China Communications Services Corporation Limited
(a joint stock company incorporated in the People's Republic of China with limited liability)


Hot Topics

Q.1. What was the recent operating performance of the Company?

In 2021, the Group capitalized on the opportunities arising from the acceleration in the digital infrastructure construction and the promotion of integrated development of digital economy and real economy in China, the domestic non-telecom operator ("domestic non-operator") market achieved sound development and was the largest growth driver of the Group's results. In addition, the supply chain business, which has been consolidated and cultivated, and applications, content and other ("ACO") services also contributed notably to the results growth. The total revenues of the Group increased by 9.2% year-on-year to RMB133,991 million for the year. Profit attributable to the equity shareholders of the Company amounted to RMB3,157 million, representing a year-on-year increase of 2.5% (excluding the effect of depreciation arising from the Group's property acquired in 2020 as the bases for the smart production, operation and research and development, which was transferred to fixed assets in February 2021, profit attributable to the equity shareholders of the Company in 2021 was RMB3,247 million, representing a year-on-year increase of 5.4%). Gross profit margin was 11.0%, and the decline of gross profit margin has been moderating and stabilizing gradually. Free cash flow remained healthy at RMB4,060 million, representing a year-on-year increase of 54.4%. Good operating results and sufficient free cash flow have provided solid support for the subsequent development of the Group.

Q.2. What strategy did the Company adopt to maintain a relatively rapid growth in the domestic non-telecom operator ("domestic non-operator") market? What services does the Company provide in such market? And what is the Company's outlook in the development of the domestic non-operator market?

In recent years, the Group has kept abreast of the development trends of digital economy and industrial digitalization, and attained rapid business growth and continuous optimization of revenue structure in the domestic non-operator market through innovation and transformation. In 2021, with focus on the development opportunities arising from New Infrastructure, smart society, cybersecurity, emergency management, new energy and Dual Carbon Goals, the Group continuously forged the core capabilities and platforms, strengthened the collaboration among internal and external products and services and leveraged its comprehensive strengths, thus achieving positive and interactive development between the emerging businesses and traditional businesses. The revenue from domestic non-operator market amounted to RMB57,446 million, representing a year-on-year increase of 15.9% and accounting for 42.9% of the total revenues, an increase of 2.5 percentage points year-on-year. Domestic non-operator market was the largest contributor to revenue growth among the customer groups. The Group continued to make breakthroughs in digital infrastructure and industrial smart solutions, with sizeable projects valued above RMB10 million kept increasing, and the development quality of the domestic non-operator market gradually elevated.

In 2021, the Group advanced on research and development under the leadership of China Comservice General Research Institute, forged strategic core platforms, elevated the software service capability and developed smart products. As of now, more than 30 products for industrial application have been developed, covering different industries and sectors including smart city, digital government, smart emergency management, smart game and smart transportation. The Group also possesses self-developed core platforms such as open IoT platform, cybersecurity platform, emergency management middle platform, maintenance digitalization platform, blockchain platform and innovation middle platform. The Group could quickly respond to customer needs and provide the comprehensive smart product portfolio that could be disassembled or combined, as well as full-process service capabilities from top-level design to product R&D and operation. For data center business, in particular, the Group leveraged high-end consulting and design capabilities, applied BIM digitalization technology and the profound accumulation on energy conservation and emission reduction technologies to build the brand image of EPC general contractor of data center infrastructure construction. Currently, the annual contract scale secured by the Group from more than 10 industries, including government, construction and real estate, Internet and IT, transportation, electricity, finance, radio and television, water conservancy, education, medical care and SMEs, has exceeded RMB1 billion in each sector.

In the domestic non-operator market, the Group will seize the opportunities arising from industrial digitalization and digital infrastructure, capitalizing on its advantages of the "Consultant + Staff + Housekeeper" service model and the "Platform + Software + Service" capabilities. The Group will penetrate key regions, namely the Beijing-Tianjin-Hebei Area, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Area, and the Chengdu-Chongqing Area as well as key sectors including government, transportation, electricity, construction, and will step up its effort to develop key businesses such as data centers, 5G customized network, Industrial Internet, emergency management, digital governance and cybersecurity, thus achieving dual enhancement in the scale and value of market development.

Q.3. What strategy did the Company adopt to resume revenue growth in the domestic telecommunications operator market? And what is the Company's outlook in the development of the domestic telecommunications operator market?

In 2021, the Group seized market opportunities in 5G, data centers, cloud-network integration and network information security, adhered to the development strategy of "CAPEX + OPEX + Smart Applications" and provided customers with integrated services for new information infrastructure construction and industrial digitalization. The revenue from domestic telecommunications operator market amounted to RMB73,803 million, representing a year-on-year increase of 5.5%, which reversed the year-on-year decrease in revenue from such market, and accounting for 55.1% of the total revenues, representing a year-on-year decrease of 2.0 percentage points. The Group proactively integrated itself into the industry's ecosystem and strengthened cooperation with the domestic telecommunications operators in market expansion and technology research and development for mutual complementarity, leading to favourable results. The above efforts deepened the trust and loyalty from domestic telecommunications operators, while broadening the source of the Group's revenue and enhancing it capabilities.

In the domestic telecommunications operator market, by adhering to its "CAPEX + OPEX + Smart Applications" development strategy, the Group will seize the opportunities of 5G, big data and cloud-network integration while vigorously developing the traditionally advantageous businesses to secure the fundamentals of its operation. The Group will provide its customers with multi-scenario informatization products and services, quickly respond and react, with a view to meeting customers' demand for business development and digital transformation, assisting customers to construct integrated digital information infrastructure which is speedy, green, safe and intelligent.

Q.4. How was the Company's development in overseas market? And what is the Company's outlook in the development of the overseas market?

In 2021, the COVID-19 pandemic continued to rage overseas, which had a relatively large impact on the Group's overseas business. The Group's revenue from overseas market amounted to RMB2,742 million, representing a year-on-year decrease of 11.4% and accounting for 2.0% of the total revenues. Although the protracted pandemic cast greater uncertainties over its overseas business expansion, the Group still proactively expanded its business and built up a reserve of overseas projects in various regions.

In the overseas market, the Group will develop businesses based on the principles of safety and effectiveness. The Group will actively explore and grasp new opportunities arising from the "dual-circulation with domestic and international development" and normalization of pandemic situation overseas, participate in the construction along the "Belt and Road" and further promote the development and implementation of overseas projects.

Q.5. What were the Company's performance in businesses of TIS, BPO and ACO?

In 2021, the Group fully recognized that the new round of technological revolution and industrial reform had brought huge room of development for China's digital economy industry. As a "New Generation Integrated Smart Service Provider", the Group rode on the trend and supported its customers to build digital infrastructure featuring 5G, cloud computing and other advanced technologies. Revenue from the telecommunications infrastructure ("TIS") services amounted to RMB71,889 million, representing a year-on-year increase of 7.0% and accounting for 53.7% of the total revenues.

In 2021, the Group seized the opportunities arising from the OPEX of domestic telecommunications operators and the development of modern supply chain industry. Revenue from business process outsourcing ("BPO") services amounted to RMB40,624 million, representing a year-on-year increase of 9.0% and accounting for 30.3% of the total revenues. Of which, revenue from our network maintenance business and supply chain business recorded a year-on-year growth of 5.6% and 10.1%, respectively. The growth of supply chain business expedited notably after consolidation, synergistic operation and the introduction of strategic investors. The aggregate contribution to revenue growth from network maintenance and supply chain businesses accounted for 59.1% of the revenue growth of BPO services.

In 2021, the Group stepped up its technology research and development and iterative development of smart products to cater for the demand for upgrade from digitalization of the society and industrial digitalization, with focus placed on key industries such as the government, electricity, transportation and medical care, and provided its customers with digitalization products, platforms and solutions adapted to 5G scenarios. ACO services maintained its rapid growth momentum, with a revenue of RMB21,478 million for the year, representing a year-on-year growth of 18.0%. Its contribution to the total revenues increased by 1.2 percentage points year-on-year to 16.0%.

Q.6. What was the Company's gross profit margin? And what would be the trend going forward?

The Group's gross profit margin in 2021 was 11.0%, representing a decrease of 0.2 percentage point from 11.2% in 2020. The decrease of gross profit margin has gradually moderated in recent years (gross profit margin in 2020 declined 0.5 percentage point as compared to 2019). The decline in gross profit margin was mainly a result of the factors including the decrease of business unit price due to continuous cost control by domestic telecommunications operators and the increase of rigid costs of the Group. During the year, the Group had a more rigorous screening for high gross profit margin projects, made a balance between the speed and the quality of business development, and guided subsidiaries to develop projects of high gross profit margin through optimizing the performance appraisal system. In addition, the Group continuously strengthened project management and cost control and enhanced the business value creation capability, with a view to improving the gross profit margin. The Group applied smart cloud-based procurement platform to carry out fully transparent procurement management to enhance its internal efficiency, while subcontracting charges were contained by implementing a whole process management with system control, IT control and personnel management, and the subcontracting charges accounted for 53.2% of the total revenues, representing a decrease of 1.6 percentage points year-on-year.

With the Group's deployment in digital economy, smart society and new infrastructure areas starting to bear fruit, the Group expects that the proportion of high-value businesses will gradually increase and revenue mix will become more reasonable. The decline in gross profit margin will further moderate. After a certain period of time, gross profit margin can gradually stabilize and even rebound in long-term.

Q.7. What measures did the Company adopt to attain robust free cash flow? And what would be the trend going forward?

In 2021, free cash flow was RMB4,060 million with cash conversion ratio (net cash generated from operating activities/profit attributable to equity shareholders of the Company) being 142.7%, which continued to remain at a healthy and relatively high level. During the year, the Group implemented multiple measures to control working capital. Through implementing effective measures including strengthening project management by aligning receivables collection with project managers' remuneration, carrying out dedicated tasks to collect and clear long-term accounts receivables, optimizing various management systems continuously such as accounts receivable and formed long-term mechanism, accounts receivable turnover days decreased from 110 days in 2020 to 106 days, which was the lowest in the past 5 years.

The Group will continuously adhere to the effective value-driven principle and carry out working capital management initiative to strengthen management of accounts receivable, accounts payable, prepayment and project delivery, and endeavour to maintain healthy financial position.

Q.8. What is the Company's progress on enterprise reform? And what is the future plan for enterprise reform?

Leveraging "Double-hundred Reform", the Group further promoted comprehensive reform, and made certain achievements. In the aspect of introducing strategic investors, in 2021, the Group introduced State Grid Information & Telecommunication Technology Group Co., Ltd. ("State Grid ITT Group") successfully as a strategic shareholder and entered into a Digital New Infrastructure Strategic Cooperation Framework Agreement with State Grid ITT Group. State Grid ITT Group currently holds 166,000,000 domestic shares of the Company, representing 2.40% of the total issued share capital of the Company. The chairman of State Grid ITT Group has been appointed as a Non-executive Director of the Company at present. By introducing State Grid ITT Group as a strategic shareholder of the Group and entering into the strategic cooperation agreement, the Group has further expanded the market in the fields of informatization and intelligentization of the power industry. In 2021, the contract amount from State Grid increased by approximately 20% year-on-year.

In the aspect of mixed-ownership reform at subsidiary level, in 2021, the wholly-owned subsidiary of the Group, China Comservice Supply Chain Management Company Ltd. ("Supply Chain Company"), introduced four strategic investors successfully and the strategic investors have injected a total of RMB900 million into the Supply Chain Company. After the completion of the capital injection, the aggregate equity interest held by strategic investors is approximately 26.015% of the enlarged share capital in the Supply Chain Company. The Supply Chain Company is the only integrated logistics enterprise in the domestic telecommunications industry with a "5A" qualification. The Group introduced strategic investors with synergistic effect for the Supply Chain Company with an aim to build the Supply Chain Company into a leading enterprise of smart supply chain integrated services in the domestic ICT industry to strengthen the Group's competitiveness.

In the aspect of market-oriented incentive mechanism, in 2021, the Group implemented the Share Appreciation Rights Incentive Scheme with the approval of the general meeting. Such scheme aims to deepen the reform of incentive and restraint mechanism and refine the mid- to long-term incentive system, thereby making the interests of the core staff in key positions closely linked to the performance of the Group and fully motivating the key talents. Besides, the Group deeply implemented pilot subdivision of assessment units and empowered the front line with corporate resources to improve the overall efficiency of the Group and employees' sense of gain.

The Group will further strengthen reform impetus to enhance its competitiveness, market influence and value creation capability. First, the Group will deepen cooperation with strategic shareholders, actively explore collaboration opportunities in fields such as Dual Carbon Goals and smart grid with State Grid. Second, the Group will strengthen consolidation of key businesses such as property management and further promote professionalization operation in Supply Chain Company. Third, the Group will improve motivation and restraint, and adhere to results-oriented approach for talents selection and remuneration mechanism optimization.

Q.9. What important development opportunities does the Company perceive to be available in the next three to five years? What capabilities does the Company possess and what are the Company's strategic plans to seize such opportunities?

Currently, the State has attached great importance to developing digital economy and promoting integrated development of the digital economy and the real economy. Since the outbreak of COVID-19 pandemic, digital technology and digital economy have played an important role in fighting against the COVID-19 pandemic and the resumption of work and life. The State rolled out a plan for the development of digital economy during "14th Five-year Plan", setting the targets of added value of core industries in digital economy to increase to 10% of GDP, digital infrastructure upgrade, digital transformation of industries, enhancement of digital public services, which bring huge market potential and wide range of opportunities to the Group.

As a New Generation Integrated Smart Service Provider, the Group will leverage its unique 4T capabilities including Communications Technology, Information Technology, Data Technology and Operational Technology to seize opportunities in sectors such as 5G, data center, cybersecurity and smart solutions.

On expediting digital information infrastructure construction, being a major service provider in 5G network construction, the Group has served domestic telecommunications operators in China for over 60 years and is experienced in undertaking relevant projects. On expediting cloud-network integration and seizing opportunities from "East-To-West Computing Resources Transfer" project, as a major constructor of data centers, the Group has served over 3,000 customers, covering telecommunications operators, Internet companies, third party IDC service providers, government and enterprise customers across the nation, providing them with IDC general contracting services. The Group possesses industry-leading innovative green, energy-saving, low-carbon technologies and applications. On forging cybersecurity defending capabilities, as a listed SOE with hundred-billion revenue scale, having a security team of over 2,600, the Group proactively implements national cybersecurity strategy and provide cybersecurity services in many national projects. On promoting intelligent upgrade of infrastructure, enhancing digital public services, facilitating industrial digital transformation and industrialization of digital technology, the Group participated in top-level design, planning and implementation of over 200 smart city projects. By centering on 16 smart areas, the Group has forged over 30 smart products and about 100 smart solutions, accumulated much experience in intelligentization.

The Group's technological strength has been well recognized by the society. The Group ranked 4th in the "100 Most Competitive Software & IT Service Enterprises 2021" coordinated by China Information Technology Industry Federation; shortlisted in the "Top 100 Cybersecurity Enterprises in China" Industry Report by "AQNIU" for three consecutive years; and the IoT platform was shortlisted in the "2021 China AIoT Industry Panoramic Map Report".

With China entering a new stage of development, the Group, which acts as a "New Generation Integrated Smart Service Provider", will seize the opportunities brought by the robust development of digital economy, acceleration of digital transformation in society, the fulfillment of national objectives of "Carbon Peak, Carbon Neutrality", the full commencement of "East-To-West Computing Resource Transfer" project, to continuously strengthen its technological innovation capability, synergistic capability in ecosystem, market competitiveness, reform impetus and risk control capability while putting efforts into pandemic prevention and control. The Group will capitalize on its own advantages and strive for market expansion, increase research and development investment to embark on the path of transformation and upgrade towards a technology-oriented enterprise. The Group will focus on value creation, promote reforms and innovation, with a view to achieving high-quality development.

Q.10. During the "14th Five-year Plan", what are the development targets of the Company?

2022 is the year of transformation for China Comservice. The Group will leverage the advantageous resources and capabilities of "1 Positioning, 4 Roles" (1 Positioning: "New Generation Integrated Service Provider, 4 Roles: "Builder of Digital Infrastructure", "Provider of Smart Products and Platforms", "Service Provider of Data Production", "Guard of Smart Operation"), capitalize on our technological innovation and reform, step up new digitalization capabilities incubation, to forge "Three Markets, Two Curves" business structure of China Comservice in the "14th Five-Year Plan". While maintaining a stable development of our traditional businesses, we will strive to accelerate the forge of the second growth curve of digitalization businesses by providing customers with digitalization businesses such as digital infrastructure and industrial smart solutions. Through forging two growth curves, we promote sustainable enterprise development.

Looking ahead in "14th Five-Year Plan", the Group is confident that revenue will maintain steady growth, percentage of high-value business will increase steadily, gross profit margin will gradually stabilize and rebound, and return on equity (ROE) and shareholders' return will increase steadily. The Group will continue to transform towards professionalism and high end of value chain, move towards technology-oriented enterprise, and start a new stage of high-quality development.

Q.11. What was the dividend paid by the Company? What's the dividend policy of the Company?

The Board paid a final dividend of RMB0.1641 per share for the financial year ended 31 December 2021. Dividend payout ratio increased from 30% to 36%. Moreover, in view of the Company's good operating results and free cash flow level for the year, the Board also paid a special dividend of RMB0.0091 per share for 2021. Taking into consideration of the above factors, the Company's total dividend for 2021 was RMB0.1732 per share, increased 8.1% year-on-year, representing a total dividend payout ratio of 38%. (Please refer to "Dividend History" for more details)

The Company attaches great importance to the returns of shareholders. Taking into the consideration of the long-term interest and sustainable development of the Company, and with the support of the Group's profitability, the Company strives to maintain the continuity and stability of the dividend policy. The factors to be considered by the Company when formulating the dividend distribution plan are as follows:
1. current and expected operating results and cash flow performance;
2. future business development strategies and operating position, as well as future capital needs;
3. daily working capital needs;
4. expectations of shareholders and investors; and
5. other factors that the Board deems appropriate.

Basic Information

Q.1. What kind of Company is China Comservice?

China Comservice (China Communications Services Corporation Limited) is a leading service provider in the informatization sector in the PRC that adheres to the position as a "New Generation Integrated Smart Service Provider", plays the part in "4 Roles"1and commits to "Building Smart Society, Boosting Digital Economy, Serving a Good Life". The Group provides integrated comprehensive smart solutions for the informatization and digitalization sectors. It is also the largest telecommunications infrastructure service provider in the PRC. Our services include telecommunications infrastructure services (TIS) covering design, construction, and project supervision and management; business process outsourcing services (BPO) covering network maintenance, property management, supply chain and products distribution; applications, content and other services (ACO) covering system integration, software development and system support, value-added services and other services. (Please refer to "Corporate Profile" and "History" for more details)

1"4 Roles": "Builder of Digital Infrastructure", "Provider of Smart Products and Platforms", "Service Provider of Data Production" and "Guard of Smart Operation".

Q.2. When was China Comservice listed?

The Company was listed on the Stock Exchange of Hong Kong on December 8, 2006. The offering price was HK$2.20 per share. (Please refer to "Share Information Overview" for more details)

Q.3. Who are the major shareholders of China Comservice?

China Telecommunications Corporation is our controlling shareholder which holds 3,393 million domestic shares, representing 48.99% of our total issued shares. In addition, China Mobile Communications Group Co., Ltd., China United Network Communications Group Company Limited, State Grid Information & Telecommunication Technology Group Co., Ltd. and China National Postal and Telecommunications Appliances Co., Ltd. hold 608 million, 236 million, 166 million and 131 million domestic shares, representing 8.78%, 3.41%, 2.40% and 1.89% of total issued shares respectively. The public holding is 2,391 million H share, representing 34.5% of our total issued shares. (Please refer to "Shareholding Structure" for more details)

Q.4. Who are the major customers of China Comservice?

All major telecommunications operators in China, namely, China Telecommunications Corporation, China Mobile Communications Group Co., Ltd., China United Network Communications Group Company Limited, and China Tower Corporation Limited are our customers. We also provide services to domestic non-telecom operator (the "domestic non-operator") customers and overseas customers. In 2021, revenue from domestic telecommunications operator customers accounted for 55.1% of total revenues, revenue from domestic non-operator customers accounted for 42.9% of total revenues and revenue from overseas customers accounted for 2.0% of total revenues.

While further developing domestic telecommunications operator market, the Group has also endeavored to expand the domestic non-telecom operator market. The Group proactively provides services, such as smart cities solutions, municipal infrastructure, intelligence building and data center construction, to key customers such as government agencies and customers in the industries of construction, Internet & IT, transportation, electricity, etc.

Other than China, the Group's business also covers dozens of countries and regions globally, and its overseas customers are mainly located in the emerging markets including Southeast Asia, the Middle East and Africa. (Please refer to "Our Business" for more details)

Q.5. What services does the Company provide in domestic non-telecom operator (the "domestic non-operator") market specifically?

The Group has been paying close attention to the development trend of industrial digitalization. Through innovation and transformation, the Company achieved rapid business growth in domestic non-operator market and sustained optimization of its revenue structure. Through replicating its experiences and technologies in serving domestic telecommunications operators, enhancing research and development of projects and products, as well as strengthening the building of our marketing team, we proactively provide the series of smart-typed comprehensive solutions to our key customers such as government agencies and customers in the industries of transportation, electricity, Internet & IT and construction, etc. Also, we provide our customers with data center construction, information security and city pipelines engineering services, etc. Our all-round services include smart-typed comprehensive solutions, communications network planning and design, construction, maintenance outsourcing, system integration, communications network support and development of software and hardware, application software development, voice value-added service and e-Commerce certification, as well as e-Commerce information platform service for SMEs.

Q.6. What are the businesses under Telecommunications Infrastructure (TIS) Services of the Company?

The Group is the largest telecommunications infrastructure service group in the PRC, providing a full range of telecommunications infrastructure services to telecommunications operators in China and overseas. These services include planning, design, construction and project supervision for fixed line, mobile, broadband networks and supporting systems. The Group also provides construction services of ancillary communications networks, integrated solutions for informatization and intelligentization solutions of industries to domestic non-operator customers such as government agencies, industrial customers and SMEs, as well as overseas customers. (Please refer to "Our Business" for more details)

Q.7. What are the businesses under Business Process Outsourcing (BPO) Services of the Company?

The Group is the largest integrated provider of business process outsourcing services in the communications industry in China. The Company can provide customers with all-round quality outsourcing services including management of infrastructure for information technology ("network maintenance"), general facilities management ("property management"), supply chain and products distribution services. The target of our services includes domestic and overseas telecommunications operator customers, government agencies and enterprises customers. The Group focused on OPEX-driven business of domestic telecommunications operators, and strengthened the synergistic operation and brand building of OPEX-driven business. (Please refer to "Our Business" for more details)

Q.8. What are the businesses under Applications, Content and Other (ACO) Services of the Company?

The Group provides system integration, software development and system support, value-added services to the domestic telecommunications operators and domestic non-operator customers, including government agencies, industrial customers and SMEs. (Please refer to "Our Business" for more details)

updated 23rd May, 2022

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