1 Corporate profile - PCCW

1 Corporateprofile

2 Significanteventsin2008

3 Keyfigures

4 StatementfromtheChairman

5 StatementfromtheGroupManagingDirector

8 BoardofDirectors

13 Corporategovernancereport

20 Management’sdiscussionandanalysis

29 Financialinformation

140 Investorrelations

CORPORATE PROFILE

�PCCWannualreport2008

PCCWLimited(PCCW)istheholdingcompanyofHKTGroupHoldingsLimited(HKT),HongKong’spremiertelecommunicationsproviderandaworld-classplayerinInformationandCommunicationsTechnologies.PCCWalsoholdsamajorityinterestinPacificCenturyPremiumDevelopmentsLimited,andoverseasinvestmentsincludingthewholly-ownedUKBroadbandLimited.

AstheproviderofHongKong’sfirstquadruple-playexperience,PCCW/HKToffersarangeofinnovativemediacontentandservicesacrossfourplatforms–fixed-line,broadbandInternetaccess,TVandmobile.Inaddition,theGroupmeetsthesophisticatedneedsofthelocalandinternationalbusinesscommunity,whilesupportingnetworkoperatorswithcutting-edgetechnicalservicesandhandlinglarge-scaleIToutsourcingprojectsforpublicandprivatesectororganizations.

Employingapproximately17,000staff,PCCWisheadquarteredinHongKongandmaintainsapresenceinEurope,theMiddleEast,Africa,theAmericasandmainlandChina,aswellasotherpartsofAsia.

PCCWsharesarelistedonTheStockExchangeofHongKongLimited(SEHK:0008)andtradedintheformofAmericanDepositaryReceipts(ADRs)onthePinkOTCMarketsintheUS(Ticker:PCCWY).

SIGNIFICANT EVENTS IN 2008

� PCCWannualreport2008

FEBRUARYPCCWGlobalsignsanagreementtointerconnectwithdu–thesecondtelecomsserviceproviderintheUnitedArabEmirates–tomeetrisingdemandforinternationalconnectivityintheMiddleEastandotherregions.

AdditionalfeaturesareintroducedtothePCCWeyeMultimediaService,includingafacilitytoreviewOctopuscardtransactionsandavideo-callingoption.

MARCHTheHongKongGovernmentlaunchesitspublicWi-Fiservice,whichispoweredbyPCCW.PCCWlaterprovidesfreeWi-FiatpublichousingestatesaspartofourcontributiontoHongKong’stechnologyexcellence.

MAYPCCWannouncesareorganizationoftheGroup’stelecomsservices,mediaandITsolutionsbusinessesintoanewcompany,HKTGroupHoldingsLimited.

JUNETheComputerworldHongKong2008AwardsschemenamesPCCWasHongKongTechnologyCompanyoftheYear,thefirstsuchtitlegrantedbytheITindustrypublisher.SixotherawardsareconferredonvariousPCCWbusinessunitsandservices.

JULYPCCWistheofficialhostsponsorofBroadbandWorldForumAsia2008,afour-dayconferenceandexhibitioninHongKongthatattractsthousandsofindustryfiguresfromaroundtheworld.

AUGUSTPCCWservesasthemajortelecomsprovidertotheHongKong-hostedequestrianeventsoftheBeijing2008OlympicGames,whilePCCWGlobalandChinaNetworkCommunicationsGroupCorporation–nowmergedwithChinaUnicom–enablebroadcasterstosendhigh-qualityTVcoverageoftheeventstoaudiencesallovertheworld.

SEPTEMBERPCCWSolutionswinsalong-termrenewablecontracttobuild,designandrunalarge-scaleInternetdatacenterforamajorglobalInternetsearchengineplayer.

OCTOBERPCCWdiscontinuestheauctionprocessfortheproposedsaleofuptoa45%interestinHKTGroupHoldingsLimited.

NOVEMBERAproposalisreceivedfromPCCW’stwomajorshareholderstoprivatizetheCompany.

PCCWdeliversHongKong’sfirst3GnetworkdeploymentbasedonCDMA2000technology.MainlandChinaandothervisitorscannowusetheirhome-basedphonestoroamontoournetwork.

TheGroup’stelecomsservices,mediaandITsolutionsbusinessesnowoperateunderHKTGroupHoldingsLimited,followingcompletionofthecorporatereorganization.

DECEMBERProducedin-housebynowTV,thenowHongKongchannelmakesitsdebutwithprogrammingtailoredtoHongKongviewers.

PCCWsuccessfullydemonstratesthecombinationofnewHSPA+mobiletechnologyandPCCWNextGenoptical-fibernetworkincreatinganultra-fastdatasuperhighway.

AHongKongTransportDepartmentcontractforprovisionofanAreaTrafficControlSystemisawardedtoPCCW.


KEY FIGURES

FINANCIAL HIGHLIGHTSFortheyearendedDecember31,2008InHK$million(exceptforpersharedata)

2008 2007

Turnover Corerevenue* 22,008 20,581 PCPD 9,943 3,134

31,951 23,715

Costofsales (17,850 ) (10,538)Generalandadministrativeexpenses (10,005 ) (9,144)Otherlosses,net (464 ) (3)Lossesonproperty,plantandequipment (103 ) (7)Financecosts,net (1,276 ) (1,229)Shareofresultsofassociatesandjointlycontrolledcompanies 11 13Impairmentlossesoninterestsinjointlycontrolledcompanies (31 ) –

Profitbeforeincometax 2,233 2,807Incometax (711 ) (970)

Profitfortheyear 1,522 1,837

Attributableto: EquityholdersoftheCompany 1,272 1,503 Minorityinterests 250 334

Earningspershare(inHKcents) Basic 18.78 22.21 Diluted 18.77 22.18

Dividendspershare(inHKcents) Interimdividend 7.00 6.50 Finaldividendproposedafterthebalancesheetdate – 13.50 Specialdividenddeclaredafterthebalancesheetdate 130.00 –

EBITDA1

CoreEBITDA* 6,714 6,506 PCPD 1,268 790

7,982 7,296

OPERATION HIGHLIGHTS

As at Dec 31, AsatDec31, Better/ 2008 2007 (Worse) y-o-y

Exchangelinesinservice(’000) 2,603 2,590 1% Businesslines(’000) 1,195 1,183 1% Residentiallines(’000) 1,408 1,407 0%

Traditionaldata(ExitGbps) 927 723 28%

InternationalPrivateLeasedCircuitbandwidth(ExitMbps) 78,202 44,144 77%

Totalbroadbandaccesslines(’000) 1,302 1,237 5%

nowTV Installedbase(’000) 953 882 8% Payingbase(’000) 686 628 9%

Mobilesubscribers 3Gpost-paid(’000) 414 206 101% 2Gpost-paid(’000) 440 460 (4)% 2Gprepaid(’000) 459 405 13%

*Note:Pleaserefertopage20.Note1:Pleaserefertopage22.


STATEMENT FROM THE CHAIRMAN

AfteralongperiodofeconomicgrowthinHongKong,wearenowoperatinginanenvironmentmadedifficultbytheglobalfinancialturmoilandtheprospectofaprolongedinternationalrecession.

Sincethelastquarterof2008wehavewitnessedamarkedslowdowninmarketactivities,whichexertconsiderablepressureonourbusinesses.Withoutanysignsoftheeconomyreversingthepresentdownwardtrend,operatorsinHongKong’shighlycompetitivetelecommunicationsmarketareexpectedtobeundercontinuouschallengesintheyearahead.

Fortunately,weenterthisperiodofuncertaintywithadegreeoffinancialandoperationalstrength,aswellasadistinctlystrongbrand,thankstotheeffortsofaskilledandtalentedteamthathasproducedasuccessionofinnovativeservicesforourcustomersinboththeprivateandpublicsectorsinHongKongandoverseas.

Furthermore,Iampleasedtoreportthatwecompletedacorporaterestructuringlastyear.TheGroup’soperationalefficiencieswillimproveasaresultofthisrestructuring,whichhasgroupedourtelecomsservices,mediaandITsolutionsbusinessesunderanewcompany,HKTGroupHoldingsLimited.

PCCWisHongKong’spremiertelecommunicationsprovider.Goingforward,wewillcontinuetoworkhardtoconsolidateourleadershippositionintheindustryviaenhancedinnovationandservicequality,andwithoptimizationofoperatingandcapitalexpenditures.Toachievethesegoals,allstaffmustworktogetherwithdeterminationtocontinuetoprovideourcustomerswithPCCW’shighqualityproductsandservices.

Thesearechallengingtimes,andwelookforwardtotheunwaveringsupportofourshareholdersandcustomers.

Richard LiChairmanApril22,2009


STATEMENT FROM THE GROUP MANAGING DIRECTOR

Year2008wasshapedbyasuccessionofglobaleventsanddevelopments,whichculminatedinafinancialcrisisthathasleftnoindustryunscathed.

PCCWbegantheyearfromapositionofstrength,followinggrowthandconsolidationbasedonouruniquequadruple-playcapability,bywhichinfotainmentandservicesaredeliveredviafixedlines,broadbandInternet,TVandmobiledevices.

TheCompanyhadbenefitedfromarelativelylongspellofeconomicbuoyancythatpromptedprivateandpublicsectorinvestmentinInformation&CommunicationsTechnologies(ICT).However,themomentumgeneratedbytheseupbeatconditionscouldonlybemaintainedforthegreaterpartof2008untilthesharpturnofeventsbroughtaboutbythefinancialcrisis.

TheCompanybegantoexperienceanoticeableimpactonitsbusinessesinthelastquarter.ManagementintroducedprecautionarycostcontrolmeasurestostrengthenthefinancialintegrityoftheCompany,whilemakingsurethatservicequalitywasnotcompromised.ThishasbeenpossiblebecausetheCompany’scontinuedsubstantialinvestmentintechnologyandinfrastructureinpreviousyearshasprovidedasoundbasefromwhichtoweatherthecurrentstormyconditions.

Towardstheendof2008,wecompletedareorganizationoftheGroup’sbusinessesthatwasannouncedinthemiddleoftheyear.Anewcompany,HKTGroupHoldingsLimited(HKT),wasincorporatedtoholdtheGroup’stelecomsservices,mediaandITsolutionsbusinesses.PCCWreceivedproposalsfromseveralbiddersfortheacquisitionofaminorityinterestinHKT,butthemarketdownturnhadsignificantlyimpactedtheoffersreceivedandtheCompanydiscontinuedthesaleprocess.

Despitethedifficultenvironment,weremaincommittedtomeetingtheneedsofourlocalandinternationalcustomerswithourhighstandardofservice.Lastyear,weimprovedanumberofservicesanddemonstratedresilienceinourmainlinesofbusiness.

INNOVATION TO MEET CONSUMER NEEDSnowTVextendeditsleadershipinHongKong’spay-TVmarketduringtheyearwithabout953,000subscribersbyDecember31,2008.nowTVappealstothewidestpossibleaudience,thankstothevarietyofferedbymorethan170channelsoflocal,Asianandinternationalprogramming.Onesignificantachievementin2008wasthelaunchoftheself-producednowHongKongchannel,featuringahostofhousehold-namepersonalitiesandprogrammingtailoredtodiscerningHongKongviewers.Withfivehigh-definitionTVchannels,nowTValsomaintainsclearleadershipofthissegmentofthemarket.

PreviouslyexclusivetoPCCWcustomers,ourMOOVlibraryofmorethan130,000musictitlesindigitalaudiooraudio-visualformatwasmadeavailabletoallInternetuserslastyear.

Ourfixed-linebusinessmaintainedstabilityin2008.NewfeaturesandcontentcontinuedtobeaddedtothePCCWeyeMultimediaServicetoimprovefunctionalityandprovideuserswithgreaterconvenience.Itsincreasingpopularitybodeswellforfurtherenhancementofthisservicetobolsterbusinessperformanceinthefixed-linesegment.

HIGH-SPEED ACCESS & MOBILITYContinuedrolloutofopticalfiberlastyearenabledbroadbandcustomerstochoosefromspeedsofupto1,000Mbps,whichisnowavailabletomorethantwo-thirdsofHongKong’shouseholds.PCCWhasmadeInternetaccesswithoutwiresavailableinthehome,theworkplaceandviamorethan5,000Wi-FihotspotsalloverHongKong.Takingthatwirelessfreedomastagefurtherin2008,theCompanybecamethefirstWi-FiplayerinAsiatoofferapublicserviceonrollingstockbyprovidingconnectivitythroughout11AirportExpresstrains.

InDecember,PCCWdemonstratedthecombinationofnewHSPA+mobiletechnologywithourPCCWNextGenoptical-fibernetworkincreatinganultra-fastdatasuperhighway.This“HSPA+Fiber”conceptmeansthecurrentmaximummobiledownloadspeedof7.2Mbpswillbetripledwhen21MbpsHSPA+devicesbecomeavailablelaterthisyear.


STATEMENT FROM THE GROUP MANAGING DIRECTOR (CONTINUED)

Toprovideagreaterdiversityofmobileservices,PCCWdeliveredHongKong’sfirst3GnetworkdeploymentbasedonCDMA2000technology.VisitorsfrommainlandChinaandotherpartsoftheworldsuchasJapan,KoreaandtheUScannowusetheirhome-basedphonestoroamontoPCCW’snetwork.ThismovewasalsoinlinewiththeHongKongGovernment’sobjectivetostrengthenHongKong’sstrategicpositionasaworldcityandgatewaybetweenmainlandChinaandtherestoftheworld.

Inearly2009,PCCWjoinedforceswithanotheroperatortomakeasuccessfulbidfora4Glicense.ThiswillenablethedeploymentofnextgenerationBroadbandWirelessAccess(BWA)technologiesandtheofferofhigher-speedmultimediaservices,whichcanbedevelopedatreasonablecostsonthebackofPCCW’sexistingtechnologyplatformandexpertise.

BUSINESS & IT SOLUTIONSInthecommercialsector,wecontinuedtodevelopinnovativeapplicationstogrowthenumberofbroadbandlinesandaveragerevenueperuser(ARPU).Ourintegratedfixed/mobilesolution,brandedonecommunications,providesacapitalexpenditure-freealternativetotraditionalbusinesscommunications–anattractivepropositioninadifficulteconomicenvironment.

Thecustomerpremisesequipmentbusinesshadbeenstronguntilordersbegantoslowdowninthelastquarter.Meanwhile,PCCWishelpingbanksmeetanewregulatoryrequirementtorecordtheirsalesofstructuredfinancialproductswithourcost-effective,network-basedSecureRecordingSolution.Thishasalreadybeenrolledouttoanumberoflocalinstitutionsandisarousinginterestamongotherindustries.

Arevolutionarycommunicationssystembasedonfixed-mobileintegrationtechnologyalsobegantoestablishapresenceinHongKonghotelsin2008.Withoneoftheworld’sfirstmobileconciergeservices,guestsequippedwithamobilephonesuppliedbythehotelwillnotmisscallstotheirroomswhileoutandabout.

PCCWTeleservicesprovidesmultinationalcorporationswithcustomer-contactmanagementservicesfromoperationscentersinHongKong,mainlandChina,TaiwanandthePhilippines.In2008,thebusinesscontinuedtogrowbywinningsignificantcontractstohandleEnglishlanguage-basedworkforexistingclients.

OurITflagship,PCCWSolutions,lastyearwonacontracttobuild,designandrunanInternetdatacenter(IDC)covering40,000squarefeettohandletheregionalneedsofamajorglobalInternetplayer.ThewinwasthelargestofanumberofIDCdealsclinchedin2008,withothercustomersincludingUS-basedRackspaceHosting,theHongKongGovernmentandtheAirportAuthorityHongKong.

TherelativelyyoungAdvertising&InteractiveServicesdivisioncontinuestodeliverinnovativeadvertising,marketingandsalessolutionsbuiltonsynergiesproducedbytheCompany’squadruple-playcapability,andservesasamajorresellerforInternetpartners.

INTERNATIONAL OPPORTUNITIESPCCWGlobalenjoyedhealthyrevenuegrowthlastyearbyofferingaportfolioofadvanceddatasolutionsmadeavailableoveranetworkthatreaches1,000citiesand80countries.Inaddition,thevolumeofvoicetrafficthedivisioncarriedforserviceprovidersworldwidealsoincreasedsubstantiallyfrom2007.

Lastsummer,PCCWGlobalworkedcloselywithPCCW’sstrategicpartner,ChinaNetworkCommunicationsGroupCorporation–nowmergedwithChinaUnicom–toenabletheworld’sbroadcastingcommunitytocarryhigh-qualityTVcoverageoftheBeijing2008OlympicGamesequestrianeventstoviewersallovertheglobe.ThisactedasashowcaseforPCCWGlobal’sinternationalbroadcastingsolutions.

PCCWhasdevelopedexceptionalhomegrownexpertisetorunIPTVandtelecomsinfrastructureprojects.Combiningthistechnologyexcellencewithourmedia,enterpriseserviceandcontentmarketingexperience,weofferend-to-endsolutionstooperatorsandgovernmentsinotherpartsoftheworldinourefforttocreateadditionalrevenuesources.


PROPERTY DEVELOPMENTPCCW’smajority-ownedsubsidiary,PacificCenturyPremiumDevelopmentsLimited(PCPD),beganhandovertopurchasersofluxuryresidentialunitsatBel-AirNo.8aroundmid-November2008.ThehousesatVillaBel-Airareexpectedtobereleasedtothemarketgraduallyoverthenexttwoyears.The155unitsatONEPacificHeights,locatedwestofCentral,wereallsoldfollowinglaunchinJune2008.Completionofthis39-storeyprojectisscheduledforthesecondhalfof2009.

InmainlandChina,PCPD’sluxuryresidentialdevelopmentinBeijing’sChaoyangdistrictisscheduledforcompletionin2010.LocatednexttoourPacificCenturyPlacepremium-gradeinvestmentproperty,thecomplexwillproduceabout210luxuryapartments.Atthesametime,steadyprogressisbeingmadeonourlong-termprojectstodevelopworld-classall-seasonluxuryresortsatHokkaidoinJapanandThaiMuangBeach,Phang-ngainsouthernThailand.

CORPORATE SOCIAL RESPONSIBILITYPCCWhassetoutaCorporateSocialResponsibility(CSR)Policygoverningfivecoreareas:communityinvestment,theenvironment,ouremployees,supplierchainmanagement,andcorporategovernance.

Lastyear,PCCWandstaffdonatedHK$6millionfortherescueandrehabilitationofSichuanearthquakevictims.Weconductedthefirstcarbonfootprintauditofourmainsourceofgreenhousegasemissionsinordertodevelopreductiontargets.

Weplacegreatimportanceonouremployees,offeringawiderangeoftraininganddevelopmentprograms.Goodgovernanceservestoupholdahighstandardofethics,transparency,responsibilityandintegrityinallaspectsofourbusiness.OurinternalgovernancepoliciesandproceduresarecomplementarytotheCSRPolicy.

CONCLUSIONLastNovember,theCompanyreceivedaproposalfromitstwomajorshareholderstoprivatizePCCW.ThiswasapprovedbytherequisitemajorityofindependentshareholdersattheCourtMeetingandtherequisitemajorityofshareholdersattheExtraordinaryGeneralMeetinginFebruary2009.OnApril22,2009,theCourtofAppealoverturnedthejudgmentoftheCourtofFirstInstanceoftheHighCourttosanctiontheproposal.

IwouldliketostressthatthenatureofPCCW’sownership–whetherpublicorprivate–hasnoeffectonthewayweprovidehigh-qualityservices.Wewillremaincommittedtomaintainingourlong-heldpositionasHongKong’spremiertelecommunicationsserviceprovider.

Meanwhile,wemusttackle2009withcaution.Wemustmanageallourcostsprudentlyandresponsibly,includingjudiciousprioritizationofcapitalexpenditures.Managementandtherestofthestaffwillworktogethertoensureouroperationsarerunasefficientlyaspossibleandcustomersreceiveapleasantexperiencewhendealingwithus.Inthisdifficultandcompetitiveenvironment,retentionofcustomersisafocus.

Iampleasedthatthereorganizationexercisehasprovideduswithnewimpetustotightenourfocusontheneedsofourcustomersandprovideinnovative,premiumqualityproductsandexcellentcustomerservice.Ialsobelieveourinherentstrengthsshouldstandusingoodsteadinthecurrentrecession.

Alex ArenaGroupManagingDirectorApril22,2009


BOARD OF DIRECTORS

EXECUTIVE DIRECTORS

LI Tzar Kai, RichardChairman

MrLi,aged42,wasappointedan

ExecutiveDirectorandChairmanofPCCW

inAugust1999.HeisChairmanofPCCW’s

ExecutiveCommittee.HeisalsoChairman

andChiefExecutiveofthePacificCentury

Group,ChairmanofPacificCentury

PremiumDevelopmentsLimited(PCPD),

ChairmanofPCPD’sExecutiveCommittee

andChairmanofSingapore-basedPacific

CenturyRegionalDevelopmentsLimited.

MrLiisaNon-ExecutiveDirectorofThe

BankofEastAsia,Limited.Heisalsoa

representativeofHongKong,Chinato

theAsiaPacificEconomicCo-operation

(APEC)BusinessAdvisoryCouncil,

amemberoftheCenterforStrategic

andInternationalStudies’International

Councillors’GroupinWashington,D.C.,

andamemberoftheGlobalInformation

InfrastructureCommission.

Alexander Anthony ARENAGroupManagingDirector

MrArena,aged58,wasappointedan

ExecutiveDirectorofPCCWinAugust1999.

HeisGroupManagingDirectorofPCCW,

DeputyChairmanofPCCW’sExecutive

Committee,aDirectorofPacificCentury

RegionalDevelopmentsLimited,and

DeputyChairman,anExecutiveDirector

andExecutiveCommitteememberof

PacificCenturyPremiumDevelopments

Limited.

PriortojoiningthePacificCenturyGroup

in1998,MrArenawasaSpecialPolicy

AdvisertotheHongKongGovernmentfrom

1997to1998.From1993to1997,hewas

Director-GeneralofTelecommunications

attheOfficeoftheTelecommunications

Authority(OFTA)ofHongKong,aswellas

amemberoftheBroadcastingAuthorityof

HongKong.

BeforetakinguphispostatOFTA,

MrArenawasappointedbytheHong

KongGovernmenttoplanareform

programfortheliberalizationofHong

Kong’stelecommunicationssector.

PriortohisappointmenttotheHong

KongGovernment,heservedasan

inauguralmemberoftheAustralian

TelecommunicationsAuthorityforfour

years.MrArenahasledanextensivecareer

inpublicadministration,specializinginhigh

technologyandinfrastructureindustries.

Fromapracticingradio/communications

engineertoapublicpolicymaker,his

experiencespanssuchdiverseareasas

commercializationofgovernment-owned

businessenterprisesandderegulationin

theaviation,transport,telecommunications

andpostalindustries.

MrArenagraduatedfromUniversity

ofNewSouthWales,Australia,witha

bachelor’sdegreeinelectricalengineering.

HecompletedanMBAatMelbourne

University,Australia,andisaFellowofthe

HongKongInstitutionofEngineers.

MrArenawasanExecutiveDirectorand

theChairmanofSUNDAYCommunications

Limited(listingofitssharesonTheStock

ExchangeofHongKongLimitedwas

withdrawnwitheffectfromDecember20,

2006andthecompanywassubsequently

dissolvedonMarch30,2007)fromJuly

2005toDecember2006.

Peter Anthony ALLENExecutiveDirector

MrAllen,aged53,wasappointedan

ExecutiveDirectorofPCCWinAugust1999.

HeisDirectorofCorporateDevelopmentof

PCCW,GroupManagingDirectorofPacific

CenturyRegionalDevelopmentsLimited

andanExecutiveDirectorandChief

FinancialOfficerofthePacificCentury

Group.

MrAllenjoinedKPMGin1976before

takingupanappointmentatOccidental

PetroleumCorporationin1980.In1983,

hejoinedSchlumbergerLimitedand

workedinvariouscountriesholdingkey

managementpositions.In1989,hemoved

toSingaporeasRegionalFinancialDirector

oftheVesteyGroup.

MrAllenjoinedBousteadcoSingapore

LimitedasGroupOperationsControllerin

1992beforetakingupanappointmentwith

MorganGrenfellInvestmentManagement

(Asia)LimitedasaDirectorandChief

OperatingOfficerin1995.Hejoinedthe

PacificCenturyGroupin1997.

MrAllenwaseducatedinEnglandand

graduatedfromSussexUniversitywitha

degreeineconomics.HeisaFellowof

boththeInstituteofCharteredAccountants

inEnglandandWalesandtheInstituteof

CertifiedPublicAccountantsinSingapore.

CHUNG Cho Yee, MicoExecutiveDirector

MrChung,aged48,wasappointeda

DirectorofPCCWinNovember1996

responsibleformergerandacquisition

activities.HeisamemberofPCCW’s

ExecutiveCommittee.HejoinedthePacific

CenturyGroupinMarch1999.Heisalsoa

qualifiedsolicitor.

MrChunggraduatedfromUniversity

College,UniversityofLondon,England,

withalawdegreein1983.Hequalified

asasolicitorinHongKongin1986,

afterwhichheworkedinthecommercial

departmentofalawfirminHongKongfor

twoyears.Hejoinedthecorporatefinance

departmentofStandardCharteredAsia

Limited-theinvestmentbankingarmof

StandardCharteredBank-in1988.He

becameaDirectorandGeneralManager

ofBondCorporationInternationalLtdin

1990,afterwhichhejoinedChinaStrategic

HoldingsLtdinJanuary1992.

MrChungisNon-ExecutiveChairmanand

Non-ExecutiveDirectorofCapitalStrategic

InvestmentLimitedandIndependentNon-

ExecutiveDirectorofHKC(Holdings)

Limited.HewasanIndependentNon-

ExecutiveDirectorofCIAMGroupLimited

(formerlyknownasE2-Capital(Holdings)

Limited)betweenMarch9,2001and

May31,2008.


LEE Chi Hong, RobertExecutiveDirector

MrLee,aged57,wasappointedan

ExecutiveDirectorofPCCWinSeptember2002.

HeisamemberofPCCW’sExecutive

Committee.HeisalsoanExecutive

DirectorandChiefExecutiveOfficerof

PacificCenturyPremiumDevelopments

Limited(PCPD)andamemberofPCPD’s

ExecutiveCommittee.

MrLeewaspreviouslyanExecutive

DirectorofSinoLandCompanyLimited

(SinoLand),atwhichhisresponsibilities

includedsales,finance,acquisitions,

investorrelations,marketingandproperty

management.PriortojoiningSinoLand,

MrLeewasaseniorpartneratDeacons

inHongKong,wherehespecializedin

banking,propertydevelopment,corporate

financeanddisputeresolutioninHong

KongandmainlandChina.Beforethat,

hewasasolicitorwiththeLondonfirm

PritchardEnglefield&Tobin(nowPritchard

Englefield).Hewasenrolledasasolicitorin

theUnitedKingdomin1979andadmitted

asasolicitorinHongKongin1980.MrLee

becameaNotaryPublicinHongKongin

1991.

MrLeehasalsoservedasamember

ofthepanelofarbitratorsoftheChina

InternationalEconomicandTrade

ArbitrationCommissionoftheChina

CouncilforthePromotionofInternational

TradeinBeijing.

HegraduatedfromCornellUniversityin

theUnitedStatesin1975withabachelor’s

degreeinpoliticalscience.

NON-EXECUTIVE DIRECTORS

Sir David FORD, KBE, LVO

Non-ExecutiveDirector

SirDavid,aged74,wasappointedaNon-

ExecutiveDirectorofPCCWinJune2002.

Hestartedhisworkinglifeasanarmy

officerintheRoyalArtilleryandserved

infivecontinents.Duringhislastfive

yearswiththearmy,heservedwiththe

CommandoBrigadeandsawactiveservice

inAdenandBorneo.

SirDavidleftthearmyin1972and

subsequentlyspentmorethan20years

inHongKong,holdinganumberof

appointmentsasaseniorcivilservant

intheHongKongGovernmentandone

appointmentintheNorthernIrelandOffice.

HeattendedtheRoyalCollegeofDefence

Studiesin1982.HewasChiefSecretary

andDeputyGovernoroftheHongKong

Governmentfrom1986to1993,before

becomingtheHongKongCommissionerin

Londonuntilthechangeofsovereigntyin

HongKongin1997.

LU YiminNon-ExecutiveDirector

MrLu,aged45,becameaNon-Executive

DirectorofPCCWinMay2008.Heis

amemberoftheNominationCommittee

andRegulatoryComplianceCommitteeof

theBoard.

MrLuisanExecutiveDirectorand

PresidentofChinaUnicom(Hong

Kong)Limited.HeisViceChairman

andPresidentofChinaUnitedNetwork

CommunicationsGroupCompanyLimited.

HeisalsoaDirectorandPresidentof

ChinaUnitedNetworkCommunications

CorporationLimited.

MrLujoinedChinaNetworkCommunications

GroupCorporation(CNC)inDecember

2007,servingasseniormanagement.

PriortojoiningCNC,MrLuwasamember

oftheSecretaryBureauoftheGeneral

OfficeoftheChineseCommunistParty

CentralCommittee,servingastheDeputy

DirectorandtheDirectoroftheInformation

ProcessingOfficesince1992,Secretaryat

deputydirectorgenerallevelsince2001

andSecretaryatdirectorgenerallevel

since2005.

MrLuisaprofessorlevelseniorengineer

andhasextensiveexperiencein

governmentadministrationandbusiness

management.HegraduatedfromShanghai

JiaoTongUniversityin1985witha

bachelor’sdegreeincomputerscience

andthenwasawardedamaster’sdegree

inpublicadministrationbytheJohnF.

KennedySchoolofGovernmentatHarvard

UniversityintheUnitedStates.

ZUO XunshengDeputyChairmanandNon-Executive

Director

MrZuo,aged58,becameaDeputy

ChairmanandNon-ExecutiveDirectorof

PCCWinJuly2007.Heisamemberofthe

RemunerationCommitteeandExecutive

CommitteeoftheBoard.

MrZuoisanExecutiveDirectoranda

SeniorVicePresidentofChinaUnicom

(HongKong)Limited.HeisViceChairman

andVicePresidentofChinaUnited

NetworkCommunicationsGroupCompany

Limited.HeisalsoaDirectorandSenior

VicePresidentofChinaUnitedNetwork

CommunicationsCorporationLimited.

�0 PCCWannualreport2008

BOARD OF DIRECTORS (CONTINUED)

MrZuojoinedChinaNetworkCommunications

GroupCorporationasVicePresident

inApril2002,andservedasSenior

VicePresidentofChinaNetcomGroup

Corporation(HongKong)Limited(CNCHK)

sinceJuly2004,ChiefOperatingOfficerof

CNCHKsinceDecember2005,an

ExecutiveDirectorandChiefExecutive

OfficerofCNCHKsinceMay2006and

ChairmanofCNCHKsinceMay2008.

MrZuograduatedfromGuanghua

SchoolofManagementofPeking

UniversitywithanEMBAdegreein

2004.FromJuly1993toOctober1997,

MrZuoservedasDirectorofthe

formerBureauofTelecommunications

ofJinanCity,ShandongProvince.

FromOctober1997toMay2000,

heservedasDirectoroftheformer

PostsandTelecommunicationsBureauof

ShandongProvince.HewasPresidentof

theformerShandongTelecommunications

CompanyfromMay2000toApril2002.

MrZuoiswellexperiencedin

telecommunicationsoperationsandhas

richmanagementexperience.

LI FushenNon-ExecutiveDirector

MrLi,aged46,becameaNon-Executive

DirectorofPCCWinJuly2007.

MrLiisaSeniorVicePresidentofChina

Unicom(HongKong)Limited.Heis


CommunicationsGroupCompany

Limited.HeisalsoaDirectorandSenior


CommunicationsCorporationLimited.

HeservedasanExecutiveDirectorofChina

NetcomGroupCorporation(HongKong)

Limited(CNCHK)sinceJanuary2007and

asChiefFinancialOfficerofCNCHKsince

September2005.HeservedasFinancial

ControllerofCNCHKfromJuly2004to

August2005.HeservedasJointCompany

SecretaryofCNCHKfromDecember

2006toMarch2008.SinceOctober2005,

hehasservedasChiefAccountantof

ChinaNetworkCommunicationsGroup

Corporation(CNC).FromOctober2003

toAugust2005,heservedasGeneral

ManageroftheFinanceDepartmentof

CNC.FromNovember2001toOctober

2003,heservedasDeputyGeneral

ManagerofJilinCommunicationsCompany

andDeputyGeneralManagerofthe

formerJilinProvincialTelecommunications

Company.

MrLigraduatedfromtheAustralian

NationalUniversitywithamaster’s

degreeinmanagement,andfromthe

JilinEngineeringInstitutewithadegreein

engineeringmanagementinJune1988.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Professor CHANG Hsin-kang,FREng, GBS, JP

IndependentNon-ExecutiveDirector

ProfessorChang,aged68,wasappointed

aDirectorofPCCWinOctober2000.

HeisamemberoftheAuditCommittee

andtheRegulatoryComplianceCommittee

oftheBoard.

ProfessorChangbecameaTsinghua

University(HonoraryProfessorand)

WeiLunSeniorVisitingScholarin

September2007,and(HonoraryProfessor

and)Yeh-LuXunChairProfessorat

PekingUniversityinFebruary2008.He

wasPresidentandUniversityProfessorof

CityUniversityofHongKongfrom1996

to2007.Priortothat,hewasDeanofthe

SchoolofEngineeringattheUniversityof

PittsburghintheUnitedStatesfrom1994

to1996,FoundingDeanoftheSchool

ofEngineeringatHongKongUniversity

ofScienceandTechnologyfrom1990to

1994andChairpersonoftheDepartment

ofBiomedicalEngineeringattheUniversity

ofSouthernCaliforniaintheUnitedStates

from1985to1990.

ProfessorChangisaForeignMemberof

theRoyalAcademyofEngineeringofthe

UnitedKingdomandChevalierdans

L’OrdreNationaldelaLégiond’Honneur

ofFrance.HewasappointedJusticeof

thePeaceinJuly1999andalsoawarded

theGoldBauhiniaStarbytheHongKong

GovernmentinJuly2002.

Heobtainedhisbachelor’sdegreeincivil

engineeringfromtheNationalTaiwan

University,amaster’sdegreeinstructural

engineeringfromStanfordUniversityin

theUnitedStatesandadoctorateinfluid

mechanicsandbiomedicalengineering

fromNorthwesternUniversityinthe

UnitedStates.

��PCCWannualreport2008

ProfessorChangisanIndependentNon-

ExecutiveDirectorofHonKwokLand

InvestmentCompany,Limited,Brightoil

Petroleum(Holdings)Limited,and

NanyangCommercialBank,Ltd.

Dr The Hon Sir David LI Kwok Po,GBM, GBS, OBE, JP


SirDavid,aged70,wasappointeda

DirectorofPCCWinOctober2000.He

waspreviouslyaNon-ExecutiveDeputy

ChairmanoftheformerHongKong-listed

Cable&WirelessHKTLimitedandserved

asaDirectorfromNovember1987to

August2000.HeisamemberoftheAudit

Committee,RemunerationCommittee,

NominationCommitteeandRegulatory

ComplianceCommitteeoftheBoard.

SirDavidisChairmanandChiefExecutive

ofTheBankofEastAsia,Limited.Heis

alsoaDirectorofChinaOverseasLand&

InvestmentLimited,COSCOPacificLimited,

CriteriaCaixaCorp,S.A.,Guangdong

InvestmentLimited,TheHongKong

andChinaGasCompanyLimited,The

HongkongandShanghaiHotels,Limited,

HongKongInterbankClearingLimited,The

HongKongMortgageCorporationLimited,

SanMiguelBreweryHongKongLimited,

SCMPGroupLimited,VitasoyInternational

HoldingsLimited,AFFINHoldingsBerhad

andIMGWorldwideInc.Hewasadirector

ofAviChinaIndustry&Technology

CompanyLimited,ChinaMerchantsChina

DirectInvestmentsLimitedandDow

Jones&Company,Inc.

SirDavidisamemberoftheLegislative

CouncilofHongKong.HeisChairman

ofTheChineseBanks’Association,

LimitedandTheHongKongManagement

Association.SirDavidisalsoamember

oftheBankingAdvisoryCommittee

andtheCounciloftheTreasury

MarketsAssociation.

Sir Roger LOBO, CBE, LLD, JP


SirRoger,aged85,wasappointeda

DirectorofPCCWinAugust1999.Heis

ChairmanoftheRegulatoryCompliance

CommitteeandamemberoftheAudit

Committee,RemunerationCommitteeand

NominationCommitteeoftheBoard.

HeisalsoaDirectorofseveralorganizations,

includingShunTakHoldingsLimited,

Johnson&Johnson(HK)Ltd,Kjeldsen&

Co(HK)Ltd,Pictet(Asia)LtdandMelco

InternationalDevelopmentLimited.

SirRoger’sextensiverecordofpublic

serviceincludesmembershipoftheHong

KongHousingAuthority,theUrbanCouncil,

theExecutiveCouncilandservingasa

seniormemberoftheLegislativeCouncil.

SirRogeralsoservedasCommissioner

oftheCivilAidService,Chairmanofthe

HongKongBroadcastingAuthorityand

ChairmanoftheAdvisoryCommitteeon

Post-retirementEmployment.

HecurrentlyservesasChairman

(BoardofTrustees)oftheVision2047

Foundation,VicePatronoftheCommunity

ChestofHongKong,theSocietyfor

theRehabilitationofOffendersandas

AdvisoryBoardMemberoftheHongKong

AidsFoundation.

SirRogerhasreceivedseveralawards

andhonorsfromtheBritishCrownand

theVatican.

Aman MEHTAIndependentNon-ExecutiveDirector

MrMehta,aged62,becamean

IndependentNon-ExecutiveDirectorof

PCCWinFebruary2004andisChairman

oftheAuditCommitteeandtheNomination

CommitteeoftheBoard.

HejoinedtheBoardfollowinga

distinguishedcareerintheinternational

bankingcommunity.MrMehtaheld

thepositionofChiefExecutiveOfficerof

TheHongkongandShanghaiBanking

CorporationLimited(HSBC)until

December2003,whenheretired.

BorninIndiain1946,MrMehtajoined

HSBCgroupinBombayin1967.Aftera

numberofassignmentsthroughoutHSBC

group,hewasappointedManager–

CorporatePlanningatHSBC’sheadquarters

inHongKongin1985.Afterathree-year

postingtoRiyadhinSaudiArabia,hewas

appointedGroupGeneralManagerin

1991,andGeneralManager–International

thefollowingyear,withresponsibilityfor

overseassubsidiaries.Hesubsequently

heldseniorpositionsintheUnitedStates,

overseeingHSBCgroupcompaniesinthe

Americasandlaterbecomingresponsible

forHSBC’soperationsintheMiddleEast.

In1998,MrMehtawasreappointed

GeneralManager–International,after

whichhebecameExecutiveDirector

International.In1999,hewasappointed

ChiefExecutiveOfficer,apositionheheld

untilretirement.

FollowinghisretirementinDecember2003,

MrMehtatookupresidenceinNewDelhi.

HeisanIndependentDirectoronthe

boardofseveralpubliccompaniesand

institutionsinIndiaandinternationally.He

isanIndependentNon-ExecutiveDirector

ofVedantaResourcesPlcintheUnited

Kingdom,TataConsultancyServices

Limited,GodrejConsumerProductsLtd,Jet

AirwaysLtdandWockhardtLtdinMumbai,

India;MaxIndiaLtd,CairnIndiaLimited

andEmaarMGFLandLimitedinNew

Delhi,India.HeisalsoanIndependent

DirectorontheSupervisoryBoardofING

GroupN.V.,aNetherlandscompany.

�� PCCWannualreport2008

BOARD OF DIRECTORS (CONTINUED)

MrMehtaisalsoamemberofthe

GoverningBoardofIndianSchoolof

Business,Hyderabad,andamemberof

theAdvisoryPanelofPrudentialFinancial

IncintheUnitedStates.

The Hon Raymond George Hardenbergh SEITZIndependentNon-ExecutiveDirector

MrSeitz,aged68,isanIndependent

Non-ExecutiveDirectorofPCCW.Heis

ChairmanoftheRemunerationCommittee

andamemberoftheNomination

CommitteeoftheBoard.Hewasa

Non-ExecutiveDirectorofPCCWfrom

October2000andwasredesignatedas

anIndependentNon-ExecutiveDirector

inFebruary2005.HeisaNon-Executive

ChairmanandamemberoftheSpecial

CommitteeofSun-TimesMediaGroup,

Inc.whichislistedonTheNewYorkStock

Exchange,Inc.

MrSeitzwasVice-ChairmanofLehman

BrothersInternationalfromApril1995

toApril2003andwasUnitedStates

AmbassadorinGreatBritainfrom1991to

1994.Priortothat,MrSeitzactedasthe

UnitedStatesAssistantSecretaryofState

forEuropefrom1989to1991andMinister

attheUnitedStatesEmbassyinLondon

from1984to1989.


CORPORATE GOVERNANCE REPORT

PCCWLimited(“PCCW”orthe“Company”)iscommittedto

maintainingahighstandardofcorporategovernance,the

principlesofwhichservetoupholdahighstandardofethics,

transparency,responsibilityandintegrityinallaspectsofbusiness

andtoensurethataffairsareconductedinaccordancewith

applicablelawsandregulations.

WehaveadoptedaCorporateResponsibilityPolicyanda

CorporateSocialResponsibilityPolicythatapplytoallemployees,

includingdirectorsandofficers,throughouttheCompanyandits

subsidiaries(collectivelythe“Group”).

TheCorporateResponsibilityPolicysetsoutstandardsfortheway

inwhichemployeesshouldconductourbusinessinthefollowing

areas:Civicresponsibilities,equalopportunities,preservation

ofcompanyinformationandproperty,privacyofpersonaldata,

preventionofbribery,conflictsofinterestandensuringhealthand

safetyatwork.Thispolicyalsodescribesprocedurestoenable

employeestoraiseconcernswithmanagementanddirectorsona

confidentialbasis.

TheCorporateSocialResponsibilityPolicysetsoutstandardsfor

thewayinwhichweshouldconductourbusinesstominimize

negativeimpactonsocietyandtheenvironment.

CORPORATE GOVERNANCE PRACTICESPCCWhasappliedtheprinciplesandcompliedwithallthecode

provisionsoftheCodeonCorporateGovernancePractices(the

“Code”)assetoutinAppendix14totheRulesGoverningthe

ListingofSecuritiesonTheStockExchangeofHongKongLimited

(the“ListingRules”)throughouttheyearendedDecember

31,2008,exceptthattheChairmanoftheindependentboard

committeewasunabletoattendtheCompany’scourtmeeting

heldonDecember30,2008(whichwasrequiredunderthe

CodeprovisionE.1.2)ashehadanotherengagementoverseas.

However,thismeetingwasadjournedwithoutanysubstantive

discussionontheproposedresolution.

MODEL CODE SET OUT IN APPENDIX 10 TO THE LISTING RULESTheCompanyhasestablisheditsowncodeofconductregarding

securitiestransactionsbydirectors,seniormanagementand

relevantemployeesasdefinedintheCode,namelythePCCW

CodeofConductforSecuritiesTransactionsbyDirectors,Senior

ManagementandNominatedPersons(the“PCCWCode”)in

termsnolessexactingthantherequiredstandardindicatedby

theModelCodeforSecuritiesTransactionsbyDirectorsofListed

Issuers(the“ModelCode”)assetoutinAppendix10tothe

ListingRules.

HavingmadespecificinquiriesofalldirectorsoftheCompany,

confirmationshavebeenreceivedofcompliancewiththerequired

standardsetoutintheModelCodeandthePCCWCodeduring

theaccountingperiodcoveredbythisannualreport.

Thedirectors’andchiefexecutive’sinterestsandshortpositions

inshares,underlyingsharesanddebenturesoftheCompany

anditsassociatedcorporationsaredisclosedintheReportofthe

Directorsonpages30to47ofthisannualreport.

BOARD OF DIRECTORSTheboardofdirectorsofPCCW(the“Board”)isresponsible

forthemanagementoftheCompany.Keyresponsibilities

includeformulationoftheoverallstrategiesoftheGroup,the

settingofmanagementtargetsandsupervisionofmanagement

performance.TheBoardconfinesitselftomakingbroadpolicy

decisionsandexercisinganumberofreservedpowersas

mentionedbelow,delegatingresponsibilityformoredetailed

considerationstotheExecutiveCommitteeundertheleadershipof

theChairmanofPCCW:

• thosefunctionsandmattersassetoutinthetermsof

referenceofvariouscommittees(asamendedfromtimeto

time),onwhichBoardapprovalmustbesoughtfromtimeto

time;

• thosefunctionsandmattersinwhichBoardapprovalmust

besoughtinaccordancewiththeGroup’sinternalpolicyas

amendedfromtimetotime;

• considerationandapprovaloffinancialstatementsininterim

andannualreports,announcementsandpressreleasesof

interimandannualresults;

• considerationofdividendpolicyanddividendamounts;and

• monitoringthecorporategovernanceoftheGroupin

compliancewithrelevantrulesandregulations.

TheChairmanofPCCWisLiTzarKai,RichardandtheGroup

ManagingDirectorisAlexanderAnthonyArena.Theroleofthe

ChairmanisseparatefromthatoftheGroupManagingDirector.

TheChairmanisresponsibleforoverseeingthefunctionofthe

BoardwhiletheGroupManagingDirectorisresponsiblefor

managingtheGroup’sbusiness.

Alldirectorshavefullandtimelyaccesstoallrelevantinformation,

includingregularreportsfromtheBoardcommitteesandbriefings

onsignificantlegal,regulatoryoraccountingissuesaffectingthe

Group.Directorsmaytakeindependentprofessionaladvice,which

willbepaidforbytheCompany.


CORPORATE GOVERNANCE REPORT (CONTINUED)

BOARD OF DIRECTORS (continued)Thedirectorsacknowledgetheirresponsibilityforpreparing

thefinancialstatementsforeachfinancialyear,whichgivea

trueandfairviewofthestateofaffairsoftheCompanyandthe

GroupandoftheprofitandcashflowsoftheGroupfortheyear

inaccordancewithHongKongFinancialReportingStandards,

theHongKongCompaniesOrdinanceandtheListingRules.In

preparingthefinancialstatementsfortheyearendedDecember

31,2008,thedirectorshaveselectedsuitableaccountingpolicies

andappliedthemconsistently;madejudgementsandestimates

thatareprudentandreasonable,statedthereasonsforany

significantdeparturefromapplicableaccountingstandardsin

HongKongandhavepreparedthefinancialstatementsona

going-concernbasis.Thedirectorsareresponsibleforkeeping

properaccountingrecordsthatdisclosewithreasonableaccuracy

atanytimethefinancialposition,resultsofoperations,cashflows

andchangesinequityoftheGroup.Thestatementoftheauditor

oftheCompanyrelatingtotheirreportingresponsibilitiesonthe

financialstatementsoftheCompanyissetoutintheIndependent

Auditor’sReportonpage48ofthisannualreport.

Asatthedateofthisreport,theBoardcomprised14directors

includingfiveexecutivedirectors,fournon-executivedirectorsand

fiveindependentnon-executivedirectors.Biographiesofallthe

directorsaresetoutonpages8to12ofthisannualreport.

TheBoardheld11meetingsin2008.TheChairmanoftheBoard

andtheChairmanofeachoftherespectiveBoardcommittees,

namelytheAuditCommittee,theNominationCommitteeandthe

RemunerationCommittee,attendedtheannualgeneralmeeting

andtheextraordinarygeneralmeetingoftheCompanyonMay29,

2008.Theattendanceofindividualdirectorsissetoutinthetable

below.

TheattendanceofindividualdirectorsatBoardandBoardcommitteemeetingsduring2008issetoutinthefollowingtable:

Meetingsattended/eligibletoattend3

Audit Nomination Remuneration

Directors Board Committee Committee Committee

Executive DirectorsLiTzarKai,Richard(chairman of the Board) 11/11 – 2/2 –

AlexanderAnthonyArena(Group Managing director) 11/11 – – –

PeterAnthonyAllen 11/11 – – –

ChungChoYee,Mico 10/11 – – –

LeeChiHong,Robert 11/11 – – –

Non-Executive DirectorsSirDavidFord 11/11 – – –

LuYimin1 8/8 – – –

ZuoXunsheng(deputy chairman of the Board) 11/11 – – 2/2

LiFushen 11/11 – – –

ZhangChunjiang2 2/2 – 1/1 –

Independent Non-Executive DirectorsProfessorChangHsin-kang 10/11 3/3 – –

DrTheHonSirDavidLiKwokPo 10/11 3/3 0/2 2/2

SirRogerLobo 10/11 3/3 2/2 2/2

AmanMehta(chairman of the Audit committee & 10/11 3/3 2/2 –

the nomination committee)TheHonRaymondGeorgeHardenberghSeitz

(chairman of the Remuneration committee) 11/11 – 2/2 2/2

Remarks:1. Appointedasanon-executivedirectoroftheCompanyandamemberoftheNominationCommitteeandtheRegulatoryComplianceCommitteeoftheBoardall

witheffectfromMay30,2008.

2. Resignedasanon-executivedirectoroftheCompanyandceasedmembershipintheNominationCommitteeandtheRegulatoryComplianceCommitteeoftheBoardallwitheffectfromMay28,2008.

3. Directorsmayattendmeetingsinperson,byphoneorthroughothermeansofelectroniccommunicationorbytheiralternatedirectorsinaccordancewiththeCompany’sArticlesofAssociation.


BOARD OF DIRECTORS (continued)Morethanone-thirdoftheBoardismadeupofindependentnon-

executivedirectors,exceedingtheminimumnumberrequired

undertheListingRules.TheCompanyhasreceivedannualwritten

confirmationfromeachindependentnon-executivedirectorto

confirmhisindependencetotheCompanyandaccordingly,

theCompanyconsidersthatalltheindependentnon-executive

directorsareindependentinaccordancewiththetermsofthe

independenceguidelinessetoutinRule3.13oftheListingRules.

AccordingtotheCompany’sArticlesofAssociation,anydirector

soappointedbytheBoardtofillacasualvacancyorasan

additiontotheBoardshallholdofficeonlyuntilthenextfollowing

generalmeetingorthenextannualgeneralmeetingofthe

Companyrespectivelyandshallthenbeeligibleforre-election

atthatmeeting.Inaddition,ateachannualgeneralmeetingof

theCompanynolessthanone-thirdofthedirectorsforthetime

beingshallbesubjecttoretirementbyrotationatleastonceevery

threeyears.Apartfromretirementbyrotationpursuanttothe

Company’sArticlesofAssociation,eachnon-executivedirector

hasatermofthreeyears.Therefore,nodirectorwillremainin

officeforatermofmorethanthreeyears.

BOARD COMMITTEESTheBoardhasestablishedthefollowingcommitteeswithdefined

termsofreference.ThetermsofreferenceoftheRemuneration

Committee,theNominationCommitteeandtheAuditCommittee

areofnolessexactingtermsthanthosesetoutintheCode.To

furtherreinforceitsindependence,theAuditCommitteehasbeen

structuredtoincludeindependentnon-executivedirectorsonly

andtheNominationCommitteeandtheRemunerationCommittee

havebeenstructuredtoincludeamajorityofindependentnon-

executivedirectors.

Executive Committee and Sub-committeesTheExecutiveCommitteeoftheBoardoperatesasageneral

managementcommitteewithoveralldelegatedauthorityfrom

theBoard.TheExecutiveCommitteedeterminesgroupstrategy,

reviewstradingperformance,ensuresadequatefunding,examines

majorinvestmentsandmonitorsmanagementperformance.The

ExecutiveCommitteereportsthroughtheChairmantotheBoard.

MembersoftheExecutiveCommitteeare:

LiTzarKai,Richard(chairman)AlexanderAnthonyArena(deputy chairman)ChungChoYee,Mico

LeeChiHong,Robert

ZuoXunsheng

ReportingtotheExecutiveCommitteearesub-committees

comprisingexecutivedirectorsandmembersofsenior

managementwhooverseeallkeyoperatingandfunctionalareas

withintheGroup.Eachsub-committeehasdefinedtermsof

referencecoveringitsauthorityandduties,meetsfrequentlyand

reportstotheExecutiveCommitteeonaregularbasis.

TheFinance and Management committeewasestablishedin

August2003totakeoverthefunctionsoftheformerFinance

Committee.ThiscommitteeischairedbytheGroupManaging

Directorandmeetsonaregularbasistoreviewmanagementand

strategicmattersacrosstheGroupandtosetoverallfinancial

objectivesandpolicies.

Theoperational committeeischairedbytheGroupManaging

Directorandmeetsonaregularbasistodirectallcore

telecommunicationsandbusinesssolutionsoperations.

Thecontrols and compliance committee,whichreportstothe

FinanceandManagementCommittee,wasestablishedin2007.

ItcomprisesseniormembersofPCCW’sGroupFinance,Group

Legal,CorporateSecretariat,GroupCommunications,Group

InternalAuditandRiskManagementdepartments.Thecommittee

reviewsproceduresforthepreparationofPCCW’sannualand

interimreportsandcorporatepoliciesoftheGroupfromtimeto

timetoensurecompliancewiththevariousrulesandobligations

imposedonitasacompanylistedonTheStockExchangeof

HongKongLimited.

TheSocial Responsibility committee,whichreportstothe

FinanceandManagementCommittee,wasestablishedin2007.

ItcomprisesseniormembersofPCCW’sGroupCommunications,

GroupHumanResources,GroupLegal,CorporateSecretariat,

GroupFinance,RiskManagementandGroupStrategic

Purchasingdepartments,aswellasmanagementfromindividual

businessunits.ThecommitteemeetsregularlytoensurePCCW

operatesinamannerthatminimizesnegativeimpactonsociety

andtheenvironment.

ThePRc Business development committeewasestablished

inApril2005toadviseonpossibleopportunitiesforexpanding

PCCW’soperationsinthePRCandmonitoringtheuseoffunds

allocatedandapprovedbytheBoardorrelevantcommitteefor

PRCopportunities.



Remuneration CommitteeTheRemunerationCommitteewasformedinMay2003with

theprimaryobjectiveofensuringthatPCCWisabletoattract,

retainandmotivatehigh-caliberemployeeswhowillunderpinthe

successoftheCompanyandenhancethevalueoftheCompany

toshareholders.TheRemunerationCommitteeisresponsible

foroverseeingtheestablishmentandoperationofformal

andtransparentproceduresfordevelopingtheremuneration

packagesofdirectors.Inaddition,thecommitteeprovides

effectivesupervisionandadministrationoftheCompany’sshare

optionschemes,aswellasothershareincentiveschemes.The

committee’sauthorityanddutiesaresetoutinwrittenterms

ofreferencethatspecifythatthecommitteemustcompriseof

atleastthreemembers,themajorityofwhomareindependent

non-executivedirectors.Thetermsofreferenceareavailableon

PCCW’swebsite.

MembersoftheRemunerationCommitteeare:

TheHonRaymondGeorgeHardenberghSeitz(chairman)DrTheHonSirDavidLiKwokPo

SirRogerLobo

ZuoXunsheng

TheobjectiveoftheCompany’sremunerationpolicyistomaintain

fairandcompetitivepackagesbasedonbusinessrequirements

andindustrypractice.Inordertodeterminethelevelof

remunerationandfeespaidtomembersoftheBoard,market

ratesandfactorssuchaseachdirector’sworkload,responsibility

andjobcomplexityaretakenintoaccount.Thefollowingfactors

areconsideredwhendeterminingtheremunerationpackagesof

directors:

• businessrequirements;

• individualperformanceandcontributiontoresults;

• companyperformance;

• retentionconsiderationsandthepotentialofindividuals;

• changesinrelevantmarkets,includingsupplyanddemand

fluctuationsandchangesincompetitiveconditions;and

• generaleconomicsituation.

Duringthereviewprocess,noindividualdirectorisinvolvedin

decisionsrelatingtohisownremuneration.

TheRemunerationCommitteemettwotimesin2008.Therecord

ofattendanceofindividualdirectorsatthecommitteemeetingsis

setoutonpage14ofthisannualreport.

Thefollowingisasummaryofworkperformedbythe

RemunerationCommitteeduring2008:

(i) reviewandapprovaloftheincentivebonuspaymentfor

executivedirectorsandkeymanagement;

(ii) reviewandrecommendationofthenon-executivedirectors’

feesfor2008totheBoardforapproval;

(iii)reviewoftheincentivebonusschemeforexecutivedirectors

andkeymanagement;

(iv)reviewofthesignificanthumanresourcesdevelopments;and

(v) reviewofthetermsofreferenceoftheRemuneration

Committee.

DetailsofemolumentsofeachdirectoraresetoutintheFinancial

Statementsonpages84to88ofthisannualreport.

Nomination CommitteeTheNominationCommitteewasformedinMay2003tomake

recommendationstotheBoardontheappointmentandre-

appointmentofdirectors,structure,sizeandcompositionof

theBoardtoensurefairandtransparentproceduresforthe

appointmentandre-appointmentofdirectorstotheBoard.The

committee’sauthorityanddutiesaresetoutinwrittentermsof

referenceandarepostedonPCCW’swebsite.

TheCompanyfollowsaformal,fairandtransparentprocedurefor

theappointmentofnewdirectorstotheBoard.Thecommittee

reviewsthestructure,sizeandcompositionoftheBoard,

identifiessuitablyqualifiedcandidatesifnecessaryandmakes

recommendationstotheBoardfordecisions.

TheNominationCommitteecomprisessixmembers,themajority

ofwhomareindependentnon-executivedirectors.

MembersoftheNominationCommitteeare:

AmanMehta(chairman)DrTheHonSirDavidLiKwokPo

LiTzarKai,Richard

SirRogerLobo

LuYimin1

TheHonRaymondGeorgeHardenberghSeitz

TheNominationCommitteemettwicein2008.Theattendanceof

individualdirectorsatcommitteemeetingsissetoutonpage14of

thisannualreport.


Nomination Committee (continued)ThefollowingisasummaryofworkperformedbytheNomination

Committeeduring2008:

(i) recommendationtotheBoardforapprovalthelistofretiring

directorsforre-electionattheannualgeneralmeetingonMay

29,2008;

(ii) considerationandrecommendationtotheBoardforapproval

theappointmentofLuYiminasanon-executivedirector;

(iii)reviewoftheindependenceofallindependentnon-executive

directors;

(iv)reviewofthecompositionoftheBoard;and

(v)reviewofthetermsofreferenceoftheNominationCommittee.

Audit CommitteeTheAuditCommitteeoftheBoardisresponsibleforensuring

objectivityandcredibilityoffinancialreporting,andthatthe

directorshaveexercisedthecare,diligenceandskillsprescribed

bylawwhenpresentingresultstoshareholders.Thecommittee’s

authorityanddutiesaresetoutinwrittentermsofreferenceand

arepostedonPCCW’swebsite.

TheAuditCommittee’sresponsibilitiesincludetheappointment,

compensationandsupervisionofexternalauditors.Toensure

externalauditors’independence,procedureshavebeenadopted

bytheAuditCommitteeforthepre-approvalofallauditand

permittednon-auditservicestobeundertakenbytheexternal

auditors.

TheAuditCommitteehasrecommendedtotheBoardthe

re-appointmentofPricewaterhouseCoopersforconducting

statutoryauditsforthefinancialyear2009attheforthcoming

annualgeneralmeeting.

EachmemberoftheAuditCommitteeisanindependentnon-

executivedirector.MembersoftheAuditCommitteeare:

AmanMehta(chairman)ProfessorChangHsin-kang

DrTheHonSirDavidLiKwokPo

SirRogerLobo

TheAuditCommitteeisprovidedwithsufficientresourcesto

dischargeitsdutiesandmeetsregularlywithmanagement,

internalauditorsandexternalauditorsandreviewstheirreports.

During2008,thecommitteemetthreetimes.Theattendanceof

individualdirectorsatthecommitteemeetingsissetoutonpage

14ofthisannualreport.

ThefollowingisasummaryofworkperformedbytheAudit

Committeeduring2008:

(i) reviewoftheannualreportandannualresults

announcementfortheyearendedDecember31,2007witha

recommendationtotheBoardforapproval;

(ii) reviewofPricewaterhouseCoopers’independenceandreport,

witharecommendationtotheBoardforthere-appointmentof

PricewaterhouseCoopersatthe2008annualgeneralmeeting;

(iii)reviewofcontinuingconnectedtransactions;

(iv)reviewoftheannualcapsofcontinuingconnectedtransactions

withtheChinaTelecomGroupwitharecommendationtothe

Boardforapproval;

(v) reviewoftheGroupInternalAuditreports;

(vi)reviewoftheinterimreportandtheinterimresults

announcementforthesixmonthsendedJune30,2008with

arecommendationtotheBoardforapproval;

(vii)reviewandapprovaloftheauditor’sreportfortheAudit

CommitteeforthesixmonthsendedJune30,2008and

managementrepresentationletterfortheyearended

December31,2008;

(viii)reviewofthetermsofreferenceoftheAuditCommittee;

(ix)considerationandapprovalofauditandnon-auditservices;

(x) reviewofthecorporategovernancereportfortheyear

endedDecember31,2007andthecorporategovernance

disclosuresforthesixmonthsendedJune30,2008with

recommendationstotheBoardforapproval;

(xi)reviewoftheannualreportoneffectivenessofinternalcontrols

undertheCode;and

(xii)reviewoftheinternalreorganizationoftheCompany’s

businesses.

Subsequenttotheyearend,theAuditCommitteereviewedthe

annualreportandannualresultsannouncementfortheyear

endedDecember31,2008witharecommendationtotheBoard

forapproval.



Audit Committee (continued)FortheyearendedDecember31,2008,feespayabletothe

auditorsoftheGroupamountedtoapproximatelyHK$20million

forauditservices(2007:HK$20million)andHK$33millionfor

non-auditservices(2007:HK$11million).Thesignificantnon-

auditservicescoveredbythesefeesincludedthefollowing:

Natureofservice Feespayable(HK$million)

Taxservices 11

Otherservices 22

33

Regulatory Compliance CommitteeARegulatoryComplianceCommitteecomprisingexecutiveand

non-executivedirectors,butexcludingChairmanLiTzarKai,

Richard,hasbeenestablishedtoreviewandmonitordealingswith

theHutchisonWhampoaGroup,theCheungKongGroupandthe

HongKongEconomicJournalCompanyLimited.Thisistoensure

alldealingsbetweentheseentitiesareconductedonanarm’s-

lengthbasis.

MembersoftheRegulatoryComplianceCommitteeare:

SirRogerLobo(chairman)AlexanderAnthonyArena

ProfessorChangHsin-kang

DrTheHonSirDavidLiKwokPo

LuYimin1

INTERNAL CONTROLSThedirectorsareresponsibleformaintainingandreviewing

theeffectivenessoftheGroup’sinternalcontrolsincluding

materialfinancial,operationalandcompliancecontrols,risk

managementfunctionsandparticularlytheadequacyof

resources,qualificationsandexperienceofstaffoftheGroup’s

accountingandfinancialreportingfunction,andtheirtraining

programmesandbudget.Appropriatepoliciesandcontrol

procedureshavebeendesignedandestablishedtoensurethat:

Assetsaresafeguardedagainstimproperuseordisposal,relevant

rulesandregulationsareadheredtoandcompliedwith,reliable

financialandaccountingrecordsaremaintainedinaccordance

withrelevantaccountingstandardsandregulatoryreporting

requirements,andkeyrisksthatmayimpactontheGroup’s

performanceareappropriatelyidentifiedandmanaged.Such

proceduresaredesignedtomanage,ratherthaneliminate,the

riskoffailuretoachievebusinessobjectives.Theseprocedures

canonlyprovidereasonable,andnotabsolute,assuranceagainst

materialerrors,lossesandfraud.

Thedirectors,throughtheCompany’sAuditCommitteeandother

sub-committeesoftheBoard,arekeptregularlyappraisedof

significantrisksthatmayimpactontheGroup’sperformance.The

AuditCommitteehas,ateachofitsregularlyscheduledmeetings

throughouttheyear,receivedareportfromGroupInternalAudit

ontheresultsoftheiractivitiesduringtheprecedingperiod,

includinganysignificantmatterspertainingtotheadequacyand

effectivenessofinternalcontrolsincluding,butnotlimitedtoany

indicationsoffailingsormaterialweaknessesinthosecontrols.

TheRiskManagementDepartmentreviewssignificantaspects

ofriskmanagementforPCCWgroupcompaniesandmakes

recommendationstotheAuditCommitteeandothercommittees

fromtimetotime,includingamongstotherthings,theappropriate

mitigationand/ortransferofidentifiedrisk.

GroupInternalAuditprovidesindependentassurancetotheBoard

andexecutivemanagementontheadequacyandeffectiveness

ofinternalcontrolsfortheGroup.TheDirectorofGroupInternal

AuditreportsdirectlytotheAuditCommittee,theGroupManaging

DirectorandtheGroupChiefFinancialOfficer.

GroupInternalAuditadoptsarisk-and-control-basedaudit

approach.TheannualworkplanofGroupInternalAuditcovers

majoractivitiesandprocessesoftheGroup’sbusinessandservice

units.Specialreviewsarealsoperformedatmanagement’s

request.Theresultsoftheseauditactivitiesarecommunicatedto

theAuditCommitteeandkeymembersofexecutiveandsenior

management.Auditissuesaretracked,followedupforproper

implementation,andprogressreportedtotheAuditCommittee,

executiveandseniormanagementperiodically.

PriortothedelistingoftheCompany’sAmericanDepositaryShares

fromtheNewYorkStockExchange,Inc,whichbecameeffective

onMay18,2007,theCompanyadoptedpoliciesandprocedures

tocomplywiththestringentrequirementsoftheSarbanes-Oxley

Act(“SOA”)oftheUnitedStates.AkeyrequirementoftheSOA

wastoensuretheeffectivenessofinternalcontrolsandfinancial

reportingbyrequiringextensivedetailedtestingofitsinternal

controls,aswellasannualcertificationastothesemattersby

themanagementoftheCompany.Followingthedelisting,the

Companyhasnotchangeditspoliciesandproceduresmaterially

andbelievethatthiswillenhancetheCompany’scorporate

governanceandbusinesspracticesinthefuture.


INTERNAL CONTROLS (continued)During2008,GroupInternalAuditconductedselectivereviewsof

theeffectivenessoftheGroup’ssystemofinternalcontrolsover

financial,operational,compliancecontrolsandriskmanagement

functions.Additionally,majorheadsofbusinessandcorporate

functionswererequiredtoundertakeacontrolself-assessmentof

theirkeycontrols.TheseresultswereassessedbyGroupInternal

AuditandreportedtotheAuditCommittee,whichthenreviewed

andreportedthesametotheBoard.

AfterareviewoftheaccountingperiodendedDecember31,

2008,theAuditCommitteeandtheBoarddidnotbecomeaware

ofanyareasofconcernthatwouldhaveanadverseimpacton

theCompany’sfinancialpositionorresultsofoperationsand

consideredtheinternalcontrolsystemstobeeffectiveand

adequateincludingtheadequacyofresources,qualifications

andexperienceofstaffoftheGroup’saccountingandfinancial

reportingfunction,andtheirtrainingprogrammesandbudget.

Furtherinformationoninternalcontrolsisprovidedunderthe

“CorporateGovernance”sectionoftheCompany’swebsite.

INVESTOR RELATIONS AND COMMUNICATION WITH SHAREHOLDERSTheCompanyencouragestwo-waycommunicationwith

institutionalandretailinvestors,aswellasfinancialandindustry

analysts.ExtensiveinformationontheCompany’sactivitiesis

providedintheannualandinterimreportsandcirculars,which

aresenttoshareholders.

Inadditiontodispatchingthisannualreporttoshareholders,

financialandotherinformationrelatingtotheGroupandits

businessactivitiesisdisclosedontheCompany’swebsite

(www.pccw.com)inordertopromoteeffectivecommunication.

Regulardialoguetakesplacewiththeinvestmentcommunity.

Inquiriesfromindividualsonmattersrelatingtotheirshareholdings

andthebusinessoftheCompanyarewelcomedanddealt

withinaninformativeandtimelymanner.Therelevantcontact

informationisprovidedonpage140ofthisannualreport.

Shareholdersareencouragedtoattendtheforthcomingannual

generalmeetingoftheCompanyforwhichatleast20clear

businessdays’noticeisgiven.Atthemeeting,directorsare

availabletoanswerquestionsontheGroup’sbusiness.

OnbehalfoftheBoard

Philana WY PoonGroup General counsel and company SecretaryHongKong,April22,2009


MANAGEMENT’S DISCUSSION AND ANALYSIS

MANAGEMENT REVIEWYear2008wasachallengingyearforPCCW.TheGroup’score

businessesperformedsatisfactorilyinthefirstthreequarters,but

wereadverselyaffectedinthefourthquarterbythedeteriorating

globaleconomicconditions.

CorerevenuefortheyearendedDecember31,2008wasup7%

toHK$22,008millionduetohigherrevenuecontributionsfrom

TV&ContentandMobilebusinessesandsteadyrevenuegrowth

inTelecommunicationsServices(“TSS”)andPCCWSolutions

businesses.ConsolidatedrevenueincludingPCPDwas

HK$31,951million,comparedwithHK$23,715millionayearago,

reflectinghigherpropertydevelopmentrevenuerecognizedfrom

theBel-Airprojectduring2008.

CoreEBITDAfortheyearendedDecember31,2008increasedby

3%toHK$6,714million,whileconsolidatedEBITDAincreasedby

9%toHK$7,982million.

ProfitattributabletoequityholdersoftheCompanyfortheyear

endedDecember31,2008wasHK$1,272million,down15%

fromayearearlier.Thedeclinewasmainlyduetohighercustomer

acquisitioncosts,adeficitonrevaluationoftheGroup’sinvestment

propertiesofHK$396millionandimpairmentprovisionsof

investmentsofHK$161million.Basicearningspersharewas

18.78HKcents.OnApril22,2009,theboardofDirectors(the

“Board”)hasdeclaredaspecialdividendofHK$1.30perordinary

share.Thespecialdividendhasbeendeclaredinlieuofanyfinal

dividendfortheyearendedDecember31,2008.

OUTLOOKBenefitingfromabuoyanteconomy,PCCWbegan2008from

apositionofstrengthandgrowth.However,theoperating

environmentturnedmorechallengingduringthelastquarterof

2008astheglobalfinancialcrisisreversedeconomictrendsand

sloweddownmarketactivities.

PCCWwillcontinuetomanageitscostsprudentlyandresponsibly.

Thiswillbedonewithoutcompromisingtheservicestandardsand

qualitythatweofferourcustomers.TheGroup’sreorganization

thattookplaceduringthesecondhalfof2008willincrease

operationalefficienciesandprovideanewplatformtofurther

developourTelecommunications,MediaandTechnology(“TMT”)

businesses.

Weremaincommittedtomaintainingourlong-heldposition

asHongKong’spremiertelecommunicationsservice

provider,offeringourcustomersinnovative,premiumquality

productsandexcellentcustomerservice.

Corerevenueincreasedby7%toHK$22,008million;consolidatedrevenueincludingPCPDincreasedby35%toHK$31,951million,reflectinghigherpropertydevelopmentrevenuerecognized

CoreEBITDAincreasedby3%toHK$6,714million;consolidatedEBITDAincludingPCPDincreasedby9%toHK$7,982million.Coresegmentresultsandconsolidatedsegmentresultsdecreasedby14%and12%toHK$2,837millionandHK$3,529millionrespectively

ProfitattributabletoequityholdersoftheCompanydecreasedby15%toHK$1,272million,mainlyduetohighercustomeracquisitioncosts,adeficitonrevaluationofinvestmentpropertiesandimpairmentprovisionsofinvestments

Basicearningspershareof18.78HKcents

note: core revenue refers to Group consolidated revenue excluding Pacific century Premium developments Limited (“PcPd”), the Group’s property development and investment business; core eBitdA refers to Group consolidated eBitdA excluding PcPd; and core segment results refer to Group consolidated segment results excluding PcPd.


FINANCIAL REVIEW BY SEGMENTS

2008 2007 Better/FortheyearendedDecember31, (Worse)HK$million H1 H2 Full Year H1 H2 FullYear y-o-y

RevenueTSS 8,551 8,914 17,465 7,706 8,930 16,636 5%TV&Content 1,039 1,200 2,239 715 988 1,703 31%Mobile 857 887 1,744 668 800 1,468 19%PCCWSolutions 900 966 1,866 826 969 1,795 4%OtherBusinesses 43 43 86 165 84 249 (65)%Eliminations (636 ) (756 ) (1,392 ) (573) (697) (1,270) (10)%

Total Revenue (excluding PCPD) 10,754 11,254 22,008 9,507 11,074 20,581 7%PCPD 618 9,325 9,943 2,100 1,034 3,134 217%

Consolidated Revenue 11,372 20,579 31,951 11,607 12,108 23,715 35%

Cost of sales (4,942 ) (12,908 ) (17,850 ) (5,199) (5,339) (10,538) (69)%Operating costs before depreciation, amortization and restructuring costs (2,994 ) (3,125 ) (6,119 ) (2,799) (3,082) (5,881) (4)%

EBITDA1

TSS 3,549 3,907 7,456 3,431 4,004 7,435 0%TV&Content (40 ) (43 ) (83 ) (74) (83) (157) 47%Mobile 108 134 242 (56) 56 – N/APCCWSolutions 82 113 195 102 48 150 30%OtherBusinesses (335 ) (761 ) (1,096 ) (335) (587) (922) (19)%

Total EBITDA (excluding PCPD) 3,364 3,350 6,714 3,068 3,438 6,506 3%PCPD 72 1,196 1,268 541 249 790 61%

Consolidated EBITDA1 3,436 4,546 7,982 3,609 3,687 7,296 9%Consolidated EBITDA Margin1,3 30% 22% 25% 31% 30% 31% (6)%

Depreciation and amortization (1,750 ) (1,946 ) (3,696 ) (1,610) (1,660) (3,270) (13)%(Loss)/Gain on disposal of property, plant and equipment – (19 ) (19 ) 11 (4) 7 N/ARestructuring costs (2 ) (169 ) (171 ) – – – N/AOther (losses)/gains, net 18 (482 ) (464 ) 55 (58) (3) >(500)%Losses on property, plant and equipment – (103 ) (103 ) (2) (5) (7) >(500)%

Segment results2

TSS 2,465 2,653 5,118 2,392 2,930 5,322 (4)%TV&Content (169 ) (190 ) (359 ) (150) (247) (397) 10%Mobile (252 ) (284 ) (536 ) (361) (257) (618) 13%PCCWSolutions 55 82 137 73 23 96 43%OtherBusinesses (462 ) (1,061 ) (1,523 ) (422) (673) (1,095) (39)%

Total segment results (excluding PCPD) 1,637 1,200 2,837 1,532 1,776 3,308 (14)%PCPD 65 627 692 531 184 715 (3)%

Consolidated segment results2 1,702 1,827 3,529 2,063 1,960 4,023 (12)%


MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

note 1 eBitdA represents earnings before interest income, finance costs, income tax, depreciation of property, plant and equipment, amortization of land lease premium and intangible assets, gain/loss on disposal of property, plant and equipment, investment properties and interests in leasehold land, net other gains/losses, losses on property, plant and equipment, restructuring costs, impairment losses on interests in jointly controlled companies and associates and the Group’s share of results of jointly controlled companies and associates. While eBitdA is commonly used in the telecommunications industry worldwide as an indicator of operating performance, leverage and liquidity, it is not presented as a measure of operating performance in accordance with the Hong Kong Financial Reporting Standards and should not be considered as representing net cash flows from operating activities. the computation of the Group’s eBitdA may not be comparable to similarly titled measures of other companies.

note 2 Segment results represent earnings before interest income, finance costs, income tax, impairment losses on interests in jointly controlled companies and associates and the Group’s share of results of jointly controlled companies and associates.

note 3 Year-on-year percentage change was based on absolute percentage change.

note 4 Figures are stated as at the period end, except for international direct dial (“idd”) minutes which is the total for the period.

note 5 Gross debt refers to the principal amount of short-term borrowings and long-term liabilities. net debt refers to the principal amount of short-term borrowings and long-term liabilities minus cash and cash equivalents and certain restricted cash.

note 6 Group capital expenditure includes additions to property, plant and equipment, investment properties and interests in leasehold land.

OPERATING DRIVERS4

2008 2007 Better/

(Worse)

H1 H2 H1 H2 y-o-y

Exchangelinesinservice(’000) 2,593 2,603 2,590 2,590 1%

Businesslines(’000) 1,185 1,195 1,183 1,183 1%

Residentiallines(’000) 1,408 1,408 1,407 1,407 0%

Totalbroadbandaccesslines(’000) 1,275 1,302 1,176 1,237 5%

(Consumer,businessandwholesalecustomers)

Retailconsumerbroadbandsubscribers(’000) 1,099 1,126 1,005 1,060 6%

Retailbusinessbroadbandsubscribers(’000) 110 113 104 107 6%

Consumernarrowbandsubscribers(’000) 108 62 117 111 (44)%

Traditionaldata(ExitGbps) 842 927 614 723 28%

RetailIDDminutes(’Mmins) 907 878 944 947 (6)%

InternationalPrivateLeasedCircuit(“IPLC”)

bandwidth(ExitMbps) 61,617 78,202 47,098 44,144 77%

nowTV

Installedbase(’000) 927 953 818 882 8%

Payingbase(’000) 668 686 560 628 9%

Mobilesubscribers(’000) 1,176 1,313 957 1,071 23%

3Gpost-paid(’000) 288 414 119 206 101%

2Gpost-paid(’000) 459 440 462 460 (4)%

2Gprepaid(’000) 429 459 376 405 13%


TSSThetablebelowsetsoutthefinancialperformanceofTSSfortheyearendedDecember31,2008andDecember31,2007:

2008 2007 Better/

FortheyearendedDecember31, (Worse)

HK$million H1 H2 Full Year H1 H2 FullYear y-o-y

LocalTelephonyServices 2,284 2,280 4,564 2,343 2,391 4,734 (4)%

LocalDataServices 2,415 2,480 4,895 2,214 2,443 4,657 5%

InternationalTelecommunicationsServices 1,911 1,906 3,817 1,591 1,748 3,339 14%

OtherServices 1,941 2,248 4,189 1,558 2,348 3,906 7%

TSS Revenue 8,551 8,914 17,465 7,706 8,930 16,636 5%

Costofsales (2,922 ) (3,229 ) (6,151 ) (2,466) (3,034) (5,500) (12)%

Operatingcostsbeforedepreciation

andamortization (2,080 ) (1,778 ) (3,858 ) (1,809) (1,892) (3,701) (4)%

TSS EBITDA1 3,549 3,907 7,456 3,431 4,004 7,435 0%

TSS EBITDA Margin1,3 42% 44% 43% 45% 45% 45% (2)%

TSSrevenuereportedanincreaseof5%toHK$17,465million

fortheyearendedDecember31,2008.EBITDAremainedfairly

stableatHK$7,456millionwhilesegmentresultsdecreasedby4%

toHK$5,118million.

Local telephony Services.Localtelephonyservicesrevenue

fortheyearendedDecember31,2008decreasedby4%

toHK$4,564million.Totalfixedlinesinserviceattheend

ofDecember2008increasedbyabout1%toapproximately

2,603,000withamarginaldeclineinaveragerevenueperuser

(“ARPU”).

Local data Services.Localdataservicesrevenueincreasedby

5%toHK$4,895millionfortheyearendedDecember31,2008.

Thegrowthinbroadbandnetworkrevenuewasmainlydrivenby

theincreaseinconsumerandbusinessbroadbandrevenues.

Totalbroadbandaccesslinesinservicereached1,302,000atthe

endofDecember2008,upby5%fromayearago.Commercial

demandforhighbandwidthconnectivityservicesincreasedas

morehighbandwidthapplicationsweredeployed,whichresulted

ina28%increaseinbandwidthsoldfromayearago.However,

theeffectofhigherbandwidthconsumptionwaspartiallyevened

outbypricecompressionduringtheyear.

international telecommunications Services.International

telecommunicationsservicesrevenuefortheyearended

December31,2008increasedby14%toHK$3,817million,

mainlydrivenbythegrowthinwholesaletraditionalandIP-based

internationalconnectivityandvoiceservices.AverageretailIDD

rateswerehigherduringtheyear,whichoffsettheimpactfroma

6%decreaseinretailIDDminutes.

other Services.Otherservicesrevenuefortheyearended

December31,2008increasedby7%toHK$4,189million,

primarilydrivenbyahigherrevenuefromsalesofcomputerand

customerpremisesequipment.



TV & Content

2008 2007 Better/



TV & Content Revenue 1,039 1,200 2,239 715 988 1,703 31%

TV & Content EBITDA1 (40 ) (43 ) (83 ) (74) (83) (157) 47%

TV&Contentrevenueincreasedby31%toHK$2,239million

in2008,primarilydrivenbyalargerpayingsubscriberbaseand

higherARPU,aswellashigherTVadvertisingrevenues.EBITDA

lossnarrowedby47%toHK$83million.

nowTVextendeditsleadershipintheHongKongpayTVmarket

withmorethan170channelsoflocal,Asianandinternational

programmingattheendofDecember2008.Theinstalled

subscriberbasehasenlargedby8%to953,000attheendof

December2008whilethepayingbasegrew9%to686,000.

ARPUinDecember2008wasHK$216,9%higherthanayear

ago,duetothegrowingdemandforhighervalueplansanda

highertake-upofpremiumservicesandchannelsduringtheyear.

Ourdigitalmusiclibrary,MOOV,previouslyexclusivetoPCCW

customers,wasmadeavailabletoallInternetusersduringthe

year,whichalsohelpedenhancethesubscribersandARPU

growthofourpopularbroadbandportalnow.com.hk.

Mobile

2008 2007 Better/



Mobile Revenue 857 887 1,744 668 800 1,468 19%

Mobile EBITDA1 108 134 242 (56) 56 – N/A

Mobilebusinesssawarevenuegrowthof19%to

HK$1,744millionfor2008duetoanincreasedsubscriberbase,

andgeneratedapositiveEBITDAofHK$242million.

PCCWmobile’stotalsubscribersexpandedto1,313,000as

atDecember31,2008,23%higherthanayearago.The3G

subscriberbasemorethandoubledto414,000,whilethetotal2G

subscriberbaseincreasedby4%to899,000overtheyear.

Our3GARPUinDecember2008wasstablecomparedtoayear

agoatHK$216.Ourblended2Gand3Gpost-paidARPUalso

remainedstableyear-on-yearatHK$153.While2Gservicefaced

ahigherpricingpressurefromfiercecompetition,itsrevenue

declinewasmorethancompensatedbytherevenuegrowthofour

3Gservice.


PCCW Solutions

2008 2007 Better/



PCCW Solutions Revenue 900 966 1,866 826 969 1,795 4%

PCCW Solutions EBITDA1 82 113 195 102 48 150 30%

PCCWSolutionsreporteda4%increaseinrevenueto

HK$1,866millionfortheyearendedDecember31,2008.EBITDA

increasedby30%toHK$195millionduetothecompletionof

projectswithhighermarginduringtheyear.

Thedatacenterhosting,applicationoutsourcingservices

andbusinessprocessoutsourcingbusinessesprovidedby

PCCWSolutionscontinuedtheirstablegrowthduringtheyear.

Meanwhile,PCCWSolutionscontinuedtosecureprojectswith

mainlandChinesetelecommunicationscompanies,andhad

expandedservicesintonewerverticalindustriesincluding

insuranceandconsumerretailinmainlandChina.

PCPDPCPDrevenuefortheyearendedDecember31,2008increased

by217%toHK$9,943million,mainlyduetohigherrevenue

recognizedfromtheBel-Airpropertydevelopmentproject.

PCPDbeganhandingovertopurchasersthecompletedluxury

residentialunitsatBel-AirNo.8duringmid-November2008.The

housesatVillaBel-Airareexpectedtobereleasedtothemarket

graduallyoverthenexttwoyears.ONEPacificHeights,which

islocatedwestofCentralwith155luxuryboutiqueapartments,

startedpre-salesinJune2008andisscheduledforcompletion

aroundmid-2009.

CostsCost of Sales

2008 2007 Better/



The Group (excluding PCPD) 4,584 5,084 9,668 3,787 4,720 8,507 (14)%

PCPD 358 7,824 8,182 1,412 619 2,031 (303)%

Group Total 4,942 12,908 17,850 5,199 5,339 10,538 (69)%

InmainlandChina,PCPD’sresidentialdevelopmentinBeijing’s

Chaoyangdistrict,whichislocatednexttoPacificCenturyPlace

andwithapproximately210upmarketunits,isscheduledfor

completionin2010.Steadyprogresshasbeenmadeonthe

overseasprojectsincludingthedevelopmentofaworld-classall-

seasonluxuryresortatHanazono,HokkaidoinJapanandthe

developmentplansforluxuryresortcomplexesatThaiMuang

Beach,Phang-ngainsouthernThailand.

FormoreinformationabouttheperformanceofPCPD,please

refertoits2008annualresults.

Other BusinessesOtherBusinessesprimarilyincludestheGroup’swireless

broadbandbusinessintheUnitedKingdomandallcorporate

supportfunctions.RevenuefromOtherBusinessesin2008

decreasedby65%toHK$86millionlargelyduetotheGroup’s

disposalofitsentireinterestinatelecommunicationsbusinessin

Taiwanin2007.

EliminationsEliminationswasHK$1,392millionfortheyearended

December31,2008.Eliminationsisrelatedtointernalchargesfor

telecommunicationsservicesconsumed,ITsupportandcomputer

systemnetworkcharges,customersupportservicesandrental

amongtheGroup’sbusinessunits.



TheGroup’sconsolidatedtotalcostofsalesfortheyearended

December31,2008increasedby69%toHK$17,850million,due

toa303%increaseinPCPD’scostofsalestoHK$8,182million

onhigherpropertydevelopmentcostrecognizedfortheBel-Air

residentialproject.

TheGroup’scostofsalesexcludingPCPDincreasedby14%to

HK$9,668million.Theincreasewasinlinewithcorebusiness

revenuegrowth,andhighercontentcostsoftheTV&Content

businessandthestart-upcostofthenewself-produced

nowHongKongchannelduringtheyear.

General and Administrative Expenses

2008 2007 Better/


HK$million y-o-y

Staffcosts 2,687 2,785 4%

Rent,ratesandutilities 841 934 10%

Otheroperatingcosts 2,591 2,162 (20)%

Totaloperatingcostsbeforedepreciation,amortizationandrestructuringcosts 6,119 5,881 (4)%

Depreciationandamortization 3,696 3,270 (13)%

Loss/(Gain)ondisposalofproperty,plantandequipment 19 (7) N/A

Restructuringcosts 171 – N/A

Generalandadministrativeexpenses 10,005 9,144 (9)%

Totaloperatingcostsbeforedepreciation,amortization

andrestructuringcostsfor2008increasedby4%to

HK$6,119millionasaresultofincreasedbusinessactivities.

Depreciationandamortizationincreasedby13%to

HK$3,696million,predominantlyduetohighercustomer

acquisitioncosts.Withhighertotaloperatingcosts,higher

depreciationandamortizationexpensesandtheinclusionof

restructuringcostsofHK$171million,generalandadministrative

expensesincreasedby9%toHK$10,005millionin2008.

EBITDA1

CoreEBITDAfortheyearendedDecember31,2008increased

by3%toHK$6,714million.ConsolidatedEBITDAincludingPCPD

for2008increasedby9%toHK$7,982million,primarilydriven

bythe61%increaseinPCPDEBITDAtoHK$1,268millionon

higherpropertydevelopmentprofitrecognizedfromtheBel-Air

project.

CoreEBITDAmargindecreasedby1percentagepointto31%in

2008.ConsolidatedEBITDAmargincontractedto25%in2008

duetoagreaterEBITDAcontributionfromPCPD,whichEBITDA

marginalsocontractedfromayearago.

Other Losses, NetNetotherlosseswasHK$464millionfortheyearended

December31,2008(2007:HK$3million).Netotherlossesin

2008primarilycomprisedadeficitonrevaluationofinvestment

propertiesandimpairmentprovisionsofinvestments,partially

offsetbygainsondisposalsoffinancialassetsandonderivative

financialinstruments.

Segment Results2

Coresegmentresultswas14%lowerthanayearagoat

HK$2,837millionfortheyearendedDecember31,2008.

ConsolidatedsegmentresultsincludingPCPDdecreasedby12%

toHK$3,529million.

Interest Income and Finance CostsFinancecostsdecreasedby11%toHK$1,473millionfortheyear

endedDecember31,2008duetotheloweraverageHIBORrates

in2008.Ontheotherhand,interestincomedecreasedby54%

toHK$197millionduetoaloweraveragecashbalanceandlower

averageinterestincomeratesin2008.Netfinancecost,therefore,

increasedby4%toHK$1,276million.Theaveragecostofdebt

fortheyearendedDecember31,2008improvedtoapproximately

5%andtheaverageremainingtermofdebtwasapproximately

3.6years.


Share of Results of Associates and Jointly Controlled CompaniesShareofresultsofassociatesandjointlycontrolled

companiesdecreasedtoHK$11millionfortheyearended

December31,2008(2007:HK$13million).

Income TaxIncometaxexpensesfortheyearendedDecember31,2008

decreasedby27%toHK$711millionandtheGroup’seffective

taxratefortheyearendedDecember31,2008was32%

(2007:35%).Thedecreaseoftaxexpensesandeffectivetax

ratewasmainlyduetoanetmovementofdeferredincometax

andanincreaseinothertaxprovision.Thisrateishigherthan

thestatutorytaxrateof16.5%,mainlyduetothefactthatlosses

ofsomecompaniescannotbeoffsetagainstprofitsofother

companiesforHongKongtaxpurposesandthedisallowanceof

certainfinancingcostsrelatingtothefinancingofnon-income-

producingassets.Excludingthesefactors,theGroupwouldhave

aneffectivetaxratearoundthestatutorytaxrateof16.5%.

Minority InterestsMinorityinterestsofHK$250millionprimarilyrepresentedthenet

profitattributabletotheminorityshareholdersofPCPD.

Profit Attributable to Equity Holders of the CompanyProfitattributabletoequityholdersoftheCompanyfortheyear

endedDecember31,2008amountedtoHK$1,272million

(2007:HK$1,503million).

LIQUIDITY AND CAPITAL RESOURCESTheGroup’sgrossdebt5totaledHK$32,200millionasat

December31,2008(2007:HK$25,774million).Cash

andcashequivalentsincreasedtoHK$9,284million

(2007:HK$3,678million).TheGroup’snetdebt5was

HK$22,813millionasatDecember31,2008comparedto

HK$21,990millionasatDecember31,2007.Theincreaseinnet

debtwasmainlyduetocashinvestedinpropertydevelopment

projectsandthepaymentofdividendsduringtheyear.

OnJanuary2,2009,theGroupdrewdowntheremaining

amountofHK$7,200millionavailablefordrawdownunderthe

HK$23,800millionHongKongTelecommunications(HKT)

Limitedloanfacilities.

TheGroup’sgrossdebt5tototalassetswas57%asat

December31,2008(2007:50%).

CREDIT RATINGS OF HONG KONG TELECOMMUNICATIONS (HKT) LIMITEDMoody’sInvestorsService(“Moody’s”)andStandard&Poor’s

RatingsServices(“Standard&Poor’s”)hadwithdrawntheratings

onPCCW-HKTTelephoneLimitedandassignednewratingsto

HongKongTelecommunications(HKT)Limited(“HKT”)uponthe

completionoftheGroup’scorporatereorganizationinNovember

2008.HKTiscurrentlyratedBaa2(outlooknegative)byMoody’s

andBBB(outlooknegative)byStandard&Poor’s.

CAPITAL EXPENDITURE6

GroupcapitalexpenditurefortheyearendedDecember31,2008

increasedtoHK$3,342million(2007:HK$3,238million).

Theincreasewasmainlyduetoexpandedinvestmentsand

enhancementinmeetingservicedemandsoncommercialdata,

high-speedbroadband,mobileandinternationalnetworks.

PCCWwillcontinuetoinvestprudently,usingassessment

criteriaincludinginternalrateofreturn,netpresentvalueand

paybackperiod.

HEDGINGMarketriskarisesfromforeigncurrencyandinterestrate

exposurerelatedtocashinvestmentsandborrowings.Asamatter

ofpolicy,theGroupcontinuestomanagethemarketriskdirectly

relatingtoitsoperationsandfinancinganddoesnotundertake

anyspeculativederivativetradingactivities.TheFinanceand

ManagementCommittee,asub-committeeoftheExecutive

CommitteeoftheBoard,determinesappropriateriskmanagement

activitieswiththeaimofprudentlymanagingthemarketrisk

associatedwithtransactionsundertakeninthenormalcourse

oftheGroup’sbusiness.Alltreasuryriskmanagementactivities

arecarriedoutinaccordancewiththepoliciesandguidelines

approvedbytheFinanceandManagementCommitteeandthe

ExecutiveCommittee,whicharereviewedonaregularbasis.

Inthenormalcourseofbusiness,theGroupentersintoforward

contractsandotherderivativecontractsinordertolimitits

exposuretoadversefluctuationsinforeigncurrencyexchange

ratesandinterestrates.Theseinstrumentsareexecuted

withcreditworthyfinancialinstitutions,andallcontractsare

denominatedincurrenciesofmajorindustrialcountries.Asat

December31,2008,allcrosscurrencyswapcontractswere

designatedascashflowhedgesfortheGroup’sforeigncurrency

denominatedlong-termliabilities.



CHARGE ON ASSETSAsatDecember31,2008,certainassetsoftheGroupwithan

aggregatecarryingvalueofHK$1million(2007:HK$25million)

werepledgedtosecureloansandbankingfacilitiesoftheGroup.

CONTINGENT LIABILITIES

AsatDecember31,

HK$million 2008 2007

Performanceguarantee 923 841

Others 27 80

950 921

TheGroupissubjecttocertaincorporateguaranteeobligations

toguaranteeperformanceofitswholly-ownedsubsidiariesinthe

normalcourseoftheirbusinesses.Theamountofliabilitiesarising

fromsuchobligations,ifany,cannotbeascertainedbutthe

Directorsareoftheopinionthatanyresultingliabilitywouldnot

materiallyaffectthefinancialpositionoftheGroup.

HUMAN RESOURCESAsatDecember31,2008,theGrouphadapproximately17,000

employees(2007:15,800).Aboutthreequartersofthese

employeesworkinHongKongandtheothersarebasedoutside

HongKong,primarilyinmainlandChina.TheCompanyhas

establishedincentivebonusschemesdesignedtomotivateand

rewardemployeesatalllevelstoachievetheCompany’sbusiness

performancetargets.Paymentofbonusesisgenerallybased

onachievementofEBITDA1andnetprofitaftertaxtargetsfor

theGroupasawhole,andrevenueandEBITDA1targetsforthe

Company’sindividualbusinesses.TheCompanyalsooperates

adiscretionaryemployeeshareoptionschemeandtwoshare

awardschemestomotivateemployeeperformancetoenhance

shareholders’value.

FINANCIAL INFORMATION

30 ReportoftheDirectors

48 IndependentAuditor’sReport

49 ConsolidatedIncomeStatement

50 ConsolidatedStatementofChangesinEquity

52 ConsolidatedBalanceSheet

54 BalanceSheet

55 ConsolidatedCashFlowStatement

56 NotestotheConsolidatedFinancialStatements

138 FiveYearFinancialSummary

139 ScheduleofPrincipalProperties

REPORT OF THE DIRECTORS


ThedirectorspresenttheirannualreporttogetherwiththeauditedconsolidatedfinancialstatementsofPCCWLimited(the“Company”)

anditssubsidiaries(collectivelythe“Group”)fortheyearendedDecember31,2008.

PRINCIPAL ACTIVITIESTheprincipalactivitiesoftheGrouparetheprovisionoflocal,mobileandinternationaltelecommunicationsservices,Internetaccess

services,interactivemultimediaandpay-TVservices,thesaleandrentaloftelecommunicationsequipment,andtheprovisionof

computer,engineeringandothertechnicalservicesprimarilyintheHongKongSpecialAdministrativeRegion(“HongKong”),andalsoin

mainlandChinaandelsewhereintheAsiaPacificregion;investmentsin,anddevelopmentof,systemsintegration,networkengineering,

andtechnology-relatedbusinesses;andinvestmentsin,anddevelopmentof,infrastructureandpropertiesinHongKong,mainlandChina

andelsewhereintheAsiaPacificandMiddleEastregions.

Detailsofsegmentinformationaresetoutinnote6totheconsolidatedfinancialstatements.

RESULTS AND APPROPRIATIONSTheresultsoftheGroupfortheyearendedDecember31,2008aresetoutintheaccompanyingconsolidatedfinancialstatementson

page49.

Aninterimdividendof7HKcents(2007:6.5HKcents)perordinaryshare,totalingapproximatelyHK$474million(2007:HK$440

million),waspaidtoshareholdersoftheCompanyinOctober2008.

OnApril22,2009,theboardofdirectors(the“Board”)declaredaspecialdividendofHK$1.30perordinaryshare.Thespecialdividend

willbepaidincashonoraroundMonday,May18,2009tothoseshareholdersontheregisterofmembersoftheCompanyattheclose

ofbusinessonWednesday,May13,2009.Thespecialdividendhasbeendeclaredinlieuofanyfinaldividendfortheyearended

December31,2008.

FINANCIAL SUMMARYAsummaryoftheconsolidatedresultsandoftheassetsandliabilitiesoftheGroupforthelastfivefinancialyearsissetoutonpage

138.

SUBSIDIARIES, ASSOCIATES AND JOINTLY CONTROLLED COMPANIESParticularsoftheCompany’sprincipalsubsidiaries,associatesandjointlycontrolledcompaniesaresetoutinnotes22to24tothe

consolidatedfinancialstatements.

FIXED ASSETSDetailsofmovementsintheGroup’sandtheCompany’sproperty,plantandequipment,theGroup’sinvestmentpropertiesandinterestsin

leaseholdlandduringtheyeararesetoutinnotes16to18totheconsolidatedfinancialstatements.

BORROWINGSParticularsoftheGroup’sandtheCompany’sborrowingsaresetoutinnotes26(f)and27totheconsolidatedfinancialstatements.

SHARE CAPITALDetailsofmovementsinthesharecapitaloftheCompanyduringtheyeararesetoutinnote30totheconsolidatedfinancialstatements.

RESERVESDetailsofmovementsinreservesoftheGroupandtheCompanyduringtheyeararesetoutinnote33totheconsolidatedfinancial

statements.


MAJOR CUSTOMERS AND SUPPLIERSFortheyearendedDecember31,2008,theaggregateamountofturnoverattributabletotheGroup’sfivelargestcustomersrepresented

lessthan30%oftheGroup’stotalturnover.TheaggregateamountofpurchasesattributabletotheGroup’sfivelargestsuppliers

representedlessthan30%oftheGroup’stotalpurchases.

DIRECTORSThedirectorswhoheldofficeduringtheyearanduptothedateofthisreportare:

Executive DirectorsLiTzarKai,RichardchairmanAlexanderAnthonyArenaGroupManaging directorPeterAnthonyAllen

ChungChoYee,Mico

LeeChiHong,Robert

Non-Executive DirectorsSirDavidFord,KBE,LVO

LuYimin (appointedonMay30,2008)

ZuoXunshengdeputy chairmanLiFushen

ZhangChunjiang (resignedonMay28,2008)

Independent Non-Executive DirectorsProfessorChangHsin-kang,FREng,GBS,JP

DrTheHonSirDavidLiKwokPo,GBM,GBS,OBE,JP

SirRogerLobo,CBE,LLD,JP

AmanMehta

TheHonRaymondGeorgeHardenberghSeitz

InaccordancewithArticles92and101AoftheCompany’sArticlesofAssociation,ChungChoYee,Mico,LeeChiHong,Robert,

SirDavidFord,LuYiminandSirRogerLoboshallretirefromofficeand,beingeligible,offerthemselvesforre-electionattheforthcoming

annualgeneralmeeting.

INDEPENDENT NON-EXECUTIVE DIRECTORSTheCompanyhasreceivedfromeachofitsindependentnon-executivedirectorsanannualconfirmationofhisindependencepursuant

toRule3.13oftheRulesGoverningtheListingofSecurities(the“ListingRules”)onTheStockExchangeofHongKongLimited(the

“StockExchange”)andconsidersthatalltheindependentnon-executivedirectorsareindependentinaccordancewiththetermsofthe

independenceguidelinessetoutinRule3.13oftheListingRules.

DIRECTORS’ SERVICE CONTRACTSNodirectorproposedforre-electionattheforthcomingannualgeneralmeetinghasanunexpiredservicecontractwiththeGroupwhichis

notdeterminablebytheGroupwithinoneyearwithoutpaymentofcompensation(otherthanstatutorycompensation).

REPORT OF THE DIRECTORS (CONTINUED)


DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONAsatDecember31,2008,thedirectorsandchiefexecutiveoftheCompanyandtheirassociateshadthefollowinginterestsandshort

positionsintheshares,underlyingsharesanddebenturesoftheCompanyanditsassociatedcorporation(withinthemeaningofPartXV

oftheSecuritiesandFuturesOrdinance(the“SFO”))asrecordedintheregisterrequiredtobekeptunderSection352oftheSFOoras

otherwisenotifiedtotheCompanyandtheStockExchangepursuanttotheModelCodeforSecuritiesTransactionsbyDirectorsofListed

Issuers(the“ModelCode”)setoutinAppendix10totheListingRules:

1. Interests in the CompanyThetablebelowsetsouttheaggregatelongpositionsinthesharesandunderlyingsharesoftheCompanyheldbythedirectorsand

chiefexecutiveoftheCompany:

Numberof

underlying Approximate

Numberofordinaryshares sharesheld percentage

NameofDirector/ Personal Family Corporate Other underequity ofissued

ChiefExecutive interests interests interests interests derivatives Total sharecapital

LiTzarKai,Richard – – 250,109,824 1,674,560,335 – 1,924,670,159 28.42%

(note 1(a)) (note 1(b))

AlexanderAnthonyArena 760,000 – – – 15,800,200 16,560,200 0.24%

(note 2)

PeterAnthonyAllen 253,200 – – – 4,629,200 4,882,400 0.07%

(note 3)

ChungChoYee,Mico 1,176,260 18,455 – – 14,390,400 15,585,115 0.23%

(note 4) (note 3)

LeeChiHong,Robert 992,600 511 – – 6,000,000 6,993,111 0.10%

(note 5(a)) (note 5(b)) (note 3)

SirDavidFord – – – – 3,000,000 3,000,000 0.04%

(note 3)

ProfessorChangHsin-kang 64,000 – – – – 64,000 0.001%

DrTheHonSirDavidLiKwokPo 600,000 – – – – 600,000 0.009%

Notes:1. (a) Oftheseshares,PacificCenturyDiversifiedLimited,awholly-ownedsubsidiaryofChiltonlinkLimited,held216,362,824sharesandEisnerInvestments

Limitedheld33,747,000shares.LiTzarKai,Richardowned100%ofChiltonlinkLimitedandEisnerInvestmentsLimited.

(b) Theseinterestsrepresented:

(i) adeemedinterestin36,726,857sharesoftheCompanyheldbyYueShunLimited,asubsidiaryofHutchisonWhampoaLimited(“HWL”).CheungKong(Holdings)Limited(“CheungKong”)throughcertainsubsidiariesheldmorethanone-thirdoftheissuedsharecapitalofHWL.LiTzarKai,RichardwasadiscretionarybeneficiaryofcertaindiscretionarytrustswhichheldunitsinunittrustswhichinturnheldinterestsincertainsharesofCheungKongandHWL.LiTzarKai,Richardwasalsointerestedinone-thirdoftheissuedsharecapitaloftwocompanies,whichownedallthesharesofthetrusteecompanieswhichactedastrusteesofsuchdiscretionarytrustsandunittrusts.Accordingly,LiTzarKai,Richardwasdeemed,undertheSFO,tohaveaninterestinthe36,726,857sharesoftheCompanyheldbyYueShunLimited;

(ii) adeemedinterestin102,122,177sharesoftheCompanyheldbyPacificCenturyGroupHoldingsLimited(“PCGH”).LiTzarKai,Richardwasthefounderofcertaintrustswhichheld100%interestsinPCGH.Accordingly,LiTzarKai,Richardwasdeemed,undertheSFO,tohaveaninterestinthe102,122,177sharesoftheCompanyheldbyPCGH;and


DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATION (continued)1. Interests in the Company (continued)

Notes:(continued)1. (b) (continued)

(iii) adeemedinterestin1,535,711,301sharesoftheCompanyheldbyPacificCenturyRegionalDevelopmentsLimited(“PCRD”),acompanyinwhichPCGHhad,throughcertainwholly-ownedsubsidiariesbeingAnglangInvestmentsLimited,PacificCenturyGroup(CaymanIslands)Limited,PacificCenturyInternationalLimitedandBorsingtonLimited,anaggregateof75.74%interest.LiTzarKai,Richardwasthefounderofcertaintrustswhichheld100%interestsinPCGH.LiTzarKai,Richardwasalsodeemedtobeinterestedin0.91%ofPCRDthroughHopestarHoldingsLimited,acompanywholly-ownedbyLiTzarKai,Richard.Accordingly,LiTzarKai,Richardwasdeemed,undertheSFO,tohaveaninterestinthe1,535,711,301sharesoftheCompanyheldbyPCRD.

2. TheseinterestsrepresentedAlexanderAnthonyArena’sbeneficialinterestin:(a)200underlyingsharesheldintheformof20AmericanDepositaryReceiptswhichconstitutedlistedequityderivatives;and(b)15,800,000underlyingsharesinrespectofshareoptionsgrantedbytheCompanytoAlexanderAnthonyArenaasbeneficialowner,thedetailsofwhicharesetoutinthesectionheaded“SHAREOPTIONSCHEMES”ofthisreport.

3. TheseinterestsrepresentedtheinterestsinunderlyingsharesinrespectofshareoptionsgrantedbytheCompanytothesedirectorsasbeneficialowners,thedetailsofwhicharesetoutinthesectionheaded“SHAREOPTIONSCHEMES”ofthisreport.

4. TheseshareswereheldbythespouseofChungChoYee,Mico.

5. (a) TheseshareswereheldjointlybyLeeChiHong,Robertandhisspouse.

(b) TheseshareswereheldbythespouseofLeeChiHong,Robert.

2. Interests in Associated Corporation of the CompanyThetablebelowsetsoutthelongpositioninthesharesandunderlyingsharesofPacificCenturyPremiumDevelopmentsLimited

(“PCPD”)heldbythedirectorandchiefexecutiveoftheCompany:

Numberof

underlying Approximate

Numberofordinaryshares sharesheld percentage

NameofDirector/ Personal Family Corporate Other underequity ofissued

ChiefExecutive interests interests interests interests derivatives Total sharecapital

ChungChoYee,Mico – – – – 5,000,000 5,000,000 0.21%

TheaboveinterestrepresentedtheinterestinunderlyingsharesinrespectofshareoptionsgrantedbyPCPDtothedirectorofthe

CompanyasbeneficialownerpursuanttoPCPD’sshareoptionscheme,thedetailsofwhicharesetoutinthesectionheaded“SHARE

OPTIONSCHEMES”ofthisreport.

Saveasdisclosedintheforegoing,noneofthedirectorsorchiefexecutiveoftheCompanyortheirassociateshadanyinterestsorshort

positionsinanyshares,underlyingsharesanddebenturesoftheCompanyoranyofitsassociatedcorporations(withinthemeaningof

PartXVoftheSFO)asrecordedintheregisterrequiredtobekeptunderSection352oftheSFOorasotherwisenotifiedtotheCompany

andtheStockExchangepursuanttotheModelCodeoftheListingRulesasatDecember31,2008.



SHARE OPTION SCHEMES1. Share Option Schemes of the Company

TheCompanyadoptedashareoptionschemeonSeptember20,1994(the“1994Scheme”)andunlessotherwisecancelledor

amended,isvalidandeffectivefor10yearsfromthatdate.The1994Schemewasamendedatanextraordinarygeneralmeetingof

theCompanyheldonMay23,2002inorderto,amongotherthings,complywiththerequirementsofChapter17oftheListingRules

whichcameintoeffectonSeptember1,2001.AttheannualgeneralmeetingoftheCompanyheldonMay19,2004,theshareholders

oftheCompanyapprovedtheterminationofthe1994Schemeandadoptionofanewshareoptionscheme(the“2004Scheme”).The

2004Schemewillremaininforcefor10yearsfromthedateofitsadoption,unlessotherwisecancelledoramended.

TheCompanyoperatesshareoptionschemes,namelythe1994Schemeandthe2004Scheme(collectivelythe“Schemes”),under

whichtheBoardmay,atitsdiscretion,grantshareoptionstoanyeligiblepersontosubscribeforsharesoftheCompanysubjecttothe

termsandconditionsstipulatedtherein.Followingterminationofthe1994Schemein2004,nofurthershareoptionswillbegranted

undersuchscheme,butinallotherrespectstheprovisionsofsuchschemewillremaininfullforceandeffect.

TheSchemesprovideanopportunityforeligiblepersonstoacquireproprietaryinterestsintheCompanyandtoencourageeligible

personstoworktowardsenhancingthevalueoftheCompanyanditssharesforthebenefitoftheCompanyanditsshareholdersasa

whole.Eligiblepersonsinclude,butarenotlimitedto,anydirector,officer,employee,consultant,adviser,supplier,customerorsub-

contractoroftheGrouporanymemberofitoranyotherpersonwhohascontributedtothedevelopment,growthorbenefitofthe

GroupasdeterminedbytheBoard.

Themaximumnumberofsharesinrespectofwhichoptionsmaybegrantedunderthe2004Schemeshallnotinaggregateexceed

10%ofthesharesoftheCompanyinissueasatthedateofapprovalofsuchscheme.AsatDecember31,2008,thetotalnumber

ofsharesoftheCompanythatmaybeissueduponexerciseofallshareoptionsgrantedandyettobeexercisedunderthe2004

Schemewas38,391,500,whichrepresentedapproximately0.57%oftheissuedsharecapitaloftheCompanyasatthatdate.Asat

December31,2008,thetotalnumberofsharesoftheCompanythatmaybeissuedonexerciseofallshareoptionsgrantedandyet

tobeexercisedunderthe1994Schemewas99,580,230,whichrepresentedapproximately1.47%oftheissuedsharecapitalofthe

Companyasatthatdate.Themaximumentitlementforanyeligibleperson(otherthanasubstantialshareholderoranindependent

non-executivedirectoroftheCompany,oranyoftheirrespectiveassociates)undertheSchemesisthatthetotalnumberofshares

issuedandtobeissuedonexerciseofalloptionsgrantedandtobegrantedinany12-monthperioduptoandincludingthedateof

thelatestgrantdoesnotexceed1%ofthesharesoftheCompanyinissueattherelevanttime.Anyfurthergrantofshareoptionsin

excessofthislimitissubjecttoshareholders’approvalatageneralmeeting.

TheperiodwithinwhichanoptionmaybeexercisedundereachoftheSchemeswillbedeterminedbytheBoardatitsabsolute

discretion,savethatnooptionmaybeexercisedlaterthan10yearsfromthedateofgrantoftheoption.

UndereachoftheSchemes,theexercisepriceinrelationtoeachoptionshallbedeterminedbytheBoardatitsabsolutediscretion,

butinanyeventshallnotbelessthanthehighestof(i)theclosingpriceofthesharesasstatedintheStockExchange’sdaily

quotationssheetonthedateofgrantofsuchoption;(ii)theaverageclosingpriceofthesharesasstatedintheStockExchange’sdaily

quotationssheetsforthefivetradingdaysimmediatelyprecedingthedateofgrantofsuchoption;and(iii)thenominalvalueofashare

onthedateofgrantofsuchoption.


SHARE OPTION SCHEMES (continued)1. Share Option Schemes of the Company (continued)

DetailsoftheshareoptionsoutstandingandmovementsduringtheyearendedDecember31,2008areasfollows:

A. 1994 Scheme(1) Outstanding options at January 1, 2008 and at December 31, 2008

Numberofoptions

Date Vesting Exercisable Exercise Outstandingat Outstandingat

Nameorcategoryofparticipant ofgrant period period priceHK$ 01.01.2008 12.31.2008

(notes 1 & 2) (note 1) (note 1)

Director/Chief ExecutiveAlexanderAnthonyArena 08.28.1999 08.17.2000to 08.17.2000to 11.7800 3,200,000 3,200,000

08.17.2004 08.17.2009

08.26.2000 08.26.2001to 08.26.2001to 60.1200 1,600,000 1,600,000

08.26.2005 08.26.2010

02.20.2001 08.26.2001to 08.26.2001to 16.8400 1,600,000 1,600,000

08.26.2005 01.22.2011

07.25.2003 07.25.2004to 07.25.2004to 4.3500 6,400,000 6,400,000

07.25.2006 07.23.2013

PeterAnthonyAllen 08.28.1999 08.17.2000to 08.17.2000to 11.7800 272,000 272,000

08.17.2002 08.17.2009

08.26.2000 08.26.2001to 08.26.2001to 60.1200 178,600 178,600

08.26.2005 08.26.2010

02.20.2001 08.26.2001to 08.26.2001to 16.8400 178,600 178,600

08.26.2005 01.22.2011

07.25.2003 07.25.2004to 07.25.2004to 4.3500 2,000,000 2,000,000

07.25.2006 07.23.2013

ChungChoYee,Mico 08.28.1999 08.17.2000to 08.17.2001to 11.7800 3,575,200 3,575,200

08.17.2004 08.17.2009

08.26.2000 08.26.2001to 08.26.2001to 60.1200 1,060,000 1,060,000

08.26.2005 08.26.2010

02.20.2001 08.26.2001to 08.26.2001to 16.8400 1,060,000 1,060,000

08.26.2005 01.22.2011

07.25.2003 07.25.2004to 07.25.2004to 4.3500 5,695,200 5,695,200

07.25.2006 07.23.2013

LeeChiHong,Robert 07.25.2003 07.25.2004to 07.25.2004to 4.3500 5,000,000 5,000,000

07.25.2006 07.23.2013

SirDavidFord 07.25.2003 07.25.2004to 07.25.2004to 4.3500 1,000,000 1,000,000

07.25.2006 07.23.2013




A. 1994 Scheme (continued)(1) Outstanding options at January 1, 2008 and at December 31, 2008 (continued)

Numberofoptions



(notes 1 & 2) (note 1) (note 1)

EmployeesInaggregate 08.17.1999to (note 3) 08.17.2000to 11.7800 5,722,393 5,345,593

09.15.1999 08.17.2009

10.25.1999to (note 3) 10.25.2000to 22.7600 1,724,000 1,529,600

11.23.1999 10.25.2009

02.08.2000to 02.08.2001to 02.08.2001to 75.2400 86,700 86,700

03.08.2000 02.08.2003 02.08.2010

08.26.2000to (note 4) (note 4) 60.1200 911,000 823,000

09.24.2000

10.27.2000to (note 5) (note 5) 24.3600 8,742,906 8,159,626

11.25.2000

01.22.2001to (note 6) (note 6) 16.8400 5,532,439 5,293,839

02.20.2001

02.20.2001 02.08.2002to 02.08.2002to 18.7600 86,700 86,700

02.08.2004 02.08.2011

04.17.2001to (note 7) (note 7) 10.3000 1,068,840 1,050,920

05.16.2001

07.16.2001to 07.16.2002to 07.16.2002to 9.1600 236,320 210,280

09.15.2001 07.16.2004 07.16.2011

05.10.2002 (note 3) 04.11.2003to 7.9150 86,700 86,700

04.11.2012

08.01.2002 08.01.2003to 08.01.2003to 8.0600 200,000 200,000

08.01.2005 07.31.2012

11.13.2002 11.13.2003to 11.13.2003to 6.1500 6,500,000 6,120,000

11.13.2005 11.12.2012

07.25.2003 07.25.2004to 07.25.2004to 4.3500 31,816,673 30,360,672

07.25.2006 07.23.2013

09.16.2003 09.16.2004to 09.16.2004to 4.9000 157,000 7,000

09.16.2006 09.14.2013

Others 08.17.1999to (note 3) 08.17.2000to 11.7800 800,000 800,000

09.15.1999 08.17.2009

08.26.2000to (note 4) (note 4) 60.1200 2,800,000 2,800,000

09.24.2000

01.22.2001to (note 6) (note 6) 16.8400 2,800,000 2,800,000

02.20.2001

07.25.2003 07.25.2004to 07.25.2004to 4.3500 1,000,000 1,000,000

07.25.2006 07.23.2013



A. 1994 Scheme (continued)(2) Options exercised during the year ended December 31, 2008

Weightedaverage

closingprice

oftheshares

immediately

Numberof beforethe

shares datesonwhich

acquired theoptions

Date Vesting Exercisable Exercise onexercise wereexercised

Nameorcategoryofparticipant ofgrant period period priceHK$ ofoptions HK$

(note 1) (note 1) (note 1)

EmployeesInaggregate 07.25.2003 07.25.2004to 07.25.2004to 4.3500 1,224,001 4.9349

07.25.2006 07.23.2013

Duringtheyearunderreview,noshareoptionswereexercisedbyanydirectorsorchiefexecutiveoftheCompany,employeesof

theGrouporotherparticipantssaveasdisclosedabove.

(3) Options cancelled or lapsed during the year ended December 31, 2008

Exercise Numberof Numberof

Nameorcategoryofparticipant priceHK$ optionscancelled optionslapsed

EmployeesInaggregate 11.7800 – 376,800

22.7600 – 194,400

60.1200 – 88,000

24.3600 – 583,280

16.8400 – 238,600

10.3000 – 17,920

9.1600 – 26,040

6.1500 – 380,000

4.3500 – 232,000

4.9000 – 150,000




B. 2004 Scheme(1) Outstanding options at January 1, 2008 and at December 31, 2008

Numberofoptions




Director/Chief ExecutiveAlexanderAnthonyArena 02.08.2005 02.08.2006to 02.08.2006to 4.4750 3,000,000 3,000,000

02.08.2007 02.07.2009

PeterAnthonyAllen 02.08.2005 02.08.2006to 02.08.2006to 4.4750 2,000,000 2,000,000

02.08.2007 02.07.2009

ChungChoYee,Mico 02.08.2005 02.08.2006to 02.08.2006to 4.4750 3,000,000 3,000,000

02.08.2007 02.07.2009

LeeChiHong,Robert 02.08.2005 02.08.2006to 02.08.2006to 4.4750 1,000,000 1,000,000

02.08.2007 02.07.2009

SirDavidFord 02.08.2005 02.08.2006to 02.08.2006to 4.4750 2,000,000 2,000,000

02.08.2007 02.07.2009

EmployeesInaggregate 02.08.2005 02.08.2006to 02.08.2006to 4.4750 30,275,500 27,391,500

02.08.2007 02.07.2009

(2) Options granted during the year ended December 31, 2008Duringtheyearunderreview,noshareoptionsweregrantedtoanydirectorsorchiefexecutiveoftheCompanyoremployeesof

theGrouporotherparticipants.

(3) Options exercised during the year ended December 31, 2008

Weightedaverage

closingprice

oftheshares

immediately

Numberof beforethe

shares datesonwhich

acquired theoptions

Date Vesting Exercisable Exercise onexercise wereexercised

Nameorcategoryofparticipant ofgrant period period priceHK$ ofoptions HK$


EmployeesInaggregate 02.08.2005 02.08.2006to 02.08.2006to 4.4750 2,443,500 4.9796

02.08.2007 02.07.2009

Duringtheyearunderreview,noshareoptionswereexercisedbyanydirectorsorchiefexecutiveoftheCompany,employeesof

theGrouporotherparticipantssaveasdisclosedabove.



B. 2004 Scheme (continued)(4) Options cancelled or lapsed during the year ended December 31, 2008

Exercise Numberof Numberof

Nameorcategoryofparticipant priceHK$ optionscancelled optionslapsed

EmployeesInaggregate 4.4750 – 440,500

2. Share Option Schemes of Subsidiaries of the CompanyA. PCPD

PCPD,anindirectnonwholly-ownedsubsidiaryoftheCompany,adoptedashareoptionschemeonMarch17,2003(the“2003

PCPDScheme”),whichwasvalidfor10yearsafterthedateofadoption.Inordertoalignthetermsoftheshareoptionscheme

ofPCPDwiththoseoftheCompanyandinviewofthelimitednumberofsharescapableofbeingissuedunderthe2003PCPD

SchemerelativetothecurrentcapitalbaseofPCPD,theshareholdersofPCPDapprovedtheterminationofthe2003PCPD

Schemeandtheadoptionofanewshareoptionscheme(the“2005PCPDScheme”),particularsofwhicharesetoutinnote

32(c)totheconsolidatedfinancialstatements,atPCPD’sannualgeneralmeetingheldonMay13,2005.The2005PCPDScheme

becameeffectiveonMay23,2005followingitsapprovalbytheshareholdersoftheCompany.Nofurthershareoptionswillbe

grantedunderthe2003PCPDSchemefollowingitstermination,buttheprovisionsofsuchschemewillremaininfullforceand

effectwithrespecttotheoptionsgrantedpriortoitstermination.TheboardofdirectorsofPCPDmay,atitsdiscretion,grantshare

optionstoanyeligiblepersontosubscribeforsharesofPCPDsubjecttothetermsandconditionsstipulatedinthe2005PCPD

Scheme.

Detailsoftheshareoptionsoutstandingunderthe2003PCPDSchemeandmovementsduringtheyearendedDecember31,

2008areasfollows:

2003 PCPD Scheme(1) Outstanding options at January 1, 2008 and at December 31, 2008

Numberofoptions




Director/Chief Executive of the CompanyChungChoYee,Mico 12.20.2004 Fullyvestedon 12.20.2004to 2.375 5,000,000 5,000,000

12.20.2004 12.19.2014

AsatDecember31,2008,thetotalnumberofsharesofPCPDthatmaybeissueduponexerciseofallshareoptionsgranted

andyettobeexercisedunderthe2003PCPDSchemewas5,000,000,whichrepresentedapproximately0.21%oftheissued

sharecapitalofPCPDasatthatdate.

(2) Options granted during the year ended December 31, 2008Duringtheyearunderreview,noshareoptionsweregrantedtoanydirectorsorchiefexecutiveoftheCompanyorother

participantsunderthe2003PCPDScheme.



SHARE OPTION SCHEMES (continued)2. Share Option Schemes of Subsidiaries of the Company (continued)

A. PCPD (continued)2003 PCPD Scheme (continued)(3) Options exercised during the year ended December 31, 2008

Duringtheyearunderreview,noshareoptionswereexercisedbyanydirectorsorchiefexecutiveoftheCompany.

(4) Options cancelled or lapsed during the year ended December 31, 2008Duringtheyearunderreview,noshareoptionswerecancelledorlapsed.

2005 PCPD SchemeNoshareoptionshavebeengrantedunderthe2005PCPDSchemesinceitsadoption.

Notes:1. Alldatesareshownmonth/day/year.

2. Duetothelargenumberofemployeesparticipatinginthe1994Scheme,certaininformationsuchasthedateofgrantcanonlybeshownwithinareasonablerangeinthisreport.Foroptionsgrantedtoemployees,theoptionsweregranted,whereapplicable,duringtheunderlyingperiodsforacceptanceoftheofferofsuchoptionsbytheemployeesconcerned.

3. Theseoptionsvestininstallmentsduringaperiodstartingfromthefirstanniversaryoftheofferdateofsuchoptions(the“OfferDate”)andendingoneitherthethirdorfifthanniversaryoftheOfferDateinclusive.

4. Theseoptionsvestininstallmentsduringaperiodstartingfrom:(i)May26,2001andendingonMay26,2003inclusive;(ii)thefirstanniversaryoftheOfferDateandendingonthethirdanniversaryoftheOfferDateinclusive;or(iii)thefirstanniversaryoftheOfferDateandendingonthefifthanniversaryoftheOfferDateinclusive.AlltheseoptionsareexercisableininstallmentsfromthecommencementoftherelevantvestingperioduntilthetenthanniversaryoftheOfferDate.

5. Theseoptionsvestininstallmentsduringaperiodstartingfrom:(i)March15,2001andendingonMarch15,2005inclusive;or(ii)thefirstanniversaryoftheOfferDateandendingonthethirdanniversaryoftheOfferDateinclusive.AlltheseoptionsareexercisableininstallmentsfromthecommencementoftherelevantvestingperioduntilthetenthanniversaryoftheOfferDate.

6. Theseoptionsvestininstallmentsduringaperiodstartingfrom:(i)datesrangingbetweenthedateofgranttoAugust26,2001andendingondatesrangingbetweenDecember7,2002toAugust26,2005inclusive;(ii)thefirstanniversaryoftheOfferDateandendingonthethirdanniversaryoftheOfferDateinclusive;or(iii)thefirstanniversaryoftheOfferDateandendingonthefifthanniversaryoftheOfferDateinclusive.AlltheseoptionsareexercisableininstallmentsfromthecommencementoftherelevantvestingperioduntilthetenthanniversaryoftheOfferDate.

7. Theseoptionsvestininstallmentsduringaperiodstartingfrom:(i)May26,2001andendingonMay26,2005inclusive;(ii)thefirstanniversaryoftheOfferDateandendingonthethirdanniversaryoftheOfferDateinclusive;or(iii)thefirstanniversaryoftheOfferDateandendingonthefifthanniversaryoftheOfferDateinclusive.AlltheseoptionsareexercisableininstallmentsfromthecommencementoftherelevantvestingperioduntilthetenthanniversaryoftheOfferDate.

8. SubsequenttothedespatchoftheschemedocumentandthesupplementalschemedocumentfortheproposedprivatizationoftheCompanyinDecember2008andJanuary2009respectively,certaindirectorsandsomeoptionholdersacceptedtheconditionaloptionofferand/orrevisedoptionoffermadebythejointofferorstocancelallorpartoftheshareoptionsundertheprivatizationproposal.Fordetailsoftheproposedprivatization,pleaserefertothePostBalanceSheetEventsetoutinnote44totheconsolidatedfinancialstatements.

SHARE AWARD SCHEMESIn2002,theCompanyestablishedtwoemployeeshareincentiveawardschemes,namelythePurchaseSchemeandtheSubscriptionScheme,underwhichemployeesofparticipatingsubsidiariesoftheCompany(excludingdirectorsoftheCompany)maybeselectedtoparticipateinsuchschemes.Subjecttotherelevantschemerules,eachschemeprovidesthatfollowingthemakingofanawardtoanemployee,therelevantsharesareheldintrustforthatemployeeandthenshallvestoveraperiodoftimeprovidedthattheemployeeremainsanemployeeoftheapplicablesubsidiaryoftheCompanyattherelevanttimeandsatisfiesanyotherconditionsspecifiedatthetimetheawardismade.InMay2006,therulesofthePurchaseSchemewerealteredsuchthatthedirectorsoftheCompanyarealsoeligibletoparticipateinsuchscheme.DuringtheyearendedDecember31,2008,noawardshavebeenmadetoanydirectorsandemployeesoftheCompanyoritssubsidiariesunderthesetwoschemes.

Saveasdisclosedabove,atnotimeduringtheyearwastheCompanyoranyofitssubsidiaries,holdingcompaniesorfellowsubsidiariesapartytoanyarrangementthatmayenablethedirectorsoftheCompanytoacquirebenefitsbymeansoftheacquisitionofsharesin,ordebenturesof,theCompanyoranyotherbodycorporateandnoneofthedirectorsorchiefexecutiveoftheCompanyortheirspousesorchildrenunder18yearsofagehadanyrighttosubscribeforequityordebtsecuritiesoftheCompanyoranyofitsassociatedcorporationsorhadexercisedanysuchrightduringtheyear.


INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERSAsatDecember31,2008,thefollowingpersons(otherthananydirectorsorchiefexecutiveoftheCompany)weresubstantialshareholdersoftheCompany(asdefinedintheListingRules)andhadinterestsorshortpositionsinthesharesandunderlyingsharesoftheCompanyasrecordedintheregisterrequiredtobekeptunderSection336oftheSFO:

Approximate Numberof percentage shares/underlying ofissuedNameofshareholder note sharesheld sharecapital

InterestsPCRD 1,535,711,301 22.68%PCGH 1 1,637,833,478 24.18%StarOceanUltimateLimited 2 1,637,833,478 24.18%TheOceanTrust 2 1,637,833,478 24.18%TheStarliteTrust 2 1,637,833,478 24.18%OSHoldingsLimited 2 1,637,833,478 24.18%OceanStarManagementLimited 2 1,637,833,478 24.18%TheOceanUnitTrust 2 1,637,833,478 24.18%TheStarliteUnitTrust 2 1,637,833,478 24.18%ChinaNetworkCommunicationsGroupCorporation(“CNC”) 3 1,343,571,766 19.84%

Notes:1. Theseinterestsrepresented(i)PCGH’sbeneficialinterestsin102,122,177shares;and(ii)PCGH’sintereststhroughitscontrolledcorporations(beingitswholly-

ownedsubsidiaries,BorsingtonLimited,PacificCenturyInternationalLimited,PacificCenturyGroup(CaymanIslands)LimitedandAnglangInvestmentsLimited,whichtogethercontrolled75.74%ofPCRD)in1,535,711,301sharesheldbyPCRD.

2. OnApril18,2004,LiTzarKai,RichardtransferredtheentireissuedsharecapitalofPCGHtoOceanStarManagementLimitedastrusteeofTheOceanUnitTrustandTheStarliteUnitTrust.TheentireissuedsharecapitalofOceanStarManagementLimitedwasheldbyOSHoldingsLimited.TheOceanTrustandTheStarliteTrustheldallunitsofTheOceanUnitTrustandTheStarliteUnitTrustrespectively.StarOceanUltimateLimitedwasthediscretionarytrusteeofTheOceanTrustandTheStarliteTrust.

3. CNCindirectlyheldtheseintereststhroughitsindirectwholly-ownedsubsidiary,ChinaNetcomCorporation(BVI)Limited(“ChinaNetcomBVI”).ChinaUnitedNetworkCommunicationsGroupCompanyLimited(“Unicom”,formerlyknownasChinaUnitedTelecommunicationsCorporation)andCNCagreedtoundertakeamerger(“Unicom-CNCMerger”)whichbecameeffectiveonJanuary1,2009afterapprovalbytheState-ownedAssetsSupervisionandAdministrationCommissionoftheStateCouncilofthePRC.Unicom,throughabsorptionofCNC,isthesuccessorentitytotheUnicom-CNCMerger.AsaresultoftheUnicom-CNCMerger,UnicomhasassumedalltherightsandobligationsofCNCandalltheassets,liabilitiesandbusinessofCNChavevestedinUnicom.ChinaNetcomBVIhasbecomeawholly-ownedsubsidiaryofUnicom.

INTERESTS AND SHORT POSITIONS OF OTHER PERSONS REQUIRED TO BE DISCLOSED UNDER THE SFOAsatDecember31,2008,thefollowingperson(notbeingthedirectororchiefexecutiveorsubstantialshareholder(asdisclosedintheprevioussectionheaded“INTERESTSANDSHORTPOSITIONSOFSUBSTANTIALSHAREHOLDERS”)oftheCompany)hadinterestsorshortpositionsinthesharesandunderlyingsharesoftheCompanyasrecordedintheregisterrequiredtobekeptunderSection336oftheSFO:

Approximate Numberof percentage shares/underlying ofissuedNameofshareholder sharesheld sharecapital

InterestsOceanStarInvestmentManagementLimited note 1,637,833,478 24.18%

Note:OceanStarInvestmentManagementLimitedwasdeemedinterestedundertheSFOinthesharesoftheCompanybyvirtueofitbeingtheinvestmentmanagerofTheOceanUnitTrustandTheStarliteUnitTrustwhichtogetherheld100%ofPCGH(seetheNotestotheprevioussectionheaded“INTERESTSANDSHORTPOSITIONSOFSUBSTANTIALSHAREHOLDERS”).

Saveasdisclosedaboveinthissectionandtheprevioussectionheaded“INTERESTSANDSHORTPOSITIONSOFSUBSTANTIALSHAREHOLDERS”,theCompanyhadnotbeennotifiedofanyotherpersons(otherthananydirectorsorchiefexecutiveoftheCompany)whohadaninterestorashortpositioninthesharesandunderlyingsharesoftheCompanyasrecordedintheregisterrequiredtobekeptbytheCompanypursuanttoSection336oftheSFOasatDecember31,2008.



DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCENocontractofsignificanceinrelationtotheGroup’sbusiness(asdefinedintheListingRules)towhichtheCompany,itssubsidiaries,its

holdingcompaniesoranyofitsfellowsubsidiarieswasapartyandinwhichadirectoroftheCompanyhadamaterialinterest,whether

directlyorindirectly,subsistedattheendoftheyearoratanytimeduringtheyear.

DIRECTORS’ INTERESTS IN COMPETING BUSINESSTheinterestsofthedirectorsoftheCompanyincompetingbusinessrequiredtobedisclosedpursuanttoRule8.10oftheListingRules

areasfollows:

NameofDirector Nameofcompany Natureofbusiness Natureofinterests

LiTzarKai,Richard CheungKongandits

subsidiaries(the“CheungKong

Group”)

HWLanditssubsidiaries(the

“HutchisonGroup”)

Propertydevelopmentand

investment,hotelandserviced

suiteoperation,propertyand

projectmanagementand

investmentinsecurities

Portsandrelatedservices;

propertyandhotels;retail;

energy,infrastructure,

investmentsandothers;and

telecommunications

DeemedinterestsinCheung

Kong(note 1)

Certainpersonalanddeemed

interestsinHWL(note 2)

ChungChoYee,Mico

(note 3)CapitalStrategicInvestment

Limited(“CSI”)andits

subsidiaries

Propertyinvestmentand

securitiesinvestment

Non-ExecutiveChairmanand

beneficialownerof36.50%of

CSI

LuYimin CNCandChinaNetcomGroup

Corporation(HongKong)Limited

(“CNCHK”)(notes 4 & 5)

UnicomandChinaUnicom

(HongKong)Limited

(“UnicomHK”)(notes 4 & 5)

Provisionoftelecommunications

services

Provisionofwireless,fixed-line,

broadband,dataandrelated

value-addedservices

SeniorManagementofCNC

ViceChairmanandPresidentof

Unicom

ExecutiveDirectorandPresident

ofUnicomHK

ZuoXunsheng CNCandCNCHK(notes 4 & 5)

UnicomandUnicomHK

(notes 4 & 5)


services



value-addedservices

VicePresidentofCNC

ChairmanandChiefExecutive

OfficerofCNCHK

ViceChairmanandVice

PresidentofUnicom

ExecutiveDirectorandSenior

VicePresidentofUnicomHK

LiFushen CNCandCNCHK(notes 4 & 5)

UnicomHK(notes 4 & 5)


services



value-addedservices

ChiefAccountantofCNC

ExecutiveDirectorandChief

FinancialOfficerofCNCHK

SeniorVicePresidentof

UnicomHK


DIRECTORS’ INTERESTS IN COMPETING BUSINESS (continued)Inaddition,LiTzarKai,Richard,PeterAnthonyAllenandLeeChiHong,Robertaredirectorsofcertainprivatecompanies(the“Private

Companies”),whichareengagedinpropertydevelopmentandinvestmentinHongKongandJapan.

Further,LiTzarKai,Richard,AlexanderAnthonyArenaandPeterAnthonyAllenaredirectorsofPCRD.PCRDisaninvestmentholding

companyof,amongothers,interestsintheCompanyandpropertyandinfrastructureinvestmentintheAsiaPacificregion.

ThebusinessinterestsofthePrivateCompaniesinHongKongarenotsignificantwhencomparedwiththebusinessoftheGroupandit

isunlikelythatsuchbusinessinterestswillcompetewiththebusinessoftheGroup.ThebusinessinterestsinJapanandtheAsiaPacific

regionarealsounlikelytocompetewiththeexistingbusinessoftheGroup.

LiTzarKai,RichardhasacontrollinginterestinsomeofthePrivateCompanies.Further,heisormayberegardedasinterestedinPCRD

andPCGHduetotheinterestsasdisclosedinthesectionheaded“DIRECTORS’ANDCHIEFEXECUTIVE’SINTERESTSANDSHORT

POSITIONSINSHARES,UNDERLYINGSHARESANDDEBENTURESOFTHECOMPANYANDITSASSOCIATEDCORPORATION”ofthis

report.

AsPCRDandthePrivateCompaniesareinvolvedinthedevelopmentand/orinvestmentofpropertiesofdifferenttypesand/orindifferent

locations,theGrouphasbeenoperatingindependentlyof,andatarm’slengthfrom,thebusinessesofthosecompanies.

Furthermore,theGroupholdsminorityequityinterestsinanumberofInternet-relatedcompaniesinwhichtheGroupisentitledtoappoint,

andhasappointed,oneormoredirectorstotheboardofthesecompaniestorepresenttheinterestsoftheGroup.Someorallofthese

companiesmaycompetedirectlyorindirectly,withcertainaspectsoftheGroup’sbusiness.

Otherthanasdisclosedabove,noneofthedirectorsisinterestedinanybusiness,apartfromtheGroup’sbusinesses,whichcompetesor

islikelytocompete,eitherdirectlyorindirectly,withtheGroup’sbusinesses.

Notes:1. CertainbusinessesoftheCheungKongGroupmaycompetewithcertainaspectsofthebusinessoftheGroup.LiTzarKai,Richardisoneofthediscretionary

beneficiariesofcertaindiscretionarytrustswhichholdunitsinunittrustswhichinturnareinterestedincertainsharesofCheungKong.LiTzarKai,Richardholdsone-thirdoftheissuedsharecapitaloftwocompanies,whichownallthesharesinthetrusteecompanieswhichactastrusteesofsuchdiscretionarytrustsandunittrusts.ThesetrusteecompaniesperformtheirfunctionsastrusteesindependentlywithoutanyreferencetoLiTzarKai,Richard.Inviewoftheabove,theCompanyconsidersthatLiTzarKai,RichardisnotabletoexertcontrolorinfluenceovertheCheungKongGroup.

2. LiTzarKai,RichardwasadirectorofHWLandcertainofitssubsidiariesuntilAugust16,2000,thedaybeforetheacquisitionofCable&WirelessHKTLimited(nowknownasPCCW-HKTLimited)becameeffective.CertainbusinessesoftheHutchisonGroupcompetewithcertainaspectsofthebusinessoftheGroup.LiTzarKai,Richardhasapersonalinterestin110,000sharesinHWL,andisoneofthediscretionarybeneficiariesofcertaindiscretionarytrustswhichholdunitsinunittrustswhichinturnareinterestedincertainsharesofHWL.LiTzarKai,Richardholdsone-thirdoftheissuedsharecapitaloftwocompanies,whichownallthesharesinthetrusteecompanieswhichactastrusteesofsuchdiscretionarytrustsandunittrusts.ThesetrusteecompaniesperformtheirfunctionsastrusteesindependentlywithoutanyreferencetoLiTzarKai,Richard.Inviewoftheabove,theCompanyconsidersthatLiTzarKai,RichardisnotabletoexertcontrolorinfluenceovertheHutchisonGroup.

3. ChungChoYee,Micoholdsdirectpersonalinterestinaprivatecompany,whichengagesinpropertyinvestmentordevelopmentinRepulseBay,HongKong.

4. ThemergerofCNCHKandUnicomHK(formerlyknownasChinaUnicomLimited)bywayofaschemeofarrangementofCNCHKunderSection166oftheHongKongCompaniesOrdinancebecameeffectiveonOctober15,2008.

5. UnicomandCNCagreedtoundertakeamerger(“Unicom-CNCMerger”)whichbecameeffectiveonJanuary1,2009afterapprovalbytheState-ownedAssetsSupervisionandAdministrationCommissionoftheStateCouncilofthePRC.Unicom,throughabsorptionofCNC,isthesuccessorentitytotheUnicom-CNCMerger.AsaresultoftheUnicom-CNCMerger,UnicomhasassumedalltherightsandobligationsofCNCandalltheassets,liabilitiesandbusinessofCNChavevestedinUnicom.

CHARITABLE DONATIONSDuringtheyear,theGroupmadecharitabledonationsofapproximatelyHK$0.114million(2007:HK$0.003million).

POST BALANCE SHEET EVENTDetailsofthesignificantpostbalancesheeteventaresetoutinnote44totheconsolidatedfinancialstatements.



PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIESOnJune6,2008,theCompanyrepurchasedatotalof10,000,000ordinarysharesontheStockExchangeatapurchasepriceof

HK$4.84pershareatanaggregateconsiderationofHK$48,400,000(beforetransactioncosts).Therepurchasedshareswere

cancelledpriortoJune30,2008andaccordinglytheissuedsharecapitaloftheCompanywasreducedbythenominalvalueofthese

shares.Therepurchasewaseffectedwithaviewtobenefitshareholdersasawholeinenhancingtheshareholders’valueandearnings

pershareoftheCompany.

Saveasdisclosedabove,neithertheCompanynoranyofitssubsidiariespurchased,soldorredeemedanyofthelistedsecuritiesofthe

CompanyduringtheyearendedDecember31,2008.

CONTINUING CONNECTED TRANSACTIONSCertaintransactionsenteredintobytheGroupconstitutedcontinuingconnectedtransactionsundertheListingRules.Detailsofthe

transactionsasatDecember31,2008aresetoutasfollows:

1. China Telecommunications Corporation (“China Telecom”) and its subsidiaries and associates (collectively the “CTC Group”)UnihubChinaInformationTechnologyCompanyLimited(“UCIT”)isa50/50equityjointventurecompanyestablishedinthePRCby

UnihubGlobalNetworkTechnology(China)Limited,anindirectnonwholly-ownedsubsidiaryoftheCompany,andChinaHuaxinPost

andTelecommunicationsEconomyDevelopmentCentre(“ChinaHuaxin”),awholly-ownedsubsidiaryofChinaTelecom.UCIT

isanindirectnonwholly-ownedsubsidiaryoftheCompanybecausetheCompanyindirectlycontrolsthecompositionofamajorityof

theboardofdirectorsofUCIT.ChinaTelecomisregardedasaconnectedperson(asdefinedintheListingRules)oftheCompany

becauseChinaHuaxinisasubstantialshareholderofUCITandChinaTelecomisanassociateofChinaHuaxin.Accordingly,

membersoftheCTCGroupareconnectedpersonsoftheCompanyandtransactionsbetweentheGroupandtheCTCGroupconstitute

connectedtransactionsfortheCompanyundertheListingRules.

TheGroupfromtimetotimeentersintotransactionswiththeCTCGroup(the“CTCTransactions”)relatingtotheacquisitionand

provisionofcertaininformationtechnologyservicesandproducts.ItisconsideredthattheenteringintooftheCTCTransactions

withtheCTCGroupisconsistentwiththecommercialobjectivesoftheGroupandfallswithinthecorebusinessoftheGroup.These

transactionsconstitutecontinuingconnectedtransactionsoftheCompanyundertheListingRules.

Duringtheyear2008,theCompanyrevisedthepreviouslyannounced2008and2009annualcapsasdisclosedintheCompany’s

announcementdatedFebruary15,2007andsetthenew2010annualcapsforeachofthefollowingcategoriesoftransactionsbased

onthenatureofthetransactionsfromtimetotimeenteredintowiththeCTCGroup:

(1) ProvisionofdataservicesbytheGrouptotheCTCGroup;

(2) ProvisionofdataservicesbytheCTCGrouptotheGroup;and

(3) ProvisionofsystemsintegrationservicesbytheGrouptotheCTCGroup.

TheconsiderationforeachoftheabovecategoriesoftheCTCTransactionsisorwillbeafixedsumsetoutintherelevantagreements

betweentherelevantparties,settledbywayofcashanddeterminedbyarm’slengthnegotiationsbetweentherelevantpartieswith

referenceto(i)theestimatedcostsoftheprovisionoftherelevantservicestoand/orfromtheCTCGroup;and(ii)ifapplicable,the

estimatedcostsoftherelevanthardwareequipmentandtheresourcestobeincurredbytheGroupforinstallingthesame.Ingeneral,

thedurationortermofeachCTCTransactionwillnotexceedthreeyears,otherthanthoseofasimilarnatureasthecapacitypurchase

andsalecontractsrelatingtothegrantofindefeasiblerightstousebandwidthcapacity(the“IRUContracts”)availableonbothgroups’

networkstoand/orfromtheCTCGroup.

TheGroupmayfromtimetotimeenterintotheIRUContractswhicharecategorizedunderdataservices(asmentionedabove)and

arepartofthenormalcommercialservicesoftheGroup,andAccessCapitalLimited,theindependentfinancialadviserappointedin

accordancewiththeListingRules,isoftheviewthatitis(i)essentialtosafeguardtheinterestsoftheCompanyanditsshareholdersto

enterintoIRUContractswithdurationexceedingthreeyears;and(ii)normalbusinesspracticefortheprovisionofIRUContractstobe

ofadurationexceedingthreeyearsandbeforatermupto15years.


CONTINUING CONNECTED TRANSACTIONS (continued)1. China Telecommunications Corporation (“China Telecom”) and its subsidiaries and associates (collectively the “CTC Group”)

(continued)Theapproximateaggregatevalueandtherevised2008annualcapsofeachcategoryoftheCTCTransactionsaresetoutbelow:

Approximate Annualcap

aggregatevalue fortheCTCGroup

forthefinancial forthefinancial

yearended yearended

Category December31,2008 December31,2008

(HK$’000) (HK$’000)

(1) ProvisionofdataservicesbytheGrouptotheCTCGroup 145,592 530,000

(2) ProvisionofdataservicesbytheCTCGrouptotheGroup 226,284 730,000

(3) ProvisionofsystemsintegrationservicesbytheGrouptotheCTCGroup 967,378 1,300,000

2. China Network Communications Group Corporation (“CNC”) and its subsidiaries and associates (collectively the “CNC Group”)ChinaNetcomCorporation(BVI)Limited(“ChinaNetcomBVI”),anindirectwholly-ownedsubsidiaryofCNC,wasasubstantial

shareholderandconnectedperson(asdefinedintheListingRules)oftheCompanyduringtheyearunderreview.Accordingly,the

CNCGroupwasaconnectedpersonoftheCompanyundertheListingRulesandtransactionsbetweentheGroupandtheCNCGroup

constitutedconnectedtransactionsfortheCompanyundertheListingRules.

TheGrouphas,fromtimetotime,enteredintotransactionswiththeCNCGroup(whichincludedUnicomHKanditssubsidiaries

andassociatesasaresultofitsmergerwithCNCHKeffectiveOctober15,2008)relatingto(i)theacquisitionandprovisionofcertain

informationtechnologyservicesandproducts(the“CNC-UnicomTransactions”);and(ii)theleaseandfacilityandmanagement

servicesasreferredtointheCompany’sannouncementdatedJanuary4,2008(the“LeaseandFacilityandManagementServices”,

togetherwiththeCNC-UnicomTransactions,collectivelyreferredtoasthe“CNCTransactions”).Thesetransactionsconstituted

continuingconnectedtransactionsoftheCompanyundertheListingRules.

ItisconsideredthattheenteringintooftheCNC-UnicomTransactionswiththeCNCGroupisconsistentwiththecommercial

objectivesoftheGroupandfallswithinthecorebusinessoftheGroup.ItisanticipatedthatenteringintotheCNC-Unicom

TransactionswiththeCNCGroupwillfurtherstrengthentheGroup'spositionasaprovideroftheinformationtechnologyservicesinthe

PRC.

ItisconsideredthattheenteringintooftheLeaseandFacilityandManagementServiceswiththeCNCGroupwillcomplementand

ensureastable,uninterruptedandreliableservicestobeprovidedbytheGroupandwillallowtheGrouptoachieveitscommercial

objectivesandenhancethecorebusinessoftheGroup,whichmayenhancethebusinessandperformanceoftheGroup.

AsreferredtointheCompany’sannouncementdatedJanuary4,2008,theCompanysetanannualcapforeachofthefollowing

categoriesoftransactionsforthefinancialyearendingDecember31,2008basedonthenatureoftransactionsfromtimetotime

enteredintowiththeCNCGroup:

(1) ProvisionofdataservicesbytheGrouptotheCNCGroup;

(2) ProvisionofdataservicesbytheCNCGrouptotheGroup;and

(3) ProvisionofsystemsintegrationservicesbytheGrouptotheCNCGroup.



CONTINUING CONNECTED TRANSACTIONS (continued)2. China Network Communications Group Corporation (“CNC”) and its subsidiaries and associates (collectively the “CNC Group”)

(continued)TheconsiderationforeachoftheabovecategoriesoftheCNC-UnicomTransactionsisorwillbeafixedsumsetoutintherelevantagreementsbetweentherelevantparties,settledbywayofcashanddeterminedbyarm’slengthnegotiationsbetweentherelevantpartieswithreferenceto(i)theestimatedcostsoftheprovisionoftherelevantservicestoand/orfromtheCNCGroup;and(ii)ifapplicable,theestimatedcostsoftherelevanthardwareequipmentandtheresourcestobeincurredbytheGroupforinstallingthesame.Ingeneral,thedurationortermofeachCNC-UnicomTransactionwillnotexceedthreeyears,otherthanthosecapacitypurchaseandsalecontractsrelatingtothegrantofindefeasiblerightstousebandwidthcapacity(the“IRUContracts”)availableonbothgroups’networkstoand/orfromtheCNCGroupandtheIPLCServicesAgreements(belowdefined)whicharenotmateriallydifferentinnaturetotheIRUContracts.

TheGrouphas,fromtimetotime,enteredintotheIRUContractswhicharecategorizedunderdataservices(asmentionedabove)andarepartofthenormalcommercialactivitiesoftheGroup.AccessCapitalLimited,theindependentfinancialadviserappointedinaccordancewiththeListingRules,confirmedthatitisnormalbusinesspracticefortheprovisionofIRUContractstobeofadurationexceedingthreeyearsandbeforatermupto15years.

Duringtheyear2008,PCCWGlobalLimited,anindirectwholly-ownedsubsidiaryoftheCompanyenteredintointernationalprivateleasedcircuitservices(the“IPLCServices”)agreementswithChinaNetcom(Group)CompanyLimited,asubsidiaryoftheCNCGroupfortheprovisionofIPLCServicestobemadebytheGrouptotheCNCGroup(foraperiodofsixandahalfyears)andviceversa(foraperiodoffiveyears)(the“IPLCServicesAgreements”)whicharenotmateriallydifferentinnaturetotheIRUContracts.TheIPLCServicesarecategorizedasaforesaiddataservicesandarepartofthenormalcommercialservicesoftheGroup.AccessCapitalLimited,theindependentfinancialadviserappointedinaccordancewiththeListingRules,wasoftheopinionthatitis(i)essentialtosafeguardtheinterestsoftheCompanyanditsshareholderstoenterintotheIPLCServicesAgreementswithdurationexceedingthreeyears;and(ii)anormalbusinesspracticefortheprovisionofIPLCServicesrelatingtotheIPLCServicesAgreementstobeofadurationexceedingthreeyearsandbeforatermuptosixandahalfyears(fromtheGrouptotheCNCGroup)andfiveyears(fromtheCNCGrouptotheGroup).

TheapproximateaggregatevalueandtheannualcapsofeachcategoryoftheCNC-UnicomTransactionsaresetoutbelow:

Approximate Annualcap aggregatevalue fortheCNCGroup forthefinancial forthefinancial yearended yearendedCategory December31,2008 December31,2008 (HK$’000) (HK$’000)

(1) ProvisionofdataservicesbytheGrouptotheCNCGroup 69,230 300,000

(2) ProvisionofdataservicesbytheCNCGrouptotheGroup 97,605 350,000

(3) ProvisionofsystemsintegrationservicesbytheGrouptotheCNCGroup 64,307 150,000

RegardingtheLeaseandFacilityandManagementServices,電訊盈科信息技術（廣州）有限公司(PCCWSolutions(Guangzhou)Limited)(“PCCWGZ”),anindirectwholly-ownedsubsidiaryoftheCompany,enteredintoaleaseandfacilityandmanagementservicesagreement(the“Agreement”)with中國網絡通信集團公司廣東省分公司(ChinaNetworkCommunicationsGroupCorporationGuangdongBranch)(“CNCGD”),theGuangdongbranchofCNCduringtheyearunderreviewwithdurationexceedingthreeyears.PursuanttotheAgreement,CNCGDwillleasetoPCCWGZanareaforuseasaservicecentreandprovidePCCWGZwithfacilityandmanagementservicesinrespectofcertainareainCNCScienceTownTelecommunicationsHubBuildingsituatedintheGuangzhouScienceTown,GuangdongProvince,thePRC.AsdisclosedintheCompany’sannouncementdatedJanuary4,2008,AccessCapitalLimited,theindependentfinancialadviserappointedinaccordancewiththeListingRules,wasoftheviewthatthetransactionsundertheAgreementmayenhanceandsafeguardthebusinessandperformanceoftheGroup,andtheinterestsoftheCompanyanditsshareholdersasawhole,andgiventhenatureoftheleaseandtheservicestobeprovidedbyCNCGDundertheAgreementandanysupplementalagreementwhenitisenteredinto,itisnormalbusinesspracticefortheAgreementandthesupplementalagreementinrelationtotheoptionalextendedareas(ifandwhenitisenteredintowhentheareaextensionoptionisexercisedbyPCCWGZpursuanttotheAgreement),ifany,tohaveadurationof15years,withanoptiontorenewforanotherfiveyears.TheapproximateservicefeeschargedbyCNCGDfortheyearendedDecember31,2008wasHK$3,634,000whichdidnotexceedtheannualcapforthefirstyearofthe15-yeartermofHK$29,522,000.


CONTINUING CONNECTED TRANSACTIONS (continued)2. China Network Communications Group Corporation (“CNC”) and its subsidiaries and associates (collectively the “CNC Group”)

(continued)OnJanuary23,2009,theCompanymadeanannouncementregardingthesettingofanannualcapforeachoftheabovethreecategoriesoftheCNC-UnicomTransactionsforeachofthethreefinancialyearsendingDecember31,2011basedonthenatureofthetransactionsfromtimetotimeenteredintowiththeUnicomanditssubsidiariesandassociates.

3. Annual Review of Continuing Connected TransactionsPursuanttoRule14A.38oftheListingRules,theBoardengagedanexternalauditoroftheCompanytoperformcertainagreeduponproceduresinrespectoftheCTCTransactionsandtheCNCTransactionsenteredintobytheGroupfortheyearendedDecember31,2008.

TheexternalauditorhasreportedtheirfactualfindingsontheseprocedurestotheBoardthatthesamplestheexternalauditorselectedfortheCTCTransactionsandtheCNCTransactionswereinagreementinrespectofitems(ii),(iii)and(iv)below.TheexternalauditorconfirmedtotheBoardinwritingthatfortheyearendedDecember31,2008,theCTCTransactionsandtheCNCTransactions:

(i) wereapprovedbytheBoard;

(ii) wereinaccordancewiththepricingpoliciesoftheGroupiftheCTCTransactionsandtheCNCTransactionsinvolvetheprovisionofgoodsorservicesbytheGroup;

(iii)wereenteredintoinaccordancewiththerelevantagreementsgoverningtheCTCTransactionsandtheCNCTransactions;and

(iv)didnotexceedtherespectiveannualcapsoftheCTCTransactionsandtheCNCTransactionsdisclosedintheCompany’spreviousannouncements.

TheBoard,includingtheindependentnon-executivedirectorsoftheCompany,hasreviewedandconfirmedthattheCTCTransactionsandtheCNCTransactionsfortheyearendedDecember31,2008wereenteredinto:

(i) intheordinaryandusualcourseofthebusinessoftheGroup;

(ii) eitheronnormalcommercialtermsorontermsnolessfavourabletotheGroupthantermsavailabletoorobtainedfromtheindependentthirdparties;and

(iii)inaccordancewiththerelevantagreementsgoverningthemontermsthatarefairandreasonableandintheinterestsoftheshareholdersoftheCompanyasawhole.

RELATED PARTY TRANSACTIONSDetailsoftherelatedpartytransactionsundertakeninnormalcourseofbusinessaresetoutinnote4totheconsolidatedfinancialstatements.InrelationtothoserelatedpartytransactionsthatconstitutedconnectedtransactionsundertheListingRules,theyhavecompliedwithapplicablerequirementsinaccordancewiththeListingRules.

PUBLIC FLOATAsatthedateofthisreport,theCompanyhasmaintainedtheprescribedpublicfloatundertheListingRules,basedontheinformationthatispubliclyavailabletotheCompanyandwithintheknowledgeoftheCompany’sdirectors.

AUDITORThefinancialstatementsforthefinancialyearendedDecember31,2008havebeenauditedbyPricewaterhouseCooperswhowillretireonconclusionoftheforthcomingannualgeneralmeetingoftheCompany.Aresolutionforthere-appointmentofPricewaterhouseCoopersasauditoroftheCompanyistobeproposedattheforthcomingannualgeneralmeeting.

OnbehalfoftheBoard

Philana WY PoonGroup General counsel and company SecretaryHongKong,April22,2009


INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF PCCW LIMITED(incorporated in Hong Kong with limited liability)

WehaveauditedtheconsolidatedfinancialstatementsofPCCWLimited(the“Company”)anditssubsidiaries(collectivelythe“Group”)

setoutonpages49to137,whichcomprisetheconsolidatedandcompanybalancesheetsasatDecember31,2008,andthe

consolidatedincomestatement,theconsolidatedstatementofchangesinequityandtheconsolidatedcashflowstatementfortheyear

thenended,andasummaryofsignificantaccountingpoliciesandotherexplanatorynotes.

Directors’ responsibility for the financial statementsThedirectorsoftheCompanyareresponsibleforthepreparationandthetrueandfairpresentationoftheseconsolidatedfinancial

statementsinaccordancewithHongKongFinancialReportingStandardsissuedbytheHongKongInstituteofCertifiedPublic

Accountants,andtheHongKongCompaniesOrdinance.Thisresponsibilityincludesdesigning,implementingandmaintaininginternal

controlrelevanttothepreparationandthetrueandfairpresentationoffinancialstatementsthatarefreefrommaterialmisstatement,

whetherduetofraudorerror;selectingandapplyingappropriateaccountingpolicies;andmakingaccountingestimatesthatare

reasonableinthecircumstances.

Auditor’s responsibilityOurresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonourauditandtoreportouropinionsolely

toyou,asabody,inaccordancewithsection141oftheHongKongCompaniesOrdinanceandfornootherpurpose.Wedonotassume

responsibilitytowardsoracceptliabilitytoanyotherpersonforthecontentsofthisreport.

WeconductedourauditinaccordancewithHongKongStandardsonAuditingissuedbytheHongKongInstituteofCertifiedPublic

Accountants.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonable

assuranceastowhetherthefinancialstatementsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.The

proceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementofthefinancial

statements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity’s

preparationandtrueandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthe

circumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludes

evaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebythedirectors,aswell

asevaluatingtheoverallpresentationofthefinancialstatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

OpinionInouropinion,theconsolidatedfinancialstatementsgiveatrueandfairviewofthestateofaffairsoftheCompanyandoftheGroupasat

December31,2008andoftheGroup’sprofitandcashflowsfortheyearthenendedinaccordancewithHongKongFinancialReporting

StandardsandhavebeenproperlypreparedinaccordancewiththeHongKongCompaniesOrdinance.

PricewaterhouseCooperscertified Public Accountants

HongKong,April22,2009


CONSOLIDATED INCOME STATEMENTFortheyearendedDecember31,2008

InHK$million(exceptforearningspershare) Note(s) 2008 2007

Turnover 5&6 31,951 23,715

Costofsales (17,850 ) (10,538)

Generalandadministrativeexpenses (10,005 ) (9,144)

Otherlosses,net 7 (464 ) (3)

Lossesonproperty,plantandequipment 8 (103 ) (7)

Interestincome 197 429

Financecosts 10 (1,473 ) (1,658)

Shareofresultsofassociates 27 25

Shareofresultsofjointlycontrolledcompanies (16 ) (12)

Impairmentlossesoninterestsinjointlycontrolledcompanies (31 ) –

Profitbeforeincometax 9 2,233 2,807

Incometax 12(a) (711 ) (970)

Profitfortheyear 6(a) 1,522 1,837

Attributableto:

EquityholdersoftheCompany 1,272 1,503

Minorityinterests 250 334


DividendspayabletoequityholdersoftheCompanyattributabletotheyear: 14(a)

Interimdividenddeclaredandpaidduringtheyear 474 440

Finaldividendproposedafterthebalancesheetdate – 915

Specialdividenddeclaredafterthebalancesheetdate 8,804 –

9,278 1,355

Earningspershare 15

Basic 18.78 cents 22.21cents

Diluted 18.77 cents 22.18cents

Thenotesonpages56to137formpartoftheseconsolidatedfinancialstatements.


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFortheyearendedDecember31,2008

InHK$million 2008 Attributable to equity holders Minority Note(s) of the Company interests Total equity

At January 1, 2008 1,552 2,799 4,351

Translationexchangedifferences 33 42 116 158Available-for-salefinancialassets:

–changesinfairvalue 33 (105 ) – (105 ) –transfertoincomestatementonimpairment 33 74 – 74Cashflowhedges:

–effectiveportionofchangesinfairvalue 33 247 – 247 –transferfromequitytoincomestatement 33 75 – 75

Netincomerecognizeddirectlyinequity 333 116 449Profitfortheyear 1,272 250 1,522

Total recognized income and expense for the year 1,605 366 1,971

Repurchaseofshares (49 ) – (49 )Exerciseofemployeeshareoptions 16 – 16

Movements in equity arising from capital transactions (33 ) – (33 )

Dividendpaidinrespectofthepreviousyear 14(b)&33 (915 ) – (915 )

Dividenddeclaredandpaidinrespectofthecurrentyear 14(a)&33 (474 ) – (474 )

At December 31, 2008 1,735 3,165 4,900


InHK$million 2007

Attributableto

equityholders Minority

Note(s) oftheCompany interests Totalequity

At January 1, 2007 430 2,469 2,899

Translationexchangedifferences 33 240 120 360

Available-for-salefinancialassets:

–changesinfairvalue 33 25 – 25

–transfertoincomestatementondisposal 33 (95) – (95)

–transfertoincomestatementonimpairment 33 7 – 7

Cashflowhedges:

–effectiveportionofchangesinfairvalue 33 631 – 631

–transferfromequitytoincomestatement 33 (69) – (69)

Netincomerecognizeddirectlyinequity 739 120 859

Profitfortheyear 1,503 334 1,837

Total recognized income and expense for the year 2,242 454 2,696

Exerciseofemployeeshareoptions 125 – 125

Employeeshare-basedcompensation 33 8 – 8

Movements in equity arising from capital transactions 133 – 133

Dividendpaidinrespectofthepreviousyear 14(b)&33 (813) – (813)

Dividenddeclaredandpaidinrespectofthecurrentyear 14(a)&33 (440) – (440)

Dividendspaidtominorityshareholdersofasubsidiary – (65) (65)

Increaseinminorityinterestsarisingfromdecreasein

holdinginasubsidiary – 13 13

Decreaseinminorityinterestsarisingfrom

thedisposalofsubsidiaries – (72) (72)

(1,253) (124) (1,377)

At December 31, 2007 1,552 2,799 4,351



CONSOLIDATED BALANCE SHEETAsatDecember31,2008

InHK$million Note 2008 2007

ASSETS AND LIABILITIES

Non-current assetsProperty,plantandequipment 16 17,092 16,852Investmentproperties 17 3,785 3,920Interestsinleaseholdland 18 593 615Propertiesheldfor/underdevelopment 19 1,546 1,671Goodwill 20 3,000 3,016Intangibleassets 21 1,885 1,638Interestinassociates 23 674 655Interestinjointlycontrolledcompanies 24 268 316Held-to-maturityinvestments 25 5 6Available-for-salefinancialassets 25(a) 244 321Amountsduefromrelatedcompanies 4(d) 3 9Leasepaymentsreceivable 36 – 91Deferredincometaxassets 34(a) 48 216Othernon-currentassets 392 471

29,535 29,797

Current assetsPropertiesunderdevelopment 19 331 8,436Propertiesforsale 19 2,071 697Salesproceedsheldinstakeholders’accounts 26(a) 6,994 2,425Restrictedcash 26(b) 823 682Prepayments,depositsandothercurrentassets 26(c) 1,961 2,007Inventories 26(d) 1,016 854Amountsduefromrelatedcompanies 4(d) 35 16Derivativefinancialinstruments 29 230 43Financialassetsatfairvaluethroughprofitorloss 25(b) – 12Tradereceivables,net 26(e) 4,317 2,709Taxrecoverable 8 1Cashandcashequivalents 37(d) 9,284 3,678

27,070 21,560

Current liabilitiesShort-termborrowings 26(f) – (10,174)Derivativefinancialinstruments 29 – (13)Tradepayables 26(g) (1,700 ) (1,264)Accrualsandotherpayables (5,241 ) (4,785)AmountpayabletotheGovernmentundertheCyberportProjectAgreement 28 (4,981 ) (5,178)Mobilecarrierlicencefeeliabilities 35 (76 ) (67)Amountsduetorelatedcompanies 4(d) (585 ) (539)Grossamountsduetocustomersforcontractwork 26(h) (5 ) (7)Advancesfromcustomers (2,224 ) (3,434)Currentincometaxliabilities (1,911 ) (684)

(16,723 ) (26,145)

Netcurrentassets/(liabilities) 10,347 (4,585)

Total assets less current liabilities 39,882 25,212



Non-current liabilitiesLong-termborrowings 27 (31,745 ) (15,505)

Deferredincometaxliabilities 34(a) (714 ) (2,150)

Deferredincome (670 ) (719)

Definedbenefitliability 31(a)(i) (7 ) (9)

AmountpayabletotheGovernmentundertheCyberportProjectAgreement 28 (1,195 ) (1,741)

Mobilecarrierlicencefeeliabilities 35 (512 ) (532)

Otherlong-termliabilities (139 ) (205)

(34,982 ) (20,861)

Net assets 4,900 4,351

CAPITAL AND RESERVES

Sharecapital 30 1,693 1,695

Reserves/(Deficit) 33 42 (143)

Equity attributable to equity holders of the Company 1,735 1,552

Minority interests 3,165 2,799

Total equity 4,900 4,351

ApprovedandauthorizedforissuebytheBoardofDirectorsonApril22,2009andsignedonbehalfoftheBoardby

Alexander Anthony Arena Chung Cho Yee, Mico director director



BALANCE SHEETAsatDecember31,2008


ASSETS AND LIABILITIES

Non-current assetsProperty,plantandequipment 16 – 2

Investmentsinsubsidiaries 22 12,089 20,301

Othernon-currentassets – 12

12,089 20,315

Current assetsRestrictedcash 26(b) 103 106

Prepayments,depositsandothercurrentassets 31 13

Amountsduefromsubsidiaries 22(a) 19,408 35,998

Cashandcashequivalents 37(d) 5,838 36

25,380 36,153

Current liabilitiesAccrualsandotherpayables (27 ) (8)

Currentincometaxliabilities (37 ) (51)

(64 ) (59)

Netcurrentassets 25,316 36,094

Total assets less current liabilities 37,405 56,409

Net assets 37,405 56,409

CAPITAL AND RESERVES

Sharecapital 30 1,693 1,695

Reserves 33 35,712 54,714

Total equity 37,405 56,409

ApprovedandauthorizedforissuebytheBoardofDirectorsonApril22,2009andsignedonbehalfoftheBoardby

Alexander Anthony Arena Chung Cho Yee, Mico director director



CONSOLIDATED CASH FLOw STATEMENTFortheyearendedDecember31,2008


NET CASH GENERATED FROM OPERATING ACTIVITIES 37(a) 6,462 5,121

INVESTING ACTIVITIESProceedsfromdisposalsofproperty,plantandequipment 36 22

Purchasesofproperty,plantandequipment (3,286 ) (3,102)

Purchasesofinvestmentproperties – (4)

Purchasesofotherintangibleassets (1,191 ) (796)

Acquisitionofthebusinessofasubsidiary(netofcashandcashequivalentsacquired) 37(b) – (23)

Acquisitionofinterestinajointlycontrolledcompany – (311)

Proceedsfromdisposalofsubsidiaries(netofcashandcashequivalentsdisposedof) 37(c) – 165

Paymentsforterminationofderivativefinancialinstruments (12 ) (94)

Proceedsfromterminationofderivativefinancialinstruments 97 72

Purchasesofavailable-for-salefinancialassets (124 ) (176)

Proceedsfromdisposalsofavailable-for-salefinancialassetsand

held-to-maturityinvestments 68 251

Proceedsfromdisposalsoffinancialassetsatfairvaluethroughprofitorloss 12 12

Interestreceived 101 191

Dividendreceivedfromajointlycontrolledcompanyandassociates 9 10

Proceedsfromexpiryofleases 112 –

Instalmentsreceivedfromthedisposalofunconsolidatedsubsidiaries – 10

Loanrepaymentfromajointlycontrolledcompany 10 –

NET CASH USED IN INVESTING ACTIVITIES (4,168 ) (3,773)

FINANCING ACTIVITIESProceedsfromexerciseofemployeeshareoptions 16 137

Financefeespaidfornewborrowingsraised (237 ) (5)

Newborrowingsraised 23,073 10,278

Interestpaid (1,439 ) (1,748)

Repaymentsofborrowings (16,647 ) (6,417)

Redemptionofconvertiblenoteandbonds – (7,724)

DividendspaidtoshareholdersoftheCompany (1,389 ) (1,253)

Dividendspaidtominorityshareholdersofasubsidiary – (65)

Repurchaseofshares (49 ) –

Decreaseinrestrictedcash 3 4,178

NET CASH GENERATED FROM/(USED IN) FINANCING ACTIVITIES 3,331 (2,619)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 5,625 (1,271)

Exchangedifferences (19 ) (2)

CASH AND CASH EQUIVALENTS

Beginningofyear 3,678 4,951

Endofyear 37(d) 9,284 3,678



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSDecember31,2008(AmountexpressedinHongKongdollarsunlessotherwisestated)

1 GENERAL INFORMATIONPCCWLimited(the“Company”)wasincorporatedintheHongKongSpecialAdministrativeRegion(“HongKong”)anditssecurities

havebeenlistedonTheStockExchangeofHongKongLimited(the“StockExchange”)sinceOctober18,1994.Theaddressof

itsregisteredofficeis39thFloor,PCCWTower,TaiKooPlace,979King’sRoad,QuarryBay,HongKong.Theprincipalactivitiesof

theCompanyanditssubsidiaries(collectivelythe“Group”)aretheprovisionoflocal,mobileandinternationaltelecommunications

services,Internetaccessservices,interactivemultimediaandpay-TVservices,thesaleandrentaloftelecommunicationsequipment,

andtheprovisionofcomputer,engineeringandothertechnicalservicesprimarily,inHongKong,andalsoinmainlandChinaand

elsewhereintheAsiaPacificregion;investmentsin,anddevelopmentof,systemsintegration,networkengineering,andtechnology-

relatedbusinesses;andinvestmentsin,anddevelopmentof,infrastructureandpropertiesinHongKong,mainlandChinaand

elsewhereintheAsiaPacificandMiddleEastregions.

2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIESa. Statement of complianceThesefinancialstatementshavebeenpreparedinaccordancewithHongKongFinancialReportingStandards(“HKFRSs”),which

isacollectivetermforallindividualHongKongFinancialReportingStandards,HongKongAccountingStandards(“HKASs”)and

Interpretations(“Ints”)issuedbytheHongKongInstituteofCertifiedPublicAccountants(“HKICPA”),accountingprinciplesgenerally

acceptedinHongKongandtherequirementsoftheHongKongCompaniesOrdinance.Asummaryoftheprincipalaccounting

policiesadoptedbytheGroupissetoutbelow.

TheHKICPAhasissuedcertainnewandrevisedHKFRSsthatarefirsteffectiveoravailableforearlyadoptionforthecurrent

accountingperiodoftheGroup.TheGrouphasadoptedthenewandrevisedHKFRSsbelow,whicharerelevanttoitsoperations,in

thepreparationofthefinancialstatements.TheadoptionofthesenewandrevisedHKFRSshasnotledtoanysignificantchangesin

theaccountingpoliciesappliedinthesefinancialstatements,andhasnomaterialeffectontheGroup’sresultsandfinancialposition

forthecurrentorprioraccountingperiodsreflectedinthesefinancialstatements.

– TheHKAS39,‘Financialinstruments:Recognitionandmeasurement’,amendmentonreclassificationoffinancialassetspermits

reclassificationofcertainfinancialassetsoutoftheheld-for-tradingandavailable-for-salecategoriesifspecifiedconditionsare

met.TherelatedamendmenttoHKFRS7,‘Financialinstruments:Disclosures’,introducesdisclosurerequirementswithrespectto

financialassetsreclassifiedoutoftheheld-for-tradingandavailable-for-salecategories.Theamendmentiseffectiveprospectively

fromJuly1,2008.ThisamendmentdoesnothaveanyimpactontheGroup’sfinancialstatements,astheGrouphasnot

reclassifiedanyfinancialassets.

– HK(IFRIC)–Int11,‘HKFRS2–Groupandtreasurysharetransactions’,providesguidanceonwhethershare-basedtransactions

involvingtreasurysharesorinvolvinggroupentities(forexample,optionsoveraparent’sshares)shouldbeaccountedforas

equity-settledorcash-settledshare-basedpaymenttransactionsinthestand-aloneaccountsoftheparentandgroupcompanies.

ThisinterpretationdoesnothaveanyimpactontheGroup’sfinancialstatements,asthisinterpretationisconsistentwiththe

accountingpoliciesalreadyadoptedbytheGroup.

– HK(IFRIC)–Int14,‘HKAS19–Thelimitonadefinedbenefitasset,minimumfundingrequirementsandtheirinteraction’,

providesguidanceonassessingthelimitinHKAS19ontheamountofthesurplusthatcanberecognizedasanasset.Italso

explainshowthepensionassetorliabilitymaybeaffectedbyastatutoryorcontractualminimumfundingrequirement.This

interpretationdoesnothaveanyimpactontheGroup’sfinancialstatements,astheGrouphasapensiondeficitandisnotsubject

toanyminimumfundingrequirements.

TheGrouphasnotadoptedanynewstandardorinterpretationthatisnotyeteffectiveforthecurrentaccountingperiod,detailsof

whicharesetoutinnote46.


2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)b. Basis of preparation of the financial statementsTheconsolidatedfinancialstatementsfortheyearendedDecember31,2008comprisethefinancialstatementsoftheCompanyand

itssubsidiaries,andtheGroup’sinterestinassociatesandjointlycontrolledcompanies.

Themeasurementbasisusedinthepreparationofthefinancialstatementsishistoricalcostbasis,exceptthatthefollowingassetsand

liabilitiesarestatedatfairvalueasexplainedintheaccountingpoliciessetoutbelow:

– investmentproperties(seenote2(g));

– financialinstrumentsclassifiedasfinancialassetsatfairvaluethroughprofitorloss(seenote2(m)(i))oravailable-for-salefinancial

assets(seenote2(m)(iii));and

– derivativefinancialinstruments(seenote2(o)).

ThepreparationoffinancialstatementsinconformitywithHKFRSsrequiresmanagementtomakejudgements,estimatesand

assumptionsthataffecttheapplicationofpoliciesandreportedamountsofassets,liabilities,incomeandexpenses.Theestimates

andassociatedassumptionsarebasedonhistoricalexperienceandvariousotherfactorsthatarebelievedtobereasonableunderthe

circumstances,theresultsofwhichformthebasisofmakingthejudgementsaboutthecarryingvaluesofassetsandliabilitiesthatare

notreadilyapparentfromothersources.Actualresultsmaydifferfromtheseestimates.

Theestimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognizedinthe

periodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiod,orintheperiodoftherevisionandfutureperiodsifthe

revisionaffectsbothcurrentandfutureperiods.

JudgementsmadebymanagementintheapplicationofHKFRSsthathavesignificanteffectonthefinancialstatementsandestimates

withasignificantriskofmaterialadjustmentsinthenextyeararediscussedinnote3.

c. Subsidiaries and minority interestsSubsidiariesareentitiescontrolledbytheGroup.ControlexistswhentheGrouphasthepowertogovernthefinancialandoperating

policiesofanentitysoastoobtainbenefitsfromitsactivities.Inassessingcontrol,potentialvotingrightsthatpresentlyareexercisable

aretakenintoaccount.

Aninvestmentinasubsidiaryisconsolidatedintotheconsolidatedfinancialstatementsfromthedatethatcontrolcommencesuntilthe

datethatcontrolceases.

ThepurchasemethodofaccountingisusedtoaccountfortheacquisitionofsubsidiariesbytheGroup.Thecostofanacquisitionis

measuredasthefairvalueoftheassetsgiven,equityinstrumentsissuedandliabilitiesincurredorassumedatthedateofexchange,

pluscostsdirectlyattributabletotheacquisition.Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedina

businesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisitiondate,irrespectiveoftheextentofanyminorityinterest.

TheexcessofthecostofacquisitionoverthefairvalueoftheGroup’sshareofidentifiablenetassetsacquiredisrecordedasgoodwill

(seenote2(k)).

WheretheGroupincreasesitsinterestinasubsidiary,itsincrementalinterestgivesrisetoadditionalgoodwillinthesubsidiary.The

goodwillisdeterminedasthedifferencebetweentheconsiderationgivenandtheinterestacquiredinthesubsidiary’snetassetsand

contingentliabilitiesattheircarryingvaluesontheGroup’sconsolidatedbalancesheet.Nofairvalueexerciseisperformedbecause

HKFRS3“BusinessCombination”allowsastep-uptofairvaluesonlyatthedatecontrolisgained.WheretheGroupdecreasesits

interestinasubsidiarywithoutlosingcontrol,anygainorlossonthepartialdisposalisrecognizedas“Other(losses)/gains,net”inthe

consolidatedincomestatement.

Intra-groupbalancesandtransactionsandanyunrealizedprofitsarisingfromintra-grouptransactionsareeliminatedinfullin

preparingtheconsolidatedfinancialstatements.Unrealizedlossesresultingfromintra-grouptransactionsareeliminatedinthesame

wayasunrealizedgainsbutonlytotheextentthatthereisnoevidenceofimpairmentoftheassettransferred.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)December31,2008(AmountexpressedinHongKongdollarsunlessotherwisestated)

2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)c. Subsidiaries and minority interests (continued)MinorityinterestsrepresenttheportionofthenetassetsofsubsidiariesattributabletointereststhatarenotownedbytheCompany,

whetherdirectlyorindirectlythroughsubsidiaries,andinrespectofwhichtheGrouphasnotagreedanyadditionaltermswiththe

holdersofthoseinterestswhichwouldresultintheGroupasawholehavingacontractualobligationinrespectofthoseintereststhat

meetsthedefinitionofafinancialliability.Minorityinterestsarepresentedintheconsolidatedbalancesheetandstatementofchanges

inequitywithinequity,separatelyfromequityattributabletotheequityholdersoftheCompany.Minorityinterestsintheresultsofthe

Grouparepresentedonthefaceoftheconsolidatedincomestatementasanallocationofthetotalprofitorlossfortheyearbetween

minorityinterestsandtheequityholdersoftheCompany.

Wherelossesapplicabletotheminorityexceedtheminority’sinterestintheequityofasubsidiary,theexcess,andanyfurtherlosses

applicabletotheminority,arechargedagainsttheGroup’sinterestexcepttotheextentthattheminorityhasabindingobligationto,

andisableto,makeadditionalinvestmenttocoverthelosses.Ifthesubsidiarysubsequentlyreportsprofits,theGroup’sinterestis

allocatedallsuchprofitsuntiltheminority’sshareoflossespreviouslyabsorbedbytheGrouphasbeenrecovered.

ForsubsidiarieswhichhaveaccountingyearendsdifferentfromtheGroup,thesubsidiariesprepare,forthepurposeofconsolidation,

financialstatementsuptoandasatthesamedateastheGroup.

IntheCompany’sbalancesheet,investmentsinsubsidiariesarestatedatcostlessimpairmentlosses(seenote2(n)(ii)).Theresultsof

subsidiariesareaccountedforbytheCompanyonthebasisofdividendsreceivedandreceivable.

d. AssociatesAnassociateisanentityinwhichtheGrouportheCompanyhassignificantinfluence,butnotcontrolorjointcontrol,overits

management,includingparticipatinginthefinancialandoperatingpolicydecisions.

Investmentsinassociatesareaccountedforintheconsolidatedfinancialstatementsundertheequitymethodandareinitially

recordedatcostandadjustedthereafterforthepost-acquisitionchangeintheGroup’sshareoftheassociates’netassets.The

consolidatedincomestatementincludestheGroup’sshareofpost-acquisition,post-taxresultsoftheassociatesfortheyear.

WhentheGroup’sshareoflossesexceedsitsinterestintheassociate,theGroup’sinterestisreducedtonilandrecognitionoffurther

lossesisdiscontinuedexcepttotheextentthattheGrouphasincurredlegalorconstructiveobligationsormadepaymentsonbehalfof

theassociate.Forthispurpose,theGroup’sinterestintheassociateisthecarryingamountoftheinvestmentundertheequitymethod

togetherwiththeGroup’slong-termintereststhatinsubstanceformpartoftheGroup’snetinvestmentintheassociate.

UnrealizedprofitsandlossesresultingfromtransactionsbetweentheGroupanditsassociatesareeliminatedtotheextentofthe

Group’sinterestintheassociate,exceptwhereunrealizedlossesprovideevidenceofanimpairmentoftheassettransferred,inwhich

casetheyarerecognizedimmediatelyintheincomestatement.

IntheCompany’sbalancesheet,investmentsinassociatesarestatedatcostlessimpairmentlosses(seenote2(n)(ii)).Theresultsof

associatesareaccountedforbytheCompanyonthebasisofdividendsreceivedandreceivable.

e. Jointly controlled companiesAjointlycontrolledcompanyisanentitywhichoperatesunderacontractualarrangementbetweentheGrouportheCompanyand

otherparties,wherethecontractualarrangementestablishesthattheGrouportheCompanyandoneormoreoftheotherparties

sharejointcontrolovertheeconomicactivityoftheentity.TheGrouphasmadeinvestmentsinjointlycontrolledcompaniesinthe

People’sRepublicofChina(the“PRC”)inrespectofwhichthepartners’profit-sharingratiosduringthejointventureperiodandshare

ofnetassetsupontheexpirationofthejointventureperiodmaynotbeinproportiontotheirequityratios,butareasdefinedinthe

respectivejointventurecontracts.

InvestmentsmadebymeansofjointventurestructureswheretheGrouportheCompanycontrolsthecompositionoftheboardof

directorsorequivalentgoverningbodyand/orisinapositiontoexercisecontroloverthefinancialandoperatingpoliciesofthejointly

controlledcompaniesareaccountedforassubsidiaries.


2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)e. Jointly controlled companies (continued)Investmentsinjointlycontrolledcompaniesareaccountedforintheconsolidatedfinancialstatementsundertheequitymethod,as

describedinnote2(d).

IntheCompany’sbalancesheet,investmentsinjointlycontrolledcompaniesarestatedatcostlessimpairmentlosses(seenote

2(n)(ii)).TheresultsofjointlycontrolledcompaniesareaccountedforbytheCompanyonthebasisofdividendsreceivedand

receivable.

f. Property, plant and equipmentThefollowingitemsofproperty,plantandequipmentarestatedinthebalancesheetatcostlessaccumulateddepreciationand

impairmentlosses(seenote2(n)(ii)):

– buildingsheldforownusewhicharesituatedonleasehold/freeholdland,wherethefairvalueofthebuildingcouldbemeasured

separatelyfromthefairvalueoftheleasehold/freeholdlandattheinceptionofthelease(seenote2(h));and

– otheritemsofplantandequipment.

Thecostofanitemofproperty,plantandequipmentcomprises(i)itspurchaseprice,(ii)anydirectlyattributablecostsofbringing

theassettoitsworkingconditionandlocationforitsintendeduse,and(iii)theinitialestimateatthetimeofinstallationandduringthe

periodofuse,whererelevant,ofthecostsofdismantlingandremovingtheitemsandrestoringthesiteonwhichtheyarelocated.

Subsequentcostsareincludedinthecarryingamountofanitemofproperty,plantandequipmentorrecognizedasaseparateitemof

property,plantandequipment,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflow

totheGroupandthecostoftheitemcanbemeasuredreliably.Allothercosts,suchasrepairsandmaintenanceandoverhaulcosts,

arerecognizedintheincomestatementasanexpenseintheperiodinwhichtheyareincurred.

Gainsorlossesarisingfromtheretirementordisposalofanitemofproperty,plantandequipmentaredeterminedasthedifference

betweenthenetdisposalproceedsandthecarryingamountoftheitemandarerecognizedintheincomestatementonthedateof

retirementordisposal.

Freeholdlandandprojectsunderconstructionarenotdepreciated.Depreciationonotherproperty,plantandequipmentiscalculated

towriteoffthecostofitemsofproperty,plantandequipment,lesstheirexpectedresidualvalue,ifany,usingthestraightlinemethod

overtheirestimatedusefullivesasfollows:

Landandbuildings Overtheshorteroftheunexpiredtermoflandleaseandtheestimatedusefullives

Exchangeequipment 5to15years

Transmissionplant 5to30years

Otherplantandequipment Overtheshorterof1to17yearsandthetermoflease

Theassets’usefullivesandresidualvalues,ifany,arereviewed,andadjustedifappropriate,ateachbalancesheetdate.

g. Investment propertiesInvestmentpropertiesarelandand/orbuildingswhichareownedorheldunderaleaseholdinterest(seenote2(h))toearnrental

incomeand/orforcapitalappreciation,andwhicharenotoccupiedbythecompaniesintheconsolidatedGroup.

Investmentpropertiesarestatedinthebalancesheetatfairvalue,basedonactivemarketprices,adjusted,ifnecessary,forany

differenceinthenature,locationorconditionofthespecificasset,determinedannuallybyindependentqualifiedvaluers.Thefair

valueofinvestmentpropertiesreflects,amongotherthings,rentalincomefromcurrentleasesandassumptionsaboutrentalincome

fromfutureleasesinthelightofcurrentmarketconditions.Anygainorlossarisingfromachangeinfairvalueorfromtheretirement

ordisposalofaninvestmentpropertyisrecognizedintheincomestatement.Rentalincomefrominvestmentpropertiesisaccounted

forasdescribedinnote2(z)(iv).



2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)g. Investment properties (continued)WhentheGroupholdsapropertyinterestunderanoperatingleasetoearnrentalincomeand/orforcapitalappreciation,theinterest

isclassifiedandaccountedforasaninvestmentpropertyonaproperty-by-propertybasis.Anysuchpropertyinterestwhichhasbeen

classifiedasaninvestmentpropertyisaccountedforasifitwereheldunderafinancelease(seenote2(h)),andthesameaccounting

policiesareappliedtothatinterestasareappliedtootherinvestmentpropertiesleasedunderfinanceleases.Leasepaymentsare

accountedforasdescribedinnote2(h).

Whenanitemofproperty,plantandequipmentistransferredtoinvestmentpropertyfollowingachangeinitsuse,anydifferences

betweenthecarryingamountandthefairvalueoftheitemarisingatthedateoftransferisrecognizeddirectlyinequityifitisagain.

Upondisposaloftheitem,thegainistransferredtoretainedearnings.Anylossarisinginthismannerisrecognizedimmediatelyinthe

incomestatement.

Ifaninvestmentpropertybecomesowner-occupied,itisreclassifiedasproperty,plantandequipmentanditsfairvalueatthedate

ofreclassificationbecomesitscostforaccountingpurposes.Investmentproperty,thatisbeingredevelopedforcontinuedfutureuse

asinvestmentproperty,continuestobemeasuredatfairvalueandisnotreclassifiedasproperty,plantandequipmentduringthe

redevelopment.

Propertythatisbeingconstructedordevelopedforfutureuseasinvestmentpropertyisclassifiedasproperty,plantandequipment

andstatedatcostuntilconstructionordevelopmentiscomplete,atwhichtimeitisreclassifiedasinvestmentpropertyatfairvalue.

Anydifferencebetweenthefairvalueofthepropertyatthatdateanditspreviouscarryingamountisrecognizedintheincome

statement.

h. Leased assetsAnarrangement,comprisingatransactionoraseriesoftransactions,isorcontainsaleaseiftheGroupdeterminesthatthe

arrangementconveysarighttouseaspecificassetorassetsforanagreedperiodoftimeinreturnforapaymentoraseriesof

payments.Suchadeterminationismadebasedonanevaluationofthesubstanceofthearrangementandisregardlessofwhetherthe

arrangementtakesthelegalformofalease.

i. Classification of assets leased to the GroupLeaseswhichdonottransfersubstantiallyalltherisksandrewardsofownershiptotheGroupareclassifiedasoperatingleases,

exceptforpropertyheldunderoperatingleasesthatwouldotherwisemeetthedefinitionofaninvestmentproperty,whichis

classifiedasaninvestmentpropertyonaproperty-by-propertybasisand,ifclassifiedasinvestmentproperty,isaccountedforasif

heldunderafinancelease(seenote2(g)).

ii. Assets leased out under operating leasesWheretheGroupleasesoutassetsunderoperatingleases,theassetsareincludedinthebalancesheetaccordingtotheirnature

and,whereapplicable,aredepreciatedinaccordancewiththeGroup’sdepreciationpolicies,assetoutinnote2(f).Impairment

lossesareaccountedforinaccordancewiththeaccountingpolicyassetoutinnote2(n)(ii).Revenuearisingfromoperatingleases

isrecognizedinaccordancewiththeGroup’srevenuerecognitionpolicies,assetoutinnote2(z)(iv).

iii. Operating lease chargesWheretheGrouphastheuseofassetsheldunderoperatingleases,paymentsmadeundertheleasesarechargedtotheincome

statementinequalinstalmentsovertheaccountingperiodscoveredbytheleaseterm.Leaseincentivesreceivedarerecognizedin

theincomestatementasanintegralpartoftheaggregatenetleasepaymentsmade.Contingentrentalsarechargedtotheincome

statementintheaccountingperiodinwhichtheyareincurred.

Thecostofacquiringlandheldunderanoperatingleaseisstatedinthebalancesheetas“Interestsinleaseholdland”andis

amortizedtotheincomestatementonastraight-linebasisovertheperiodoftheleasetermexceptwherethepropertyisclassified

asaninvestmentproperty(seenote2(g))orisheldfordevelopment(seenote2(i)).

Whenthedefiniteintentiontodeveloptheleaseholdlandisclearandactioninitiated,leaseholdlandisreclassifiedasproperties

underdevelopmentandtheamortizationoftheoperatingleaseiscapitalizedinpropertiesunderdevelopmentuntilthecompletion

ofthedevelopment.


2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)i. Properties held for/under developmentPropertiesheldfordevelopmentrepresentsinterestsinlandheldforfuturedevelopmentwhicharestatedatcostlessimpairment

losses.

Propertiesunderdevelopmentrepresentinterestsinlandandbuildingsunderconstruction.Propertiesunderdevelopmentforlong-

termretentionpurposesarestatedatcostlessimpairmentlosses.

Propertiesunderdevelopmentforsale,forwhichpre-saleshavecommencedandpre-salecontractswereenteredbeforeJanuary

1,2005arestatedatcostplusattributableprofitslessanyforeseeablelosses,saledepositsreceivedandinstalmentsreceivedand

receivable(seenote2(z)(iii)).

Propertiesunderdevelopmentforsalewherethepre-saleshavenotyetcommencedorpre-salecontractswereenteredonorafter

January1,2005arecarriedatthelowerofcostandtheestimatednetrealizablevalue.

Costincludesoriginallandacquisitioncosts,costsoflanduserights,constructionexpenditureincurredandotherdirectdevelopment

costsattributabletosuchproperties,includingamortizationofleaseholdlandandinterestincurredonloansdirectlyattributabletothe

developmentpriortothecompletionofconstruction.

Netrealizablevalueisdeterminedbyreferencetoestimatedsaleproceedsofpropertiessoldintheordinarycourseofbusinesslessall

estimatedsellingexpenses.

Propertiesunderdevelopmentforlong-termretentionpurpose,oncompletion,aretransferredtoproperty,plantandequipmentor

investmentproperties.

Propertiesunderdevelopmentforsalewiththedevelopmentexpectedtobecompletedwithinoneyearfromthebalancesheetdate,

whichhaveeitherbeenpre-soldorareintendedforsale,areclassifiedundercurrentassets.

j. Properties for saleCompletedpropertiesforsaleareclassifiedundercurrentassetsandstatedatthelowerofcostandnetrealizablevalue.Costis

determinedbyapportionmentofthetotallandanddevelopmentcostsattributabletotheunsoldproperties.Netrealizablevalue

representstheestimatedsellingpricelesscoststobeincurredinsellingtheproperties.

k. GoodwillGoodwillrepresentstheexcessofthecostofabusinesscombinationoraninvestmentinanassociateorajointlycontrolledcompany

overtheGroup’sinterestinthenetfairvalueoftheacquiree’sidentifiableassets,liabilitiesandcontingentliabilities.

Goodwillisstatedintheconsolidatedbalancesheetatcostlessaccumulatedimpairmentlosses.Goodwillisallocatedtocash-

generatingunits(“CGUs”)andistestedannuallyforimpairment(seenote2(n)(ii)).Inrespectofassociatesandjointlycontrolled

companies,thecarryingamountofgoodwillisincludedinthecarryingamountoftheinterestinassociatesandjointlycontrolled

companies.

OndisposalofaCGUorpartofaCGU,anassociateorajointlycontrolledcompanyduringtheyear,anyattributableamountof

purchasedgoodwillisincludedinthecalculationoftheprofitorlossondisposal.



2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)l. Intangible assets (other than goodwill)i. Customer acquisition costs

Costsincurredtoacquirecontractualrelationshipswithcustomersarecapitalizedifitisprobablethatfutureeconomicbenefits

willflowfromthecustomerstotheGroupandsuchcostscanbemeasuredreliably.Capitalizedcustomeracquisitioncostsare

amortizedonastraight-linebasisovertheminimumenforceablecontractualperiods.Bytheendoftheminimumenforceable

contractualperiod,fullyamortizedcustomeracquisitioncostswillbewrittenoff.

Intheeventthatacustomerterminatesthecontractpriortotheendoftheminimumenforceablecontractualperiod,the

unamortizedcustomeracquisitioncostwillbewrittenoffimmediatelyintheincomestatement.

ii. Mobile carrier licenceThemobilecarrierlicencetoestablishandmaintainamobiletelecommunicationnetworkandtoprovidemobileserviceswithin

specifiedspectrumsinHongKongisrecordedasanintangibleasset.Upontheissuanceofthelicence,thecostthereof,whichis

thediscountedvalueoftheminimumannualfeespayableovertheperiodofthelicenceanddirectlyattributablecostsofpreparing

theassetforitsintendeduse,isrecordedtogetherwiththerelatedobligations.WheretheGrouphastherighttoreturnalicence

andexpectstodoso,theassetandtherelatedobligationrecordedreflecttheexpectedperiodthatthelicencewillbeheld.

Amortizationisprovidedonastraight-linebasisovertheestimatedusefullifeofthelicence.

Thedifferencebetweenthediscountedvalueandthetotaloftheminimumannualfeepaymentsrepresentstheeffectivecost

offinancing.Suchfinancecostwillbechargedtotheincomestatementintheperiodinwhichitisincurredusingtheeffective

interestmethod.

Variableannualpaymentsontopoftheminimumannualpayments,ifany,arerecognizedintheincomestatementasincurred.

iii. Other intangible assetsOtherintangibleassetsthatareacquiredbytheGrouparestatedinthebalancesheetatcostlessaccumulatedamortization

(wheretheestimatedusefullifeisfinite)andimpairmentlosses(seenote2(n)(ii)).Expendituresoninternallygeneratedgoodwill

andbrandsarerecognizedasexpensesintheperiodinwhichtheyareincurred.

Amortizationofintangibleassetswithfiniteusefullivesischargedtotheincomestatementonastraight-linebasisovertheir

estimatedusefullives.Thefollowingintangibleassetswithfiniteusefullivesareamortizedfromthedatetheyareavailableforuse

andtheirestimatedusefullivesareasfollows:

Trademarks 2to20years

Contentlicence 10years

Wirelessbroadbandlicence Overthetermoflicence

Mobilecarrierlicenceforthirdgeneration(“3G”) Overthetermoflicence,commencingfrom

services(“3Glicence”) thedateoflaunchofthe3Gservices

Customerbase 2years

Theassets’usefullivesandtheiramortizationmethodarereviewedannually.

Intangibleassetswithindefiniteusefullivesarenotamortized.Theintangibleassetanditsstatusarereviewedannuallyto

determinewhethereventsandcircumstancescontinuetosupportindefiniteusefullife.Shouldtheusefullifeofanintangibleasset

changefromindefinitetofinite,thechangewouldbeaccountedforprospectivelyfromthedateofchangeandinaccordancewith

thepolicyforamortizationofintangibleassetswithfinitelivesassetoutabove.


2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)m. Investments in debt and equity securitiesTheGroupandtheCompanyclassifytheirinvestmentsindebtandequitysecurities,otherthaninvestmentsinsubsidiaries,associates

andjointlycontrolledcompanies,as(i)financialassetsatfairvaluethroughprofitorloss,(ii)held-to-maturityinvestments,or(iii)

available-for-salefinancialassets.

Investmentsindebtandequitysecuritiesareinitiallyrecognizedatfairvalueplustransactioncosts,exceptasindicatedotherwise

below.Thefairvalueofquotedinvestmentsisbasedoncurrentbidprice.Forunlistedsecuritiesorfinancialassetswithoutanactive

market,theGroupestablishedfairvaluebyusingvaluationtechniqueswhichvariablesincludeonlydatafromobservablemarkets.The

investmentsaresubsequentlyaccountedforbasedontheirclassificationassetoutbelow:

i. Financial assets at fair value through profit or lossThiscategorycomprisesfinancialassetsheldfortradingandthosedesignatedasfairvaluethroughprofitorlossatinception.A

financialassetisclassifiedasheldfortradingifacquiredprincipallyforthepurposeofsellingintheshorttermorifsodesignated

bymanagement.

Financialassetsatfairvaluethroughprofitorlossareclassifiedascurrentassets,iftheyareeitherheldfortradingorareexpected

toberealizedwithin12monthsfromthebalancesheetdate.Anyattributabletransactioncostsarerecognizedintheincome

statementasincurred.Ateachbalancesheetdate,thefairvalueisremeasured,withanyunrealizedholdinggainsorlosses

arisingfromthechangesinfairvaluebeingrecognizedintheincomestatementintheperiodinwhichtheyarise.Thenetgain

orlossrecognizedintheincomestatementdoesnotincludeanyinterestearnedordividendsonthefinancialassetsastheseare

recognizedinaccordancewiththepoliciessetoutinnotes2(z)(vi)and2(z)(viii)respectively.

ii. Held-to-maturity investmentsHeld-to-maturityinvestmentsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitiesthatthe

Groupand/ortheCompanyhavethepositiveintentionandabilitytoholdtomaturity.Theyareincludedinnon-currentassets,

exceptforthosewithmaturitieslessthan12monthsfromthebalancesheetdate,whichareclassifiedascurrentassets.

Held-to-maturityinvestmentsarestatedinthebalancesheetatamortizedcostlessimpairmentlosses(seenote2(n)(i)).

iii. Available-for-sale financial assetsAvailable-for-salefinancialassetsarenon-derivativefinancialassetsthatareeitherdesignatedinthiscategoryornotclassifiedin

anyoftheothercategories.Theyareincludedinnon-currentassetsunlesstheGroupand/ortheCompanyintendtodisposeofthe

investmentwithin12monthsfromthebalancesheetdate.

Ateachbalancesheetdate,thefairvalueofavailable-for-salefinancialassetsisremeasured,withanyunrealizedholdinggainsor

lossesarisingfromthechangesinfairvaluebeingrecognizeddirectlyintheavailable-for-salefinancialassetsreserveunderequity,

exceptforimpairmentlosses(seenote2(n)(i))and,inthecaseofmonetaryitemssuchasdebtsecurities,foreignexchangegains

andlosseswhicharerecognizeddirectlyintheincomestatement.Dividendincomefromtheseinvestmentsisrecognizedinthe

incomestatementinaccordancewiththepolicysetoutinnote2(z)(viii)and,wheretheseinvestmentsareinterest-bearing,interest

calculatedusingtheeffectiveinterestmethodisrecognizedintheincomestatementinaccordancewiththepolicysetoutinnote

2(z)(vi).Whentheinvestmentsarederecognizedorimpaired(seenote2(n)(i)),thecumulativegainorlosspreviouslyrecognized

directlyintheequityisrecognizedintheincomestatement.

Thefairvalueofquotedinvestmentsisbasedonbidpriceatthebalancesheetdate.Forunlistedsecuritiesorfinancialassets

withoutanactivemarket,theGroupand/ortheCompanyestablishthefairvaluebyusingvaluationtechniquesincludingtheuseof

recentarm’slengthtransactions,referencetootherinstrumentsthataresubstantiallythesame,discountedcashflowanalysis,and

optionpricingmodels,makingmaximumuseofmarketinputsandrelyingaslittleaspossibleonentity-specificinputs.Ifnoneof

thevaluationtechniquesresultsinareasonableestimateonthefairvalue,theinvestmentisstatedinthebalancesheetatcostless

impairmentlosses(seenote2(n)(i)).

InvestmentsindebtandequitysecuritiesarerecognizedorderecognizedonthedatetheGroupand/ortheCompanycommitto

purchaseorselltheinvestmentsortheyexpire.



2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)n. Impairment of assetsi. Impairment of investments in debt and equity securities and other receivables

Investmentsindebtandequitysecurities(otherthaninvestmentsinsubsidiaries,associatesandjointlycontrolledcompanies:see

note2(n)(ii))andothercurrentandnon-currentreceivablesthatarestatedatcostoramortizedcostorareclassifiedasavailable-

for-salefinancialassetsarereviewedateachbalancesheetdatetodeterminewhetherthereisobjectiveevidenceofimpairment.

ObjectiveevidenceofimpairmentincludesobservabledatathatcomestotheattentionoftheGroupaboutoneormoreofthe

followinglossevents:

– significantfinancialdifficultyofthedebtor;

– abreachofcontract,suchasadefaultordelinquencyininterestorprincipalpayments;

– itbecomingprobablethatthedebtorwillenterbankruptcyorotherfinancialreorganization;

– significantchangesinthetechnological,market,economicorlegalenvironmentthathaveanadverseeffectonthedebtor;and

– asignificantorprolongeddeclineinthefairvalueofaninvestmentinanequityinstrumentbelowitscost.

Ifanysuchevidenceexists,anyimpairmentlossisdeterminedandrecognizedasfollows:

– Forunquotedequitysecuritiescarriedatcost,theimpairmentlossismeasuredasthedifferencebetweenthecarryingamount

ofthefinancialassetandtheestimatedfuturecashflows,discountedatthecurrentmarketrateofreturnforasimilarfinancial

assetwheretheeffectofdiscountingismaterial.Impairmentlossesforequitysecuritiesarenotreversed.

– Fortradeandothercurrentreceivablesandotherfinancialassetscarriedatamortizedcost,theimpairmentlossismeasured

asthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows,discountedatthe

financialasset’soriginaleffectiveinterestrate(i.e.theeffectiveinterestratecomputedatinitialrecognitionoftheseassets),

wheretheeffectofdiscountingismaterial.Thisassessmentismadecollectivelywherefinancialassetscarriedatamortized

costsharesimilarriskcharacteristics,suchassimilarpastduestatus,andhavenotbeenindividuallyassessedasimpaired.

Futurecashflowsforfinancialassetswhichareassessedforimpairmentcollectivelyarebasedonhistoricallossexperiencefor

assetswithcreditriskcharacteristicssimilartothecollectivegroup.

Ifinasubsequentperiodtheamountofanimpairmentlossdecreasesandthedecreasecanbelinkedobjectivelytoanevent

occurringaftertheimpairmentlosswasrecognized,theimpairmentlossisreversedthroughtheincomestatement.Areversal

ofanimpairmentlossshallnotresultintheasset’scarryingamountexceedingthatwhichwouldhavebeendeterminedhadno

impairmentlossbeenrecognizedinprioryears.

– Foravailable-for-salefinancialassets,whenthereisanimpairment,thecumulativeloss,ifany,thathadbeenrecognized

directlyintheavailable-for-salefinancialassetsreserveunderequityisremovedfromequityandisrecognizedintheincome

statement.Theamountofthecumulativelossthatisrecognizedintheincomestatementisthedifferencebetweenthe

acquisitioncost(netofanyprincipalrepaymentandamortization)andcurrentfairvalue,lessanyimpairmentlossonthat

assetpreviouslyrecognizedintheincomestatement.

Impairmentlossesrecognizedintheincomestatementinrespectofequityinstrumentsclassifiedasavailable-for-salefinancial

assetsarenotreversedthroughtheincomestatement.Anysubsequentincreaseinthefairvalueofsuchassetsisrecognized

directlyintheavailable-for-salefinancialassetsreserveunderequity.

Impairmentlossesinrespectofdebtinstrumentsclassifiedasavailable-for-salefinancialassetsarereversedifthesubsequent

increaseinfairvaluecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognized.Reversalsof

impairmentlossesinsuchcircumstancesarerecognizedintheincomestatement.


2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)n. Impairment of assets (continued)i. Impairment of investments in debt and equity securities and other receivables (continued)

Impairmentlossesarewrittenoffagainstthecorrespondingassetsdirectly,exceptforimpairmentlossesrecognizedinrespectof

tradereceivables,whoserecoveryareconsidereddoubtfulbutnotremote.Inthiscase,theimpairmentlossfordoubtfuldebtsis

recordedusinganallowanceaccount.WhentheGroupissatisfiedthatrecoveryisremote,theamountconsideredirrecoverable

iswrittenoffagainstreceivablesdirectlyandanyamountsheldintheallowanceaccountrelatingtothatdebtarereversed.

Subsequentrecoveriesofamountspreviouslychargedtotheallowanceaccountarereversedagainsttheallowanceaccount.Other

changesintheallowanceaccountandsubsequentrecoveriesofamountspreviouslywrittenoffdirectlyarerecognizedinthe

incomestatement.

ii. Impairment of other assetsInternalandexternalsourcesofinformationarereviewedateachbalancesheetdatetoidentifyindicationsthatthefollowing

assetsmaybeimpairedor,exceptinthecaseofgoodwill,animpairmentlosspreviouslyrecognizednolongerexistsormayhave

decreased:

– property,plantandequipment;

– interestsinleaseholdland;

– intangibleassets;

– investmentsinsubsidiaries,associatesandjointlycontrolledcompanies;and

– goodwill.

Ifanysuchindicationexists,theasset’srecoverableamountisestimated.Inaddition,forgoodwill,intangibleassetsthatarenotyet

availableforuseandintangibleassetsthathaveindefiniteusefullives,therecoverableamountisestimatedannuallywhetheror

notthereisanyindicationofimpairment.

– Calculationofrecoverableamount

Therecoverableamountofanassetisthegreaterofitsfairvaluelesscosttosellandvalueinuse.Fairvaluelesscosttosellis

theamountobtainablefromthesaleofanassetinanarm’slengthtransactionbetweenknowledgeable,willingparties,lessthe

costsofdisposal.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-

taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Where

anassetdoesnotgeneratecashinflowslargelyindependentofthosefromotherassets,therecoverableamountisdetermined

forthesmallestgroupofassetsthatgeneratescashinflowsindependently(i.e.aCGU).

– Recognitionofimpairmentlosses

Animpairmentlossisrecognizedintheincomestatementwheneverthecarryingamountofanasset,ortheCGUtowhichit

belongs,exceedsitsrecoverableamount.ImpairmentlossesrecognizedinrespectofCGUsareallocatedfirsttoreducethe

carryingamountofanygoodwillallocatedtotheCGUandthen,toreducethecarryingamountoftheotherassetsintheCGU

onaproratabasis,exceptthatthecarryingvalueofanassetwillnotbereducedbelowitsindividualfairvaluelesscoststo

sell,orvalueinuse,ifdeterminable.

– Reversalsofimpairmentlosses

Inrespectofassetsotherthangoodwill,animpairmentlossisreversediftherehasbeenafavourablechangeintheestimates

usedtodeterminetherecoverableamount.Animpairmentlossinrespectofgoodwillisnotallowedtobereversed.

Areversalofanimpairmentlossislimitedtotheasset’scarryingamountthatwouldhavebeendeterminedhadnoimpairment

lossbeenrecognizedinprioryears.Reversalsofimpairmentlossesarecreditedtotheincomestatementintheperiodinwhich

thereversalsarerecognized.



2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)n. Impairment of assets (continued)iii. Interim financial reporting and impairment

UndertheRulesGoverningtheListingofSecuritiesontheStockExchange,theGroupisrequiredtoprepareaninterimfinancial

reportincompliancewithHKAS34“InterimFinancialReporting”,inrespectofthefirstsixmonthsofthefinancialyear.Attheend

oftheinterimperiod,theGroupappliesthesameimpairmenttesting,recognition,andreversalcriteriaasitwouldattheendofthe

financialyear(seenotes2(n)(i)and2(n)(ii)).

Impairmentlossesrecognizedinaninterimperiodinrespectofgoodwill,available-for-saleequitysecuritiesandunquotedequity

securitiescarriedatcostarenotreversedinasubsequentperiod.Thisisthecaseevenifnoloss,orasmallerloss,wouldhave

beenrecognizedhadtheimpairmentbeenassessedonlyattheendofthefinancialyeartowhichtheinterimperiodrelates.

o. Derivative financial instrumentsDerivativefinancialinstrumentsareinitiallyrecognizedatfairvalueonthedateaderivativecontractisenteredintoandare

subsequentlyremeasuredattheirfairvalueateachbalancesheetdate.Thegainorlossonremeasurementtofairvalueisrecognized

immediatelyintheincomestatement,exceptwherethederivativesaredesignatedandqualifyforhedgeaccounting,inwhichcase

recognitionofanyresultantgainorlossdependsonthenatureoftheitembeinghedged(seenote2(p)).

p. Hedgingi. Fair value hedge

Whereaderivativefinancialinstrumentisdesignatedasahedgeofthefairvalueofarecognizedassetorliabilityoran

unrecognizedfirmcommitment(oranidentifiedportionofsuchasset,liabilityorfirmcommitment),changesinthefairvalueof

thederivativearerecordedintheincomestatement,togetherwithanychangesinfairvalueofthehedgedassetorliabilitythatare

attributabletothehedgedrisk.

Whenahedginginstrumentexpiresorissold,terminatedorexercised,ornolongermeetsthecriteriaforhedgeaccounting;orthe

Grouprevokesdesignationofthehedgerelationship,thecumulativeadjustmenttothecarryingamountofahedgeditemforwhich

theeffectiveinterestmethodisusedisamortizedtotheincomestatementovertheresidualperiodtomaturity.

ii. Cash flow hedgeWhereaderivativefinancialinstrumentisdesignatedasahedgeofthevariabilityincashflowsofarecognizedassetorliability,

orahighlyprobableforecasttransactionortheforeigncurrencyriskofacommittedfuturetransaction,theeffectiveportionof

changesinthefairvalueofthederivativeisrecognizeddirectlyinthehedgingreserveunderequity.Theineffectiveportionofany

gainorlossisrecognizedimmediatelyintheincomestatement.

Ifahedgeofaforecasttransactionsubsequentlyresultsintherecognitionofanon-financialassetornon-financialliability,the

associatedcumulativegainorlossisremovedfromequityandincludedintheinitialcostorothercarryingamountofthenon-

financialassetorliability.

Ifahedgeofaforecasttransactionsubsequentlyresultsintherecognitionofafinancialassetorafinancialliability,theassociated

cumulativegainorlossisremovedfromequityandrecognizedintheincomestatementinthesameperiodorperiodsduring

whichtheassetacquiredorliabilityassumedaffectstheincomestatement(suchaswhentheinterestincomeorexpenseis

recognized).

Forcashflowhedges,otherthanthosecoveredbytheprecedingtwopolicystatements,theassociatedcumulativegainorloss

isremovedfromequityandrecognizedintheincomestatementinthesameperiodorperiodsduringwhichthehedgedforecast

transactionaffectstheincomestatement.

Whenahedginginstrumentexpiresorissold,terminatedorexercised,ornolongermeetsthecriteriaforhedgeaccounting;orthe

Grouprevokesdesignationofthehedgerelationshipbutthehedgedforecasttransactionisstillexpectedtooccur,theassociated

cumulativegainorlossatthatpointremainsinequityandisrecognizedinaccordancewiththeabovepolicywhenthetransaction

occurs.Ifthehedgedtransactionisnolongerexpectedtooccur,thecumulativeunrealizedgainorlossrecognizedinequityis

recognizedimmediatelyintheincomestatement.


2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)q. Programme costsThecostsassociatedwiththetransmissionrightsforshowingprogrammes,sportseventsandfilmsontheGroup’stelevisionchannels

arerecognizedintheincomestatementonastraight-linebasisovertheperiodoftransmissionrights.Wherecontractsprovidefor

sportrightsformultipleseasonsorcompetitions,theassociatedcostsarerecognizedprincipallyonastraight-linebasisacrossthe

seasonorcompetition.Paymentsmadeinadvanceorinarrearsofprogrammecostsrecognizedarestatedinthebalancesheetas

“Prepayments,depositsandothercurrentassets”or“Accrualsandotherpayables”,asappropriate.

r. InventoriesInventoriesconsistoftradinginventories,work-in-progressandconsumableinventories.

Tradinginventoriesarecarriedatthelowerofcostandnetrealizablevalue.Netrealizablevalueistheestimatedsellingpriceinthe

ordinarycourseofbusinesslesstheestimatedcostsofcompletionandtheestimatedcostsnecessarytomakethesale.

Work-in-progressisstatedatthelowerofcost,whichcompriseslabor,materialsandoverheadswhereappropriate,andthenet

realizablevalue.

Consumableinventories,heldforuseinthemaintenanceandexpansionoftheGroup’stelecommunicationssystems,arestatedat

costlessprovisionfordeteriorationandobsolescence.

Costiscalculatedusingtheweightedaveragecostformulaandcomprisesallcostsofpurchase,costsofconversionandothercosts

incurredinbringingtheinventoriestotheirpresentlocationandcondition.

s. Construction contractsTheaccountingpolicyforcontractrevenueissetoutinnote2(z)(v).Whentheoutcomeofaconstructioncontractcanbeestimated

reliably,contractcostsarerecognizedasanexpensebyreferencetothestageofcompletionofthecontractatthebalancesheet

date.Whenitisprobablethattotalcontractcostswillexceedtotalcontractrevenue,theexpectedlossisrecognizedasanexpense

immediately.Whentheoutcomeofaconstructioncontractcannotbeestimatedreliably,contractcostsarerecognizedasanexpense

intheperiodinwhichtheyareincurred.

Constructioncontractsinprogressatthebalancesheetdatearerecordedinthebalancesheetatthenetamountofcostsincurred

plusrecognizedprofitslessrecognizedlossesandestimatedvalueofworkperformed,includingprogressbilling,andarepresented

inthebalancesheetasthe“Grossamountsduefromcustomersforcontractwork”(asanasset)orthe“Grossamountsdueto

customersforcontractwork”(asaliability),asapplicable.Progressbillingsforworkperformedonacontractnotyetpaidbycustomers

areincludedinthebalancesheetunder“Tradereceivables,net”.

t. Trade and other receivablesTradeandotherreceivablesareinitiallyrecognizedatfairvalueandthereafterstatedatamortizedcostusingtheeffectiveinterest

method,lessallowanceforimpairmentofdoubtfuldebts(seenote2(n)(i)).

u. Cash and cash equivalentsCashandcashequivalentscomprisecashatbankandonhand,demanddepositswithbanksandotherfinancialinstitutions(other

thanrestrictedcash),andshort-term,highlyliquidinvestmentsthatarereadilyconvertibleintoknownamountsofcashandwhichare

subjecttoaninsignificantriskofchangesinvalue,havingbeenwithinthreemonthsofmaturityatacquisition,lessbankoverdraftsthat

arerepayableondemandandformanintegralpartoftheGroup’scashmanagement.

v. Trade and other payablesTradeandotherpayablesareinitiallyrecognizedatfairvalueandsubsequentlystatedatamortizedcostusingtheeffectiveinterest

method.



2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)w. BorrowingsBorrowingsarerecognizedinitiallyatfairvaluelessattributabletransactioncosts.Subsequenttoinitialrecognition,borrowingsare

statedatamortizedcostwithanydifferencebetweentheamountinitiallyrecognized,beingtheproceedsnetoftransactioncosts,and

theredemptionvaluebeingrecognizedintheincomestatementovertheperiodoftheborrowings,usingtheeffectiveinterestmethod.

x. Convertible notes and bondsConvertiblenotesandbondsthatcanbeconvertedtoequitysharecapitaloftheCompanyattheoptionoftheholder,wherethe

numberofsharesthatwouldbeissuedonconversionandthevalueoftheconsiderationthatwouldbereceivedatthattimedonot

vary,areaccountedforascompoundfinancialinstrumentswhichcontainbothaliabilitycomponentandanequitycomponent.

Atinitialrecognitiontheliabilitycomponentoftheconvertiblenotesandbondsismeasuredasthepresentvalueofthefutureinterest

andprincipalpayments,discountedatthemarketrateofinterestapplicableatthetimeofinitialrecognitiontosimilarliabilitiesthatdo

nothaveaconversionoption.Anyexcessofproceedsovertheamountsinitiallyrecognizedastheliabilitycomponentisrecognizedas

theequitycomponentandincludedintheconvertiblenoteandbondsreserveunderequity.Transactioncoststhatrelatetotheissue

ofacompoundfinancialinstrumentareallocatedtotheliabilityandequitycomponentsinproportiontotheallocationofproceeds.

Theliabilitycomponentissubsequentlystatedatamortizedcostuntilextinguishedonconversionormaturityofthenotesandbonds,

withanydifferencebetweentheamountinitiallyrecognizedandtheredemptionvaluebeingrecognizedintheincomestatementover

theperiodofthenotesandbondsusingtheeffectiveinterestmethod.Theequitycomponentisrecognizedintheconvertiblenoteand

bondsreserveunderequityuntileitherthenotesandbondsareconvertedorredeemed.

Ifthenotesandbondsareconverted,therespectiveequitycomponentintheconvertiblenoteandbondsreserve,togetherwiththe

carryingvalueoftheliabilitycomponentatthetimeofconversion,istransferredtosharecapitalandsharepremiumasconsideration

forthesharesissued.Ifthenotesandbondsareredeemed,therespectiveequitycomponentintheconvertiblenoteandbonds

reserveisreleaseddirectlytodeficit.

y. Provisions and contingent liabilitiesProvisionsarerecognizedwhen(i)theGrouportheCompanyhasapresentlegalorconstructiveobligationarisingasaresultofapast

event;(ii)itisprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation;and(iii)areliableestimatecan

bemadeoftheamountoftheobligation.Wherethetimevalueofmoneyismaterial,provisionsarestatedatthepresentvalueofthe

expenditureexpectedtosettletheobligation.

Whereitisnotprobablethatanoutflowofeconomicbenefitswillberequired,ortheamountcannotbeestimatedreliably,the

obligationisdisclosedasacontingentliability,unlesstheprobabilityofoutflowofeconomicbenefitsisremote.Possibleobligations,

whoseexistencewillonlybeconfirmedbytheoccurrenceornon-occurrenceofoneormorefutureevents,arealsodisclosedas

contingentliabilitiesunlesstheprobabilityofoutflowofeconomicbenefitsisremote.

z. Revenue recognitionProvideditisprobablethattheeconomicbenefitswillflowtotheGroupandtherevenueandcosts,ifapplicable,canbemeasured

reliably,revenueisrecognizedintheincomestatementasfollows:

i. Telecommunications and other servicesTelecommunicationsservicescomprisethefixedlineandmobiletelecommunicationsnetworkservices,andequipment

businessesmainlyinHongKong.

TelecommunicationsservicerevenuebasedonusageoftheGroup’snetworkandfacilitiesisrecognizedwhentheservicesare

rendered.Telecommunicationsrevenueforservicesprovidedforfixedperiodsisrecognizedonastraight-linebasisoverthe

applicablefixedperiod.


2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)z. Revenue recognition (continued)i. Telecommunications and other services (continued)

Up-frontfeesreceivedforinstallationofequipmentandactivationofcustomerservicearedeferredandrecognizedoverthe

estimatedcustomerrelationshipperiod.

Otherserviceincomeisrecognizedwhenservicesarerenderedtocustomers.

ii. Sales of goodsRevenuefromsaleofgoodsisrecognizedwhengoodsaredeliveredtocustomerswhichgenerallycoincideswiththetimewhen

thecustomerhasacceptedthegoodsandtherelatedrisksandrewardsofownership.Revenueisrecordedafterdeductionofany

tradediscounts.

iii. Sales of propertiesRevenueandprofitsarisingfromsalesofcompletedpropertiesisrecognizeduponexecutionoflegallybindingunconditional

salescontractsuponwhichthebeneficialinterestinthepropertypassestothepurchaserstogetherwiththesignificantrisksand

rewardsofownership.

Revenueandprofitsarisingfromthepre-completioncontractsforthesaleofpropertiesunderdevelopmentisaccountedforas

follows:

– forpre-completioncontractsforthesaleofpropertiesunderdevelopmentforwhichlegallybindingunconditionalsales

contractswereenteredintobeforeJanuary1,2005,aspermittedbythetransitionalprovisionsofHK-Int3“Revenue–

Pre-completionContractsfortheSaleofDevelopmentProperties”,revenueandprofitscontinuetoberecognizedonthe

percentageofconstructioncompletionbasiscommencingwhenthesecontractsaresignedandexchanged,providedthat

theconstructionworkhasprogressedtoastagewheretheultimaterealizationofprofitcanbereasonablydeterminedand

onthebasisthatthetotalestimatedprofitisapportionedovertheentireperiodofconstructiontoreflecttheprogressofthe

development.Depositsandinstalmentsreceivedfrompurchasersarenettedofffrompropertiesunderdevelopment.

– forpre-completioncontractsforthesaleofpropertiesunderdevelopmentforwhichlegallybindingunconditionalsales

contractswereenteredintoonorafterJanuary1,2005,asrequiredbyHK-Int3,revenueandprofitsarerecognizedupon

completionofthedevelopmentandwhensignificantrisksandrewardofownershiphavebeentransferred.Depositsand

instalmentsreceivedfrompurchaserspriortothisstageareincludedincurrentliabilities.

iv. Rental income from operating leasesRentalincomereceivableunderoperatingleasesisrecognizedintheincomestatementinequalinstalmentsovertheperiods

coveredbytheleaseterm.Leaseincentivesgrantedarerecognizedintheincomestatementasanintegralpartoftheaggregate

netleasepaymentsreceivable.Contingentrentalsarerecognizedasincomeintheaccountingperiodinwhichtheyareearned.

v. Contract revenueRevenuefromafixedpricecontractisrecognizedusingthepercentageofcompletionmethod,measuredbyreferencetothe

percentageofcontractcostsincurredtodatetoestimatedtotalcontractcostsforthecontract.

Whentheoutcomeofaconstructioncontractcannotbeestimatedreliably,revenueisrecognizedonlytotheextentthatitis

probablethecontractcostsincurredwillberecoverable.

vi. Interest incomeInterestincomeisrecognizedonatime-apportionedbasisusingtheeffectiveinterestmethod.

vii. Commission incomeCommissionincomeisrecognizedwhenentitlementtotheincomeisascertained.



2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)z. Revenue recognition (continued)viii. Dividend income

Dividendincomeisrecognizedwhentheshareholder’srighttoreceivepaymentisestablished.

aa. Borrowing costsBorrowingcostsareexpensedintheincomestatementintheperiodinwhichtheyareincurred,excepttotheextentthattheyare

capitalizedasbeingdirectlyattributabletotheacquisition,constructionorproductionofanassetwhichnecessarilytakesasubstantial

periodoftimetogetreadyforitsintendeduseorsale.

Thecapitalizationofborrowingcostsaspartofthecostofaqualifyingassetcommenceswhenexpenditurefortheassetisbeing

incurred,borrowingcostsarebeingincurredandactivitiesthatarenecessarytopreparetheassetforitsintendeduseorsaleare

inprogress.Capitalizationofborrowingcostsissuspendedorceaseswhensubstantiallyalltheactivitiesnecessarytopreparethe

qualifyingassetforitsintendeduseorsaleareinterruptedorcomplete.

Discountsorpremiumsrelatingtoborrowings,ancillarycostsincurredinconnectionwitharrangingborrowings,totheextentthatthey

areregardedasadjustmentstointerestcosts,arerecognizedasexpensesovertheperiodoftheborrowingusingtheeffectiveinterest

method.

bb. Income taxi. Incometaxfortheyearcomprisescurrentincometaxandmovementsindeferredincometaxassetsandliabilities.Currentincome

taxandmovementsindeferredincometaxassetsandliabilitiesarerecognizedintheincomestatementexcepttotheextentthat

theyrelatetoitemsrecognizeddirectlyinequity,inwhichcasetheyarerecognizedinequity.

ii. Currentincometaxistheexpectedtaxpayableonthetaxableincomefortheyear,usingtaxratesenactedorsubstantivelyenacted

atthebalancesheetdate,andanyadjustmenttotaxpayableinrespectofpreviousyear.

iii. Deferredincometaxassetsandliabilitiesarisefromdeductibleandtaxabletemporarydifferencesrespectively,beingthe

differencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandthetaxbases.Deferred

incometaxassetsalsoarisefromunusedtaxlossesandunusedtaxcredits.

Alldeferredincometaxliabilities,andalldeferredincometaxassetstotheextentthatitisprobablethatfuturetaxableprofitswill

beavailableagainstwhichtheassetcanbeutilized,arerecognized.Futuretaxableprofitsthatmaysupporttherecognitionof

deferredincometaxassetsarisingfromdeductibletemporarydifferencesincludethosethatwillarisefromthereversalofexisting

taxabletemporarydifferences,providedthosedifferencesrelatetothesametaxationauthorityandthesametaxableentity,and

areexpectedtoreverseeitherinthesameperiodastheexpectedreversalofthedeductibletemporarydifferenceorinperiodsinto

whichataxlossarisingfromthedeferredincometaxassetcanbecarriedbackorforward.Thesamecriteriaareadoptedwhen

determiningwhetherexistingtaxabletemporarydifferencessupporttherecognitionofdeferredincometaxassetsarisingfrom

unusedtaxlossesandcredits,thatis,thosedifferencesaretakenintoaccountiftheyrelatetothesametaxationauthorityandthe

sametaxableentity,andareexpectedtoreverseinaperiod,orperiods,inwhichthetaxlossorcreditcanbeutilized.

Theamountofdeferredincometaxrecognizedismeasuredbasedontheexpectedmannerofrealizationorsettlementofthe

carryingamountoftheassetsandliabilities,usingtaxratesenactedorsubstantivelyenactedatthebalancesheetdateandare

expectedtoapplywhentherelateddeferredincometaxassetisrealizedandthedeferredincometaxliabilityissettled.Deferred

incometaxassetsandliabilitiesarenotdiscounted.

Thecarryingamountofadeferredincometaxassetisreviewedateachbalancesheetdateandisreducedtotheextentthatitis

nolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowtherelatedtaxbenefittobeutilized.Anysuchreductionis

reversedtotheextentthatitbecomesprobablethatsufficienttaxableprofitswillbeavailable.


2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)bb. Income tax (continued)iv. Currentincometaxbalancesanddeferredincometaxbalances,andmovementstherein,arepresentedseparatelyfromeach

otherandarenotoffset.Currenttaxassetsareoffsetagainstcurrentincometaxliabilities,anddeferredincometaxassetsagainst

deferredincometaxliabilities,iftheCompanyortheGrouphasthelegallyenforceablerighttosetoffcurrentincometaxassets

againstcurrentincometaxliabilitiesandthefollowingadditionalconditionsaremet:

– inthecaseofcurrentincometaxassetsandliabilities,theCompanyortheGroupintendseithertosettleonanetbasis,orto

realizetheassetandsettletheliabilitysimultaneously;or

– inthecaseofdeferredincometaxassetsandliabilities,iftheyrelatetoincometaxesleviedbythesametaxationauthorityon

either:

– thesametaxableentity;or

– differenttaxableentities,which,ineachfutureperiodinwhichsignificantamountsofdeferredincometaxliabilitiesor

assetsareexpectedtobesettledorrecovered,intendtorealizethecurrentincometaxassetsandsettlethecurrent

incometaxliabilitiesonanetbasisorrealizeandsettlesimultaneously.

cc. Employee benefitsi. Short-term employee benefits

Salaries,annualbonuses,paidannualleaveandthecostofnon-monetarybenefitsareaccruedintheyearinwhichtheassociated

servicesarerenderedbyemployees.Wherepaymentorsettlementisdeferredandtheeffectwouldbematerial,theseamountsare

statedattheirpresentvalues.

ii. Retirement benefitsTheGroupoperatesbothdefinedbenefitanddefinedcontributionretirementschemes(includingtheMandatoryProvidentFund)

foritsemployees,theassetsofwhicharegenerallyheldinseparatetrustee–administeredfunds.Theschemesaregenerally

fundedbypaymentsfromtherelevantGroupcompaniesand,insomecases,employeesthemselves,takingaccountofthe

recommendationsofindependentqualifiedactuaries.

TheGroup’scontributionstothedefinedcontributionschemesarerecognizedasanexpenseintheincomestatementinthe

periodtowhichthecontributionsrelate.

TheGroup’sdefinedbenefitliabilityrecognizedintheconsolidatedbalancesheetinrespectofdefinedbenefitretirementschemes

isthepresentvalueofthedefinedbenefitobligationatthebalancesheetdatelessthefairvalueofschemeassets,together

withadjustmentsforunrecognizedactuarialgainsorlossesandpastservicecosts.Thecalculationisperformedannuallyby

independentqualifiedactuariesusingtheprojectedunitcreditmethod.Underthismethod,thecostofprovidingdefinedbenefits

ischargedtotheincomestatementsoastospreadtheregularcostovertheservicelivesofemployeesinaccordancewiththe

adviceoftheactuaries.Thepresentvalueofthedefinedbenefitobligationisdeterminedbydiscountingtheestimatedfuturecash

outflowsusinginterestrateswithreferencetomarketyieldsatthebalancesheetdatebasedonExchangeFundNotes,whichhave

termstomaturityapproximatingthetermsoftherelatedliability.

Whenthebenefitsoftheschemesareimproved,theportionoftheincreasedbenefitrelatingtopastservicebyemployeesis

recognizedasanexpenseintheincomestatementonastraight-linebasisovertheaverageperioduntilthebenefitsbecome

vested.Ifthebenefitsvestimmediately,theexpenseisrecognizedimmediatelyintheincomestatement.

IncalculatingtheGroup’sdefinedbenefitliabilityinrespectofdefinedbenefitretirementschemes,ifanycumulativeunrecognized

actuarialgainsandlossesexceeds10%ofthegreaterofthepresentvalueofthedefinedbenefitobligationsandthefairvalueof

theschemeassets,thatportionisrecognizedintheincomestatementovertheexpectedaverageremainingworkinglivesofthe

participatingemployees.Otherwise,theactuarialgainorlossisnotrecognized.



2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)cc. Employee benefits (continued)iii. Share-based payments

TheGroupoperatesshareoptionschemeswhereemployees(andincludingdirectors)aregrantedoptionstoacquiresharesof

theCompanyatspecifiedexerciseprices.Thefairvalueoftheemployeeservicesreceivedinexchangeforthegrantoftheoptions

isrecognizedasstaffcostsintheincomestatementwithacorrespondingincreaseinanemployeeshare-basedcompensation

reserveunderequity.Thefairvalueoftheoptionsgrantedismeasuredatgrantdateusingthetrinomialoptionpricingmodel,

takingintoaccountthetermsandconditionsuponwhichtheoptionsweregranted,andspreadovertherespectivevestingperiod

duringwhichtheemployeesbecomeunconditionallyentitledtotheoptions.Duringthevestingperiod,thenumberofshare

optionsthatisexpectedtovestisreviewed.Anyadjustmenttothecumulativefairvaluerecognizedinprioryearsischargedor

creditedintheincomestatementfortheyearofthereview,unlesstheoriginalstaffcostsqualifyforrecognitionasanasset,with

acorrespondingadjustmenttotheemployeeshare-basedcompensationreserve.Onvestingdate,theamountrecognizedasstaff

costsisadjustedtoreflecttheactualnumberofshareoptionsthatvest(withacorrespondingadjustmenttotheemployeeshare-

basedcompensationreserve).Theequityamountisrecognizedintheemployeeshare-basedcompensationreserveuntileitherthe

shareoptionsareexercised(whenitistransferredtothesharepremiumaccount)ortheshareoptionsexpires(whenitisreleased

directlytoretainedprofits).ShareoptionsgrantedbeforeNovember7,2002orgrantedafterNovember7,2002butvestedonor

beforeDecember31,2004arenotexpensedastheyarenotsubjecttotherequirementsofHKFRS2.Whentheshareoptionsare

exercised,theproceedsreceived,netofanydirectlyattributabletransactioncost,arecreditedtosharecapital(nominalvalue)and

sharepremium.

TheGroupalsograntssharesoftheCompanytoemployeesatnilconsiderationunderitsshareawardschemes,underwhich

theawardedsharesareeithernewlyissuedatparvalue(the“SubscriptionScheme”)orarepurchasedfromtheopenmarket

(the“PurchaseScheme”).Thecostofsharespurchasedfromtheopenmarketisrecognizedinequityastreasurystock.Thefair

valueoftheemployeeservicesreceivedinexchangeforthegrantofsharesunderbothschemesisrecognizedasstaffcostsinthe

incomestatementwithacorrespondingincreaseinanemployeeshare-basedcompensationreserveunderequity.Thefairvalue

oftheawardedsharesismeasuredbythequotedmarketpriceofthesharesatgrantdateandischargedtotheincomestatement

overtherespectivevestingperiod.Duringthevestingperiod,thenumberofawardedsharesthatisexpectedtovestisreviewed.

Anyadjustmenttothecumulativefairvaluerecognizedinprioryearsischargedorcreditedintheincomestatementfortheyear

ofthereview,unlesstheoriginalstaffcostsqualifyforrecognitionasanasset,withacorrespondingadjustmenttotheemployee

share-basedcompensationreserve.Onvestingdate,theamountrecognizedasstaffcostsisadjustedtoreflecttheactualnumber

ofawardedsharesthatvest(withacorrespondingadjustmenttotheemployeeshare-basedcompensationreserve)andthecostof

awardedsharesrecognizedinequityastreasurystockistransferredtotheemployeeshare-basedcompensationreserve.Shares

awardedbeforeNovember7,2002orawardedafterNovember7,2002butvestedonorbeforeDecember31,2004arenot

expensedastheyarenotsubjecttotherequirementsofHKFRS2.

SharesoftheCompanygrantedtoemployeesoftheGroupbytheprincipalshareholderoftheCompanyareaccountedforin

accordancewiththesamepolicyfortheawardedsharesundershareawardschemesasdescribedabove.Thefairvalueofthe

sharesgrantedbyprincipalshareholderismeasuredbythequotedmarketpriceofthesharesatgrantdateandischargedtothe

incomestatementovertherespectivevestingperiod.

iv. Termination benefitsTerminationbenefitsarerecognizedonlyaftereitheranagreementisinplacewiththeappropriateemployeerepresentatives

specifyingthetermsofredundancyandthenumbersofemployeesaffected,or,afterindividualemployeeshavebeenadvisedof

thespecificterms.

dd. Translation of foreign currenciesForeigncurrencytransactionsduringtheyeararetranslatedattheforeignexchangeratesrulingatthetransactiondates.Monetary

assetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedattheforeignexchangeratesrulingatthebalancesheetdate.

Exchangegainsandlossesarerecognizedintheincomestatement.


2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)dd. Translation of foreign currencies (continued)Non-monetaryassetsandliabilitiesthataremeasuredintermsofhistoricalcostinaforeigncurrencyaretranslatedusingtheforeign

exchangeratesrulingatthetransactiondates.Non-monetaryassetsandliabilitiesdenominatedinforeigncurrenciesthatarestated

atfairvaluearetranslatedusingtheforeignexchangeratesrulingatthedatesthefairvaluewasdetermined.Exchangedifferences

arisingontranslationofnon-monetaryassetsandliabilities,suchasfinancialassetsatfairvaluethroughprofitorloss,arereported

aspartofthefairvaluegainorlossintheincomestatement.Exchangedifferencesarisingontranslationofnon-monetaryassetsand

liabilities,suchasavailable-for-salefinancialassets,areincludedinthefairvaluegainorlossintheavailable-for-salefinancialassets

reserveunderequity.

TheresultsofforeignoperationsaretranslatedintoHongKongdollarsattheexchangeratesapproximatingtheforeignexchange

ratesrulingatthedatesoftransactions.Balancesheetitemsofforeignoperations,includinggoodwillarisingonconsolidationof

foreignoperationsacquiredonorafterJanuary1,2005,aretranslatedintoHongKongdollarsattheforeignexchangeratesrulingat

thebalancesheetdate.GoodwillarisingonconsolidationofaforeignoperationacquiredbeforeJanuary1,2005istranslatedatthe

foreignexchangeratethatappliedatthedateofacquisitionoftheforeignoperation.Theresultingexchangedifferencesarerecognized

directlyinthecurrencytranslationreserveunderequity.

Onconsolidation,exchangedifferencesarisingfromthetranslationofthenetinvestmentinforeignoperations,andofborrowingsand

othercurrencyinstrumentsdesignatedashedgesofsuchinvestments,ifany,aretakentocurrencytranslationreserveunderequity.

Ondisposalofaforeignoperation,thecumulativeamountoftheexchangedifferencesrecognizedinthecurrencytranslationreserve

underequitywhichrelatetothatforeignoperationisincludedinthecalculationoftheprofitorlossondisposal.

ee. Related partiesForthepurposesofthesefinancialstatements,apartyisconsideredtoberelatedtotheGroupif:

i. thepartyhastheability,directlyorindirectlythroughoneormoreintermediaries,tocontroltheGrouporexercisesignificant

influenceovertheGroupinmakingfinancialandoperatingpolicydecisions,orhasjointcontrolovertheGroup;

ii. theGroupandthepartyaresubjecttocommoncontrol;

iii. thepartyisanassociateoftheGrouporajointventureinwhichtheGroupisaventurer;

iv. thepartyisamemberofkeymanagementpersonneloftheGrouportheGroup’sparent,oraclosefamilymemberofsuchan

individual,orisanentityunderthecontrol,jointcontrolorsignificantinfluenceofsuchindividuals;

v. thepartyisaclosefamilymemberofapartyreferredtoin(i)aboveorisanentityunderthecontrol,jointcontrolorsignificant

influenceofsuchindividuals;or

vi. thepartyisapost-employmentbenefitplanwhichisforthebenefitofemployeesoftheGrouporofanyentitythatisarelatedparty

oftheGroup.

Closefamilymembersofanindividualarethosefamilymemberswhomaybeexpectedtoinfluence,orbeinfluencedby,that

individualintheirdealingswiththeentity.

ff. Segment reportingAsegmentisadistinguishablecomponentoftheGroupthatisengagedeitherinprovidingproductsorservices(businesssegment),

orinprovidingproductsorserviceswithinaparticulareconomicenvironment(geographicalsegment),whichissubjecttorisksand

rewardsthataredifferentfromthoseofothersegments.

InaccordancewiththeGroup’sinternalfinancialreportingsystem,theGrouphaschosenbusinesssegmentinformationasthe

primaryreportingformatandgeographicalsegmentinformationasthesecondaryreportingformatforthepurposesofthesefinancial

statements.



2 BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)ff. Segment reporting (continued)Segmentrevenue,expenses,results,assetsandliabilitiesincludeitemsdirectlyattributabletoasegmentaswellasthosethatcanbe

allocatedonareasonablebasistothatsegment.Segmentrevenue,expensesandsegmentperformanceincludetransactionsbetween

segments.Inter-segmentpricingisbasedonsimilartermsasthoseavailabletootherexternalpartiesforsimilarservices.These

transactionsareeliminateduponconsolidation.

Segmentcapitalexpenditureisthetotalcostincurredduringtheyeartoacquiresegmentassets(bothtangibleandintangible)thatare

expectedtobeusedformorethanoneyear.

Unallocateditemsmainlycomprisefinancialandcorporateassetsandliabilities,interest-bearingloans,borrowings,taxbalances,

corporateandfinancingexpenses.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSEstimatesandjudgementsarecontinuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectations

offutureeventsthatarebelievedtobereasonableunderthecircumstances.

Key sources of estimation uncertaintyTheGroupmakesestimatesandassumptionsconcerningthefuture.Theresultingaccountingestimateswill,bydefinition,seldom

equaltherelatedactualresults.Notes20,31(a),32and39containinformationabouttheassumptionsandtheirriskfactorsrelatingto

goodwillimpairment,definedbenefitliability,fairvalueofshareoptionsorsharesgrantedandfinancialinstruments.Otherkeysources

ofestimationuncertaintyarediscussedbelow:

i. Useful lives of property, plant and equipment and intangible assets (other than goodwill)TheGrouphassignificantproperty,plantandequipmentandintangibleassets(otherthangoodwill).TheGroupisrequiredto

estimatetheusefullivesofproperty,plantandequipmentandintangibleassets(otherthangoodwill)inordertoascertainthe

amountofdepreciationandamortizationchargesforeachreportingperiod.

Theusefullivesareestimatedatthetimeofpurchaseoftheseassetsafterconsideringfuturetechnologychanges,business

developmentsandtheGroup’sstrategies.TheGroupperformsannualreviewstoassesstheappropriatenessoftheestimated

usefullives.Suchreviewtakesintoaccountanyunexpectedadversechangesincircumstancesorevents,includingdeclinesin

projectedoperatingresults,negativeindustryoreconomictrends,rapidadvancementintechnologyandsignificantdownturnsin

theCompany’sstockprice.TheGroupextendsorshortenstheusefullivesand/ormakesimpairmentprovisionsaccordingtothe

resultsofthereview.

DuringtheyearendedDecember31,2007,theGroupperformedanannualreviewtoreassesstheusefullivesofcertainexchange

equipment,transmissionplantandotherplantandequipmentoftheGroup,basedontheexpectationsoftheGroup’soperational

managementandtechnologicaltrend.Thereassessmenthasresultedinachangeintheestimatedusefullivesoftheseassets.

TheGroupconsidersthistobeachangeinaccountingestimateandhasthereforeaccountedforthechangeprospectivelyfrom

July1,2007.Asaresultofthischangeinaccountingestimate,theGroup’sprofitfortheyearendedDecember31,2007andthe

netassetsasatDecember31,2007havebothbeenincreasedbyHK$66million.

ii. Impairment of assets (other than investments in debt and equity securities and other receivables)Ateachbalancesheetdate,theGroupreviewsinternalandexternalsourcesofinformationtoidentifyindicationsthatthefollowing

assetsmaybeimpairedor,exceptinthecaseofgoodwill,animpairmentlosspreviouslyrecognizednolongerexistsormayhave

decreased:

– property,plantandequipment;

– interestsinleaseholdland;

– intangibleassets;

– investmentsinsubsidiaries,associatesandjointlycontrolledcompanies;and

– goodwill.


3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)Key sources of estimation uncertainty (continued)ii. Impairment of assets (other than investments in debt and equity securities and other receivables) (continued)

Ifanysuchindicationexists,theasset’srecoverableamountisestimated.Inaddition,forgoodwill,intangibleassetsthatarenotyet

availableforuseandintangibleassetsthathaveindefiniteusefullives,therecoverableamountisestimatedannuallywhetheror

notthereisanyindicationofimpairment.Animpairmentlossisrecognizedintheincomestatementwheneverthecarryingamount

ofanassetexceedsitsrecoverableamounts.

ThesourcesutilizedtoidentifyindicationsofimpairmentareoftensubjectiveinnatureandtheGroupisrequiredtousejudgement

inapplyingsuchinformationtoitsbusiness.TheGroup’sinterpretationofthisinformationhasadirectimpactonwhetheran

impairmentassessmentisperformedasatanygivenbalancesheetdate.Suchinformationisparticularlysignificantasitrelatesto

theGroup’stelecommunicationsservicesandinfrastructurebusinessesinHongKong.

Ifanindicationofimpairmentisidentified,suchinformationisfurthersubjecttoanexercisethatrequirestheGrouptoestimate

therecoverablevalue,representingthegreateroftheasset’sfairvaluelesscosttoselloritsvalueinuse.Dependingonthe

Group’sassessmentoftheoverallmaterialityoftheassetunderreviewandcomplexityofderivingreasonableestimatesofthe

recoverablevalue,theGroupmayperformsuchassessmentutilizinginternalresourcesortheGroupmayengageexternaladvisors

tocounseltheGroupinmakingthisassessment.Regardlessoftheresourcesutilized,theGroupisrequiredtomakemany

assumptionstomakethisassessment,includingtheutilizationofsuchasset,thecashflowstobegenerated,appropriatemarket

discountratesandtheprojectedmarketandregulatoryconditions.Changesinanyoftheseassumptionscouldresultinamaterial

changetofutureestimatesoftherecoverablevalueofanyasset.

iii. Revenue recognitionTelecommunicationsservicerevenuebasedonusageoftheGroup’snetworkandfacilitiesisrecognizedwhentheservicesare

rendered.Telecommunicationsrevenueforservicesprovidedforfixedperiodsisrecognizedonastraight-linebasisoverthe

respectiveperiod.Inaddition,up-frontfeesreceivedforinstallationofequipmentandactivationofcustomerservicearedeferred

andrecognizedovertheexpectedcustomerrelationshipperiod.TheGroupisrequiredtoexerciseconsiderablejudgementin

revenuerecognitionparticularlyintheareasofcustomerdiscountsandcustomerdisputes.Significantchangesinmanagement

estimatesmayresultinmaterialrevenueadjustments.

DuringtheyearendedDecember31,2007,theGroupre-assessedtheexpectedcustomerrelationshipperiod.Asaresultofthis

re-assessment,theexpectedcustomerrelationshipperiodhasbeenshortened.Thischangeinaccountingestimatehasbeen

accountedforprospectivelyfromJuly1,2007.Accordingly,theGroup’sprofitfortheyearendedDecember31,2007andthenet

assetsasatDecember31,2007havebothbeenincreasedbyHK$255million.

TheGroupofferscertainarrangementswherebyacustomercanpurchasemobilehandsettogetherwithafixedperiodmobile

servicearrangement.Whensuchmultipleelementarrangementexists,theamountofrevenuerecognizeduponthesaleofmobile

handsetisdeterminedusingtheresidualvaluemethod.Undersuchmethod,theGroupdeterminestherevenuefromthesaleof

themobilehandsetdeliveredbydeductingthefairvalueoftheserviceelementfromthetotalcontractconsideration.

iv. Sales recognition on properties soldWhentheinflowofeconomicbenefitsassociatedwiththepropertysalestransactionisassessedtobeprobableandsignificant

risksandrewardsofownershipofpropertiesaretransferredtopurchasers,theGrouprecognizedrevenueinrespectofthe

propertiessold.

Managementmadejudgementonwhethertheeconomicbenefitsassociatedwiththepropertysalestransactionwillflowtothe

Group.LikelihoodofinflowofeconomicbenefitstotheGroupisdemonstratedbythepurchaser’scommitmenttopay,which

inturnissupportedbysubstantialinitialinvestmentthatgivesthepurchaserastakeinthepropertysufficientthattheriskof

lossthroughdefaultmotivatesthepurchasertohonourhisobligationtotheGroup.Inflowofeconomicbenefitsassociatedwith

thepropertysalestransactionisalsoassessedbyconsideringlocationofthepropertyandtheprevailingmarketpriceofsimilar

properties.



3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)Key sources of estimation uncertainty (continued)iv. Sales recognition on properties sold (continued)

Managementhasalsomadejudgementonwhensignificantrisksandrewardsofownershipofpropertiesaretransferred

topurchasers.Riskandrewardsofownershipofpropertiesaretransferredtopurchasersuponexecutionoflegallybinding

unconditionalsalescontractsuponwhichthebeneficialinterestinthepropertiespassestothepurchasers.

Thejudgementonthelikelihoodofinflowofeconomicbenefitsassociatedwiththepropertysalestransactionandthetransferof

risksandrewardsofownershipofpropertieswouldaffecttheGroup’sprofitsfortheyearandthecarryingvalueofpropertiesunder

developments/heldforsale.

v. Amount payable to the Government under the Cyberport Project AgreementPursuanttoanagreementdatedMay17,2000enteredintowiththeGovernmentofHongKong(the“Government”)inrespectof

theCyberportproject(the“CyberportProjectAgreement”),theGovernmentisentitledtoreceiveapproximately65%ofthesurplus

cashflowearnedfromtheCyberportproject.TheamountspaidandpayabletotheGovernmentarepartoftheGroup’scostsof

developingtheCyberportproject.

TheamountpayabletotheGovernmentisafinancialliabilitythatismeasuredatamortizedcost.Borrowingcostsassociatedwith

thisliabilityarecapitalizedaspartofthepropertyunderdevelopment.

TheestimatedcostofdevelopingtheCyberportproject,includingconstructioncostsandtheamountspaidandpayabletothe

Government,isallocatedtocostofpropertiessoldonasystematicbasisoverthelifeoftheprojectusingarelativevalueapproach.

Thisapproachconsidersthevalueofdevelopmentcostsattributabletophasesforwhichrevenuehasbeenrecognizedtodate

relativetothetotalexpectedvalueofdevelopmentcostsforthedevelopmentasawhole.Therevisionofestimatesoftheserelative

valuesduring2008hasresultedinthecostsofpropertiessoldrecordedintheyearendedDecember31,2008beingincreasedby

HK$38million.

vi. Deferred income taxWhiledeferredincometaxliabilitiesareprovidedinfullonalltaxabletemporarydifferences,deferredincometaxassetsare

recognizedonlytotheextentthatitisprobablethatfuturetaxableprofitwillbeavailableagainstwhichthetemporarydifferences

canbeutilized.Inassessingtheamountofdeferredincometaxassetsthatneedtoberecognized,theGroupconsidersfuture

taxableincomeandongoingprudentandfeasibletaxplanningstrategies.IntheeventthattheGroup’sestimatesofprojected

futuretaxableincomeandbenefitsfromavailabletaxstrategiesarechanged,orchangesincurrentincometaxregulationsare

enactedthatwouldimpactthetimingorextentoftheGroup’sabilitytoutilizethetaxbenefitsofnetoperatinglosscarry-forwardsin

thefuture,adjustmentstotherecordedamountofnetdeferredincometaxassetsandincometaxexpensewouldbemade.

vii. Current income taxTheGroupmakesaprovisionforcurrentincometaxbasedonestimatedtaxableincomefortheyear.Theestimatedincometax

liabilitiesareprimarilycomputedbasedonthetaxcomputationaspreparedbytheGroup.Nevertheless,fromtimetotime,there

arecasesofdisagreementswiththetaxauthoritiesofHongKongandelsewhereonthetaxtreatmentofitemsincludedinthetax

computationsandcertainnon-routinetransactions.IftheGroupconsidersitprobablethatthesedisputesorjudgementswould

resultindifferenttaxpositions,themostlikelyamountsoftheoutcomewillbeestimatedandadjustmentstotheincometax

expenseandincometaxliabilitieswillbemadeaccordingly.

viii. Recognition of intangible asset – Mobile carrier licenceInordertomeasuretheintangibleassets,HKAS39“FinancialInstruments:RecognitionandMeasurement”isappliedfor

recognitionoftheminimumannualfeeandroyaltypaymentsastheyconstitutecontractualobligationstodelivercashand,hence,

shouldbeconsideredasfinancialliabilities.Toestablishthefairvalueoftheminimumannualfeeandroyaltypaymentsforthe

rightofuseofthemobilecarrierlicence,thediscountrateusedisanindicativeincrementalborrowingrateestimatedbythe

Group.Hadadifferentdiscountratebeenusedtodeterminethefairvalue,theGroup’sresultsofoperationsandfinancialposition

couldbemateriallydifferent.


3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)Key sources of estimation uncertainty (continued)ix. Estimated valuation of investment properties

Thebestevidenceoffairvalueiscurrentpricesinanactivemarketforsimilarleasesandothercontracts.Intheabsenceofsuch

information,theGroupdeterminestheamountwithinarangeofreasonablefairvaluesestimates.Inmakingitsestimates,the

Groupconsidersboth(i)informationfromthevaluationsofinvestmentpropertiesperformedbyexternalprofessionalvaluersby

usingtheopenmarketvalueapproachand(ii)otherprincipalassumptionsincludingthereceiptofcontractualrentals,expected

futuremarketrentalsanddiscountratestodeterminethefairvalueoftheinvestmentproperties.HadtheGroupuseddifferent

futuremarketrentals,discountratesandotherassumptions,thefairvalueoftheinvestmentpropertieswouldbedifferentandthus

causedimpacttotheconsolidatedincomestatement.AsatDecember31,2008,thefairvalueoftheinvestmentpropertieswas

HK$3,785million.

4 RELATED PARTY TRANSACTIONSDuringtheyear,theGrouphadthefollowingsignificanttransactionswithrelatedparties:

InHK$million TheGroup

Note(s) 2008 2007

Telecommunicationsservicefees,rentalcharges,facilitymanagementservices

andsubcontractingchargesreceivedorreceivablefromajointly

controlledcompany a&c 104 123

Telecommunicationsservicefeesandsystemsintegrationchargesreceivedor

receivablefromasubstantialshareholder a 95 60

Telecommunicationsservicefees,outsourcingfeesandrentalchargespaidor

payabletoajointlycontrolledcompany a&c 773 848

Telecommunicationsservicefeespaidorpayabletoasubstantialshareholder a 139 76

Keymanagementcompensation b 80 124

a. ThesetransactionswerecarriedoutafternegotiationsbetweentheGroupandtherelatedpartiesintheordinarycourseofbusiness

andonthebasisofestimatedmarketvalueasdeterminedbythedirectors.Inrespectoftransactionsforwhichthepriceorvolume

hasnotyetbeenagreedwiththerelevantrelatedparties,thedirectorshavedeterminedtherelevantamountsbasedontheirbest

estimation.

b. Detailsofkeymanagementcompensation


2008 2007

Salariesandothershort-termemployeebenefits 76 106

Post-employmentbenefits 4 4

Share-basedcompensation – 14

80 124



4 RELATED PARTY TRANSACTIONS (CONTINUED)c. Details of transactions with a jointly controlled company of a subsidiary (the “JV”)OnJune17,2004,theCompanyandTelstraCorporationLimited(“Telstra”)agreedtoprovidetheJVwitharevolvingworkingcapital

loanfacilitywitheachoftheCompanyandTelstracontributinguptoUS$25million(approximatelyHK$195million)tothisfacility.

DuringtheyearendedDecember31,2007,nodrawdownwasmadebytheJVunderthisfacilityandthefacilityexpiredonDecember

31,2007(seenote40(c)).

OnApril16,2005,theCompanyagreedwithTelstraandtheJVonanoperatingmodelunderwhichtheJVwouldoperateasan

outsourceroftelecommunicationsnetworkservicesfortheGroupandTelstraanditssubsidiaries.DuringtheyearendedDecember

31,2008,theoutsourcingfeespaidorpayablebytheGrouptotheJV,determinedonacostplusbasis,wereHK$591million(2007:

HK$665million).

d. Amounts due from/(to) related companiesOtherthanasspecifiedinthisnote,notes23and24andaUnitedStatesdollardenominatedloantotheparentcompanyofa

substantialshareholderintheamountofUS$1million(approximatelyHK$9million)(2007:US$2million(approximatelyHK$16

million))atafixedinterestrateof4%perannumandwithfixedtermsofrepaymentupto2010,balanceswithrelatedpartiesare

unsecured,non-interestbearingandhavenofixedrepaymentterms.

5 TURNOVER


2008 2007

Telecommunicationsandotherservicerevenues 19,602 18,712

Amountsreceivedandreceivableinrespectofgoodssold 2,541 1,948

Amountsreceivedandreceivableinrespectofpropertiessold 9,551 2,797

Amountsreceivedandreceivablefromrentalofinvestmentproperties 257 258

31,951 23,715


6 SEGMENT INFORMATIONSegmentinformationispresentedinrespectoftheGroup’sbusinessandgeographicalsegments.Businesssegmentinformationis

chosenastheprimaryreportingformatbecausethisisconsistentwiththeGroup’sinternalfinancialreporting.

a. Business segmentsDuringtheyear,theGrouphastransferredcertainoperationsamongbusinesssegmentsasaresultofitsoperationalre-organization.

TheGroupcomprisesthefollowingmainbusinesssegments:

TelecommunicationsServices(“TSS”)istheleadingprovideroftelecommunicationsproductsandservicesincludinglocaltelephony,

broadbandaccessservices,localandinternationaldata,internationaldirectdial,salesofequipment,technicalmaintenanceand

subcontractingservicesandteleservicesbusinesses.

TV&Contentincludesinteractivepay-TVservice,InternetportalmultimediaentertainmentplatformandtheGroup’sdirectories

operationsinHongKongandmainlandChina.

MobileincludestheGroup’s2Gand3Gmobiletelecommunicationsbusinesses.

PCCWSolutionsoffersInformationandCommunicationsTechnologiesservicesandsolutionsinHongKongandmainlandChina.

PacificCenturyPremiumDevelopmentsLimited(“PCPD”)coverstheGroup’spropertyportfolioinHongKongandmainlandChina,

includingtheCyberportdevelopmentinHongKong,andelsewhereintheAsiaPacificregion.

OtherBusinessesincludetheGroup’swirelessbroadbandbusinessintheUnitedKingdom(“UKBroadband”)andallcorporate

supportfunctions.

InHK$million TSS TV&Content Mobile PCCWSolutions PCPD OtherBusinesses Elimination Consolidated 2008 2007* 2008 2007* 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

REVENUEExternalrevenue 16,958 16,113 1,989 1,533 1,744 1,468 1,317 1,294 9,876 3,069 67 238 – – 31,951 23,715Inter-segmentrevenue 507 523 250 170 – – 549 501 67 65 19 11 (1,392 ) (1,270) – –

Totalrevenue 17,465 16,636 2,239 1,703 1,744 1,468 1,866 1,795 9,943 3,134 86 249 (1,392 ) (1,270) 31,951 23,715

RESULTSSegmentresults 5,118 5,322 (359 ) (397) (536 ) (618) 137 96 692 715 (509 ) (385) – – 4,543 4,733Unallocatedcorporate expenses (1,014 ) (710)

Interestincome 197 429Financecosts (1,473 ) (1,658)Shareofresultsof associatesandjointly controlledcompanies 27 25 (16 ) (12) – – – – – – – – – – 11 13Impairmentlosseson interestsinjointly controlledcompanies – – (31 ) – – – – – – – – – – – (31 ) –

Profitbeforeincometax 2,233 2,807Incometax (711 ) (970)




6 SEGMENT INFORMATION (continued)a. Business segments (continued)

InHK$million TSS TV&Content Mobile PCCWSolutions PCPD OtherBusinesses Elimination Consolidated 2008 2007* 2008 2007* 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

OTHER INFORMATIONCapitalexpenditure (includingproperty, plantandequipment, investmentproperties, interestsinleasehold land,intangibleassets andgoodwill)incurred duringtheyear 2,683 2,301 318 386 1,017 851 42 110 133 44 197 170Depreciationand amortization 2,338 2,125 274 182 762 614 58 54 30 23 196 204Impairmentlosses recognizedin incomestatement – – 31 58 – – – – 7 11 276 66Significantnon-cash expenses(excluding depreciation, amortizationand impairmentlosses) 118 123 53 59 68 46 – (9) 45 36 4 –

ASSETSSegmentassets 19,356 19,059 1,135 1,314 4,897 4,582 1,132 1,110 17,857 18,456 1,288 1,535 – – 45,665 46,056Interestsinassociates andjointlycontrolled companies 674 655 260 306 – – – – – – 8 10 – – 942 971Unallocatedcorporate assets 9,998 4,330

Consolidatedtotalassets 56,605 51,357

LIABILITIESSegmentliabilities 4,706 4,660 326 337 1,287 1,188 786 599 8,505 10,374 363 378 – – 15,973 17,536Unallocatedcorporate liabilities 35,732 29,470

Consolidatedtotal liabilities 51,705 47,006

* Certaincomparativefigureshavebeenrestatedtoconformwiththebusinesssegmentpresentationinthecurrentyear.CertaininterestsinjointlycontrolledcompaniesoftheGroup,previouslyincludedinTSS,hasbeenreclassifiedtoTV&Content.CertainassetspreviouslyincludedunderTSShavebeenreclassifiedtoTV&Content.


6 SEGMENT INFORMATION (continued)b. Geographical segmentsTheGroup’sbusinessesaremanagedonaworldwidebasis,butoperateinthreeprincipaleconomicenvironments.Inpresenting

informationonthebasisofgeographicalsegments,segmentrevenueisbasedonthegeographicallocationofcustomers.Segment

assetsandcapitalexpenditurearebasedonthegeographicallocationoftheassets.

InHK$million Revenuefrom Capitalexpenditure

externalcustomers Segmentassets incurredduringtheyear

2008 2007 2008 2007 2008 2007

HongKong 29,153 21,229 36,068 36,346 3,727 3,614

MainlandChina(excluding

HongKong)andTaiwan 1,734 1,691 6,147 6,262 97 68

Others 1,064 795 3,450 3,448 634 299

31,951 23,715 45,665 46,056 4,458 3,981

7 OTHER LOSSES, NET


2008 2007

Netrealizedgainsondisposalsofavailable-for-salefinancialassets 60 79

Netrealizedandunrealizedgainsonfinancialassetsatfairvaluethroughprofitorloss – 8

Impairmentlossongoodwill (12 ) (58)

Provisionforimpairmentofinvestments (161 ) (60)

Writebackofimpairmentlossoninterestinanassociate – 1

Provisionforrentalguarantee(note a) (12 ) (36)

Netrealizedandunrealizedfairvaluegainsonderivativefinancialinstruments 28 62

Fairvalue(losses)/gainsoninvestmentproperties (396 ) 3

Dividendincome 2 –

Unclaimeddividendpayablebyasubsidiarywrittenback – 2

Netgainoncashflowhedginginstrumentstransferredfromequity 30 9

Otherimpairmentloss – (20)

Others (3 ) 7

(464 ) (3)

a. UndertheformalpropertysaleandpurchaseagreementdatedDecember21,2004inrespectofthedisposalofPCCWTower,

oncompletionofthedisposal,thereisarentalguaranteepursuanttowhichPartnerLinkInvestmentsLimited,anindirectwholly-

ownedsubsidiaryofPCPD,hasundertakentothepurchaserthatitwouldpayaguaranteednetmonthlyrentalofapproximately

HK$13.3milliontothepurchaserforaperiodof5yearscommencingfromFebruary8,2005,i.e.thedatefollowingcompletionofthe

disposalofPCCWTower.AsatDecember31,2008,theGroupdidnothaveanyprovision(2007:HK$9million)inrelationtotherental

guaranteeovertheremainingtermoftherentalguaranteeperiod.



8 LOSSES ON PROPERTY, PLANT AND EQUIPMENT


2008 2007

Impairmentlossesonproperty,plantandequipment(note a) 49 5

Write-offofprojectsunderconstruction 54 2

103 7

a. DuetotechnologyandmarketchangesinthesectorsinwhichtheGroupoperates,certainoftheGroup’sproperty,plantand

equipmentbecameobsolete.Accordingly,theGrouprecognizedimpairmentlossesofapproximatelyHK$49million(2007:HK$5

million)intheconsolidatedincomestatementfortheyearendedDecember31,2008.

9 PROFIT BEFORE INCOME TAXProfitbeforeincometaxisstatedafterchargingandcreditingthefollowing:

a. Staff costs


2008 2007

Retirementcostsfordirectors 3 4

Retirementcostsforotherstaff

–pensionincomefordefinedbenefitretirementschemes(note 31(a)(v)) (2 ) (2)

–contributionstodefinedcontributionretirementscheme 225 194

226 196

Equity-settledshare-basedpaymentexpenses – 8

Salaries,bonusesandotherbenefits 2,461 2,581

2,687 2,785


9 PROFIT BEFORE INCOME TAX (continued)b. Other items

InHK$million TheGroup 2008 2007

Crediting:Dividendincomefromunlistedinvestments 2 –Exchangegains,net 51 –Less:Cashflowhedges:transferredfromequity (104 ) –Gainondisposalofproperty,plantandequipment – 7Grossrentalincome 257 258Less:Outgoings (26 ) (18)

Charging:Lossesonproperty,plantandequipment 103 7Impairmentlossfordoubtfuldebts 275 218Provisionforinventoryobsolescence 1 1Depreciationofproperty,plantandequipment 2,824 2,795Amortizationoflandleasepremium–interestsinleaseholdland 22 30–propertiesunderdevelopment 9 –Amortizationofintangibleassets 841 445Costofinventoriessold 2,494 2,188Costofpropertiessold 8,070 1,932Costofsales,excludinginventoriesandpropertiessold 7,286 6,418Lossondisposalofproperty,plantandequipment 19 –Exchangelosses,net – 49Less:Cashflowhedges:transferredfromequity – (57)Auditors’remuneration 22 21Operatingleaserental–equipment 23 68–otherassets(includingpropertyrentals) 518 479Restructuringcosts(includedingeneralandadministrativeexpenses) 171 –

10 FINANCE COSTS


Interestpaid/payablefor: Overdraftsandbankborrowingswhollyrepayablewithin5years 489 563 Otherborrowingswhollyrepayablewithin5years 556 656 Otherborrowingsnotwhollyrepayablewithin5years 409 424Financechargesonmobilecarrierlicencefeeliabilities 64 63Otherborrowingcosts 8 1Cashflowhedges:transferredfromequity 1 (3)

1,527 1,704Interestcapitalizedinproperty,plantandequipment (54 ) (46)

1,473 1,658

Thecapitalizationratesusedtodeterminetheamountofinteresteligibleforcapitalizationfortheyearrangedfrom4.67%to5.83%(2007:5.78%to6.41%).



11 DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTSDetailsofdirectors’emolumentsaresetoutbelow:

a. Directors’ emoluments – cash and cash equivalents paid/payable

InHK$million TheGroup 2008 Salaries, Retirement Directors’ allowances and scheme fees benefits in kind Bonuses 1 contributions

Executive directorsLiTzarKai,Richard – – – –AlexanderAnthonyArena – 18.75 – 1.41PeterAnthonyAllen – 4.08 2 – 0.61ChungChoYee,Mico – 2.40 3 3.00 4 –LeeChiHong,Robert – 11.00 18.34 1.13

Non-executive directorsSirDavidFord – 2.81 – 0.21LuYimin7 0.12 8 – – –ZuoXunsheng 0.20 5 – – –LiFushen 0.20 6 – – –ZhangChunjiang9 0.08 10 – – –

Independent non-executive directorsProfessorChangHsin-kang 0.20 – – –DrTheHonSirDavidLiKwokPo 0.20 – – –SirRogerLobo 0.20 – – –AmanMehta 0.40 11 0.38 – –TheHonRaymondGeorgeHardenberghSeitz 0.30 12 0.47 – –

1.90 39.89 21.34 3.36

Notes:1 Bonusesinrespectof2008,paidin2008andpayablein2009.2 Excludesremunerationfordutiesperformedforrelatedcompanies.3 Excludesremunerationfordutiesperformedforrelatedcompanies.4 BonuspaidbyasubsidiaryofPCPD.5 Feereceivableasanon-executivedirectorin2008wassurrenderedtoasubsidiaryofChinaUnitedNetworkCommunicationsGroupCompanyLimited

(formerlyknownasChinaNetworkCommunicationsGroupCorporation),inaccordancewithanarrangementbetweenMrZuoXunshengandChinaUnitedNetworkCommunicationsGroupCompanyLimited,asubstantialshareholderoftheCompany.

6 Feereceivableasanon-executivedirectorin2008wassurrenderedtoasubsidiaryofChinaUnitedNetworkCommunicationsGroupCompanyLimited(formerlyknownasChinaNetworkCommunicationsGroupCorporation),inaccordancewithanarrangementbetweenMrLiFushenandChinaUnitedNetworkCommunicationsGroupCompanyLimited,asubstantialshareholderoftheCompany.

7 Appointedasanon-executivedirectorwitheffectfromMay30,2008.8 Feereceivableasanon-executivedirectorin2008wassurrenderedtoasubsidiaryofChinaUnitedNetworkCommunicationsGroupCompanyLimited

(formerlyknownasChinaNetworkCommunicationsGroupCorporation),inaccordancewithanarrangementbetweenMrLuYiminandChinaUnitedNetworkCommunicationsGroupCompanyLimited,asubstantialshareholderoftheCompany.

9 Resignedasanon-executivedirectorwitheffectfromMay28,2008.10 Feereceivableasanon-executivedirectorin2008wassurrenderedtoasubsidiaryofChinaUnitedNetworkCommunicationsGroupCompanyLimited

(formerlyknownasChinaNetworkCommunicationsGroupCorporation),inaccordancewithanarrangementbetweenMrZhangChungjiangandChinaUnitedNetworkCommunicationsGroupCompanyLimited,asubstantialshareholderoftheCompany.

11 IncludesHK$100,000feeasChairmanofNominationCommitteeandHK$100,000feeasChairmanofAuditCommittee.12 IncludesHK$100,000feeasChairmanofRemunerationCommittee.


11 DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS (continued)a. Directors’ emoluments – cash and cash equivalents paid/payable(continued)


2007 Salaries, Retirement Directors’ allowancesand scheme fees benefitsinkind Bonuses1 contributions

Executive directorsLiTzarKai,Richard – – – –

AlexanderAnthonyArena – 16.93 8.50 1.26

PeterAnthonyAllen – 4.082 – 0.61

ChungChoYee,Mico – 2.403 13.004 –

LeeChiHong,Robert – 11.00 19.85 0.99

SoChakKwong,Jack5 – 9.28 – 0.38

DrFanXingcha6 – 2.03 – 0.14

Non-executive directorsSirDavidFord – 2.79 0.13 0.22

ZhangChunjiang 0.207 – – –

ZuoXunsheng8 0.109 – – –

LiFushen10 0.1011 – – –

DrTianSuning12 0.10 – – –

Independent non-executive directorsProfessorChangHsin-kang 0.20 – – –

DrFungKwokKing,Victor13 0.08 – – –

DrTheHonSirDavidLiKwokPo 0.20 – – –

SirRogerLobo14 0.2915 – – –

AmanMehta16 0.3117 0.43 – –

TheHonRaymondGeorgeHardenberghSeitz 0.3018 0.43 – –

1.88 49.37 41.48 3.60

Notes:1 Bonusesinrespectof2007,paidin2007andpayablein2008.2 Excludesremunerationfordutiesperformedforrelatedcompanies.3 Excludesremunerationfordutiesperformedforrelatedcompanies.4 BonuspaidbyasubsidiaryofPCPD.5 Resignedasexecutivedirector,DeputyChairmanandGroupManagingDirectorwitheffectfromApril30,2007.6 ResignedasexecutivedirectorwitheffectfromJuly9,2007.7 Feereceivableasanon-executivedirectorin2007wassurrenderedtoasubsidiaryofChinaUnitedNetworkCommunicationsGroupCompanyLimited

(formerlyknownasChinaNetworkCommunicationsGroupCorporation),inaccordancewithanarrangementbetweenMrZhangChunjiangandChinaUnitedNetworkCommunicationsGroupCompanyLimited,asubstantialshareholderoftheCompany.

8 Appointedasnon-executivedirectorwitheffectfromJuly9,2007.9 Feereceivableasanon-executivedirectorin2007wassurrenderedtoasubsidiaryofChinaUnitedNetworkCommunicationsGroupCompanyLimited

(formerlyknownasChinaNetworkCommunicationsGroupCorporation),inaccordancewithanarrangementbetweenMrZuoXunshengandChinaUnitedNetworkCommunicationsGroupCompanyLimited,asubstantialshareholderoftheCompany.

10 Appointedasnon-executivedirectorwitheffectfromJuly9,2007.11 Feereceivableasanon-executivedirectorin2007wassurrenderedtoasubsidiaryofChinaUnitedNetworkCommunicationsGroupCompanyLimited

(formerlyknownasChinaNetworkCommunicationsGroupCorporation),inaccordancewithanarrangementbetweenMrLiFushenandChinaUnitedNetworkCommunicationsGroupCompanyLimited,asubstantialshareholderoftheCompany.

12 Resignedasnon-executivedirectorwitheffectfromJuly9,2007.13 Retiredasindependentnon-executivedirectorupontheconclusionoftheannualgeneralmeetingheldonMay31,2007.14 ResignedasChairmanofAuditCommitteeupontheconclusionoftheboardmeetingheldonNovember23,2007.15 IncludesHK$89,722feeasChairmanofAuditCommittee.16 AppointedasChairmanofAuditCommitteeuponconclusionoftheboardmeetingheldonNovember23,2007.17 IncludesHK$100,000feeasChairmanofNominationCommitteeandHK$10,685feeasChairmanofAuditCommittee.18 IncludesHK$100,000feeasChairmanofRemunerationCommittee.



11 DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS (continued)b. Directors’ emoluments – share-based compensation

TheGroup

2008 Number of Number of share options share options/ granted/ Number of Number of Share-based shares (lapsed)/ share options share options/ compensation Exercise outstanding shares exercised/ shares Number of charged to Value of price of at beginning awarded/ shares outstanding at share options income shares Grant date share options of year (lapsed) transferred end of year vested statement transferred (Note ii) (Note i) HK$ HK$ million HK$ million

Executive directorsAlexanderAnthonyArena July 25, 2003 4.3500 6,400,000 – – 6,400,000 6,400,000 – – February 8, 2005 4.4750 3,000,000 – – 3,000,000 3,000,000 – –

PeterAnthonyAllen July 25, 2003 4.3500 2,000,000 – – 2,000,000 2,000,000 – – February 8, 2005 4.4750 2,000,000 – – 2,000,000 2,000,000 – –

ChungChoYee,Mico July 25, 2003 4.3500 5,695,200 – – 5,695,200 5,695,200 – – February 8, 2005 4.4750 3,000,000 – – 3,000,000 3,000,000 – –

LeeChiHong,Robert July 25, 2003 4.3500 5,000,000 – – 5,000,000 5,000,000 – – February 8, 2005 4.4750 1,000,000 – – 1,000,000 1,000,000 – –

Non-executive directorSirDavidFord July 25, 2003 4.3500 1,000,000 – – 1,000,000 1,000,000 – – February 8, 2005 4.4750 2,000,000 – – 2,000,000 2,000,000 – –

– –


11 DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS (continued)b. Directors’ emoluments – share-based compensation(continued)

TheGroup

2007

Numberof

Numberof shareoptions

shareoptions/ granted/ Numberof Numberof Share-based

shares (lapsed)/ shareoptions shareoptions/ compensation

Exercise outstanding shares exercised/ shares Numberof chargedto Valueof

priceof atbeginning awarded/ shares outstandingat shareoptions income shares

Grantdate shareoptions ofyear (lapsed) transferred endofyear vested statement transferred

(Noteii) (Notei)

HK$ HK$million HK$million

Executive directorsAlexanderAnthonyArena July25,2003 4.3500 6,400,000 – – 6,400,000 6,400,000 – –

February8,2005 4.4750 3,000,000 – – 3,000,000 3,000,000 0.08 –

PeterAnthonyAllen July25,2003 4.3500 2,000,000 – – 2,000,000 2,000,000 – –

February8,2005 4.4750 2,000,000 – – 2,000,000 2,000,000 0.05 –

ChungChoYee,Mico July25,2003 4.3500 5,695,200 – – 5,695,200 5,695,200 – –

February8,2005 4.4750 3,000,000 – – 3,000,000 3,000,000 0.08 –

LeeChiHong,Robert July25,2003 4.3500 5,000,000 – – 5,000,000 5,000,000 – –

February8,2005 4.4750 1,000,000 – – 1,000,000 1,000,000 0.03 –

SoChakKwong,Jack July25,2003 4.3500 12,000,000 – (12,000,000) – N/A – 6.00

February8,2005 4.4750 3,500,000 – (3,500,000) – N/A 0.09 1.31

September15,2006 4.9240 25,000,000 (25,000,000)1 – – N/A – –

September15,2006 N/A 6,500,000 (2,519,109)1 (3,980,891) – N/A 13.12 19.23

DrFanXingcha September1,2005 5.2500 7,000,000 (7,000,000)2 – – N/A – –

Non-executive directorSirDavidFord July25,2003 4.3500 1,000,000 – – 1,000,000 1,000,000 – –

February8,2005 4.4750 2,000,000 – – 2,000,000 2,000,000 0.05 –

13.50 26.54

Notes:1 UpontheresignationasexecutivedirectorwitheffectfromApril30,2007,theoutstandingshareoptionsandsharesawardedheldinthecapacityofdirector

becamezero.2 UpontheresignationasexecutivedirectorwitheffectfromJuly9,2007,theoutstandingshareoptionsheldinthecapacityofdirectorbecamezero.

i. Value of shares transferredThevalueofsharestransferredrepresentsthemarketvalueofrelevantsharesgrantedtoadirectoratthedateoftransfer.Had

therebeenanyexerciseofshareoptionsbydirectors,thevalueofsharestransferredwouldincludethemarketvalueofthe

relevantsharesatthedateofexerciselessthecorrespondingexerciseprice.



11 DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS (continued)b. Directors’ emoluments – share-based compensation(continued)ii. Share-based compensation charged to income statement

Share-basedcompensationisatrinomialoptionpricingmodelcalculationofthefairvalueofshareoptions,andalsotheestimated

fairvalueoftheCompany’ssharesgrantedasestimatedatthedateofgrant.Share-basedcompensationisamortizedinthe

incomestatementoverthevestingperiodoftherelatedshareoptionsorsharesgranted.Thesevaluesdonotrepresentrealizable

gainswhichareaffectedbyacombinationofanumberoffactors,including,performanceoftheCompany’sshareprice,vesting

period,timingofexercise,etc.Thedetailsoftheseshareoptionsandawardsaredisclosedinnotes32(a)and32(b)andunderthe

section“ShareOptionSchemes”intheReportoftheDirectors.

Totaldirectors’emolumentsfortheyearendedDecember31,2008,includingamortizedshare-basedcompensation,were

HK$66.49million(2007:HK$109.83million).

c. Individuals with highest emolumentsOfthefiveindividualswiththehighestemoluments,three(2007:four)aredirectorsoftheCompanywhoseemolumentsaredisclosed

innotes11(a)and11(b).Theemolumentsinrespectofthenon-directorindividualin2008and2007wereasfollows:


2008 2007

Salaries,allowancesandbenefitsinkind 7.60 3.30

Bonuses 5.60 3.50

Retirementschemecontributions 0.69 0.26

Share-basedcompensation – 0.01

13.89 7.07

12 INCOME TAXa. Income tax in the consolidated income statement represents:


2008 2007

HongKongprofitstax

–provisionforcurrentyear 1,845 1,076

–overprovisioninrespectofprioryears (14 ) (55)

Overseastax

–provisionforcurrentyear 95 45

–underprovisioninrespectofprioryears 73 2

Movementofdeferredincometax (note 34(a)) (1,288 ) (98)

711 970

HongKongprofitstaxhasbeenprovidedattherateof16.5%(2007:17.5%)ontheestimatedassessableprofitsfortheyear.

Overseastaxhasbeencalculatedontheestimatedassessableprofitsfortheyearattheratesprevailingintherespectivejurisdictions.

Duringtheyear,asaresultofthechangeintheHongKongcorporationtaxratefrom17.5%to16.5%thatwillbeeffectivefrom

April1,2008,deferredincometaxbalanceshavebeenremeasuredandtheeffectonthechangeincorporateincometaxrate

applicabletotheGroup’soperationsinHongKongwasrecognizedintheconsolidatedincomestatementforthecurrentyear.


12 INCOME TAX (continued)a. Income tax in the consolidated income statement represents:(continued)OnMarch16,2007,theNationalPeople’sCongressofthePRCapprovedtheCorporateIncomeTaxLaw(the“newCITLaw”).ThenewCITLawreducesthecorporateincometaxrateapplicabletotheGroup’soperationsinthePRCfrom33%to25%witheffectfromJanuary1,2008.Accordingly,thedeferredincometaxliabilitiesfortheGroup’soperationsinthePRCasatDecember31,2007isprovidedattherateof25%onthetemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandthetaxbases.TheeffectonthechangeincorporateincometaxrateapplicabletotheGroup’soperationsinthePRCwasrecognizedintheconsolidatedincomestatementintheyearendedDecember31,2007.

b. Reconciliation between income tax expense and accounting profit at applicable tax rate:


Profitbeforeincometax 2,233 2,807

Notionaltaxonprofitbeforeincometax,calculatedatapplicabletaxrates 368 491Incomenotsubjecttotax (36 ) (102)Expensesnotdeductiblefortaxpurposes 234 274Taxlossesnotrecognized 132 466Effectofeliminatedgrouptransactions (32 ) –Under/(Over)provisioninprioryears,net 59 (53)Utilizationofpreviouslyunrecognizedtaxlosses (15 ) (23)Recognitionofpreviouslyunrecognizedtaxlosses – (36)Incomenotsubjecttotaxforassociatesandjointlycontrolledcompanies (2 ) (2)Reversalofdeferredincometaxduetochangeoftaxrate (92 ) (90)Currenttaxprovisionofoverseasoperations 95 45

Incometaxexpense 711 970

13 LOSS/PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANYLossofHK$17,582million(2007:ProfitofHK$22,382million)attributabletoequityholdersoftheCompanywasdealtwithinthefinancialstatementsoftheCompany.

14 DIVIDENDSa. Dividends payable to equity holders of the Company attributable to the year

InHK$million 2008 2007

Interimdividenddeclaredandpaidof7HKcents(2007:6.5HKcents)perordinaryshare 474 440Finaldividendproposedafterthebalancesheetdate–nil(2007:13.5HKcents) perordinaryshare – 915Specialdividenddeclaredafterthebalancesheetdateof130HKcents(2007:nil) perordinaryshare 8,804 –

9,278 1,355

Thespecialdividenddeclaredafterthebalancesheetdatefor2008hasnotbeenrecognizedasaliabilityasatthebalancesheetdate.

b. Dividends payable to equity holders of the Company attributable to the previous financial year, approved and paid during the year


Finaldividendinrespectofthepreviousfinancialyear,approvedandpaidduringtheyear, of13.5HKcents(2007:12HKcents)perordinaryshare 915 813



15 EARNINGS PER SHAREThecalculationsofbasicanddilutedearningspersharearebasedonthefollowingdata:

2008 2007

Earnings (in HK$ million)Earningsforthepurposeofbasicanddilutedearningspershare 1,272 1,503

Number of sharesWeightedaveragenumberofordinarysharesforthepurposeofbasicearnings

pershare 6,772,942,656 6,766,664,377

EffectofdeemedissueofsharesundertheCompany’sshareoptionschemes

fornilconsideration – 8,685,600

EffectofsharespurchasedfromthemarketundertheCompany’sshareawardschemes 2,519,109 2,401,495

Weightedaveragenumberofordinarysharesforthepurposeofdilutedearningspershare 6,775,461,765 6,777,751,472

16 PROPERTY, PLANT AND EQUIPMENT


2008 Land and Exchange Transmission Other plant Projects under buildings equipment plant and equipment construction Total

CostBeginningofyear 1,167 11,100 12,243 8,941 2,016 35,467Additions 49 701 444 751 1,397 3,342Transfers 25 160 184 422 (791 ) –Disposals – (260 ) (28 ) (106 ) – (394 )Write-off – – – – (54 ) (54 )Exchangedifferences 2 (62 ) – (22 ) (76 ) (158 )

Endofyear 1,243 11,639 12,843 9,986 2,492 38,203

Accumulated depreciation and impairmentBeginningofyear 178 7,098 5,120 6,219 – 18,615Chargefortheyear 44 1,120 764 896 – 2,824Impairmentlosses – 38 – 11 – 49Disposals – (224 ) (16 ) (99 ) – (339 )Exchangedifferences – (16 ) – (22 ) – (38 )

Endofyear 222 8,016 5,868 7,005 – 21,111

Net book value

Endofyear 1,021 3,623 6,975 2,981 2,492 17,092

Beginningofyear 989 4,002 7,123 2,722 2,016 16,852


16 PROPERTY, PLANT AND EQUIPMENT (continued)


2007

Landand Exchange Transmission Otherplant Projectsunder

buildings equipment plant andequipment construction Total

CostBeginningofyear 1,206 10,416 11,445 8,350 1,419 32,836

Additions

–throughacquisitionofasubsidiary 9 – – 3 – 12

–others – 556 588 761 1,317 3,222

Transfers – 237 252 231 (720) –

Disposals (48) (113) (44) (414) (1) (620)

Write-off – – – – (2) (2)

Exchangedifferences – 4 2 10 3 19

Endofyear 1,167 11,100 12,243 8,941 2,016 35,467

Accumulated depreciation and impairmentBeginningofyear 142 6,057 4,395 5,745 – 16,339

Chargefortheyear 47 1,149 766 833 – 2,795

Impairmentlosses – 3 – 2 – 5

Disposals (11) (112) (43) (367) – (533)

Exchangedifferences – 1 2 6 – 9

Endofyear 178 7,098 5,120 6,219 – 18,615

Net book value

Endofyear 989 4,002 7,123 2,722 2,016 16,852

Beginningofyear 1,064 4,359 7,050 2,605 1,419 16,497

NolandandbuildingswerepledgedassecurityforbankborrowingsoftheGroupasatDecember31,2008and2007.

ThecarryingamountoflandandbuildingsoftheGroupisanalyzedasfollows:


2008 2007

HeldinHongKong

Onlong-termlease(over50years) 86 87

Onmedium-termlease(10–50years) 833 849

HeldoutsideHongKong

Freehold 58 9

Leasehold

Onlong-termlease(over50years) 1 –


1,021 989



16 PROPERTY, PLANT AND EQUIPMENT (continued)

InHK$million TheCompany 2008 Other plant and equipment

CostBeginningofyear 5Disposals (3 )

Endofyear 2

Accumulated depreciation and impairmentBeginningofyear 3Chargefortheyear 1Disposals (2 )

Endofyear 2

Net book value

Endofyear –

Beginningofyear 2

InHK$million TheCompany 2007 Otherplant andequipment

CostBeginningandendofyear 5

Accumulated depreciation and impairmentBeginningandendofyear 3

Net book value

Endofyear 2

Beginningofyear 2

17 INVESTMENT PROPERTIES


Beginningofyear 3,920 3,639Additions – 4Exchangedifferences 261 274Fairvalue(losses)/gains (396 ) 3

Endofyear 3,785 3,920

MajorityoftheinvestmentpropertiesareheldoutsideHongKongandtheywererevaluedasatDecember31,2008byanindependentvaluer,whoisafellowoftheRoyalInstitutionofCharteredSurveyors.Thebasisofvaluationfortheseinvestmentpropertieswasopenmarketvalue.

Intheconsolidatedincomestatement,costofsalesincludesHK$26million(2007:HK$18million)directoperatingexpensesthatgeneraterentalincomewhileHK$11million(2007:HK$3million)directoperatingexpensesrelatingtoinvestmentpropertiesthatwereunlet.


17 INVESTMENT PROPERTIES (continued)ThecarryingamountofinvestmentpropertiesoftheGroupisanalyzedasfollows:


HeldinHongKong


HeldoutsideHongKong


Onmedium-termlease(10–50years) 3,031 3,145

3,785 3,920

TheGroupleasesoutpropertiesunderoperatingleases.Majorityoftheleasestypicallyrunforaperiodof2to15years.Noneofthe

leasesincludecontingentrentals.

AsatDecember31,2008,thetotalfutureminimumleasepaymentsinrespectofinvestmentpropertiesundernon-cancellable

operatingleasesarereceivableasfollows:


Within1year 202 199

After1yearbutwithin5years 257 330

After5years 29 38

488 567

18 INTERESTS IN LEASEHOLD LAND


CostBeginningofyear 819 1,326

Transfertopropertiesunderdevelopment – (543)

Exchangedifferences – 36

Endofyear 819 819

Accumulated amortizationBeginningofyear 204 186

Chargefortheyear 22 30

Transfertopropertiesunderdevelopment – (12)

Endofyear 226 204

Net book value

Endofyear 593 615

Beginningofyear 615 1,140



18 INTERESTS IN LEASEHOLD LAND (continued)ThecarryingamountofinterestsinleaseholdlandoftheGroupisanalyzedasfollows:


HeldinHongKong



HeldoutsideHongKong


593 615

Theleaseholdlandtransferredtopropertiesunderdevelopmentin2007wassubjecttoamortizationovertheperiodoftheleaseon

astraight-linebasis.Theamountofamortizationchargeoftheleaseholdlandhadbeencapitalizedaspartofthecostofproperties

underdevelopment.AsatDecember31,2008,thenetbookvalueofleaseholdlandincludedinpropertiesunderdevelopmentwas

approximatelyHK$773million(2007:HK$746million).

19 PROPERTIES HELD FOR/UNDER DEVELOPMENT/FOR SALE


Propertiesunderdevelopment(note a) 1,017 9,291

Propertiesheldfordevelopment(note b) 860 816

1,877 10,107

Less:Amountsclassifiedasnon-currentassets (1,546 ) (1,671)

Amountsclassifiedascurrentassets 331 8,436

Propertiesforsaleclassifiedascurrentassets(note a) 2,071 697

2,402 9,133

a. PursuanttotheCyberportProjectAgreement,theGroupwasgrantedanexclusiverightandobligationtodesign,develop,

constructandmarkettheCyberportprojectatTelegraphBayontheHongKongIsland.TheCyberportprojectconsistsofcommercial

andresidentialportions.ThecompletedcommercialportionwastransferredtotheGovernmentatnoconsideration.Theassociated

costsincurredhaveformedpartofthedevelopmentcostsoftheresidentialportion.Pre-salesoftheresidentialportionoftheCyberport

projectcommencedinFebruary2003.

b. PropertiesheldfordevelopmentrepresentsfreeholdlandinJapanandThailand,whichtheGroupintendsforfuture

developmentprojects.


20 GOODWILL


CostBeginningofyear 3,074 3,140

Additions – 10

Disposals (8 ) (78)

Exchangedifferences 4 2


Accumulated impairmentBeginningofyear 58 –

Impairmentloss 12 58

Endofyear 70 58

Carrying amount


Beginningofyear 3,016 3,140

Impairment tests for cash-generating units containing goodwillGoodwillisallocatedtotheGroup’sCGUsidentifiedaccordingtobusinesssegmentasfollows:


TSS

PCCWGlobal 585 585

Omnilink 120 120

705 705

TV&Content

PCCWDirectories 162 162

Mobile 1,939 1,939

PCCWSolutions 6 6

PCPD 184 180

Others 4 24

Total 3,000 3,016



20 GOODWILL (continued)Impairment tests for cash-generating units containing goodwill(continued)TherecoverableamountsoftheCGUsaredeterminedbasedonvalue-in-usecalculations.Thesecalculationsusecashflow

projectionsbasedonfinancialbudgetsapprovedbymanagementcoveringafive-yearperiod.Cashflowsbeyondthefive-yearperiod

areextrapolatedusingtheestimatedgrowthratesstatedbelow.Thegrowthratedoesnotexceedthelong-termaveragegrowthratefor

thebusinessinwhichtheCGUoperates.

Keyassumptionsusedforvalue-in-usecalculations:

2008 Gross margin Growth rate Discount rate

PCCWGlobal 25.0% 3.0% 12.0%PCCWDirectories 53.2% 2.0% 13.0%Mobile 63.8% 2.0% 14.5%PCPD 19.2% N/A 12.0%

TheseassumptionshavebeenusedfortheanalysisofeachCGUwithinthebusinesssegment.

TherewasnoevidenceofimpairmentarisingfromthisreviewongoodwillasatDecember31,2008.Theonlycircumstanceswhere

areasonablypossiblechangeinkeyassumptionsmighthavecausedanimpairmentlosstoberecognizedwasinrespectofPCCW

Globalwhere:

– afallof1.5%inthegrossmargin;or

– anincreaseof4.5%inthediscountrate

wouldhavecausedanimpairmentlosstoberecognized.

Managementdeterminedbudgetedgrossmarginbasedonpastperformanceanditsexpectationsformarketdevelopment.The

weightedaveragegrowthratesusedareconsistentwiththeforecastsincludedinindustryreports.Thediscountratesusedarepre-tax

andreflectspecificrisksrelatingtotherelevantCGUs.


21 INTANGIBLE ASSETS

InHK$million TheGroup 2008 Wireless Mobile Customer Content broadband carrier acquisition Trademarks licence licences licences costs Others Total

CostBeginningofyear 1,518 375 114 191 811 9 3,018Additions – – 110 – 1,006 – 1,116Write-off – – – – (330 ) – (330 )Exchangedifferences – – (61 ) – – – (61 )

Endofyear 1,518 375 163 191 1,487 9 3,743

Accumulated amortization and impairmentBeginningofyear 559 375 100 22 316 8 1,380Chargefortheyear(note a) 76 – 21 12 732 – 841Write-off – – – – (330 ) – (330 )Exchangedifferences – – (33 ) – – – (33 )

Endofyear 635 375 88 34 718 8 1,858

Net book value

Endofyear 883 – 75 157 769 1 1,885

Beginningofyear 959 – 14 169 495 1 1,638

InHK$million TheGroup 2007 Wireless Mobile Customer Content broadband carrier Customer acquisition Trademarks licence licences licences base costs Others Total

CostBeginningofyear 1,528 375 112 115 65 221 63 2,479Additions – – – 76 – 657 – 733Write-off (10) – – – (65) (67) (54) (196)Exchangedifferences – – 2 – – – – 2

Endofyear 1,518 375 114 191 – 811 9 3,018

Accumulated amortization and impairmentBeginningofyear 491 375 77 10 49 66 62 1,130Chargefortheyear(note a) 78 – 22 12 16 317 – 445Write-off (10) – – – (65) (67) (54) (196)Exchangedifferences – – 1 – – – – 1

Endofyear 559 375 100 22 – 316 8 1,380

Net book value

Endofyear 959 – 14 169 – 495 1 1,638

Beginningofyear 1,037 – 35 105 16 155 1 1,349

a. Theamortizationchargefortheyearisincludedin“Generalandadministrativeexpenses”intheconsolidatedincomestatement.



22 INVESTMENTS IN SUBSIDIARIES

InHK$million TheCompany

2008 2007

Unlistedshares,atcost 130,780 148,401

Capitalcontributioninrespectofemployeeshare-basedcompensation 283 283

131,063 148,684

Less:Provisionforimpairmentinvalue (118,974 ) (128,383)

12,089 20,301

TheprovisionforimpairmentinvalueofHK$118,974million(2007:HK$128,383million)relatestocertainsubsidiariesofthe

CompanywhichholdtheGroup’sinvestmentsinsubsidiaries,associates,jointlycontrolledcompanies,debtandequitysecurities.

DividendsfromthePRCentitiesaccountedforassubsidiarieswillbedeclaredbasedontheprofitsinthestatutoryfinancialstatements

ofthesePRCentitieswhicharepreparedusingaccountingprinciplesgenerallyacceptedinthePRC.Suchprofitsaredifferentfrom

theamountsreportedunderHKFRSs.

Duringtheyear,theCompanyenteredintotransactionswithcertainsubsidiariesintheordinarycourseofbusiness.Detailsofthe

amountsduefromandduetosubsidiariesareasfollows:

a. Amounts due from subsidiaries


2008 2007

Amountsduefromsubsidiaries 61,248 54,274

Less:Provisionforimpairment (41,840 ) (18,276)

19,408 35,998

Amountsduefromsubsidiariesareunsecured,non-interestbearingandrepayableondemand.

AsatDecember31,2008,theGrouphasfinancedtheoperationsofcertainofitsPRCentitiesaccountedforassubsidiariesinthe

formofshareholder’sloansamountingtoapproximatelyUS$113million(2007:US$117million)whichhavenotbeenregisteredwith

theStateAdministrationofForeignExchange.Asaresult,remittancesinforeigncurrencyoftheseamountsoutsidethePRCmaybe

restricted.


22 INVESTMENTS IN SUBSIDIARIES (continued)AsatDecember31,2008,particularsoftheprincipalsubsidiariesoftheCompanyareasfollows:

Placeof Nominalvalueof Interestheldby

incorporation/ issuedcapital/ theCompany

Companyname operations Principalactivities registeredcapital Directly Indirectly

HKTGroupHoldingsLimited CaymanIslands Investmentholding US$636,000,001 – 100%

(“HKTGH”)

HongKongTelecommunications HongKong Provisionoftelecommunicationsservices HK$2,488,200,001 – 100%

(HKT)Limited(“HKT”)

PCCW-HKTLimited HongKong Investmentholding HK$6,092,100,052 – 100%

HKTMediaHoldingsLimited CaymanIslands Investmentholding US$2 – 100%

HKTSolutionsHoldingsLimited CaymanIslands Investmentholding US$2 – 100%

PCCW-HKTTelephoneLimited1 HongKong Telecommunicationsservices HK$2,163,783,209 – 100%

(“HKTC”)

PCCW-HKTBusiness HongKong Provisionofbusinesscustomerpremises HK$2 – 100%

ServicesLimited equipmentandancillarybusinessservices

PCCW-HKTNetwork HongKong Globalcommunicationssolutions HK$3 – 100%

ServicesLimited andconnectivitybusiness

PCCW-HKTTechnical HongKong Provisionoftechnicalsupportservices, HK$500,002 – 100%

ServicesLimited electronicsandcommunicationsengineering

productsandsolutions

PCCWMediaLimited HongKong Provisionofpaytelevisionprogrammeservices, HK$3,500,000,101 – 100%

interactivemultimediaservicesandpublishing (HK$3,500,000,096

ordinaryshares,

HK$1“A”Class

shareandHK$4

“B”Classshares)

PCCWTeleservices HongKong Provisionofcustomerrelationshipmanagementand HK$12 – 100%

(HongKong)Limited customercontactmanagementsolutionsandservices

PCCWTeleservicesOperations HongKong Provisionofcustomerrelationshipmanagementand HK$2 – 100%

(HongKong)Limited customercontactmanagementsolutionsandservices

廣州電盈綜合客戶服務 ThePRC Customerserviceandconsultancy HK$53,803,000 – 100%

技術發展有限公司3

PCCW(Macau),Limitada Macau Sellingcustomerpremisesequipmentand MOP2,000,000 – 75%

relatedsolutions,conductingsystemsintegration

projectsandprovidingoutsourcedcallcenterservices

PCCWGlobal(HK)Limited HongKong Provisionoftelecommunicationservicesand HK$10 – 100%

satellitetranspondercapacity

PCCWGlobalLimited HongKong GlobalInternetProtocolbasedcommunicationservice HK$2 – 100%



22 INVESTMENTS IN SUBSIDIARIES (continued)




PCCWGlobal,Inc. U.S.A. SupplyofbroadbandInternetaccesssolutionsand US$18 – 100%

webservices

PCCWGlobal(Singapore)Pte.Ltd. Singapore Telecommunicationsolutionsrelatedservices S$2 – 100%

PCCWGlobal(UK)Limited UnitedKingdom Telecommunicationsolutionsresalebusiness GBP1 – 100%

電訊盈科（北京）有限公司2 ThePRC Systemsintegration,consultingand US$10,250,000 – 100%

informatizationproject

UnihubChinaInformation ThePRC Sellingofhardwareandsoftwareand RMB200,000,000 – 38.2%

TechnologyCompanyLimited4 informationsystemconsultingservices

PCCWSolutionsLimited HongKong Computerservicesandprovisionof HK$1,201 – 100%

IP/ITrelatedvalue-addedservices

tobusinesscustomers

電訊盈科信息技術（廣州） ThePRC Systemsintegrationandtechnologyconsultancy HK$5,000,000 – 100%

有限公司3

PCCWBusinesseSolutions HongKong ProvisionofIP/ITrelatedvalue-added HK$2 – 100%

Limited servicestobusinesscustomers

PCCWPowerbaseDataCenter HongKong Datacenterservices HK$2 – 100%

Services(HK)Limited

PowerLogisticsLimited HongKong Provisionoflogisticsservices HK$100,000 – 100%

PacificCenturyPremium Bermuda/ Investmentholding HK$240,745,987 – 61.53%

DevelopmentsLimited HongKong

Cyber-PortLimited HongKong Propertydevelopment HK$2 – 61.53%

BeijingJingWeiHouseand ThePRC Propertydevelopment US$100,000,000 – 61.53%

LandEstateDevelopment

Co.,Ltd.5

北京啟夏房地產開發 ThePRC Propertydevelopment US$78,000,000 – 61.53%

有限公司3

TalentMasterInvestments BritishVirgin Propertydevelopment US$1 – 61.53%

Limited Islands/

HongKong

NihonHarmonyResortsK.K.2 Japan Projectdevelopment JPY405,000,000 – 61.53%

SUNDAYHoldings BritishVirgin Investmentholding US$112 – 100%

(HongKong)Corporation Islands

PCCWMobileHKLimited HongKong Provisionofmobileservices,andsalesof HK$1,254,000,100 – 100%

mobilephonesandaccessories (HK$100ordinary

shares,and

HK$1,254,000,000

non-votingdeferredshares)

UKBroadbandLimited UnitedKingdom Publicfixedwirelessaccesslicencebusinesses GBP1 – 100%

CertainsubsidiarieswhichdonotmateriallyaffecttheresultsorfinancialpositionoftheGrouparenotincluded.

Notes:1 ThesubsidiaryhasaccountingyearenddateofMarch31.Thesesubsidiariesprepare,forthepurposeofconsolidation,financialstatementsasatthesame

dateastheGroup.2 ThesubsidiaryhasaccountingyearenddateofJune30.Thissubsidiaryprepares,forthepurposeofconsolidation,financialstatementsasatthesamedate

astheGroup.3 Representsawhollyforeignownedenterprise.4 Representsasino-foreignequityjointventure.5 Representsasino-foreigncooperativejointventure.

�0�PCCWannualreport2008

23 INTEREST IN ASSOCIATES


2008 2007

Shareofnetassetsofassociates,netofunrecognizedlosses 734 715

Loansduefromanassociate 78 78

Amountduefromanassociate 34 34

846 827

Provisionforimpairment (172 ) (172)

674 655

Investmentsatcost,unlistedshares 975 975

Balanceswithassociatesareunsecured,non-interestbearingandhavenofixedtermsofrepayment.

AsatDecember31,2008,particularsoftheprincipalassociatesoftheGroupareasfollows:




GreatEastern CaymanIslands Non-trading US$43,112,715 – 49%

TelecommunicationsLimited*

AbacusDistributionSystems HongKong Provisionofcomputerreservationsystemsand HK$15,600,000 – 37.04%

(HongKong)Limited travelrelatedservices

石化盈科信息技術 ThePRC DesignanddevelopmentofEnterpriseResource RMB50,000,000 – 45%

有限責任公司 Planningsystems,andcustomerrelationship managementsystems

* TheassociatehasaccountingyearenddateofMarch31.Theassociateprepares,forthepurposeofconsolidation,financialstatementsasatthesamedateastheGroup.

SummarizedunauditedfinancialinformationoftheassociatesoftheGroupisasfollows:


Totalassets 1,995 1,764

Totalliabilities (566 ) (378)

Turnover 898 761

Profitafterincometax 55 63

DuringtheyearendedDecember31,2008,theGrouphasnotrecognizeditsshareoflossesofitsassociatesamountingto

approximatelyHK$2million(2007:HK$1million).AsatDecember31,2008,theaccumulatedshareoflossesoftheassociates

unrecognizedbytheGroupwasHK$10million(2007:HK$8million).

�0� PCCWannualreport2008


24 INTEREST IN JOINTLY CONTROLLED COMPANIES


2008 2007

Shareofnetassetsofjointlycontrolledcompanies,netofunrecognizedlosses 3,105 3,119

Loansduefromjointlycontrolledcompanies 8 10

Amountsduefromjointlycontrolledcompanies 23 24

3,136 3,153

Provisionforimpairment (2,868 ) (2,837)

268 316

Investmentsatcost,unlistedshares 3,439 3,449

Balanceswithjointlycontrolledcompaniesareunsecured,non-interestbearingandhavenofixedtermsofrepayment.

AsatDecember31,2008,particularsoftheprincipaljointlycontrolledcompaniesoftheGroupareasfollows:

Nominalvalueof Interestheldby

Placeof issuedcapital/ theCompany

Companyname incorporation Principalactivities registeredcapital Directly Indirectly

ReachLtd. Bermuda Provisionofinternational US$5,890,000,000 – 50%

telecommunicationservices

網通寬帶網絡 ThePRC Provisionoftelecommunication RMB644,518,697 – 50%

有限責任公司 servicesandIPTVservices

SummarizedunauditedfinancialinformationoftheGroup’sinterestinjointlycontrolledcompaniesisasfollows:


Non-currentassets 1,117 1,307

Currentassets 637 564

Totalassets 1,754 1,871

Non-currentliabilities (1,330 ) (279)

Currentliabilities (801 ) (1,754)

Netliabilities (377 ) (162)

Turnover 2,359 2,532

Expenses (2,371 ) (2,479)

(Loss)/Profitbeforeincometax (12 ) 53

Incometax 6 3

(Loss)/profitfortheyear (6 ) 56


25 INVESTMENTSInvestmentsareanalyzedasfollows:


2008 2007

Held-to-maturityinvestments 5 6

Available-for-salefinancialassets(note a) 244 321

Financialassetsatfairvaluethroughprofitorloss(note b) – 12

249 339

a. Available-for-sale financial assets


2008 2007

Beginningofyear 321 496

Additions 139 205

Disposals (24 ) (352)

Net(losses)/gainstransfer(to)/fromequity (31 ) 32

Impairmentlossesrecognized (161 ) (60)

Endofyear 244 321


2008 2007

Listedequitysecurities–overseas 17 23

Unlistedequitysecurities 227 298

244 321

Marketvalueoflistedequitysecurities 17 23

AsatDecember31,2008,theGroup’sequitysecuritieswereindividuallyreviewedforimpairmentbymanagement.Consequently,

provisionforimpairmentofHK$161million(2007:HK$60million)wasrecognizedintheconsolidatedincomestatement.TheGroup

doesnotholdanycollateraloverthesebalances.

Duringtheyear,available-for-salefinancialassetswithacarryingvalueofapproximatelyHK$24million(2007:HK$352million)were

soldandthereisnotransferfromequityondisposal(2007:approximatelyHK$95million(seenote33).Asaresult,arealizedgainof

approximatelyHK$60million(2007:HK$79million)wasrecognizedandincludedin“Otherlosses,net”intheconsolidatedincome

statement.

Noavailable-for-salefinancialassetswerepledgedassecurityforbankborrowingsoftheGroupasatDecember31,2008and2007.



25 INVESTMENTS (continued)b. Financial assets at fair value through profit or loss


2008 2007

Heldfortrading

ListedequitysecuritiesinHongKong – 12

26 CURRENT ASSETS AND LIABILITIESa. Sales proceeds held in stakeholders’ accountsThebalancerepresentsproceedsfromthesalesoftheresidentialportionoftheCyberportprojectretainedinbankaccountsopened

andmaintainedbystakeholders.Theseamountswillbetransferredtospecificbankaccounts,whicharerestrictedinuse,pursuantto

certainconditionsandproceduresasstatedintheCyberportProjectAgreement.

b. Restricted cashPursuanttotheCyberportProjectAgreement,theGrouphasarestrictedcashbalanceofapproximatelyHK$720millionasat

December31,2008(2007:HK$575million)heldinspecificbankaccounts.TheusesofthefundsarespecifiedintheCyberport

ProjectAgreement.

Inaddition,theCompanyhassetasideatotalcashbalanceofapproximatelyHK$103millionasatDecember31,2008(2007:

HK$106million)inconnectionwiththereleaseofundertakingsinrelationtothecapitalreductionoftheCompany.

AsatDecember31,2007,theremainingHK$1millionrepresentedabankdepositplacedbyanindirectsubsidiaryoftheCompany

asasecurityforabankguaranteeissuedinrespectoftheuseoffacilitiesattheHongKongInternationalAirportfortheprovisionof

mobileservices.

c. Prepayments, deposits and other current assetsIncludedinprepayments,depositsandothercurrentassetswasprepaidprogrammecostsofapproximatelyHK$89millionasat

December31,2008(2007:HK$120million).

d. Inventories


2008 2007

Work-in-progress 829 678

Finishedgoods 148 138

Consumableinventories 39 38

1,016 854


26 CURRENT ASSETS AND LIABILITIES (continued)e. Trade receivables, net


2008 2007

Tradereceivables(note i) 4,644 2,987

Less:Impairmentlossfordoubtfuldebts(note ii) (327 ) (278)

Tradereceivables,net 4,317 2,709

i. Aging analysis of trade receivables


2008 2007

0–30days 3,122 1,584

31–60days 372 461

61–90days 162 209

91–120days 101 142

Over120days 887 591

4,644 2,987

ii. Impairment loss for doubtful debtsThemovementintheprovisionfordoubtfuldebtsduringtheyear,includingbothspecificandcollectivelosscomponents,isasfollows:


2008 2007


Impairmentlossrecognized 275 218

Uncollectibleamountswrittenoff (232 ) (206)

Exchangedifferences 6 –

Endofyear 327 278

AsatDecember31,2008,theGroup’stradereceivablesofHK$255million(2007:HK$214million)wereindividuallydeterminedto

beimpaired.Theindividuallyimpairedreceivablerelatedtocustomersthatwereinfinancialdifficultiesandmanagementassessed

thatonlyaportionofthereceivableisexpectedtoberecovered.Consequently,specificprovisionfordoubtfuldebtsofHK$241million

(2007:HK$191million)wasrecognized.TheGroupdoesnotholdanycollateraloverthesebalances.



26 CURRENT ASSETS AND LIABILITIES (continued)e. Trade receivables, net (continued)iii. Trade receivables that are not impairedTheaginganalysisoftradereceivablesthatareneitherindividuallynorcollectivelyconsideredtobeimpairedisasfollows:


2008 2007

Neitherpastduenorimpaired 2,956 1,446

0–30dayspastdue 387 486



Over90dayspastdue 683 426

Pastduebutnotimpaired 1,347 1,240

4,303 2,686

Tradereceivablesthatwereneitherpastduenorimpairedrelatestoawiderangeofcustomersforwhomtherewasnorecenthistoryof

default.

TradereceivablesthatwerepastduebutnotimpairedrelatetocustomersthathaveagoodtrackrecordwiththeGrouporasound

creditquality.Basedonpastexperienceandregularcreditriskassessmentperformedonallsignificantoutstandingtradereceivables,

managementbelievesthatnoprovisionforimpairmentisnecessaryinrespectofthesebalancesastherehasnotbeenasignificant

changeincreditqualityandthebalancesarestillconsideredfullyrecoverable.TheGroupdoesnotholdanycollateraloverthese

balances.

f. Short-term borrowings


2008 2007

Bankborrowings – 10,174

Secured – –

Unsecured – 10,174

Pleaserefertonote42fordetailsoftheGroup’sbankingfacilities.


26 CURRENT ASSETS AND LIABILITIES (continued)g. Trade payablesTheaginganalysisoftradepayablesissetoutbelow:


2008 2007

0–30days 1,094 721

31–60days 83 134

61–90days 55 29

91–120days 26 24

Over120days 442 356

1,700 1,264

h. Gross amounts due to customers for contract work


2008 2007

Contractcostsincurredplusattributableprofitslessforeseeablelosses 789 779

Less:Estimatedvalueofworkperformed (794 ) (786)

(5 ) (7)

Thetotalamountofprogressbillings,includedintheestimatedvalueofworkperformedasatDecember31,2008,wasapproximately

HK$794million(2007:HK$786million).

27 LONG-TERM BORROWINGS


2008 2007

Repayablewithinaperiod

–notexceedingoneyear – –

–overtwoyears,butnotexceedingfiveyears 27,905 7,765

–overfiveyears 3,840 7,740

31,745 15,505

Representing:

US$1,000million8%guaranteednotesdue2011(note a) 7,722 7,765

US$500million6%guaranteednotesdue2013(note b) 3,856 3,878

US$500million5.25%guaranteednotesdue2015(note c) 3,840 3,862

Bankborrowings 16,327 –

31,745 15,505

Secured – –

Unsecured 31,745 15,505



27 LONG-TERM BORROWINGS (continued)a. US$1,000 million 8% guaranteed notes due 2011InNovember2001,PCCW-HKTCapitalLimited,anindirectwholly-ownedsubsidiaryoftheCompany,issuedUS$1,000million7.75%

guaranteednotesdue2011(the“Notesdue2011”).TheinterestratepayableontheNotesdue2011willbesubjecttoadjustment

fromtimetotimeiftherelevantratingagenciesdowngradetheratingascribedtotheNotesdue2011belowapre-agreedlevel.The

interestratepayableontheNotesdue2011hasbeenadjustedto8%basedonthecurrentratings.

TheNotesdue2011areunconditionallyandirrevocablyguaranteedbyHKTC,HKTGHandHKTandwillrankparipassuwithallother

outstandingunsecuredandunsubordinatedobligationsofHKTC,HKTGHandHKT.

b. US$500 million 6% guaranteed notes due 2013OnJuly17,2003,PCCW-HKTCapitalNo.2Limited,anindirectwholly-ownedsubsidiaryoftheCompany,issuedUS$500million

6%guaranteednotesdue2013whicharelistedontheLuxembourgStockExchange.Thenotesareirrevocablyandunconditionally

guaranteedbyHKTC,HKTGHandHKTandwillrankparipassuwithallotheroutstandingunsecuredandunsubordinatedobligations

ofHKTC,HKTGHandHKT.

c. US$500 million 5.25% guaranteed notes due 2015OnJuly20,2005,PCCW-HKTCapitalNo.3Limited,anindirectwholly-ownedsubsidiaryoftheCompany,issuedUS$500million

5.25%guaranteednotesdue2015,whicharelistedontheSingaporeExchangeSecuritiesTradingLimited.Thenotesareirrevocably

andunconditionallyguaranteedbyHKTC,HKTGHandHKTandwillrankparipassuwithallotheroutstandingunsecuredand

unsubordinatedobligationsofHKTC,HKTGHandHKT.

Pleaserefertonote42fordetailsoftheGroup’sbankingfacilities.

28 AMOUNT PAYABLE TO THE GOVERNMENT UNDER THE CYBERPORT PROJECT AGREEMENT


2008 Government share under the Cyberport Project Agreement Others Total (Note a)

Beginningofyear 6,886 33 6,919(Deduction)/Additiontoamountpayable (379 ) 1 (378 )Settlementduringtheyear (358 ) (7 ) (365 )

Endofyear 6,149 27 6,176Less:Amountsclassifiedascurrentliabilities (4,954 ) (27 ) (4,981 )

Amountsclassifiedasnon-currentliabilities 1,195 – 1,195

a. PursuanttotheCyberportProjectAgreement,theGovernmentshallbeentitledtoreceivepaymentsofapproximately65%ofthe

surpluscashflowarisingfromthesalesoftheresidentialportionoftheCyberportproject,netofcertainallowablecostsincurredonthe

project,asstipulatedundercertaintermsandconditionsoftheCyberportProjectAgreement.TheamountpayabletotheGovernment

isincludedinpropertiesunderdevelopmentastheamountisconsideredaspartofthedevelopmentcostsoftheCyberportproject.

TheamountpayableisbasedonestimatedsalesproceedsoftheresidentialportionoftheCyberportprojectandtheestimated

developmentcostsoftheCyberportproject.TheestimatedamounttobepaidtotheGovernmentduringtheforthcomingyearis

classifiedascurrentliabilities.


29 DERIVATIVE FINANCIAL INSTRUMENTS


2008 2007

Currentassets

Crosscurrencyswapcontracts–cashflowhedges(note a) 230 43

Interestrateoptioncontract–heldfortrading(note b) – –

230 43

Currentliabilities

Crosscurrencyswapcontracts–cashflowhedges(notea) – (6)

Forwardforeignexchangecontract(notec) – (7)

– (13)

a. AsatDecember31,2008,theGrouphadoutstandingcrosscurrencyswapcontractswithnotionalcontractamountsofUS$2,000

million(approximatelyHK$15,591million)(2007:US$2,000million(approximatelyHK$15,517million)atvariousrates,tomanagethe

Group’sexposuretoforeigncurrencyfluctuations.

Thecarryingamountsofcrosscurrencyswapcontractsrepresenteitherthenetfairvaluereceivables,whichareincludedincurrent

assets,ornetfairvaluepayables,whichareincludedincurrentliabilities,asatthebalancesheetdate.

AllcrosscurrencyswapcontractsoutstandingasatDecember31,2008withnotionalcontractamountsofUS$2,000million

(approximatelyHK$15,591million)weredesignatedascashflowhedgesoftheforeignexchangerateriskintheGroup’sforeign

currencydenominatedborrowings.Maturityoftheseswapsmatcheswiththematurityoftheunderlyingborrowingsandhasfixed

theUSD/HKDexchangerateat7.7790to7.8014forthenotionalamounts.AsatDecember31,2007certaincrosscurrencyswap

contractsoutstandingwithnotionalcontractamountsofUS$2,000million(approximatelyHK$15,517million)weredesignatedas

cashflowhedges.Thematurityoftheseswapsrangesfromapproximately1yeartothefulltermoftheunderlyingborrowingsandhave

fixedtheUSD/HKDexchangerateat7.7508to7.7790forthenotionalamounts(seenote39(c)(i)).Gainsandlossesrecognizedinthe

hedgingreserveunderequityonthesecrosscurrencyswapcontractswillbecontinuouslyreleasedtotheincomestatementuntilthe

repaymentoftheborrowings.

b. TheGroupentersintointerestrateoptioncontractstomanageitsinterestraterisk.AsatDecember31,2008,thetotalnotional

amountofsuchinstrumentswasHK$15million(2007:HK$20million)andthecarryingamountofsuchinstrumentsrepresentingthe

fairvaluewasnil.

c. AsatDecember31,2008,theGrouphasnotenteredintoanyforwardforeignexchangecontracts.AsatDecember31,2007,the

GrouphasoutstandingforwardforeignexchangecontracttosellTHB2,425millionatapproximatelyUS$70millionfixingtheTHB/USD

forwardrateat34.113.ThecontracthadincurredanestimatedlossofHK$7millionasatDecember31,2007.

��0 PCCWannualreport2008


30 SHARE CAPITAL

2008 2007 Number of Nominal value Numberof Nominalvalue shares HK$ million shares HK$million

Authorized: OrdinarysharesofHK$0.25each Beginningandendofyear 10,000,000,000 2,500 10,000,000,000 2,500

Issuedandfullypaid: OrdinarysharesofHK$0.25each Beginningofyear 6,778,627,153 1,695 6,750,171,317 1,688 Exerciseofemployeeshareoptions(note a) 3,667,501 1 28,455,836 7 Repurchaseofshares(note b) (10,000,000 ) (3 ) – –

Endofyear 6,772,294,654 1,693 6,778,627,153 1,695

a. During2008,3,667,501(2007:28,455,836)employeeshareoptionswereexercisedbytheeligibleoptionholdersattheirrespectivesubscriptionpricesforatotalcashconsiderationofHK$16,259,067(2007:HK$125,113,074)resultingintheissueofanaggregateof3,667,501(2007:28,455,836)newordinarysharesoftheCompanyofHK$0.25each,detailsofwhicharesetoutinnote32(a)(iii).

b. OnJune6,2008,theCompanyrepurchasedatotalof10,000,000ordinarysharesontheStockExchangeatapurchasepriceofHK$4.84pershareatanaggregateconsiderationofHK$48,400,000(beforetransactioncosts).TherepurchasedshareswerecancelledpriortoJune30,2008andaccordinglytheissuedsharecapitaloftheCompanywasreducedbythenominalvalueoftheseshares.

Allnewordinarysharesissuedduringtheyearrankparipassuinallrespectswiththeexistingshares.

31 EMPLOYEE RETIREMENT BENEFITSa. Defined benefit retirement schemesTheGroupoperatesdefinedbenefitretirementschemes(“DBSchemes”)thatprovidelumpsumbenefitsforemployeesuponresignationandretirement.TheDBSchemesarefinalsalarydefinedbenefitschemes.TheschemeassetsareadministeredbyindependenttrusteesandaremaintainedindependentlyoftheGroup’sfinances.

TheDBSchemesarefundedbycontributionsfromtheGroupandemployeesinaccordancewithqualifiedindependentactuaries’recommendationfromtimetotimeonthebasisofperiodicvaluations.

ThelatestindependentactuarialvaluationoftheDBSchemes,preparedinaccordancewithHKAS19,wascarriedoutonDecember31,2008andwaspreparedbyMrAaronWongofWatsonWyattHongKongLimited,fellowoftheCanadianInstituteofActuariesandalsofellowoftheSocietyofActuaries,USA,usingtheprojectedunitcreditmethod.Theactuarywasoftheopinionthatthefairvalueoftheschemeassetswassufficienttocover58.0%(2007:81.4%)ofthepresentvalueofthedefinedbenefitobligationsasatDecember31,2008.

i. The amount recognized in the consolidated balance sheet is as follows:


Presentvalueofthedefinedbenefitobligations (note iii) 352 253Fairvalueofschemeassets(note iv) (204 ) (206)

148 47Unrecognizedactuariallosses (141 ) (38)

Definedbenefitliabilityintheconsolidatedbalancesheet 7 9

Noemployer’scontributionsareexpectedtobepaidtotheschemein2009.


31 EMPLOYEE RETIREMENT BENEFITS (continued)a. Defined benefit retirement schemes (continued)ii. Major categories of scheme assets as a percentage of total scheme assets are as follows:

TheGroup

2008 2007

Equitysecurities – –

Cashorshort-termfixeddeposits – –

Other(insurancefund) 100% 100%

100% 100%

AsatDecember31,2008,theschemeassetsdonotincludeanyordinarysharesissuedbytheCompany(2007:Nil).

iii. Movements in the present value of the defined benefit obligations are as follows:


2008 2007


Benefitspaid (11 ) (11)

Interestcost 8 9

Actuariallosses 102 18

Endofyear 352 253

iv. Movements in the present value of scheme assets are as follows:


2008 2007


Benefitspaid (11 ) (11)

Expectedreturnonschemeassets 11 11

Actuariallosses (2 ) (2)

Endofyear 204 206

v. (Income)/Expense recognized in the consolidated income statement is as follows:


2008 2007

Interestcost 8 9

Expectedreturnonschemeassets (11 ) (11)

Netactuariallossesrecognizedduringtheyear 1 –

(2 ) (2)

Theincomeisrecognizedinthefollowinglineitemintheconsolidatedincomestatement:

Generalandadministrativeexpenses–retirementcostsforotherstaff(note 9(a)) (2 ) (2)

Actualreturnonschemeassets 9 9



31 EMPLOYEE RETIREMENT BENEFITS (continued)a. Defined benefit retirement schemes (continued)vi. The principal actuarial assumptions used (expressed as weighted averages) are as follows:

TheGroup

2008 2007

Discountrate 1.20% 3.55%

Expectedrateofreturnonschemeassets 5.75% 5.75%

Futurepensionincrease 3.00% 3.00%

Theexpectedrateofreturnonschemeassetsisbasedonthelong-termbenchmarkallocationofthescheme.

vii. Historical information:


2008 2007 2006

Presentvalueofthedefinedbenefitobligations 352 253 237

Fairvalueofschemeassets (204 ) (206) (208)

Deficitinthescheme 148 47 29

Experience(gains)/lossesonschemeliabilities (1 ) 3 2

Experiencelossesonschemeassets 2 2 4

b. Defined contribution retirement schemesTheGroupalsooperatesdefinedcontributionschemes,includingtheMandatoryProvidentFundScheme(the“MPFscheme”)under

theHongKongMandatoryProvidentFundSchemesOrdinance,foremployeesemployedunderthejurisdictionoftheHongKong

EmploymentOrdinance.Theschemesareadministeredbyindependenttrustees.

Underthedefinedcontributionscheme,theemployerisrequiredtomakecontributionstotheschemeatratesspecifiedunder

therulesofthescheme.Whereemployeesleavetheschemepriortothefullvestingoftheemployer’scontributions,theamountof

forfeitedcontributionsisusedtoreducethecontributionspayablebytheGroup.

UndertheMPFscheme,theemployeranditsemployeesareeachrequiredtomakecontributionstotheschemeat5%ofthe

employees’relevantincome,subjecttoacapofmonthlyrelevantincomeofHK$20,000.Contributionstotheschemevestimmediately

uponthecompletionoftheserviceintherelevantserviceperiod.


32 EQUITY COMPENSATION BENEFITSa. Share option schemes of the CompanyTheCompanyhasashareoptionscheme(the“1994Scheme”)whichwasadoptedinSeptember1994andamendedinMay2002

underwhichtheboardofdirectors(the“Board”)oftheCompanymay,atitsdiscretion,inviteemployeesoftheGroup,including

directorsofanycompanyintheGroup,andothereligiblepersons,totakeupoptionstosubscribeforsharesoftheCompany.The

vestingperiodandexerciseperiodoftheoptionsaredeterminedbytheBoardbutinanycasenooptionscanbeexercisedlaterthan

10yearsfromthedateofgrant.Eachoptiongivestheholdertherighttosubscribeforoneshare.The1994Schemewasduetoexpire

inSeptember2004.

AttheCompany’sannualgeneralmeetingheldonMay19,2004,theshareholdersoftheCompanyapprovedtheterminationof

the1994Schemeandtheadoptionofanewshareoptionscheme(the“2004Scheme”).SinceMay19,2004,theBoardmay,at

itsdiscretion,grantshareoptionstoanyeligiblepersontosubscribeforsharesintheCompanysubjecttothetermsandconditions

stipulatedinthe2004Scheme.Theoveralllimitonthenumberofshareswhichmaybeissueduponexerciseofalloutstanding

optionsgrantedandyettobeexercisedunderthe2004Schemeandanyothershareoptionschemesincluding1994Schememust

notexceed30%ofthesharesinissuefromtimetotime.Inaddition,themaximumnumberofshareswhichmaybegrantedunder

the2004Schememustnotexceed10%oftheCompany’sissuedsharecapitalasatMay19,2004(orsomeotherdateifrenewalof

thislimitisapprovedbyshareholders).Theexercisepriceoftheoptionsunderthe2004SchemeshallbedeterminedbytheBoard

atitsabsolutediscretionbutinanyeventshallnotbelessthanthehighestof(i)theclosingpriceofthesharesasstatedinthedaily

quotationssheetoftheStockExchangeonthedateofgrant,(ii)theaverageclosingpriceofthesharesasstatedinthedailyquotations

sheetoftheStockExchangeforthefivedayslastprecedingthedateofgrantonwhichdaysithasbeenpossibletotradeshareson

theStockExchange,and(iii)thenominalvalueofashareonthedateofgrant.Thevestingperiodandexerciseperiodoftheoptions

aredeterminedbytheBoard,butnooptioncanbeexercisedlaterthanthedaylastprecedingthetenthanniversaryofthedateof

grantinrespectofsuchoption.Ingeneral,thesubscriptionpriceisdeterminedbyreferencetotheclosingpricesofthesharesas

statedinthedailyquotationssheetoftheStockExchange.Thebasisfordeterminationofthesubscriptionpriceandthetotalnumber

ofsharesthatcanbegrantedtoeligiblepersonsarepreciselyspecifiedintherulesofthe2004Scheme.The2004Schemedoesnot

specifyaminimumperiodforwhichanoptionmustbeheldnoraperformancetargetwhichmustbeachievedbeforeanoptioncanbe

exercised.TheGrouphasnolegalorconstructiveobligationtorepurchaseorsettletheoptionsincash.

i. Movements in the number of share options outstanding and their related weighted average exercise prices

2008 2007

Weighted average Number of Weightedaverage Numberof

exercise price options exerciseprice options

HK$ HK$

Beginningofyear 10.20 144,366,771 8.78 211,116,828

Exercised(note iii) 4.43 (3,667,501 ) 4.40 (28,455,836)

Cancelled/Lapsed (note iv) 14.25 (2,727,540 ) 6.64 (38,294,221)

Endofyear(note ii) 10.28 137,971,730 10.20 144,366,771

Exercisableatendofyear 10.28 137,971,730 10.20 144,366,771



32 EQUITY COMPENSATION BENEFITS (continued)a. Share option schemes of the Company(continued)ii. Terms of unexpired and unexercised share options at balance sheet date

Numberofoptions

Dateofgrant Vestingperiod Exerciseperiod Exerciseprice 2008 2007

HK$

August17,1999toSeptember15,1999 August17,2000to August17,2000to 11.7800 13,192,793 13,569,593

August17,2004 August17,2009

October25,1999toNovember23,1999 October25,2000to October25,2000to 22.7600 1,529,600 1,724,000

October25,2004 October25,2009

February8,2000toMarch8,2000 February8,2001to February8,2001to 75.2400 86,700 86,700

February8,2003 February8,2010

August26,2000toSeptember24,2000 May26,2001to May26,2001to 60.1200 6,461,600 6,549,600

May26,2005 August26,2010

October27,2000toNovember25,2000 March15,2001to March15,2001to 24.3600 8,159,626 8,742,906

March15,2005 October27,2010

January22,2001toFebruary20,2001 January22,2001to January22,2001to 16.8400 10,932,439 11,171,039

January22,2005 January22,2011

February8,2001 February8,2002to February8,2002to 18.7600 86,700 86,700


April17,2001toMay16,2001 May26,2001to May26,2001to 10.3000 1,050,920 1,068,840

May26,2005 April17,2011

July16,2001toSeptember15,2001 July16,2002to July16,2002to 9.1600 210,280 236,320

July16,2004 July16,2011

April11,2002 April11,2003to April11,2003to 7.9150 86,700 86,700

April11,2007 April11,2012

August1,2002 August1,2003to August1,2003to 8.0600 200,000 200,000

August1,2005 July31,2012

November13,2002 November13,2003to November13,2003 6.1500 6,120,000 6,500,000

November13,2005 toNovember12,2012

July25,2003 July25,2004to July25,2004to 4.3500 51,455,872 52,911,873

July25,2006 July23,2013

September16,2003 September16,2004to September16,2004to 4.9000 7,000 157,000

September16,2006 September14,2013

February8,2005 February8,2006to February8,2006to 4.4750 38,391,500 41,275,500


137,971,730 144,366,771


32 EQUITY COMPENSATION BENEFITS (continued)a. Share option schemes of the Company(continued)ii. Terms of unexpired and unexercised share options at balance sheet date (continued)Therangeofexercisepricesandtheweightedaverageremainingcontractuallifeoftheshareoptionsoutstandingareasfollows:

2008 2007

Weighted Weighted

average remaining Number of averageremaining Numberof

Rangeofexerciseprices contractual life options contractuallife options

(years) (years)

HK$4.01to5.04 2.65 89,854,372 3.61 94,344,373

5.05to7.54 3.87 6,120,000 4.87 6,500,000

7.55to11.29 2.55 1,547,900 3.55 1,591,860

11.30to16.79 0.63 13,192,793 1.63 13,569,593

16.80to25.04 1.87 20,708,365 2.87 21,724,645

55.05to70.04 1.65 6,461,600 2.65 6,549,600

70.05to85.00 1.10 86,700 2.10 86,700

137,971,730 144,366,771

iii. Details of share options exercised during the year

2008 2007

Marketvalue

pershareat Proceeds Number of Proceeds Numberof

Exercisedate Exerciseprice exercisedate received options received options

HK$ HK$ HK$ HK$

January4,2007toDecember27,2007 4.4750 4.62to5.14 – – 47,620,712 10,641,500

January5,2007toDecember17,2007 4.3500 4.56to5.14 – – 77,492,362 17,814,336

January8,2008toSeptember12,2008 4.3500 4.40to5.16 5,324,404 1,224,001 – –

February4,2008toSeptember10,2008 4.4750 4.50to5.16 10,934,663 2,443,500 – –

16,259,067 3,667,501 125,113,074 28,455,836

TheweightedaveragesharepriceatthedateofexerciseforshareoptionsexercisedduringtheyearwasHK$4.95(2007:HK$4.85).



32 EQUITY COMPENSATION BENEFITS (continued)a. Share option schemes of the Company(continued)iv. Details of share options cancelled or lapsed during the year

Numberofoptions

Exerciseperiod Exerciseprice 2008 2007

HK$

August17,2000toAugust17,2009 11.7800 376,800 567,465

October25,2000toOctober25,2009 22.7600 194,400 –

August17,2000toOctober25,2009 22.7600 – 1,460,400

May26,2001toAugust26,2010 60.1200 88,000 21,600

March15,2001toOctober27,2010 24.3600 583,280 475,376

January22,2001toJanuary22,2011 16.8400 238,600 1,502,800

May26,2001toApril17,2011 10.3000 17,920 53,720

July16,2002toJuly16,2011 9.1600 26,040 36,360

October15,2002toOctober15,2011 8.6400 – 120,000

October11,2002toOctober10,2007 8.6165 – 1,200,000

November13,2003toNovember12,2012 6.1500 380,000 180,000

July25,2004toJuly23,2013 4.3500 232,000 280,000

September16,2004toSeptember14,2013 4.9000 150,000 20,000

February8,2006toFebruary7,2009 4.4750 440,500 376,500

September1,2006toAugust31,2010 5.2500 – 7,000,000

September15,2007toSeptember14,2010 4.9240 – 25,000,000

2,727,540 38,294,221

b. Share award schemes of the CompanyIn2002,theCompanyestablishedtwoemployeeshareincentiveawardschemesunderwhichawardsofsharesmaybegrantedto

employeesofparticipatingsubsidiaries.DirectorsoftheCompanyarenoteligibletoparticipateineitherscheme.OnJune10,2002,

theCompanyapprovedtheestablishmentofthePurchaseSchemeunderwhichselectedemployeesareawardedsharespurchased

inthemarket.OnNovember12,2002,theCompanyapprovedtheestablishmentoftheSubscriptionSchemeunderwhichselected

employeesareawardednewlyissuedshares.ThepurposeofboththePurchaseSchemeandtheSubscriptionSchemeistorecognize

thecontributionsofcertainemployeesoftheGroup,toretainthemforthecontinuedoperationanddevelopmentoftheGroup,and

toattractsuitablepersonnelforthefurtherdevelopmentoftheGroup.Underbothschemes,followingthemakingofanawardtoan

employee,therelevantsharesareheldontrustforthatemployeeandthenvestoveraperiodoftimeprovidedthattheemployee

remainsanemployeeoftheGroupattherelevanttimeandsatisfiesanyotherconditionsspecifiedatthetimetheawardismade.In

May2006,thePurchaseSchemewasalteredsuchthatthedirectorsoftheCompanyarealsoeligibletoparticipateinthisscheme.

Themaximumaggregatenumberofsharesthatcanbeawardedunderthetwoschemesislimitedto1%oftheissuedsharecapitalof

theCompany(excludingsharesthathavealreadybeentransferredtoemployeesonvesting).

Asummaryofmovementsinsharesheldundertheshareawardschemesduringtheyearisasfollows:

Number of shares 2008 2007

Beginningofyear 2,519,109 6,500,000

Awardsofvestedsharestoemployees – (3,980,891)

Endofyear 2,519,109 2,519,109


32 EQUITY COMPENSATION BENEFITS (continued)c. Share option schemes of PCPDPCPDapprovedandadoptedashareoptionschemeonMarch17,2003(the“2003PCPDScheme”),whichwasvalidfor10years

afterthedateofadoption.InordertoalignthetermsoftheshareoptionschemeofPCPDwiththoseoftheCompanyandinviewof

thelimitednumberofsharescapableofbeingissuedunderthe2003PCPDSchemerelativetothecurrentcapitalbaseofPCPD,

theshareholdersofPCPDapprovedtheterminationofthe2003PCPDSchemeandtheadoptionofanewshareoptionscheme(the

“2005PCPDScheme”)atPCPD’sannualgeneralmeetingheldonMay13,2005.The2005PCPDSchemebecameeffectiveon

May23,2005followingitsapprovalbytheshareholdersoftheCompany.Nofurthershareoptionswillbegrantedunderthe2003

PCPDSchemefollowingitstermination,buttheprovisionsofsuchschemewillremaininfullforceandeffectwithrespecttothe

optionsgrantedpriortoitstermination.

Underthe2005PCPDScheme,theboardofdirectorsofPCPDmay,atitsdiscretion,grantshareoptionstoanyeligiblepersonto

subscribeforsharesinPCPDsubjecttothetermsandconditionsstipulatedinthe2005PCPDScheme.Theexercisepriceofthe

optionsunderthe2005PCPDSchemeisdeterminedbytheboardofdirectorsofPCPDatitsabsolutediscretionbutinanyeventshall

notbelessthanthehighestof(i)theclosingpriceofthesharesofPCPDasstatedinthedailyquotationssheetoftheStockExchange

onthedateofgrant;(ii)theaverageclosingpriceofthesharesofPCPDasstatedinthedailyquotationssheetoftheStockExchange

forthefivedayslastprecedingthedateofgrantonwhichdaysithasbeenpossibletotradesharesontheStockExchange;and(iii)the

nominalvalueoftheshareofPCPDonthedateofgrant.Theoveralllimitonthenumberofshareswhichmaybeissueduponexercise

ofalloutstandingoptionsgrantedandyettobeexercisedunderthe2005PCPDSchemeandothershareoptionschemesofPCPD

mustnotexceed30%ofthesharesinissuefromtimetotime.Inaddition,themaximumnumberofsharesofPCPDinrespectof

whichoptionsmaybegrantedunderthe2005PCPDSchemeshallnot(whenaggregatedwithanysharessubjecttoanygrantsmade

afterMay23,2005pursuanttoanyothershareoptionschemesofPCPD)exceed10%oftheissuedsharecapitalofPCPDonMay23,2005

(orsomeotherdateifrenewalofthislimitisapprovedbyshareholders).

Noshareoptionshavebeengrantedunderthe2005PCPDSchemeduringtheyearsendedDecember31,2008and2007andno

shareoptionswereoutstandingatDecember31,2008undersuchscheme.

DetailsofshareoptionsgrantedbyPCPDpursuanttothe2003PCPDSchemeandtheshareoptionsoutstanding,areasfollows:

i. Movements in the number of share options outstanding and their related weighted average exercise prices

2008 2007

Weighted average Number of Weightedaverage Numberof

exercise price options exerciseprice options

HK$ HK$

Beginningofyear 2.375 5,000,000 2.375 10,000,000

Exercised(note iii) – – 2.375 (5,000,000)

Endofyear(note ii) 2.375 5,000,000 2.375 5,000,000

Exercisableatendofyear 2.375 5,000,000 2.375 5,000,000



32 EQUITY COMPENSATION BENEFITS (continued)c. Share option schemes of PCPD(continued)ii. Terms of unexpired and unexercised share options at balance sheet date

Numberofoptions

Dateofgrant Vestingperiod Exerciseperiod Exerciseprice 2008 2007

HK$

December20,2004 December20,2004 December20,2004to 2.375 5,000,000 5,000,000

December19,2014

5,000,000 5,000,000

TheoptionsoutstandingatDecember31,2008hadaweightedaverageremainingcontractuallifeof6years(2007:7years).

AstheshareoptionswerevestedbeforeJanuary1,2005,therewasnoexpenserecognizedintheconsolidatedincomestatement.

iii. Details of share options exercised during the year

2008 2007

Marketvalue

pershareat Proceeds Number of Proceeds Numberof

Exercisedate Exerciseprice exercisedate received options received options

HK$ HK$ HK$ HK$

May17,2007 2.375 2.46 – – 11,875,000 5,000,000

– – 11,875,000 5,000,000

Theweightedaveragesharepriceatthedateofexerciseforshareoptionsexercisedduringtheyear2007wasHK$2.46.


33 RESERVES/(DEFICIT)

InHK$million 2008 Available- Employee for-sale Special Capital share-based Currency financial (Deficit)/ Share capital redemption Treasury compensation translation Hedging assets Retained premium reserve reserve stock reserve reserve reserve reserve profits Total

THE GROUPAtJanuary1,2008 7,968 21,254 – (18 ) 143 327 115 16 (29,948 ) (143 )Repurchaseofshares – (49 ) 3 – – – – – – (46 )Exerciseofemployeeshareoptions 15 – – – – – – – – 15Premiumarisingfromexerciseof

employeeshareoptions 6 – – – (6 ) – – – – –Translationexchangedifferences – – – – – 42 – – – 42Profitfortheyear – – – – – – – – 1,272 1,272Dividendpaidinrespectofthepreviousyear – – – – – – – – (915 ) (915 )Dividenddeclaredandpaidinrespectof

thecurrentyear – – – – – – – – (474 ) (474 )Available-for-salefinancialassets:

–changesinfairvalue – – – – – – – (105 ) – (105 ) –transfertoincomestatementonimpairment – – – – – – – 74 – 74Cashflowhedges:

–effectiveportionofchangesinfairvalue – – – – – – 247 – – 247 –transferfromequitytoincomestatement – – – – – – 75 – – 75

AtDecember31,2008 7,989 21,205 3 (18 ) 137 369 437 (15 ) (30,065 ) 42

THE COMPANYAtJanuary1,2008 7,968 21,254 – – 142 – – – 25,350 54,714Repurchaseofshares – (49 ) 3 – – – – – – (46 )Exerciseofemployeeshareoptions 15 – – – – – – – – 15Premiumarisingfromexerciseof

employeeshareoptions 6 – – – (6 ) – – – – –Lossfortheyear – – – – – – – – (17,582 ) (17,582 )Dividendpaidinrespectofthepreviousyear – – – – – – – – (915 ) (915 )Dividenddeclaredandpaidinrespectof

thecurrentyear – – – – – – – – (474 ) (474 )

AtDecember31,2008 7,989 21,205 3 – 136 – – – 6,379 35,712



33 RESERVES/(DEFICIT) (continued)

InHK$million 2007 Available- Employee Convertible for-sale Special share-based noteand Currency financial (Deficit)/ Share capital Treasury compensation bonds translation Hedging assets Retained premium reserve stock reserve reserve reserve reserve reserve profits Total

THE GROUPAtJanuary1,2007 7,791 21,254 (37) 213 183 87 (447) 79 (30,381) (1,258)Exerciseofemployeeshareoptions 118 – – – – – – – – 118Premiumarisingfromexerciseof employeeshareoptions 59 – – (59) – – – – – –Awardsofvestedsharesundershare awardschemestoemployees – – 19 (19) – – – – – –Employeeshare-basedcompensation – – – 8 – – – – – 8Translationexchangedifferences – – – – – 240 – – – 240Profitfortheyear – – – – – – – – 1,503 1,503Dividendpaidinrespectofthepreviousyear – – – – – – – – (813) (813)Dividenddeclaredandpaidinrespectof thecurrentyear – – – – – – – – (440) (440)Available-for-salefinancialassets: –changesinfairvalue – – – – – – – 25 – 25 –transfertoincomestatementondisposal – – – – – – – (95) – (95) –transfertoincomestatementonimpairment – – – – – – – 7 – 7Cashflowhedges: –effectiveportionofchangesinfairvalue – – – – – – 631 – – 631 –transferfromequitytoincomestatement – – – – – – (69) – – (69)Redemptionofconvertiblebonds – – – – (183) – – – 183 –

AtDecember31,2007 7,968 21,254 (18) 143 – 327 115 16 (29,948) (143)

THE COMPANYAtJanuary1,2007 7,791 21,254 – 206 – – – – 4,221 33,472Exerciseofemployeeshareoptions 118 – – – – – – – – 118Premiumarisingfromexerciseof employeeshareoptions 59 – – (59) – – – – – –Employeeshare-basedcompensation – – – (5) – – – – – (5)Profitfortheyear – – – – – – – – 22,382 22,382Dividendpaidinrespectofthepreviousyear – – – – – – – – (813) (813)Dividenddeclaredandpaidinrespectof thecurrentyear – – – – – – – – (440) (440)

AtDecember31,2007 7,968 21,254 – 142 – – – – 25,350 54,714

Thespecialcapitalreservewascreatedasaresultofcapitalreductionin2004wheretheCompanyapplieditsentiresharepremiumbalancetoeliminateaccumulatedlossesasatJune30,2004.Thespecialcapitalreservewasnottreatedasrealizedprofitand(forsolongastheCompanyremainsalistedcompany)wastreatedasanundistributablereserveforthepurposesofsection79CoftheHongKongCompaniesOrdinance.

OnJanuary10,2006,theHighCourtofHongKong(the“HighCourt”)madeanorderwhichpermittedtheCompanytodistributedividendoutofthespecialcapitalreserveprovidingthattheCompanysettingasidesumstotallingapproximatelyUS$544million(approximatelyHK$4,243million)andHK$106millionforthesolepurposeofdischargingcertaindebtsorliabilitiesoftheCompanyexistingatthedateoftheCapitalReduction,principallybeingtheaggregateamountofprincipal,accruedinterestandredemptionpremiumpayableonmaturityoftheUS$450million1%guaranteedconvertiblebondsdue2007issuedbyPCCWCapitalNo.2Limited.Thoseamountsweresetaside,andtheHighCourtordertherebybecameeffective,onMarch27,2006.AsatDecember31,2008,thetotalcashsetasidewasapproximatelyHK$103million(2007:HK$106million)andhasbeenrecordedunder“Restrictedcash”inthebalancesheetoftheCompany(seenote26(b)).


34 DEFERRED INCOME TAXa. Movement in deferred income tax liabilities/(assets) during the year is as follows:

InHK$million 2008 Valuation adjustment Accelerated resulting from Deferred tax acquisition of Leasing Revaluation installation depreciation subsidiaries partnership of properties revenue Tax losses Others Total

THE GROUPBeginningofyear 1,663 342 94 121 (46 ) (205 ) (35 ) 1,934Charged/(Credited)toconsolidated

incomestatement(note 12(a)) (1,246 ) (40 ) (45 ) (133 ) 46 140 (10 ) (1,288 )Exchangedifferences 13 – – 8 – – (1 ) 20

Endofyear 430 302 49 (4 ) – (65 ) (46 ) 666

InHK$million 2007

Valuation

adjustment

Accelerated resultingfrom Deferred

tax acquisitionof Leasing Revaluation installation

depreciation subsidiaries partnership ofproperties revenue Taxlosses Others Total

THE GROUPBeginningofyear 1,644 366 173 146 (130) (170) (24) 2,005

Charged/(Credited)toconsolidated

incomestatement(note 12(a)) 3 (24) (79) (34) 84 (35) (13) (98)

Disposalofsubsidiaries – – – – – – 4 4

Exchangedifferences 16 – – 9 – – (2) 23

Endofyear 1,663 342 94 121 (46) (205) (35) 1,934


2008 2007

Netdeferredincometaxassetsrecognizedintheconsolidatedbalancesheet (48 ) (216)

Netdeferredincometaxliabilitiesrecognizedintheconsolidatedbalancesheet 714 2,150

666 1,934

b. Duringtheyear,deferredincometaxassetsofHK$140millionhavebeenreversed(2007:HK$36millionhadbeenrecognized)

fortaxlossescarry-forwardtotheextentthatrealizationoftherelatedtaxbenefitthroughutilizationagainstfuturetaxableprofits

isprobable,byconsideringthefuturetaxableincomeandongoingprudentandfeasibletaxplanningstrategies.TheGrouphas

unutilizedestimatedtaxlossesforwhichnodeferredincometaxassetshavebeenrecognizedofHK$16,620million(2007:

HK$23,430million)tocarryforwardfordeductionagainstfuturetaxableincome.EstimatedtaxlossesofHK$1,293million(2007:

HK$1,325million)andHK$88million(2007:HK$225million)willexpirewithin1–5yearsandafter5yearsfromDecember31,2008

respectively.Theremainingportionofthetaxlosses,mainlyrelatingtoHongKongcompanies,canbecarriedforwardindefinitely.



35 MOBILE CARRIER LICENCE FEE LIABILITIESAsatDecember31,2008,theGrouphadmobilecarrierlicencefeeliabilitiesrepayableasfollows:


2008 2007

Interest Interest

Present expense Present expense

value of relating to Total valueof relatingto Total

the minimum future minimum theminimum future minimum

annual fees periods annual fees annualfees periods annualfees

Repayablewithinaperiod

–notexceedingoneyear 76 8 84 67 7 74

–overoneyear,butnotexceedingtwoyears 77 17 94 71 14 85

–overtwoyears,butnotexceedingfiveyears 225 111 336 205 101 306

–overfiveyears 210 213 423 256 288 544

588 349 937 599 410 1,009

Less: Amountsrepayablewithinoneyear

includedundercurrentliabilities (76 ) (8 ) (84 ) (67) (7) (74)

512 341 853 532 403 935

36 LEASE PAYMENTS RECEIVABLEAcompanywithintheGroupisalimitedpartnerinanumberoflimitedpartnerships,whichownandleaseassetstothirdparties.


2008 2007

Thenetinvestmentinrelationtothesefinanceleasescomprises:

Leasepaymentsreceivable 91 203

Less:Currentportionofleasepaymentsreceivable

(includedin“Prepayments,depositsandothercurrentassets”

intheconsolidatedbalancesheet) (91 ) (112)

– 91


37 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTa. Reconciliation of profit before income tax to net cash generated from operating activities


2008 2007

Profitbeforeincometax 2,233 2,807

Adjustmentfor:

Writebackofimpairmentlossoninterestinanassociate – (1)

Employeeshare-basedcompensation – 8

Provisionforinventoryobsolescence 1 1

Interestincome (197 ) (429)

Interestexpense 1,341 1,617

Financecharges 132 41

Depreciationofproperty,plantandequipment 2,824 2,795

Netrealizedandunrealizedgainsonfinancialassetsatfairvaluethroughprofitorloss – (8)

Netrealizedgainsondisposalofavailable-for-salefinancialassets (60 ) (79)

Netrealizedandunrealizedfairvaluegainsonderivativefinancialinstruments (28 ) (62)

Netgainoncashflowhedginginstrumentstransferredfromequity (30 ) (9)

Fairvaluelosses/(gains)oninvestmentproperties 396 (3)

Provisionforimpairmentofinvestments 161 60

Provisionforimpairmentoninterestsinjointlycontrolledcompanies 31 –

Lossesonproperty,plantandequipment 103 7

Provisionforrentalguarantee 12 36

Loss/(Gain)ondisposalofproperty,plantandequipment 19 (7)

Impairmentlossongoodwill 12 58

Impairmentlossfordoubtfuldebts 275 218

Otherimpairmentloss – 20

Amortizationofintangibleassets 841 445

Amortizationoflandleasepremium

–interestsinleaseholdland 22 30

–propertiesunderdevelopment 9 –

Shareofresultsofassociatesandjointlycontrolledcompanies (11 ) (13)

Exchangelosses – 52

Decrease/(Increase)inoperatingassets

–propertiesheldfor/underdevelopment/forsale 6,927 (6,698)

–inventories (163 ) (314)

–tradereceivables (1,883 ) (356)

–prepayments,depositsandothercurrentassets (115 ) (573)

–salesproceedsheldinstakeholders’accounts (4,569 ) 1,047

–restrictedcash (144 ) 251

–amountsduefromrelatedcompanies (13 ) 35

–othernon-currentassets 79 (128)

Increase/(Decrease)inoperatingliabilities

–tradepayables,accrualsandotherpayablesanddeferredincome 810 (160)

–amountpayabletotheGovernmentundertheCyberportProjectAgreement (743 ) 3,414

–grossamountsduetocustomersforcontractwork (2 ) –

–amountsduetorelatedcompanies 46 (347)

–otherlong-termliabilities (73 ) 33

–advancesfromcustomers (1,210 ) 2,016

CASH GENERATED FROM OPERATIONS 7,033 5,804



37 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)a. Reconciliation of profit before income tax to net cash generated from operating activities (continued)


2008 2007

CASH GENERATED FROM OPERATIONS 7,033 5,804

Interestreceived 208 433

Incometaxpaid,netoftaxrefund

–HongKongprofitstaxpaid (706 ) (1,082)

–overseasprofitstaxpaid (73 ) (34)

NET CASH GENERATED FROM OPERATING ACTIVITIES 6,462 5,121

b. Acquisition of the business of a subsidiary


2008 2007

Netassetsacquired:

Property,plantandequipment – 12

Othernon-currentassets – 2

Tradereceivables,prepayments,depositsandothercurrentassets – 2

Tradepayables,accrualsandotherpayables – (3)

– 13

Goodwillonacquisition – 10

– 23

Satisfiedby:

Cash – 23

Analysisofthenetoutflowofcashandcashequivalentsinrespectof

theacquisitionofthebusinessofasubsidiary:

Cash – 23

Netcashoutflowinrespectofacquisitionofthebusinessofasubsidiary – 23


37 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)c. Disposal of subsidiaries


2008 2007

Netassetsdisposedof:

Property,plantandequipment – 72

Goodwill – 78

Available-for-salefinancialassets – 48

Deferredincometaxassets – 4

Inventories – 3

Tradereceivables,prepayments,depositsandothercurrentassets – 19

Financialassetsatfairvaluethroughprofitorloss – 33

Cashandcashequivalents – 53

Tradepayables,accrualsandotherpayables – (16)

Advancesfromcustomers – (19)

Minorityinterests – (72)

Exchangereserve – 15

– 218

Satisfiedby:

Cash – 218

Analysisofthenetinflowofcashandcashequivalentsinrespectof

thedisposalofsubsidiaries:

Cash – 218

Cashandcashequivalentsdisposedof – (53)

Netcashinflowinrespectofdisposalofsubsidiaries – 165

d. Analysis of cash and cash equivalents

InHK$million TheGroup TheCompany

2008 2007 2008 2007

Cashandbankbalances 10,111 4,367 5,941 142

Bankoverdrafts (4 ) (7) – –

Restrictedcash (823 ) (682) (103 ) (106)

CashandcashequivalentsasatDecember31 9,284 3,678 5,838 36



38 CAPITAL MANAGEMENTTheGroup’sprimaryobjectiveswhenmanagingcapitalaretosafeguardtheGroup’sabilitytocontinueasagoingconcern,sothatit

cancontinuetoprovidereturnsforshareholders,tosupporttheGroup’sstabilityandgrowth;andtoearnamargincommensuratewith

thelevelofbusinessandmarketrisksintheGroup’soperation.

TheGroupmonitorscapitalbyreviewingthelevelofcapitalthatisatthedisposaloftheGroup(“adjustedcapital”),takinginto

considerationthefuturecapitalrequirementsoftheGroup,prevailingandprojectedprofitability,projectedoperatingcashflows,

projectedcapitalexpendituresandprojectedstrategicinvestmentopportunities.Adjustedcapitalcomprisesallcomponentsofequity,

otherthancurrencytranslationreserve,hedgingreserverelatingtocashflowhedgesandavailable-for-salefinancialassetsreserve.

TheadjustedcapitalatDecember31,2008and2007wasasfollows:


2008 2007

Totalequity 4,900 4,351

Excluding:

Currencytranslationreserve (369 ) (327)

Hedgingreserve (437 ) (115)

Available-for-salefinancialassetsreserve 15 (16)

Adjustedcapital 4,109 3,893

Theincreaseinadjustedcapitalduring2008isduetotheincreaseinretainedearnings.

NeithertheCompanynoranyofitssubsidiariesaresubjecttoexternallyimposedcapitalrequirements,exceptforthedebtcovenant

requirementoftheloanagreementswithexternalpartiesandtheminimumcapitalrequirementofasubsidiaryregulatedbyBermuda

MonetaryAuthority.

39 FINANCIAL INSTRUMENTSExposuretocredit,liquidity,andmarket(includingforeigncurrency,interestrate)risksarisesinthenormalcourseoftheGroup’s

business.TheGroupisalsoexposedtoequitypriceriskarisingfromitsequityinvestmentsinotherentities.Exposurestotheserisks

arecontrolledbytheGroup’sfinancialmanagementpoliciesandpracticesdescribedbelow.

a. Credit riskTheGroup’screditriskisprimarilyattributabletotradereceivables,amountsduefromrelatedcompanies,investments,interests

receivable,leasepaymentsreceivable,over-the-counterderivativetransactionsandcashtransactionsenteredintoforrisk

managementpurposes.Managementhaspoliciesinplaceandexposurestothesecreditrisksaremonitoredonanongoingbasis.

Tradereceivablesinrespectofpropertiessoldarepayablebythepurchaserspursuanttothetermsofthesalescontracts.Othertrade

receivableshaveanormalcreditperiodrangingupto30daysfromthedateofinvoiceunlessthereisaseparatemutualagreement

onextensionofthecreditperiod.TheGroupmaintainsawell-definedcreditpolicyandindividualcreditevaluationsareperformed

onallcustomersrequiringcreditoveracertainamount.Theseevaluationsfocusonthecustomer’spasthistoryofmakingpayments

whendueandcurrentabilitytopay,andtakeintoaccountinformationspecifictothecustomeraswellaspertainingtotheeconomic

environmentinwhichthecustomeroperates.Debtorswhohaveoverduepayablearerequestedtosettlealloutstandingbalances

beforeanyfurthercreditisgranted.Normally,theGroupdoesnotobtaincollateralfromcustomers.

FurtherquantitativedisclosuresinrespectoftheGroup’sexposuretocreditriskarisingfromtradereceivablesaresetoutinnote

26(e).

Amountsduefromrelatedcompaniesandotherreceivablesarecontinuouslymonitoredbyassessingthecreditqualityofthe

counterparty,takingintoaccountitsfinancialposition,pastexperienceandotherfactors.Wherenecessary,impairmentlossismade

forestimatedirrecoverableamounts.AsatDecember31,2008,theamountsduefromrelatedcompaniesandotherreceivablesare

fullyperforming.


39 FINANCIAL INSTRUMENTS (continued)a. Credit risk(continued)Investments,derivativefinancialinstruments,interestsreceivable,leasepaymentsreceivableandcashtransactionsareexecutedwithfinancialinstitutionsorinvestmentcounterpartieswithsoundcreditratingsandtheGroupdoesnotexpectanysignificantcounterpartyrisk.Moreover,creditlimitsaresetforindividualcounterpartiesandperiodicreviewsareconductedtoensurethatthelimitsarestrictlyfollowed.

AsatDecember31,2008,regardingtradereceivablesforsalesofproperties,theGrouphasacertainconcentrationofcreditriskas22%ofthetotaltradereceivables(2007:12%)areduefromthreecustomers.Saveasdisclosedabove,theGroupdoesnothaveasignificantexposuretoanyotherindividualdebtorsorcounterparties.

Themaximumexposuretocreditriskisrepresentedbythecarryingamountofeachfinancialasset,includingderivativefinancialinstruments,intheconsolidatedbalancesheet.ExceptfortheguaranteesgivenbytheGroupasdisclosedinnote41,theGroupdoesnotprovideanyotherguaranteeswhichwouldexposetheGrouptocreditrisk.

b. Liquidity riskTheGroup’spolicyistoregularlymonitorcurrentandexpectedliquidityrequirementsanditscompliancewithdebtcovenants,toensurethatitmaintainssufficientreservesofcashandadequatecommittedlinesoffundingfrommajorfinancialinstitutionstomeetitsliquidityrequirementsintheshortandlongerterm.ManagementbelievesthereisnoliquidityriskastheGrouphassufficientcommittedfacilitiestofunditsoperationsanddebtservicingrequirements.

ThefollowingtabledetailstheremainingcontractualmaturitiesatthebalancesheetdateoftheGroup’sandtheCompany’snon-derivativefinancialliabilitiesandderivativefinancialliabilities,whicharebasedoncontractualundiscountedcashflows(includinginterestpaymentscomputedusingcontractualratesor,iffloating,basedonratescurrentatthebalancesheetdate)andtheearliestdatetheGroupandtheCompanycanberequiredtopay:

InHK$million TheGroup 2008 Total More than More than contractual Within 1 year 1 year but 2 years but More than undiscounted Carrying or on demand within 2 years within 5 years 5 years cash flow amount

Currentliabilities Tradepayables 1,700 – – – 1,700 1,700 Accrualsandotherpayables 5,241 – – – 5,241 5,241 AmountpayabletotheGovernmentunder theCyberportProjectAgreement 4,981 – – – 4,981 4,981 Mobilecarrierlicencefeeliabilities 84 – – – 84 76 Amountsduetorelatedcompanies 585 – – – 585 585 Grossamountsduetocustomers forcontractwork 5 – – – 5 5

12,596 – – – 12,596 12,588

Non-currentliabilities Long-termborrowings 1,423 1,423 30,391 4,197 37,434 31,745 AmountpayabletotheGovernmentunder theCyberportProjectAgreement – 1,195 – – 1,195 1,195 Mobilecarrierlicencefeeliabilities – 94 336 423 853 512 Otherlong-termliabilities 11 53 35 58 157 139

1,434 2,765 30,762 4,678 39,639 33,591

Total 14,030 2,765 30,762 4,678 52,235 46,179



39 FINANCIAL INSTRUMENTS (continued)b. Liquidity risk(continued)


2007

Total

Morethan Morethan contractual

Within1year 1yearbut 2yearsbut Morethan undiscounted Carrying

orondemand within2years within5years 5years cashflow amount

Currentliabilities

Short-termborrowings 10,198 – – – 10,198 10,174

Derivativefinancialinstruments 65 (12) (46) (83) (76) 13

Tradepayables 1,264 – – – 1,264 1,264

Accrualsandotherpayables 4,785 – – – 4,785 4,785

AmountpayabletotheGovernmentunder

theCyberportProjectAgreement 5,178 – – – 5,178 5,178

Mobilecarrierlicencefeeliabilities 74 – – – 74 67

Amountsduetorelatedcompanies 539 – – – 539 539

Grossamountsduetocustomersforcontractwork 7 – – – 7 7

22,110 (12) (46) (83) 21,969 22,027

Non-currentliabilities

Long-termborrowings 1,063 1,063 10,315 8,469 20,910 15,505

AmountpayabletotheGovernmentunder

theCyberportProjectAgreement – 1,741 – – 1,741 1,741

Mobilecarrierlicencefeeliabilities – 85 306 544 935 532

Otherlong-termliabilities 38 101 52 59 250 205

1,101 2,990 10,673 9,072 23,836 17,983

Total 23,211 2,978 10,627 8,989 45,805 40,010


2008 2007

Total Total

contractual contractual

Within 1 year undiscounted Carrying Within1year undiscounted Carrying

or on demand cash flow amount orondemand cashflow amount

Currentliabilities

Accrualsandotherpayables 27 27 27 8 8 8


39 FINANCIAL INSTRUMENTS (continued)c. Market riskMarketriskcomposedofforeigncurrency,interestrateandequitypriceexposurederivingfromtheGroup’soperation,investmentand

fundingactivities.Asamatterofpolicy,theGroupentersintocurrencyforwardcontracts,interestrateandcurrencyswapcontracts,

forwardrateagreements,optioncontractsandotherfinancialinstrumentstomanageitsexposuretomarketriskdirectlyrelated

toitsoperationsandfinancing.TheGroupdoesnotundertakeanyspeculativetradingactivitiesinconnectionwiththesefinancial

instrumentsorenterintooracquiremarketrisksensitiveinstrumentsfortradingpurposes.

TheFinanceandManagementCommittee,asubcommitteeoftheExecutiveCommitteeoftheBoard,determinestheappropriaterisk

managementactivitieswiththeaimofprudentlymanagethemarketriskassociatedwithtransactionsenteredintointhenormalcourse

ofbusiness.

AlltreasuryriskmanagementactivitiesarecarriedoutinaccordancewithpoliciesandguidelinesapprovedbytheFinanceand

ManagementCommitteeandtheExecutiveCommittee,whicharereviewedonaregularbasis.Earlyterminationandamendments

tothetermsofthetransactionwouldtypicallyoccurwhentherearechangesintheunderlyingassetsorliabilitiesorintherisk

managementstrategyoftheGroup.

Inthenormalcourseofbusiness,theGroupusestheabove-mentionedfinancialinstrumentstolimititsexposuretoadverse

fluctuationsinforeigncurrencyexchangeratesandinterestrates.Theseinstrumentsareexecutedwithcreditworthyfinancial

institutionsandallcontractsaredenominatedincurrenciesofmajorindustrialcountries.

i. Foreign currency riskTheGroupoperatesinternationallyandisexposedtoforeignexchangeriskarisingfromvariouscurrencyexposures.Foreignexchange

riskariseswhentheGroup’srecognizedassetsandliabilitiesaredenominatedinacurrencythatisnottheentity’sfunctionalcurrency.

AlltheGroup’sborrowingsaremainlydenominatedineitherHongKongdollarsorUnitedStatesdollars.AsatDecember31,2008and

2007,alloftheGroup’slong-termborrowingsandconvertiblebondsdenominatedinUnitedStatesdollarswereswappedintoHong

Kongdollarbycrosscurrencyswapcontracts.Giventhis,managementdoesnotexpectthattherewillbeanysignificantcurrencyrisk

associatedwiththeGroup’sborrowings.AllcrosscurrencyswapcontractsoutstandingasatDecember31,2008withanaggregate

notionalcontractamountofUS$2,000million(approximatelyHK$15,591million)weredesignatedascashflowhedgesagainstforeign

exchangeraterisk,whilecertaincrosscurrencyswapcontractswithnotionalcontractamountofUS$2,000million(approximately

HK$15,517million)weredesignatedascashflowhedgesduring2007.

Inrespectoftradereceivablesandpayablesheldincurrenciesotherthanthefunctionalcurrencyoftheoperationstowhichthey

relate,theGroupensuresthatthenetexposureiskepttoanacceptablelevelbybuyingorsellingforeigncurrenciesatspotrates

wherenecessarytoaddressshort-termimbalances.



39 FINANCIAL INSTRUMENTS (continued)c. Market risk(continued)i. Foreign currency risk(continued)ThefollowingtabledetailstheGroup’sexposureatthebalancesheetdatetocurrencyriskarisingfromsignificantrecognizedfinancial

assetsorliabilitiesdenominatedinforeigncurrencies.


2008 2007

United United

States Chinese States Chinese

Dollars Renminbi Dollars Renminbi

Tradereceivables 729 216 546 198

Amountsduefromrelatedcompanies 6 – 35 –

Cashandcashequivalents 5,181 287 933 359

Tradepayables (463 ) (206 ) (528) (234)

Amountsduetorelatedcompanies (43 ) – – –

Bankborrowings – – – (24)

Long-termborrowings (15,418 ) – (15,505) –

Grossexposurearisingfromrecognizedfinancial

(liabilities)/assets (10,008 ) 297 (14,519) 299

Netfinancialliabilitiesdenominatedinrespective

entities’functionalcurrencies (25 ) (269 ) – (237)

Notionalamountsofcrosscurrencyswapcontracts

designatedascashflowhedges 15,591 – 15,517 –

Overallnetexposure 5,558 28 998 62

AsatDecember31,2008,ifHongKongdollarhadweakened/strengthenedby1%againsttheUnitedStatesdollar,withall

othervariablesheldconstant,theGroup’sprofitaftertaxfortheyearwouldhavebeenincreased/decreasedbyapproximately

HK$46million(2007:HK$8million),mainlyasaresultofforeignexchangegains/lossesontranslationofUnitedStatesdollar

denominatedrecognizedassetsandliabilitieswhicharenothedgedbyhedginginstruments.Meanwhile,thehedgingreserveasat

December31,2008wouldhavebeenincreased/decreasedbyapproximatelyHK$156million(2007:HK$155million),mainlyasa

resultofforeignexchangegains/lossesonthelong-termborrowingsbeinghedgedbycrosscurrencyswapcontracts.

AsatDecember31,2008,ifHongKongdollarhadweakened/strengthenedby5%againsttheChineserenminbi,withallother

variablesheldconstant,theGroup’sprofitaftertaxfortheyearwouldhavebeenincreased/decreasedbyapproximatelyHK$1million

(2007:HK$3million),mainlyasaresultofforeignexchangegains/lossesontranslationofChineserenminbidenominatedrecognized

assetsandliabilitieswhicharenothedgedbyhedginginstruments.

Thesensitivityanalysishasbeendeterminedassumingthatthechangeinforeignexchangerateshadoccurredatthebalancesheet

dateandhadbeenappliedtotheGroup’sexposuretocurrencyriskforrecognizedassetsandliabilitiesinexistenceatthedate,and

thatallothervariables,inparticularinterestrates,remainconstant.

Thestatedchangesrepresentmanagement’sassessmentofreasonablypossiblechangesinforeignexchangeratesovertheperiod

untilthenextannualbalancesheetdate.Inthisrespect,itisassumedthatthepeggedratebetweentheHongKongdollarandthe

UnitedStatesdollarwouldbemateriallyunaffectedbyanychangeinthemovementinvalueoftheUnitedStatesdollaragainstother

currencies.Theanalysisisperformedonthesamebasisfor2007.


39 FINANCIAL INSTRUMENTS (continued)c. Market risk(continued)ii. Interest rate riskAstheGrouphasnosignificantinterest-bearingassets,theGroup’sincomeandoperatingcashflowsaresubstantiallyindependentof

changesinmarketinterestrates.

TheGroup’sinterestrateriskarisesprimarilyfromlong-termborrowings.BorrowingsatvariableratesandfixedratesexposetheGroup

tocashflowinterestrateriskandfairvalueinterestrateriskrespectively.Inaddition,fromtimetotime,theGroupdrewunderlong-

termrevolvingcreditandtermfacilitieswhicharedenominatedinHongKongdollarsandpayinterestatfloatingrate.

ThefollowingtabledetailstheinterestrateprofileoftheGroup’sborrowingsatthebalancesheetdate,aftertakingintoaccountthe

effectofcrosscurrencyswapcontractsdesignatedascashflowhedginginstruments.

InHK$million,exceptfor% TheGroup

2008 2007

Effective Effective

interest interest

rate rate

% %

Netfixedrateborrowings:

Bankborrowings – – 5.43 24

Longtermborrowingswithcashflow

hedginginstruments 6.84 15,418 6.84 15,505

15,418 15,529

Variablerateborrowings:

Bankborrowings 2.21 16,327 4.03 10,150

Totalborrowings 31,745 25,679

AtDecember31,2008,ifinterestratesonHongKongdollardenominatedborrowingshadbeenincreased/decreasedby10basis

points,withallothervariablesheldconstant,theGroup’sprofitaftertaxfortheyearwouldhavebeendecreased/increasedby

approximatelyHK$1million(2007:HK$11million),mainlyasaresultofhigher/lowerinterestexpenseonfloatingrateborrowings.

Thesensitivityanalysisabovehasbeendeterminedassumingthatthechangeininterestratehadoccurredatthebalancesheetdate

andhadbeenappliedtotheexposuretointerestrateriskfortheGroup’sfloatingrateborrowingsinexistenceatthatdate.The10

basispointsincreaseordecreaserepresentsmanagement’sassessmentofareasonablypossiblechangeininterestratesoverthe

perioduntilthenextannualbalancesheetdate.Theanalysisisperformedonthesamebasisfor2007.



39 FINANCIAL INSTRUMENTS (continued)c. Market risk(continued)iii. Equity price riskTheGroupisexposedtoequitypricechangesarisingfromequityinvestmentsclassifiedasheldfortradingsecurities(seenote25(b))

andavailable-for-saleequitysecurities(seenote25(a)).Otherthanunquotedequitysecuritiesheldforstrategicpurposes,allofthese

investmentsarelistedonarecognizedstockexchange.

Tomanageitsequitypricerisk,theportfolioisdiversifiedinaccordancewiththelimitssetbytheGroup.Giventheinsignificant

portfoliooflistedequitysecuritiesheldbytheGroup,managementbelievesthattheGroup’sequitypriceriskisminimal.

PerformanceoftheGroup’sunquotedinvestmentsheldforlongtermstrategicpurposesisassessedatleastbi-annuallyagainst

performanceoftheirbusinessaswellassimilarlistedentities,basedonthelimitedinformationavailabletotheGroup,togetherwithan

assessmentoftheirrelevancetotheGroup’slongtermstrategicplans.

d. Fair valuesAllfinancialinstrumentsarecarriedatamountsnotmateriallydifferentfromtheirfairvaluesasatDecember31,2008and2007

exceptasfollows:


Carrying Carrying

amount Fair value amount Fairvalue

THE GROUPShort-termborrowings – – (10,174) (10,174)

Long-termborrowings (31,745 ) (30,118 ) (15,505) (16,287)

e. Estimation of fair valuesFairvalueoffinancialinstrumentsisestimatedasfollows:

i. Thefairvalueoffinancialinstrumentstradedinactivemarkets(suchastradingandavailable-for-salefinancialassets,andlisted

long-termborrowingsandconvertiblenoteandbonds)isbasedonquotedmarketpricesatthebalancesheetdate.

ii. Thefairvalueoffinancialinstrumentsthatarenottradedinanactivemarket(forexample,over-the-counterderivatives)is

determinedbyusingvaluationtechniques.TheGroupusesavarietyofmethodsandmakesassumptionsthatarebasedon

marketconditionsexistingateachbalancesheetdate.Quotedmarketpricesordealerquotesforsimilarinstrumentsareusedfor

long-termdebt.Othertechniques,suchasestimateddiscountedcashflows,areusedtodeterminethefairvaluefortheremaining

financialinstruments.Thefairvalueofcrosscurrencyswapcontractsiscalculatedasthepresentvalueoftheestimatedfuture

cashflows.

iii. Thenominalvaluelessimpairmentprovisionoftradeandotherreceivablesandamountsduefromrelatedcompaniesthat

areclassifiedascurrentassetsareassumedtoapproximatetheirfairvalues.Thefairvalueoffinancialliabilitiesfordisclosure

purposesisestimatedbydiscountingthefuturecontractualcashflowsatthecurrentmarketinterestratethatisavailabletothe

Groupforsimilarfinancialinstruments.


40 COMMITMENTSa. Capital


Authorizedandcontractedfor 871 1,820Authorizedbutnotcontractedfor 924 2,002

1,795 3,822

Ananalysisoftheabovecapitalcommitmentsbynatureisasfollows:


Investments 104 361Investmentproperties 31 8PropertydevelopmentforCyberportproject(note i) 89 1,573Propertydevelopmentforotherprojects 120 190Acquisitionofproperty,plantandequipment 1,449 1,688Others 2 2

1,795 3,822

i. Thecapitalcommitmentasdisclosedaboverepresentedmanagement’sbestestimateoftotalconstructioncostsoftheCyberportproject,whichhasbeenrevisedfromthetotalconstructioncostssincetheCyberportProjectAgreementwasenteredintoonMay17,2000.

b. Operating leasesAsatDecember31,2008,thetotalfutureminimumleasepaymentsundernon-cancellableoperatingleasesarepayableasfollows:

Land and buildings


Within1year 561 528After1yearbutwithin5years 1,235 611After5years 453 299

2,249 1,438

Network capacity and equipment


Within1year 133 108After1yearbutwithin5years 113 84After5years 14 –

260 192

Majorityoftheleasestypicallyrunforaperiodof1to13years.Noneoftheleasesincludecontingentrentals.



40 COMMITMENTS (continued)c. OthersAssetoutinnote4(c),onJune17,2004,theCompanyagreedtoprovideReachLtd.(“REACH”)witharevolvingworkingcapitalloan

facilityuptoUS$25million(approximatelyHK$195million).TheinterestreceivableunderthisfacilitywasatLIBORplus250basis

points.DuringtheyearendedDecember31,2007,noneofthisworkingcapitalloanfacilitywasdrawndownbyREACH.Thefacility

wassecuredandexpiredonDecember31,2007.

AsatDecember31,2008,theGrouphasotheroutstandingcommitmentsasfollows:


2008 2007

PurchaseofrightstobroadcastcertainTVcontent 2,018 2,559

Purchasecommitmentontelecommunicationsservices 9 110

Operatingexpenditurecommitment 289 315

2,316 2,984

41 CONTINGENT LIABILITIES

InHK$million TheGroup TheCompany

2008 2007 2008 2007

Performanceguarantee 923 841 5 543

Tenderguarantee 8 2 – 2

Advancepaymentguarantee – 1 – 1

Paymentguarantee – 59 – 47

Guaranteeinlieuofcashdeposit 2 1 – 1

Employeecompensation 6 6 6 6

Guaranteeindemnity 11 11 – –

950 921 11 600

a. TheGroupissubjecttocertaincorporateguaranteeobligationstoguaranteeperformanceofitswholly-ownedsubsidiariesinthe

normalcourseoftheirbusinesses.Theamountofliabilitiesarisingfromsuchobligations,ifany,cannotbeascertainedbutthe

directorsareoftheopinionthatanyresultingliabilitywouldnotmateriallyaffectthefinancialpositionoftheGroup.


42 BANKING FACILITIESAggregatebankingfacilitiesasatDecember31,2008wereHK$24,220million(2007:HK$16,972million)ofwhichtheunused

facilitiesamountedtoHK$7,620million(2007:HK$6,798million).

Asummaryofmajorborrowingsissetoutinnotes26(f)and27.

Securitypledgedforcertainbankingfacilitiesincludes:


2008 2007

Bankdeposit 1 25

AnindirectsubsidiaryoftheCompanyhadbeengrantedabankingfacilityamountingtoapproximatelyHK$20millionfromabankfor

thepurposeofprovidingguaranteetotheGovernmentasatDecember31,2007.Suchfacilitywastobesecuredbyabankdeposit

placedbythesubsidiaryfromtimetotimetosecuretheamountofguaranteeissuedbythebank.Noguaranteewasissuedbythe

bankunderthisbankingfacilityasatDecember31,2007.TherewasnosuchbankingfacilityasatDecember31,2008.

43 BUSINESS COMBINATIONSOnAugust23,2007,PCPDacquired100%ofthesharecapitalofNihonHarmonyResortsK.K.,acompanyincorporatedinJapan.

TheacquiredbusinesscontributedrevenueofHK$8millionandnetlossofHK$7milliontoPCPDfortheperiodfromAugust23,2007

toDecember31,2007.

Detailsofnetassetsacquiredandgoodwillareasfollows:

HK$million

Purchaseconsiderationincash 179

Directcostsinrelationtoacquisition 3

Less:Purchaseconsiderationincashforpropertiesheldfordevelopment (159)

Purchaseconsiderationincashforthebusinessofasubsidiary 23

Less:Fairvalueofnetassetsacquired (13)

Goodwillonacquisition (note 20) 10

Thegoodwillisattributabletofutureprofitgeneratedfromtheskioperations.



43 BUSINESS COMBINATIONS (continued)Thenetassetsofthebusinessofasubsidiaryattheacquisitiondateareasfollows:

InHK$million Carrying

Fairvalue amount

Property,plantandequipment 12 12

Othernon-currentassets 2 2

Tradereceivables,deposits,prepaymentsandothercurrentassets 2 2

Tradepayables,otherpayablesandaccruedcharges (3) (3)

Netassetsacquired 13 13

HK$million

Purchaseconsiderationforthebusinessofasubsidiarysettledincash 23

Cashandcashequivalentsacquired –

Cashoutflowonacquisitionofthebusinessofasubsidiary(note 37(b)) 23

44 POST BALANCE SHEET EVENTThefollowingeventsoccurredsubsequenttoDecember31,2008anduptothedateofapprovalofthesefinancialstatementsbythe

Board:

OnNovember3,2008,PacificCenturyRegionalDevelopmentsLimited(“PCRD”)andChinaNetworkCommunicationsGroup

Corporation(succeededbyChinaUnitedNetworkCommunicationsGroupCompanyLimited(“Unicom”)afterUnicom’smergerwith

ChinaNetworkCommunicationsGroupCorporation),twosubstantialshareholdersoftheCompany,requestedtheBoardtoputforward

aproposaltoprivatizetheCompanybywayofaschemeofarrangementunderSection166oftheHongKongCompaniesOrdinance

(the“Scheme”).DetailsoftheSchemearesetoutintheSchemeDocumentdatedDecember6,2008andtheSupplementalScheme

DocumentdatedJanuary12,2009(collectivelythe“SchemeDocuments”).UndertheScheme,theSchemeShares(beingshares

intheCompanyotherthanthoseheldbyPCRD,PacificCenturyGroupHoldingsLimited,PacificCenturyDiversifiedLimited,Eisner

InvestmentsLimited,StarvestLimitedandChinaNetcomCorporation(BVI)Limited(and/orUnicom))wouldbecancelledinexchange

forthepaymentbytheJointOfferorsundertheScheme(beingStarvestLimitedandChinaNetcomCorporation(BVI)Limited)toeach

holderoftheSchemeSharesinthesumofHK$4.20perSchemeShareincash.Thesaidcancellationpricewassubsequentlyrevised

toHK$4.50assetoutintheSupplementalSchemeDocumentdatedJanuary12,2009.

OnApril22,2009,theCourtofAppealoverturnedthejudgmentoftheCourtofFirstInstanceoftheHighCourtonApril6,2009to

sanctiontheScheme.

45 COMPARATIVE FIGURESCertaincomparativefigureshavebeenadjustedorre-classifiedasaresultofthereclassificationofcertainoperationsamongbusiness

segments,detailsofwhicharesetoutinnote6.Certaincomparativefigureshavealsobeenreclassifiedtoconformwiththecurrent

year’spresentation.


46 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDED DECEMBER 31, 2008Uptothedateofapprovalofthesefinancialstatements,theHKICPAhasissuedthefollowingamendments,newstandardsand

interpretationswhicharenotyeteffectivefortheaccountingperiodendedDecember31,2008andwhichhavenotbeenadoptedin

thesefinancialstatements:

Effective for accounting periods beginning on or after

HKAS1(Revised) PresentationofFinancialStatements January1,2009

HKAS23(Revised) BorrowingCosts January1,2009

HKAS27(Revised) ConsolidatedandSeparateFinancialStatements July1,2009

HKAS32(Amendment)and PuttableFinancialInstrumentsandObligations January1,2009

HKAS1(Amendment) ArisingonLiquidation

HKFRS1(Amendment) FirstTimeAdoptionofHKFRSandHKAS27– January1,2009

ConsolidatedandSeparateFinancialStatements–

CostofanInvestmentinaSubsidiary,

JointlyControlledEntityorAssociate

HKFRS2(Amendment) Share-basedPaymentVestingConditionsand January1,2009

Cancellations

HKFRS3(Revised) BusinessCombinations July1,2009

HKFRS8 OperatingSegments January1,2009

HK(IFRIC)–Int13 CustomerLoyaltyProgrammes July1,2008

HK(IFRIC)–Int15 AgreementsfortheConstructionofRealEstates January1,2009

HK(IFRIC)–Int16 HedgesofaNetInvestmentinaForeignOperation October1,2008

HK(IFRIC)–Int17 DistributionsofNon-cashAssetstoOwners July1,2009

HK(IFRIC)–Int18 TransfersofAssetsfromCustomers effectivefortransfersofassets

fromcustomersreceivedafter

July1,2009

Apartfromtheabove,anumberofimprovementsandminoramendmentstoHKFRSshavealsobeenissuedbytheHKICPAbutthey

arenotyeteffectivefortheaccountingperiodendedDecember31,2008andhavenotbeenadoptedinthesefinancialstatements.

TheGroupisintheprocessofmakinganassessmentofwhattheimpactoftheseamendments,newstandardsandnew

interpretationswouldbeintheperiodofinitialapplication,butnotyetinapositiontostatewhethertheseamendments,newstandards

andnewinterpretationswouldhaveasignificantimpactontheGroup’sresultsofoperationsandfinancialposition.


FIVE YEAR FINANCIAL SUMMARYFortheyearendedDecember31,2008

ResultsInHK$million 2008 2007 2006 2005 2004* (Restated)

TURNOVER BY PRINCIPAL ACTIVITYTelecommunicationsServices 17,465 16,636 15,374 15,048 15,323TV&Content 2,239 1,703 1,002 696 479Mobile 1,744 1,468 1,236 598 –PCCWSolutions 1,866 1,795 1,652 1,579 1,866PacificCenturyPremiumDevelopments Limited 9,943 3,134 7,263 5,127 5,831OtherBusinesses 86 249 328 346 401Eliminationofinter-segmentsales (1,392 ) (1,270) (1,218) (895) (898)

31,951 23,715 25,637 22,499 23,002

Costofsales (17,850 ) (10,538) (12,973) (10,752) (10,774)Generalandadministrativeexpenses (10,005 ) (9,144) (8,904) (7,767) (8,192)Other(losses)/gains,net (464 ) (3) 42 626 409Lossesonproperty,plantand equipment (103 ) (7) (11) (52) (40)Interestincome 197 429 732 533 57Financecosts (1,473 ) (1,658) (2,008) (2,234) (2,018)Shareofresultsofequityaccounted entities 11 13 37 121 147Impairmentlossesoninterestsin associatesandjointlycontrolled companies (31 ) – – (4) (16)

Profitbeforeincometax 2,233 2,807 2,552 2,970 2,575Incometax (711 ) (970) (920) (1,103) (999)

Profitfortheyear 1,522 1,837 1,632 1,867 1,576

Attributableto: EquityholdersoftheCompany 1,272 1,503 1,252 1,595 1,556 Minorityinterests 250 334 380 272 20

Assets and LiabilitiesAsatDecember31,inHK$million 2008 2007 2006 2005 2004

Totalnon-currentassets 29,535 29,797 29,711 27,574 31,481

Totalcurrentassets 27,070 21,560 19,715 25,709 13,524Totalcurrentliabilities (16,723 ) (26,145) (25,657) (22,360) (20,894)

Netcurrentassets/(liabilities) 10,347 (4,585) (5,942) 3,349 (7,370)

Totalassetslesscurrentliabilities 39,882 25,212 23,769 30,923 24,111Totalnon-currentliabilities (34,982 ) (20,861) (20,870) (28,191) (29,811)

Netassets/(liabilities) 4,900 4,351 2,899 2,732 (5,700)

* Certaincomparativefigureshavebeenreclassifiedtoconformwiththecurrentyear’spresentation.


SCHEDULE OF PRINCIPAL PROPERTIESYear2008

Gross Site Gross Floor Group’s Property Classification Status Existing Use Area (sq.m.) Area (sq.m.) Lease Term* Interest

The PRC PacificCenturyPlace,

No.2AGongTiBeiLu,

ChaoyangDistrict,

Beijing,thePRC

TowerA(exceptpart Investment Existing Officeforlease 29,351 39,752 Medium 62%

of6th,8th,10th properties

and13thFloorfor

ownuse)

TowerB Investment Existing Officeforlease 20,104 Medium 62%

properties

TowerC Investment Existing Residential 21,304 Long 62%

properties

TowerD Investment Existing Residential 10,946 Long 62%

properties

Podium Investment Existing Forlease 75,431 Medium 62%

properties

Carparkingspaces Investment Existing Forlease 784spaces Medium 62%

properties

Hong Kong Partof18thFloor Investment Existing Forlease Notapplicable 603 Medium 100%

ofParamountBuilding, properties

No.12KaYipStreet,

ChaiWan,HongKong

* Leaseterm: Longterm:Leasenotlessthan50years Mediumterm:Leaselessthan50yearsbutnotlessthan10years


INVESTOR RELATIONS

FINANCIAL CALENDARAnnouncementof2008AnnualResults April21,2009

Closureofregisterofmembersfor May11–13,2009 2008specialdividend (bothdatesinclusive)

Paymentof2008specialdividend OnoraroundMay18,2009

2009AnnualGeneralMeeting(“AGM”) June26,2009

DIRECTORSThedirectorsoftheCompanyasatthedateoftheannouncementofthe2008AnnualResultsare:

ExecutiveDirectors:LiTzarKai,Richard(chairman)AlexanderAnthonyArena(Group Managing director)PeterAnthonyAllenChungChoYee,MicoLeeChiHong,Robert

Non-ExecutiveDirectors:SirDavidFord,KBE,LVO

LuYiminZuoXunsheng(deputy chairman)LiFushen

IndependentNon-ExecutiveDirectors:ProfessorChangHsin-kang,FREng,GBS,JP

DrTheHonSirDavidLiKwokPo,GBM,GBS,OBE,JP

SirRogerLobo,CBE,LLD,JP

AmanMehtaTheHonRaymondGeorgeHardenberghSeitz

ANNUAL REPORT 2008ThisAnnualReport2008inbothEnglishandChineseisnowavailableinprintedformandontheCompany’swebsite(www.pccw.com).

Shareholderswho:A) receivedtheAnnualReport2008byelectronicmeansmayrequesta

printedcopy,orB) receivedtheAnnualReport2008ineitherEnglishorChinesemay

requestaprintedcopyoftheotherlanguageversion

bywritingtotheCompanyc/otheCompany’sShareRegistrarsat:

ComputershareHongKongInvestorServicesLimitedInvestorCommunicationsCentreRooms1806-1807,18thFloor,HopewellCentre183Queen’sRoadEast,WanChai,HongKongFax:+85225296087/+85228650990Email:[email protected]

ShareholderswhohavechosentoreceivetheAnnualReport2008byelectronicmeansthroughtheCompany’swebsiteandwho,foranyreason,havedifficultyinreceivingorgainingaccesstotheAnnualReport2008willpromptly,uponrequestinwritingorbyemailtotheCompany’sShareRegistrars–ComputershareHongKongInvestorServicesLimited,besenttheAnnualReport2008inprintedform,freeofcharge.

ShareholdersmaychangetheirchoiceoflanguageormeansofreceiptoftheCompany’scorporatecommunicationsatanytime,freeofcharge,byreasonablepriornoticeinwritingorbyemailtotheCompany’sShareRegistrars.

LISTINGSTheCompany’ssharesarelistedonTheStockExchangeofHongKongLimitedandtradedintheformofAmericanDepositaryReceipts(“ADRs”)onthePinkOTCMarketsintheUnitedStates.EachADRrepresents10ordinarysharesoftheCompany.CertainUnitedStatesDollarguaranteednotesissuedbywholly-ownedsubsidiariesoftheCompanyarelistedontheLuxembourgStockExchangeandtheSingaporeExchangeSecuritiesTradingLimited.

ADRholdersregisteredonthebooksoftheADRDepositaryBankinNewYork(includingbeneficialowners)canvotebyproxyattheAGMbycompletingavotinginstructioncardprovidedbytheDepositaryBank.TheDepositarywilltabulateandtransmitthevotestotheCompanybeforetheAGM.

AdditionalinformationandspecificinquiriesconcerningtheCompany’sADRsshouldbedirectedtotheCompany’sADRDepositaryattheaddressgivenonthispage.

OtherinquiriesregardingtheCompanyshouldbeaddressedtoInvestorRelationsattheaddressgivenonthispage.

STOCK CODESTheStockExchangeofHongKongLimited 0008Reuters 0008.HKBloomberg 8HKADRs PCCWY

SHARE INFORMATIONBoardlot: 1,000sharesIssuedsharesasatDecember31,2008: 6,772,294,654shares

DIVIDENDSDividendspersharefortheyearendedDecember31,2008Interim HK$0.07perordinaryshareSpecial HK$1.30perordinaryshare

REGISTRARSComputershareHongKongInvestorServicesLimitedRooms1712-1716,17thFloor,HopewellCentre183Queen’sRoadEast,WanChai,HongKongTelephone:+85228628555 Fax:+85225296087Email:[email protected]

ADR DEPOSITARYCitibank,N.A.PccW American depositary ReceiptsCitibankShareholderServices250RoyallStreet,Canton,MA02021,USATollfreenumber:+18772484237Telephone:+17815754555Email:[email protected]:www.citi.com/dr

COMPANY SECRETARYPhilanaWYPoon

REGISTERED OFFICE39/F,PCCWTowerTaiKooPlace,979King’sRoadQuarryBay,HongKongTelephone:+85228882888Fax:+85228778877

INVESTOR RELATIONSCheungF.Tsang,PhDPCCWLimited34/F,PCCWTowerTaiKooPlace,979King’sRoadQuarryBay,HongKongTelephone:+85225145084Email:[email protected]

WEBSITEwww.pccw.com

FORWARD-LOOKINGSTATEMENTSThisannualreportcontainsforward-lookingstatements.Theseforward-lookingstatementsinclude,withoutlimitation,statementsrelatingtorevenuesandearnings.Thewords“believe”,“intend”,“expect”,“anticipate”,“project”,“estimate”,“predict”,“isconfident”,“hasconfidence”andsimilarexpressionsarealso intendedto identify forward-lookingstatements.Theseforward-lookingstatementsarenothistoricalfacts.Rather,theforward-lookingstatementsarebasedonthecurrentbeliefs,assumptions,expectations,estimatesandprojectionsofthedirectorsandmanagementofPCCWaboutthebusinessandtheindustryandmarketsinwhichweoperate.Theseforward-lookingstatementsarenotguaranteesof futureperformanceandaresubject torisks,uncertaintiesandotherfactors,someofwhicharebeyondourcontrolandaredifficult topredict.Consequently,actualresultscoulddiffermateriallyfromthoseexpressed,impliedorforecastedintheforward-lookingstatements.Factorsthatcouldcauseactualresultstodiffermateriallyfromthosereflectedintheforward-lookingstatementsinclude:•possiblenegativeeffectsofpotentiallynewregulatorydevelopments;•increasedcompetitionintheHongKongtelecommunicationsmarketandthecontinuingnegativeeffectsfromtheregulatoryconstraintsthatapplytous;•ourabilitytoexecuteourbusinessstrategy,includingourabilitytoenterintobusinesscombinations,strategicinvestmentsandacquisitions;•risksassociatedwithourmobilebusinessincludingintensecompetitioninthemobiletelecommunicationsmarketandthefundinganddevelopmentofour3Gbusiness;•increasedcompetitionintheHongKongpay-televisionmarket;•ourabilitytosecureorsuccessfullyimplementnewbusinessopportunitiesoranticipatedprojectswithCNC;•risksassociatedwithPCPD,ourpropertydevelopmentsubsidiary,includingfuturepropertydevelopmentplans;•ourabilitytoimplementourbusinessplanasaconsequenceofoursubstantialdebt;•ourexposuretointerestraterisk;•risksassociatedwiththeexpansionofouroperationsoutsideHongKong;and•ourabilitytointroducenewtechnologies,tosuccessfullyrespondtotechnologicaldevelopmentsandtoadaptexistingtechnologiesmaybelimited.Relianceshouldnotbeplacedontheseforward-lookingstatements,whichreflecttheviewsofthedirectorsandmanagementofPCCWasatthedateofthisannualreportonly.Weundertakenoobligationtopubliclyrevisetheseforward-lookingstatementstoreflecteventsorcircumstancesthatariseafterpublicationofthisannualreport.