Annual Financial Review

Eliminations Eliminations were HK$2,927 million for the year ended December 31, 2021 versus HK$1,346 million a year earlier, reflecting the increased collaboration across all of HKT's business segments and the full-year impact of the integration of Now TV business with HKT. Cost of Sales Cost of sales for the year ended December 31, 2021 increased by 7% to HK$16,729 million, reflecting the costs associated with higher Mobile product sales and the full-year impact of the integration of Now TV business during the year. General and Administrative Expenses For the year ended December 31, 2021, the Group achieved savings of 9% in operating costs before depreciation, amortization, and gains on disposal of property, plant and equipment and right-of-use assets, net (“operating costs") for the TSS and Mobile businesses due to the continuous focus on operating efficiency through digitalizing business processes as well as optimizing offline-to-online sales channels and retail footprint. These savings were reinvested in new businesses including The Club, Tap & Go and DrGo to support their growth momentum. Nevertheless, operating costs excluding the Pay TV business remained flat during the year. After taking into account the full-year impact of the integration of Now TV business, total operating costs for the year increased by 8% to HK$4,499 million, and the operating costs-to-revenue ratio was 13.2% versus 12.8% a year earlier. Depreciation expenses increased by 4% and amortization expenses increased by 7% during the year, largely due to the full-year impact of the integration of Now TV business and an increase in the amortization of the 900MHz and 1800MHz mobile spectrum licenses arising from the reassignment in 2021. As such, total depreciation and amortization expenses increased by 6% to HK$5,652 million for the year ended December 31, 2021. As a result of the above, general and administrative expenses increased by 7% to HK$10,127 million for the year ended December 31, 2021 versus HK$9,498 million a year earlier. EBITDA¹ Total EBITDA increased by 2% to HK$12,733 million for the year ended December 31, 2021 versus HK$12,527 million a year earlier. The overall EBITDA margin was 37% in 2021 versus 39% a year earlier, primarily due to the increased share of revenue contributed by Mobile product sales. Excluding Mobile product sales, the EBITDA margin held steady at 42% for the year. Finance Costs, Net Net finance costs for the year ended December 31, 2021 decreased by 11% to HK$1,148 million from HK$1,296 million a year earlier, mainly due to a lower prevailing HIBOR during the year. The average cost of debt decreased to 2.4% during the year, compared to 2.9% a year earlier. We will continue to closely monitor the interest rate environment to optimize the ratio of floating to fixed rate debt. Income Tax Income tax expense for the year ended December 31, 2021 was HK$997 million, as compared to HK$855 million a year earlier. The effective tax rate for the year was 17.1%, compared to 13.8% a year earlier. The lower effective tax rate in 2020 was mainly due to certain non-taxable one-off capital gains and credits. 11

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