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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
2.21 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for services rendered in the ordinary course of business. Revenue is shown net of value added tax, rebates and discounts and after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group's activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its revenue estimates on historical results, taking into consideration the types of the transactions and past trends. The revenue is recognised as follows:
(i) Domestic and international call revenue and rental income
Call revenue is recognised on usage and a fixed rental on a monthly basis for the telephony services. The customers are charged Government taxes at the applicable rates. The revenue is recognised net of such taxes.
(ii) Revenue from other network operators and international settlements
The revenue received from other network operators, local and international, for the use of the Group's telecommunication network for completing call connections are recognised, net of taxes, based on usage taking the traffic minutes/per second rates stipulated in the relevant agreements and regulations.
(iii) Revenue from other telephony services
The revenue from other telephony services are recognised on an accrual basis based on fixed rental contracts entered between the Group and subscribers.
(iv) Connection fees
The connection fees relating to Public Switched Telephone Network (PSTN) are deferred over a period of 15 years.
The connection fees relating to Code Divisional Multiple Access (CDMA) connections are recognised as revenue in the period in which the connection is activated.
(v) Equipment sales
Revenue from sale of equipment is recognised, net of taxes, on completion of the transaction. The CDMA handset remains the property of the Company. However, the cost of the handset is included in operating costs in the period which the connection is activated.
(vi) Prepaid card revenue
The revenue from sale of prepaid calling cards on fixed telephony is recognised in the period in which the card is sold. Due to the short validity period after activation, no adjustment is made to revenue for unused airtime at the balance sheet date. Pre-paid CDMA card revenue is recognised on usage.
(vii) Sale of services
Revenue from fixed-price contracts for providing manpower is generally recognised in the period the services are provided. Revenue from directory printing is recognised when the directories are distributed.
(viii) Interest income
Interest income is derived from short-term investment of excess funds and is recognised on an accrual basis.
(ix) Dividend income
Dividend income is recognised when the right to receive the payment is established.
2.22 Expenditure
The expenses are recognised on accrual basis. All expenses incurred in the ordinary course of business and in maintaining property, plant & equipment in a state of efficiency is charged against income in arriving at the profit for the year.
For the purpose of presentation of the income statement information, nature of expense method is used to classify expenses.
2.23 Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.
2.24 Foreign currency risk
The Company hedges foreign currency risk of loans denominated in foreign currency against foreign currency revenue streams such as receipt from international network operations and interest income from foreign currency fixed deposits. Sinking funds are maintained in foreign currency to meet future payment obligations.
The Company hedges between 50% to 75% of anticipated net foreign earnings for 5 years. Management estimates approximately 75% (2007 - 75%) of projected foreign earnings quality as 'highly probable'.
2.25 Credit risk
Credit risk arises from cash and cash equivalents, deposits with banks as well as credit exposure to customers and other network operators, including outstanding receivables. For bank and financial institutions, only rated financial institutions are accepted. The credit control assess the credit quality of customers, taking into account their financial position, past experience and other factors. The individual risk limits are set based on internal ratings in accordance with limits set by the Boards. The utilisation of credit limits is regularly monitored.
2.26 Liquidity risk
Effective liquidity risk management includes maintaining sufficient cash and marketable securities and the availability of funding from an adequate amount of committed credit facilities. Due to dynamic nature of the underlying business, the Group maintains flexibility in funding by maintaining sufficient cash reserves and committed credit lines.
2.27 Interest rate risk
The Group's income and operating cash flows are substantially independent of changes in market interest rates.
The Group's interest rate risk arises from long-term borrowings. The borrowings at variable rates expose the Group to cash flow interest rate risk whilst borrowings at fixed rates exposes the Group to fair value interest rate risk. The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging.
2.28 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the Consolidated balance sheet) divided by total capital. Net debt is calculated as total borrowings. Total capital is calculated as ‘equity’ as shown in the Consolidated balance sheet plus total borrowings.
During 2008, the Group’s strategy, which was unchanged from 2007, was to maintain the gearing ratio below 35%. The gearing ratios at 31 December 2008 and 2007 were as follows:
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Group |
Company |
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2008
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2007
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2008
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2007
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Total borrowings
(Note 22)
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21,716
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19,285
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13,834
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13,199
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Total equity
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47,555
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41,900
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49,337
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44,483
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Total capital
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69,271
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61,185
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63,171
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57,682
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Gearing ratio
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31%
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32%
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22%
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23%
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|
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2.29 Comparatives
Current portion of deferred income of the Company which was previously included under 'deferred income' together with non-current liabilities is now included in current liabilities. Further, current portion of deferred income of the Group which was previously included under 'trade and other payables' is now included in a separate line item 'deferred income'.
Management believes that above reclassification give a fairer presentation.
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