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Financial Review

In 2020, facing the impact of COVID-19, acceleration in digitalization of the economy and the society, as well as challenges from competition within the telecommunications industry and from cross-sector players, the Group continued to advance its overarching strategy of becoming a world-class enterprise by building a dynamic “Powerhouse”. The Group persisted in making steady improvement, deepening its reforms and innovation incentives, accelerating its transformation and upgrade, thereby achieving stable growth in its operating results.

2019 2020 Change
Operating revenue (RMB million) 745,917 768,070 3.0%
    Revenue from telecommunications services (RMB million) 674,392 695,692 3.2%
    Revenue from sales of products and others (RMB million) 71,525 72,378 1.2%
EBITDA (RMB million) 295,967 285,135 –3.7%
EBITDA margin 39.7% 37.1% –2.6pp
Profit attributable to equity shareholders (RMB million) 106,641 107,843 1.1%
Margin of profit attributable to equity shareholders 14.3% 14.0% –0.3pp
Basic earnings per share (RMB) 5.21 5.27 1.1%

 

The Group strived to reduce costs, enhance efficiency and strengthen “All Members, All Elements, All Processes” cost control, thereby maintaining its profitability at a leading level among international first-class telecommunications operators and continuously creating value for shareholders.

 

In 2020, the Group’s operating revenue reached RMB768.1 billion, up by 3.0% compared to the previous year, of which revenue from telecommunications services was RMB695.7 billion, up by 3.2% compared to the previous year. The Group made an all-out effort to advance the “5G+” plan, further promoted scale-based and value-oriented operations, strived to capture new markets emerged in the blue-ocean digital economy, fostered the all-round and integrated development of CHBN markets, thereby maintaining growth in revenue from telecommunications services for the full-year of 2020.

Revenue from Voice Services

The Group’s revenue from voice services continued to decline, with the annual revenue from voice services being RMB78.8 billion, down by 11.1% compared to the previous year. Total voice usage decreased by 6.0% compared to the previous year.

Revenue from Data Services

The Group’s revenue from data services was RMB597.0 billion, up by 5.7% compared to the previous year, representing 85.8% of revenue from telecommunications services, up by 2.0 percentage points compared to the previous year.

The Group persisted in scale-based and value-oriented operations, stepped up efforts to converge data access, applications and customer benefits in our operations. The annual revenue from wireless data traffic maintained its growth and reached RMB385.7 billion, up by 0.2% compared to the previous year. Revenue from SMS/MMS services recovered and reached RMB29.5 billion, up by 2.9% compared to the previous year.

The Group strengthened its scale-based smart home operations, persisted in prioritizing quality, raised the level of its one-stop service offerings including installation, maintenance, operation and customer service, thereby maintaining strong growth in its broadband customer base. Revenue from wireline broadband services reached RMB80.8 billion, up by 17.4% compared to the previous year, and continued to maintain a relatively high growth momentum, and its relative contribution to the revenue from telecommunications services increased year-on-year.

Due to the Group’s initiatives in accelerating business transformation and upgrade, DICT, Internet of Things and other corporate businesses recorded rapid growth; meanwhile, “Mobaihe” and other family value-added services also maintained a relatively high growth rate. The annual revenue from applications and information services exceeded RMB100 billion and reached RMB101.0 billion, up by 22.4% compared to the previous year, and contributed 2.7 percentage points of the increase in revenue from telecommunications services. It maintained a strong growth momentum and further advanced optimization of the Group’s overall revenue structure.

Revenue from Sales of Products and Others

Driven by sales of ICT equipment and other smart devices, revenue from the sales of products and others was RMB72.4 billion, up by 1.2% compared to the previous year. The Group’s device sales business mainly serves to facilitate the expansion of core telecommunications services, and hence its contribution to the Group’s profit is relatively low.

The Group has continued to actively promote its low-cost, high-efficiency operating model, stepped up measures to reduce costs and enhance efficiency. We have introduced an all-round system covering every aspect of service and process, engaging all staff members. We continued to improve and refine our management level and obtained better cost control. Meanwhile, the Group has constantly optimized the structure of resource deployment, endeavoured to strike a balance between short-term operating results and long-term development in order to maintain its favourable profitability.

In 2020, the Group’s operating expenses were RMB655.3 billion, up by 3.6% compared to the previous year. Operating expenses represented 85.3% of operating revenue.

2019
RMB million
2020
RMB million
Change
Operating expenses 632,768 655,336 3.6%
Network operation and support expenses 175,810 206,424 17.4%
Depreciation and amortization 182,818 172,401 –5.7%
Employee benefit and related expenses 102,518 106,429 3.8%
Selling expenses 52,813 49,943 –5.4%
Cost of products sold 72,565 73,100 0.7%
Other operating expenses 46,244 47,039 1.7%
Network Operation and Support Expenses

Network operation and support expenses were RMB206.4 billion, up by 17.4% compared to the previous year and representing 26.9% of operating revenue. The relatively significant increase was due to, on the one hand, the expanded scale of 5G network, data center and others, which resulted in a relatively faster increase in electricity expenses, and on the other hand, increased investments in transformation towards smart family business, DICT businesses, construction of smart mid-end platforms and others. Tower leasing fee of 2020 on a comparable basis was RMB44.3 billion, up by 6.9% compared to the previous year.

Depreciation and Amortization

Depreciation and amortization was RMB172.4 billion, down by 5.7% compared to the previous year and representing 22.4% of operating revenue. The decrease was partly due to the depreciable life of the Group’s 4G wireless assets was adjusted from 5 years to 7 years in 2020.

Employee Benefit and Related Expenses

Employee benefit and related expenses were RMB106.4 billion, up by 3.8% compared to the previous year and representing 13.9% of operating revenue. The Group continued to adjust and optimize its personnel structure, and increased investments in research and development talents in the fields of 5G and AICDE as well as “Business” and “New” market management talents, providing strong personnel support for the Group’s reform, innovation, transformation and development. Meanwhile, there has a certain cost-saving effect on employee benefit and related expenses attributable to the social insurance reduction and exemption policies during the COVID-19 pandemic.

Selling Expenses

Selling expenses were RMB49.9 billion, down by 5.4% compared to the previous year and representing 6.5% of operating revenue. While ensuring necessary marketing and sales efforts, the Group has speeded up transformation of channels, upgraded its online sales capabilities, and continued to enhance the efficiency of its utilization of marketing resources.

Cost of Products Sold

Cost of products sold was RMB73.1 billion, up by 0.7% compared to the previous year and representing 9.5% of operating revenue. The increase was mainly driven by the growth in revenue from sales of products.

Other Operating Expenses

Other operating expenses were RMB47.0 billion, up by 1.7% compared to the previous year and representing 6.1% of operating revenue. In 2020, the Group significantly increased its investments in research and development, and promoted technical breakthroughs and construction of core capabilities to empower smart development of the Group.

Profitability

In 2020, the Group continued to improve quality and efficiency of operations, enhanced value to shareholders, and maintained an industry-leading level of profitability. Profit from operations was RMB112.7 billion, down by 0.4% compared to the previous year. EBITDA was RMB285.1 billion, down by 3.7% compared to the previous year, and EBITDA margin was 37.1%, down by 2.6 percentage points compared to the previous year. Benefitting from steady growth in revenue and better cost control, profit attributable to equity shareholders was RMB107.8 billion in 2020, up by 1.1% compared to the previous year. The margin of profit attributable to equity shareholders was 14.0%.

2019
RMB million
2020
RMB million
Change
Profit from operations 113,149 112,734 –0.4%
Other gains 4,029 5,602 39.0%
Interest and other income 15,560 14,341 –7.8%
Finance costs 3,246 2,996 –7.7%
Income from investments accounted for using
    the equity method
12,641 12,678 0.3%
Taxation 35,342 34,219 –3.2%
Profit attributable to equity shareholders 106,641 107,843 1.1%

The Group’s financial position continued to remain robust. As at the end of 2020, total assets and total liabilities were RMB1,727.9 billion and RMB575.1 billion, respectively. The liabilities to assets ratio was 33.3%.

The Group consistently and firmly adhered to its prudent financial risk management policies and maintained sound repayment capabilities. The effective interest coverage multiple was 44 times.

As at 31 Dec 2019
RMB million
As at 31 Dec 2020
RMB million
Change
Current assets 529,866 579,743 9.4%
Non-current assets 1,099,374 1,148,139 4.4%
Total assets 1,629,240 1,727,882 6.1%
Current liabilities 462,067 517,274 11.9%
Non-current liabilities 59,884 57,836 –3.4%
Total liabilities 521,951 575,110 10.2%
Non-controlling interests 3,516 3,856 9.7%
Total equity attributable to equity shareholders 1,103,773 1,148,916 4.1%
Total equity 1,107,289 1,152,772 4.1%

The Group consistently and firmly adhered to its sound and prudent financial policies and stringent fund management systems and strived to maintain a healthy cash flow level, thereby ensuring the safety and integrity of its funds through its highly centralized management of investing and financing activities. Meanwhile, the Group continued to reinforce its centralized fund management efforts and made appropriate allocations of its funds, thereby fully leveraging its fund scale efficiency.

In 2020, the Group’s cash flow remained healthy. Net cash inflow from operating activities, net cash outflow from investing activities and net cash outflow from financing activities were RMB307.8 billion, RMB188.1 billion and RMB82.3 billion, respectively. Free cash flow was RMB127.1 billion, up by 55.6% compared to the previous year. As at the end of 2020, the Group’s cash and bank balances were RMB334.8 billion, of which 96.9%, 0.9% and 2.1% were denominated in Renminbi, U.S. dollars and Hong Kong dollars, respectively. The robust fund management and healthy cash flow provided a solid foundation for the sustainable healthy development of the Group.

2019
RMB million
2020
RMB million
Change
Net cash inflow from operating activities 247,591 307,761 24.3%
Net cash outflow from investing activities 64,206 188,106 193.0%
Net cash outflow from financing activities 64,901 82,252 26.7%
Free cash flow 81,713 127,127 55.6%

Currently, the Company’s corporate credit ratings are equivalent to China’s sovereign credit ratings, namely, A+/ Outlook Stable from Standard & Poor’s and A1/Outlook Stable from Moody’s. These ratings reflect that the Group’s sound financial strength, favourable business potential and solid financial management are highly recognized by the market.

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