ANNUAL REPORT 2015 - China Unicom

1 China Unicom (HONG KONG) LIMITEDHKEx : 0762 NYSE : CHUANNUAL REPORT2015 FTTXFTTHC0-buildingBig DataInternet+FTTHIDC million>42 'HF RMB884G net addARPUM352037/< )2&86(' 5(6285&(6 21 * 72 )8(/ 02%,/( %86,1(66 020(1780 ICTeCompany ProfileShareholding StructurePerformance HighlightsMajor EventsChairman s StatementBusiness OverviewFinancial OverviewBiographical Details of Directors and Senior ManagementCorporate Governance ReportReport of the DirectorsHuman Resources DevelopmentCorporate Social ResponsibilityNotice of ANNUAL General MeetingIndependent Auditor s ReportConsolidated Statement of Financial PositionConsolidated Statement of IncomeConsolidated Statement of Comprehensive IncomeConsolidated Statement of Changes in EquityConsolidated Statement of Cash FlowsNotes to the Consolidated Financial StatementsFinancial SummaryCorporate InformationCONTENTS234681521283552727478 81828485868789166168 FORWARD-LOOKING STATEMENTSC ertain statements contained in this REPORT may be viewed as forward-looking statements within the meaning of Section 27A of the Securities Act)))))

2 Of 1933 (as amended) and Section 21E of the Securities Exchange Act of 1934 (as amended). Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. In addition, we do not intend to update these forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company s most recent ANNUAL REPORT on Form 20-F filed with the Securities and Exchange Commission (the SEC ) and in the Company s other filings with the base stationk400 China Unicom (Hong Kong) Limited ANNUAL REPORT 20152 COMPANY PROFILEC hina Unicom (Hong Kong) Limited (the Company ) was incorporated in Hong Kong in February 2000 and was listed on the New York Stock Exchange and The Stock Exchange of Hong Kong Limited on 21 June 2000 and 22 June 2000 respectively.

3 On 1 June 2001, the Company was included as a constituent stock of the Hang Seng Company merged with China Netcom Group Corporation (Hong Kong) Limited on 15 October 2008. The ultimate parent company of the Company, China United Network Communications Group Company Limited ( Unicom Group ) also gained approval and officially merged with China Network Communications Group Corporation ( Netcom Group ) on 6 January at 31 December 2015 , Unicom Group held of the shares in the Company through China United Network Communications Limited ( A Share Company ), China Unicom (BVI) Limited and China Unicom Group Corporation (BVI) Limited; the public investors of the A Share Company held of the shares in the Company through A Share Company s shareholding in China Unicom (BVI) Limited. The remaining of the shares in the Company are held by public investors at The Stock Exchange of Hong Kong Limited and New York Stock present, the Company provides a full range of telecommunications services in China , including mobile broadband (WCDMA, LTE FDD, TD-LTE), fixed-line broadband, GSM, fixed-line local access, ICT, data communications and other related value-added services.

4 As at the end of 2015 , the Company has fixed-line local access subscribers of about 74 million, fixed-line broadband subscribers of about 72 million, and mobile billing subscribers of about 252 Unicom (Hong Kong) Limited ANNUAL REPORT 20153 SHAREHOLDING * (Updated on 31 December 2015 ) UNITED NETWORK COMMUNICATIONS GROUP COMPANY LIMITEDP ublicShareholders2 Other PromotersCHINA UNITED NETWORKCOMMUNICATIONS LIMITEDCHINA Unicom (HONG KONG) LIMITEDO ther Public ShareholdersChina Unicom (BVI) LimitedChina Unicom Group Corporation (BVI) Limited* excluded the interest in 225,722,791 shares of the Company held by China Unicom Group Corporation (BVI) Limited as trustee on behalf of a PRC Unicom (Hong Kong) Limited ANNUAL REPORT 20154 PERFORMANCE HIGHLIGHTSEBITDA Broadband Local Access Profi BUSINESS ENVIRONMENT PUT REVENUE AND PROFIT UNDER CONSIDERABLE PRESSUREC hina Unicom (Hong Kong) Limited ANNUAL REPORT 20155 PERFORMANCE HIGHLIGHTSKEY FINANCIAL DATA20152014 Operating Revenue (RMB billions) Revenue1 (RMB billions) which: Mobile (RMB billions) as % of service Profit (RMB billions) Earnings per Share (RMB) per Share (RMB) KEY OPERATING DATA20152014 Mobile Subscribers (millions) Billing Subscribers3 (millions) ARPU (RMB) Billing Subscribers ARPU3 (RMB) Broadband Subscribers (millions) Broadband ARPU (RMB) Local Access Subscribers (millions) Note 1: Due to the existence of unallocated items, service revenue is not equal to the sum of service revenue from mobile service and fixed-line 2.

5 EBITDA represents profit for the year before finance costs, interest income, share of loss of associates, share of loss of joint venture, other income-net, income tax, depreciation and amortisation. As the telecommunications business is a capital intensive industry, capital expenditure and finance costs may have a significant impact on the net profit of the companies with similar operating results. Therefore, the Company believes that EBITDA may be helpful in analysing the operating results of a telecommunications service operator like the 3: In order to better satisfy the strategic management needs of the Company, the Company s internal management and analysis in relation to the mobile service will focus more on the mobile billing subscribers (which in general refer to subscribers who have revenue contribution in the current month) and 4G subscribers (mobile billing subscribers who possess 4G handsets and use the 4G network of the Company) in 2016.

6 From January 2016 onwards, the aggregate number and net addition of mobile billing subscribers and 4G subscribers will be disclosed. On the other hand, the aggregate number of mobile broadband subscribers will no longer be disclosed. The adjustment in the disclosure of subscriber statistics will not affect the Company s revenue and profit Unicom (Hong Kong) Limited ANNUAL REPORT 20156 MAJOR EVENTSJANUARYFEBRUARYAPRILC hina Unicom s 3G network successfully covered Zhongshan Station in Unicom was granted the license to operate LTE/4G digital cellular mobile service (LTE FDD) by the Ministry of Industry and Information Unicom officially launched the first NFC handset with all-in-one Unicom (Hong Kong) Limited ANNUAL REPORT 20157 MAJOR EVENTSOCTOBERDECEMBERC hina Unicom launched an unused mobile data carry-over policy for all its 2G/3G/4G subscribers, which allowed the unused monthly data to be carried over for use till the end of the following month to enhance the data consumption experience of customers, accelerate the subscriber and service upgrade, and promote the strategic transformation of the Unicom held 2016 Work Conference, at which full implementation of Focus Strategies was put forward, driving a new chapter for the works of China Unicom entered into agreement with China Tower Corporation Limited for the disposal and transfer of telecommunications towers and related Unicom was awarded two grand prizes in 3rd Chinese Enterprises New Media ANNUAL Conference.

7 Being The Most Influential New Media Accounts 2015 of Chinese Enterprises and The Most Influential New Media Accounts 2015 of State Owned Unicom officially launched WO 4G+ , a new 4G brand image for China Unicom not only faster, but more pleasant experience, more relieved consumption, and better service , enhancing the competitiveness and the development confidence of Unicom (Hong Kong) Limited ANNUAL REPORT 20158 CHAIRMAN S STATEMENTFTTXI nternet of ThingsC0-buildingMbpsBig DataInternet+WANG XIAOCHUC hairman and Chief Executive OfficerChina Unicom (Hong Kong) Limited ANNUAL REPORT 20158 China Unicom (Hong Kong) Limited ANNUAL REPORT 20159 CHAIRMAN S STATEMENTDEAR SHAREHOLDERS,In 2015 , facing the complex changes of the business environment and the stiff challenges including, among others, Speed Upgrade and Tariff Reduction1 , One-month Mobile Data Carry-over2 , the replacement of business tax with value-added tax3 ( VAT Reform ) and intensifying competition, the Company took proactive steps to address the challenges by adjusting its strategic thinking, leading to clearer strategic direction and business focuses.

8 The Company has nurtured progressive positive changes in its operations, laying a solid foundation for its long-term transformation and sustainable RESULTSIn 2015 , both the revenue and profit of the Company were under considerable pressure. The service revenue for the year amounted to billion, down by compared with the previous year, while revenues from non-voice service accounted for of the service revenue, representing a year-on-year increase of percentage Company s EBITDA declined by year-on-year to billion. EBITDA as a percentage of service revenue was , down by percentage points year-on-year. Including the gain on disposal of certain telecommunications towers and related assets, net profit was billion, down year-on-year. Committed to delivering leading network experience for customers, the Company made investments for future growth with capital expenditure reaching billion in the year, the Group disposed of certain telecommunications towers and related assets to China Tower Corporation Limited (the Tower Company ) and realised a gain on disposal before taxes of billion.

9 The disposal of the towers assets will facilitate the sharing of telecommunications towers among operators, thus promoting a quick and efficient 4G network roll-out while saving capital expenditures of the Company. Meanwhile, the Company, as one of the major shareholders of the Tower Company, expects to benefit from the future earnings and value enhancement of the Tower Company. The Company and the Tower Company are in the process of negotiation on the fee of using telecommunications towers. The tower usage fee is expected to bring short-term pressure on the profit of the on the Company s overall financial position in 2015 and taking into account the shareholder returns, profitability, debt obligations and cash flows of the Company, and the capital required for future development, the Board of Directors recommended a final dividend payout of per share for the fiscal year ended 31 December Unicom (Hong Kong) Limited ANNUAL REPORT 201510 CHAIRMAN S STATEMENTBUSINESS DEVELOPMENTP romptly adjusting operating priority to focus resources on 4G to fuel mobile business momentumThe overall development of the Company s mobile service was under pressure in 2015 .

10 Mobile service revenue was billion, representing a year-on-year decrease of The number of its mobile billing subscribers declined by million to million. During the year, our competitor made a strong push in promoting 4G service, the Company s competitive advantages on 3G had been fading out fast. Leveraging the opportunity of sharing of towers, the Company accelerated mobile network deployment, fully opened its 4G network to all the subscribers, promoted 4G terminals penetration and optimised its product portfolio to expedite the subscriber migration to 4G network. Promptly refining strategy in the fourth quarter, the Company fully focused on 4G, launched WO 4G+ , and comprehensively enhanced customer experience by improving its network, products, terminals, channels and operations capabilities, undergoing a 4G-led service transformation and development.