Interconnection charges
The Company was affected by the decline in voice service, the interconnection charges amounted to RMB11.51 billion in 2019, down by 8.5% year-on-year and, as a percentage of revenue, decreased from 4.32% in 2018 to 3.96% in 2019.
Depreciation and amortisation
Depreciation and amortisation charges were RMB83.08 billion in 2019, up by 9.6% year-on-year and, as a percentage of revenue, changed from 26.05% in 2018 to 28.60% in 2019, mainly due to the impact on adoption of new standard, “Lease”.
Network, operation and support expenses
Network, operation and support expenses were RMB43.24 billion in 2019, down by 21.5% year-on-year and, as a percentage of revenue, decreased from 18.93% in 2018 to 14.88% in 2019, mainly due to the impact on adoption of new standard, “Lease”.
Employee benefit expenses
As a result of the improved operating results, the Company’s employee benefit expenses amounted to RMB50.52 billion in 2019, up by 4.9% year-on-year and, as a percentage of revenue, changed from 16.55% in 2018 to 17.39% in 2019.
Cost of telecommunications products sold
Costs of telecommunications products sold amounted to RMB26.41 billion and revenue from sales of telecommunications products amounted to RMB26.13 billion in 2019. Loss on sales of telecommunications products was RMB0.28 billion, of which handset subsidy cost accounted to RMB0.79 billion in 2019, down by 17.0% year-on-year.
Selling and marketing expenses
The Company adjusted its mobile development priority in a timely manner, deepened the Internet-oriented operation transformation and exercised stringent control over user acquisition costs. Selling and marketing expenses were RMB33.54 billion in 2019, down by 4.6% year-on-year and, as a percentage of revenue, decreased from 12.09% in 2018 to 11.55% in 2019.
General, administrative and other expenses
General, administrative and other expenses were RMB30.95 billion in 2019, up by 12.9% year-on-year, mainly due to the rapid growth of ICT services leading to increased related service costs and increased investment in technical support for innovative businesses.
Finance costs, net of interest income
Finance costs, net of interest income, was RMB0.85 billion in 2019, increased by 0.94 billion year-on-year, mainly due to the impact on adoption of new standard, “Lease”.
Other income-net
Other income-net was RMB1.74 billion in 2019, increased by RMB0.96 billion year-on-year.
EARNINGS
Profit before income tax
In 2019, the Company benefited from continuous enhancement in growth quality and profitability, the Company’s profit before income tax was RMB14.17 billion, up by 8.3% year-on-year.
Income tax
In 2019, the Company’s income tax was RMB2.80 billion and the effective tax rate was 19.7%.
Net profit
In 2019, the Company’s net profit1 was RMB11.33 billion, up by RMB1.13 billion year-on-year. Basic earnings per share was RMB0.370, up by 11.1% year-on-year.
EBITDA2
In 2019, the Company’s EBITDA was RMB94.36 billion, up by 11.1% year-on-year. EBITDA as a percentage of service revenue was 35.7%, up by 3.5 percentage points year-on-year, mainly due to the impact on adoption of new standard, “Lease”.
CAPITAL EXPENDITURE AND CASH FLOW
In 2019, capital expenditure of the Company totalled RMB56.42 billion, which mainly consisted of investments in mobile network, broadband and data, and infrastructure and transmission network etc. In 2019, the Company’s net cash inflow from operating activities was RMB93.68 billion. Free cash flow3 was RMB37.26 billion after the deduction of the capital expenditure.
The table below sets forth the major items of the capital expenditure in 2019.
| 2019 |
| RMB (in billions) | Total amount | As percentage |
|---|
| Total | 56.42 | 100.00% |
| Include: Mobile network | 29.65 | 52.54% |
| Broadband and data | 8.43 | 14.94% |
| Infrastructure and transmission network | 11.42 | 20.23% |
| Others | 6.92 | 12.29% |
BALANCE SHEET
Mainly due to the impact on adoption of new standard, “Lease”, the Company’s total assets changed from RMB540.32 billion as at 31 December 2018 to RMB562.50 billion as at 31 December 2019, total liabilities changed from RMB226.03 billion as at 31 December 2018 to RMB241.74 billion as at 31 December 2019, the liabilities-to-assets ratio changed from 41.8% as at 31 December 2018 to 43.0% as at 31 December 2019 and the debt-to-capitalisation ratio changed from 11.3% as at 31 December 2018 to 15.2% as at 31 December 2019. The net debt-to-capitalisation ratio was 5.9% as at 31 December 2019.
Note 1: Net profit represented profit attribute to equity shareholders of the Company.
Note 2: EBITDA represents profit for the year before finance costs, interest income, share of net profit of associates, share of net profit of joint ventures, other income-net, income tax expenses, 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 Company. However, it is a non-GAAP financial measure which does not have a standardised meaning and therefore may not be comparable to similar measures presented by other companies.
Note 3: Free cash flow represents operating cash flow less capital expenditure. However, it is a non-GAAP financial measure which does not have a standardised meaning and therefore may not be comparable to similar measures presented by other companies.
