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China Communications Services Corporation Limited Annual Report 2015
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
Depreciation and Amortisation
In 2015, depreciation and amortisation were RMB447 million, representing a decrease of 0.8% from RMB451 million in 2014.
Depreciation and amortisation as a proportion to our total revenues was 0.5%, which remained generally stable compared to
2014.
Purchase of Materials and Telecommunications Products
In 2015, the cost of purchase of materials and telecommunications products was RMB20,453 million, representing an increase of
1.3% compared to RMB20,191 million in 2014. Purchase of materials and telecommunications products as a proportion to our
total revenues was 25.3%, representing a decrease of 2.3 percentage points from 2014. Costs of materials and
telecommunications products covers project materials related to infrastructure construction projects and costs for the
procurement of products related to Distribution business. The decrease in the growth rate of costs of materials and
telecommunications products from last year was mainly because the Group effectively controlled the development of certain low-
end Distribution business, thus reducing the cost of relevant telecommunications products.
Subcontracting Charges
In 2015, subcontracting charges were RMB31,812 million, representing an increase of 23.5% compared to RMB25,763 million in
2014. Subcontracting charges as a proportion to our total revenues was 39.3%, representing an increase of 4.1 percentage
points over 2014. The increase in subcontracting charges was mainly derived from the TIS services and Network Maintenance
business. Having considered its strategic development, effectiveness and efficiency, the Group continued to focus on high-end
businesses and outsource certain low-end tasks. Besides, as a result of the rapid growth in Network Maintenance business, which
is labour-intensive in nature and demands for more subcontracts, subcontracting charges grew rapidly during the year. As the
scale of the Group’s business continued to expand, the engagement of subcontractors enabled a more flexible utilization of
external resources for the Group, and at the same time will led to a more rapid growth in the Group’s subcontracting charges.
Operating Lease Charges and Others
In 2015, operating lease charges and others were RMB8,129 million, representing an increase of 13.0% over RMB7,197 million
in 2014. Operating lease charges and others as a proportion to our total revenues was 10.0%, representing an increase of 0.2
percentage point over 2014.
GROSS PROFIT
The Group achieved a gross profit of RMB11,388 million in 2015, representing an increase of 6.6% over RMB10,682 million in
2014. The Group’s gross profit margin in 2015 was 14.1%, representing a decrease of 0.5 percentage point from 14.6% in
2014. In 2015, the decrease in gross profit margin of the Group was due to various factors, including the decrease in service
charge in certain businesses, higher subcontracting charges, and low profit margin in the initial stage of expansion into new
markets. At the same time, the Group also strived to optimize the business and customer structure and to control costs, thereby
gross profit margin showed a moderate declining trend as compared to the previous years.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The selling, general and administrative expenses of the Group in 2015 were RMB9,306 million, representing an increase of 6.0%
compared to RMB8,777 million in 2014. Benefited from the economics of scale in business development and effective cost
control, the selling, general and administrative expenses as a proportion of the total revenues was 11.5%, representing a
decrease of 0.5 percentage point from 2014.
FINANCE COSTS
In 2015, the Group’s finance costs were RMB51 million, representing an increase of 151.6% compared to RMB20 million in
2014. In the second half of 2014, the Group introduced a strategic investor for overseas business expansion. With the enhanced
financial resources to support business development, finance costs also increased accordingly.
