Healthcare Trust of America inc
Annual Report 2010

Plain-text annual report

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: 30 March 2011 Subject: Annual Report 2010 The Company’s 2010 Annual Report incorporating the full year accounts for the period ended 31 December 2010 is attached. Yours faithfully Louise Sexton Company Secretary H u t c h i s o n T e l e c o m m u n i c a t i o n s ( A u s t r a l i a ) L i m i t e d A n n u a l R e p o r t 2 0 1 0 Profitable Growth AnnuAl RepoRt 2010 HutCHISon teleCoMS 2010 aNNual rePort Contents 2 REVIEW4 Hutchison CHAIRMAN’S REPORT VHA CEO’s 9 VHA executive team 10 Community Investment at VHA 11 Sustainability and Corporate Responsibility at VHA 12 Hutchison Board of Directors 14 Corporate Governance 18 Directors’ Report 26 Auditor’s Independence Declaration 27 Financial Report 32 notes to the Financial Statements 60 Directors’ Declaration 61 Independent Auditor’s Report 63 Shareholder Information aGM Details the Annual General Meeting of Hutchison will be held at: 40 Mount Street, north Sydney nSW 2060 Date: Wednesday 4 May 2011 Time: 10.00 am Hutchison telecommunications (Australia) limited (ASX: HtA) is a listed company which has a 50% interest in Vodafone Hutchison Australia pty limited (VHA). VHA offers mobile telecommunications under the Vodafone, 3 and Crazy John’s brands. Hutchison telecoms was listed on the ASX in 1999 and in 2003 launched Australia’s first 3G service, under the 3 brand. VHA awarded 2010 Frost & Sullivan Australian Wireless Service provider of the Year VHA awarded 2010 Syndicated loan of the Year by Insto Magazine Australian Financial Markets introduction 1 Chairman’s Report 2800 2300 1800 1300 800 300 2300 1800 1300 800 300 htal’s Share of Vha’s total revenue 2,800 2,300 1,800 1,300 9 . 0 1 4 , 2 $ n o i l l i m $ 1 . 0 4 0 , 2 $ Hutchison achieved a full year profit of Many merger integration milestones were $73.4 million in 2010, the first full year of reached during 2010, and the benefits of financial results for VHA since the merger scale from combining the two businesses of 3 and Vodafone in 2009. this was a are now apparent in the financial results. $193.0 million improvement year-on-year, Integration will continue into 2011 and excluding Hutchison’s gain on disposal beyond, delivering further financial benefits. arising from the merger in 2009. Hutchison accounts for its investment in VHA as an equity investment, therefore revenue from VHA’s ordinary activities is not included in Hutchison’s consolidated revenues from ordinary activities. Hutchison has confidence in the prospects for its investment in VHA, and expects VHA to remain profitable in 2011, and to continue to generate positive free cash flows while remaining on track to achieve merger synergies with a net present value of 800 In a competitive market, improvements in $2 billion. Hutchison is supportive of 2009 2010 300 VHA’s key financial results were driven by the work underway with the national customer growth, strong revenue generation, Broadband network (nBn), in particular margin improvement and the realisation of the potential mutual benefits created integration savings. total VHA revenue attributable to Hutchison was $2,410.9 million, an increase of 18.2% for the year. operating margin and eBItDA grew strongly reflecting growth in postpaid customers and the benefits of scale and cost reduction delivered through the integration of the Vodafone and 3 businesses. eBItDA attributable to Hutchison improved 171.6% year-on-year to $475.8 million, reflecting this good performance. Hutchison remained free cash flow positive for the year. by a significant backhaul relationship. Hutchison also welcomes the opportunity for VHA to be amongst the first to trial nBn services and is optimistic that VHA will be in a position to expand the scope of its communication products and services to customers in Australia. Fok Kin-ning, Canning Chairman 18.2% Total revenue 2 hutchison Chairman’s report 500 400 300 200 100 0 2300 1800 1300 800 300 htal’s Share of Vha ebitDa . 8 5 7 4 $ 500 400 300 200 100 n o i l l i m $ . 2 5 7 1 $ 2009 2010 0 Strengthening profitability with EBITDA attributable to Hutchison improving 171.6% ownership Structure #87.87% HUTcHiSON wHAmPOA LimiTED #10% TELEcOm cORPORATiON OF NEw ZEALAND LimiTED 2.13% PUbLic SHAREHOLDERS Hutchison owns 50% of VHA (formerly named Hutchison 3G Australia). Vodafone Group plc owns the remaining 50%. VHA owns the Vodafone companies in Australia. VHA has exclusive licences to use the Vodafone and 3 brands in Australia. Hutchison Whampoa limited remains the majority shareholder of Hutchison, with an 87.87% stake. HUTcHiSON TELEcOmmUNicATiONS (AUSTRALiA) LimiTED VODAFONE GROUP PLc # 50% # 5 0 % # Indirect ownership hutchison Chairman’s report 3 Vodafone Hutchison Australia CEO’s Review Growing profitability with eBItDA 21.6% of service revenue, up from 9.3% in 2009. operating expenditure per customer $371, down by 16.3%. Strong postpaid customer growth. postpaid customer base now 59.4%, up from 56.8%. Customer acquisition cost per connection $145, down by 12%. Profitable Growth VHA delivered good growth in customer numbers, revenue and profitability in 2010. consolidation of customer service centres, renegotiation of supplier agreements and the full year benefit of corporate restructuring. Growth in customer numbers, particularly eBItDA as a percentage of service revenue postpaid customers, improved revenues was up 12.3 percentage points, from 9.3% while the benefits of our integration activities to 21.6%, and Hutchison’s share of eBItDA clearly increased the profitability of the increased by 171.6% to $475.8 million. business. Capital spending increased as planned throughout the year, and VHA delivered positive operating free cash flow. In June 2010, we completed a $3 billion refinancing through a syndicate of 12 domestic and international banks. the total revenue attributable to Hutchison was refinancing package is for a three year $2,410.9 million, an increase of 18.2% for period and has been used to repay the year. Service revenue grew by 16.8% shareholder loans. to $2,201.4 million, with operating margin up 22.0% reflecting lower domestic roaming costs through the utilisation of VHA’s network assets and growth in non-voice revenue. this first step in externally financing the business illustrated our strength and performance within just 12 months, and has subsequently allowed the business to Average Revenue per user (ARpu) for the establish a good credit position that will year was stable at $54 despite extremely help us in the future. competitive market conditions, while acquisition costs reduced to $145 per new customer. operating expenditure per customer has also fallen to $371 for 2010. the reduction was largely driven by the realisation of integration savings including the rationalisation of the retail store footprint, 4 Vha Ceo’s review 8000 6400 4800 3200 1600 0 2300 1800 1300 800 300 7.576 MILLION CUSTOMERS 681,000 customers added during the year Strong growth in the number of customers using 3G services to over 3 million customers, up 116%. Vha Mobile Customer base 5 9 8 , 6 0 0 0 ‘ s r e m o t s u C 6 7 5 7, 8,000 6,400 4,800 3,200 1,600 2009 2010 0 Customer Growth our customer base grew strongly in 2010 with 681,000 customers added during the year, bringing our total customer base to 7.576 million customers. Importantly we continued to attract postpaid customers which, excluding wholesale customers, grew in double digits at 11.5% year- on-year. Customers on postpaid plans at 31 December 2010 were 59.4% of the customer base, up from 56.8% last year. During the year, handset customers grew from 6.22 million to 6.72 million customers, with the number of customers using data on their handsets tripling to 2.1 million, largely driven by the strong take up of smartphones. Mobile broadband customers also increased 27% from 2009. over 3 million customers were using 3G services at the end of the year and, with growing usage, 40.3% of ARpu now comes from non-voice services, up from 36.7% at 31 December 2009. Vha Ceo’s review 5 VHA CEO’s Review continued our value leadership was recognised in the prestigious Money magazine’s 2011 Best of the Best awards, where two products were chosen as offering great value. Value Leadership and Focus on Integration With innovation a strong part of our heritage, throughout the year a number of product, pricing, sales and service initiatives were brought to market. our value leadership was recognised in the prestigious Money magazine’s 2011 Best of the Best awards, where two products were chosen as offering great value. Vodafone’s month-to-month Mobile Broadband $29/4GB plan was awarded Best Broadband plan and Vodafone’s $79 Cap was awarded Cheapest Mobile plan – High usage (postpaid). In 2010, we completed a number of important initiatives to begin realising the benefits of the merger. We consolidated our contact centre operations to two major centres in Hobart and Mumbai and made substantial progress in the consolidation of our retail footprint and advancement on a multi-million dollar refit of our retail stores. All company-owned retail outlets that were 3 stores are now multibranded, with Vodafone products sold across all stores. Service Centres now provide service and support for devices from all three VHA brands (Vodafone, 3 and Crazy John’s). From a network perspective, we also made significant progress in the appointment of other key highlights throughout the year new Core network, Managed Services included introducing free on-net calling and transmission suppliers, and a major between 3 and Vodafone customers; new contract with Huawei technologies launching Vodafone Infinite, our new set of postpaid mobile phone plans; and (Australia) pty ltd as our radio access network (RAn) supplier. our head and continuing our successful sponsorships with state offices are also now consolidated. team Vodafone and the Australian test Cricket team. 6 Vha Ceo’s review People and Culture In 2010 we continued on our journey Investing in the Network we have taken to restore current network improved experience. We have also the network remained a high priority in 2010, and over 50% of 2010 capital expenditure was invested in a number of initiatives. In the second half of 2010 performance and increase customer service capabilities following issues affecting some of our customers towards the end of 2010 recently extended our 24 month device warranty to all devices including the Apple® iphone®. is beginning to take effect. we commenced a number of initiatives, Customer Service including the rollout of a new 3G 850 MHz network, consolidating and upgrading the core voice and data network and an ongoing programme to upgrade transmission services including the migration to Ip-enabled transmission. Customer Service was a major operational of building a new and dynamic culture. focus in 2010. A number of new measures While it is still early days and there is more to improve the ease, quality and resolution of our customer service were introduced to do to create an even better place where staff can achieve their aspirations, VHA following the successful consolidation was ranked number 12 in Australia’s 2010 to two major call centres in Hobart and Dream employers Survey and was the only In october 2010, we announced the Mumbai. Initiatives such as a call back communications company to appear in conclusion of the radio access network service for customers to ‘save’ their place in the top 20. sharing joint venture agreement with telstra the queue without needing to hold on the Corporation limited (known as the 3GIS line, extended call centre operation hours network). Since the date of the agreement, to 24/7, an express mobile phone repair we have commenced incorporating our and replacement service and a new mobile share of the 3GIS network assets to further strengthen the Vodafone network. and online self-service application were all launched in 2010. our accelerated the network is critical to ensuring we continue to grow strongly and support our customers, particularly as data volumes continue to increase significantly. the action network plan and addition of 300 customer service staff means customers are seeing improvements and we are confident that we will continue to deliver a significantly We are proud of the energetic, talented and dedicated people who work here. they remain the cornerstone of our operation and ongoing success. Vha Ceo’s review 7 VHA CEO’s Review continued 2011 and Beyond network, including sites that are already process is a key focus. We will be actively In the year ahead, we will continue to grow revenue and profitability through strengthening network and customer experience while continuing to focus on integration. In the face of sustained market pressure on ARpu, we will continue to innovate in the prepaid and postpaid markets, managing costs to ensure the benefits of the merger are maintained for customers through affordable handsets, devices and plans. After experiencing network and service difficulties towards the end of 2010, we have accelerated plans for the network build and upgrades to the current network, and plan to spend over $450 million in 2011 on capital expenditure to further improve network performance. these major investments include completion of the new 850MHz 3G network with 1,500 sites to provide more in-building coverage and additional capacity where data demand from smartphones and mobile broadband is high and growing. We will also add 1,400 new sites into the existing Vodafone 8 Vha Ceo’s review available to VHA following the agreement engaged in the review of terminating to conclude the 3GIS network joint venture. access rates by the Australian Competition We will continue to upgrade transmission & Consumer Commission during 2011 with the rollout of dark fibre, microwave and have also been participating in the radio upgrades and migration to Ip-enabled Australian Communications & Media transmission services. We are replacing Authority’s ‘Reconnecting the Customer’ all 2G and 3G equipment at all network initiative. We look forward to this enquiry sites as part of a plan to improve mobile producing constructive outcomes for coverage and download speeds. this also customer service. provides a very straightforward and flexible upgrade path to long term evolution (lte) network technology. In summary, VHA will improve network performance and customer experience and continue integration activities, gaining further A number of significant government policy benefits of scale as we continue to grow issues will be resolved or progressed in profitability in 2011. 2011. the progress on establishing the nBn is encouraging and we are looking forward to confirmation of access to transmission services from the nBn to our network base stations. the nBn also presents an opportunity, under the right conditions, for VHA to provide fixed line services and we intend to participate in upcoming trials with the nBn. Renewal of existing spectrum licenses is a significant unknown cost and completing the renewal Nigel Dews Chief executive officer Vodafone Hutchison Australia Vodafone Hutchison Australia Executive Team Nigel Dews Chief executive officer Greg Bourke Director of Human Resources John Casey Director of Marketing Cormac Hodgkinson Director of Customer Service and experience Grant Stevenson Director of Integration & Strategy and Deputy CFo Dave Boorman Chief Financial officer Tanya Bowes Director of Communications and Corporate Affairs Noel Hamill Director of Sales and Distribution Louise Sexton Group General Counsel and Company Secretary Michael Young Chief technology officer Vha executive team 9 Community Investment at VHA In 2010 the Vodafone Foundation Australia contributed to 19 projects with various partners across Australia. the Vodafone Foundation Australia is a now in its seventh year, the World of volunteering at the Vodafone Ashes Series charitable trust that supports our community Difference program had another successful across the country to support the McGrath investment program in Australia. the year in 2010. the program is unique in Foundation. VHA and the Foundation Foundation and VHA are committed terms of community investment, and in 2010 donated over $150,000 to the McGrath to supporting people and charitable gave five Australians the opportunity to work Foundation for various initiatives and more organisations to help them reach their for their nominated charity, fully funded and than 150 employees gave up their time and full potential making social investments and forming partnerships with partner charities and creating unique and exciting opportunities for our staff to connect with and make a difference to the charities that they are passionate about. supported for a year. the CuretheBullies campaign was launched helped raise an additional $75,000 by volunteering at the cricket events. in conjunction with the Foundation partner In addition to supporting major partners and SchoolAid and was designed to educate events, the Foundation also matches funds and empower children to recognise and raised by VHA employees for charities and take a stand against Cyberbullying, provides all staff with the opportunity to In 2010 over $1million was given in which affects 1 in 4 Australian children. volunteer for a day – called passion Days. grants by the Foundation, contributing CuretheBullies has been developed by kids, In 2010, 500 passion Days were taken to 19 projects with various partners for kids and is a fun, interactive awareness- by staff across VHA and $375,000 was across Australia. throughout the year, the raising campaign that focuses on a new donated by the Foundation to charities that Foundation supported a range of charities approach to the issue – by targeting the our staff are passionate about. and not-for-profit organisations including ‘bystander’ (kids who may witness bullying Australian Red Cross, McGrath Foundation, behaviour, or even act as an accomplice). Red Dust, oxfam, SchoolAid, Youth off the Streets, Mission Australia, Barnardos, Variety and Conservation Volunteers Australia. there was also plenty of action throughout the summer of cricket with VHA employees 10 Community investment at Vha Sustainability and Corporate Responsibility at VHA In 2010 we collected over 46TONNES of handsets, batteries and accessories at MobileMuster collection points. An increase of 39%. Our Planet Our Communities Our Wellbeing Our Products In 2010 we launched our new sustainability across all areas of our business, including strategy, an approach that supports the way handsets and network equipment, in addition we do business, make decisions and drive to new ways of becoming more energy- business initiatives that not only focus on efficient to reduce our carbon footprint. today but on the future. As integration continues we are finding this strategy was shaped by understanding new ways of building our business the key social and environmental issues that sustainably, such as recycling or reusing our customers care about. Being able to telecommunications equipment, moving make a positive impact on the communities head office operations to a six Star Green we work with, our customers and the Star Rating building and participating in environment that surrounds us, is something expanded handset recycling schemes, that we have a great opportunity to do collecting over 46 tonnes of handsets, through our daily operations. the actions we batteries and accessories in 2010 at are taking centre around the key areas of MobileMuster collection points, an our external environment, our products, our increase of 39% from 2009. communities and our wellbeing. As an example, we are focused on doing more for customers with a better use of resources contributing to a more sustainable future. this means an increase in recycling Sustainability and Corporate responsibility at Vha 11 Board of Directors Fok Kin-ning, Canning Chairman Chow Woo Mo Fong, Susan Director Lai Kai Ming, Dominic Director Frank John Sixt Director Barry Roberts- Thomson Deputy Chairman Justin Herbert Gardener Director John Michael Scanlon Director Ronald Joseph Spithill Director 12 hutchison board of Directors Fok Kin-ning, Canning (Chairman) BA, DFM, CA (Aus) Fok Kin-ning, Canning, aged 59, 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 Hong Kong Holdings limited (HtHKH) since 2009, executive director since 1985 and chairman since 2005 of power Assets Holdings limited (formerly known as Hongkong electric Holdings limited) (power Assets), 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 and the non-executive chairman of Hutchison telecommunications International limited (HtIl) (which ceased to be a public listed company in May 2010) from 2004 to 2010. He holds a Bachelor of Arts degree and a Diploma in Financial Management, and is a member of the Institute of Chartered Accountants in Australia. Mr Fok was appointed as a Director on 8 February 1999. Barry Roberts-Thomson (Deputy Chairman) Barry Roberts-thomson, aged 61, 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. She was previously a director of partner from 1998 to 2009 and a non-executive director of HtIl (which ceased to be a public listed company in May 2010) from 2008 to 2010. 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. Justin Herbert Gardener (Director) Bec, FCA Justin Herbert Gardener, aged 74, has been a director of a number of private and publicly listed companies including Austar united Communications limited (appointed in 1999 and retired in 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 57, 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 27 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) Chow Woo Mo Fong, Susan (Director) BSc Chow Woo Mo Fong, Susan, aged 57, 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 power Assets since 1996 (re-designated as executive director since 2006), toM Group limited (toM) since 1999 and HtHKH since 2009. 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 59, has been an executive director since 1991 and group finance director since 1998 of HWl, non-executive chairman of toM since 1999, executive director of CKIH since 1996, power Assets since 1998, non-executive director of CKH since 1991, HtHKH since 2009, and director of Husky since 2000. He was previously a director of partner from 1998 to 2009 and a non-executive director of HtIl (which ceased to be a public listed company in May 2010) from 2004 to 2010. He holds a Bachelor’s degree in Civil law and a Master’s degree in Arts, 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. Ronald Joseph Spithill (Director) BSctech Ronald Joseph Spithill, aged 69, is a director of telecom Corporation of new Zealand limited (appointed in 2006) and serves on a number of nGo Boards and the new Zealand Independent Industry oversight Group. He was previously president of Alcatel Asia pacific responsible for operations in 16 countries, executive Vice president and Chief Marketing officer of the paris-Based Alcatel group and Vice-Chairman of Alcatel Shanghai Bell. He has been Ceo and Chairman of Alcatel Australia. He is past president of the telecommunications Industry Association of Australia and served with the AeeMA Board, the Australian Business Council, the Malaysian Government Industry Advisory panel, the nSW Government It Advisory Board, and the Australian Government “Goldsworthy” Committee. Mr Spithill is a Fellow of the Australian Academy of technological Sciences and engineering and a Distinguished Fellow of the telecommunications Society of Australia. hutchison board of Directors 13 Corporate Governance Hutchison 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 Corporate Governance 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 are undertaken with the assistance of the Chief Executive Officer and senior management team of 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; • 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 in June 2009 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 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 13. 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. 14 Corporate Governance 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 page 13 and page 20. 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 securities 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. Deloitte Touche Tohmatsu were appointed as the external auditors in May 2010. It is Deloitte Touche Tohmatsu 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 2010. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in note 18 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. In light of the majority ownership by HWL, the Board has resolved that, at this stage, it is not in the best interests of the Company that a majority of members of this committee be independent. Details of the committee members’ qualifications, expertise, experience and attendance at compensation committee meetings are set out on page 13 and page 20. Corporate Governance 15 Corporate Governance continued 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 21 to 24. 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. 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. 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. 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. 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. 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, and 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. Diversity The Company recognises the corporate benefit of diversity as that term is defined in the ASX best practice recommendations (Diversity) and has recently put in place a Diversity Policy. The Company’s practices are documented in a policy, details of which are available on the Company’s website. The Company is committed to encouraging and promoting a mix of skills and diversity in the membership of its Board which achieves the Company’s corporate goals and which is evidenced in gender diversity through having one female Director and two female joint Company Secretaries; and cultural diversity through having Directors and Company Secretaries residing in Hong Kong, Australia and North America. Measurable objectives have been set by the Board for this purpose, namely that in assessing candidates the Governance, Nomination and Compensation Committee will have regard to the Diversity and skills of each candidate and the Diversity of the membership of the Board, and the Board will give due consideration to ensuring that the Diversity of the Board increases. Since the implementation of the policy and the measurable objectives no Board positions have become vacant. 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 the Company 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. 16 Corporate Governance Ethical standards The need to ensure that 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 adopted an updated share trading policy to reflect amendments to the ASX Listing Rules. The Company has the following policy in place regarding trading in its shares (which currently only applies to Directors and Company Secretaries as the Company does not employ any senior executives): • the Chairman discusses any proposed trade in HTAL shares with an independent Director prior to any trade; • Directors discuss any proposed trade in HTAL shares with the Chairman prior to any trade; and • Senior executives discuss any proposed trade in HTAL 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 lodgment of the Company’s annual report with the ASX up to one month after the Annual General Meeting of HTAL. 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 been advised of their obligations in regard to price sensitive information. Directors and senior executives are also aware of their obligations 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 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 21 to the financial statements. Corporate Governance 17 Directors’ Report The Directors are pleased to present their report on the consolidated entity consisting of HTAL and the entities it controlled at the end of or during the year ended 31 December 2010. Principal activities During the year, Hutchison’s principal activities included the ownership of a 50% interest in VHA which provides mobile telecommunications services in Australia. 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 8 of this report. Details of the financial position of the Company are contained in page 29 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 2010 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 Review of operations above, 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. 18 Directors’ Report Directors The following persons were Directors of HTAL during the whole of the year ended 31 December 2010 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 Mr Roderick James SNODGRASS resigned as a Director with effect from 16 November 2010. Mr Ronald Joseph SPITHILL was appointed as a Director with effect from 16 November 2010 and continues in office at the date of this report. Director Other Responsibilities Fok Kin-ning, Canning 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 Chairman of Audit Committee Member of Governance, Nomination and Compensation Committee Lai Kai Ming, Dominic — John Michael Scanlon Member of Audit Committee Frank John Sixt Member of Audit Committee Ronald Joseph Spithill — * 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** — 1,630,358 — — 1,000,000 — Note: Fok Kin-ning, Canning, holds a relevant interest in (i) 6,010,875 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 HTHKH, a related body corporate of HTAL; (v) 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; and (vi) a nominal amount of USD5,000,000 in the Subordinated Guaranteed Perpetual Capital Securities issued by Hutchison Whampoa International (10) Limited, a related body corporate of HTAL. Chow Woo Mo Fong, Susan holds a relevant interest in (i) 150,000 ordinary shares of HWL; and (ii) 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) 200,000 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 Depositary Shares (each representing 15 ordinary shares) of HTHKH; and (iv) a nominal amount of USD1,000,000 in the Subordinated Guaranteed Perpetual Capital Securities issued by Hutchison Whampoa International (10) Limited. Directors’ Report 19 Directors’ Report continued 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 2010 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 of Committee Audit Committee Meetings attended Governance, Nomination and Compensation Committee Meetings held during the period as member of the Committee Governance, Nomination and Compensation Committee Meetings attended Fok Kin-ning, Canning Barry Roberts-Thomson Chow Woo Mo Fong, Susan Lai Kai Ming, Dominic Justin Herbert Gardener John Michael Scanlon Frank John Sixt Roderick James Snodgrass^ Ronald Joseph Spithill^^ 12 12 12 12 12 12 12 10 1 12 12 12 12 12 12 12 8 1 ^ Resigned as a Director on 16 November 2010. ^^ Appointed as a Director on 16 November 2010. N/A N/A N/A N/A 5 5 5 N/A N/A N/A N/A N/A N/A 5 5 5 N/A 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 Retirement, election and continuation in office of Directors Mr Barry Roberts-Thomson is a Director retiring by rotation in accordance with the Constitution who, being eligible, offers himself for re-election. Mr Lai Kai Ming, Dominic is a Director retiring by rotation in accordance with the Constitution who, being eligible, offers himself for re-election. Mr Ronald Joseph Spithill having been appointed since the last Annual General Meeting, in accordance with the Company’s Constitution, retires as a Director at the Annual General Meeting and offers himself for re-election. Company secretaries Edith SHIH BSE, MA, MA, EdM, Solicitor, FCIS, FCS(PE) Ms Shih has over 13 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 England and Wales, Hong Kong 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 17 years’ experience as company secretary in listed companies and has been a Company Secretary of the Company since 1999. Ms Sexton has practised as a solicitor since 1983 with experience in government, private practice and in-house corporate practice, and is Group General Counsel and Company Secretary of VHA. 20 Directors’ Report Remuneration report Following the merger of H3GA and Vodafone Australia in June 2009, the Company’s employees, including all executives, working in the VHA business ceased to be employees of the Company and became employees of VHA during 2009. 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 2010, the Company had 62 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 prior year comparisons include those who were key management personnel during the period to 9 June 2009. The compensation philosophy and policies referred to remain in place notwithstanding their currently limited application. 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. 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, and key management personnel’s remuneration packages would be directly linked to these measures. Hutchison has been committed to ensuring it has compensation arrangements which would reflect individual performance, overall contribution to the company performance and developments in the external market. Written service agreements setting out remuneration and other terms of employment would be required for key management personnel. Principles used to determine the nature and amount of remuneration The Company’s compensation policy was designed to ensure that remuneration strategies are competitive, innovative and support the business objectives while reflecting individual performance, overall contribution to the business and developments in the external market. Remuneration packages will generally involve 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 directly relate to the key management’s contribution to meeting or exceeding the company’s statement of comprehensive income and statement of financial position 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. Directors’ fees The remuneration of the non-executive and independent Directors, J Gardener and J Scanlon, was comprised of a fixed amount only and was not performance based. The non-executive and non-independent Directors, C Fok, S Chow, D Lai, B Roberts-Thomson, R Snodgrass, R Spithill and F Sixt, did not receive any remuneration for their services as Directors. Retirement allowances for Directors No retirement allowances are payable to non-executive Directors. Company Secretaries fees The Joint Company Secretaries, E Shih and L Sexton, did not receive any remuneration for their services as Company Secretaries. Key management personnel There were no key management personnel having authority and responsibility for planning, directing and controlling the activities of the Company for the period from 1 January 2010 to 31 December 2010. Directors’ Report 21 Directors’ Report continued 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 2010 Short-term benefits Post – employment benefits Share based payments Cash salary and fees $ Cash bonus $ Non- monetary benefits $ Superannuation $ Options $ Total $ — — — 50,000 — 50,000 — — — 100,000 — — — — — — — — — — — — — — — — — — — — — — — 4,500 — 4,500 — — — 9,000 — — — — — — — — — — — — — 54,500 — 54,500 — — — 109,000 Name C Fok B Roberts-Thomson S Chow J Gardener D Lai J Scanlon F Sixt R Snodgrass* R Spithill** Total * Mr Snodgrass resigned as a Director on 16 November 2010. ** Mr Spithill was appointed as a Director on 16 November 2010. Short-term benefits Post – employment benefits Share based payments Cash salary and fees $ Cash bonus $ Non-monetary benefits $ Superannuation $ Options $ 2009 Name C Fok — B Roberts-Thomson^ 533,988 S Chow J Gardener D Lai K Russell* J Scanlon F Sixt R Snodgrass Total — 50,000 — — 50,000 — — 633,988 — — — — — — — — — — — — 3,369 10,488 — — — — — — — — 4,500 — — 4,500 — — 3,369 19,488 — — — — — — — — — — Total $ — 547,845 — 54,500 — — 54,500 — — 656,845 ^ Mr Roberts–Thomson ceased to receive remuneration from HTAL on 31 August 2009. * Mr Russell resigned as a Director on 9 June 2009. 22 Directors’ Report Key management personnel and other executives of the Company 2010 – Nil 2009* Short-term benefits Cash salary and fees $ Cash bonus $ Name N Dews^ 341,250 350,000 M Young^ 315,000 191,750 T Finlayson^ 181,250 182,344 G Bourke^ N Hamill^ 164,167 175,000 50,000 50,000 Non- monetary benefits $ 33,355 31,272 2,105 2,105 2,105 Post - Employment benefits Long-term benefits Share-based payments Superannuation $ Long service leave $ Options $ Total $ 6,872 6,872 6,872 6,872 6,872 10,554 68,056 810,087 1,796 7,454 3,149 475 25,384 572,074 20,307 400,332 15,231 241,524 20,307 254,759 Total 1,176,667 824,094 70,942 34,360 23,428 149,285 2,278,776 * All key management personnel ceased to be employed by the Company on 9 June 2009. ^ Denotes one of the 5 highest paid executives of the Company, as required to be disclosed under the Corporations Act 2001. Share-based compensation Options were granted to executives under the HTAL Employee Option Plan which was approved by the Board on 4 June 2007. 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. No ordinary shares were issued on the exercise of options during the year to any of the Directors or former key management personnel. 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, 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 J Scanlon F Sixt R Snodgrass R Spithill * Direct holding of 100,000 shares. ** Direct holding of 4,540 shares. Balance at the start of the year Received during the year on the exercise of options 5,100,000 83,918,337 — 1,030,358 — — 1,000,000 — — — — — — — — — — — Changes during the year — — — Balance at the end of the year 5,100,000* 83,918,337** — 600,000 1,630,358 — — — — — — — 1,000,000 — — Directors’ Report 23 Directors’ Report continued 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 Expiry date 14 June 2007 13 June 2012 14 November 2007 13 June 2012 4 June 2008 3 June 2013 Issue price of shares Value at grant date $0.145 $0.200 $0.139 $0.14 $0.20 $0.14 Number 22,850,000 300,000 300,000 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. Shares issued on the exercise of options No ordinary shares of HTAL were issued during the year ended 31 December 2010 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 2010 and 31 December 2009. Other transactions with Directors and key management personnel There were no other transactions with Directors for the year ended 31 December 2010 or with Directors and the former key management personnel for the year ended 31 December 2009. Non-audit services HTAL may decide to employ the auditor, Deloitte Touche Tohmatsu, 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 Deloitte Touche Tohmatsu for audit and non-audit services provided during the year are set out in note 18, Remuneration of auditors, on pages 48 to 49 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 26. 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. 24 Directors’ Report 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. 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 or cent. Auditor Deloitte Touche Tohmatsu 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 24 February 2011 Dominic Lai Director 24 February 2011 Directors’ Report 25 Auditor’s Independence Declaration The Board of Directors Hutchison Telecommunications (Australia) Limited 40 Mount St North Sydney, NSW 2060 24 February 2011 Dear Board Members Hutchison Telecommunications (Australia) Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Hutchison Telecommunications (Australia) Limited and the entities it controlled during the period (“HTAL”). As lead audit partner for the audit of the financial statements of HTAL for the financial year ended 31 December 2010, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Sandeep Chadha Partner Chartered Accountants 26 Auditor’s Independence Declaration Financial Report for the year ended 31 December 2010 Contents Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to Financial Statements Note 1. Summary of significant accounting policies Note 2. Revenue Note 3. Gain on disposal arising from merger Note 4. Other income Note 5. Expenses Note 6. Income tax expense Note 7. Current assets – Cash and cash equivalents Note 8. Current assets – Trade and other receivables Note 9. Current assets – Other Note 10. Non-current assets – Receivables Note 11. Non-current assets – Investment accounted for using the equity method Note 12. Non-current assets – Controlled and jointly controlled entities Note 13. Current liabilities – Payables Note 14. Current liabilities – Other financial liabilities Note 15. Contributed equity Note 16. Reserves and accumulated losses Note 17. Director and key management personnel disclosures Note 18. Remuneration of auditors Note 19. Contingencies Note 20. Commitments Note 21. Related party transactions Note 22. Deed of Cross Guarantee Note 23. Operating segment Note 24. Reconciliation of profit after income tax to net cash inflows/(outflows) from operating activities Note 25. Earnings per share Note 26. Share-based payments Note 27. Critical accounting estimates and judgements Note 28. Events occurring after the Reporting date Note 29. Financial risk management Note 30. Parent entity disclosures Directors’ Declaration Independent Auditor’s Report Shareholder Information 28 29 30 31 32 32 38 39 39 39 40 41 41 41 42 43 44 45 45 46 47 48 48 49 49 49 51 52 53 53 54 55 55 56 58 60 61 63 Financial Report 27 Consolidated Statement of Comprehensive Income for the year ended 31 December 2010 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/(losses) of joint ventures accounted for using the equity method Profit before income tax Income tax credit Profit for the year Other comprehensive income Changes in the fair value of cash flow hedges (share of joint venture), net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to members of Hutchison Telecommunications (Australia) Limited Notes 2 3 4 5 11 6 16 16 2010 $’000 22,343 — — — — — (480) (121) (872) — — 2009* $’000 799,410 587,285 1,866 (216,863) (150,071) (185,510) (57,252) (22,870) (56,261) 20,055 (110,317) (111) (393) 43,103 (141,355) 63,862 467,724 9,580 — 73,442 467,724 4,207 4,207 (990) (990) 77,649 466,734 Cents Cents Earnings per share for profit attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share 25 25 0.54 0.54 6.27 5.85 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. * The results to 31 December 2009 include the consolidated results of VHA (previously known as H3GA) for 5 months until merger date and 7 months equity accounting results for VHA post merger. 28 Financial Report Consolidated Statement of Financial Position as at 31 December 2010 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Other Total Current Assets Non-Current Assets Receivables Investment accounted for using the equity method Deferred tax assets Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Payables Other financial liabilities Total Current Liabilities Total Liabilities Net Assets EQUITY Contributed equity Reserves Accumulated losses Total Equity Notes 2010 $’000 2009 $’000 7 8 9 5,317 3,693 163 2,858 64,233 163 9,173 67,254 10 11 6 74,870 50,332 1,600,961 1,553,651 9,580 – 1,685,411 1,603,983 1,694,584 1,671,237 13 14 23,677 8,805 217,838 286,954 241,515 295,759 241,515 295,759 1,453,069 1,375,478 15 16 16 4,204,488 4,204,488 74,990 70,841 (2,826,409) (2,899,851) 1,453,069 1,375,478 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Financial Report 29 Consolidated Statement of Changes in Equity for the year ended 31 December 2010 ATTRIBUTABLE TO MEMBERS Of HUTCHISON TELECOMMUNICATIONS (AUSTRALIA) LIMITED Reserves Contributed Capital equity Redemption Cash flow hedges Share options Retained profits/ (losses) Total equity Notes $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 January 2009 4,204,488 54,887 990 15,683 (3,367,575) 908,473 Profit for the year Changes in the fair value of cash flow hedges, net of tax Total comprehensive income/ (loss) for the year 16 Transactions with members in their capacity as members: Employee share options – value of employee services Subtotal 16 – – – – – – – – – – Balance at 31 December 2009 and 1 January 2010 4,204,488 54,887 Profit for the year Share of joint venture’s changes in the fair value of cash flow hedges, net of tax Total comprehensive income for the year 16 Transactions with members in their capacity as members: Employee share options – value of employee services Subtotal 16 – – – – – – – – – – – (990) (990) – – – – 4,207 4,207 – – – 271 271 467,724 467,724 – (990) 467,724 466,734 – – 271 271 15,954 (2,899,851) 1,375,478 – – – 73,442 73,442 – 4,207 73,442 77,649 – – (58) (58) – – (58) (58) Balance at 31 December 2010 4,204,488 54,887 4,207 15,896 (2,826,409) 1,453,069 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 30 Financial Report Consolidated Statement of Cash Flows for the year ended 31 December 2010 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 Notes 2010 $’000 2009* $’000 – 894,146 (496) (1,383,481) (496) (489,335) 861 15 (126) 56,031 66 (393) Net cash inflows/(outflows) from operating activities 24 254 (433,631) 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 Repayment of loans from jointly controlled entities Payments for intangible assets Net cash inflows from investing activities Cash flows from financing Activities Proceeds from borrowings – subsidiary Proceeds from borrowings – related parties Repayment of borrowings – related parties Repayment of finance lease Net cash outflows from financing activities Net increase 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 2010 – – – – (74,525) 105 86,000 (69,186) 71,321 1,113,667 – (19,666) 71,321 1,036,395 – – 124,513 55,000 14 (69,116) (768,046) – (1,327) (69,116) (589,860) 2,459 2,858 12,904 134,685 – (144,731) 5,317 2,858 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. * The cash flows to 31 December 2009 represent 5 months consolidated results of VHA (previously known as H3GA) until merger date and 7 months HTAL parent only cash flows from merger date. Financial Report 31 Notes to Financial Statements Note 1. Summary of significant accounting policies Hutchison Telecommunications (Australia) Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Company and its subsidiaries (the Group or Consolidated Entity or HTAL) are described in the Directors’ Report. 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. (a) Basis of preparation This general purpose financial report has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. Statement of compliance Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial statements and notes of the Consolidated Entity comply with International Financial Reporting Standards (IFRS). As a consequence of the financial reporting relief provided by ASIC Class Orders 10/654 and 10/655 the consolidated financial statements are presented without parent entity financial statements. Disclosures in relation to the parent entity required under paragraph 259(3)(a) of the Corporations Act 2001 have been included in note 30. Going concern disclosures As at 31 December 2010, the Consolidated Entity has a deficiency of net current assets of $232 million (2009: $229 million). Included in the Consolidated Entity’s current liabilities is an amount of $218 million (2009: $287 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 to meet its financial obligations as and when they fall due. This undertaking is provided for a minimum period of twelve months from 24 February 2011. Consequently, the directors have prepared the financial statements on a going concern basis. 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 27. (b) Principles of consolidation The consolidated financial statements include the financial statements of Hutchison Telecommunications (Australia) Limited and its subsidiaries made up to 31 December 2010. 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. 32 Notes to the Financial Statements Note 1. Summary of significant accounting policies (continued) (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 profit or loss, 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. (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 Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Consolidated Entity reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, which is limited to one year from date of acquisition, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. Refer to note 1(n) for the accounting policy on goodwill arising from a business combination. Notes to the Financial Statements 33 Notes to the Financial Statements continued Note 1. Summary of significant accounting policies (continued) (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. Jointly controlled entity (i) 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 profit or loss, 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. 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 profit or loss. 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 profit or loss 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 profit or loss. (k) 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 profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. 34 Notes to the Financial Statements Note 1. Summary of significant accounting policies (continued) (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 profit or loss within other income or other expense. Amounts accumulated in equity are recycled in the profit or loss 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 profit or loss. 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 profit or loss. (l) 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. (m) Leases 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. (n) Goodwill and intangible assets Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill on acquisitions of subsidiaries 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 (o) 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. (p) Interest bearing liabilities 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 profit or loss over the period of the liability using the effective interest method. (q) 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; and certain exchange differences arising from foreign currency borrowings. Notes to the Financial Statements 35 Notes to the Financial Statements continued Note 1. Summary of significant accounting policies (continued) (r) 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 26. 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. (s) Contributed equity Ordinary shares and convertible preference shares are classified as equity. Refer to note 15 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. 36 Notes to the Financial Statements Note 1. Summary of significant accounting policies (continued) (t) 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 Consolidated Entity; – 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. (u) 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. (v) Operating segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Operating segments have been identified based on the information provided to the chief operating decision maker. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. Refer to note 23 for details of the Consolidated Entity’s operating segment, being investment in telecommunication services. (w) Rounding of amounts to nearest thousand dollars The Consolidated Entity 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. (x) New accounting standards and interpretations The Consolidated Entity has adopted all of the new and revised Australian Accounting Standards and Interpretations applicable to its operations which became mandatory. The adoption of these standards has impacted the recognition, measurement and disclosure of certain transactions. The following is an explanation of the impact the adoption of these standards and interpretations has had on the financial statements. AASB 3 Business combinations Costs incurred to effect a business combination are expensed in the period in which they were incurred. Previously such costs were capitalised as part of the cost of the business combination. The revised AASB 3 changes the recognition and subsequent accounting requirements for contingent consideration. Previously, contingent consideration was recognised at the acquisition date only if payment of the contingent consideration was probable and it could be measured reliably; any subsequent adjustments to the contingent consideration were always made against the cost of the acquisition. Under the revised Standard, contingent consideration is measured at fair value at the acquisition date; subsequent adjustments to the consideration are recognised against the cost of the acquisition only to the extent that they arise from new information obtained within the measurement period (a maximum of 12 months from the acquisition date) about the fair value at the date of acquisition. All other subsequent adjustments to contingent consideration classified as an asset or a liability are recognised in profit or loss. The revised AASB 3 prohibits entities from recognising contingencies associated with a business combination, unless they meet the definition of a liability. The revised AASB 3 requires that where a business combination is achieved in stages, any previously held equity interest is to be remeasured to fair value and the resulting gain or loss, being the difference between fair value and historical costs, is to be recognised in the statement of comprehensive income. Notes to the Financial Statements 37 Notes to the Financial Statements continued Note 1. Summary of significant accounting policies (continued) 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 below: Reference Affected Standard(s) AASB 9: Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards Application date of standard* Application date for Consolidated Entity 1 January 2013 1 January 2013 AASB 9 AASB 124 AASB 2009-5 AASB 2009-10 AASB 2009-11 Related Party Disclosures (revised December 2009), AASB 2009-12 Amendments to Australian Accounting Standards 1 January 2011 1 January 2011 Further amendments to Australian Accounting Standards arising from the Annual Improvements Process Amendments to Australian Accounting Standards – Classification of Right Issues Amendments to Australian Accounting Standards arising from AASB 9 1 January 2010 1 January 2011 1 February 2010 1 January 2011 1 January 2013 1 January 2013 AASB 2009-12 Amendments to Australian Accounting Standards 1 January 2011 1 January 2011 AASB 2009-14 Amendments to Australian Interpretation – Prepayments of a Minimum Funding Requirement 1 January 2011 1 January 2011 AASB 2010-4 Further amendments to Australian Accounting Standards arising from the Annual Improvements Project 1 January 2011 1 January 2011 AASB 2010-5 Amendments to Australian Accounting Standards 1 January 2011 1 January 2011 AASB 2010-6 AASB 2010-7 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets Amendments to Australian Accounting Standards arising from AASB 9 1 July 2011 1 January 2012 1 January 2013 1 January 2013 Intepretation 19 IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments 1 July 2010 1 January 2011 * Application date of the standard is for the reporting periods beginning on or after the date shown in the above table. 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. Note 2. Revenue from continuing operations Services Sale of handsets Other revenue Interest Rental income 38 Notes to the Financial Statements 2010 $’000 2009 $’000 – – – 711,896 28,520 740,416 22,343 58,929 – 65 22,343 58,994 22,343 799,410 Note 3. Gain on disposal arising from merger Gain on disposal arising from merger 2010 $’000 2009 $’000 – 587,285 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) was 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 Group’s 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. As a result of the completion of the transaction, HTAL has ceased to consolidate the results and net assets of H3GA and equity accounts for its interest in the Jointly Controlled Entity, VHA. 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 of VHA. The consolidated statement of comprehensive income presented for the year ended 31 December 2010 represents the equity accounted result for VHA. The consolidated statement of financial position presented as at 31 December 2010 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 Net foreign exchange gains Net gain on sale of property Note 5. Expenses Profit before income tax includes the following specific expenses: Finance costs Interest and finance charges paid/payable Depreciation 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 Lease payments (included in “Other operating expenses”) 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”) 2010 $’000 – – – 2009 $’000 1,790 76 1,866 2010 $’000 2009 $’000 111 393 – – – – – – – – – – – – – – – – – – 1,609 14,888 482 9,328 8,149 25,045 59,501 29,032 248 16,594 3,512 1,430 50,816 110,317 14,964 13,843 (3,503) 10,340 Notes to the Financial Statements 39 Notes to the Financial Statements continued Note 6. Income tax expense (a) Income tax credit Deferred tax Income tax credit (b) Numerical reconciliation of income tax credit to prima facie tax payable Profit from operations before income tax credit Tax at the Australian tax rate of 30% (2009: 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 Share of net (profit)/loss of jointly controlled entity Deferred tax on timing differences previously not recognised Deferred tax/unrecognised tax losses Previously unrecognised tax losses now recouped to reduce current tax expense Income tax credit (c) Unrecognised tax losses Unused tax losses for which no deferred tax assets have been recognised Potential tax benefit @ 30% All unused tax losses were incurred by Australian entities. 2010 $’000 2009 $’000 (9,580) (9,580) – – 63,862 467,724 19,159 140,317 – – – (12,931) (11,389) 1,293 3,668 (159,610) 42,406 – – (28,074) (5,161) (4,419) (9,580) – – – 217,830 232,561 65,349 69,768 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) Recognised deferred tax assets and liabilities (i) Deferred tax asset There are temporary differences attributable to: Provisions Business related costs Utilisation of tax losses Net deferred tax asset (ii) Deferred tax liability There are temporary differences attributable to: Interest in jointly controlled entity Utilisation of tax losses Set-off of deferred tax asset pursuant to set-off provisions Net deferred tax liability 40 Notes to the Financial Statements 2,199 7,381 9,580 – 9,580 – – – – – 1,841 7,262 9,103 (9,103) – 43,254 43,254 (52,357) 9,103 – Note 7. Current assets – Cash and cash equivalents Cash at bank and in hand Note 8. Current assets – Trade and other receivables Receivable from jointly controlled entities (note 21) Receivable from related entity (note 21) 2010 $’000 5,317 5,317 2010 $’000 1,394 2,299 2009 $’000 2,858 2,858 2009 $’000 61,934 2,299 3,693 64,233 Receivable from related and jointly controlled entities Further information relating to receivable from related entity and jointly controlled entities is set out in note 21. (a) Aging of impaired trade receivables and trade receivables which are past due but not impaired There were no current trade receivables past due but not impaired as at 31 December 2010 and 31 December 2009. (b) Movements in the provision for impairment of current trade receivables were as follows: At 1 January Allowance for impairment recognised during the year Receivables disposed of/written off during the year as uncollectible 2010 $’000 – – – – 2009 $’000 25,817 13,843 (39,660) – There was no allowance for impairment recognised in the statement of comprehensive income for the year ended 31 December 2010. In 2009, the creation and release of the allowance 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. (c) Credit risk The Consolidated Entity has no significant concentrations of credit risk. (d) Foreign exchange and interest rate risk Refer to note 10 for an analysis of the Consolidated Entity’s non-current receivables denominated in various currencies. Refer to note 29 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 29. (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 29 for more information on the risk management policy of the Consolidated Entity. Note 9. Current assets – Other Other 2010 $’000 163 163 2009 $’000 163 163 Notes to the Financial Statements 41 Notes to the Financial Statements continued Note 10. Non-current assets – Receivables Receivable from jointly controlled entities (note 21) 2010 $’000 2009 $’000 74,870 50,332 74,870 50,332 Receivable from jointly controlled entities Weighted average interest on the receivable from jointly controlled entities is charged at a rate of 8% p.a. (2009: 8% p.a.). Further information relating to the receivable from jointly controlled entities is set out in note 21. (a) Movements in the allowance for impairment of non-current trade receivables As at 31 December 2010 non-current trade receivables of the Consolidated Entity with a nominal value of $nil (2009: $nil) were impaired. The amount of the allowance was $nil (2009: $nil). At 1 January Receivables disposed of/written off during the year 2010 $’000 – – – 2009 $’000 3,503 (3,503) – The creation and release of the allowance 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. (b) Fair values The carrying values of non-current receivables at amortised cost approximated to fair value. (c) Foreign currency and interest rate risk The carrying amounts of the Consolidated Entity’s current and non-current receivables are denominated in the following currencies: Australian dollars Current receivables (note 8) Non-current receivables 2010 $’000 2009 $’000 78,563 114,565 78,563 114,565 3,693 74,870 64,233 50,332 78,563 114,565 For an analysis of the sensitivity of trade and other receivables to foreign exchange and interest rate risk refer to note 29. (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 29 for more information on the risk management policy of the Consolidated Entity. 42 Notes to the Financial Statements Note 11. Non-current assets – Investment accounted for using the equity method Interest in a jointly controlled entity 2010 $’000 2009 $’000 1,600,961 1,553,651 Jointly controlled entities (a) Vodafone Hutchison Australia Pty Limited On 9 June 2009 a subsidiary, H3GA, merged with VAL and H3GA was renamed VHA. The Company’s interests 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. 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/(Loss) for the period Reconciliation of interest in a jointly controlled entity Investment brought forward Profit/(Loss) for the period Share of changes in fair value of cash flow heges, net of tax Goodwill Gain on disposal of spectrum licence from HTAL to VHA, net of amortisation Interest in a jointly controlled entity at 31 December Share of the jointly controlled entity’s commitments Lease commitments Capital commitments Contingent liabilities relating to the jointly controlled entity 2010 $’000 2009 $’000 557,543 554,437 3,108,599 3,180,941 3,666,142 3,735,378 607,978 1,557,664 1,659,751 765,013 2,267,729 2,322,677 1,398,413 1,412,701 2,410,901 1,302,373 (2,367,798) (1,446,553) 43,103 (144,180) 1,553,651 1,556,881 43,103 (144,180) 4,207 – 1,600,961 1,412,701 – – 165,321 (24,371) 1,600,961 1,553,651 456,377 246,661 478,327 123,770 703,038 602,097 22,468 – Notes to the Financial Statements 43 Notes to the Financial Statements continued Note 11. Non-current assets – Investment accounted for using the equity method (continued) Shares in jointly controlled entity Under the joint venture agreement each party has contributed $1 to the share capital of the entity. (b) 3GIS Partnership (“3GIS”) 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 was 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. Share of the jointly controlled entity’s revenue, expenses and results Revenues Expenses Profit for the year 2010 $’000 2009 $’000 – – – 34,868 (32,043) 2,825 (c) Total share of the jointly controlled entities’ revenue, expenses and results 43,103 (141,355) Note 12. Non-current assets – 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): Notes Country of Incorporation Class of Shares 2010 % 2009 % EQUITY HOLDING* Name of Entity Controlled entities 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 Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Hutchison 3G Australia Holdings Pty Limited (a) Jointly controlled entity Vodafone Hutchison Australia Pty Limited (formerly Hutchison 3G Australia Pty Limited) (b) Australia Ordinary 50 50 * 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. 44 Notes to the Financial Statements Note 13. Current liabilities – Payables Trade creditors Other creditors Payables to jointly controlled entities (note 21) 2010 $’000 518 7,184 15,975 2009 $’000 105 8,700 – 23,677 8,805 Payables to jointly controlled entity Further information relating to payables to jointly controlled entity is set out in note 21. (a) Foreign currency and interest rate risk The carrying amounts of the Consolidated Entity’s trade and other payables are predominantly denominated in Australian Dollars: Australian Dollars 2010 $’000 23,677 23,677 2009 $’000 8,805 8,805 Refer to note 29 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 29. Note 14. Current liabilities – Other financial liabilities Loan from a related entity (note 21) Loan from a related entity Further information relating to the loan from a related entity is set out in note 21. The loan from a related entity is an interest free financing facility and is repayable on demand. Financing arrangements Unrestricted access was available at the statement of financial position date to the following lines of credit: Other financial liabilities Total facilities – related entity Used at the statement of financial position date Unused at the statement of financial position date 2010 $’000 2009 $’000 217,838 286,954 2010 $’000 2009 $’000 1,600,000 1,100,000 (217,838) (286,954) 1,382,162 813,046 Notes to the Financial Statements 45 Notes to the Financial Statements continued Note 15. Contributed equity (a) Share capital Ordinary shares (fully paid) 13,572,508,577 13,572,508,577 4,204,488 4,204,488 2010 Shares 2009 Shares 2010 $’000 2009 $’000 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) Movement in ordinary shares: Detail Date 01 January 2009 Opening balance Number of shares $’000 754,028,255 1,045,194 24 June 2009 Conversion of CPS into ordinary shares 12,818,480,322 3,159,294 31 December 2009 Closing balance 01 January 2010 Opening balance 31 December 2010 Closing balance 13,572,508,577 4,204,488 13,572,508,577 4,204,488 13,572,508,577 4,204,488 On 24 June 2009, the Convertible Preference Share (CPS) were converted into Ordinary Shares. On 10 June 2009, HTAL announced the completion of a merger 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 occurence of a change of control event. (c) Movement in convertible preference shares: Date Detail Number of shares Issue price $’000 01 January 2009 Opening balance 15,080,565,089 24 June 2009 Conversion of CPS into ordinary shares (15,080,565,089) 0.21 0.21 3,159,294 (3,159,294) 31 December 2009 Closing balance – – (d) 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 26. (e) Capital risk management The Consolidated Entity’s objectives when managing capital is to safeguard its ability to continue as a going concern so that it 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 monitors 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 2010 and 31 December 2009 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 46 Notes to the Financial Statements 2010 $’000 2009 $’000 241,515 295,759 (5,317) (2,858) 236,198 292,901 1,453,069 1,375,478 1,689,267 1,668,379 14% 18% Note 16. Reserves and accumulated losses (a) Reserves Capital reserve Share of hedging reserve – cash flow hedges Share-based payments reserve Movements: Capital reserve There has been no movement in the capital reserve during the year. Share of hedging reserve – cash flow hedges Balance at 1 January Hedging movements Balance at 31 December Share-based payments reserve Balance at 1 January Option (lapsed)/expense Balance at 31 December (b) Accumulated losses Accumulated losses at 1 January Profit attributable to the members of Hutchison Telecommunications (Australia) Limited Accumulated losses at 31 December (c) Nature and purpose of reserves Capital reserve The capital reserve relates to the surplus arising on initial consolidation of 19.9% stake in H3GAH. 2010 $’000 2009 $’000 54,887 4,207 15,896 54,887 – 15,954 74,990 70,841 – 4,207 4,207 990 (990) – 15,954 15,683 (58) 271 15,896 15,954 (2,899,851) (3,367,575) 73,442 467,724 (2,826,409) (2,899,851) Hedging reserve – cash flow hedges The hedging reserve is used to record gains and losses on a hedging instrument in a jointly controlled entity cash flow hedge that are recognised directly in equity, as described in note 1(g)(i). Amounts are recognised in the statement of comprehensive income when the associated hedged transaction affects profit or loss. Share-based payments reserve (i) The share-based payments reserve is used to recognise the grant date fair value of options issued to employees but not exercised. (ii) 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 47 Notes to the Financial Statements continued Note 17. Director and key management personnel disclosures (a) Director and key management personnel compensation Short term employee benefits Post employment benefits Long term benefits Share based payments 2010 $ 2009 $ 109,000 1,855,432 – – – 27,490 20,279 134,055 109,000 2,037,256 The key management personnel have been transferred to VHA. (b) Loans to key management personnel There were no loans made to Directors of the Company, including their personally related entities, during the years ended 31 December 2010 and 31 December 2009. (c) Other transactions with key management personnel There were no other transactions with the Directors of the Company for the years ended 31 December 2010 and 31 December 2009. Note 18. Remuneration of auditors During the year fees paid to the auditor of the Consolidated Entity, its related practices and non-related audit firms for the following services: (a) Deloitte Touche Tohmatsu – 2010 Assurance services Audit services – Audit and review of financial reports and other audit work under the Corporations Act 2001 Total remuneration for assurance services Taxation services Tax compliance services, including review of company tax returns Total remuneration for taxation services (b) PricewaterhouseCoopers – 2009 Assurance services Audit services – Audit and review of financial reports and other audit work under the Corporations Act 2001 – Other assurance services IT audit Accounting services Other assurance services Audit of regulatory returns Due diligence services Total remuneration for assurance services Taxation services Tax compliance services, including review of company tax returns Tax advice on merger Total remuneration for taxation services Total auditors remuneration 48 Notes to the Financial Statements 2010 $ 2009 $ 78,275 78,275 35,620 35,620 – – – – – – – – – – – – – 343,066 110,000 85,000 10,500 424,499 973,065 56,190 634,595 690,785 113,895 1,663,850 Note 18. Remuneration of auditors (continued) It is the Consolidated Entity’s policy to employ the auditors on assignments additional to their statutory audit duties where the auditor’s 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. The auditor of the Consolidated Entity is Deloitte Touche Tohmatsu for 2010 (2009: PricewaterhouseCoopers). Note 19. Contingencies Details and estimates of maximum amounts of contingent liabilities as at 31 December 2010 are as follows: Guarantees Unsecured guarantees in respect of leases of controlled entities 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. Note 20. Commitments Lease Commitments Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable: 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 2010 $’000 2009 $’000 8,156 8,156 7,858 7,858 2010 $’000 2009 $’000 128 231 65 424 136 220 – 356 424 356 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. Note 21. Related party transactions (a) Parent entities The holding company and parent entity is Hutchison Telecommunications (Amsterdam) B.V. which at 31 December 2010 owns approximately 88% of the issued Ordinary Shares of Hutchison Telecommunications (Australia) Limited. (2009 : the holding company and parent entity was Hutchison Communications (Australia) Pty Limited which owned approximately 88%). On 23 December 2010, Hutchison Telecommunications (Amsterdam) B.V. completed the acquisition of interests in Hutchison Telecommunications (Australia) Limited from Hutchison Communications (Australia) Pty Limited. 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 Herbert GARDENER; LAI Kai Ming, Dominic; John Michael SCANLON; Frank John SIXT; Roderick James SNODGRASS and Ronald Joseph SPITHILL. Roderick James SNODGRASS resigned as a Director on 16 November 2010. Ronald Joseph SPITHILL was appointed as a Director on 16 November 2010 and continues in office at the date of this report. (c) Key management personnel compensation Disclosures relating to key management personnel compensation are set out in note 17. Notes to the Financial Statements 49 Notes to the Financial Statements continued Note 21. Related party transactions (continued) (d) Transactions with related parties During the year, the following transactions occurred with related parties: Sales of goods and services Sale of telecommunications related goods and services to joint venture Purchases of goods Purchase of goods and services from commonly controlled entities Purchase of telecommunications related goods and services from joint venture Receivables Advance to: Jointly controlled entity Payables Advanced from: Jointly controlled entity Repayments to: Related entity Loans to related parties Loans advanced to: Jointly controlled entity Loans repayments from: Jointly controlled entity Loans from related parties Loans advanced from: Related entity Loans repayments to: Related entity Loans repayments from: Related entity Interest revenue Jointly controlled entity Interest expense Ultimate parent entity Advances to jointly controlled entity 2010 $’000 2009 $’000 – – – 1,937 13,412 78,362 10,781 15,975 – – – 591,468 – 1,320,000 71,321 – – 55,000 69,116 768,046 – 1,250,000 21,481 56,347 126 – 358 50,332 Advances to the jointly controlled entity represent funds advanced under the terms of the agreement with the jointly controlled entity. The funds advanced under the agreement are interest free. (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) Non current receivables Jointly controlled entity (note 10) Payables Jointly controlled entity (note 13) Current liabilities – Other financial liabilities Related entity (note 14) 2010 $’000 2009 $’000 1,394 2,299 61,934 2,299 74,870 50,332 15,975 – 217,838 286,954 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. 50 Notes to the Financial Statements Note 21. Related party transactions (continued) (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. Note 22. Deed of Cross Guarantee During the year ended 31 December 2007, Hutchison Telecommunications (Australia) Limited, H3GAH and H3GA entered into 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. On 10 June 2009, the Company announced that the merger of its subsidiary H3GA with VAL had completed. H3GA has been renamed VHA. As a result the parties to the Deed of Cross Guarantee are now HTAL and H3GAH. (a) Closed Group consolidated statement of comprehensive income and a summary of movements in the Closed Group consolidated retained earnings HTAL, H3GAH and H3GA represented a ‘Closed Group’ for the purposes of the Class Order for the period from 1 January to 9 June 2009. After 10 June 2009, H3GAH and HTAL 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 the Closed Group consolidated statement of comprehensive income and a summary of movements in the Closed Group consolidated accumulated losses for the year ended 31 December 2010. 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 Profit before income tax Income tax expense Profit for the year Summary of movements in consolidated retained losses Accumulated losses at the beginning of the financial year Profit for the year Accumulated losses at the end of the financial year 2010 $’000 2009 $’000 22,343 – – – – – (480) (121) (872) – – 799,410 780,230 1,866 (216,863) (150,071) (185,510) (57,252) (22,870) (56,261) 20,055 (110,317) (111) (393) 20,759 802,024 9,580 – 30,339 802,024 (2,896,621) (3,698,645) 30,339 802,024 (2,866,282) (2,896,621) Notes to the Financial Statements 51 Notes to the Financial Statements continued Note 22. Deed of Cross Guarantee (continued) (b) Statement of Financial Position Set out below is a statement of financial position as at 31 December 2010 of the Closed Group consisting of H3GAH and HTAL. Current Assets Cash and cash equivalents Trade and other receivables Other Total Current Assets Non-Current Assets Receivables Other financial assets Other Total Non-Current Assets Total Assets Current Liabilities Payables Other financial liabilities Total Current Liabilities Total Liabilities Net Assets EQUITY Contributed equity Reserves Accumulated losses Total Equity 2010 $’000 2009 $’000 5,317 3,693 163 2,858 64,233 163 9,173 67,254 74,870 50,332 1,556,881 1,556,881 9,580 – 1,641,331 1,607,213 1,650,504 1,674,467 23,677 8,805 217,838 286,954 241,515 295,759 241,515 295,759 1,408,989 1,378,708 4,204,488 4,204,488 70,783 70,841 (2,866,282) (2,896,621) 1,408,989 1,378,708 Note 23. Operating segment The Consolidated Entity has identified its operating segment based on the internal reports that are reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources. 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 had completed. H3GA has been renamed VHA. As a result, the Consolidated Entity now invests in an operator within the telecommunications industry. In 2010 the Consolidated Entity continued to invest 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, an investor in an operator of telecommunication services. As such, the Consolidated Entity believes it is appropriate that there is one operating segment, investment in telecommunication services. Key financial information used by the chief operating decision maker of the Consolidated Entity when evaluating the investment in telecommunication services operating segment includes: HTAL’s share of VHA Operating Revenue Operating Margin EBITDA 52 Notes to the Financial Statements 2010 $m 2,411 1,691 476 2009 $m 2,040 1,386 175 Note 24. Reconciliation of profit after income tax to net cash inflows/(outflows) from operating activities Profit after income tax Income tax benefit recognised in profit or loss Depreciation Amortisation Amortisation – subscriber acquisition and retention costs Customer acquisition costs written off Non-cash employee benefits expense – share-based payments Net gain on sale of property, plant and equipment Gain on disposal arising from merger Share of net (profits)/losses of joint venture partnership accounted for using equity method Change in operating assets and liabilities Decrease in provision for doubtful debts (Increase)/Decrease in receivables Increase in inventories Decrease in other assets Decrease in payables Increase in other current liabilities Decrease in employee entitlements Net cash inflows/(outflows) from operating activities Note 25. Earnings per share (a) Basic earnings per share Profit attributable to the ordinary equity holders of the Consolidated Entity (b) Diluted earnings per share Profit attributable to the ordinary equity holders of the Consolidated Entity (c) Earnings used in calculating earnings per share Notes 2010 $’000 2009 $’000 73,442 467,724 5 5 5 5 16 3 11 (9,580) – – – – (58) – – – 59,501 30,710 16,594 3,512 271 (76) (587,285) (43,103) 141,355 – (24,538) – (6,265) 37,427 (686) 5,194 11,227 (1,103) (603,241) – – 1,016 (5,415) 254 (433,631) 2010 Cents 2009 Cents 0.54 6.27 0.54 5.85 CONSOLIDATED 2010 $’000 2009 $’000 Basic earnings per share Profit attributable to the ordinary equity holders of the Consolidated Entity used in calculating basic earnings per share 73,442 467,724 Diluted earnings per share Profit attributable to the ordinary equity holders of the Consolidated Entity used in calculating diluted earnings per share 73,442 467,724 (d) Weighted average number of shares used as the denominator CONSOLIDATED 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 2010 Number 2009 Number 13,572,508,577 7,461,780,971 13,572,508,577 7,988,567,834 There were 23,450,000 (2009: 24,975,000) options outstanding at 31 December 2010 that are anti-dilutive and accordingly have no impact on the earnings per share calculation for the year ended 31 December 2010. Notes to the Financial Statements 53 Notes to the Financial Statements continued Note 26. 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: the closing price of HTAL shares on the Australian Securities Exchange on the day on which the options are granted; and (a) (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. 2010 Grant date 14-Jun-07 14-Nov-07 21-May-08 4-Jun-08 Total 2009 Grant date 14-Jun-07 14-Nov-07 21-May-08 4-Jun-08 Total Expiry date Exercise price Balance at the start of the year Issued during the year Exercised during the year forfeited Balance at Exercisable at the end the end of the year of the year during the year 13-Jun-12 $0.145 24,375,000 13-Nov-12 20-May-13 3-Jun-13 $0.200 $0.165 $0.139 300,000 – 300,000 24,975,000 – – – – – – – – – – – – 1,525,000 22,850,000 22,850,000 – – – 300,000 300,000 – – 300,000 300,000 1,525,000 23,450,000 23,450,000 $0.145 $0.146 $0.146 Weighted average exercise price $0.146 Expiry date Exercise price Balance at the start of the year Issued during the year Exercised during the year forfeited Balance at Exercisable at the end the end of the year of the year during the year 13-Jun-12 $0.145 27,400,000 13-Nov-12 20-May-13 3-Jun-13 $0.200 $0.165 $0.139 300,000 200,000 300,000 28,200,000 – – – – – – – – – – – – 3,025,000 24,375,000 16,341,644 – 300,000 200,000 – – 300,000 – – – 3,225,000 24,975,000 16,341,644 $0.146 $0.146 $0.145 Weighted average exercise price $0.146 The number of options that were forfeited during the year were 1,525,000 (2009: 3,225,000). The weighted average remaining contractual life of share options outstanding at the end of the period was 1.5 years (2009: 2.5 years). Fair value of options granted The assessed fair value at grant date of options expensed during the year ended 31 December 2010 was 4 cents (2009: 4 cents). Refer to note 1(r)(iv) for how the fair value of options were determined. The additional model inputs for options expensed during the year ended 31 December 2010 and 31 December 2009 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%; and (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. 54 Notes to the Financial Statements Note 26. 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: Options issued under HTAL Employee Option Plan 2010 $’000 2009 $’000 (58) 271 Note 27. 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(g), investments in controlled and jointly controlled entities have been tested for impairment. The recoverable amount of the Company’s investment in controlled entities (note 12), and the recoverable amount of the Consolidated Entity’s investment in jointly controlled entities (note 11) 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. A discounted cash flow calculation has been undertaken on the approved business plan. A terminal value has been calculated on the cash flows. The cash flows have then been discounted using a suitable discount rate consistent with recent external assessments of the Consolidated Entity’s weighted average capital cost. The resulting net present value (NPV) has been compared to the net book value of the Consolidated Entity’s non-current assets and working capital balances. The Directors believe that the resulting NPV is appropriate to support the carrying values of both the parent entity’s investment (as disclosed in note 30) and the Consolidated Entity’s investments in jointly controlled entities as at 31 December 2010. (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 28. 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 Hutchison Telecommunications (Australia) Limited in future financial years, or (ii) the results of those operations in future financial years, or (iii) the state of affairs of Hutchison Telecommunications (Australia) Limited in future financial years. Notes to the Financial Statements 55 Notes to the Financial Statements continued Note 29. 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. (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. (i) Foreign exchange risk The major activities of the operations are denominated in Australian dollars. The foreign exchange risk is minimal. 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 2010, 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 (2009: $nil lower/$nil higher). Equity would have been $nil lower/$nil higher (2009: $nil lower/$nil higher). (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. 56 Notes to the Financial Statements Note 29. Financial risk management (continued) (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 31/12/2010 financial assets Cash and cash equivalents 5,317 Trade receivables financial liabilities Trade payables Borrowings – (518) – Other financial liabilities (217,838) (53) – – – – Total increase/(decrease) (213,039) (53) – – – – – – 53 – – – – 53 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 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 31/12/2009 financial assets Cash and cash equivalents 2,858 Trade receivables financial liabilities Trade payables Borrowings – (105) – Other financial liabilities (286,954) (29) – – – – Total increase/(decrease) (284,201) (29) – – – – – – 29 – – – – 29 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (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 related parties. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. Credit risk further arises in relation to financial guarantees given to certain parties (see note 19 for details). Such guarantees are only provided in exceptional circumstances and are subject to board approval. Notes to the Financial Statements 57 Notes to the Financial Statements continued Note 29. Financial risk management (continued) (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. Effective interest rate Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total $’000 $’000 $’000 $’000 $’000 – – 23,677 217,838 241,515 – – – – – – – – – 23,677 217,838 241,515 Effective interest rate Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total $’000 $’000 $’000 $’000 $’000 – – 8,805 286,954 295,759 – – – – – – – – – 8,805 286,954 295,759 At 31/12/2010 Payables Other financial liabilities Total ($’000) At 31/12/2009 Payables Other financial liabilities Total ($’000) Note 30. Parent entity disclosures Financial position 2010 $’000 2009 $’000 8,173 67,251 3,749,099 3,714,988 3,757,272 3,782,239 240,512 295,759 – – 240,512 295,759 3,516,760 3,486,480 4,204,488 4,204,488 15,895 15,954 (703,623) (733,962) 3,516,760 3,486,480 ASSETS Current Assets Non-Current Assets Total Assets LIABILITIES Current Liabilities Non-Current Liabilities Total Liabilities Net Assets EQUITY Contributed equity Reserves Accumulated losses Total Equity 58 Notes to the Financial Statements Note 30. Parent entity disclosures (continued) Financial performance Profit for the year Total comprehensive income for the year Contingencies Guarantees Unsecured guarantees in respect of leases of controlled entities Commitments 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 2010 $’000 30,339 30,339 2009 $’000 134,438 134,438 2010 $’000 2009 $’000 8,156 8,156 7,858 7,858 2010 $’000 2009 $’000 128 231 65 424 136 220 – 356 424 356 The Directors of the parent entity are not aware of any other material contingent liabilities existing at the reporting date. As at 31 December 2010, the Parent Entity has a deficiency of net current assets of $232 million (2009: $229 million). Included in the Parent Entity’s current liabilities is an amount of $218 million (2009: $287 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 Parent Entity to meet its financial obligations as and when they fall due. This undertaking is provided for a minimum period of twelve months from 24 February 2011. Consequently, the Directors have prepared the financial statements on a going concern basis. Notes to the Financial Statements 59 Directors’ Declaration In the Directors’ opinion: (a) the financial statements and notes set out on pages 28 to 59 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 Consolidated Entity’s financial position as at 31 December 2010 and of its performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that Hutchison Telecommunications (Australia) Limited 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 22 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 22. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer of Vodafone Hutchison Australia Pty Limited required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Susan Chow Director 24 February 2011 Dominic Lai Director 24 February 2011 60 Directors’ Declaration Independent Auditor’s Report to the members of Hutchison Telecommunications (Australia) Limited We have audited the accompanying consolidated financial report of Hutchison Telecommunications (Australia) Limited (“HTAL” and “the company”), which comprises the consolidated statement of comprehensive income, the consolidated statement of financial position as at 31 December 2010, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 28 to 60. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. 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. Those 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 of the financial report that gives a true and fair view, 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Auditor’s independence declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the consolidated 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 2010 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the consolidated financial statements also comply with International Financial Reporting Standards as disclosed in Note 1. Independent Auditor’s Report 61 Independent Auditor’s Report continued Report on the Remuneration Report We have audited the Remuneration Report included in pages 21 to 24 of the directors’ report for the year ended 31 December 2010. 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 2010, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Sandeep Chadha Partner Chartered Accountants Sydney, 24 February 2011 62 Independent Auditor’s Report Shareholder Information The shareholder information set out below was applicable as at 24 February 2011. Substantial shareholders Substantial shareholders in the Company are: Shareholding Percentage 12,009,393,175 88.48% Hutchison Whampoa Limited and its subsidiaries# Vodafone Group Plc and subsidiaries* Telecom 3G (Australia) Limited and Telecom Corporation of New Zealand Limited Twenty largest shareholders There were 4098 holders of less than a marketable parcel of ordinary shares. The names of the 20 largest holders of quoted ordinary shares as at 24 February 2011 are as follows: % Issued Shareholder Shareholding Capital Rank Hutchison Telecommunications (Amsterdam) B.V. 11,925,479,378 87.87 Telecom 3G (Australia) Limited 1,357,250,858 10.00 12,009,393,175 88.48% Leanrose Pty Limited 83,913,797 0.62 1,357,250,858 10.00% Citicorp Nominees Pty Limited 11,966,586 0.09 JP Morgan Nominees Australia 17,475,590 0.13 Notes: # Substantial shareholding includes relevant interest arising from an equitable mortgage of shares from Leanrose 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 in which Hutchison Whampoa Limited and its subsidiaries have a relevant interest. Vodafone Group Plc’s relevant interests arise under a Shareholders Agreement between Vodafone Group Plc, Hutchison Whampoa 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 HSBC Custody Nominees 8,591,416 0.06 Arjee Pty Ltd 4,068,851 0.03 George Thomson 2,765,587 0.02 Yet Kwong Chiang & Ho Yuk Lin Chiang 2,700,138 0.02 Yim Fong Leung 2,025,000 0.01 KKH Investments Pty Limited 1,850,000 0.01 Kenneth Kin Kau Heung & Rene Conrad Heung 1,830,000 0.01 Hung Fong Chong 1,779,000 0.01 Bin Liu 1,700,000 0.01 Range 1 – 1000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – OVER TOTAL Ordinary Shares 1,542 2,927 1,094 1,549 270 7,382 Options John Franciszek Chodorowski 1,652,456 0.01 0 0 0 7 36 43 Justin Herbert Gardener & Anne Louise Gardener Kurt Ruegg & Ursula Ruegg 1,630,358 0.01 16 1,500,000 0.01 Jason Boua Hong Lo 1,400,000 0.01 Yee Man Tang Xiaoyu Wang 1,250,000 0.01 1,197,031 0.01 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 17 18 19 20 Unquoted Equity Securities Options issued under the Employee Option Plan Number of Options on issue 23,450,000 Number of holders 43 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. Shareholder Information 63 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 Ronald Joseph Spithill Company Secretaries Edith Shih Louise Sexton Investor Relations Tel: 133 121 Fax: (02) 8904 0438 Email: investors@hutchison.com.au www.hutchison.com.au Registered Office Level 7, 40 Mount Street North Sydney NSW 2060 Tel: 133 121 Fax: (02) 8904 0457 www.hutchison.com.au Share Registry Link Market Services Level 12, 680 George Street Sydney NSW 2000 Tel: (02) 8280 7111 www.linkmarketservices.com.au Auditor Deloitte Touche Tohmatsu Grosvenor Place 225 George 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: 40 Mount Street North Sydney NSW 2060 Date: Wednesday 4 May 2011 Time: 10.00 am In this report, Hutchison Telecommunications (Australia) Limited is referred to as Hutchison, HTAL and the Company 64 Corporate Directory e t a n g i s e d y b d e t a e r c } p u o r G { H u t c h i s o n T e l e c o m m u n i c a t i o n s ( A u s t r a l i a ) L i m i t e d A n n u a l R e p o r t 2 0 1 0 A Section Name 

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