Annual Financial Review

ADJUSTED FUNDS FLOW³ Adjusted funds flow increased by 2.4% to HK$5,513 million for the year ended December 31, 2021 from HK$5,384 million for the year ended December 31, 2020. Growth was driven by the 2% expansion in EBITDA, disciplined capex investments and lower fulfillment costs. There was also a 20% reduction in net finance costs paid and lower tax payment during the year. These positive factors were partially offset by the higher customer acquisition costs and right-of-use asset payments associated with the full-year impact of the integration of Now TV business, and higher licence fees arising from the re-assignment of mobile spectrum in 2021. The amounts presented in adjusted funds flow calculation represent the respective cash flows to the Group during the year, which may be different from the related corresponding amounts recognized in the consolidated income statement due to various reasons such as non-cash items recognized in the consolidated income statement and timing difference between accounting recognition and actual cash flows. HEDGING Market risk arises from foreign currency and interest rate exposure related to investments and financing. As a matter of policy, HKT continues to manage the market risk directly relating to its operations and financing and does not undertake any speculative derivative trading activities. The Finance and Management Committee, a sub-committee of the Executive Committee of the board of directors of the Company, determines the appropriate risk management activities with the aim of prudently managing the market risk associated with transactions undertaken in the normal course of the Group's business. All treasury risk management activities are carried out in accordance with policies and guidelines approved by the Finance and Management Committee, which are reviewed on a regular basis. More than three quarters of HKT's consolidated revenue and costs are denominated in Hong Kong dollars. For those operations with revenues denominated in foreign currencies, the related costs and expenses are usually denominated in the same foreign currencies and hence provide a natural hedge against each other. Therefore, the Group is not exposed to significant foreign currency fluctuation risk from operations. A significant portion of HKT's financing is denominated in foreign currencies including United States dollars. Accordingly, HKT has entered into forward and swap contracts in order to manage its exposure to adverse fluctuations in foreign currency exchange rates and interest rates. These instruments are executed with creditworthy financial institutions. As at December 31, 2021, all forward and swap contracts were designated as cash flow hedges for the related financing of HKT. As a result, the impacts of these operational and financial risks to HKT are considered not material. CHARGE ON ASSETS As at December 31, 2021, no assets of the Group (2020: nil) were pledged to secure loans and banking facilities of HKT. 13

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