In the first half of 2022, with the robust development of the digital economy in China, and digital industrialization as well as industrial digitalization transformation entering a new stage, the Group firmly seized the strategic opportunities of digitalization revolution in society by actively leveraging its advantages as a “New Generation Integrated Smart Service Provider”. By grasping the opportunities arising from the acceleration in digital infrastructure construction and promotion of the integrated development of digital economy and real economy in China, the Group expanded its businesses actively and overcame the negative impacts brought by the concurrent spread of pandemic in multiple regions and the protracted impact of the pandemic in some key regions. As such, the Group achieved overall steady growth in the first half of the year. In the first half of the year, the Group’s total revenues were RMB69,253 million, representing a year-on-year increase of 8.0%. Cost of revenues was RMB61,960 million, representing a year-on-year increase of 8.2%. Gross profit was RMB7,293 million, representing a year-on-year increase of 6.7%. Gross profit margin was 10.5%, representing a moderated decline.

Selling, general and administrative expenses were RMB5,920 million, accounting for 8.5% of the total revenues, representing a year-on-year decrease of 0.1 percentage point. Profit attributable to the equity shareholders of the Company was RMB1,896 million, representing a year-on-year increase of 4.6%. Net profit margin was 2.7%. Profit for the period including non-controlling interests was RMB1,957 million, representing a year-on-year increase of 7.4%, and profit margin was 2.8%, which remained largely stable year-on-year. Basic earnings per share were RMB0.274, representing a year-on-year increase of 4.6%.

In the first half of 2022, the Group’s revenue from the domestic non-operator market was RMB31,173 million, representing a year-on-year increase of 6.5%, accounting for 45.0% of the total revenues. Benefitting from the important opportunities arising from industrial digitalization, new infrastructure and green and low-carbon, the Group achieved high growths in its applications, content and other (“ACO”) services and the important business focus in high-value fields such as data centers, smart products, and “Dual Carbon” in such market, making new progress in penetrating key areas.

Riding on the social and technological development trend, the Group stepped up investment in research and development (R&D) and the commercialization of R&D results. To this end, the Group utilized the advantages of “Consultant + Staff + Housekeeper” service model and the strengths of its integrated capabilities in “Platform + Software + Service” to upgrade and conduct the iteration of its integrated smart services continuously. 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.

In the first half of 2022, the Group’s revenue from the domestic telecommunications operator market was RMB36,529 million, representing a year-on-year increase of 9.2%, accounting for 52.8% of the total revenues, which increased by 0.6 percentage point year-on-year. Domestic telecommunications operator market drove growth in the overall results.

The Group adhered to the development strategy of “CAPEX + OPEX + Smart Applications”, seized opportunities from “East-To-West Computing Resources Transfer”, the change of focus of domestic telecommunications operator customers from traditional network infrastructure construction to new digital infrastructure construction, and their move to accelerate the development of new businesses such as industrial digitalization. Besides, the Group vigorously enhanced its capabilities in general contracting services, “Dual Carbon” (energy-saving and retrofit) and cybersecurity. The Group deeply participated in businesses such as cloud-network construction, supported key businesses such as data centers, green transformation of old machine rooms, and 5G customized network, and forged competitive advantages, to maintain relatively stable market share in TIS business. On OPEX business, the Group deepened the development of businesses such as network maintenance and supply chain and actively expanded services such as comprehensive maintenance service, which drove the steady growth of BPO business. In addition, the Group seized opportunities from domestic telecommunications operators’ expedited development in government and enterprise business and industrial digitalization business such that ACO business growth accelerated, reaching 38.8%. The Group put great effort in the development of ACO services such as system integration and software development in domestic telecommunications operator market, resulting in further optimization of its revenue structure in such market.

In the first half of 2022, the Group endeavoured to overcome the impacts of the protracted pandemic as well as the political and economic risks overseas, and conducted businesses safely and prudently in the overseas market. Major projects of the Group in regions such as the Middle East, Southeast Asia achieved good results steadily. The Group’s revenue from the overseas market was RMB1,551 million, representing a year-on-year increase of 12.7%, accounting for 2.2% of the total revenues.

The Group believes opportunities and challenges coexist in overseas market. On one hand, there are ample opportunities from “Belt & Road” Initiative and cooperation with “Go Abroad” Chinese enterprises. On the other hand, slowdown of global economic growth and the protracted pandemic bring challenges. The Group will further optimize its deployment overseas, penetrate targeted markets, strengthen cooperation with telecommunications operators and “Go Abroad” Chinese enterprises, and also enhance risk management, to promote safe and effective development in the overseas market.

In the first half of the year, the revenue from telecommunications infrastructure (“TIS”) services was RMB35,049 million, representing a year-on-year increase of 1.5%. Revenue from business process outsourcing (“BPO”) services was RMB21,537 million, representing a year-on-year increase of 8.8%. Revenue from applications, content and other services was RMB12,667 million, representing a year-on-year increase of 29.7%.

During the first half of the year, the resurgence of the pandemic in many cities of China had caused relatively large impact on businesses such as construction, so the growth of TIS revenue slowed down. In response to the pandemic, the Group proactively pressed on with the resumption of work and production on the premise of ensuring safe production. The Group grasped the demand in industrial digitalization firmly and seized development opportunities of traditional industrial digitalization and intelligentization reform, and made effort to strengthen innovation as well as research and development continuously by iterative upgrade on its smart products and solutions. The above efforts stimulated our business development, such as system integration and software development businesses, thus making ACO services continued to be our fastest-growing business with a year-on-year growth of approximately 30%, accounting for 18.3% of total revenues, up by 3.1 percentage points year-on-year and became the biggest contribution to overall operating revenue increment. Among which, revenue from system integration business amounted to RMB8,360 million, representing a rapid year-on-year increase of 34.5%; revenue from software development and system support businesses amounted to RMB1,987 million, representing a rapid year-on-year increase of 26.6% and maintaining a more than 20% growth for three consecutive years.

In the first half of 2022, the Group recorded gross profit of RMB7,293 million, representing an increase of 6.7% from RMB6,833 million in the first half of 2021. The Group’s gross profit margin in the first half of 2022 was 10.5%, representing a decrease of 0.2 percentage point from 10.7% in the first half of 2021. As affected by multiple factors, including the decrease of business unit price, impact posed by the pandemic and the increase of rigid costs of the Group, gross profit margin of the Group in the first half of the year decreased. Meanwhile, the Group endeavoured to improve its gross profit margin through uplifting its business value creation capabilities, continuous enhancement of project management and cost control, as well as the implementation of cost reduction and efficiency enhancement measures. As a result, the decline of gross profit margin moderated compared with that in the previous year. With the Group’s deployment in digital economy, smart society and new infrastructure areas starting to bear fruit, and the further implementation of efficiency enhancement tasks, it is expected that the Group’s gross profit margin will be stabilized in the future.

The Group adhered to its strategic positioning as a “New Generation Integrated Smart Service Provider”, actively leveraged advantages of “Builder of Digital Infrastructure”, “Provider of Smart Products and Platforms”, “Service Provider of Data Production” and “Guard of Smart Operation” (“1 Positioning, 4 Roles”), focusing on developing key areas, including 5G, digital information infrastructure construction, digital government, smart city and smart transportation. Apart from making progress and enhancing quality amid steady growth, the Group’s corporate strength and brand image received recognition from customers.

“1 Positioning, 4 Roles” strategic positioning drove overall development:

1. Penetrating “Digital Infrastructure” to realize rapid growth. The Group actively aligned its business development with the national strategies of “East-to-West Computing Resources Transfer” and “Dual Carbon”. As a result, the value of the Group’s new contracts signed for data centers and electricity industry increased by more than 30% and approximately 30% year-on-year, respectively. General contracting projects for large-scale data centers undertaken by the Group, including the Data Room of Big Data Industrial Park in Lanzhou New District of Gansu Province and JD Cloud & AI Hybrid Cloud Computing Center, were well-received by important customers. China Telecom (National) Digital Qinghai Green Big Data Center, the Group’s general contracting project, was the first 100% traceable clean energy green big data center in China, which was also the first big data center as an exemplary model built with source-grid-load-storage integration, green energy and smart supply system.

2. Achieving breakthroughs in the capability of developing “Smart Products and Platforms”. The Group intensively developed the markets of several key fields by announcing and launching its proprietary and controllable R&D and technology middle platforms such as R&D Innovation Middle Platform and Open IoT Platform. In respect of cybersecurity, the Group released platforms such as Enterprise Asset Security Management Platform and Internet Exposure Surveying and Mapping Operation Platform, and has gradually built up a system of cybersecurity products and services which was proprietary, controllable and specialized, thus becoming a participant in the field of cybersecurity. In terms of emergency management, the Group forged the Emergency Management and Rescue Command Platform as well as the Safe Production Monitoring and Risk Warning Platform, and the sales of such proprietary products drove up the value of the contracts from emergency informatization and other businesses to more than RMB1 billion.

3. Promoting “Data Production Service” to develop benchmark projects. 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 put in extensive efforts to promote smart products and solutions such as smart city, smart education and smart park. The value of the new contracts signed regarding the relevant businesses increased by more than 20% year-on-year in the first half of the year. Successful benchmark cases of integrated smart services continued to rise. For example, the Group supported the New Smart City Construction in Wuchuan County, Guangdong Province, built Smart Campus for the Tianfu Campus of the Civil Aviation Flight University of China and Smart Industrial Park for the Guanggu Nanda Health Industrial Park in Wuhan, Hubei Province.

4. Excelling in “Guarding Smart Operation” to gain market recognition. The Group continued to provide services such as smart supply chain, smart maintenance and smart property management. In the first half of the year, the value of new contracts signed regarding the supply chain business increased by more than 20% year-on-year. The Group provided supply chain services to domestic telecommunications operators, including warehousing, logistics and distribution, participated in IT distribution of relevant well-known e-commerce companies and provided integrated supply chain services, including platform operation, customer service, logistics and distribution, sales and marketing of products in subdivided industries, which were well recognized by customers.

Currently, the State has attached great importance to developing digital economy and promoting integrated development of the digital economy and the real economy. 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.

Facing the wide range of opportunities, the Group will deploy strategically in five areas. First, expedite market deployment. The Group will focus on three major markets and promote the use of financial tools to accelerate business development. Second, increase R&D investment to enhance market penetration by R&D. Third, bolster digital transformation deployment by elevating quality and efficiency internally and strengthening the export of capabilities externally. Fourth, strengthen capabilities deployment by enhancing capabilities of general contracting, product R&D and professional synergistic operation. Fifth, enhance ecosystem deployment to achieve win-win situation with business partners. Meanwhile, the Group will forge ahead on enterprise reform and control risks.

The Group, as a leading “New Generation Integrated Smart Service Provider” in the industry, will further demonstrate its core competence as the “Builder of Digital Infrastructure”, “Provider of Smart Products and Platforms”, “Service Provider of Data Production” and “Guard of Smart Operation” by enhancing its capabilities in market competitiveness, technological innovation, reform impetus, ecosystem collaboration, and risk control. This will drive value creation, revenue growth, and promote high-quality development.

Currently, digital economy is driving a profound reform in the mode of production, lifestyle and governance, which has become a powerful driver of the sustainable and healthy development of the economy and society. Adhering to the strategic position of “1 Positioning, 4 Roles” and being committed to its corporate mission of “Building Smart Society, Boosting Digital Economy, Serving a Good Life”, the Group will participate in the digitalization revolution more actively, continue to seek new opportunities in the new development phase, fulfil new development mission, and form new landscape of development. By adhering to its overall roadmap of “value-driven, seeking steady yet progressive growth and high-quality development”, the Group continues to optimize its market deployment, focus on high-value customers and expand into high-value fields. As a customer-centric company, the Group will satisfy customers’ demand for professional, integrated and customized services, and continue to strengthen its efficient and high-quality integrated service capabilities. By forging ahead with technological innovation as the key to its development, increasing investment in research and development, optimizing technological innovation system, and focusing on developing proprietary technology of digital applications, the Group will accelerate its transformation towards technology-oriented enterprise. The Group will strive to achieve breakthroughs in the proprietary applications of technologies such as cloud, big data, IoT and artificial intelligence, as well as integrated solutions applicable to social, industrial and enterprise transformation. The Group will continue to refine its core enterprise platforms such as platforms for emergency and cybersecurity, keep exporting its expertise, keep innovating proprietary technologies of conventional fields such as engineering and design and speed up the construction of research institutes that specialized in blockchain, smart city, data center and green technology for dual carbon. The Group will also optimize its deployment in ecosystem, further enrich the connotation of a “New Generation Integrated Smart Service Provider” and improve its capabilities so as to create more value for shareholders, customers, employees and society at large.

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 markets and 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, and the Group’s transformation towards professionalism and high end of value chain will be promoted, move towards technology-oriented enterprise, and start a new stage of high-quality development.

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.

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"¹ and 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".

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)

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)

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 the first half of 2022, revenue from domestic telecommunications operator customers accounted for 52.8% of total revenues, revenue from domestic non-operator customers accounted for 45.0% of total revenues and revenue from overseas customers accounted for 2.2% 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)

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, cybersecurity 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.

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)

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)

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)