entity is Hutchison Communications (Australia) Pty Limited which at 31 December 2009 owns 88% (2008: 52%) of the issued ordinary shares of Hutchison Telecommunications (Australia) Limited. On 24 June 2009, the CPS were converted into Ordinary shares. Refer to note 24 for further details. The ultimate parent entity is Hutchison Whampoa Limited (incorporated in Hong Kong). (b) Directors The names of persons who were Directors of the Company at any time during the financial year are as follows: FOK Kin-ning, Canning; Barry ROBERTS-THOMSON; CHOW Woo Mo Fong, Susan; Justin H. GARDENER; LAI Kai Ming, Dominic; Kevin Steven RUSSELL; John Michael SCANLON; Frank John SIXT and Roderick James SNODGRASS. Mr Kevin Steven RUSSELL resigned as a Director on 9 June 2009. (c) Key management personnel compensation Disclosures relating to key management personnel compensation are set out in the Directors’ Report. (d) Transactions with related parties During the year, the following transactions occurred with related parties: sales of goods and services Sale of interconnection services to subsidiary Sale of telecommunications related goods and services to joint venture Recharge of staff costs purchases of goods Purchase of goods and services from commonly controlled entities Purchase of telecommunications related goods and services from joint venture Dividend income Subsidiaries payables Repayments to: Related entity Loans to related parties Loans advanced to: Subsidiaries Jointly controlled entity Loans from related parties Loans advanced from: Related entity Subsidiaries Loans repayments to: Related entity Loans repayments from: Related entity consoLIDateD parent entIty 2009 $’000 – 1,937 – 2008 $’000 – 5,296 – 13,412 142,968 78,362 58,646 2009 $’000 – – 60,972 – – – – 2,009 591,468 – 591,468 2008 $’000 53 – 137,362 – – – – – 1,320,000 – – – 1,320,000 1,000,000 – 55,000 – 1,552,952 – 55,000 – 1,000,000 201,222 768,046 1,250,000 – – 768,046 2,619 1,250,000 – note 30. Related party transactions continued Interest revenue Jointly controlled entity Subsidiaries Interest expense Ultimate parent entity Advances to jointly controlled entity notes to tHe fInancIaL stateMents 63 consoLIDateD parent entIty 2009 $’000 56,347 – 358 50,332 2008 $’000 – – 19,715 26,739 2009 $’000 56,347 69,858 105 50,332 2008 $’000 – 135,748 568 – Advances to jointly controlled entity’s represents funds advanced under the terms of the agreement with the jointly controlled entity. The funds advanced under the agreement are interest free and to be offset by charges from the jointly controlled entity. (e) Outstanding balances The following balances are outstanding at the reporting date in relation to transactions with related parties: current receivables Jointly controlled entity (note 8) Related entity (note 8) Subsidiaries (note 8) non current receivables Jointly controlled entity (note 12) Subsidiaries (note 12) payables Related entity (note 18) current liabilities – other financial liabilities Related entity (note 20) current liabilities – other Subsidiaries (note 22) consoLIDateD parent entIty 2009 $’000 61,934 2,299 – 50,332 – 2008 $’000 – – – 2009 $’000 61,931 2,299 – 2008 $’000 – – 16,318 166,999 – 50,332 – – 2,442,950 – 552,952 – – 286,954 1,000,000 286,954 1,000,000 – – – 2,354 No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties. (f) Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates, except interest on some loans between the parties that are interest free. 6 4 note 31. Deed of Cross Guarantee Hutchison Telecommunications (Australia) Limited (“HTAL”), Hutchison 3G Australia Holdings Pty Limited (“H3GAH”) and Hutchison 3G Australia Pty Limited (“H3GA”) are parties to a Deed of Cross Guarantee under which each company guarantees the debts of the others. By entering into the Deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. The Deed was entered into during the year ended 31 December 2007. On 10 June 2009, the Company announced that the merger of its subsidiary H3GA with VAL has been completed. H3GA has been renamed VHA. As a result the parties to the Deed of Cross Guarantee are HTAL and H3GAH. (a) Consolidated statement of comprehensive income and a summary of movements in consolidated retained losses H3GAH and H3GA represent a ‘Closed Group’ for the purposes of the Class Order for the period from 1 January to 9 June 2009. After the 10 June 2009, H3GAH represent the ‘Closed Group’ for the purposes of the Class Order. As there are no other parties to the Deed of Cross Guarantee that are controlled by HTAL, H3GAH also represents the ‘Extended Closed Group’. Set out below is a consolidated statement of comprehensive income and a summary of movements in consolidated retained losses for the year ended 31 December 2009 of the Closed Group. statement of comprehensive Income revenue Gain on disposal arising from merger Other income Cost of interconnection and variable content costs Other direct costs of provision of telecommunication services and goods Cost of handsets sold Employee benefits expense Advertising and promotion expenses Other operating expenses Capitalisation of customer acquisition and retention costs Depreciation and amortisation expense Finance costs Share of net profits of jointly controlled entities and partnership accounted for using the equity method profit / (loss) before income tax Income tax expense profit / (loss) for the year summary of movements in consolidated retained losses retained losses at the beginning of the financial year Profit / (loss) for the year retained losses at the end of the financial year 2009 $’000 2008 $’000 736,191 768,119 1,707 (129,008) (233,263) (185,295) (55,643) (22,663) (56,422) 20,055 (109,491) (70,127) 2,825 666,985 – 1,607,212 – 1,961 (305,723) (485,845) (386,957) (126,379) (56,551) (105,816) 50,169 (249,369) (250,689) 6,500 (301,487) – 666,985 (301,487) (2,837,535) 666,985 (2,536,048) (301,487) (2,170,550) (2,837,535) notes to tHe fInancIaL stateMents 6 5 note 31. Deed of Cross Guarantee continued (b) Statement of Financial Position Set out below is a statement of financial position as at 31 December 2009 of the Closed Group consisting of H3GAH. current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other Total Current Assets non-current assets Receivables Investment accounted for using the equity method Property, plant and equipment Intangible assets Other Total Non-Current Assets total assets current Liabilities Payables Borrowings Other Total Current Liabilities non-current Liabilities Borrowings Other Total Non-Current Liabilities total Liabilities net assets eQUIty Contributed equity Reserves Accumulated losses total equity 2009 $’000 2008 $’000 – 3 – – – 3 129,731 349,097 60,156 990 41,864 581,838 – 1,556,881 – – – 205,320 8,535 1,041,994 545,691 2,828 1,556,881 1,804,368 1,556,884 2,386,206 – – – – – – – – 1,045,184 2,103 20,317 1,067,604 1,442,951 1,000,000 2,442,951 3,510,555 1,556,884 (1,124,349) 3,727,434 – (2,170,550) 1,712,196 990 (2,837,535) 1,556,884 (1,124,349) 6 6 note 32. Segment Information The Consolidated Entity operated within the telecommunications industry until 9 June 2009. On 10 June 2009, the Company announced that the merger of its subsidiary H3GA with VAL has been completed. H3GA has been renamed VHA . As a result, the Consolidated Entity now invests in an operator within the telecommunications industry. The chief operating decision maker of the Consolidated Entity receives information to manage its operations and investment based on one operating segment, that of operator of telecommunication services prior to 10 June 2009, and investor in an operator of telecommunication services post 10 June 2009. As such, the Consolidated Entity believes it is appropriate that there is one business segment, telecommunication services and one geographical segment, that being Australia as the Consolidated Entity operates wholly in Australia. Segment results are therefore disclosed with reference to the entire statement of comprehensive income and year end balances as disclosed in the statement of financial position. note 33. Reconciliation of profit / (loss) after income tax to net cash (outflows) / inflows from operating activities Profit / (loss) after income tax Amortisation Depreciation Amortisation – subscriber acquisition and retention costs Customer acquisition costs written off Non-cash employee benefits expense – share-based payments Fair value adjustment on liabilities Net gain on sale of property, plant and equipment Gain on disposal arising from merger Share of net losses / (profits) of joint venture partnership accounted for using equity method Change in operating assets and liabilities (Decrease) / increase in provision for doubtful debts Decrease / (increase) in receivables (Increase) / decrease in inventories Decrease / (increase) in other assets (Decrease) / increase in payables Increase / (decrease) in other current liabilities (Decrease) / increase in employee entitlements notes 5 5 5 5 25 3 13 consoLIDateD parent entIty 2009 $’000 467,724 30,710 59,501 16,594 3,512 271 – (76) (587,285) 2008 $’000 (163,102) 81,144 131,138 36,872 9,417 815 2,109 (2,067) – 2009 $’000 134,438 3,182 – – – 271 – (76) (12,111) 2008 $’000 130,151 7,637 – – – 815 19 – – 141,355 (6,500) – – (6,265) 37,427 (686) 11,227 (603,241) 1,016 (5,415) 2,060 (24,462) 46,594 (27,990) 361,605 (4,345) 1,334 (1,896) 2,008 88 220,084 (911,318) (201) (5,424) (102) (134,249) (19) 161 (6,202) (170) 1,334 Net cash (outflows) / inflows from operating activities (433,631) 444,622 (570,955) (625) notes to tHe fInancIaL stateMents 67 note 34. Disposal of a subsidiary (a) Disposal of Vodafone Hutchison Australia Pty Ltd (formerly H3GA) On 10 June 2009, the Company disposed of 50% of its subsidiary H3GA following from the merger of H3GA and VAL. Details of the disposal are as follows: consideration received Consideration received for shares in H3GA Historical cost of net identifiable assets disposed Gain on de-consolidation of H3GA 50% share of gain on disposal of shares in H3GA Merger related costs Gain on disposal arising from merger (note 3) (b) Assets and liabilities disposed of The share of assets and liabilities arising from the disposal of H3GA are as follows: Current assets Non-current assets Current liabilities Non-current liabilities Share of net identifiable assets disposed of (c) Net cashflow on disposal Total consideration received Less: non cash consideration in respect of H3GA Consideration received in cash Less: cash and cash equivalent balances disposed net cashflow note 35. Earnings per share (a) Basic earnings per share Profit / (loss) attributable to the ordinary equity holders of the Consolidated Entity (b) Diluted earnings per share Profit / (loss) attributable to the ordinary equity holders of the Consolidated Entity (c) Earnings used in calculating earnings per share Basic earnings per share Profit / (loss) attributable to the ordinary equity holders of the Consolidated Entity used in calculating basic earnings per share Diluted earnings per share Profit / (loss) attributable to the ordinary equity holders of the Consolidated Entity used in calculating diluted earnings per share $’000 (c) (b) 2,411,000 (1,150,156) 1,260,844 630,422 (43,137) 587,285 562,271 2,693,602 (2,105,717) – 1,150,156 2,411,000 (2,411,000) – (144,731) (144,731) consoLIDateD 2009 cents 2008 cents 6.27 (21.63) 5.85 (21.63) consoLIDateD 2009 $’000 2008 $’000 467,724 (163,102) 467,724 (163,102) 6 8 note 35. Earnings per share continued (d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share consoLIDateD 2009 number 2008 number 7,461,780,971 754,028,255 7,988,567,834 754,028,255 On 24 June 2009, the CPS were converted into Ordinary shares. Refer to note 24 for further details. note 36. Share-based payments Option Plans The HTAL Employee Option Plan was established by the Board on 4 June 2007. All permanent full-time, permanent part-time and casual employees who have been selected by the Board to receive an invitation or who have been approved for participation in the plan are eligible to participate in the plan. When exercisable, each option is convertible into one ordinary share. The exercise price of options is the higher of the following: (a) the closing price of HTAL shares on the Australian Securities Exchange on the day on which the options are granted; and (b) the average closing price of HTAL shares for the five trading days immediately preceding the day on which the options are granted. Set out below are summaries of options granted under each plan. consoLIDateD anD parent entIty – 2009 expiry date 13–Jun–12 13–Nov–12 20–May–13 3–Jun–13 exercise price $0.145 $0.200 $0.165 $0.139 grant date 14–Jun–07 14–Nov–07 21–May–08 4–Jun–08 total Weighted average exercise price consoLIDateD anD parent entIty – 2008 Balance at the start of the year 27,400,000 300,000 200,000 300,000 28,200,000 $0.146 Issued during the year exercised during the year forfeited during the year Balance at the end of the year exercisable at the end of the year – – – – – – – – – – 3,025,000 – 200,000 – 24,375,000 300,000 – 300,000 16,341,644 – – – – 3,225,000 24,975,000 16,341,644 – $0.146 $0.146 $0.145 grant date 14–Jun–07 14–Nov–07 21–May–08 4–Jun–08 total expiry date 13–Jun–12 13–Nov–12 20–May–13 3–Jun–13 exercise price Balance at the start of the year $0.145 $0.200 $0.165 $0.139 28,920,000 300,000 – – Issued during the year – – 200,000 300,000 exercised during the year forfeited during the year Balance at the end of the year exercisable at the end of the year – – – – 1,520,000 – – – 27,400,000 300,000 200,000 300,000 9,183,301 – – – 29,220,000 500,000 – 1,520,000 28,200,000 9,183,301 Weighted average exercise price $0.146 $0.149 – $0.145 $0.146 $0.145 The number of options that were forfeited during the year were 3,225,000 (2008: 1,520,000). The weighted average remaining contractual life of share options outstanding at the end of the period was 2.5 years (2008: 3.5 years). Fair value of options granted The assessed fair value at grant date of options expensed during the year ended 31 December 2009 was 4 cents (2008: 4 cents). Refer to note 1(u)(iv) for how the fair value of options were determined. The additional model inputs for options expensed during the year ended 31 December 2009 and 31 December 2008 not already outlined above include: (a) weighted average share price at grant date: 14.9 cents. (b) weighted average of expected price volatility of the company’s shares: 34%. (c) expected dividend yield: 0%. (d) weighted average risk-free interest rate: 6.4%. The expected price volatility is based on the historical 12 month period prior to grant date. notes to tHe fInancIaL stateMents 6 9 note 36. Share-based payments continued Employee Share Purchase Plan The employee share purchase plan allows for HTAL’s shares to be purchased on-market for employees. All Australian resident permanent employees and casual employees who have been employed by the company for more than one year are eligible to participate in the plan. Employees may elect not to participate in the plan. Under the plan, up to $1,000 of HTAL shares are purchased for each participating employee with the company contributing up to $250 of the cost of the purchase, and brokerage and stamp duty costs. Shares purchased under the plan may not be sold until the earlier of 3 years after purchase or cessation of employment with the company. Expenses arising under share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employment costs were as follows: parent entIty consoLIDateD Options issued under HTAL Employee Option Plan 2009 $’000 271 2008 $’000 815 2009 $’000 271 2008 $’000 815 note 37. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates and judgements under different assumptions and conditions. (a) Critical accounting estimates and assumptions Impairment of investments in controlled and jointly controlled entities In accordance with the Consolidated Entity’s accounting policy stated in note 1(h), investments in controlled and jointly controlled entities have been tested for impairment. The recoverable amount of the Company’s investment in controlled entities (note 14), and the recoverable amount of the Consolidated Entity’s investment in jointly controlled entities (note 13) have been determined on the value in use methodology. The fair value underlying the calculations has been based on the approved business plan for VHA. These calculations require the use of estimates and assumptions. The Directors believe that the resulting net present value (NPV) is appropriate to support the carrying values of both the parent entity’s investment and the Consolidated Entity’s investments in jointly controlled entities as at 31 December 2009. (b) Critical judgements in applying the Consolidated Entity’s accounting policies There are no judgements made in applying the Consolidated Entity’s accounting policies that have a significant effect on the amounts recognised in the financial report. note 38. Events occurring after the reporting date There has been no other matter or circumstance that has arisen subsequent to the reporting date that has significantly affected, or may significantly affect: (i) the operations of the Company and Consolidated Entity’s in future financial years, or (ii) the results of those operations in future financial years, or (iii) the state of affairs of the Company and Consolidated Entity’s in future financial years. note 39. Financial risk management The Consolidated Entity’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Consolidated Entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Consolidated Entity. The Consolidated Entity cautiously uses derivatives, principally forward foreign exchange contracts as appropriate for risk management purposes only, for hedging transactions and for managing the Group’s assets and liabilities. It is the Consolidated Entity’s policy not to enter into derivative transactions for speculative purposes. It is also the Group’s policy not to invest liquidity in financial products, including hedge funds or similar vehicles, with significant underlying leverage or derivative exposure. Risk management is carried out by a central treasury department under policies approved by the Board of Directors. Treasury operates as a centralised service for managing financial risks, including interest rate and foreign exchange risks. Treasury identifies, evaluates and hedges financial risks in close co-operation with the Consolidated Entity’s operating units. The Board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. 7 0 note 39. Financial risk management continued (a) Market risk For the presentation of market risks (including interest rate risk, exchange rate risk and market price risk), AASB 7 “Financial instruments: disclosures” requires disclosure of a sensitivity analysis for each type of market risk that show the effects of a hypothetical change in the relevant market risk variable to which the Group is exposed at the reporting date on profit or loss and total equity. The effect that is disclosed in the following sections assumes that (a) a hypothetical change of the relevant risk variable had occurred at the reporting date and had been applied to the relevant risk variable in existence on that date; and (b) the sensitivity analysis for each type of market risk does not reflect inter-dependencies between risk variables, e.g. the interest rate sensitivity analysis does not take into account of the impact of changes in interest rates would have on the relative strengthening and weakening of the currency with other currencies. The preparation and presentation of the sensitivity analysis on market risk is solely for compliance with AASB 7 disclosure requirements in respect of financial instruments. The sensitivity analysis measures changes in the fair value and/or cash flows of the Group’s financial instruments from hypothetical instantaneous changes in one risk variable (e.g. functional currency rate or interest rate), the amount so generated from the sensitivity analysis are what-if forward-looking estimates. The sensitivity analyses are for illustration purposes only and it should be noted that in practice market rates rarely change in isolation. Actual results in the future may differ materially from the sensitivity analyses due to developments in the global markets which may cause fluctuations in market rates (e.g. exchange or interest rate) to vary and therefore it is important to note that the hypothetical amounts so generated do not represent a projection of likely future events and profits or losses. Foreign exchange risk i) The Consolidated Entity purchases handsets from its suppliers on invoices denominated in US dollars and also pays Hutchison 3 Global Services Pvt. Ltd, which is a call centre in India owned by HWL, on invoices denominated in US dollars. In order to protect against exchange rate movements, the Consolidated Entity enters into foreign exchange contracts to purchase US dollars. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities that are denominated in a currency that is not the entity’s functional currency. The risk is monitored using sensitivity analysis and cash flow forecasting. Management has set up a policy requiring operating units to manage their foreign exchange risk against their functional currency. Operating units review individual requirements with the central treasury department to hedge their foreign exchange risk exposure arising from future commercial transactions and recognised assets and liabilities using forward contracts transacted with financial institutions. For reporting purposes, the entity designates contracts as fair value hedges or cash flow hedges, as appropriate. External foreign exchange contracts are designated as hedges of foreign exchange risk on specific assets, liabilities or future transactions on a gross basis. At 31 December 2009, had the Australian Dollar weakened/strengthened by 10% against all other currencies with all other variables held constant, post-tax loss for the year would have been $nil lower/$nil higher (2008: $2,185,000 lower/$2,185,000 higher). Equity would have been $nil lower/$nil higher (2008: $2,615,000 lower/$341,000 higher). The foreign currency hedging was disposed of with the H3GA merger and as a result there was no impact on post- tax loss and equity. (ii) Interest rate risk The Consolidated Entity’s main interest rate risk arises from cash balances. All long-term borrowings have been fully repaid during the year. (iii) Summarised sensitivity analysis The following table summarises the sensitivity of the Consolidated Entity’s financial assets and financial liabilities to interest rate risk, foreign exchange risk and other price risk. Interest rate risk foreign exchange risk -1% +1% -10% +10% carrying amount $’000 post-tax loss $’000 other equity $’000 post-tax loss $’000 other equity $’000 post-tax loss $’000 other equity $’000 post-tax loss $’000 other equity $’000 31–Dec–09 financial assets Cash and cash equivalents Trade receivables Financial liabilities Trade payables Borrowings Other financial liabilities 2,858 – (105) – (286,954) (29) – – – – total increase/(decrease) (284,201) (29) – – – – – – 29 – – – – 29 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – notes to tHe fInancIaL stateMents 71 note 39. Financial risk management continued Interest rate risk foreign exchange risk -1% +1% -10% +10% 31–Dec–08 carrying amount $’000 post-tax loss $’000 other equity $’000 post-tax loss $’000 other equity $’000 post-tax loss $’000 other equity $’000 post-tax loss $’000 other equity $’000 financial assets Cash and cash equivalents Trade receivables Derivative financial instruments Financial liabilities Trade payables Borrowings Other financial liabilities 134,685 376,595 990 (1,347) – – (196,996) (2,103) (1,000,000) – – – total increase/(decrease) (686,829) (1,347) – – – – – – – 1,347 – – – – – 1,347 – – – – – – – – 2,609 – (424) – – – – 2,615 – (2,609) – – – – 424 – – – – (341) – – – 2,185 2,615 (2,185) (341) (b) Credit risk Credit risk is managed on an entity basis. Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to retail customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Credit Department following a credit risk assessment. The utilisation of credit limits by wholesale customers is regularly monitored by line management. The entity uses automated payment facilities such as direct deposit of customers bank account or credit card to settle amounts due by retail customers, mitigating credit risk. Credit risk further arises in relation to financial guarantees given to certain parties (see note 28 for details). Such guarantees are only provided in exceptional circumstances and are subject to board approval. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the support from related parties. The Consolidated Entity manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Due to the dynamic nature of the underlying businesses, Treasury aims at maintaining flexibility in funding by keeping committed credit lines available with a variety of counterparties. Surplus funds are generally only invested in instruments that are tradeable in highly liquid markets. The table below analyses the Consolidated Entity’s financial liabilities relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant. at 31 December 2009 Payables Other financial liabilities Total ($’000) at 31 December 2008 Payables Other financial liabilities Finance lease liabilities Total ($’000) effective interest rate – – effective interest rate – – 6.99% Less than 1 year $’000 8,805 286,954 295,759 Between 1 and 2 years $’000 Between 2 and 5 years $’000 over 5 years $’000 – – – – – – – – – Less than 1 year $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 over 5 years $’000 839,781 1,000,000 2,156 1,841,937 – – – – – – – – – – – – total $’000 8,805 286,954 295,759 total $’000 839,781 1,000,000 2,156 1,841,937 72 Directors’ Declaration In the Directors’ opinion: (a) the financial statements and notes set out on pages 30 to 71 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the Company’s and Consolidated Entity’s financial position as at 31 December 2009 and of their performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in note 31 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee described in note 31. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. susan chow Director 19 February 2010 frank sixt Director 19 February 2010 7 3 Independent Auditor’s Report (Australia) Limited to the members of Hutchison Telecommunications pricewaterhousecoopers aBn 52 780 433 757 Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999 Report on the financial report We have audited the accompanying financial statements of Hutchison Telecommunications (Australia) Limited (the company), which comprise the statement of financial position as at 31 December 2009, and the statement of comprehensive income, statement of changes in equity and statement of cash flow for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for both Hutchison Telecommunications (Australia) Limited and the Hutchison Telecommunications (Australia) Limited Group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at the year end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. 74 pricewaterhousecoopers aBn 52 780 433 757 Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999 Auditor’s opinion In our opinion: (a) the financial report of Hutchison Telecommunications (Australia) Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 31 December 2009 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the consolidated financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 21 to 26 of the directors’ report for the year ended 31 December 2009. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the Remuneration Report of Hutchison Telecommunications (Australia) Limited for the year ended 31 December 2009, complies with section 300A of the Corporations Act 2001. Matters relating to the electronic presentation of the audited financial report This auditor’s report relates to the financial report and remuneration report of Hutchison Telecommunications (Australia) Limited (the company) for the year ended 31 December 2009 included on Hutchison Telecommunications (Australia) Limited’s web site. The company’s directors are responsible for the integrity of the Hutchison Telecommunications (Australia) Limited’s web site. We have not been engaged to report on the integrity of this web site. The auditor’s report refers only to the financial report and remuneration report named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these statements or the remuneration report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information included in the audited financial report and remuneration report presented on this web site. pricewaterhousecoopers D J Whale Partner Sydney 19 February 2010 Shareholder Information 75 The shareholder information set out below was applicable as at 19 February 2010. Substantial shareholders Substantial shareholders in the Company are: Hutchison Communications (Australia) Pty Limited# Vodafone Group Plc and subsidiaries* Telecom 3G (Australia) Limited and Telecom Corporation of New Zealand Limited Notes: shareholding percentage 12,009,393,175 88.48% 12,009,393,175 88.48% 1,357,250,858 10.00% # * Substantial shareholding includes relevant interest arising from an equitable mortgage of shares between Leanrose Pty Limited and Hutchison Communications (Australia) Pty Limited. Substantial shareholding arises solely as a result of the relevant interests which Vodafone Group Plc and its subsidiaries have in shares in the Company held by Hutchison Communications (Australia) Pty Limited. Such relevant interests arise under a Shareholders Agreement between Vodafone Group Plc, Hutchison Whampoa Limited (parent entity of Hutchison Communications (Australia) Pty Limited) and other parties in relation to Vodafone Hutchison Australia Pty Limited. The acquisitions of such relevant interests were approved by shareholders on 2 April 2009. None of Vodafone Group Plc or any of its subsidiaries holds any shares in the Company. Distribution of equity securities range ordinary shares options 1 – 1000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – OVER TOTAL 1,576 3,076 1,172 1,699 279 7,802 0 0 0 9 38 47 Twenty largest shareholders There were 4122 holders of less than a marketable parcel of ordinary shares. The names of the 20 largest holders of quoted ordinary shares as at 19 February 2010 are as follows: shareholder shareholding % capital rank Issued Hutchison Communications (Australia) Pty Limited Telecom 3G (Australia) Limited Leanrose Pty Limited Citicorp Nominees Pty Limited J P Morgan Nominees Australia HSBC Custody Nominees (Australia) Limited Arjee Pty Limited George Thomson Yet Kwong Chiang & Ho Yuk Lin Chiang Weresyd Proprietary Limited Effie Holdings Pty Limited National Nominees Limited Yim Fong Leung Hung Fong Chong John Franciszek Chodorowski Jason Boua Hong Lo Bin Liu Yee Man Tang Song Song Zhang Share Direct Nominees 11,925,479,378 1,357,250,858 83,913,797 12,176,881 11,538,593 5,870,844 4,048,851 2,962,676 2,700,138 2,560,854 2,500,000 2,212,973 1,849,000 1,779,000 1,432,456 1,400,000 1,316,000 1,250,000 1,225,000 1,190,000 87.87 10.00 0.62 0.09 0.09 0.04 0.03 0.02 0.02 0.02 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Unquoted Equity Securities Options issued under the Employee Option Plan Number of Options on issue Number of holders 24,900,000 47 Voting rights The voting rights attaching to each class of equity securities are: (a) Ordinary shares On a show of hands, every member present, in person or by proxy, attorney or representative, has one vote. On a poll every member has one vote for each share. (b) Options No voting rights 7 6 Corporate Directory Directors Fok Kin-ning, Canning Barry Roberts-Thomson Chow Woo Mo Fong, Susan Justin Herbert Gardener Lai Kai Ming, Dominic John Michael Scanlon Frank John Sixt Roderick James Snodgrass Company Secretaries Edith Shih Louise Sexton Investor Relations Tel: (02) 9964 4646 Fax: (02) 9964 4649 Email: investors@hutchison.com.au Web: www.hutchison.com.au Registered Office Building A, 207 Pacific Highway St Leonards NSW 2065 Tel: (02) 9964 4646 Fax: (02) 9964 4668 Share Registry Link Market Services Level 12, 680 George Street Sydney NSW 2000 (02) 8280 7111 www.linkmarketservices.com.au Auditor PricewaterhouseCoopers Chartered Accountants 201 Sussex Street Sydney NSW 2000 Securities Exchange Listing Hutchison shares are listed on the Australian Securities Exchange Limited ASX Code: HTA Notice of Annual General Meeting The Annual General Meeting of Hutchison will be held at: The Conference Centre Building A, 207 Pacific Highway St Leonards NSW 2065 Date: Tuesday, 4 May 2010 Time: 10.00am HutcHison teLecoMs (asX: Hta) is a Listed coMpany wHicH Has a 50 per cent interest in vodafone HutcHison austraLia pty LiMited (vHa). vHa offers MobiLe teLecoMMunications under tHe vodafone and 3 brands. HutcHison teLecoMs was Listed on tHe asX in 1999 and in 2003 LauncHed austraLia’s first 3g service, caLLed 3. vhA AwArded 2009 M&A deAl of The yeAr by insTo MAGAzine Australian Financial Markets agM detaiLs The AnnuAl GenerAl MeeTinG of huTchison will be held AT: The conference cenTre, buildinG A, 207 PAcific hiGhwAy, sT leonArds nsw 2065 dATe: TuesdAy, 4 MAy 2010 TiMe: 10AM y b d e c u d o r p d n a d e n g i s e d r o t s e v n i e t a n g i s e d