UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20122015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number: 1-14696
China Mobile Limited
(Exact Name of Registrant as Specified in Its Charter)
N/A
(Translation of Registrant’s Name into English)
Hong Kong, China
(Jurisdiction of Incorporation or Organization)
60th Floor, The Center
99 Queen’s Road Central
Hong Kong, China
(Address of Principal Executive Offices)
Grace Wong
Company Secretary
China Mobile Limited
60th Floor, The Center
99 Queen’s Road Central
Hong Kong, China
Telephone: (852) 3121-8888
Fax: (852) 2511-9092
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Ordinary shares | New York Stock Exchange* |
* | Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares representing the ordinary shares. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2012, 20,100,340,6002015, 20,475,482,897 ordinary shares par value HK$0.10 per share, were issued and outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or (15)(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
U.S. GAAP ¨ | International Financial Reporting Standards as issued by the International Accounting Standards Board x | Other ¨ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
China Mobile Limited
Page | ||||||
1 | ||||||
PART I | ||||||
Item 1. | 2 | |||||
Item 2. | 2 | |||||
Item 3. | 2 | |||||
Item 4. | ||||||
Item 4A. | ||||||
Item 5. | ||||||
Item 6. | ||||||
Item 7. | ||||||
Item 8. | ||||||
Item 9. | ||||||
Item 10. | ||||||
| 61 | |||||
Item | 69 | |||||
Item 12. | ||||||
PART II | ||||||
Item 13. | ||||||
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | |||||
Item 15. | ||||||
Item 16A. | ||||||
Item 16B. | ||||||
Item 16C. | ||||||
Item 16D. | ||||||
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |||||
Item 16F. | ||||||
Item 16G. | ||||||
Item 16H. | ||||||
PART III | ||||||
Item 17. | ||||||
Item 18. | ||||||
Item 19. |
This annual report on Form 20-F contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended, or the Exchange Act. These forward-looking statements are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to:
our business objectives and strategies;
our operations and prospects;
our telecommunications network expansion plans and related capital expenditure plans;
the expected impact of any acquisitions or other strategic transactions;
our provision of services, including 3Gfourth generation, or 4G, services, wireline broadband services and services based on technological evolution, of 3G technology, and our ability to attract customers to these services;
the planned development of future generations of mobile telecommunications technologies and other technologies and related applications;
the anticipated evolution of the industry chain of 3G, 4G and future generations of mobile telecommunications technologies, including future development in, and availability of, terminals that support our provision of services based on 3G, 4G and future generations of mobile telecommunications technologies;
the expected impact of new service offerings on our business, financial condition and results of operations; and
future developments in the telecommunications industry in Mainland China, including changes in the regulatory and competitive landscape.
The words “aim”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “seek”, “should”, “target”, “will” and similar expressions, as they relate to us, are intended to identify certain of these forward-looking statements. We do not intend to update these forward-looking statements and are under no obligation to do so.
These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors. Moreover, our future business expansion and other capital expenditure and development plans are dependent on numerous factors, including the risk factors set forth in “Item 3. Key Information — Risk Factors” and the following:.
changes in political, economic, legal, tax and social conditions in Mainland China, including, without limitation, the PRC government’s policies with respect to new entrants in the PRC telecommunications industry, the entry of foreign companies into Mainland China’s telecommunications market and Mainland China’s continued economic growth; and
the availability of qualified management and technical personnel.
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Item 1. | Identity of Directors, Senior Management and Advisers. |
Not applicable.
Item 2. | Offer Statistics and Expected Timetable. |
Not applicable.
Item 3. | Key Information. |
Selected Financial Data
The following tables present selected historical financial data of our company as of and for each of the years in the five-year period ended December 31, 2012.2015. Except for amounts presented in U.S. dollars and per American depositary share, or ADS, data, the selected historical consolidated statement of comprehensive income data and other financial data for the years ended December 31, 2010, 20112013, 2014 and 20122015 and the selected historical consolidated balance sheet data as of December 31, 20112014 and 20122015 set forth below are derived from, should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements, including the related notes, included elsewhere in this annual report on Form 20-F. The selected historical consolidated statement of comprehensive income data for the years ended December 31, 20082011 and 20092012 and the selected historical consolidated balance sheet data as of December 31, 2008, 20092011, 2012 and 20102013 set forth below are derived from our audited consolidated financial statementsinternal records and management accounts that are not included in this annual report on Form 20-F. Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS,IFRSs, as issued by the International Accounting Standards Board.Board, or IASB.
In November 2015, China Mobile TieTong Company Limited, or CM TieTong, our wholly-owned subsidiary, acquired certain telecommunications assets, businesses and related liabilities and employees in relation to the fixed-line telecommunications operations, or Target Assets and Businesses, of China Tietong Telecommunications Corporation, or China TieTong, for a final consideration of RMB31,967 million (approximately US$4,934.9 million). The acquisition was completed in December 2015. See “Item 4. Information on the Company—Business Overview—Acquisition from China TieTong of certain Assets, Businesses and Related Liabilities and Employees.” The aforementioned acquisition was considered as a business combination under common control as CM TieTong and China TieTong are both ultimately controlled by our parent company, China Mobile Communications Corporation, or CMCC. Under IFRSs, such acquisition was accounted for using merger accounting in accordance with the Accounting Guideline 5 “Merger Accounting for Common Control Combinations” (“AG 5”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Accordingly, the acquired Target Assets and Businesses are stated at predecessor values, and were included in the consolidated financial statements from the beginning of the earliest period presented as if Target Assets and Businesses had always been part of the Group. As a result, the Group has restated the 2011, 2012, 2013 and 2014 comparative amounts of the consolidated statements of comprehensive income by including the operating results of Target Assets and Businesses and eliminating its transactions with Target Assets and Businesses, as if the acquisition had been completed on the earliest date of the periods being presented, i.e., January 1, 2011. The consolidated balance sheets of the Group as at December 31, 2011, 2012, 2013 and 2014 was restated to include the assets and liabilities of Target Assets and Businesses. See Note 2(b) to our consolidated financial statements.
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The statistical information set forth in this annual report on Form 20-F relating to Mainland China is taken or derived from various publicly available government publications that havewere not been prepared or independently verified by us. This statistical information may not be consistent with other statistical information from other sources within or outside Mainland China.
As of or for the year ended December 31, | As of or for the year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2008(1) | 2009 | 2010 | 2011 | 2012 | 2012 | 2011 (As restated)(1) | 2012 (As restated) (1) | 2013 (As restated) (1) | 2014 (As restated) (1) | 2015 | 2015 | |||||||||||||||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | US$ | RMB | RMB | RMB | RMB | RMB | US$ | |||||||||||||||||||||||||||||||||||||
(in millions, except share, per share and per ADS information) | (in millions, except share, per share and per ADS information) | |||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Statement of Comprehensive Income Data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenue | 411,810 | 452,103 | 485,231 | 527,999 | 560,413 | 89,952 | 547,286 | 591,006 | 640,048 | 651,509 | 668,335 | 103,173 | ||||||||||||||||||||||||||||||||||||
Operating expenses | 269,415 | 305,095 | 334,477 | 376,700 | 409,891 | 65,792 | 396,541 | 440,317 | 508,624 | 534,189 | 565,413 | 87,285 | ||||||||||||||||||||||||||||||||||||
Profit from operations | 142,395 | 147,008 | 150,754 | 151,299 | 150,522 | 24,160 | 150,745 | 150,689 | 131,424 | 117,320 | 102,922 | 15,888 | ||||||||||||||||||||||||||||||||||||
Profit before taxation | 149,523 | 153,836 | 159,071 | 166,582 | 171,300 | 27,496 | 162,864 | 168,793 | 153,649 | 142,522 | 143,734 | 22,189 | ||||||||||||||||||||||||||||||||||||
Taxation | (36,735 | ) | (38,413 | ) | (39,047 | ) | (40,603 | ) | (41,919 | ) | (6,728 | ) | (40,593 | ) | (41,887 | ) | (36,746 | ) | (33,179 | ) | (35,079 | ) | (5,415 | ) | ||||||||||||||||||||||||
Profit for the year attributable to equity shareholders | 112,627 | 115,166 | 119,640 | 125,870 | 129,274 | 20,750 | 122,162 | 126,799 | 116,791 | 109,218 | 108,539 | 16,756 | ||||||||||||||||||||||||||||||||||||
Basic earnings per share | 5.62 | 5.74 | 5.96 | 6.27 | 6.43 | 1.03 | 6.09 | 6.31 | 5.81 | 5.38 | 5.30 | 0.82 | ||||||||||||||||||||||||||||||||||||
Diluted earnings per share | 5.53 | 5.67 | 5.89 | 6.20 | 6.36 | 1.02 | 6.01 | 6.23 | 5.74 | 5.35 | 5.30 | 0.82 | ||||||||||||||||||||||||||||||||||||
Basic earnings per ADS | 28.10 | 28.71 | 29.82 | 31.36 | 32.17 | 5.16 | 30.44 | 31.56 | 29.05 | 26.91 | 26.51 | 4.09 | ||||||||||||||||||||||||||||||||||||
Diluted earnings per ADS | 27.66 | 28.35 | 29.44 | 30.98 | 31.78 | 5.10 | 30.07 | 31.17 | 28.71 | 26.76 | 26.50 | 4.09 | ||||||||||||||||||||||||||||||||||||
Number of shares utilized in basic earnings per share calculation (in thousands) | 20,068,194 | 20,090,824 | 20,101,232 | 20,293,254 | 20,473,119 | 20,473,119 | ||||||||||||||||||||||||||||||||||||||||||
Number of shares utilized in diluted earnings per share calculation (in thousands) | 20,315,252 | 20,341,516 | 20,343,120 | 20,408,441 | 20,479,706 | 20,479,706 |
-2--3-
2008(1) | 2009 | 2010 | 2011 | 2012 | 2012 | 2011 (As restated) (1) | 2012 (As restated) (1) | 2013 (As restated) (1) | 2014 (As restated) (1) | 2015 | 2015 | |||||||||||||||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | US$ | RMB | RMB | RMB | RMB | RMB | US$ | |||||||||||||||||||||||||||||||||||||
(in millions, except share, per share and per ADS information) | (in millions, except share, per share and per ADS information) | |||||||||||||||||||||||||||||||||||||||||||||||
Number of shares utilized in basic calculation (in thousands) | 20,043,934 | 20,057,674 | 20,062,910 | 20,068,194 | 20,090,824 | 20,090,824 | ||||||||||||||||||||||||||||||||||||||||||
Number of shares utilized in diluted calculation (in thousands) | 20,356,126 | 20,312,459 | 20,321,332 | 20,315,252 | 20,341,516 | 20,341,516 | ||||||||||||||||||||||||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Working capital(3) | 56,561 | 77,500 | 66,202 | 109,441 | 148,797 | 23,884 | ||||||||||||||||||||||||||||||||||||||||||
Working capital(5) | 81,515 | 99,396 | 80,009 | 34,433 | (12,341 | ) | (1,905 | ) | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 87,426 | 78,894 | 87,543 | 86,259 | 70,906 | 11,381 | 89,938 | 75,764 | 51,180 | 73,812 | 79,842 | 12,325 | ||||||||||||||||||||||||||||||||||||
Bank deposits | 130,833 | 185,613 | 204,803 | 246,687 | 331,997 | 53,289 | 247,134 | 332,495 | 375,127 | 353,507 | 323,330 | 49,914 | ||||||||||||||||||||||||||||||||||||
Accounts receivable | 6,913 | 6,405 | 7,632 | 9,165 | 11,722 | 1,882 | 9,642 | 11,918 | 14,083 | 16,715 | 17,743 | 2,739 | ||||||||||||||||||||||||||||||||||||
Property, plant and equipment | 327,783 | 360,075 | 385,296 | 408,165 | 430,509 | 69,101 | 429,836 | 469,627 | 520,571 | 605,023 | 585,631 | 90,406 | ||||||||||||||||||||||||||||||||||||
Total assets | 658,427 | 751,368 | 861,935 | 952,558 | 1,052,109 | 168,875 | 991,935 | 1,110,478 | 1,222,684 | 1,348,035 | 1,427,895 | 220,429 | ||||||||||||||||||||||||||||||||||||
Bonds–current portion(4) | — | — | 4,981 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Bonds–current portion(6) | 800 | — | — | 1,000 | — | — | ||||||||||||||||||||||||||||||||||||||||||
–non-current portion | 9,920 | 9,918 | 4,982 | 4,984 | 4,986 | 800 | 5,984 | 5,986 | 5,989 | 4,992 | 4,995 | 771 | ||||||||||||||||||||||||||||||||||||
Deferred consideration payable(5) | 23,633 | 23,633 | 23,633 | 23,633 | 23,633 | 3,793 | ||||||||||||||||||||||||||||||||||||||||||
Deferred consideration payable(7) | 23,633 | 23,633 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 217,776 | 243,734 | 284,532 | 302,139 | 326,800 | 52,455 | 337,537 | 383,658 | 401,561 | 459,052 | 507,527 | 78,349 | ||||||||||||||||||||||||||||||||||||
Share capital | 2,138 | 2,139 | 2,139 | 2,140 | 2,142 | 344 | ||||||||||||||||||||||||||||||||||||||||||
Share capital(8) | 2,140 | 2,142 | 2,142 | 400,737 | 402,130 | 62,078 | ||||||||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 440,022 | 506,748 | 576,157 | 649,064 | 723,447 | 116,121 | 653,041 | 724,958 | 819,171 | 886,916 | 917,336 | 141,612 | ||||||||||||||||||||||||||||||||||||
Other Financial Data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures and land lease prepayments(6) | 122,814 | 116,675 | 114,338 | 124,414 | 125,024 | 20,068 | ||||||||||||||||||||||||||||||||||||||||||
Capital expenditures and land lease prepayments(9) | (134,353 | ) | (144,362 | ) | (149,121 | ) | (175,701 | ) | (173,693 | ) | (26,814 | ) | ||||||||||||||||||||||||||||||||||||
Net cash generated from operating activities | 193,647 | 207,123 | 231,379 | 226,756 | 230,709 | 37,031 | 227,863 | 233,776 | 226,905 | 216,438 | 235,089 | 36,291 | ||||||||||||||||||||||||||||||||||||
Net cash used in investing activities | (139,026 | ) | (165,927 | ) | (171,572 | ) | (169,356 | ) | (191,176 | ) | (30,686 | ) | (179,477 | ) | (210,447 | ) | (180,122 | ) | (151,230 | ) | (142,743 | ) | (22,036 | ) | ||||||||||||||||||||||||
Net cash used in financing activities | (45,684 | ) | (49,774 | ) | (51,051 | ) | (58,420 | ) | (54,897 | ) | (8,812 | ) | (54,642 | ) | (37,514 | ) | (71,312 | ) | (42,530 | ) | (86,510 | ) | (13,355 | ) | ||||||||||||||||||||||||
Dividend declared | 48,364 | 49,544 | 51,818 | 54,298 | 55,821 | 8,960 | 54,298 | 55,821 | 52,675 | 47,170 | 46,145 | 7,124 | ||||||||||||||||||||||||||||||||||||
Dividend declared per share (RMB) | 2.415 | 2.471 | 2.595 | 2.730 | 2.773 | 0.44 | 2.730 | 2.773 | 2.621 | 2.311 | 2.205 | 0.340 | ||||||||||||||||||||||||||||||||||||
Dividend declared per share (HK$) | 2.743 | 2.804 | 3.014 | 3.327 | 3.411 | 0.44 | 3.327 | 3.411 | 3.311 | 2.920 | 2.721 | 0.340 |
(1) |
(2) | Prior to 2013, the sales of products were incidental to our telecommunications services. In 2013, 2014 and 2015, our sales of products have become more than incidental as a result of our business development, and accordingly we present the revenue from |
(3) | In accordance with requirements of reducing the proportion of labor sourced by third parties that provide services to the Group (“outsourcing labor”) among total labor under “Amendment to Labor Contract Law of the PRC” and its associated rules and regulations, we have made adjustment on the structure of employees and outsourcing labor. Such adjustment leads to the increase in number of employees and the decrease in number of outsourcing labor in 2015. In order to reasonably reflect the composition and fluctuation of employee benefit and related expenses, we present employee benefit and related expenses by combining personnel expenses and labor service expenses, the latter of which was presented under other operating expenses prior to 2015. The comparative figures |
The basic earnings per share have been computed by dividing profit attributable to our equity shareholders by the weighted average number of shares outstanding in |
Represents current assets minus current liabilities. |
The |
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Represents the respective balance of the purchase consideration payable to our immediate holding company for our acquisition of the eight regional mobile telecommunications companies in 2002 and for our acquisition of the ten regional mobile telecommunications companies and other telecommunications assets in 2004. |
Under the new Hong Kong Companies Ordinance (Cap. 622 of the laws of Hong Kong), or the Companies Ordinance, which has been in effect since March 3, 2014, the concept of authorized share capital no longer exists and our shares no longer have a par or nominal value. There is no impact on the number of shares in issue or the relative entitlement of any of our shareholders as a result of this transition. In addition, in accordance with the transitional provisions set forth in Section 37 of Schedule 11 to the Companies Ordinance, any amount standing to the credit of the share premium account has become part of our share capital. |
(9) | Represents payments made for capital expenditures and land lease prepayments during the year and included in net cash used in investing activities. |
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Exchange Rate Information
We publish our consolidated financial statements in Renminbi. Solely for the convenience of the reader, this annual report on Form 20-F contains translations of certain Renminbi and Hong Kong dollar amounts into U.S. dollars and vice versa at RMB6.2301RMB6.4778 = US$1.00 and HK$7.7507 = US$1.00, the noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2012.2015. The noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York are published on a weekly basis in the H.10 statistical release of the Board of Governors of the Federal Reserve System of the United States. These translations should not be construed as representations that the Renminbi or Hong Kong dollar amounts could actually be converted into U.S. dollars at such rates or at all.
The noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York were RMB6.1772RMB6.4571 = US$1.00 and HK$7.76377.7551 = US$1.00, respectively, on April 19, 2013.2016. The following table sets forth the high and low noon buying rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for each month during the previous six months:
Noon Buying Rate
RMB per US$1.00 | HK$ per US$1.00 | |||||||||||||||||
High | Low | High | Low | |||||||||||||||
October 2012 | 6.2877 | 6.2372 | October 2012 | 7.7549 | 7.7494 | |||||||||||||
November 2012 | 6.2454 | 6.2221 | November 2012 | 7.7518 | 7.7493 | |||||||||||||
December 2012 | 6.2502 | 6.2251 | December 2012 | 7.7518 | 7.7493 | |||||||||||||
January 2013 | 6.2303 | 6.2134 | January 2013 | 7.7585 | 7.7503 | |||||||||||||
February 2013 | 6.2438 | 6.2213 | February 2013 | 7.7580 | 7.7531 | |||||||||||||
March 2013 | 6.2246 | 6.2105 | March 2013 | 7.7640 | 7.7551 | |||||||||||||
April 2013 (up to April 19, 2013) | 6.2078 | 6.1720 | April 2013 (up to April 19, 2013) | 7.7652 | 7.7615 |
RMB per US$1.00 | HK$ per US$1.00 | |||||||||||||||||
High | Low | High | Low | |||||||||||||||
October 2015 | 6.3591 | 6.3180 | October 2015 | 7.7503 | 7.7495 | |||||||||||||
November 2015 | 6.3945 | 6.3180 | November 2015 | 7.7526 | 7.7498 | |||||||||||||
December 2015 | 6.4896 | 6.3883 | December 2015 | 7.7527 | 7.7496 | |||||||||||||
January 2016 | 6.5932 | 6.5219 | January 2016 | 7.8270 | 7.7505 | |||||||||||||
February 2016 | 6.5795 | 6.5154 | February 2016 | 7.7969 | 7.7700 | |||||||||||||
March 2016 | 6.5500 | 6.4480 | March 2016 | 7.7745 | 7.7528 | |||||||||||||
April 2016 (up to April 19, 2016) | 6.4810 | 6.4571 | April 2016 (up to April 19, 2016) | 7.7569 | 7.7537 |
The following table sets forth the average noon buying rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars in 2008, 2009, 2010, 2011, 2012, 2013, 2014 and 20122015 calculated by averaging the noon buying rates on the last day of each month during the relevant year.
Average Noon Buying Rate
RMB per US$1.00 | HK$ per US$1.00 | |||||||
2008 | 6.9193 | 7.7814 | ||||||
2009 | 6.8295 | 7.7513 | ||||||
2010 | 6.7603 | 7.7692 | ||||||
2011 | 6.4475 | 7.7793 | ||||||
2012 | 6.2990 | 7.7556 |
RMB per US$1.00 | HK$ per US$1.00 | |||||||
2011 | 6.4475 | 7.7793 | ||||||
2012 | 6.2990 | 7.7556 | ||||||
2013 | 6.1412 | 7.7565 | ||||||
2014 | 6.1704 | 7.7554 | ||||||
2015 | 6.2869 | 7.7519 |
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Risk Factors
We wish to caution readers that theThe following important factors, and those important factors described in our other reports submitted to, or filed with, the SEC, among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf, and that such factors may have a material adverse effect on our business, financial condition, results of operations and prospects as well as the value of our ordinary shares and ADSs.
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Risks Relating to Our Business
We may not be able to maintain the same level of growth as we have experienced over the past decade, which could have a material adverse effect on our financial condition and results of operations as well as our profitability.
We have experienced significant growth over the past decade, measured by the increase in both our customer base and our revenue. However, in certain of the more recent years, ourwe have experienced a lower rate of growth as measured by our revenue, has shown signs of decreasing.and in 2013, 2014 and 2015, we experienced a decrease in profit from operations and net profit compared to the previous years. We cannot assure you that we will be able to achieve a high level of growth in the future due in part to the increased market saturation and competition among mobile telecommunications operators and from other related industries in Mainland China. In particular, according to data published by the Ministry of Industry and Information Technology, or the MIIT, mobile penetration rate in Mainland China reached 82.6%95.5% as of December 31, 2012.2015. Moreover, measures adopted by the restructuring ofPRC government in 2013 that permit certain operators approved by the telecommunications industry in 2008 has significantlyMIIT to lease and repackage mobile services for sale to end customers have changed the competitive landscape in the telecommunications industry in Mainland China and together with the policy adopted by the PRC government to encourage non-State-owned telecommunications services providers to enter into the telecommunications markets, have resulted and will result in further intensified competition among existing industry participants as well as increasing competition from providers offering telecommunications services using alternative technologies, in particular Internet service providers. See “— Competition from other telecommunications services providers and competitors in other related industries may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations.” In addition, the implementation of value-added tax in Mainland China has had, and is expected to continue to have, a short-term negative impact on our operating revenue and profit compared to previous years. See “— Implementation of value-added tax in Mainland China has had, and is expected to continue to have, a negative impact on our operating revenue and profit.” Besides, the introduction of the new national policy of “speed upgrade and tariff reduction” in May 2015 also has had, and is expected to continue to have, a negative impact on our operating revenue and profit compared to the previous years. See “ —Item 4. Information on the Company — Business Overview — Tariffs.” Furthermore, the adjustment of interconnection settlement standards has had, and is expected to continue to have, a negative impact on our revenue and profitability. See “— Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position, which would in turn significantly reduce our revenues and profitability, and our financial condition and results of operations may be materially and adversely affected.”
All of thesethe foregoing factors, among others, have contributed to a slowdown in the growth in demand forof our telecommunications services in Mainland China. As a result,Our costs for the provision of telecommunications services may also increase in order for us to maintain our profit from operations decreased by 0.5% in 2012 and our market share decreased from 66.5% in 2011 to 63.9% in 2012.growth. Our efforts to achieve growth could be hampered and our profitability may decrease if we are unable to compete effectively with other telecommunications services providers and Internet service providers in Mainland China. We cannot assure you that we will be successful in our efforts to achieve a high level of customer growth or to increase the utilization of our telecommunications services. If we are unable to sustain our growth, our financial condition and results of operations as well as our profitability may be materially and adversely affected.
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Competition from other telecommunications services providers and competitors in other related industries may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations.
We continue to face increasing competition from other telecommunications services providers in Mainland China. As a result of the restructuring of the PRC telecommunications industry in 2008, principalPrincipal participants in the telecommunications industry in Mainland China include China United Network Communications Group Company Limited,Co., Ltd., or China Unicom, China Telecommunications Corporation, or China Telecom, and us, with bothus. In January 2016, China Unicom and China Telecom and China Unicom being full-serviceentered into a strategic cooperation agreement to promote resource-sharing in several key aspects of business operations. Such cooperation as contemplated by our two major competitors, if materialized, may significantly change the competitive landscape of telecommunications services providers that operate both fixed-line telecommunications networks and mobile telecommunications networks. See “Item 4. Information on the Company — The History and Development of the Company — Industry Restructuring and Changesindustry in Our Shareholding Structure” andMainland China. For further information, see “Item 4. Information on the Company — Business Overview — Competition.” In addition, the
The PRC government has in the past extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors. See “— Risks Relating to the Telecommunications Industry in Mainland China — Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.position, which would in turn significantly reduce our revenues and profitability, and our financial condition and results of operations may be materially and adversely affected.”
Further increased competition could reduce the rate at which we add new customers to our network and decrease our market share as customers choose to receive mobile telecommunications services from other providers. Our market share decreasedFurthermore, we expect that we will face intense competition in the delivery of 4G services from China Telecom and China Unicom, which have received permits to 63.9% asoperate their 4G services based mainly on FDD mode long-term evolution, or FDD-LTE, technology in 2015. See “— We may encounter difficulties and challenges in developing and implementing TD-LTE technologies and developing our 4G services.” As part of December 31, 2012. Wechanges in our marketing model, we may, depending on the competitive environment, offer more tariff promotions to our customers, which may negatively impact our revenues. As a result of the above, we cannot assure you that we will not experience increases in churn rates as competition intensifies, which may materially reduce our profitability as we may incur significant additional selling expenses to retain existing customers and attract new customers.profitability. Moreover, we cannot assure you that any potential change, and in particular, any further restructuring in the competitive landscape of the telecommunications industry in Mainland China, would not have a material adverse effect on our business, financial condition and results of operations.
Moreover, the PRC government recently publishedhas implemented a seriesnumber of regulationsmeasures that permit certain operators approved by the MIIT to encouragelease and repackage mobile services for sale to end customers. On May 17, 2013, the MIIT announced that it would accept applications from non-State-owned companies to, enter the telecommunications industry. In particular,on a recent draft circular published by the MIIT for public comment would permittrial basis, lease mobile virtual network operators to lease bandwidthservices from China Unicom, China Telecom or us and provide mobile services to end customers after repackaging their bandwidth resources.these services. The trial period ended on December 31, 2015. We may face intense competition from these non-State-owned telecommunications services providersnew mobile network operators in light of such policy and initiativesdecisions by the MIIT.
In addition, the rapid development of new technologies, new services and products, and new business models has begunparticular, increased competition may cause tariff rates to eliminate the distinctions between traditional, local, long distance, wireless, cable and Internet communication services and bring new competitors into the telecommunications market. As a result, we are subject to increasing competition from providers offering telecommunications services using alternative technologies. These new competitors,decline significantly, which include Internet service providers, mobile device manufacturers and mobile software and application developers, compete against us in both voice and data businesses by offering mobile Internet access, alternative voice and messaging services and other mobile services and are gaining an increasing share of the telecommunications industry value chain. See “— Changes in technology and business models may render our current technologies and business model obsolete and intensify competition from telecommunications services providers that use alternative technologies, which could materially and adversely affect on our business, financial condition and market position.”results of operations.
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Our ability to compete effectively also will depend on how successfully we respond to various factors affecting the telecommunications industry in Mainland China, including new technologies and business models, changes in consumer preferences and demand for existing services. We cannot assure you that the measures we are taking in response to these competitive challenges will achieve the expected results.
Implementation of value-added tax in Mainland China has had, and is expected to continue to have, a negative impact on our operating revenue and profit.
Our business operations in China are currently subject to PRC value-added tax, or VAT. On November 16, 2011, the Ministry of Finance and the State Administration of Taxation issued a pilot tax program under which VAT instead of business tax will be levied on the provision of certain services that were previously subject to business tax in China. The TD-SCDMAtelecommunications industry chain requires further development. became subject to the pilot tax program effective from June 1, 2014. For telecommunications enterprises, our output VAT rate for the provision of basic telecommunications services (including voice communication, lease or sale of network resources) is 11%, while our output VAT rate for the provision of value-added telecommunications services (including Internet access services, short and multimedia messaging services, transmission and application service of electronic data and information) is 6%. Our output VAT for sales of telecommunications terminals and equipment is 17%. Our input VAT rate depends on the type of services received and the assets purchased as well as the VAT rate applicable to a specific industry, and ranges from 6% to 17%. For comparison, business tax applicable to us prior to June 1, 2014 was at 3% imposed on the revenue.
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As the operating revenue is presented in our financial statements after excluding any output VAT in accordance with IFRS, the implementation of VAT has a negative impact on our revenue. Our input VAT, which is incurred as a result we have encounteredof our receipt of services and may continuepurchases of telecommunications equipment and materials, is excluded from operating expenses or the original cost of equipment purchased and can be netted against our output VAT, arriving at the net amount of VAT recoverable or payable. To the extent that the decrease in our operating revenue is larger than the decrease in our operating expenses due to encounter challengesthe implementation of VAT in the deploymentPRC telecommunications industry, there is a negative impact on our net profit. Our operating revenue and net profit in 2014 and 2015 were adversely affected by the implementation of our 3G services.
We are committed to developing our 3G business based on the Time Division Synchronous Code Division Multiple Access, or TD-SCDMA, technology. As a result, our ability to deploy and deliver our 3G services depends, to a large extent, on the TD-SCDMA technology. The TD-SCDMA industry chain has undergone substantial development in 2012. However, if the evolution of the TD-SCDMA industry chain does not meet the requirements of the operation of our 3G business, we may not be able to effectively and economically deliver our 3G services based on this technology. Furthermore, we face intense competition in the delivery of 3G services from our competitors, which are delivering 3G services using Wideband Code Division Multiple Access, or WCDMA, and Code Division Multiple Access 2000, or CDMA 2000, technologies, both of which are perceived to be more mature 3G technologies that have been used widely in western Europe and the United States and may offer more effective global roaming or other services to customers. If the TD-SCDMA technology proves not to be as competitive as the WCDMA or CDMA 2000 technology, or otherwise ends up not being widely adopted, our ability to attract and retain customers or offer services to our customers may be limited, our business and prospects may suffer and our revenues and profitability could be materially and adversely affected. We may not be able to successfully overcome our current challenges and may encounter new challenges in the development of our 3G business, and the deployment of our 3G services may not proceed according to anticipated schedules.
In addition, we have made substantial investments and incurred significant expenses in the development of our 3G services, including the leasing of network capacity from our parent company, China Mobile Communications Corporation, or CMCC, and the development of our 3G market. We expect to continue making significant investments in the construction of our core mobile telecommunications network and related systems and facilities, which we intend to use for our services based on current and future generations of telecommunications technologies. Accordingly, the amount of our capital expenditures in future years could remain high.VAT. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Expenditures” for more informationResults of Operations.” We expect that the implementation of VAT will continue to have a negative impact on our expected capital expenditures. Ifoperating revenue and profit in the deploymentshort term. Furthermore, the impact from the implementation of VAT, such as the degree to which the VAT input credits may offset VAT output tax obligation, may cause our reported financial information not necessarily indicative of our 3G business does not reach anticipated scale,future operating results or if we encounter other challengesfinancial condition. See “Item 4. Information on the Company — Business Overview — Regulation — VAT Reform Application to the Telecommunications Industry.”
Our financial condition and results of operations have been adversely affected by the reduction in tariffs as a result of PRC national policies, and may continue to be affected by further reduction in tariffs due to future policy developments in the provision oftelecommunications industry.
From time to time, we need to adjust our 3G services, our ability to realize benefits from our significant capital investmenttariff plans in our networksaccordance with PRC national policies, and 3G services will be limited, which couldsuch adjustments may have a material negative impact on our revenue and profitability. In May 2015, the PRC government introduced the new national policy of “speed upgrade and tariff reduction”. Since May 2015, in response to the expectations of the general public and customers and in order to implement the said national policy, we, in addition to continue enhancing network capacity and increasing network speed, offered discounts to our tariff plans. In addition, in October 2015, we launched an unused data traffic carry-over program for our mobile monthly plans that are charged based on pre-determined data traffic, according to which customers could carry over their monthly plan’s remaining unused data traffic to the following month. Furthermore, in light of the national policy of achieving coordinated development of Beijing Municipality, Tianjin Municipality and Hebei Province issued by the PRC government, we cancelled the long-distance and roaming tariffs for voice services within the tariff zones of Beijing Municipality, Tianjin Municipality and Hebei Province in August 2015 so that our customers are only charged with local usage tariff for our voice services provided within the tariff zones. See “Item 4. Information on the Company — Business Overview — Tariffs.” Such measures have resulted in reduced tariffs of our data traffic services and voice services in 2015, which in turn had a negative impact on our revenue and profitability. We believe that any prospective reduction in tariffs could continue to have an adverse effectimpact on our financial condition and results of operations. Furthermore, we cannot assure you that we would not be required to further reduce our tariffs or make other initiatives to further implement the national policy of “speed upgrade and tariff reduction” or other similar national policies, which may materially and adversely affect our financial condition and results of operations.
Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position, which would in turn significantly reduce our revenues and profitability, and our financial condition and results of operations may be materially and adversely affected.
The PRC government has extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors to us. For example, the MIIT has decided to make asymmetrical changes, effective January 1, 2014, to the public telecommunications network interconnection settlement standards of basic telecommunications operators in Mainland China. As a result of these changes, when mobile users of China Telecom and China Unicom and our mobile users in Mainland China (excluding TD-SCDMA users with certain specified prefix numbers) make calls to each other, the settlement charges payable by China Telecom and China Unicom to us were adjusted from RMB0.06/minute to RMB0.04/minute, while the settlement charges payable by us to China Telecom and China Unicom remained at RMB0.06/minute. The MIIT will assess the above interconnection settlement policy once every two years based on the development conditions of the telecommunications market and will make adjustments when appropriate. See “Item 4. Information on the Company — Business Overview —Interconnection.” In addition, the MIIT has expanded the mobile number portability policy that has been implemented in Tianjin Municipality and Hainan Province to Jiangxi Province, Hubei Province and Yunnan Province. The PRC government may continue to expand the implementation of the mobile number portability policy to other areas of Mainland China. The implementation and expansion of the mobile number portability policy may have a greater impact on us, as a leading operator, than on our competitors.
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The PRC government has adopted other regulatory measures that may encourage competition in the telecommunications industry. For example, the PRC government recently implemented a number of measures that permit certain operators approved by the MIIT to lease and repackage mobile services for sale to end customers. On May 17, 2013, the MIIT announced that it would accept applications from non-State-owned companies to, on a trial basis, lease mobile services from China Unicom, China Telecom or us and provide mobile services to end customers after repackaging these services. In recent years, the PRC governmental authorities have taken more stringent measures to enforce the PRC Anti-Monopoly Law, such as the anti-monopoly investigation in 2012 undertaken by NDRC, which remains ongoing, of other PRC telecommunication companies over certain pricing practices with respect to Internet dedicated leased line services provided by them to Internet service providers. Any amendments to the PRC Anti-Monopoly Law or any changes to the PRC anti-unfair competition regime, in particular those on the telecommunications industry, may subject us to more stringent anti-monopoly and anti-unfair competition regulation. As a result of the regulatory measures, the competitive landscape in the PRC telecommunications industry may further diversify, causing more intensified competition. The implementation of asymmetrical and other regulatory measures could materially harm our competitive position, which could in turn significantly reduce our revenues and profitability, and our financial condition and results of operations also may be materially and adversely affected.
We may encounter difficulties and challenges in developing and implementing TD-LTE technologies and developing our 4G services.
We are committed to pursuingdeveloping and conducting our 4G business based on the TDD mode long-term evolution, or TD-LTE, technology. Starting fromOn December 4, 2013, the MIIT granted to CMCC, China Telecom and China Unicom permissions to operate TD-LTE businesses, and CMCC received permission to operate a TD-LTE business through us. We have subsequently launched our 4G services and rapidly expanded our 4G network. As of March 31, 2016, the number of 4G customers reached 376.5 million. However, we expect that we will bear all capital expenditures forcontinue to face intense competition in the developmentdelivery of TD-LTE networks. In 2012, the extended large scale trial of TD-LTE networks was carried out in 15 cities in Mainland China and the quality and scale of the TD-LTE networks in Hangzhou, Guangzhou and Shenzhen have reached pre-commercial standard. We plan to construct more than 200,000 TD-LTE base stations in 2013. However, our ability to successfully launch and deploy 4G services dependsfrom China Telecom and China Unicom, which have received permits to operate their 4G services based mainly on various factors, including the maturity level ofFDD-LTE technology. Since FDD-LTE technology is more widely used globally than TD-LTE technology and availabilityenjoys more mature value chains, we expect that our competitors’ use of terminals as well as required licenses. We may encounter unexpected technological difficulties and risks in developing and implementing new telecommunications technologies, including TD-LTEFDD-LTE technology and as a result may incur substantial cost or service disruptions, which could have a material adverse effect onwill continue to pose competitive challenges to our business, financial condition, results of operations and prospects. We may also encounter limited availability of terminals, such as handsets, data cards and other terminals such as MiFi, which is a wireless router acting as mobile Wi-Fi hotspot, and customer-premises equipment, to meet the demand of our business development based on TD-LTE technology. Furthermore, we will require a license from the MIIT to operate our business based on TD-LTE technology and we cannot assure you whether, when and on what conditions we will be able to obtain this license. See “— Risks Relating to the Telecommunications Industry in Mainland China — We are subject to extensive government regulation and may be materially affected by any change in the regulatory environment, especially in the telecommunications industry, in the PRC.”4G business. As a result, we cannot assure you that the expansion or upgrade plan to implement theour implementation of TD-LTE technology and provision of telecommunications services based on TD-LTE technology will achieve the expected results, or that we will be able to launch telecommunications services based on the TD-LTE technology in a commercially viable manner and on a timely basis, or at all.results.
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In addition, we expect to make substantial investments in the development of our 4G services, including construction of infrastructure networks and base stations. Accordingly, the amount of our capital expenditures in future years could remain high. We incurred capital expenditures of approximately RMB79.1 billion in connection with 4G networks in 2015, and we estimate to incur capital expenditures of approximately RMB75.7 billion in 2016 for the same purpose. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Expenditures” for more information on our expected capital expenditures. If we are unable to launchprovide 4G services in a commercially viable manner, and on a timely basis, our ability to realize benefits from our significant capital investment and expenses in our networks and 4G services will be limited, and our operating revenue and profit from operations could decrease materially.
There remain uncertainties in connection with the future operation of the China Tower Corporation Limited (or China Tower, formerly known as China Communications Facilities Services Corporation Limited).
China Tower was established in July 2014 by China Mobile Communication Co., Ltd. or CMC, our wholly-owned subsidiary, China United Network Communications Corporation Limited, a wholly-owned subsidiary of China Unicom (Hong Kong) Limited, or China Unicom, and China Telecom Corporation Limited, or China Telecom for, among others, the construction, maintenance and operation of telecommunications towers, the construction, maintenance and operation of ancillary facilities and the maintenance of base station equipment. On October 14, 2015, CMC entered into an agreement on transfer of telecommunications towers and related assets for issuance of consideration shares and payment in cash, or the Transaction Agreement, with China United Network Communications Corporation Limited, China Telecom Corporation Limited, China Reform Holdings Corporation Ltd. and China Tower, pursuant to which CMC, China United Network Communications Corporation Limited and China Telecom Corporation Limited shall transfer their telecommunications towers and related assets to China Tower, and China Reform Corporation shall subscribe for new shares in China Tower in cash. The transfer of telecommunications towers and related assets was completed on October 31, 2015. As of March 31, 2016, we indirectly owned 38% equity interest in China Tower through CMC. We are in the process of negotiating the definitive usage arrangements with China Tower with respect to telecommunications towers. See “Item 4. Information on the Company — The History and Development of the Company — Industry Restructuring and Changes in Our Shareholding Structure.”
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The purpose of establishing China Tower is to reduce the overall capital expenditure and operational costs and redundant projects of the three major telecommunications operators and to improve network coverage of the operators. However, because the operations of China Tower are still at a preliminary stage and we do not control China Tower, China Tower may not act in the best interests of us, and there are uncertainties as to whether the services of China Tower can sufficiently support our business needs and plans, in particular, our plan to expand our 4G business, and whether China Tower can fulfill any usage arrangements to be agreed with us and properly operate, maintain and manage its assets.
Furthermore, since it is expected that none of us, China Unicom or China Telecom will construct any telecommunications tower after the establishment of China Tower, our business will rely on any usage arrangements with China Tower. We cannot assure you that we are able to use telecommunications towers and related assets on terms and conditions we desire. In particular, according to our preliminary discussion with China Tower, certain factors affecting usage pricing under discussion may be beyond our control, including inflation, real estate market and steel price fluctuation. In addition, the usage arrangements under discussion may provide for a pricing adjustment mechanism under which the fees to be charged to CMC may be adjusted upon the negotiation of the parties after considering all relevant facts and circumstances if there is a material change in the actual operations, operating data and forecast of China Tower. In addition, establishment of China Tower may allow our competitors to expand their 4G networks and businesses at a faster pace, which may, in turn, reduce our competitive advantages. Failure of China Tower to fulfill any usage arrangements to be agreed with us or properly operate, maintain and manage its assets or to provide stable services to us could adversely affect the quality of our networks, which may materially and adversely affected.affect our business or competitiveness, as well as our financial condition and results of operations.
Rapid development of new technologies, new services and products, and new business models, including Over The Top products such as instant voice and messaging services, may have a material adverse effect on our business, financial condition and results of operations.
The rapid development of new technologies, new services and products, and new business models has resulted in distinctions between local, long-distance, wireless, cable and Internet communication services being lessened and has brought new competitors into the telecommunications market. As a result, we are subject to increasing competition from non-traditional telecommunications services providers, such as Internet service providers, mobile software and applications developers and equipment vendors, as they gain an increasing share of the telecommunications industry value chain. These new competitors compete against us in both voice and data businesses by offering mobile Internet access, Over The Top products such as instant voice and messaging services, and other mobile services. See “— Changes in technology and business models may render our current technologies and business model obsolete and intensify competition from telecommunications services providers that use alternative technologies, which could materially and adversely affect our business and market position.”
Revenue generated from wireless data traffic grew substantially in 2015, partly due to continued increased penetration of smartphones and improvements in our services provided on our upgraded networks with the development of our 4G technology and services. However, there is no guarantee that our wireless data traffic business will continue to grow rapidly or that any increase in revenue generated from wireless data traffic will offset any decrease in our voice services revenue and revenue generated from SMS and MMS and other services. We cannot assure you that the measures we are taking in response to these challenges will achieve the results we expect.
We face a number of risks relating to our Internet-related services.
We currently provide certain Internet-related services, including mobile Internet, digital services and certain applications and information services. We face a number of risks in providing these services.
Our network may be vulnerable to unauthorized access, computer viruses and other disruptive problems. We cannot assure you that the security measures we have implemented will not be circumvented or otherwise can fully protect the integrity of our network, including our mobile network. Unauthorized access could jeopardize the security of confidential information stored in our customers’ computer systems and mobile phone systems and may subject us to litigation, liabilities for information loss and/or reputational damage. Eliminating computer viruses and other security problems may also require interruptions, delays or suspension of our services, reduce our customer satisfaction and cause us to incur costs.
In addition, because we provide connections to the Internet and host websites for customers and develop Internet content and applications, we may be perceived as being associated with the content carried over our network or displayed on websites that we host. We cannot and do not screen all of such content and may face litigations due to a perceived association with such content. These types of litigations have been brought against other providers of online services in the past. Regardless of the merits of the litigations, they can be costly to defend, divert management resources and attention, and may damage our reputation.
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Moreover, the development of our Internet-related services depends on our ability to continue to expand and innovate our Internet-related services. If we cannot develop or expand our Internet-related services as we anticipated, or if we develop or expand our Internet-related services at a pace slower than that of our competitors, our Internet-related services may not be as successful and we may not be able to maintain steady growth in our revenue from our Internet-related services.
Failure to capitalize on new business opportunities may substantially reduce our growth potential.
We may pursue acquisitions or otherwise make investments in other business opportunities as such opportunities arise. We cannot assure you that we will be successful in pursuing such acquisitions or investments or will otherwise be able to successfully integrate any acquired business into our existing operations. Our ability to capture new business opportunities may also depend on the availability of sufficient financing from internal as well as external sources. Any failure to capitalize on new business opportunities may have a material adverse effect onmaterially harm our competitive position, as well as materially reduce our future profitability and growth.
In October 2010, we,We through our wholly-owned subsidiary China Mobile Group Guangdong Co., Ltd., or Guangdong Mobile, acquired 20% of the enlarged share capital ofhold a 18.98% equity interest in Shanghai Pudong Development Bank, or SPD Bank for an aggregate amountas of RMB39.5 billion (approximately US$6.0 billion). In connection with this acquisition, we entered intoMarch 31, 2016. We also have a strategic cooperation agreement with SPD Bank, in November 2010, pursuant to which we will cooperate with SPD Bank in the areas of mobileInternet finance and mobile e-Commerce businesses such as mobile payment which includes on-site payment and remote payment as well as in the sharing of customers services and channels resources.businesses. See “Item 4. Information on the Company — Business Overview — Investment in,Investments and strategic cooperation with, SPD Bank.Acquisitions.” SPD Bank’s profitability is impacted to some extent by macroeconomic conditions and changes in monetary and fiscal policies in Mainland China, and we cannot assure you that our investment in SPD Bank will achieve the desired level of return. In addition, any strategic cooperation may not produce the intended benefits due to a number of factors, some of which are beyond our control, including the lack of a well-developed consumer market for mobile e-Commerce in Mainland China. If we encounter difficulties in carrying out our cooperation with SPD Bank, the prospects of the mobileInternet finance and mobile e-Commercepayment businesses contemplated to be jointly developed by us and SPD Bank may be materially and adversely affected. Furthermore, expected benefits from our investment in networks, licenses and new technologies may not be realized.
In 2011,August 2012, CMC entered into a share subscription agreement with IFLYTEK CO., LTD., or IFLYTEK, a company listed on the Shenzhen Stock Exchange. The share subscription was completed on April 24, 2013. Concurrent with the share subscription, we and IFLYTEK also entered into a strategic cooperation agreement and, in December 2015, renewed the agreement to cooperate in various areas, including smart voice businesses, content-based businesses, customer services, basic telecommunications businesses and informatization of the telecommunications industry and other areas upon the parties’ written agreement. In collaboration with IFLYTEK, we launched “Lingxi”, a smart voice assistant application. We cannot assure you that our investment in IFLYTEK will achieve the desired level of return or the strategic cooperation will produce the expected benefits, if at all.
In June 2014, China Mobile International Holdings Limited, or CMI Holdings, our wholly-owned subsidiary, entered into a share subscription agreement with True Corporation Public Company Limited, or True Corporation, a major national telecommunications provider in Thailand, pursuant to which CMI Holdings agreed to subscribe for ordinary shares of True Corporation representing, following the completion of the subscription, 18% of the total issued and outstanding shares of True Corporation, for a total consideration of Baht 28.57 billion (approximately RMB5.51 billion). The subscription was completed in September 2014. Also in June 2014, we entered into a cooperation memorandum, and, in September 2014, we entered into a strategic cooperation agreement with True Corporation to explore business cooperation opportunities in various areas, including products or value-added services or contents, international businesses, network, device procurement, general procurement and human resources. We cannot assure you that our investment in True Corporation will achieve the desired level of return or that the intended cooperation will produce the expected benefits, if at all.
In May 2015, CMC entered into a partnership agreement with State Development & Investment Corp., or SDIC and China Mobile Fund Management Co., Ltd., or CMFM, to establish China Mobile Fund, to make investments in companies with growth potential which are engaged in the mobile Internet and related upstream and downstream businesses. Pursuant to such partnership agreement, CMC has made capital commitments of RMB1,500 million and has become a limited partner of China Mobile Fund. As of December 31, 2015, CMC had contributed RMB360 million to China Mobile Fund and had a commitment to make a further investment in the amount of RMB1,140 million upon the request by China Mobile Fund. We cannot assure you that China Mobile Fund will achieve the desired level of return.
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In November 2015, China Mobile TieTong Company Limited, or CM TieTong, our wholly-owned subsidiary, entered into an agreement on transfer of business and assets of China TieTong Telecommunications Corporation, or the Acquisition Agreement, with China TieTong Telecommunications Corporation, or China TieTong, a company engaging in wireline broadband telecommunications operations and a wholly-owned subsidiary of CMCC, pursuant to which CM TieTong has agreed to acquire Target Assets and Businesses of China TieTong, for a final consideration of RMB31,967 million. The acquisition was completed in December 2015. We expect that our acquisition of Target Assets and Businesses from China TieTong will facilitate our transformation into a full service operator offering both fixed-line and mobile services, enable us to seize the opportunities in the wireline broadband market, expand our customer base, offer integrated services consisting of the wireline broadband and the mobile services, and increase our wireline broadband network capacity, coverage and efficiency through an integrated network. We cannot assure you that such acquisition of Target Assets and Businesses from China TieTong will achieve the desired level of return or otherwise produce the expected benefits, if at all, and that our plan of achieving integrated development of wireline broadband and mobile services will be successful or we can maintain steady growth in our revenue from our wireline broadband services.
We have established certain subsidiaries to operate certain aspects of our businesses,carry out specialized operations, such as procuring and distributing terminals through China Mobile Group Device Company Limited, or China Mobile Device, and conducting our international businesses through China Mobile International Company Limited, or China Mobile International, China Mobile M2M Company Limited, China Mobile Online Services Company Limited, China Mobile (Suzhou) Software Technology Company Limited, China Mobile (Hangzhou) Information Technology Company Limited, MIGU Company Limited and China Mobile Internet Co., Ltd., and we expect to further enhance our operational efficiency by establishing other subsidiaries that operate certain other aspects of our businesses. We cannot assure you, however, that this business model would be sustainable or that we will achieve the expected benefits.
In August 2012, China Mobile Communication Co., Ltd., or CMC, our wholly-owned subsidiary, entered into a share subscription agreement with Anhui USTC iFLYTEK Co., Ltd., or Anhui USTC, a company listed on the Shenzhen Stock Exchange, pursuant to which CMC would subscribe for 15% of the shares of Anhui USTC for an aggregate subscription price of RMB1,363,314,339 (approximately US$218,827,040). The share subscription was completed on April 24, 2013. Concurrent with the share subscription, we and Anhui USTC also entered into a strategic cooperation agreement to cooperate in various areas, including smart voice portals, smart voice cloud services, smart voice technologies and product innovations, applications in relation to customer services and basic telecommunications businesses and informatization of the telecommunications industry. We cannot assure you that our investment in Anhui USTC will achieve the desired level of return or the strategic cooperation will produce the expected benefits, if at all.
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Changes in technology and business models may render our current technologies and business model obsolete and intensify competition from providers offering telecommunications services using alternative technologies, which could materially and adversely affect our business and market position.
In recent years, the telecommunications industry in Mainland China has been characterized by rapidly changing and increasingly complex technologies. Accordingly, although we strive to keep our technologies up to international standards, the mobile telecommunications technologies that we currently employ may become obsolete. In addition, the development and application of new technologies involve time, substantial costs and risks. We may encounter unexpected technological difficulties in developing and implementing new technologies and, as a result, may incur substantial costs or services disruptions, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Moreover, the rapid development of new technologies, new services and products and new business models has also accelerated the convergence of traditional, local, long distance,long-distance, wireless, cable and Internet communication services and resulted in new competitors entering the telecommunications market. AsSee “— Rapid development of new technologies, new services and products, and new business models, including Over The Top products such as instant voice and messaging services, may have a result, we are subject to increasing competition from providers offering telecommunications services using alternative technologies, including Internet service providers, mobile device manufacturersmaterial adverse effect on our business, financial condition and mobile software and application developers. For example, due to the increasing competition from Internet instant messaging applications, revenue generated from SMS and MMS decreased by 4.8% from RMB46,462 million in 2011 to RMB44,215 million in 2012. The growth rateresults of our voice usage has also decreased, partly due to competition from providers offering alternative voice services through the Internet. operations.”
The intensified competitive landscape requires us to implement new technologies and develop new businesses in order to adapt to and maintain our share of the evolving value chain of the telecommunications industry in Mainland China. Furthermore,In order to meet the challenges posed by changes in technology and business models, we have striven to promote the development and transition from voice to data traffic operations, from mobile communication services to innovative full services, and from communication services to digital services. However, as the implementation of the components of our strategy, as well as the development of new businesses, such as mobile Internet, “InternetInternet of Things”Things and cloud computing, require significant time, costsfinancial and risk,other resources and involve substantial risks, we may not be able to successfully implement the components of our strategy, launch or develop such new businesses within a short time period, or otherwise achieve the expected benefits.
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SubstantialWe cannot assure you that our continued investments in the construction of our infrastructure network may adequately address the issues resulting from the substantial increases in data traffic significantly strainsor otherwise achieve the existing capacity of our telecommunications network infrastructures.desired economic returns.
Our wireless data traffic business has experienced significant growth in recent years, which contributed to the growth of our operating revenue and provides our business with further opportunities for development. In particular, wirelessaddition, we have launched our TD-LTE services, which are expected to drive further growth in data traffic increased from 361.4 billion megabytes in 2011 to 1,039.2 billion megabytes in 2012. Revenue generated from wireless data traffic business also increased by 53.6% in 2012.traffic. The continued substantial increase in data traffic resulting from the growth of our wireless data traffic business, our TD-LTE business and the proliferation of smartphones significantly strains the existing capacity of our telecommunications network infrastructure. As a result, we have made and will continue to make substantial investments in the construction of our infrastructure network, including our TD-LTE infrastructure, to carry the increasing data traffic. We cannot assure you that these investments would successfully address the issues resulting from the substantial increases in data traffic or otherwise achieve the desired economic returns.
Any failure to achieve and maintain effective internal controls could have a material adverse effect on our reputation, business, results of operations and the market prices of our shares and ADSs.
Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to prevent fraud. We are required to comply with various Hong Kong and U.S. laws, rules and regulations on internal controls, including the Sarbanes-Oxley Act of 2002. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting in our annual reports on Form 20-F that contains an assessment by our management of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm must issue an auditor’s report on the effectiveness of our internal control over financial reporting.
Internal controls may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. In addition, projections of any evaluation of the effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in operating conditions or a deterioration in the degree of compliance with our policies or procedures. As a result, even effective internal controls canare able to provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal control over financial reporting, our management may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may disagree. If our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which our controls are designed or operated, or if the independent registered public accounting firm interprets the requirements, rules or regulations differently from us, it may decline to express an opinion on the effectiveness of our internal control over financial reporting or may issue an adverse opinion. Any of these possible outcomes could result in a loss of investor confidence in the reliability of our consolidated financial statements, which could cause the market prices of our ordinary shares and ADSs to decline significantly. In addition, any deficiency in our internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the New York Stock Exchange, regulatory investigations and civil or criminal sanctions.
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WeSome employee misconduct, including misconduct by senior management, may not be able todetected or prevented in a timely detect or prevent employee misconduct, including senior management,manner, and such misconduct may damage our reputation and could cause the trading price of our ordinary shares and ADSs to decrease.decrease significantly.
In recent years, certainCertain of the management personnel of our company and our subsidiaries including certain executive directors, were alleged to have engaged in unlawful conduct.conduct in recent periods. Such allegations of unlawful conduct include the acceptance of bribes. While some of these incidents are still under investigation, we believe that such management misconduct involvedare isolated incidents resulting from individual misconduct.
In order to further strengthen our internal system and policies for detecting and preventing similar and other misconduct, we have re-examined our policies and procedures and have implemented additional operational measures. In particular, with respect to our business cooperation arrangements with third parties, we have adjusted the model of business cooperation and have implemented more stringent policies and processes. These efforts are expected to reduce the abilityprobability of third parties to engageengaging in improper business relationships with our employees. We have also further expanded the type of equipment, products and productsservices that are subject to centralized procurement. Furthermore, we have implemented a rotation policy under which the management of our major operating subsidiaries will rotate among different subsidiaries every few years. In addition, we have revised our policy in relation to, and strengthened control over, the material investment projects. We have also provided ongoing compliance and ethics trainings to our employees.
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As described above, we have taken various measures to prevent employee misconduct. We cannot assure you, however, that we will timely detect or prevent misconductall misconducts or allegations of misconduct by our management and staff.staff will be detected or prevented in a timely manner. If various measures we have taken prove ineffective in preventing employee misconduct, our reputation may be severely harmed, and the trading price of our ordinary shares and ADSs could decrease significantly.
We are controlled by CMCC, which may not always act in our best interest.
As of March 31, 2013,2016, CMCC indirectly owned approximately 74.08%72.72% of our outstanding shares. Accordingly, CMCC is, and will be, able to (i) nominate substantially all of the members of our board of directors and, in turn, indirectly influence the selection of our senior management; (ii) control the timing and amount of our dividend payments; and (iii) otherwise control or influence actions that require approvals of our shareholders.
The interests of CMCC as our ultimate controlling person may conflict with the interests of our minority shareholders. In particular, CMCC may take actions with respect to our business that may not be in our other shareholders’ best interest.
In addition, CMCC provides our operating subsidiaries in Mainland China with services that are necessary for our business activities. See “Item 5. Operating and Financial Review and Prospects — Prospects—Overview of Our Operations — Operations—Our Operating Arrangements with CMCC Have Affected and May Continue to Affect Our Financial Results.” Furthermore, we operate our 3G businessand 4G businesses pursuant to arrangements with CMCC, which was granted a licenselicenses by the PRC government to operate a 3G business based on the TD-SCDMA technology and a 4G business based on TD-LTE technology. The interests of CMCC as the provider of these services to our operating subsidiaries in Mainland China may conflict with the interests of us or our other shareholders.
We may conduct a public offering and listing of our shares in Mainland China, which may result in increased regulatory scrutiny and compliance costs as well as increased fluctuations in the prices of our ordinary shares and ADSs listed in overseas markets.
We may conduct a public offering and listing of our shares on a stock exchange in Mainland China. We have not set a specific timetable or decided on any specific form for an offering in the PRC. The precise timing of the offering and listing of our shares in Mainland China would depend on a number of factors, including relevant regulatory developments and market conditions. If we complete a public offering in Mainland China, we would become subject to the applicable laws, rules and regulations governing public companies listed in Mainland China, in addition to the various laws, rules and regulations that we are currently subject to in the Hong Kong Special Administrative Region of the People’s Republic of China, or Hong Kong and the United States. The listing and trading of our securities in multiple jurisdictions and multiple markets may lead to increased compliance costs for us, and we may face the risk of significant intervention by regulatory authorities in these jurisdictions and markets.
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In addition, under the current PRC laws, rules and regulations, our ordinary shares listed on The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange, will not be interchangeable or fungible with any shares we may decide to list on a Mainland China stock exchange, and there is no trading or settlement between these two markets. Furthermore, these two markets have different trading characteristics and investor bases, including different levels of retail and institutional participation. As a result, of these differences, the trading prices of our ordinary shares listed on the Hong Kong Stock Exchange may not be the same as the trading prices of any shares we may decide to list on a Mainland China stock exchange. The issuance of a separate class of shares and fluctuations in its trading price may also lead to increased volatility in, and may otherwise materially and adversely affect, the prices of our ordinary shares and ADSs listed in overseas markets.
On November 17, 2014, the China Securities Regulatory Commission, or the CSRC, and the Hong Kong Securities and Futures Commission, or the SFC, launched a pilot scheme to allow investors in Mainland China to trade shares in designated companies listed on the Hong Kong Stock Exchange, including constituent stocks of the Hang Seng Composite LargeCap Indexes such as our ordinary shares, subject to certain quota limitations. We cannot predict the impact that this initiative will have on cross-border investment by investors in Mainland China or on the trading prices of our ordinary shares and ADSs.
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Our future network capacity growth may be constrained by the frequency spectrum available to us.
Mobile telecommunications network capacity is to a certain extent limited by the amount of frequency spectrum available for its use. Since the MIIT controls the allocation of frequency spectrum to mobile telecommunications operators in Mainland China, the capacity of our mobile telecommunications network is limited by the amount of spectrum that the MIIT allocates to our parent company, CMCC. For our GSM network, the MIIT has allocated a total of 45x2 MHz of spectrum to be used for transmission and reception, respectively, to our parent company, CMCC. Of the 45x2 MHz of spectrum allocated to us, 40x2 MHz in the 900 MHz and 1800 MHZMHz frequency bands is allocatedto be used nationwide for use nationwide,transmission and 5x2 MHz in the 1800 MHz frequency band is allocated for use in the cities of Beijing, Shanghai and Chengdu and Guangdong province.reception to our parent company, CMCC. In connection with our 3G business, the MIIT has allocated to CMCC, in various frequency bands, a total of 35 MHz of spectrum to be used for nationwide coverage and an additional 50 MHz of spectrum to be used for indoor coverage. In connection with our 4G business, the MIIT has allocated to CMCC, in various frequency bands, a total of 145 MHz of spectrum to be used for nationwide coverage, including 20 MHz of spectrum previously allocated for use by our 3G business for outdoor coverage and 50 MHz of spectrum previously allocated for use by our 3G business for indoor coverage. Under the existing agreement between CMCC and us, we have the right to use the allocated frequency spectrum in Mainland China.
We believe that our current spectrum allocation is sufficient for anticipated customer growth in the near term. However, we may need additional spectrum to accommodate future customer growth or to further develop our 4G services. We cannot assure you that when we are ready to launch commercial 4G services, we will be able to obtain additional spectrum from the MIIT that would meet our expectations or business needs on a timely basis. Our network expansion or upgrade plans may be affected if we are unable to obtain additional spectrum. This could in turn constrain our future network capacity growth and materially and adversely affect our business and prospects as well as our financial condition and results of operations.
Since our services require interconnection with networks of other operators, disruption in interconnections with those networks could have a material adverse effect on our business, profitability and growth.
Our mobile telecommunications services depend, in large part, upon our interconnection arrangements and access to other networks. Interconnection is necessary in the case of all calls between our customers and customers of other networks. We have entered into interconnection and transmission line leasing agreements with other operators. Any disruption onin our interconnection with the networks of other operators with which we interconnect due to technical or competitive reasons may affect our operations, service quality and customer satisfaction, and in turn our business and results of operations. In addition, any obstacles in existing interconnection arrangements and leased line agreements or any change in their terms, as a result of natural events, accidents, or for regulatory, technological, competitive or other reasons, could lead to temporary service disruptions and increased costs that cancould severely jeopardizeharm our operations and materially decrease our profitability and growth.
Future implementationCompliance with the SEC’s new rule for disclosures on “conflict minerals” may be time-consuming and costly and could adversely affect our reputation.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of value-added tax2010, the SEC has adopted a new rule that applies to replace business taxcompanies that use certain minerals and metals, known as conflict minerals, in Mainland Chinatheir products, including certain products manufactured for them by third parties. The new rule will reduce our operating revenue and may decrease our profitability.
Our business operations in Mainland China are subject to PRC business tax, which is assessed against our operating revenue at a rate of 3% or 5%. On November 16, 2011, the Ministry of Finance and the State Administration of Taxation issued a pilot tax program under which the PRC business tax will be replaced by value-added tax. The pilot tax program will be implementedrequire companies that use conflict minerals in the transportation industryproduction of their products to conduct due diligence as to whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries and to file certain service sectors in selected regionsinformation with the SEC about the use of Mainland China. Effective from January 1, 2012,these minerals. We filed our conflict minerals report for the transportation companiesyears ended December 31, 2013 and companies in certain service sectors in Shanghai became subjectDecember 31, 2014 with the SEC on May 30, 2014 and May 29, 2015, respectively, and our conflict minerals report for the year ended December 31, 2015 is due May 31, 2016. We will incur additional costs to value-added tax in lieucomply with the new due diligence and disclosure requirements. In addition, depending upon our findings, or our inability to make reliable findings, about the source of the PRC business tax. The application of the pilot tax programany possible conflict minerals that may be expandedused in any products manufactured for us by third parties, our reputation could be harmed, and there may also be disruptions to other industriesour business and regions of Mainland China in the future. The timetable for applying the pilot program to the telecommunications industry and the applicable tax rate remain uncertain. The replacement of the PRC business tax with the value-added tax will reduce our operating revenue and may decrease our profitability.
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Risks Relating to the Telecommunications Industry in Mainland China
We are subject to extensive government regulation and may be materially affected by any change in the regulatory environment in the PRC, especially inwith respect to the telecommunications industry, in the PRC.may materially impact us.
As a telecommunications operator in China, we are subject to regulation by, and under the supervision of, the MIIT, the primary regulator of the telecommunications industry in China. Other PRC government authorities also take part in regulating the telecommunications industry in areas such as tariff policies and foreign investment. For example, in recent years, PRC government authorities have required the implementation of real name registration for mobile users. The regulatory framework within which we operate may limit our flexibility to respond to changes in market conditions or competition, including changes in our cost structure. For instance, weWe cannot predict when or if changes in tariff policies or rates may occur. For example, in light of the national policy of achieving coordinated development of Beijing Municipality, Tianjin Municipality and Hebei Province issued by the PRC government, we cancelled the long-distance and roaming tariffs for voice services within the tariff zones of Beijing Municipality, Tianjin Municipality and Hebei Province in August 2015 so that our customers are only charged with local usage tariff for our voice services provided within the tariff zones. In addition, since May 2015, the central government has been promoting a national policy of “speed upgrade and tariff reduction” and may issue similar policies in the future. Future adverse changes in tariff policies and rates could significantly decrease our revenues and materially reduce our profitability. Any change in the regulatory environment in the PRC, especially with respect to the telecommunications industry, may have a material adverse effect on our business, financial condition, results of operations and prospects.
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The MIIT, under the direction of the State Council, has been preparing a draft telecommunications law, which, once adopted, will become the fundamental telecommunications statute and the legal basis for telecommunications regulations in Mainland China. In 2000, the State Council promulgated a set of telecommunications regulations, or the Telecommunications Regulations, that apply in the interim period prior to the adoption of the telecommunications law. Although we expect that the telecommunications law will positively affect the overall development of the telecommunications industry in Mainland China, we do not fully know what will be its nature and scope. The telecommunications law and other new telecommunications regulations or rules may contain provisions that could have a material adverse effect on our business, financial condition, results of operations and prospects.
We operate our businesses with approvals granted by the State Council and under licenses granted by the MIIT. We also have arrangements with CMCC, our parent company, under which we operate a 3G telecommunications business based on athe 3G license granted to CMCC by the MIIT. IfFurthermore, CMCC has received permission to operate a 4G business through us. Any future adverse change in the conditions or other obligations relating to these approvals orand licenses are amended incould have a manner that is detrimental to us, our business and operations could be materially and adversely affected. Moreover, we will require a license from the MIIT to operate our 4G business. We cannot assure you whether, when and on what conditions we will be able to obtain this license. If we are unable to obtain or use the license for operating our 4G business, or if the conditions or other obligations relating to this license are detrimental to us, our business and operations, as well as profitability and growth, could be materially and adversely affected.
Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.
The PRC government has in the past extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors to us. Under the restructuring initiatives relating to the telecommunications industry in Mainland China announced in May 2008, the PRC government may also implement necessary asymmetrical regulatory measures over a period of time, in order to optimize the allocation of telecommunications resources in the PRC and improve the competitive landscape. One of the regulatory measures announced by the MIIT in 2008 as part of the restructuring initiatives was the offering of roaming services across different mobile telecommunications networks. Under such roaming services, the prices at which the mobile telecommunications services providers may settle for these inter-network roaming services would be initially set by the PRC regulatory authorities. We cannot predict at this point in time the impact, if any, such offering of roaming services or other measures may havematerial adverse effect on our business, and prospects. In addition, the PRC government may implement other asymmetrical regulatory measures. For example, a one-way mobile number portability policy is under trial implementation in Hainan Province, which allows our 2G customers to switch to services of China Unicom or China Telecom while being able to retain their existing mobile numbers. A two-way mobile number portability policy has been under trial implementation in Tianjin since November 2010, which allows our 2G customers, as well as the 2G and 3G customers of China Unicom and China Telecom, to switch to services of another telecommunications services provider while being able to retain their existing mobile numbers. The PRC government may continue to expand the trial implementation of the mobile number portability policy in other areas of Mainland China.
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The PRC government may also adopt other regulatory measures that may adversely affect our competitive position. For example, the PRC government recently published a series of regulations to encourage private companies to enter telecommunications industry. In particular, a recent draft circular published by the MIIT for public comment permits mobile virtual network operators to lease bandwidth from China Unicom, China Telecom or us and provide mobile services to end customers after repackaging its bandwidth resources.
The implementation of asymmetrical and other regulatory measures could materially harm our competitive position, which could in turn significantly reduce our revenues and profitability, and our financial condition, and results of operations may be materially and adversely affected.prospects.
The PRC government may require major operators, including us, to provide universal services with specified obligations, and we may not be compensated adequately for providing these services.
Under the Telecommunications Regulations, telecommunications operators in Mainland China are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government, and the MIIT has the authority to delineate the scope of these service obligations. However,In December 2015, the specific rules have not been promulgatedMinistry of Finance, or MOF, and there are currently no specific regulatory requirements relatingMIIT jointly issued a notice on the pilot program to the provision ofpromote basic universal services in Mainland China.
While the scope of specific universal services obligations is not yet clear, we believe that these services may include mandatory provision of basic mobile telecommunications services in less economically developedrural areas in Mainland China and mandatory contribution to a universal service fund. In addition, as part of the transitional measure prior to the formalization of a universal service obligation framework, the MIIT has required majorwhere telecommunications services providersoperators in Mainland China, including CMCC,us, are encouraged to participatesupport the broadband development in a projectrural and remote areas, so as to provide basic telecommunications servicesfacilitate the achievement of certain strategic goals relating to “Broadband China”. This includes achieving, by 2020, the goal of broadband access in remote98% of the villages in Mainland China.
by administrative division and the rural broadband access capacity of more than 12Mbps. We cannot predict whether we will be required to provide other universal services in the future and, if so, whether we will be adequately compensated by the government or by the universal service fund. We also cannot assure you whether we will be required to make contribution to the universal service fund. Any of these events could reduce our revenues and/or profitability.
Our share price has been and may continue to be volatile in response to conditions in the global securities markets generally and in the telecommunications and technology sectors in particular.
Our share price has been subject to significant volatility, due in part to highly volatile securities markets, particularly for publicly traded shares of telecommunications companies’ shares,companies, as well as variations in our sales and profit from operations. Factors other than our results of operations that may affect our share price include, among other things, overall market conditions and performance, market expectations of our performance, projected growth in the mobile telecommunications market in Mainland China and adverse changes in our brand value. In addition, our share price may be affected by factors such as the level of business activity or perceived growth (or the lack thereof) in the telecommunications market in general, the performance of other telecommunications companies, announcements by or the results of operations of our competitors, customers and suppliers, announcements by and information released by governmental entities, and new technologies, products and services. See “Item 9. The Offer and Listing” for information regarding the trading price history of our ordinary shares and ADSs.
Actual or perceived health risks associated with the use of mobile devices could materially impair our ability to retain and attract customers, reduce wireless telecommunications usage or result in litigation.
There continues to be public speculation about possible health risks to individuals from exposure to electromagnetic fields from base stations and from the use of mobile devices. While a substantial amount of scientific research conducted to date by various independent research bodies has shown that radio signals, at levels within the limits prescribed by public health authority safety standards and recommendations, present no adverse effect to human health, we cannot be certain that future studies, irrespective of their relative reliability or trustworthiness, will not impute a link between electromagnetic fields and adverse health effects. Research into these issues is ongoing by government agencies, international health organizations and other scientific bodies in order to develop a better scientific understanding and public awareness of these issues. In addition, several wireless industry participants were the targets of lawsuits alleging various health consequences as a result of wireless phone usage or seeking protective measures. While we are not aware of any scientific studies or objective evidence which substantiates such alleged health risks, we cannot assure you that the actual, or perceived, risks associated with radio wave transmission will not materially impair our ability to retain customers and attract new customers, significantly reduce wireless telecommunications usage or result in litigation.
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Risks Relating to Mainland China
An economic slowdown in Mainland China may reduce the demand for our services and have a material adverse effect on our business, financial condition, results of operations and business prospects.
We conduct most of our business and generate substantially all our revenues in Mainland China. As a result, economic, political and legal developments in Mainland China have a significant effect on our financial condition and results of operations, as well as our future prospects. In recent years,Though Mainland China has been one of the world’s fastest growing economies in recent years in terms of gross domestic product, or GDP, growth. Ifgrowth, it may not be able to sustain the same growth rate. For example, China’s real GDP growth rate declined from approximately 7.7% in 2012 to 6.9% in 2015. There is no assurance that the GDP growth rate of Mainland China will not further decline. A deterioration in Mainland China’s business environment as a result of the slowdown in economic growth slows down, there will be reducedcould reduce business activities and reduced demand for our services, which could materially and adversely affect our business, financial condition and results of operations.
We are subject to reviews and inspections by governmental authorities and regulatory agencies.
We are subject to reviews and inspections by various governmental authorities and regulatory agencies. These reviews and inspections could cover a broad range of aspects in relation to our business and operations, including financial reporting, tax reporting, internal control and compliance with applicable laws, rules and regulations. We are currently being inspected with respect to, among other things, our accounting and financial reporting practices. We cannot predict the impact of any findings of these reviews and inspections, and we cannot assure you that the outcome of any such reviews and inspections would not have a material adverse effect on our business, financial condition, results of operations and prospects.
Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.
We receive substantially all of our revenues, and our financial statements are presented, in Renminbi. The value of the Renminbi against U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in PRC and international political and economic conditions. Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the People’s Bank of China, or PBOC, which are set daily based on the previous business day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. In April 2012, the PRC government expanded the floating band of Renminbi trading prices against the U.S. dollar in the inter-bank spot foreign currency exchange market from 0.5% to 1.0%. In August 2015, PBOC announced that the mid-point exchange rate for the floating range of Renminbi against the U.S. dollar will be determined based on market maker submissions that take into account the Renminbi-U.S. dollar exchange rate at the previous day’s closing of the inter-bank spot foreign exchange market, the supply and demand dynamics and the movements of other major currencies. Renminbi depreciated against the U.S. dollar by 3.7% by March 2016 following this August 2015 announcement by PBOC. Fluctuations in exchange rates may adversely affect the value, translated or converted into U.S. dollars or Hong Kong dollars, of our net assets, earnings and any declared dividends payable on our ordinary shares in foreign currency terms. Our financial condition and results of operations may also be affected by changes in the value of certain currencies other than the Renminbi, in which certain of our cash and cash equivalents and bank deposits are denominated. If we incur, in the future, debt denominated in currencies other than the Renminbi, such as well asin the U.S. dollar, the fluctuation of the Renminbi against the other currencies could adversely affect our financial condition and results of operations. For further information on our foreign exchange risks and certain exchange rates, see “Item 3. Key Information — Selected Financial Data” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” We cannot assure you that any future movements in the exchange rate of the Renminbi against the U.S. dollar or other foreign currencies will not adversely affect our results of operations and financial condition.
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The PRC legal system contains uncertainties which could limit the legal protections available to our shareholders.
Most of our operating subsidiaries are organized under the laws of the PRC and are subject to laws, rules and regulations in China.the PRC. The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases may be cited for reference but have limited precedential value. The PRC government has promulgated laws, rules and regulations dealing with economic matters, such as corporate organization and governance, commerce, property, taxation, trade and foreign investment. However, because some of these laws, rules and regulations areremain relatively new,untested, and because of the relatively limited volume of published cases and their non-binding nature, interpretation and/or enforcement of these laws, rules and regulations involvesinvolve potentially significant uncertainties, which may limit the remedies available to our investors and to us in the event of any claims or disputes with third parties. In addition, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management attention. Consequently, the protection provided by the PRC legal system may not be the same as the legal protection available to investors in the United States or elsewhere. Furthermore, various uncertainties involved in the rulemaking, interpretation and enforcement process of the laws, rules and regulations in the PRC that are related to our business and operations, particularly those relating to telecommunications and taxation, may also materially and adversely affect our financial condition, result of operations and prospects.
Natural disasters and health hazards in China may severely disrupt our business and operations and may have a material adverse effect on our financial condition and results of operations.
Several natural disasters have struck Mainland China in recent years. Our network equipment, including our base stations, in the affected areas sustained extensive damages in some of these natural disasters, leading to service stoppage and other disruptions in our operations in those areas. We are unable to predict the effect, if any, that any future natural disasters and health hazards may have on our business. Any future natural disasters and health hazards may, among other things, significantly disrupt our ability to adequately staff our business, and may generally disrupt our operations. Furthermore, such natural disasters and health hazards may severely restrict the level of economic activity in affected areas, which may in turn materially and adversely affect our business and prospects. As a result, any natural disasters or health hazards in China may have a material adverse effect on our financial condition and results of operations.
You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management.
Substantially all of our assets and our subsidiaries are located in the PRC. In addition, most of our directors and officers reside within the PRC, and substantially all of the assets of our directors and officers are located within the PRC. As a result, it may not be possible to effect service of process within the United States or elsewhere outside the PRC upon most of our directors or officers, including with respect to matters arising under applicable laws and regulations. Moreover, the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom or most other Western countries, and Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States.
As a result, recognition and enforcement in the PRC or Hong Kong of judgments of a court in the United States and any of the other jurisdictions mentioned above in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.
Our investors may be deprived of the benefits of PCAOB’s oversight of our independent registered public accounting firm through inspections.
Under the Sarbanes-Oxley Act of 2002, the Public Company Accounting Oversight Board, or PCAOB, has the authority and is required to conduct continuing inspections of registered public accounting firms that provide audit services to public companies subject to the reporting requirements of the SEC. Our external auditor is registered with the PCAOB and is subject to inspections by the PCAOB. However, theThe PCAOB is currently unable to inspect a registered public accounting firm’s audit work relating to a company’s operations in China where the documentation of such audit work is located in China, such as our registered public accounting firm’s audit work relating to our operations in China. As a result, our investors may be deprived of the benefits of PCAOB’s oversight of our independent registered public accounting firm through such inspections.
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If additional remedial measures are imposed on the PRC-based network firms of the Big Four accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.
In December 2012, the SEC instituted administrative proceedings against the PRC-based network firms of the Big Four accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the United States. On January 22, 2014, the administrative law judge, or ALJ, presiding over the matter rendered an initial decision that each of the firms had violated the SEC’s rules of practice by failing to produce audit work papers to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months. These firms subsequently appealed the ALJ’s initial decision to the SEC. The ALJ’s decision does not take effect unless and until it is endorsed by the SEC. On February 6, 2015, the four PRC-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the accounting firms to follow detailed procedures and to seek to provide the SEC with access to firms’ audit documents via the CSRC. If future document productions fail to meet specified criteria or there is a problem with the process between the SEC and CSRC, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. If the accounting firms are subject to additional remedial measures imposed by the SEC or other regulatory authorities, our ability to file our financial statements in compliance with SEC requirements could be impacted. A determination that we have not timely filed financial statements in compliance with SEC requirements could ultimately lead to the delisting of our ADSs from the New York Stock Exchange or the termination of the registration of our ADSs under the Exchange Act, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.
Item 4. | Information on the Company. |
We provide a full range of mobile telecommunications services in all 31 provinces, autonomous regions and directly-administered municipalities in Mainland China as well as in Hong Kong. As of December 31, 2012, the total population residing in Mainland China exceeded 1.3 billion. Based on publicly available information, we are the leading provider of mobile telecommunications services in Mainland China and the largest provider of mobile telecommunications services in the world as measured by total number of mobile customers as of December 31, 2012.2015. As of the same date,March 31, 2016, our total number of mobile customers reached approximately 710.3 million, representing approximately 63.9% of all mobile customers in Mainland China. As of March 31, 2013, our total number of customers reached approximately 726.3833.9 million.
The History and Development of the Company
We were incorporated under the laws of Hong Kong on September 3, 1997 as a limited liability company under the name “China Telecom (Hong Kong) Limited”. We changed our name to “China Mobile (Hong Kong) Limited” on June 28, 2000 and then to “China Mobile Limited” on May 29, 2006 after obtaining the approval of our shareholders.2006.
Our ordinary shares are listed on the Hong Kong Stock Exchange, and our ADSs, each currently representing the right to receive five ordinary shares, are listed on the New York Stock Exchange.
Expansion Through Acquisitions
Our initialAt our inception, our mobile telecommunications operations included those in Guangdong Province and Zhejiang Province, conducted by Guangdong Mobile Communication Company Limited (currently known as China Mobile Group Guangdong Co., Ltd.), or Guangdong Mobile, and Zhejiang Mobile Communication Company Limited (currently known as China Mobile Group Zhejiang Co., Ltd.), or Zhejiang Mobile, respectively. As part of the restructuring in preparation for our initial public offering in 1997, the former Ministry of Posts and Telecommunications transferred to us a 100% equity interest in Guangdong Mobile and a 99.63% equity interest in Zhejiang Mobile. We subsequently increased our shareholding in Zhejiang Mobile to 100%.
We carried out a series of acquisitions between 1998 and 2004, through which we acquired from CMCC, our parent company, mobile telecommunications operations conducted by its other regional subsidiaries. As a result, we significantly expanded the geographical coverage of our operations to all 31 provinces, autonomous regions and directly-administered municipalities in Mainland China.
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In addition, we acquired all of the issued and outstanding shares of China Resources Peoples Telephone Company Limited (currently known as China Mobile Hong Kong Company Limited, or Hong Kong Mobile), a mobile telecommunications services provider based in Hong Kong, in 2006. As a result, we expanded the geographical coverage of our operations to Hong Kong.
In 2011, we, through our wholly-owned subsidiary, CMC, acquired 100% of the share capital of China Topssion Communication Co., Ltd., or Topssion, a company primarily engaged in the sale of mobile phone handsets and devices, from CMCC, ZTE, Eastern Communications Co., Ltd., Beijing Digital China Limited, Ningbo Bird Co., Ltd. and Shenzhen Huawei Investment & Holding Co., Ltd. for an aggregate purchase price of RMB237,070,000 (approximately US$37,666,630)36,597,302). CMC subsequently transferred 1% of the share capital of Topssion to CMCC, and further subscribed for additional share capital of Topssion. Topssion thereafter changed its name to China Mobile Device. As of March 31, 2013,2016, we held a 99.97% of equity interest in China Mobile Device.
In 2015, we, through our wholly-owned subsidiary, CM TieTong, acquired Target Assets and Businesses of China TieTong, for a final consideration of RMB31,967 million (approximately US$4,934.9 million). The acquisition was completed in December 2015. We expect that our acquisition of Target Assets and Businesses from China TieTong will facilitate our transformation into a full service operator offering both fixed-line and mobile services.
These acquisitions have significantly enlarged our customer base and expanded the geographical coverage and scope of our business. The integration of these acquired operations has also enabled us to realize synergies and economies of scale.
Industry Restructuring and Changes in Our Shareholding Structure
Prior to 1993, all public telecommunications networks and services in Mainland China were controlled and operated by the former Ministry of Posts and Telecommunications through the former Directorate General of Telecommunications, provincial telecommunications administrations and their city and county level bureaus.
Between 1993 and 2008, the telecommunicationtelecommunications industry of Mainland China underwent significant reforms and restructuring that resulted in an improved competitive environment and enhanced regulation of the industry.
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In March 2008, the MIIT was created as the industry regulator providing industry policy guidance and exercising regulatory authority over all telecommunications services providers in Mainland China, including, among others, formulating and enforcing industry policy, standards and regulations, granting telecommunications licenses and permits, formulating interconnection and settlement standards for implementation between telecommunications networks, formulating tariff and service charge standards for certain telecommunications services together with other relevant regulatory authorities, supervising the operations of telecommunications services providers, promoting fair and orderly market competition among operators, and allocating and administering public telecommunications resources.
On May 24, 2008, the MIIT, the National Development and Reform Commission, or the NDRC, and the Ministry of Finance, or the MOF jointly issued a joint announcement relating to the further reform of the telecommunications industry in Mainland China, which led to a future restructuring of the then-existing telecommunications services providers. The restructuring resulted in: (i) the acquisition by China Telecom of the CDMA network (including both assets and customer base) then owned by China United Telecommunications Corporation in July 2008; (ii) the merger between China United Telecommunications Corporation and China Netcom to form China Unicom in January 2009; (iii) the transfer of the basic telecommunications services business then operated by China Satellite into China Telecom; and (iv) the consolidation of the telecommunications industry in China Tietong Telecommunications Corporation, or China Tietong, into CMCC in July 2008.
On January 7, 2009, the MIIT issued a CDMA 2000 3G license tothree service providers: China Telecom, a WCDMA 3G license to China Unicom and a TD-SCDMA 3G license to CMCC, our parent company.CMCC.
As a result of the industry restructuring in 2008 and early 2009, principal participants in the telecommunications industry in Mainland China, other than China TietongTieTong and us, currently also include China Telecom and China Unicom. China Telecom and China Unicom currentlysince then operate both mobile and fixed-line services. On November 27, 2015, CM TieTong, our wholly-owned subsidiary, entered into the Acquisition Agreement with China TieTong, pursuant to which CM TieTong has agreed to acquire Target Assets and Business. The acquisition was completed in December 2015.
On July 11, 2014, CMC entered into a promoters’ agreement with China United Network Communications Corporation Limited, a wholly-owned subsidiary of China Unicom, and China Telecom to establish China Tower. Pursuant to the promoters’ agreement, we have made an investment of RMB4,000 million and indirectly owned a 40% equity interest in China Tower. In October 2015, CMC entered into the Transaction Agreement with China United Network Communications Corporation Limited, China Telecom, China Reform Holdings Corporation Ltd. and China Tower, pursuant to which CMC, China United Network Communications Corporation Limited and China Telecom shall transfer their telecommunications services.towers and related assets to China Tower, China Tower shall issue and allot shares in China Tower and/or pay certain cash as consideration for such transfers, and China Reform Corporation shall subscribe for new shares in China Tower in cash. CMC transferred its existing telecommunications towers and related assets to China Tower for a final consideration of RMB102.736 billion. As of March 31, 2016, we indirectly owned 38% equity interest in China Tower. We currently operate mobileare in the process of negotiating the definitive usage arrangements with China Tower with respect to telecommunications services, while China Tietong currently operates fixed-line telecommunications services.towers.
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Organizational Structure
As of March 31, 2013,2016, CMCC owned 74.08%72.72% equity interest in us through intermediate holding companies. We operate in all thirty-one31 provinces, autonomous regions and directly-administered municipalities throughout Mainland China and in Hong Kong. As of March 31, 2013,2016, we owned, directly or through intermediate holding companies, 100% equity interests in the following companies:
• China Mobile Communication Co., Ltd. • China Mobile Group Guangdong Co., Ltd. • China Mobile Group Zhejiang Co., Ltd. • China Mobile Group Jiangsu Co., Ltd. • China Mobile Group Fujian Co., Ltd. • China Mobile Group Henan Co., Ltd. • China Mobile Group Hainan Co., Ltd. • China Mobile Group Beijing Co., Ltd. • China Mobile Group Shanghai Co., Ltd. • China Mobile Group Tianjin Co., Ltd. • China Mobile Group Hebei Co., Ltd. • China Mobile Group Liaoning Co., Ltd. • China Mobile Group Shandong Co., Ltd. • China Mobile Group Guangxi Co., Ltd. • China Mobile Group Anhui Co., Ltd. • China Mobile Group Jiangxi Co., Ltd. • China Mobile Group Chongqing Co., Ltd. • China Mobile Group Sichuan Co., Ltd. • China Mobile (Shenzhen) Limited • China Mobile (Suzhou) Software Technology Co., Ltd. • MIGU Company Limited • China Mobile TieTong Company Limited | • China Mobile Group Hubei Co., Ltd. | |
| • China Mobile Group Hunan Co., Ltd. | |
| • China Mobile Group Shaanxi Co., Ltd. | |
| • China Mobile Group Shanxi Co., Ltd. | |
| • China Mobile Group Neimenggu Co., Ltd. | |
| • China Mobile Group Jilin Co., Ltd. | |
| • China Mobile Group Heilongjiang Co., Ltd. | |
| • China Mobile Group Guizhou Co., Ltd. | |
| • China Mobile Group Yunnan Co., Ltd. | |
| • China Mobile Group Xizang Co., Ltd. | |
| • China Mobile Group Gansu Co., Ltd. | |
| • China Mobile Group Qinghai Co., Ltd. | |
| • China Mobile Group Ningxia Co., Ltd. | |
| • China Mobile Group Xinjiang Co., Ltd. | |
| • China Mobile Group Design Institute Co., Ltd. | |
| • China Mobile Hong Kong Company Limited | |
| • China Mobile International Limited | |
• China Mobile • China Mobile Online Services Co., Ltd. | • China Mobile (Hangzhou) Information Technology Co., Ltd. • China Mobile Internet Co., Ltd. |
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In addition, we indirectly own a 99.97% equity interest in China Mobile Device, through CMC and a 92% equity interest in China Mobile Finance through China Mobile Group BeijingFinance Co., Ltd., or BeijingChina Mobile Finance, and directly own a 66.41% equity interest in Aspire Holdings Limited, or Aspire, a company incorporated in the Cayman Islands.
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Set out below is a chart illustrating our corporate structure and wholly-owned subsidiaries as of March 31, 2016:
General Information
Our principal executive offices are located at 60th60th Floor, The Center, 99 Queen’s Road Central, Hong Kong, China; telephone: 852-3121-8888. We also maintain a regional headquarters in each of our regional mobile telecommunications companies in Mainland China and Hong Kong. Our web site address is www.chinamobileltd.com. The information on our web site is not a part of this annual report on Form 20-F.
Business Overview
We offerOver the past several years, we have achieved a number of technological improvements and upgrades to our core mobile telecommunications services principallynetwork, which has evolved into an integrated network that is capable of supporting transmissions using the Global System for Mobile Communications, or GSM,2G standard, 3G standard and 4G standard. We intend to use our GSM network to primarily carry voice usage and certain data traffic from mobile phones. Our GSM networks reach virtually all cities and counties and major roads and highways, as well as a substantial part of rural areas, throughout Mainland China and, through the network of Hong Kong Mobile, a substantial part of Hong Kong.
Starting from January 7, 2009, we also offer mobile telecommunications services using the TD-SCDMA standard. We operate our 3G business based onhave built an Internet Protocol based core mobile telecommunications network that is shared by our 2Gcapable of supporting the GSM, TD-SCDMA, WLAN and 3G services and will be shared with 4G services as well as the TD-SCDMATD-LTE networks, which we believe could also evolve into a network capacity leased from CMCC.that supports other future generations of mobile technologies. See “— Mobile Telecommunications Networks” below. We intend to use the TD-SCDMA network to primarily carry data traffic from mobile phones. CMCC’s TD-SCDMA wireless network covered all county-level or above cities and some towns and villages in Mainland China as of December 31, 2012.
In addition, we provide our customers with high-speed Internet access through wireless local area networks, or WLAN (also known as Wi-Fi), throughacquisition from China TieTong of Target Assets and Businesses, is expected to facilitate our WLAN access points located throughout Mainland China. We intendtransformation into a full service operator offering both fixed-line and mobile services, enable us to use our WLAN network to primarily carry Internet data from computers, mobile phones and other terminals. As of December 31, 2012, we had approximately 3.83 million access points covering locations such as airports, hotels, conference centers, schools and exhibition centers throughout Mainland China.
Moreover, starting from 2013, we commenced investmentsseize the opportunities in the development of TD-LTEwireline broadband market, expand our customer base and increase our wireline broadband network capacity, coverage and efficiency through an integrated network. We intend to use the TD-LTE network to primarily carry high bandwidthSee “— The History and high quality wireless broadband businesses. In 2012, the extended large scale trialDevelopment of the TD-LTE network was carried outCompany — Industry Restructuring and Changes in 15 cities in Mainland China and approximately 20,000 base stations were built. The quality and scale of the TD-LTE networks in Hangzhou, Guangzhou and Shenzhen have reached pre-commercial standard. In addition, we started providing commercial 4G services in Hong Kong in 2012 with the LTE FDD and TD-LTE bandwidths we previously obtained from the Office of the Telecommunications Authority of Hong Kong in 2009 and 2012, respectively. We plan to construct more than 200,000 TD-LTE base stations in 2013.
Furthermore, we cooperate with China Tietong in strengthening our capabilities to provide full telecommunications services.Our Shareholding Structure.” We continue to increase our reserves of basic resources, such as metropolitan area transmission networks, public Internet and broadband access networks in Mainland China, promote the construction of North and South Bases, data centers and call centers, accelerate Internet Data Center, or IDC, development and focus on the development of fiber broadband accessservices such as dedicated lines for corporate customers. The number of IP-VPN lines leased by our corporate customers reached 781,000 in 2012.
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Our Business Strategy
As a pioneer and the market leader in the world’s largest mobile telecommunications market, we intendhave aligned ourselves with mobile Internet development trends. We aim to maintain our leading position in 4G development in China and have fully embraced the transition from voice to data traffic operation. We have also striven to enhance our businesses in the mobile telecommunications market by promoting the co-ordinatedwireline broadband services and synergistic development of our businesses carried by the four networks based on their respective GSM, TD-SCDMA, WLAN and TD-LTE technologies, strengthening our full service capabilities and further developing our mobile Internet business.
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Co-ordinated and Synergistic Development of Businesses Carried by the Four Networks.We intend to continue promoting the co-ordinated and synergistic development of our businesses carried by the four networks based on their respective GSM, TD-SCDMA, WLAN and TD-LTE technologies to create a world-class wireless network with wide and deep coverage, high quality and high speed. To achieve this goal, we intend to continue maintaining high voice quality and optimizing the utilization rate of our GSM network. We also intend to continue working with CMCC to optimize the TD-SCDMA network with broad and in-depth coverage to improve its utilization rate. With respect to our WLAN network, we will focus on enhancing its coverage, network quality and utilization rate to alleviate the data traffic capacity constraints on our networks. In addition, we will continue to promote the development of TD-LTE technology industrial convergence within and outside the PRC and accelerate the construction of TD-LTE networks and commercialization of TD-LTE technology.
Strengthening Full Service Capabilities.We intendtransition from mobile communication services to strengthen our capabilities in response to competition from the telecommunications operators that provideinnovative full services.
In order to achieve this goal,2015, we continue to increase our reserves of basic resources, such as metropolitan area transmission networks, public Internet and broadband access networks in Mainland China, accelerate IDC development and focushad focused on the development of fiber broadband access for corporate customers.our 4G network. As of December 31, 2015, we cumulatively put in use 1.1 million 4G base stations which covered a population of over 1.2 billion. In addition, we intend to improve2015, the efficiencynumber of our business4G customers increased by focusing on high-bandwidth and high-value mobile Internet access and developing standardized products on a large scale. Moreover, we will differentiate our services in response to different needs of our customers. We intend to further focus on expanding our corporate customer base and selectively expand into family customer market.
Developing Mobile Internet Business. We intend to function as a “smart pipe” that provides value beyond data connectivity. In order to achieve this goal, we intend to accelerate222 million, reaching over 312 million by the development of our mobile Internet business to maintain a fair shareend of the growing value chainyear. As of the mobile Internet industry in Mainland China.March 31, 2016, our 4G customers reached 376.5 million. We are building an open platform for innovative application services, developing featured businesses that are distinctive and competitive compared to the products of our competitors and converting mobile terminals into a user-friendly interface to enhance customer experience when accessing our services.
In order to achieve the foregoing goals, we will focus on improving the quality of our networks, the quality of our services and our business support capabilities. See “— Service Quality.” Moreover, we will continuehave continued to improve our quality management for 4G network to increase the average download speed and improve customer services to achieve broader customer satisfaction. See “— Customer Services.” In addition, we will make efforts to enhance our operational efficiency by establishing a number of subsidiaries, such as China Mobile International and China Mobile Device, that operate certain aspectsexperience of our businesses.4G network. In addition,2016, we will continue to focus the development of our 4G network to maintain our market leading position in China in terms of wide, continuous and deep coverage. We will take proactive measures to speed up the migration of our customers from 2G and 3G networks to 4G networks. We also plan to enhance 4G network quality and customer perception through acclerating the development of VoLTE and carrier aggregation, or CA. We aim to achieve the commercialization of VoLTE and establish our first mover advantage in this field.
Data traffic has become the primary drive for our revenue growth. In 2015, data services revenue increased by 17.4% from RMB258,462 million in 2014 to RMB303,425 million (US$46,841 million) in 2015, surpassing our voice services revenue for the first time. Since May 2015, in response to the expectations of the general public and customers and in order to implement the national policy of “speed upgrade and tariff reduction”, we, in addition to continue enhancing network capacity and increasing network speed, offered discounts to our tariff plans. In 2016, we plan to continue to strike a balance between tariff reduction and value preservation, and strive to enhance network capacity and increasing network speed for our data service customers.
With respect to corporate customers, we have focused on retaining existingkey services such as dedicated lines and IDC services, built a network-wide coordinated sales system to target major corporate customers expandingand have developed product series targeting governmental and corporate customers in key industries, such as finance, education, transportation, logistics and healthcare. We further improved the transmission capacity of our fiber optic cable and the accessibility of our corporate customer base, achieving growthdedicated lines. In 2016, we will continue to expand our corporate customer base. We plan to seize opportunities in “Internet+”, and target government, medical, transportation, logistics and education sectors with tailored information technology products and services.
Furthermore, we have striven to promote our wireless datatransition from mobile communication services to innovative full services. In 2016, in line with Chinese government’s strategy to provide high quality broadband services, develop smart cities and increase smart home capabilities, we will emphasize the development of high-standard, high-quality and high-value wireline broadband services. We will also optimize our investment in wireline broadband by providing products featuring high connection speed, premium quality and brand.
In terms of long-term strategy, we will continue to focus our efforts on expanding digital services and leading technological innovations. We plan to increase investments in technological innovation, establish new businesses and develop new business models, including strengthening the content business and increasing salesexpanding smart technology and applications for some key industries. We also plan to build upon our existing customer base to boost connectivity scale and expand connections among people to connections among people and things, and among things, which may allow us to provide connection support to an Internet of terminals.Everything market where the number of connections may reach the level of ten-billion.
Customers and Usage
Our mobile customer base has grown substantially from approximately 649.6806.6 million at the end of 20112014 to approximately 710.3826.2 million at the end of 2012. As of December 31, 2012, we had a market share of approximately 63.9% in Mainland China.2015. As of March 31, 2013,2016, our total number of mobile customers reached approximately 726.3833.9 million, and our 4G customers reached 376.5 million. Our total number of 3Gwireline broadband customers reached approximately 114.4 million.60.6 million as of March 31, 2016, compared to 55.0 million by the end of 2015. Our customer growth is primarily attributable to a number of factors, including:
economic growth in our markets, including in rural areas;
the PRC government’s promotion of “informatization” and reform and development initiatives targeting the rural areas of Mainland China;
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growth potential in small and medium-sized cities, rural areas and migrant population markets;
decreased cost of initiating services due to a decline in handset prices as well as the decrease in other tariffs for our services;
our increased marketing and sales efforts and new business initiatives;
the further development of TD-SCDMATD-LTE industry chain, in particular the increasing availability of TD-SCDMATD-LTE handsets, especially smartphones, in the market which contributes to the increase in our 3G4G customer base.
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We continued to experience growth in our corporate
However, due to the increasing mobile penetration rate and intensified competition among mobile telecommunications operators and from competitors in other related industries, our customer base may not continue to grow as fast as it has been over the past few years, if at all.
Our total voice usage reached 4,192.3was 4,220.8 billion minutes in 2012,2015, representing an increasea decrease of approximately 7.8%1.7% from 2011.2014. Our short message services, or SMS, usage reached 744.5totaled 559.9 billion messages in 2012,2015, representing an increasea decrease of approximately 1.1%8.4% from 2011. Furthermore, wireless data traffic reached 1,039.2 billion megabytes2014. The decrease in 2012 from 361.4 billion megabytes in 2011. The lower growth rate of our voice usage and the decrease in SMS usage isare partly due to the increasing competition from providers offering telecommunicationsOver The Top products such as instant voice and messaging services.
Our total mobile data traffic was 2,760.6 billion megabytes in 2015, representing an increase of 143.7% from 2014. The increase in our mobile data traffic usage is due to our continued efforts to promote data traffic services using alternative technologies, in particular Internet service providers.operations, with a focus on the expansion of our 4G network.
The following table sets forth selected historical information about our customer base and customer usage as of or for the periods indicated.
As of or for the year ended December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
Customer Base (in millions) | 584.0 | 649.6 | 710.3 | |||||||||
Total Voice Usage (in billions of minutes) | 3,461.6 | 3,887.2 | 4,192.3 | |||||||||
Wireless Data Traffic (in billions of megabytes) | 143.3 | 361.4 | 1,039.2 | |||||||||
Including: Mobile Data Traffic (in billions of megabytes) | 103.1 | 161.0 | 289.8 | |||||||||
Average Minutes of Usage Per User Per Month (minutes)(1) | 521 | 525 | 512 | |||||||||
Average Revenue Per User Per Month (RMB)(2) | 73 | 71 | 68 | |||||||||
Average Monthly Churn Rate (%)(3) | 3.22 | 3.21 | 3.25 |
As of or for the year ended December 31, | ||||||||||||
2013 (As restated) | 2014 (As restated) | 2015 | ||||||||||
Mobile Business | ||||||||||||
Customer Base (in millions) | 767.2 | 806.6 | 826.2 | |||||||||
4G Customer Base (in millions) | — | 90.1 | 312.3 | |||||||||
Total Voice Usage (in billions of minutes) | 4,316.0 | 4,293.9 | 4,220.8 | |||||||||
Mobile Data Traffic (in billions of megabytes) | 526.8 | 1,132.9 | 2,760.6 | |||||||||
Average Minutes of Usage Per User Per Month (minutes)(1) | 486 | 453 | 430 | |||||||||
Average Handset Data Traffic Per User Per Month (MB)(2) | 72 | 155 | 339 | |||||||||
Average Revenue Per User Per Month (RMB)(3) | 65 | 59 | 56 | |||||||||
Average Monthly Churn Rate (%)(4) | 3.15 | 3.13 | 2.78 | |||||||||
Wireline Broadband Business | ||||||||||||
Customer base (in millions) | — | — | 55.0 | |||||||||
Average Revenue Per User Per Month (RMB)(5) | — | — | 32 |
(1) | Calculated by (A) dividing the total minutes of usage during the relevant year by the average number of customers during the year (calculated as the average of the numbers of customers at the end of each of the |
(2) | Calculated by (A) dividing the |
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(3) | Calculated by (A) dividing the revenue from mobile services during the relevant year by the average number of mobile customers during the year (calculated |
Measures the monthly rate of customer disconnections from mobile telecommunications services, determined by dividing: (A) the result obtained by dividing (i) the sum of voluntary and involuntary terminations from our network (excluding internal transfer) during the relevant year by (ii) the average number of customers during the year (calculated in the same manner as in note (1) above) by (B) 12. |
(5) | Calculated by (A) dividing the revenue from wireline broadband services during the relevant year by the average number of wireline broadband customers during the year (calculated as the average of the numbers of customers at the end of each of the 13 calendar months from the end of the previous year to the end of the current year) and (B) dividing the result by 12. The revenue from wireline broadband services in 2015 is derived from our consolidated statements of comprehensive income for the year ended December 31, 2015. |
Businesses
Our businesses primarily consist of voice business and data business.
Voice Business. Our voice business includes voice usage services and voice value-added services.
Our voice usage services focus on enabling our customers to make and receive calls with a mobile phone at any point within the coverage area of our mobile telecommunications networks. The services include local calls, domestic long distance calls, international long distance calls, domestic roaming and international roaming. Our voice usage services have continuedexperienced a decline due to grow,the substitution effect of Over The Top products and a decline in tariffs, and total voice usage increased approximately 7.8%decreased by 1.7% in 20122015 compared to 2011.2014.
Our voice value-added services mainly include caller identity display, caller restrictions, call waiting, call forwarding, call holding, voice mail, conference calls and other services.
Data Business. Our data business includesbusinesses include short message and multimedia message services, or SMS and MMS, wireless data traffic businessservices, wireline broadband services and applications and information services. Our data services revenue increased to RMB303,425 million in 2015, representing an increase of 17.4% from 2014. As a percentage of revenue from telecommunications services, our data services revenue increased to 52.0% in 2015 from 43.7% in 2014.
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SMS refers to services that employ the existing network resources and the corresponding functions of mobile telecommunications terminals to deliver and receive text messages, mainly including customer-to-customer messages, corporate SMS, “Monternet”-based short messages. SMS offers convenience and multi-functionality to our customers. MMS is a technology that allows users to exchange multimedia communications, such as graphics, animated color pictures, sound files and short text messages, over wireless networks. Although SMS usage increased to 744.5decreased from 611.4 billion messages in 2012 from 736.12014 to 559.9 billion messages in 2011,2015, and revenue generated from SMS and MMS decreased to RMB44,215from RMB34,780 million in 2012, compared2014 to RMB46,462RMB31,244 million in 20112015 due to the increasing competition from Internetand substitution effect of providers offering Over The Top products such as instant voice and messaging applications.services.
Our wireless data traffic business includes mobile data traffic service and WLAN service. Wireless data traffic increased from 361.4 billion megabytes in 2011 to 1,039.2 billion megabytes in 2012. Revenue generated from wireless data traffic business reached RMB68,257RMB200,857 million in 2012,2015, compared to RMB44,428RMB153,926 million in 2011.2014.
Mobile Data Traffic. Our mobile data traffic service is a service that we provide to our customers that enables wirelessmobile access to the Internet through 2G, 3G or 3G4G networks. We experienced a significant growth in the provision of mobile data traffic services in 2012,2015, with mobile data traffic reaching 289.82,760.6 billion megabytes in 2012,2015, representing an 80.0%a 143.7% increase compared to 2011.2014. Revenue generated from mobile data traffic service reached RMB66,529RMB198,270 million in 2012,2015, compared to RMB43,689RMB150,571 million in 2011.2014.
WLAN.WLAN service refers to a service that provides high-speed Internet access through WLAN. We further streamlined
Our wireline broadband business offers primarily the verification process for our customers to access our WLAN and experienced significant growth in our WLAN service in 2012. As of December 31, 2012, we had approximately 3.83 million access points covering locations such as airports, hotels, conference centers, schools and exhibition centers throughout Mainland China. Datawireline broadband data traffic carried by WLAN reached 749.4 billion megabytes in 2012 compared to 200.4 billion megabytes in 2011.service. Revenue generated from WLAN servicewireline broadband business reached RMB1,728RMB18,339 million in 2012, compared to RMB739 million in 2011.2015.
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Our applications and information services mainly include IDC services, network resource services and various mobile application products such as Migu Music, Migu Reading, Migu Video, Migu Gaming and Migu Animation, Mobile Mailbox, Mobile Reading, Mobile Video, Mobile Gaming, Wireless Music, “Fetion”, “12580 Integrated Information Service Line”, Mobile Payment/Wallet, location-based services, Mobile AnimationMarket and Mobile Market.Internet of Things. Revenue generated from applications and information services reached RMB53,876RMB52,985 million in 2012,2015, compared to RMB48,440RMB53,552 million in 2011.2014.
Mobile Mailbox. Mobile Mailbox provides our customers with e-mail services with multiple value-added functions. In addition to the regular functions of Internet mail services, our customers will receive notifications2015, we established MIGU, focusing on their mobile phones when they receive new e-mails and are able to read and send e-mails via mobile phones. Revenue generated from Mobile Mailbox reached RMB2,394 millionexplorations in 2012, compared to RMB1,539 million in 2011.
Mobile Reading. Mobile Reading provides our customers withdigital content services, including books, magazines and comics, through mobile phones and mobile e-book devices. Revenue generated from Mobile Reading reached RMB1,093 million in 2012, compared to RMB627 million in 2011.
Mobile Video. Mobile Video provides our customers with mobile network-based audio and video services, which enable our customers to download or stream various types of videos, such as news, movies, entertainment and sports programs on their mobile phones. Revenue generated from Mobile Video reached RMB936 million in 2012, compared to RMB571 million in 2011.
Mobile Gaming. Mobile Gaming provides video game downloads and online gaming services to our customers. Revenue generated from Mobile Gaming reached RMB869 million in 2012, compared to RMB550 million in 2011.
Some of our other applications and information services, including location-based services and Mobile Animation, also experienced rapid growth in 2012, and we have strengthened our efforts in developing other new products and applications, in our data business, such as M-cloud, which is a cloud storage service, “Lingxi”, which is a smart voice application, voice mailboxincluding music, reading, video, gaming and voice positioning service.animation areas.
We have been making efforts to build up open platforms through our Mobile Market“Mobile Market” in the past few years. Mobile Market“Mobile Market” serves as a platform for software developers and their applications as well as our own businesses so that our customers may use their terminals to download applications and subscribe for our businesses. We intend to build Mobile Market into a sales platform for our customers to subscribe for our businesses, a platform for developers to upload their applications and a platform that provides support to our terminal and content suppliers. As of December 31, 2012, the cumulative number of registered customers of Mobile Market reached 270 million, with the number of application downloads in 2012 from Mobile Market reaching 610 million.
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In 2012,2015, we expanded the application of “InternetInternet of Things”Things to various areas such as urban management, smart transportation and industrial control, and have developed standardized “InternetInternet of Things”Things products including home security service,services, automobile fleet management service, QR codeservices and remote surveillance. We have also builtestablished high quality and centralized “Internetpublic Internet of Things”Things networks. The number of “InternetInternet of Things” usersThings connections increased from 13.05to over 60 million in 20112015.
In addition, we have endeavored to 22.45 million in 2012. Our “Wireless City” platform provides citizens withdevelop personal digital services. We have established various information services covering government affairs, traffic control, public administrationspecialized companies, including, among others, MIGU, CM Internet, CM M2M, Virtue Intelligent Network, all of which focus on digital contents, mobile Internet, Internet of Things, Internet of Vehicles and other areas,digital services. Furthermore, we established a fund to invest in a range of industries along the value chain and also collaborated with innovative companies to establish integrated operating platforms. Nonetheless, this is a platforman area that facilitates communications amongwe believe to be in its initial stage of development, and we can make more achievements by continuing our efforts in digital services. We continue to promote our digital services and explore new operating models for China Mobile, in order to further advance the market-orientated mechanism and to strengthen our position in the competitive digital landscape through continuous innovation.
Tariffs
Our tariffs are subject to regulation by various government authorities, corporationsincluding the MIIT, the NDRC and citizens. In 2012, the cumulative number of customers using “Wireless City” reached 70 million.
We believe that data business will continue to be one of the fastest growing segments of the telecommunications marketrelevant price regulatory authorities in Mainland China. The MIIT has continued encouraging mobile operators in Mainland China into implement the coming years.caller-party-pays regime, and mobile operators, including us, have been implementing the caller-party-pays regime. In 2012, we increased the promotion of our data business by launching new products and increasing marketing efforts. Our data services revenue increased to RMB166,348 million in 2012, representing an increase of 19.4% from 2011. As a percentage of operating revenue, data services revenue increased to 29.7% in 2012 from 26.4% in 2011.
We also plan to continue promoting industry-specific applications of data business to corporate customers to further enhance the penetration and utilization of our data business. During 2012, we further strengthened and broadened the scope of key industry-specific application solutions to cover major sectorsparticular, all of the society andnew calling plan packages that we offer in Mainland China are generally based on tariffs equivalent to the economy. These efforts, coupled with our efforts to enhance service quality and improve customer relationship, led to an expansioncaller-party-pays regime. In March 2008, the Ministry of our customer base among multi-provincial and multi-national corporations. We also expanded our “InternetInformation Industry, predecessor of Things” applications and Mobile e-Commerce businesses in different areas involving our corporate customers. As of December 31, 2012,MIIT, reduced the total number of our corporate accounts reached 3.46 million.
Tariffs
The tariffs payable by our customers include primarilymaximum domestic roaming usage charges monthly fees (if applicable) and service fees for voice value-addedthat a mobile services and dataprovider may charge on roaming services. EffectiveIn December 2009, the PRC regulators promulgated policies to eliminate domestic roaming usage charges on January 1, 2010,outgoing international long distance calls when not usingdomestic roaming services our customers incur usage charges in the form of eitherare used, as well as eliminate local usage charges or, foron outgoing domestic and international long distance calls domestic and international long distance charges. When using domesticwhen roaming services our customers incur either domesticare not used. In May 2014, the PRC regulators further promulgated policies to permit mobile services providers to set the tariffs of all telecommunications services. Our international roaming usage charges or, for outgoing international long distance calls, international long distance charges. When using international roaming services, our customers incur charges based on tariffs that vary depending on whether it is an incoming call or an outgoing call and onare set in accordance with agreements with the destination of the call.relevant foreign mobile operators.
We offer our customers a variety of tariff packages that have varied monthly charges, minimum charges for basic usage, charges for usage exceeding the covered basic usage, fixed charges for selected features and functions, as well as charges for voice value-added services. We offer tariff packages with respect to wireless data traffic business, or charge the tariff by the actual data traffic usage. We also offer different tariff packages with respect to SMS and MMS, and applications and information services.
We have flexible tariff plans distinguishing between peak time and non-peak time usage, and offer tailored service plans based upon the needs of different customer groups as well as our network resources. Given the rapid growth in mobile penetration rates and increased competition, in order to remain competitive in terms of price and performance with other mobile telecommunications operators, we provide certain discounts and promotional offers in and during certain service areas and call periods targeting various customers. These discounts
In 2013, we introduced mix-and-match plans, which allow our customers greater flexibility in customizing the voice, data traffic and promotional offers mainly include rewardsapplications components of their plans. For middle-to-high-end customers, we created a “single price” plan for local, long distance and roaming calls. In 2014, we introduced new 4G mix-and-match plans and actively sought to reduce the pre-paymentunit price for international roaming. We introduced RMB3/6/9 per 3 megabytes international roaming plans and RMB30/60/90 per day unlimited international data traffic plans and also expanded our 4G international roaming services. In 2015, we promoted the restructuring of fees,tariff plans and launched innovative services such as corporate-sponsored data tariff plans and data traffic sharing service.
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Since May 2015, in response to the expectations of the society and customers and in order to implement the relevant national policy, we, in addition to continue enhancing network capacities and increasing network speed, launched data tariff plans at lower rates for both peak and non-peak time. We also provided certain amount of free trials of voice value-added services ornon-peak time data services, tariff discountsto customers, and reduced the tariffs for out-of-plan data usage and international data roaming in certain countries and regions. In addition, in October 2015, we launched an unused data traffic carry-over program for our mobile monthly plans that are charged based on pre-determined data traffic, according to which customers could carry over their monthly plan’s remaining unused data traffic to the following month. Furthermore, we cancelled the long-distance and roaming tariffs for voice services within the tariff zones of Beijing Municipality, Tianjin Municipality and Hebei Province in August 2015 so that our customers are only charged with local usage during off-peak hourstariff for our voice services provided within the tariff zones. These measures have had certain adverse impact on our financial condition and results of operations, resulting in low-traffic areas, tariff discounts for wirelessdecreases in the overall tariffs of our data traffic during off-peak hoursservices and voice services in 2015, respectively, as compared to those in 2014. We may be required to further adjust our tariff under the “speed upgrade and tariff discounts for specified call recipients.reduction” policy or implement other similar policies to be issued by the PRC government in the future. The reduction in tariffs as a result of these measures has had, and we expect that it will continue to have, adverse impact on our financial condition and results of operations. See “Risk Factors – Risks Relating to Our Business – Our financial condition and results of operations have been adversely affected by the reduction in tariffs as a result of PRC national policies, and may continue to be affected by further reduction in tariffs due to future policy developments in the telecommunications industry.”
Interconnection
Interconnection refersUnder the current telecommunications regulations, parties seeking interconnection must enter into an interconnection agreement. In addition, major telecommunications services providers that have control over essential telecommunications infrastructure and possess significant market share must allow interconnection to varioustheir networks by other operators. These telecommunications services providers must also establish interconnection rules and procedures based on the principles of non-discrimination and transparency and submit such rules and procedures to the MIIT for approval. The termination of any interconnection arrangements will require prior approval by the MIIT. The applicable regulations provide that permitinterconnection related equipment must conform to the connection of our networks to other mobile or fixed-line networks. These agreements provide fortechnical standards approved by the settlement of revenues from the local usage charges, domestic and international long distance charges, SMS and MMS usage charges and wireless data traffic charges.MIIT. See “ — Regulation — Technical Standards” below.
Our networks interconnect with the networks of other operators, which enables our customers to communicate with the customers of those operators. Each of our operating subsidiaries has interconnection agreements with those operators in its service area. The economic terms of these agreements are generally standardized from province to province.
The MIIT has made adjustments to the public telecommunications network interconnection settlement standards of basic telecommunications operators in Mainland China. With effect from January 1, 2014, when mobile users of China Telecom and China Unicom in Mainland China and our mobile users in Mainland China (excluding TD-SCDMA users with specified prefix numbers of 157 and 188) make calls to each other, the settlement charges payable by China Telecom and China Unicom to us were adjusted from RMB0.06/minute to RMB0.04/minute, while the settlement charges payable by us to China Telecom and China Unicom remained at RMB0.06/minute. The MIIT will assess the above interconnection settlement policy once every two years based on the development conditions of the telecommunications market and will make adjustments when appropriate. The interconnection settlement policies for TD-SCDMA remain unchanged, meaning that when mobile users of China Telecom and China Unicom in Mainland China and our TD-SCDMA users with specified prefix numbers of 157 and 188 make calls to each other, the settlement charges payable by China Telecom and China Unicom to us are RMB0.06/minute, and the settlement charges payable by us to China Telecom and China Unicom are RMB0.012/minute. When users of different basic telecommunications operators in Mainland China send SMS or MMS to each other, the settlement charges for SMS were adjusted from RMB0.03/message to RMB0.01/message, and the settlement charges for MMS were adjusted from RMB0.10/message to RMB0.05/message.
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Roaming
We provide roaming services to our customers, which allow them to access mobile telecommunications services while they are physically outside of their registered service area or in the coverage areas of other mobile telecommunications networks in other countries and regions with which we have roaming arrangements.
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A mobile customer using domestic roaming services is charged at our per-minute roaming usage charges or, for outgoing international long distance calls, international long distance charges. A mobile customer using international roaming services incurincurs charges based on tariffs that vary depending on whether it is an incoming call or an outgoing call and on the destination of the call. In recent years, our international and domestic roaming usage charges have generally declined, resulting in lower average revenue per minute from roaming services. In March 2008, the PRC regulatorsFor example, in 2015, we reduced the maximum rate at which a mobile telecommunicationsinternational data roaming charges in certain countries and regions and cancelled the long-distance and roaming charges for voice services provider may charge on domestic roaming services. In December 2009,within the PRC regulators further promulgated policiesBeijing-Tianjin-Hebei tariff zones, in order to eliminate domestic roaming usage charges on outgoing international long distance calls when domestic roaming services are used. We believe that the decrease in roaming usage charges helped drive growth in voice volume usage and that growth in voice volume usage helped partially offset the negative impact of the decline in roaming usage charges.implement relevant national policies. See “ — Tariffs.”
Research and Development
Our research and development, or R&D, functions are undertaken jointly by our research institute, research centers in Suzhou and Hangzhou and other relevant departments and business units. The responsibilities of our research institute include defining our network and technology evolution roadmap, supporting the operation of existing networks and services, engaging in international standard setting activities and defining corporate specifications, leading the development and field testing of new products and services, developments and field testing, cooperating with industry partners, procurement testing and certification of network devices, mobile terminals and information technology systems. In 2012,2015, our main R&D efforts were focused on a number of aspects:
TD-LTE.Improving Networks and Services. In 2015, we strengthened the development and optimization of our 4G network. In particular, we improved our network performance by enhancing indoor coverage and CA, and enhanced and optimized Voice over LTE, or VoLTE, technology. We carried out extended large scale TD-LTE trials.also promoted the research on the strategy of network transition to Network Function Visualization, or NFV, and software defined network concept, or SDN, announced NovoNet technological outlook at GSM Association, launched pilot programs using NFV, and SDN and reduced the connection time for corporate customers by 70%.
Setting Technical Standards and Promoting Industry Development. We continued to work closely with other operatorsparticipated in the Global TD-LTE Initiative,drafting and publication of three white papers on Mainland China’s fifth generation, or GTI, specifically5G, technology in the IMT-2020 (5G) Promotion Group. We actively promoted 5G related work in international organizations, such as the 3rd Generation Partnership Project, the International Telecommunication Union and the Next Generation Mobile Networks. In 2015, China Mobile Research Institute entered into a memorandum of understanding with each of Nokia Solutions and Networks System Technology (Beijing) Co., Ltd., or Nokia, and Ericsson (China) Communication Co., Ltd., or Ericsson, to collaborate on multi-mode multi-band terminal specification5G research and development, particularly in the areas of 5G radio technology, architecture evolution towards 5G, Internet of Things and technological experiments to promote global standardization and industrialization of 5G. We presented NFV at international roaming tests.conferences and technology forums on multiple occasions and demonstrated VoLTE high definition audio and video based on NFV. We also won a Gold Award of Chinese Patents for our LTE related patents, which demonstrated our technological influence and innovation capability.
OpticalBuilding Independent R&D Capabilities in Terms of Cloud Computing and IP Network.Big Data.We completed testing In order to deepen the top-level design of the first 100 gigabits per second long-distance optical networkinformation technology systems and to promote the maturity of independently-developed products, we formulated plans for the construction and evolution of enterprise-level big data centers, data control and professional operations, improved the independent R&D product lines in Mainland China.the areas of cloud computing and big data, strengthened the application of relevant products and realized the independent integration of cloud services to the general public.
Promoting Independent Innovation of Internet-related Key Products. We formulated a complete set of technical schemes and standards for unified communication, realized the independent R&D of certain key modules, supported the industry chains and realized the interconnected testing with international communications service providers. In addition, we haveexpanded the use of multi-connection in various areas, established the technological system for family-oriented products, and developed the strategythrough independent R&D products such as Mobaihe and roadmap for the migration from version fourInternet of IP, or IPv4, networks to version six of IP, or IPv6, networks and launched IPv6 network trials in Shenzhen.
Data Center and Cloud Computing.We defined the deployment strategy, roadmap and specifications for large-scale data center and cloud computing in 2012. In addition, we are currently engaged in two R&D projects, namely “Big Cloud”, which supports cloud computing, cloud storage and data mining services, and “OMP (Open Mobile Platform)”, which provides an open platform for the application developers to use SMS, MMS and in-application purchase capabilities.
Featured Services.We developed a unique voice over IP, or VoIP, service that automatically combines an international VoIP account with a mobile phone number. We have also developed innovative technologies for mobile payment that facilitate the collaboration between UnionPay and us.
Mobile Terminals. We defined and implemented the “Wireless Mobile Multimedia Transmission Protocol (WiMo)” standard, which is a standard to support mirroring the screens between smartphones, tablets, computers, projectors and televisions.Things eSIM. We also designed System Application Framework, or SAF, which enablesmaterialized products of cloud services in the healthcare and education industries, promoted the unified user authentication in-application purchase,of independent R&D efforts, intra-application billing security systems and always online setting of R&D service platforms for applications, and pushimproved our competitiveness to provide differentiated services. Moreover, we built an ecosystem of platforms, unified the technological standards for vertical open platforms for our various affiliated companies and attempted to independently research and develop the centralized open platform.
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Sales and Customer Services
We continue to optimize our customer service system that separate front and back line services and have established sales and services channels tailored to the needs of customers by providing electronic and mobile Internet channels.
Sales Channels. We offer our services through an extensive network of proprietary sales outlets, retail outlets and electronic sales and marketing channels. InOur proprietary sales outlets, in addition to providing retail sales and network connection services, most of our proprietary sales outlets also offer differentiated services to customers, under different service brands, including, among others, billing information and payment collection, services consultation and sale of terminals and other customer services. Furthermore, mostterminals. Most of our proprietary sales outlets provide training and service demonstrations to retail outlets. The retail outlets, which, in turn, offer our services to customers according to agency agreements with us. In connection with these sales, all applicable fees payable after initial connection are paid to us. Moreover, weOur electronic channels offer certain services to our customers through electronic channels, including, among others, subscription of voice value-added services and data business, change of tariff plans, credit loading for pre-paid services, sales of SIM cards and terminals and redemption of “Customer Reward” points. Sales effected through our electronic channels have increased consistently in recent years and the percentage of our business transactions that were processed through our electronic channels further increased in 2012. Furthermore,2015. In addition, we have enhanced our service capabilities through the expansion and optimization of our proprietary sales channels, the expansion of electronic channels and the integration of resources relating to sales and marketing channels. We are able to establish sales and service networks at lower cost by utilizing existing resources in rural areas to serve and expand our customer base in these areas. We have also established concept stores in major cities within Mainland China to showcase our services and products, particularly our data services, and to facilitate certain sales and marketing activities.
Market Segmentation Strategy. As customers’ demands for mobile telecommunications become more varied and complex, we have conducted research on market segmentation and have launched brands and products which cater to the specific needs of different customer groups to increase awareness of our brandsbrand and products and maintain our customer base. Our marketing efforts focus on retaining medium- and high-endmiddle-to-high-end customers. We aim to retain individual customers, corporate customers as well as family customers. With respect to individual customers, we mainly promote three brands, each with a different focus. “GoTone” targets high to middle-end customers, “Easy own” targets the mass market and the “M-Zone” brand targets the young user group through the integration of voice and data services, in each case supported by a series of tailored service packages.
Moreover, we provide differentiated applications and services to our corporate customers under customized service contracts. As of December 31, 2012, we had signed service contracts with approximately 3.46 million corporate accounts, and individual customers served under these service contracts with corporate accounts accounted for approximately 34.5% of our total customers. With the expansion of our corporate customer base, we also seek to provide customized total solutions to these corporate customers in response to their particular requirements.
Furthermore, we have developed customized products, and service packages in response to the unique consumption characteristics of rural areas, and have developed advertising and distribution channels unique to the rural markets to promotecertain groups of customers, such as corporate customers and expand our businesscustomers in the rural areas. WeWith respect to corporate customers, we have alsofocused on key services such as dedicated lines and IDC services, built a network-wide coordinated sales system targeting major corporate customers and have developed product series targeting governmental and corporate customers in key industries, such as finance, education, transportation, logistics and healthcare. In terms of customers in the rural areas, in order to lower the barrier of using mobile phones, we have encouraged handset producers to introduce inexpensive handsets with moderate functions to lower the barrier of using mobile phones in the rural areas.functions.
Strategies Relating to 3G Services.We have been operating our 3G business by leasing wireless network capacity from CMCC since 2009. We have enhanced our efforts to market new 3G services, products and applications, including through our voice and data businesses, to individuals, families, corporations and those in need of industry information products. We expect the TD-SCDMA network to continue to play an important role in carrying data traffic and will continue to increase sales of 3G smart phones and optimize the 3G network to accelerate the migration of customers from the 2G network to the 3G network. We intend to further expand our 3G business by, among other things, leveraging the support from the PRC government in terms of land use, frequency resources and construction of wireless cities.
Development of 4G Services. In 2012, the extended large scale trial of the TD-LTE network was carried out in 15 cities in Mainland China and approximately 20,000 base stations were built. The quality and scale of the TD-LTE networks in Hangzhou, Guangzhou and Shenzhen have reached pre-commercial standard. In addition, we started providing commercial 4G services in Hong Kong in 2012 with the LTE FDD and TD-LTE bandwidths we previously obtained from the Office of the Telecommunications Authority of Hong Kong in 2009 and 2012, respectively. Starting from 2013, we will bear all capital expenditures for the development of TD-LTE networks. We plan to construct more than 200,000 TD-LTE base stations in 2013.
Customer Services.Our customer support service centers offer 24-hour staff-answering and automatic-answering service hotlines in Mainland China, dealing with customer enquiries regarding services and billing, as well as handling customer complaints. Our main strategy in retaining customers is to classify our customers according to their level of value contribution and to match them with differentiated service resources according to their level, with higher-level customers enjoying premium services. Our “Customer Point Reward Program” is an important measure to this end, under which customers receive bonus points based on their service consumption and loyalty. Customers may exchange their accrued bonus points for tariffs, data and other benefits. In order to retain high-value and corporate customers and enhance customer satisfaction, we offer a series of personalized and differentiated services targeted at high-value and corporate customers, including dedicated account executives, on-site visits and systems for collecting comments and handling complaints.
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In 2012,2015, we continued to optimize our customer service processes through efforts such as improving service quality at our sales outlets, 10086 hotline and online portal. Our customers may also purchase SIM cards and handsets through our electronic channels. We have also actively promoted electronic channels, including expanding the scope of services provided through our electronic channelchannels and shortening the processing time at the electronic channel, and the percentage of our business transactions that were processed through the electronic channels further increased in 2012.channels. In addition, we implemented service measures such as increasing transparency in the billing process, inquiry and data services unsubscription function through SMS and refunding before investigation in case of a billing dispute for Monternet services to ensure our customers would be fully informed of the payments they would make. We continued to filter spam SMS and software that were sent to our customers. Our continued improvement in customer services resulted in broader customer satisfaction in 2012.2015.
Service Quality.We strive to improve the quality of our services through improvements in the quality of our infrastructure network. In particular, with respectwe continued to our 2G services,lead the industry in 2015 in terms of low voice call drop rate decreased to 0.48%of our 2G, 3G and 4G networks and highly successful call connection rate, increased to 99.26% in 2012,which significantly improved customer perception and with respect to our 3G services,laid a solid foundation for developing the voice call drop rate decreased to 0.29% and successful call connection rate increased to 98.90% in 2012. The success rate for product subscription increased to approximately 99.78%. In addition, the network speed of our Internet business has been further enhanced.4G market. We have also improved our business support capabilities, especially in the areas of billing and data business subscription support.
Customer Retention. Due to increasing competition, we place great emphasis on customer retention. Our strategy is to attract and retain high-value customers by providing high quality services. We have implemented a “Customer Point Reward Program”, which is a bonus point-based scheme that rewards customers according to their service consumption, loyalty and payment history. This represents an important measure by us to retain high-value customers. Customers are identified and grouped as Diamond, Gold and Silver card members according to their respective value contribution and points accrued. Different levels of membership entitle members to different privileges. In addition, certain high-value customers may receive rewards, including free voice minutes or discounts on handsets, through redemption of bonus points or pre-payment of fees. In addition, we offer special services to our “GoTone” members, including cross-region services, airport VIP services, hospital VIP services and handset service clubs.
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Churn Management. We have devised internal monitoring systems to detect customers who are prone to discontinue their subscriptions. In particular, our churn alert system prompts customer service representatives to proactively approach those customers, and customers who have recently discontinued their service, to improve customer relations and minimize churn.
Credit Control. We have implemented customer registration procedures, such as identity checks for individual customers and information checks for corporate customers,during the customer registration procedures to assist in credit control. In certain situations, we require our customers to pay an advance deposit representing a pre-determined amount of usage charges before certain telecommunications services are activated. The actual usage charges incurred are verified against the balance of the amount deposited and, if there are unusual circumstances, additional measures will be implemented. Direct debit services are available in each geographical area. The accounts of contract customers are required to be settled on a monthly basis, and a customer will be subject to late payment fee is imposed on each customer whosefees for amounts overdue and subject to account balance is not settled by the monthly due date. Ifdeactivation if the customer’s account remains overdue, the customer’s services will be deactivated and such customer must pay all overdue amounts, including applicable late payment fees, to reactivate services.overdue. As a majority of our existing customers pre-pay for our services, we have limited credit risk exposure to our customers. We make an allowance for doubtful accounts based on our assessment of the recoverability of accounts receivable.
Corporate Social Responsibility and Sustainable Development.
We are committed to fulfilling our responsibilities to stakeholders and proactively implementing a sustainable development strategy.strategy to meet the challenges brought about by climate change. We have focused on energy conservation and environmental protection in many aspects of our operations. We furthered our “Green Action Plan” and realized a reduction in overall energy consumption per unit of information flow by 17.5% in 2015 compared with the previous year. Through our China Mobile Charity Foundation, we continued to carry out philanthropic activities such as poverty alleviation and education support. We have also strivedcumulatively sponsored treatments for 2,744 children in poverty diagnosed with congenital heart disease, and provided trainings to provide more environment-friendly information solutions80,981 principals of rural primary and secondary schools in central and western China. In addition, in response to growing phishing and spam SMS practices, we implemented policies and procedures that target phishing and spam SMS in order to reduce the spam and improper SMS sent to our customers, contributeso as to strictly protect the informatizationprivacy of society, and support philanthropic activities. When natural disasters occurred in Mainland China in 2012, we reacted with timely and effective telecommunications support and services and relief efforts. We continued to help remote villages in Mainland China to build up basic communication facilities.our customers. In 2012,2015, we were includedlisted in the Dow Jones Sustainability World Index, or DJSI World,Indices for the fiftheighth consecutive year and we are the first and only company from Mainland China to be included in DJSI World. We were also includedlisted in the Hang Seng Corporate Sustainability Index Series for the thirdsixth consecutive year and received the “Sustainability Excellence Award” from the Chamber of Hong Kong Listed Companies.
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Terminals
The TD-SCDMA industry chain has undergone substantial development in recent years with the launch of 242 models of TD-SCDMA terminals, including 138 smartphone models,Our TD-LTE services have been developing rapidly, and the sale of more than 56 million TD-SCDMA handsets in 2012. The main TD-SCDMA terminal models are as competitive as WCDMA or CDMA 2000 terminals in terms of launching time, quality and price.value of TD-LTE models continue to improve. Since launching our TD-LTE services, we have focused on the development of multi-mode, multi-band terminals and low cost TD-LTE terminals, as well as self-brand terminals. In 2015, we launched three self-branded smartphones, namely A1, N1 and N1 Max. A1 features a five-inch screen and support GSM, TD-SCDMA, WCDMA, TD-LTE and LTE-FDD networks. N1 is the first VoLTE-compatible smartphone in the PRC which is priced below RMB1,000 per unit, within the lower price range of smartphones in the PRC. N1 Max adopts NFC and real-name authentication technologies. In 2016, we plan to develop four self-branded smartphones, all of which will be VoLTE-compatible and support CA technology. We have devoted ourselves to promoting the long-term development of the TD-LTE terminal supply chain and have focused on the sales of 4G terminals, which strongly drove growth in data traffic. We have also soldentered into a large number of terminals through China Mobile Device, our subsidiary engaging in procuringlong-term cooperation agreement with Apple Inc. and distributing terminals.successfully introduced iPhone models that support TD-LTE and TD-SCDMA.
Information Systems
Our information systems primarily consist of a network management system, a business operation support system and a management information system. The network management system collects and processes the operating data from each network, and manages, supervises and controls our networks for safe and efficient operation. The business operation support system provides day-to-day operational support to each business unit, and is a unified and comprehensive system that enables the sharing of information resources. This system standardizes and integrates each of our sales, billing, settlement, customer service and network failure handling databases in a centralized and orderly manner. The management information system collects and processes our management information and provides support to our management personnel. In addition, this system has computerized and automated our management in finance, inventory, procurement and human resources. Furthermore, we have an internal communications network, which consists of our office automation system, our internal computer network, video conference system, telephone system and others, the combination of which supports our internal communications.
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Trademark
We market our services under the “CHINA MOBILE” trademark, which is the trademark we use throughout Mainland China. “CHINA MOBILE” is a registered trademark in the PRC owned by our parent company, CMCC. On January 1, 2008,2013, we entered into a trademark license agreement, or the 20082013 Trademark License Agreement, to replace the then existing trademark license agreements with CMCC. Upon expiration, the trademark license agreement will be automatically renewed for a term of one year unless otherwise terminated bythat we entered into in 2008, or the parties.2008 Trademark License Agreement. Under the trademark license agreement,2013 Trademark License Agreement, we and our operating subsidiaries have a non-exclusive right to use the “CHINA MOBILE” trademark in Mainland China and Hong Kong. No license fee is payable by us to CMCC during the term of the trademark license agreement.2013 Trademark License Agreement.
In addition, the “CHINA MOBILE” name has been registered as a trademark by CMCC in Australia, Brunei, Cambodia, Canada, Hong Kong, India, Indonesia, Macau, New Zealand, Pakistan, South Africa, South Korea, Taiwan, Thailand, the United States Vietnam, South Africa and Yemen. Furthermore, CMCC has filed applications to register the “CHINA MOBILE” name and logo as a trademark in Malaysia, in connection with certain goods and services. CMCC has also registered the “CHINA MOBILE” name and logo as a trademark under the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks.
In 2013, we unveiled our new corporate logo. An application for registration of the new logo has been filed in Mainland China and an application as a trademark under the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks has been approved in the United Kingdom and the United States. In addition, individual applications have been filed in Hong Kong, Macau, Pakistan and Taiwan.
Mobile Telecommunications Networks
Over the past several years, we have performed a number of technological improvements and upgrading to our coreWe offer mobile telecommunications network, which has evolved into an integrated network that is capable of supporting transmissions using both the 2G standard and the 3G standard. We have built an Internet Protocol based core network that is capable of supporting the GSM, TD-SCDMA, WLAN and TD-LTE networks, which we believe could also evolve into a network that supports other future generations of mobile telecommunications technologies.
Prior to January 7, 2009, we offered mobile telecommunications services using the Global System for Mobile Communications, or GSM, standard, which is a pan-European mobile telecommunications system based on digital transmission and mobile telecommunications network architecture with roaming capabilities. This standard is also referred as the 2G standard. Each of our GSM networks consists of base stations, base station controllers, mobile switching centers, transmission lines and software applications.
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Starting from January 7, 2009, in addition to offering mobile telecommunications services using the GSM standard, or the 2G standard, weWe also offer mobile telecommunications services using the TD-SCDMA standard, or the 3G standard. The key network components forWe operate our 3G business include Node Bs, which contain radio transmittersbased on an Internet Protocol based core network that is shared by our 2G, 3G and receivers that communicate directly with mobile terminals, and radio4G services as well as the TD-SCDMA network controllers, which carry out radio resources management and are responsible for controlling the Node Bs that are connected to them.capacity leased from CMCC.
In addition, we provide our customers with high-speed Internet access to broadband Internet connection through our WLAN whichaccess points located throughout Mainland China. WLAN connects computers using wireless communication technology. Our customers may use mobile terminals such as handsets and notebooks to gain wireless access to the Internet or a corporate intranet.
We are committedOn December 4, 2013, the MIIT granted to pursuingCMCC, China Telecom and China Unicom permission to operate TD-LTE businesses, and CMCC received permission to operate a TD-LTE business through us. Subsequently, we launched our 4G business based on the TD-LTE technology.business. TD-LTE is one of two models of LTE, a mainstream standard for the evolution of 3G technology, and a standard for the evolution of TD-SCDMA technology. We obtainedintend to use the TD-LTE spectrum bandsnetwork to primarily carry high bandwidth and high quality wireless broadband businesses. As of December 31, 2015, we cumulatively put in use 1.1 million 4G base stations which cover a population of over 1.2 billion, realizing nationwide continuous coverage in cities and towns, effective coverage of data hotspot in villages, as well as full coverage of high speed rail, subways and key scenic areas, in the PRC. As of March 31, 2016, the number of 4G customers reached 376.5 million. We aim to achieve the commercialization of VoLTE and establish our first mover advantage in this field. In addition, we have been providing 4G services in Hong Kong through a public auction in Februarysince 2012 which will be used in the construction of a TD-LTE network in Hong Kong. Together with the LTE FDD bandand TD-LTE bandwidths we had previously obtained we started providing commercial 4G services and commencedfrom the integration of our TD-LTE and LTE FDD networks in Hong Kong in 2012. In January 2012, the TD-LTE Advanced technology, as a successor technology to the TD-LTE technology, was recognized as oneOffice of the international standards for future generationsTelecommunications Authority of technology by the International Telecommunication Union.Hong Kong.
Network Capacity Expansion and Optimization Plans. Our customers currently use our 2G services, our 3G services, our WLAN services, our 4G services, or all of them. Our customers will also use our 4G services after we launch commercial 4G services. We intend to continue our network expansion and optimization with an emphasis on improving network utilization and operating efficiency, facilitating a smooth transition between, and integration of, our 2G, 3G and 4G services, and expanding the coverage and capacity of our integrated network. Our network expansion and optimization plans depend to a large extent upon the availability of sufficient spectrum.
Spectrum. A mobile telecommunications network’s capacity is to a certain extent limited by the amount of frequency spectrum available. For our GSM network, the MIIT has allocated a total of 45x2 MHz of spectrum to be used for transmission and reception, respectively, to our parent company, CMCC. Of the 45x2 MHz of spectrum allocated to us, 40x2 MHz of spectrum in the 900 MHz and 1800 MHz frequency bands is used nationwide, and 5x2 MHz of spectrum in the 1800 MHz frequency band, is used in the cities of Beijing, Shanghai and Chengdu and Guangdong Province. In connection with our 3G business, the MIIT has allocated to CMCC, in various frequency bands, a total of 35 MHz of spectrum to be used for nationwide coverage, and an additional 50 MHz of spectrum to be used for indoor coverage.
Transmission Infrastructure. The physical infrastructure linking our network components and interconnecting our networks to other networks consists of transmissions lines, which provide the backbone infrastructure through which voice and data traffic is carried.
Leased Lines.Transmission lines constructed by us reached a sizeable scale through the continuous optimization of our network structure in recent years. In addition to our own transmission lines, we also lease intra-provincial and local transmission lines from other operators and pay them fees based on tariff schedules stipulated by the relevant regulatory authorities after adjusting for the discounts that we have negotiated. For the inter-provincial transmission lines we lease through CMCC from other providers, CMCC collects leasing fees from us and pays fees to the relevant transmission line providers.
Network Operations and Maintenance. We believe that we have considerable network operation and maintenance experience and technical expertise. Day-to-day traffic management, troubleshooting, system maintenance and network optimization are conducted by our experienced team of engineers and technicians. Technical staffs are available for emergency repair work 24 hours a day and we employ specialist teams for central maintenance of the networks. Most technical difficulties relating to the networks are resolved by our staff and the maintenance service providers with which we have business relationships, while our equipment suppliers also provide back-up maintenance and technical support.
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Spectrum. A mobile network’s capacity is to a certain extent limited by the amount of frequency spectrum available. In coordination with the relevant provincial authorities, the MIIT regulates the allocation of radio frequency. The frequency assigned to an entity is not allowed to be leased or, without approval of the MIIT, transferred by the entity to any other third party. In accordance with a joint circular from the NDRC and the MOF, CMCC has entered into an agreement with us that specifies the amount of fees to be paid to the MIIT for spectrum usage by each mobile network operator based on the bandwidth of the frequency used.
Spectrum usage fees for GSM networks are currently charged at the annual rate of RMB17 million per MHz for the 900 MHz frequency band and RMB14 million per MHz for the 1800 MHz frequency band. Spectrum usage fees are charged on the basis that uplink and downlink frequencies are separately charged. Spectrum usage fees for TD-SCDMA networks are currently charged at the annual rate of RMB15 million per MHz for the 960 MHz to 2300 MHz frequency bands and RMB12 million per MHz for the 2300 MHz to 2690 MHz frequency bands, while rates for indoor-only frequency bands are set at 30% of the corresponding full rates. As of March 31, 2016, no detailed standards have been promulgated for spectrum usage fees for TD-LTE networks. The relevant regulatory authorities in China may review these fee arrangements in the future.
Our network expansion and optimization plans depend to a large extent upon the availability of sufficient spectrum. For our GSM network, the MIIT has allocated a total of 45x2 MHz of spectrum in the 900 MHz and 1800 MHz frequency bands to be used nationwide for transmission and reception to our parent company, CMCC. In connection with our 3G business, the MIIT has allocated to CMCC, in various frequency bands, a total of 35 MHz of spectrum to be used for nationwide coverage, and an additional 50 MHz of spectrum to be used for indoor coverage. In connection with our 4G business, the MIIT has allocated to CMCC, in various frequency bands, a total of 145 MHz of spectrum to be used for nationwide coverage, including 20 MHz of spectrum previously allocated for use by our 3G business for outdoor coverage and 50 MHz of spectrum previously allocated for use by our 3G business for indoor coverage. Under the existing agreement between CMCC and us, we have the right to use CMCC’s allocated frequency spectrum in Mainland China.
Transmission Infrastructure. The physical infrastructure linking our network components and interconnecting our networks to other networks consists of transmissions lines, which provide the backbone infrastructure through which voice and data traffic is carried.
Leased Lines. The MIIT determines the standard lease tariffs to be paid by telecommunications operators with respect to the leasing of transmission lines that facilitate interconnection between telecommunications networks. Transmission lines constructed by us reached a sizeable scale through the continuous optimization of our network structure in recent years. In addition to our own transmission lines, we also lease intra-provincial and local transmission lines from other operators and pay them fees based on tariff schedules stipulated by the relevant regulatory authorities after adjusting for the discounts that we have negotiated. For the inter-provincial transmission lines we lease through CMCC from other providers, CMCC collects leasing fees from us and pays fees to the relevant transmission line providers.
Base Stations. In urban areas, our base stations are located mostly on existing structures, typically at the top of tall buildings. In rural areas, masts or towers are often constructed for locating base stations. Typically,In 2015, we focused on constructing 4G base stations, are of limited size, as base station equipment does not generally require significant space. As of the end of 2012, the number of our 2Gand put in use 1.1 million 4G base stations, reached 810,000, compared to 700,000 aswhich cover a population of over 1.2 billion in the end of 2011.
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The number of 3G base stations that we leasePRC. We utilize the telecommunications towers from CMCC reached approximately 280,000 as of the end of 2012, compared to 220,000 as of the end of 2011. We anticipate that we will need more new 3G base stations in connection with the expansion of our 3G networks.
In 2012, approximately 20,000 TD-LTE base stations were built. We planChina Tower to construct more than 200,000 TD-LTE base stations in 2013. Certain 3G base stations may also be upgraded to TD-LTEour base stations.
We cannot assure you that we will be able to obtain the requisite number of base station sites on reasonable commercial terms.
Equipment Suppliers. We select our principal suppliers from leading international and domestic manufacturers of mobile telecommunications equipment and in accordance with technical standards set by the MIIT. In 2012,2015, we purchased our networks equipment primarily from Huawei Technologies, ZTE Corporation, Ericsson, Nokia, Siemens, ZTEFiberHome and Alcatel-Lucent.Alcatel-Lucent Shanghai Bell.
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Strategic Alliance Agreement with PhoenixTVInvestments and Memorandum of Understanding with News Corporation and STAR Group LimitedAcquisitions
On June 8, 2006, we entered into a strategic alliance agreement with Phoenix Satellite Television Holdings Limited, or PhoenixTV, a leading satellite television operator broadcasting into Mainland China, pursuant to which we and PhoenixTV will cooperate in, among other areas, the joint development, marketing and delivery of innovative wireless content, products, services and applications. We currently have a number of cooperation initiatives underway with PhoenixTV.
In addition, we entered into a memorandum of understanding with News Corporation and STAR Group Limited on June 8, 2006 relating to a potential long-term wireless media strategic partnership as well as the exploring of various areas of cooperation, which may include the aggregation, development and marketing of multimedia content and other wireless data services, by combining the strength and experience of one of the largest media companies in the world and one of the largest mobile telecommunications companies in the world. We are currently working with News Corporation and STAR Group Limited on a number of cooperation initiatives.
Business Cooperation Framework Agreement with Far EasTone
On April 29, 2009, we entered into a share subscription agreement with Far EasTone Telecommunications Co., Ltd., or Far EasTone, one of the major mobile telecommunications operators in Taiwan, pursuant to which we would acquire 12% of the enlarged issued share capital of Far EasTone. Completion of the share subscription was subject to certain conditions, including the obtaining of all necessary regulatory approvals. Concurrent with the share subscription agreement, we also entered into a strategic cooperation agreement with Far EasTone, which would become effective upon the completion of the share subscription.
As some of the conditions precedent have not been satisfied, the share subscription agreement has been terminated. The strategic cooperation agreement lapsed upon the termination of the share subscription agreement.
In April 2013, we entered into a business cooperation framework agreement with Far EasTone, pursuant to which we and Far EasTone will jointly explore opportunities to continue broad-based cooperation in a number of areas in the mobile telecommunications business and reconsider the possibility of an equity investment by us in Far EasTone when there is a favorable change in regulatory environment in Taiwan that would permit such investments.
Investment in, and Strategic Cooperation with, SPD Bank
In October 2010,March 31, 2016, Guangdong Mobile, our wholly-owned subsidiary, completed its acquisition of 20% ofheld a 18.98% equity interest in the enlarged issued share capital of SPD Bank for an aggregate amountas a result of approximately RMB39.5 billion (approximately US$6.0 billion).shares issued to certain other shareholders, compared to a 20% equity interest as of December 31, 2015. SPD Bank is a joint-stock commercial bank incorporated in the PRC, with its shares listed on the Shanghai Stock Exchange.
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In connection with the acquisition, we We and SPD Bank also entered into a strategic cooperation agreement in November 2010, pursuant to which we and SPD Bank will cooperate in the areas of mobileinternet finance and mobile e-Commercepayment businesses in Mainland China, such as mobile payment, including on-site payment and remote payment, as well as in the sharing of customerscustomer services and channels resources. The term of cooperation is five years, which will be automatically renewed for successive one-year terms unless terminated. The scope of cooperation will include, but will not be limited to, the joint development of mobile payments business, mobile bank cards business and other forms of mobile finance and mobile e-Commerce businesses, the joint research and development of mobile finance software and mobile security technologies. The parties agree to jointly explore cooperation in mobile fund transfer business. The parties also agree to promote their cooperation in the areas of basic banking services and basic telecommunications services, and leverage on their respective competitive advantages to bring synergies in terms of branding, customers, channels and network platform resources into full play. Through such strategic cooperation, we and SPD Bank have issued China Mobile – SPD Bank co-branded bankdebit and credit cards, which support NFC, in some29 provinces in Mainland China during 2012,China. In January 2016, we renewed our strategic cooperation with SPD Bank and are also developing near field communication services, including mobile billdeveloped an “and-Finance” system to provide SPD Bank and our customers with payment, mobile remittancewealth management and other mobile payment applications and products.
Investment in, and Strategic Cooperation with, Anhui USTCfinancing services.
In August 2012, CMC, our wholly-owned subsidiary, entered into a share subscription agreement with Anhui USTC,IFLYTEK, pursuant to which CMC would subscribe for 15% of the shares of Anhui USTCIFLYTEK for an aggregate subscription price of RMB1,363,314,339 (approximately US$218,827,040)210,459,468). The share subscription was completed on April 24, 2013. Concurrent with the share subscription, we and Anhui USTCIFLYTEK entered into a strategic cooperation agreement and, in December 2015, renewed the agreement to cooperate in various areas, including smart voice portals, smart voice cloud services, smart voice technologies and product innovations, applications in relation tobusinesses, content-based businesses, customer services, and basic telecommunications businessbusinesses and informatization of the telecommunications industry.industry and other areas upon the parties’ written agreement. As of December 31, 2015, CMC held a 13.93% equity interest in IFLYTEK.
In June 2014, CMI Holdings, our wholly-owned subsidiary, entered into a share subscription agreement with True Corporation, a major national telecommunications provider in Thailand, pursuant to which CMI Holdings agreed to subscribe to ordinary shares of True Corporation representing, following the completion of the subscription, 18% of the total issued and outstanding shares of True Corporation, for a total consideration of Baht 28.57 billion (approximately RMB5.51 billion). The subscription was completed in September 2014. Also in June 2014, we entered into a cooperation memorandum, and, in September 2014, we entered into a strategic cooperation agreement with True Corporation to explore business cooperation opportunities in various areas, including products or value-added services or contents, international businesses, network, device procurement, general procurement and human resources.
In May 2015, CMC, our wholly-owned subsidiary, entered into a partnership agreement with SDIC, and CMFM, to establish China Mobile Fund to make investments in companies with growth potential which are engaged in the mobile Internet and related upstream and downstream businesses. Pursuant to such partnership agreement, CMC has made a capital commitment of RMB1,500 million (approximately US$231.6 million) and became a limited partner of China Mobile Fund. As of December 31, 2015, CMC had contributed RMB360 million to China Mobile Fund and has a commitment to make further investment in an amount of RMB1,140 million upon the request by China Mobile Fund.
In November 2015, CM TieTong, our wholly-owned subsidiary, acquired Target Assets and Businesses of China TieTong, for a final consideration of RMB31,967 million (approximately US$4,934.9 million). Target Assets and Businesses acquired include approximately 99,000 cable kilometers of nationwide backbone networks, approximately 1,822,000 cable kilometers of metro fiber, approximately 24.71 million IPv4 addresses, 1,814 real properties and 685 land assets, approximately 11.98 million customers of fixed broadband services, and approximately 18.29 million customers for wireline services. The acquisition was completed in December 2015. The aforementioned acquisition of Target Assets and Businesses of China TieTong was considered as a business combination under common control as CM TieTong and China TieTong are both ultimately controlled by our parent company, CMCC. Under IFRSs, such acquisition was accounted for using merger accounting in accordance with the Accounting Guideline 5 “Merger Accounting for Common Control Combinations” (“AG 5”) issued by the HKICPA. Accordingly, the acquired Target Assets and Businesses are stated at predecessor values, and were included in the consolidated financial statements from the beginning of the earliest period presented as if Target Assets and Businesses had always been part of the Group. As a result, the Group has restated the 2011, 2012, 2013 and 2014 comparative amounts of the consolidated statements of comprehensive income by including the operating results of Target Assets and Businesses and eliminating its transactions with Target Assets and Businesses, as if the acquisition had been completed on the earliest date of the periods being presented, i.e., January 1, 2011. The consolidated balance sheets of the Group as at December 31, 2011, 2012, 2013 and 2014 was restated to include the assets and liabilities of Target Assets and Businesses. See Note 2(b) to our consolidated financial statements.
We expect that our acquisition of Target Assets and Businesses will facilitate our transformation into a full service operator offering both wireline broadband and mobile services, enable us to seize the opportunities in the wireline broadband market, expand our customer base, offer an integrated services consisting of the fixed-line and the mobile services, and increase our wireline broadband network capacity, coverage and efficiency through an integrated network.
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Competition
We compete with other telecommunications services providers. We are one of the three licensed mobile telecommunications services providers in Mainland China. The PRC government encourages orderly and fair competition in the telecommunications industry in Mainland China. In particular, the PRC government has extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors to us. We may also face intense competition from existing operators from time to time. Our competitors launch, from time to time, promotional offers, such as handset subsidies and tariff packages, to attract customers.
In May 2008, the MIIT, the NDRC and the MOF jointly announced a policy initiative to further reform the PRC telecommunications industry by encouraging the formation of three telecommunications services providers of comparable scale and standing, each with nationwide network resources, full-service capabilities and competitive strength, by way of a series of restructuring transactions. See “Item 4. Information on the Company — The History and Development of the Company — Industry Restructuring and Changes in Our Shareholding Structure.”
After completion of the industry restructuring in January 2009, China Telecom and China Unicom each of which is now operating a mobile telecommunications network, have been benefiting from, among other things, broader customer bases, more extensive networks, greater financial and other resources and more comprehensive technological capabilities, as compared to their customer bases, networks, resources and technological capabilities prior to the industry restructuring. These factors have intensified, and could further intensify, competition. Our market share was approximately 63.9% asOn November 27, 2015, CM TieTong entered into the Acquisition Agreement with China TieTong to acquire Target Assets and Business, which we expect will facilitate our transformation into a full service operator offering both wireline broadband and mobile services. Having each operated a wireline broadband services business for a number of December 31, 2012. In addition, pursuant to the policy initiative announced in May 2008,years, China Telecom and China Unicom have each become full-serviceadvantage in terms of the wireline broadband services. In January 2016, China Unicom and China Telecom entered into a strategic cooperation agreement to promote resource-sharing between the two companies. The areas of strategic cooperation include sharing capital expenditure such as their new rural 4G network, promoting a new smartphone standard, and jointly negotiating international roaming rates. Such cooperation as contemplated by our two major competitors, if materialized, may significantly change the competitive landscape of telecommunications services providers that operate both fixed-line telecommunications networks and mobile telecommunications networks. We are alsoindustry in the process of applying for the license to offer fixed-line telecommunications services but we cannot predict when we can obtain such license. Our competitors may also benefit from any asymmetrical and other regulatory measures that may be adopted by the PRC government from time to time. Mainland China.
In addition, the PRC government has publishedbegun to allow certain operators approved by the MIIT to lease and repackage mobile services for sale to end customers on a series of regulations to encourage non-State-owned companies to enter the telecommunications industrytrial basis and we may face increasing competition from these non-State-owned telecommunications services providers.new mobile network operators. We also face increasing competition from providers offering telecommunications services using alternative technologies. Furthermore, we expect that we will face intense competition in the delivery of 4G services from China Telecom and China Unicom, which have received permits to operate their 4G services based mainly on FDD-LTE technology. See “Risk Factors — Risks Relating to Our Business — Competition from other telecommunications services providers and competitors in other related industries may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations” andoperations.” And “Risk Factors — Risks Relating to the Telecommunications Industry in Mainland ChinaOur Business — Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.position, which would in turn significantly reduce our revenues and profitability, and our financial condition and results of operations may be materially and adversely affected.”
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Regulation
The mobile telecommunications industry in Mainland China is highly regulated. Regulations issued or implemented by the State Council, the MIIT and other relevant government authorities, including the NDRC and the Ministry of Commerce, encompass all key aspects of mobile telecommunications network operations, including entry into the telecommunications industry, scope of permissible business, interconnection and transmission line arrangements, technology and equipment standards, tariff standards, capital investment priorities, foreign investment policies and spectrum and numbering resources allocation.
The MIIT, under the supervision of the State Council, is responsible for formulating policies and regulations for the telecommunications industry, granting telecommunications licenses, allocating frequency spectrum and numbers, formulating interconnection and settlement arrangements between telecommunications operators, and enforcing industry regulations.
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In order to provide a uniform regulatory framework to encourage the orderly development of the telecommunications industry, the MIIT, under the direction of the State Council, has been preparing a draft telecommunications law. We expect that, if and when the telecommunications law is adopted by the National People’s Congress, it will become the basic telecommunications statute and the legal source of telecommunications regulations in Mainland China. In addition, the State Council promulgated a set of telecommunications regulations on September 25, 2000. These regulations apply in the interim period prior to the adoption of the telecommunications law. Although we expect that the telecommunications law will have a positive effect on the overall development of the telecommunications industry in Mainland China, we cannot predict what will be the ultimate nature and scope of the telecommunications law will be.law.
On December 25, 2015, MIIT issued the Catalog of Telecommunications Services (2015 Edition), which became effective on March 1, 2016. It sets out classifications of various telecommunication services for regulatory and licensing purposes.
Entry into the Industry. Under the current regulations, operators of mobile telecommunications networks, providers of other basic telecommunications services such as local and long distance fixed-line telephone services, and data service providers whose telecommunications services cover two or more provinces, directly-administered municipalities or autonomous regions in Mainland China must apply for specific permits from the MIIT in order to provide such services. Granting of permits for providing basic telecommunications services will be through a tendering process. In addition to us, China Telecom and China Unicom are currently also authorized to provide mobile telecommunications services in all provinces, directly-administered municipalities and autonomous regions in China.
Pursuant to China’s commitments under the WTO and the Provisions on the Administration of Foreign-Funded Telecommunications Enterprises, which became effective on January 1, 2002, foreign investors may invest in joint ventures that provide telecommunications services in Mainland China. However, these investments will presumably bear no direct relation to the issuance of licenses to providers of telecommunications services in Mainland China, as the issuance of new licenses by the relevant authority is governed by a separate set of rules and regulations. Pursuant to the Provisions on the Administration of Foreign-Funded Telecommunications Enterprises, as amended in September 2008, foreign ownership in a telecommunications enterprise may be gradually increased to 49% if such enterprise provides basic telecommunications services and 50% if such enterprise provides value-added telecommunications services (including radio paging services).services.
The MIIT has promulgated the Administrative Measures for the Licensing of Telecommunication Business Operations, which became effective on April 10, 2009. Those regulations apply to the application for, and examination and approval of, telecommunications business licenses in the PRC.
In June 2012,The PRC government implemented a number of measures that permit certain operators approved by the MIIT issued a circular under which non-State-owned companies are encouraged to enter the telecommunications industry.lease and repackage mobile services for sale to end customers. On January 7,May 17, 2013, the MIIT further published for public commentannounced that it would accept applications from non-State-owned companies to, on a draft regulation that would permittrial basis, lease mobile virtual network operators to lease bandwidthservices from China Unicom, China Telecom or us and provide mobile services to end customers after repackaging its bandwidth resources.these services. The trial period ended on December 31, 2015.
Spectrum Usage. In coordination with the relevant provincial authorities, the MIIT regulates the allocation of radio frequency. The frequency assigned to an entity is not allowed to be leased or, without approval of the MIIT, transferred by the entity to any other third party. In accordance with a joint circular from the NDRC and the MOF, CMCC has entered into an agreement with us that specifies the amount of fees to be paid to the MIIT for spectrum usage by each mobile telecommunications network operator based on the bandwidth of the frequency used.
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Spectrum usage fees for GSM networks are currently charged at the annual rate of RMB17 million per MHz for the 900 MHz frequency band and RMB15 million per MHz for the 1800 MHz frequency band. Spectrum usage fees are charged on the basis that uplink and downlink frequencies are separately charged. The annual rate of spectrum usage fees for TD-SCDMA networks are RMB15 million or RMB12 million per MHz, depending on the frequency bands. Spectrum usage fees for TD-SCDMA networks are currently charged at a discounted rate, and the full rate will apply starting from 2014. The relevant regulatory authorities in China may review these fee arrangements in the future.
Numbering Resources. The MIIT is responsible for the administration of the telecommunications numbering resources within Mainland China, including the telecommunications network numbers and customer numbers. The use of numbering resources by any telecommunications operator is subject to the approval by the MIIT. In January 2003, the former Ministry of Information Industry, or the MII, issued the Measures on Administration of Telecommunications Network Numbering Resources, pursuant to whichaddition, a user of numbering resources is required to pay a usage fee to the state. In December 2004, the MII, the MOF and the NDRC jointly issued the Provisional Administrative Measures with respect to the Collection of the Usage Fee of Telecommunications Network Numbering Resources, under which telecommunications companies are required to pay a usage fee to the PRC government by the 10th10th day of the first month of each quarter. Moreover, under these provisional measures,the applicable regulations, mobile telecommunications companies are required to pay an annual usage fee of RMB12 million for each network number.
Tariff Setting.Our tariffs are subject to regulation by various government authorities, including the MIIT, the NDRC and the relevant price regulatory authorities in Mainland China. Under the current telecommunications regulations, telecommunications tariffs are categorized into market based tariffs, government guidance tariffs and government standard tariffs. As a general matter, the actual price range in each service area is proposed by a network operator in that service area, and must be approved by the relevant price regulatory authorities in that service area. In addition, local usage charges, monthly fees, maximum domestic roaming usage charges and maximum domestic long distance tariffs (other than tariffs for IP phone calls) are also determined generally by the MIIT in consultation with the NDRC. In August 2005, the MII amended its tariff regulations relating to certain telecommunications services, which gave network operators more flexibility in setting, among other things, their domestic and international long distance tariffs and domestic roaming usage charges, provided that these tariffs and charges do not exceed the respective maximum tariffs it determined in consultation with the NDRC and that the tariff plans are filed with the MII (and, currently, with the MIIT) and the NDRC or, in some cases, the relevant price regulatory authorities at the provincial level.
The MIIT has continued encouraging mobile telecommunications operators in Mainland China to implement the caller-party-pays regime, and mobile telecommunications operators, including us, have been implementing the caller-party-pays regime. In particular, all of the new calling plan packages that we offer in Mainland China are generally based on tariffs equivalent to the caller-party-pays regime.
In March 2008, the MII reduced the maximum domestic roaming usage charges that a mobile telecommunications services provider may charge on roaming services. In December 2009, the PRC regulators further promulgated policies to eliminate domestic roaming usage charges on outgoing international long distance calls when domestic roaming services are used, as well as eliminate local usage charges on outgoing domestic and international long distance calls when roaming services are not used.
Our international roaming usage charges are set in accordance with agreements with the relevant foreign mobile operators. Under the current telecommunications regulations, tariffs for those telecommunications businesses that are considered fully competitive may be set by the service providers as market based tariffs.
Interconnection Arrangements and Lease Line Arrangements. Under the current telecommunications regulations, parties seeking interconnection must enter into an interconnection agreement and file such agreement with the MIIT. In addition, major telecommunications services providers that have control over essential telecommunications infrastructure and possess significant market share must allow interconnection to their networks by other operators. These telecommunications services providers must also establish interconnection rules and procedures based on the principles of non-discrimination and transparency and submit such rules and procedures to the MIIT for approval. The termination of any interconnection arrangements will require prior approval by the MIIT.
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The applicable regulations provide that interconnection related equipment must conform to the technical standards approved by the MIIT. See “— Technical Standards” below. The MIIT also determines the standard lease tariffs to be paid by telecommunications operators with respect to the leasing of transmission lines that facilitate interconnection between telecommunications networks.
Technical Standards. Certain regulatory authorities in Mainland China, including the MIIT, set technical standards and control the type, quality, manufacturing and sales of mobile telecommunications equipment used in or connected to public networks, all radio telecommunications equipment and all interconnection related equipment.
The establishment of base stations requires the approval of the relevant provincial regulatory authorities. We have not experienced and do not expect to experience material difficulty in obtaining permission to establish additional sites.
Capital Investment. We may be required to obtain approvals from relevant regulatory authorities in Mainland China with respect to some of our investment projects.
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Sharing of Telecommunications Infrastructure. In September 2008,December 2014, the MIIT and the SASAC jointly issued a Noticethe 2015 Implementation Opinions on Promoting the Joint Construction and Sharing of Telecommunications Infrastructure, which stipulates thator the Opinions. The Opinions required joint construction and sharing of three types of facilities, including transmission poles, pipelines, and indoor distribution systems, and identified four types of key sites, including public transportation, scenic areas and parks, buildings and other sites designated by local communications authorities, and two key areas of construction, namely the inter-provincial trunk cables and domestic extensions of international transmission systems. The Opinions require that: the primary telecommunications enterprises, in principle, should not construct on their own supporting facilities for base stations, such as the telecommunications operators in Mainland China must share existing transmission towers, and maststhe indoor distribution systems for public transportation and jointly construct futurebuildings; which shall be uniformly constructed by China Tower; regarding the construction of transmission towerspoles and masts. Thepipelines for the four types of key sites and the two key areas of construction, both joint notice also requiresconstruction and joint sharing are mandatory whenever conditions allow; regarding the telecommunications operators to share and jointly construct base station facilities and transmission linesconstruction of Fiber to the extent feasible, and prohibits exclusive arrangementsHome, or FTTH, in newly-built residential areas, the leasing of third-party sites and premises. CMCC, China Unicom and China Telecom have subsequently entered into an agreementtwo national standards applicable to set outFTTH construction should be strictly implemented; as to the framework under which they will jointly construct and share relevant telecommunications infrastructure.Internet facilities for the broadband access in existing residential areas, joint sharing is mandatory whenever conditions allow.
Convergence of Telecom, Broadcasting and Internet Businesses. In January 2010, the PRC government announced a policy decision, or the Three-Network-Convergence Policy, to accelerate the advancement of the convergence of television and radio broadcasting, telecommunications and Internet access businesses in order to realize interconnection and resource sharing between the three networks and further develop the provision of voice, data, television and other services. Specifically, the Three-Network Convergence Policy will be initially carried out on a trial basis in selective geographic locations between 2010 and 2012 and further implemented on a larger scale in 2013 through 2015. The PRC government may amend the relevant regulations or promulgate new regulations in order to implement the Three-Network Convergence Policy. The new policy decision is expected to enhance the development of information industries, satisfy consumers’ diverse demands, promote domestic consumption and form new areas for economic growth. In 2012, we received an audio and video transmission license from the former State Administration of Radio, Film and Television of the PRC, which enables us to provide audio and video programs through mobile Internet.
EmployeesVAT Reform Applicable to the Telecommunications Industry. Effective from June 1, 2014, the PRC business tax was replaced with a VAT in the telecommunications industry. The pilot tax rate for basic telecommunications services is 11% and the pilot tax rate for value-added telecommunications services is 6%. The application of the VAT to the telecommunications industry has had, and is expected to continue to have, an adverse effect on our operating revenue and profits in the short term. See “Item 3. Key Information — Risk Factors — Risks Relating to Our Business — Implementation of value-added tax in Mainland China has had, and is expected to continue to have, a negative impact on our operating revenue and profit.”
Our output VAT is excluded from operating revenue while our input VAT, which is incurred as a result of our receipt of services and purchases of telecommunications equipment and materials, is excluded from operating expenses or the original cost of equipment purchased and can be netted against our output VAT, arriving at the net amount of VAT recoverable or payable. As the VAT obligations are borne by our branches and subsidiaries, input and output VAT are set off at branches and subsidiaries levels, and the net amount of VAT recoverable or payable of branches and subsidiaries are not offset at the consolidation level. Such net amount of VAT is recorded in the line item of prepayments and other current assets and accrued expenses and other payables, respectively on the face of consolidated balance sheets.
We will strive to reduce the short-term adverse effect of the application of VAT to the telecommunications industry on our revenues and profits. Through various measures, including optimization of the development and sales and marketing models, implementation of enhanced management over cost, procurement and vendors’ tax qualifications, obtaining more input VAT credits on capital expenditure, we may receive more input VAT credits to offset our VAT output tax obligation. Besides, we can optimize our revenue structure by actively promoting value-added telecommunications services, which are subject to a lower VAT rate. As a result, our overall VAT obligation could be further reduced.
As the application of VAT is expected to expand to other industries nationwide from May 1, 2016, such as construction industry and other service industries, more capital expenditures and operating expenses, such as commission and service expenses for third parties will be entitled to input VAT credits in the future, and in turn, further offset our VAT output tax obligations. This will be beneficial to the development of our business and further reduce the adverse impact of the implementation of VAT on our operating revenues and profitability.
For the regulations in relation to tariff setting, spectrum usage, interconnection arrangements and lease line arrangements, see “ —Tariffs”, “ —Interconnection”, “ — Mobile Networks — Spectrum” and “ — Mobile Networks — Leased Lines”.
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Employees.As of December 31, 2010, 20112013, 2014 and 2012,2015, we had 164,336, 175,336197,030, 241,550 and 182,487438,645 employees, respectively. The significant increase in the number of the employees in 2015 was attributable to the requirement of reducing the proportion of labor sourced by third parties that provide services to us among the total labor under the Labor Contract Law of the People’s Republic of China, as amended, and its associated regulations, as a result of which we have made an adjustment on the structure of employees and outsourcing labor, leading to the significant increase in the number of employees and the significant decrease in number of outsourcing labor in 2015. Substantially all of our employees are located in Mainland China. The employees as of December 31, 2012 were2015 are classified in the following table. Approximately 63.1%56.56% of our permanent employees have college or graduate degrees. Set forth below is a breakdown of our employees by functionsfunction as of December 31, 2012.2015.
Management | ||||
Technical | ||||
Marketing | ||||
General affairs | ||||
Other | 29,469 | |||
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| |||
Total | ||||
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|
We provide benefits to certain employees, including housing, retirement benefits and hospital, maternity, disability and dependent medical care benefits. Most of our employees are members of a labor association. We have not experienced any strikes, slowdowns or labor disputes that have interfered with our operations to date,during 2015, and we believe that our relations with our employees are good.
The number of workerslabor sourced by third parties that provided services to us reached 334,782 as62,771 by the end of December 31, 2012.
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Properties, Plants and Equipment
We own, lease or have usage rights in various properties which consist of land and buildings for offices, administrative centers, staff quarters, retail outlets and technical facilities. We believe that all of our owned and leased properties are well maintained and are suitable and adequate for theirour present use.
Disclosure of Iranian Activities under Section 13(r) of the Exchange Act
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) of the Exchange Act requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable non-U.S. law, and whether or not the activities are sanctionable under U.S. law.
As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates in 2015 that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below.
CMCC, our parent company, is a party to international GSM roaming agreements with Telecommunication Kish Company and Mobile Company of Iran in Iran, which may be government-controlled entities. China Mobile International, one of our wholly-owned subsidiaries, is a party to an international roaming agreement with Irancell Telecommunications Services Company in Iran, which may be a government-controlled entity. In 2015, our gross revenue generated by roaming traffic under these agreements was less than US$500,000, and our net profit generated by roaming traffic under these agreements was insignificant.
China Mobile International intends to, and we understand that CMCC intends to, continue these activities in the future.
Item 4A. | Unresolved Staff Comments. |
None.
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Item 5. | Operating and Financial Review and Prospects. |
You should read the following discussion and analysis in conjunction with our consolidated financial statements, together with the related notes, included elsewhere in this annual report on Form 20-F.
Our consolidated financial statements as of and for the years ended December 31, 2011, 2012, 2013 and 2014 have been restated to reflect our acquisition of Target Assets and Businesses of China TieTong in December 2015. See “Item 4. Information on the Company — Business Overview — Acquisition from China TieTong of certain Assets, Businesses and Related Liabilities and Employees” and Note 2(b) to our consolidated financial statements.
Overview of Our Operations
The following table sets forth selected information about our operations for the periods indicated.
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 (As restated)(1) | 2014 (As restated) (1) | 2015 | |||||||||||||||||||
Total Voice Usage (in billions of minutes) | 3,461.6 | 3,887.2 | 4,192.3 | 4,316.0 | 4,293.9 | 4,220.8 | ||||||||||||||||||
Wireless Data Traffic (in billions of megabytes) | 143.3 | 361.4 | 1,039.2 | |||||||||||||||||||||
Including: Mobile Data Traffic (in billions of megabytes) | 103.1 | 161.0 | 289.8 | |||||||||||||||||||||
Mobile Data Traffic (in billions of megabytes) | 526.8 | 1,132.9 | 2,760.6 | |||||||||||||||||||||
Operating Revenue (in RMB millions) | 485,231 | 527,999 | 560,413 | 640,048 | 651,509 | 668,335 | ||||||||||||||||||
Operating Expenses (in RMB millions) | 334,477 | 376,700 | 409,891 | 508,624 | 534,189 | 565,413 | ||||||||||||||||||
Profit Attributable to Equity Shareholders (in RMB millions) | 119,640 | 125,870 | 129,274 | 116,791 | 109,218 | 108,539 |
(1) | As described in Note 2(b) to our consolidated financial statements, certain restatements to periods in 2013 and 2014 have been made to reflect our acquisition of Target Assets and Businesses. |
In 2010, 20112013, 2014 and 2012,2015, our customer base and voice usage volume continued to experience stable growth while our wireless data traffic business continued to experience rapid growth. Our total net increase in the number of customers was 60.719.6 million in 20122015 and our total customer base reached approximately 710.3826.2 million as of December 31, 2012.2015. Our total voice usage increaseddecreased by 12.3% from 2010 to 2011,0.5% in 2014 and decreased by 7.8% from 2011 to 2012. Our wireless data traffic increased by 152.1% from 2010 to 2011, and by 187.6% from 2011 to 2012.1.7% in 2015. Our mobile data traffic increased by 56.1% from 2010 to 2011,115.1% in 2014 and by 80.0% from 2011 to 2012.143.7% in 2015. As a result, our operating revenue increased by 8.8% from 2010 to 2011,1.8% in 2014 and by 6.1% from 2011 to 2012.2.6% in 2015. Our data business continued to grow, and our data services revenue accounted for 26.4%43.7% and 29.7%52.0% of our operating revenue from telecommunications services in 20112014 and 2012,2015, respectively. Our operating expenses increased by 12.6% from 2010 to 2011,5.0% in 2014 and by 8.8% from 2011 to 2012.5.8% in 2015. Our profit attributable to equity shareholders increaseddecreased by 5.2% from 2010 to 2011,6.5% in 2014 and by 2.7%0.6% in 2012.2015.
The PRC economy continued to grow in terms of GDP by 7.8%6.9% in 2012,2015, which provided a favorable environment for our continued business development. However, we faced various challenges arising from increased market saturation and intensified competition among mobile telecommunications operators and from providers offering telecommunications services using alternative technologies, in particular Internet service providers. As the mobile penetration rate in Mainland China reached 82.6%95.5% as of December 31, 2012,2015, the mobile telecommunications markets in some economically developed regions of Mainland China beganhas begun to show signs of saturation. We intend to continue to cope with market and industry challenges that may arise from time to time by leveraging our customer base, network quality, brand name, execution capabilities and quality of our customer service. Moreover, the continuouseconomic growth in the PRC economy and its modernization and urbanization offer an opportunity and platform for the ongoing development of the telecommunications industry, in particular the development of mobile Internet. Such development presents potential opportunities for us to further develop our wireless data traffic business and applications and information services.
We have been a mobile telecommunications services provider in China since our inception in 1997. We acquired all of the issued and outstanding shares of Hong Kong Mobile in 2006, which enabled us to expand into the Hong Kong mobile telecommunications market. See “Item 4. Information on the Company — The History and Development of the Company — Expansion Through Acquisitions.”
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We operate in an extensively regulated environment and our operations and financial performance are significantly affected by the PRC government’s regulation of the telecommunications industry. These regulations and policies may affect, among other things, our tariffs, technology and equipment standards and capital investment, as described in more detail under “Item 4. Information on the Company — Business Overview — Regulation.Regulation” and “Risk Factors — Risks Relating to Our Business — Our financial condition and results of operations have been adversely affected by the reduction in tariffs as a result of PRC national policies, and may continue to be affected by further reduction in tariffs due to future policy developments in the telecommunications industry.” In addition, we believe that the effects of the industry restructuring that took place in 2008, increasing competition from telecommunications services providers that use alternative technologies and entry of non-State-owned telecommunications services providers into the telecommunications services market have had, and will continue to have, a significant impact on the competitive landscape of the telecommunications industry in Mainland China. We expect competition from other telecommunications services providers may intensify. See “Risk Factors — Risks Relating to Our Business — Competition from other telecommunications services providers and competitors in other related industries may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations”, “Risk Factors — Risks Relating to Our Business — Changes in technology and business models may render our current technologies and business model obsolete and intensify competition from providers offering telecommunications services using alternative technologies, which could materially and adversely affect our business and market position” and “Risk Factors — Risks Relating to the Telecommunications Industry in Mainland ChinaOur Business — Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.position, which would in turn significantly reduce our revenues and profitability, and our financial condition and results of operations may be materially and adversely affected.” Our financial performance is also subject to the economic and social conditions in Mainland China. See “Risk Factors — Risks Relating to Mainland China — An economic slowdown in Mainland China may reduce the demand for our services and have a material adverse effect on our business, financial condition, results of operations and business prospects.”
Our Operating Arrangements with CMCC Have Affected and May Continue to Affect Our Financial Results
We have entered into agreements with CMCC with respect to, among other things, inter-provincial transmission lines leasing. Pursuant to these agreements, for the inter-provincial transmission lines we lease from other providers through CMCC, CMCC maintains its inter-provincial transmission line leasing arrangements with the relevant transmission line providers, and collects leasing fees from us and pays fees to the relevant transmission line providers.
Prior to September 13, 2012, we had an arrangement with CMCC under which CMCC maintained its settlement arrangements with respect to international interconnection and roaming with the relevant telecommunications services providers in foreign countries and regions, and collected the relevant usage fees and other fees from us and paid the same to the relevant mobile telecommunications services providers in foreign countries and regions. On September 13, 2012, we entered into an agreement with CMCC, pursuant to which CMCC would gradually transfer its settlement arrangements with certain telecommunications services providers in foreign countries and regions to China Mobile International, our wholly-owned subsidiary. As a result, our arrangement with CMCC with respect to international interconnection and roaming with certain telecommunications services providers has beenis being gradually phasingphased out.
We have also entered into a telecommunications services cooperation agreement with CMCC, pursuant to which we and CMCC provide customer development services to each other by utilizing our respective sales channels and resources, and cooperate in the provision of basic telecommunications services and value-added telecommunications services to customers of each other.
In addition, Since 2013, we have paid the leasing fees to CMCC for the “Village Connect” assets constructed before 2013 and undertaken the investments on any new “Village Connect” assets after 2013.
We have also entered into a network capacity leasing agreement with CMCC, pursuant to which we and our operating subsidiaries lease TD-SCDMA network capacity from CMCC and pay leasing fees to CMCC. We have also entered into a network assets leasing agreement with CMCC, pursuant to which we and CMCC will lease our respective telecommunications network operation assets to each other for a leasing fee.
Tariff Adjustments
The tariffs charged by PRC telecommunications operators are regulated by the PRC government. See “Item 4. Information on the Company — Business Overview — Regulation — Tariff Setting.” Moreover, we are allowed to offer our customers a variety of tariff packages with different monthly charges, levels of basic usage and charges for usage exceeding the covered basic usage, voice value-added services, data services and other features. See “Item 4. Information on the Company — Business Overview — Tariffs.”
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Our average voice services revenue per minute has generally decreased in recent years as tariffs have generally decreased. We expect the decrease in tarifftariffs to gradually slow down after the adjustments we implemented in recent years.
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Our ARPU Has Declined in Recent Years and May Further Decline in the Future
Our average revenue per user, or ARPU, has been declining in recent years. In 2015, our ARPU for mobile users decreased to RMB56 from RMB71RMB59 in 2011 to RMB68 in 2012,2014, primarily due to the fact that a significant numberour reduction of our new customers are users with relatively low usage of mobile telecommunications servicestariff and the availability of alternative voice services through the Internet. ThisOur ARPU may further decline was also due to the gradual implementation of the tariff adjustments that generally resulted in declines in tariffs. As we continue to expand our customer base and implement tariff adjustments, we expectsame factors. In 2015, our ARPU to further decline.for broadband users was RMB32.
Critical Accounting Policies and Estimates
The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with IFRS for the years ended December 31, 2010, 20112013, 2014 and 2012.2015. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and revenues and expenses during the years reported. Estimates are also used when accounting for certain items such as revenue recognition, provision for customer point reward program,interest income, allowance for doubtful accounts, depreciation, amortization of other intangible assets, impairment of property, plant and equipment, interest in associates, goodwill and other intangible assets arising from acquisitions. Actual results may differ from those estimates under different assumptions or conditions.
We believe that the following critical accounting estimates and related assumptions and uncertainties inherent in our accounting policies have a more significant impact on our consolidated financial statements, either because of the significance of the financial statement elements to which they relate or because they require judgment and estimation.
Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable. If it is probable that the economic benefits will flow to us and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in our profit or loss as follows:
(i) revenue derived from voice and data services areis recognized as revenue when the service is rendered;
(ii) sales of products are recognized when title passes to the buyer;
(iii) for offerings that include the provision of services and the sale of mobile handsets, we determine revenue from prepaidthe sale of the mobile terminals by deducting the fair value of the service element from the total contract consideration; and
(iv) for transactions that offer customer points rewards when the services are provided, the consideration allocated to the customer points rewards is based on its fair value, which is recorded as deferred revenue when the rewards are granted and recognized as revenue when the mobile telecommunications servicespoints are delivered based upon actual usage by customers;redeemed or expire.
(iii) sales of SIM cards and terminals are recognized on delivery of goods to the customers and such amount, net of cost of goods sold, is included in other net income due to its insignificance;Interest Income
(iv) interestInterest income is recognized as it accrues using the effective interest method; and
(v) revenue from fixed price contracts is recognized using the percentage of completion method.
Provision for Customer Point Reward Program
We invite our customers to participate in a customer point reward program, or the Reward Program, which provides customers the option of electing to receive free telecommunications services or other non-cash gifts. The level of bonus points earned under the Reward Program varies depending on the customers’ service consumption, loyalty and payment history.
Starting from January 1, 2009, as a result of the adoption of IFRIC Interpretation 13, we accounted for the reward points as a separately identifiable component of the sales transactions in which the points are granted. We allocate the consideration received with respect to a sales transaction to reward points by reference to the estimated fair value of the points and defer the revenue recognition until such reward points are redeemed by the customer or the points expire.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts based upon evaluation of the recoverability of the accounts receivable and other receivables at each balance sheet date. We base ourOur estimates are based on the aging of our accounts receivable and other receivable balances and our historical write-off experience, net of recoveries. If the financial condition of our customers were to deteriorate, additional allowances may be required.
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Depreciation
Depreciation is based on the estimated useful lives of items of property, plant and equipment, less their estimated residual value, if any, to write off the cost of these items using the straight-line method over their estimated useful lives. We review the estimated useful lives and residual values of our assets annually. We determine the useful life and residual values of our assets based on our historical experience with similar assets, expected usage of the assets and anticipated technological changes with respect to those assets. Estimates and assumptions used in setting depreciable lives require both judgment and estimation. Our policies regarding accounting for these assets are set forth in note 1(h)2(h) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.
Amortization of Other Intangible Assets
Amortization of other intangible assets is calculated to write off the cost of items of other intangible assets using the straight-line method over their estimated useful lives unless such lives are indefinite. We review the estimated useful lives of other intangible assets annually in order to determine the amount of amortization expense to be recorded during any reporting period. The useful lives are based on the estimated period over which future economic benefits will be received by us and taking into account any unexpected adverse changes in circumstances or events. The amortization expense for future periods is adjusted if there are significant changes from previous estimates. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the level of the cash-generating unit. Such intangible assets are not amortized. Our policies regarding accounting for these assets are set forth in note 1(f) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.
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Impairment of Property, Plant and Equipment, Interest in Associates, Goodwill and Other Intangible Assets
Our property, plant and equipment, consisting primarily of telecommunications transceivers, switching centers, transmission and other network equipment, comprise a significant portion of our total assets. Changes in technology or industry conditions may cause the estimated period of use or the value of these assets to change. Property, plant and equipment, interest in associates and other intangible assets subject to amortization are reviewed at least annually to determine whether there is any indication of impairment. The recoverable amount is estimated whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. In addition, for goodwill and other intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.
The recoverable amount of an asset is the greater of its fair value less costs to sellof disposal and its value in use.value-in-use. In assessing value in use,value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, which requires significant judgment relating to level of revenue and amount of operating costs. We use all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in further impairment chargescharge or reversal of impairment in future periods. No impairment of property, plant and equipment, interest in associates, goodwill and other intangible assets was recorded in 2010, 2011 or 2012.2013, 2014 and 2015, except for the goodwill impairment in 2014 and certain inefficient terminal transmission equipment and WLAN assets impairment in 2015. Details are set forth in note 14 and note 17 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.
Estimates and assumptions used in testing for recoverability require both judgment and estimation. Our policies regarding accounting for these assets and assessing their recoverability are set forth in note 1(j)2(j) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.
Possible Impact of Amendments, New Standards, Interpretations And Disclosures Issued But Not Yet Effective For The Year Ended December 31, 2015
Up to the date of issue of our consolidated financial statements for the year ended December 31, 2015, the IASB has issued a number of amendments and new standards and interpretations which are not yet effective for the year ended December 31, 2015 and which have not been adopted by us.
Of these developments, the following relate to matters that may be relevant to our operations and consolidated financial statements:
Effective for accounting periods beginning on or after | ||
Amendment to IFRS 11, “Joint Arrangements” | January 1, 2016 | |
Amendment to IAS 16, “Property, Plant and Equipment” | January 1, 2016 | |
Amendment to IAS 38, “Intangible Assets” | January 1, 2016 | |
Amendment to IFRS 10, “Consolidated Financial Statements” | January 1, 2016 | |
Amendment to IAS 28, “Investments in Associates and Joint Ventures” | * | |
Amendment to IAS 27, “Separate Financial Statements” | January 1, 2016 | |
Annual Improvement to IFRSs 2012-2014 cycle | January 1, 2016 | |
IFRS 15 “Revenue from Contracts with Customers” | January 1, 2018 | |
IFRS 9 “Financial Instrument” | January 1, 2018 | |
IFRS 16 “Leases” | January 1, 2019 |
* | The amendments were originally intended to be effective for annual periods beginning on or after January 1, 2016. The effective date has now been deferred/removed. Early application of the amendments continues to be permitted. |
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We are assessing the impact of these new standards and amendments to standards, and will adopt the relevant standards and amendments to standards in the subsequent periods as required.
In addition, the requirements of Part 9 “Accounts and Audit” of the Companies Ordinance came into operation from our first financial year commencing on or after March 3, 2014 in accordance with Section 358 of the Companies Ordinance. The adoption of the new Hong Kong Companies Ordinance does not have any significant impact on our consolidated financial statements for the year ending December 31, 2015 and only the presentation and the disclosure of certain information in our consolidated financial statements is affected.
Results of Operations
The following table sets forth selected consolidated statements of comprehensive income data for the years indicated:
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 (As restated) (1) | 2014 (As restated) (1) | 2015 | |||||||||||||||||||
(in millions of RMB) | (in millions of RMB) | |||||||||||||||||||||||
Operating revenue(1): | ||||||||||||||||||||||||
Voice services | 343,985 | 364,189 | 368,025 | |||||||||||||||||||||
Data services | 120,768 | 139,330 | 166,348 | |||||||||||||||||||||
Others | 20,478 | 24,480 | 26,040 | |||||||||||||||||||||
Operating revenue(2): | ||||||||||||||||||||||||
Revenue from telecommunications services | 600,424 | 591,602 | 584,089 | |||||||||||||||||||||
Revenue from sales of products and others | 39,624 | 59,907 | 84,246 | |||||||||||||||||||||
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Total | 485,231 | 527,999 | 560,413 | 640,048 | 651,509 | 668,335 | ||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||
Leased lines | 3,897 | 5,188 | 9,909 | |||||||||||||||||||||
Operating expenses(2): | ||||||||||||||||||||||||
Leased lines and network assets | 14,816 | 15,843 | 20,668 | |||||||||||||||||||||
Interconnection | 21,886 | 23,533 | 25,140 | 25,983 | 23,502 | 21,668 | ||||||||||||||||||
Depreciation | 86,230 | 97,113 | 100,848 | 111,493 | 122,805 | 136,832 | ||||||||||||||||||
Personnel | 24,524 | 28,672 | 31,256 | |||||||||||||||||||||
Employee benefit and related expenses(3) | 66,681 | 70,385 | 74,805 | |||||||||||||||||||||
Selling expenses | 90,590 | 96,830 | 104,906 | 91,719 | 75,655 | 59,850 | ||||||||||||||||||
Cost of products sold | 61,409 | 74,495 | 89,297 | |||||||||||||||||||||
Other operating expenses | 107,350 | 125,364 | 137,832 | 136,523 | 151,504 | 162,293 | ||||||||||||||||||
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Total | 334,477 | 376,700 | 409,891 | 508,624 | 534,189 | 565,413 | ||||||||||||||||||
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Profit from operations | 150,754 | 151,299 | 150,522 | 131,424 | 117,320 | 102,922 | ||||||||||||||||||
Other net income | 2,336 | 2,559 | 2,208 | |||||||||||||||||||||
Non-operating net income | 685 | 571 | 615 | |||||||||||||||||||||
Gain on the transfer of Tower Assets | — | — | 15,525 | |||||||||||||||||||||
Other gains | 989 | 1,171 | 1,800 | |||||||||||||||||||||
Interest income | 5,658 | 8,413 | 12,661 | 15,368 | 16,270 | 15,852 | ||||||||||||||||||
Finance costs | (902 | ) | (565 | ) | (390 | ) | (1,195 | ) | (487 | ) | (455 | ) | ||||||||||||
Share of profit of associates | 558 | 4,306 | 5,685 | |||||||||||||||||||||
Share of loss of jointly controlled entity | (18 | ) | (1 | ) | (1 | ) | ||||||||||||||||||
Share of profit of investments accounted for using the equity method | 7,063 | 8,248 | 8,090 | |||||||||||||||||||||
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Profit before taxation | 159,071 | 166,582 | 171,300 | 153,649 | 142,522 | 143,734 | ||||||||||||||||||
Taxation | (39,047 | ) | (40,603 | ) | (41,919 | ) | (36,746 | ) | (33,179 | ) | (35,079 | ) | ||||||||||||
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Profit for the year | 120,024 | 125,979 | 129,381 | 116,903 | 109,343 | 108,655 | ||||||||||||||||||
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Attributable to: | ||||||||||||||||||||||||
Equity shareholders | 119,640 | 125,870 | 129,274 | 116,791 | 109,218 | 108,539 | ||||||||||||||||||
Non-controlling interests | 384 | 109 | 107 | 112 | 125 | 116 | ||||||||||||||||||
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Profit for the year | 120,024 | 125,979 | 129,381 | 116,903 | 109,343 | 108,655 | ||||||||||||||||||
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(1) |
(2) | Our operating revenue components are revenue from telecommunications services and revenue from sales of products and others. Revenue from telecommunications services consists of voice services revenue, data services revenue and other revenue from telecommunications services. Revenue from sales of products and others is mainly derived from sales of SIM cards and terminals as well as revenue from construction contracts. |
On April 29, 2014, a notification (“Cai Shui [2014] No.43”) was jointly issued by the Ministry of Finance and the State Administration of Taxation, and as approved by the State Council of the PRC, the telecommunications industry would be included in the scope of the pilot program for the transformation from business tax to value-added tax (“VAT”) (the “VAT Program”) from June 1, 2014. According to the Cai Shui [2014] No.43, the VAT rates for the provision of basic telecommunications services and value-added telecommunications services are 11% and 6%, respectively. With the implementation of the VAT Program from June 1, 2014, the Group is not required to pay the business tax of 3% on the telecommunications services.
(3) | In accordance with requirements of reducing the proportion of labor sourced by third parties that provide services to the Group (“outsourcing labor”) among total labor under “Amendment to Labor Contract Law of the PRC” and its associated rules and regulations, we have made adjustment on the structure of employees and outsourcing labor. Such adjustment leads to the increase in |
Under the current categorization, our operating revenue components are voice services revenue, data services revenue and other operating revenue. Voice services revenue includes revenue derived from voice usage services (including usage fees and monthly fee) and revenue derived from voice value-added services. Data services revenue includes revenue derived from SMS and MMS, wireless data traffic, and applications and information services. Other operating revenue mainly includes interconnection revenue. Revenue derived from voice value-added services and certain voice-related services that had been included in value-added services revenue in our consolidated financial statements under the presentation in 2010 was re-categorized as voice services revenue. In addition, revenue derived from certain voice-related services that had been included in other operating revenue in our consolidated financial statements under the presentation in 2010 was also re-categorized as voice services revenue. Such re-categorization had no effect on our reported profit or loss, total income and expense or net assets for any of the periods presented.
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Year Ended December 31, 20122015 Compared to Year Ended December 31, 20112014
Operating Revenue. Our operating revenue mainlycomponents are revenue from telecommunications services and revenue from sales of products and others. Revenue from telecommunications services primarily consists of voice services revenue and data services revenue. Voice services revenue mainly includes standard local usage fees for airtime and applicable domestic and international long distance charges receivable from customers for the use of our mobile telecommunications networks and facilities, fees in respect of roaming out calls made by our customers outside their registered service areas and fees charged for voice value-added services. Data services revenue is mainly derived from SMS and MMS, wireless data traffic services, wireline broadband business and applications and information services. Other operating revenue mainlyfrom telecommunications services largely represents interconnection revenue. Revenue from sales of products and others is mainly derived from sales of SIM cards and terminals, as well as revenue from construction contracts. See note 1 to the table above.
Operating revenue increased by 6.1%2.6% from RMB527,999RMB651,509 million in 20112014 to RMB560,413RMB668,335 million (US$89,952103,173 million) in 2012.2015. This increase was primarily due to the continued expansiongrowth in our customer base, rapid growth of wireless data traffic businessservices and the continued growthour terminal sales business.
Revenue from telecommunications services decreased by 1.3% from RMB591,602 million in applications and information services. Our total number of customers was 710.32014 to RMB584,089 million as of December 31, 2012, compared to 649.6 million as of December 31, 2011.
(US$90,168 million) in 2015. Voice services revenue increased slightlydecreased by 1.1%16.5% from RMB364,189RMB313,476 million in 20112014 to RMB368,025RMB261,896 million (US$59,07240,430 million) in 2012.2015. This increasedecrease was principally due to the substitution effect of Over The Top products, which resulted from the continued expansion in our customer base and further increasesa decrease in our voice usage, and the implementation of VAT in 2012.the PRC. Our average voice services revenue per minute continued to reflect a downward trend from RMB0.094RMB0.072 in 20112014 to RMB0.088RMB0.061 in 2012.2015. With intensified market competition and with further declines in tariffs,tariff decreases, our average voice services revenue per minute may continue to decline in future periods. In response to the downward trend in voice services revenue, we are providing reasonable tariff packages and undertaking sales and marketing activities. As a percentage of operating revenue from telecommunications services, voice services revenue decreased from 69.0%53.0% in 20112014 to 65.7%44.8% in 2012.2015.
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Set forth below is a table summarizing certain results of our data business for the periods indicated.
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2011 | 2012 | 2014 (As restated) (1) | 2015 | |||||||||||||
(Revenue, in millions of RMB) | (Revenue, in millions of RMB) | |||||||||||||||
SMS and MMS | 46,462 | 44,215 | 34,780 | 31,244 | ||||||||||||
Wireless data traffic | 44,428 | 68,257 | 153,926 | 200,857 | ||||||||||||
of which: Mobile data traffic | 150,571 | 198,270 | ||||||||||||||
Wireline broadband | 16,204 | 18,339 | ||||||||||||||
Applications and information services | 48,440 | 53,876 | 53,552 | 52,985 | ||||||||||||
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Data services revenue | 139,330 | 166,348 | 258,462 | 303,425 | ||||||||||||
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Data services revenue as a percentage of operating revenue | 26.4 | % | 29.7 | % | ||||||||||||
Data services revenue as a percentage of revenue from telecommunications services | 43.7 | % | 52.0 | % |
(1) | As described in Note 2(b) to our consolidated financial statements, certain restatements to periods in 2014 have been made to reflect our acquisition of Target Assets and Businesses which was accounted for using merger accounting in accordance with the Accounting Guideline 5 “Merger Accounting for Common Control Combinations” (“AG 5”) issued by the HKICPA. |
Data services revenue increased by 19.4%17.4% from RMB139,330RMB258,462 million in 20112014 to RMB166,348RMB303,425 million (US$26,70146,841 million) in 2012.2015, surpassing our voice services revenue for the first time. This increase was mainly due to our continued efforts to promote data traffic services operations, with a focus on the expansion of our 4G network capacity to continue to attract new customers and in product innovationresponse to the national policy of “speed upgrade and business development.tariff reduction”, we offered discounts to our tariff plans and certain amount of free data usage to our customers during non-peak time and launched an unused data traffic carry-over program for our mobile monthly plans that are charged based on pre-determined data traffic, which had a negative impact over our data services revenue in 2015. The increase in our data service revenue was also partially offset by the negative effect of the implementation of VAT in the PRC telecommunications industry. Our data business includeincludes wireless data traffic, wireline broadband, SMS and MMS, wireless data traffic and applications and information services. Revenue generated from mobile data traffic, which has become a strong driver of revenue growth, grew by 31.7% to RMB198,270 million in 2015, as compared to RMB150,571 million in 2014, primarily due to the rapid development of the mobile Internet business, the increasing market penetration of smartphones by focusing on the sales of 4G terminals and the development of 4G services. The growth of our revenue from mobile data traffic in 2015 was partially offset by the same reasons reducing the growth of our data services revenue. Revenue generated from wireline broadband business grew by 13.2% to RMB18,339 million in 2015, as compared to RMB16,204 million in 2014. Revenue generated from SMS and MMS decreased by 4.8% to RMB44,21510.2% from RMB34,780 million in 2012 from RMB46,4622014 to RMB31,244 million in 2011 as SMS and MMS tariffs continue to decline and2015, as competition from Internet instant messaging applications continued to intensify. Revenue generated from wireless data traffic grew substantiallyintensify, and SMS service volume decreased by 53.6% to RMB68,257 million in 2012, as8.4% compared to RMB44,428 million in 2011, primarily due to the significant increase in mobile data traffic resulting from the rapid development of the mobile Internet business and the increasing market penetration of smartphone terminals. Growth of applications and information services, in particular Mobile Mailbox, Mobile Reading, Mobile Video and Mobile Gaming, was also an important driver for our data business.previous year. Revenue generated from applications and information services grewdecreased by 11.2%1.1% to RMB53,876RMB52,985 million in 2012,2015, as compared to RMB48,440RMB53,552 million in 2011.2014. As a percentage of operating revenue from telecommunications services, data services revenue increased from 26.4%43.7% in 20112014 to 29.7%52.0% in 2012. We expect our data services revenue, in particular revenue generated2015.
Revenue from wireless data traffic businesssales of products and applications and information services, to continue to grow in 2013.
Other operating revenueothers increased by 6.4%40.6% from RMB24,480RMB59,907 million in 20112014 to RMB26,040RMB84,246 million (US$4,18013,005 million) in 2012. As a percentage2015 due to the increase in our sales of operating revenue, other operating revenue remained stable at 4.6%4G terminals. The increase was partially offset by the negative effect of the implementation of VAT in 2011 and 2012.the PRC telecommunications industry.
Operating Expenses. Operating expenses include leased line expenses,lines and network assets, interconnection expenses, depreciation expenses relating to our mobile telecommunications network and other property, plant and equipment, personnelemployee benefit and related expenses, selling expenses, cost of products sold and other operating expenses. Other operating expenses primarily consist of network maintenance expenses, impairment loss for doubtful accounts,operating lease charges, impairment loss of inventories, amortization of other intangibledoubtful accounts, assets operating lease charges, write-off of property, plant and equipment that have been demolished and disconnected from our existing network, labor service expenses, administrationwritten off and other miscellaneous expenses.
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Operating expenses increased by 8.8%5.8% from RMB376,700RMB534,189 million in 20112014 to RMB409,891RMB565,413 million (US$65,79287,285 million) in 2012. This2015. The increase was generallydue to the increases in line with the continued growthsales of our devices, investments and the expansion of asset scale resulting in increases in depreciation expenses and maintenance fees and other operating expenses and the usage fees payable to China Tower for telecommunications towers. The increase in our business and expansion in our customer base and our ongoing effortsoperating expenses is partially offset by the input VAT credits we were entitled to deliver better quality services and to cope with intensified competition in the telecommunications market in Mainland China.
Leased line expenses increased significantly by 91.0% from RMB5,188 million in 2011 to RMB9,909 million (US$1,591 million) in 2012. This increase reflected an increase in leasing fees of Internet ports paid or payable to other telecommunications operators as a result of the rapid developmentimplementation of our Internet related businessesVAT in the PRC telecommunications industry.
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Leased lines and an increase in payment of RMB1,385network assets expenses increased by 30.5% from RMB15,843 million to CMCCRMB20,668 million (US$3,191 million) in connection with2015. The increase was mainly because we accrued usage fees to China Tower in an amount of RMB5.6 billion in respect of existing telecommunications towers for November and December 2015 and the leasenew telecommunications towers from the date of its TD-SCDMA network capacity mainly due to an increase in the utilization of the TD-SCDMA network.delivery. As a percentage of operating expenses, leased linelines and network assets expenses increased from 1.4%3.0% in 20112014 to 2.4%3.7% in 2012.2015.
Interconnection expenses increaseddecreased by 6.8%7.8% from RMB23,533RMB23,502 million in 20112014 to RMB25,140RMB21,668 million (US$4,0353,345 million) in 2012,2015, primarily due to an increasea decrease in interconnection voice, SMS and MMS usage, volume. Our continuing marketing strategy of reorganizingwhich resulted in a decrease in settlement expenses for voice, SMS and re-routing traffic volume has led to a lower proportion of inter-network traffic volume, and interconnectionMMS services. Interconnection expenses as a percentage of operating expenses decreased slightly from 6.2%4.4% in 20112014 to 6.1%3.8% in 2012.2015.
Depreciation expenses increased by 3.8%11.4% from RMB97,113RMB122,805 million in 20112014 to RMB100,848RMB136,832 million (US$16,18721,123 million) in 2012. This2015. The increase was mainly due to the expansion in our ongoingnetwork assets, which is in turn due to large-scale capital expendituresexpenditure undertaken by us for the constructionpurpose of building and expanding our 4G network as part of our mobile telecommunications networks, support systems, transmission and structural facilities and the development of new businesses to better support the growth of customer base and voice usage and to meet an unprecedented increase in demand in wireless data traffic.strategic transformation. As a percentage of operating expenses, depreciation expenses decreasedincreased from 25.8%23.0% in 20112014 to 24.6%24.2% in 2012.2015.
PersonnelEmployee benefit and related expenses increased by 9.0%6.3% from RMB28,672RMB70,385 million in 20112014 to RMB31,256RMB74,805 million (US$5,01711,548 million) in 2012.2015. This increase was primarily due to anthe rise in social insurance expenses, slight increase in headcount from 175,336 as of employee compensation and the end of 2011 to 182,487 as of the end of 2012 as we hired new staff members to cope with the demandsimplementation of our business development, especially in connection with our effort to achieve enhanced operational efficiency by establishing subsidiaries to operate certain aspects of our businesses.enterprise annuity system. As a percentage of operating expenses, personnelemployee benefit and related expenses remained stable at 7.6% in 2011 and 2012.13.2% from 2014 to 2015.
Selling expenses increaseddecreased by 8.3%20.9% from RMB96,830RMB75,655 million in 20112014 to RMB104,906RMB59,850 million (US$16,8399,239 million) in 2012.2015. This increasedecrease was principally the result of an increase in expandingour deepened transformation of marketing mode, optimized structure of our selling expenses, marketization of terminal sales we promoted, our accelerated transformation of social channels, developing new modelsour enhancing the concentration of terminalsadvertising and improving customer service in response to intensified market competition.utilizing big data for precise marketing, thereby boosting our marketing efficiency significantly. As a percentage of operating expenses, selling expenses decreased slightly from 25.7%14.2% in 20112014 to 25.6%10.6% in 2012.2015.
Cost of products sold increased by 19.9% from RMB74,495 million in 2014 to RMB89,297 million (US$13,785 million) in 2015. This increase was generally in line with the increase in sales of devices, especially TD-LTE smartphones. As a percentage of operating expenses, cost of products sold increased from 13.9% in 2014 to 15.8% in 2015.
Other operating expenses increased by 9.9%7.1% from RMB125,364RMB151,504 million in 20112014 to RMB137,832RMB162,293 million (US$22,12425,054 million) in 2012. This increase was primarily due to an increase in maintenance expenses from RMB35,096 million in 2011 to RMB39,184 million in 2012. This increase was also due to an increase in labor service expenses for services provided by third parties from RMB20,014 million in 2011 to RMB23,934 million in 2012, and an increase in the cost of utilities, such as water, electricity and heating. Increase in other operating expenses were partially offset by a decrease in write-off of property, plant and equipment from RMB5,853 million in 2011 to RMB2,818 million in 2012. In addition, this increase was due to an increase in operating lease charges from RMB11,235 million in 2011 to RMB12,752 million in 2012, incurred mainly in connection with our continued investments in our network equipment and facilities.2015. As a percentage of operating expenses, other operating expenses increased from 33.3%28.3% in 20112014 to 33.6%28.7% in 2012.2015. This increase was primarily due to the increase in maintenance expenses and the provision for impairment of certain inefficient terminal transmission equipment and WLAN assets, which was partially offset by the decrease in our administrative expenses such as conference and travelling expenses. For more information on our other operating expenses, see note 56 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.
Profit from Operations. As a result of the foregoing, profit from operations decreased by 0.5%12.3% from RMB151,299RMB117,320 million in 20112014 to RMB150,522RMB102,922 million (US$24,16015,888 million) in 2012,2015, and operating margin (profit from operations as a percentage of operating revenue) decreased from 28.7%18.0% in 20112014 to 26.9%15.4% in 2012.2015.
Gain on the Transfer of Tower Assets.In 2015, we realized a gain of RMB15,525 million (US$2,397 million) on the transfer of telecommunication towers and related assets to China Tower.
Other Net Income.Gains. Other net income represents primarily net salesgains increased by 53.7% from SIM cards and terminals and revenue from construction contracts. Other net income decreased by 13.7% from RMB2,559RMB1,171 million in 20112014 to RMB2,208RMB1,800 million (US$354278 million) in 2012. This decrease was2015, principally due to a decreasean increase in revenueothers from construction contracts.
Non-Operating Net Income. Non-operating net income increased by 7.7% from RMB571RMB656 million in 20112014 to RMB615 million (US$99 million)RMB1,131million in 2012, principally due to2015 as a foreign exchange gainresult of RMB17 million in 2012, compared to a foreign exchange lossthe VAT refund of RMB9 million in 2011. Non-operating net income is mainly comprisedhigh and new technologies businesses received by certain of penalty income and other miscellaneous non-operating income.our subsidiaries.
Interest Income. Interest income increaseddecreased by 50.5%2.6% from RMB8,413RMB16,270 million in 20112014 to RMB12,661RMB15,852 million (US$2,0322,447 million) in 2012,2015, mainly due to an increase inbecause the benchmark deposit rates were reduced by PBOC and the average yield of our bank deposits as we adjustedand cash balance during the composition of our bank deposits and an increase inyear decreased compared to the amount of bank deposits in 2012.
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Finance Costs. Finance costs decreased by 31.0%6.6% from RMB565RMB487 million in 20112014 to RMB390RMB455 million (US$6370 million) in 2012. The higher finance costs in 2011, as compared to 2012,2015. This decrease was mainly attributabledue to a decrease in interest on bonds as the redemption in June 2011 of guaranteed bonds due in 2011 in the aggregateissued by China TieTong with a principal amount of RMB5,000 million. ThisRMB1,000 million was repaid in 2015 and a decrease was also due to lowerin interest rates in 2012 in respecton entrusted loans as we repaid certain amount of the deferred consideration payable in connection with the acquisition of our subsidiaries in 2002 and 2004 respectively. In 2012, the average interest rate that we paid on our outstanding borrowings was approximately 1.36%, compared to 1.81% in 2011.entrusted loans from CMCC.
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Share of Profit of Associates.Investments Accounted for Using the Equity Method.We had a share of profit of associatesinvestments accounted for using the equity method of RMB5,685RMB8,090 million (US$9131,249 million) in 2012,2015, which was primarily attributable to our shareholding of 20% of the enlarged issued share capital ofin SPD Bank, compared to aRMB8,248 million in 2014. For more information on our share of profit of associates of RMB4,306 millioninvestments accounted for using equity method, see note 19 to our consolidated financial statements included elsewhere in 2011. Our share of profit of associates has been adjusted to reflect the amortization of the proportionate fair value of SPD Bank’s identifiable net assets as of the date of our investment in excess of our cost of investment.this annual report on Form 20-F.
Profit before Taxation. As a result of the foregoing, profit before tax increased by 2.8%0.9% from RMB166,582RMB142,522 million in 20112014 to RMB171,300RMB143,734 million (US$27,49622,189 million) in 2012.2015.
Taxation. Our income tax expense increased by 3.2%5.7% from RMB40,603RMB33,179 million in 20112014 to RMB41,919RMB35,079 million (US$6,7285,415 million) in 2012.2015. This increase was mainly due to an increase in our profit before taxation.taxable income. Our effective tax rate was 23.3% in 2014 and 24.4% in 2011 and 24.5% in 2012,2015, respectively.
Profit Attributable to Equity Shareholders. As a result of the foregoing and after taking into account non-controlling interests, profit attributable to equity shareholders increaseddecreased by 2.7%0.6% from RMB125,870RMB109,218 million in 20112014 to RMB129,274RMB108,539 million (US$20,75016,756 million) in 2012.2015. Net profit margin (profit attributable to equity shareholders as a percentage of operating revenue) decreased from 23.8%16.8% in 20112014 to 23.1%16.2% in 2012.2015.
Year Ended December 31, 20112014 Compared to Year Ended December 31, 20102013
Operating Revenue. Our operating revenue mainly consists of voice services revenue and data services revenue. Voice services revenue mainly includes standard local usage fees for airtime and applicable domestic and international long distance charges receivable from customers for the use of our mobile telecommunications networks and facilities, fees in respect of roaming out calls made by our customers outside their registered service areas and fees charged for voice value-added services. Data services revenue is mainly derived from SMS and MMS, wireless data traffic and applications and information services. Other operating revenue mainly represents interconnection revenue.
Operating revenue increased by 8.8%1.8% from RMB485,231RMB640,048 million in 20102013 to RMB527,999RMB651,509 million in 2011.2014. This increase was primarily due to the continued expansiongrowth in our customer base, rapid growthdata services and our terminal sales business.
Revenue from telecommunications services decreased by 1.5% from RMB600,424 million in 2013 to RMB591,602 million in 2014. Voice services revenue decreased by 13.0% from RMB360,425 in 2013 to RMB313,476 million in 2014. This decrease was principally due to the substitution effect of data business and the continued growthOver The Top products, which resulted in a decrease in voice usage volume. Our total number of customers was approximately 649.6 million as of December 31, 2011, compared to approximately 584.0 million as of December 31, 2010.
Voice services revenue increased by 5.9% from RMB343,985 million in 2010 to RMB364,189 million in 2011. This increase principally resulted fromfor the further increase in our voice usagefirst time, and the continued expansionimplementation of VAT in our customer base during 2011. Although ourthe PRC. Our average voice services revenue per minute reflectedcontinued to reflect a downward trend from RMB0.140RMB0.082 in 20102013 to RMB0.136RMB0.072 in 2011, this decline was partially offset by higher growth in our voice usage in 2011.2014. With intensified market competition and with further declines in tariffs,tariff decreases, our average voice services revenue per minute may continue to decline in future periods. In response to the downward trend in voice services revenue, we are providing reasonable tariff packages and undertaking sales and marketing activities. As a percentage of operating revenue from telecommunications services, voice services revenue decreased from 70.9%60.0% in 20102013 to 69.0%53.0% in 2011.2014.
Set forth below is a table summarizing certain results of our data business for the periods indicated.
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2010 | 2011 | 2013 (As restated) (1) | 2014 (As restated) (1) | |||||||||||||
(Revenue, in millions of RMB) | (Revenue, in millions of RMB) | |||||||||||||||
SMS and MMS | 46,889 | 46,462 | 41,321 | 34,780 | ||||||||||||
Wireless data traffic | 30,644 | 44,428 | 108,239 | 153,926 | ||||||||||||
of which: Mobile data traffic | 105,373 | 150,571 | ||||||||||||||
Wireline broadband | 12,089 | 16,204 | ||||||||||||||
Applications and information services | 43,235 | 48,440 | 50,324 | 53,552 | ||||||||||||
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Data services revenue | 120,768 | 139,330 | 211,973 | 258,462 | ||||||||||||
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Data services revenue as a percentage of operating revenue | 24.9 | % | 26.4 | % | ||||||||||||
Data services revenue as a percentage of revenue from telecommunications services | 35.3 | % | 43.7 | % |
(1) | As described in Note 2(b) to our consolidated financial statements, certain restatements to periods in 2013 and 2014 have been made to reflect our acquisition of Target Assets and Businesses which was accounted for using merger accounting in accordance with the Accounting Guideline 5 “Merger Accounting for Common Control Combinations” (“AG 5”) issued by the HKICPA. |
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Data services revenue increased by 15.4%21.9% from RMB120,768RMB211,973 million in 20102013 to RMB139,330RMB258,462 million in 2011.2014. This increase was mainly due to our continued efforts in product innovation and business development.to promote data traffic services operations, with a focus on the expansion of our 4G network capacity. Our data business includeincludes wireless data traffic, wireline broadband services, SMS and MMS, wireless data traffic and applications and information services. Revenue generated from mobile data traffic, which has become a strong driver of revenue growth, grew by 42.9% to RMB150,571 million in 2014, as compared to RMB105,373 million in 2013, primarily due to the rapid development of the mobile Internet business, the increasing market penetration of smartphones by focusing on the sales of 4G terminals and the development of 4G services. Revenue generated from SMS and MMS decreased by 0.9% to RMB46,46215.8% from RMB41,321 million in 2011 from RMB46,8892013 to RMB34,780 million in 2010 as SMS and MMS tariffs continue to decline and2014, as competition from Internet instant messaging applications continued to intensify. Revenue generated from wireless data traffic grew substantiallyintensify, and SMS service volume decreased by 45.0% to RMB44,428 million in 2011, as16.7% compared to RMB30,644 million in 2010. The rapid growththe previous year. Growth of our applications and information services, in particular Wireless Music, Mobile Reading, Mobile Video“and-Reading”, “and-Video”, “and-Game”, and Mobile Mailbox,“and-Animation”, was an important driver for our data business. In particular, revenuefavorable. Revenue generated from applications and information services grewincreased by 12.0%6.4% to RMB48,440RMB53,552 million in 2011,2014, as compared to RMB43,235RMB50,324 million in 2010.2013. As a percentage of operating revenue from telecommunications services, data services revenue increased from 24.9%35.3% in 20102013 to 26.4%43.7% in 2011.2014. We expect our data business,services revenue, in particular revenue generated from wireless data traffic and applications and information services,business, to continue to grow.grow in 2015.
Other operating revenueRevenue from sales of products and others increased by 19.5%51.2% from RMB20,478RMB39,624 million in 20102013 to RMB24,480RMB59,907 million in 2011. As a percentage of operating revenue, other operating revenue increased from 4.2% in 2010 to 4.6% in 2011 largely2014. This increase was primarily due to our efforts to increase the increase in interconnection revenue as a resultsales of increasing volumeterminals, since the long-term development of incoming calls from other telecommunications operators.the TD terminal supply chain has considerable potential to drive data traffic growth.
Operating Expenses. Operating expenses include leased linelines and network assets expenses, interconnection expenses, depreciation expenses relating to our mobile telecommunications network and other property, plant and equipment, personnelemployee benefit and related expenses, selling expenses, cost of products sold and other operating expenses. Other operating expenses primarily consist of network maintenance expenses, impairment loss for doubtful accounts,operating lease charges, impairment loss of inventories, amortization of other intangibledoubtful accounts, assets operating lease charges, write-off of property, plant and equipment that have been demolished and disconnected from our existing network, labor service expenses, administrationwritten off and other miscellaneous expenses.
Operating expenses increased by 12.6%5.0% from RMB334,477RMB508,624 million in 20102013 to RMB376,700RMB534,189 million in 2011. This2014. The increase notablywas due to the growth in other operating expenses (particularly maintenancethe sales of our terminals and an increase in investments and the expansion of asset scale resulting in increases in depreciation expenses and labor services expenses) and depreciation, was generally in line with the continued growth in our customer base and usage volume and our ongoing efforts to deliver better quality services and to cope with intensified competition.maintenance fees.
Leased linelines and network assets expenses increased by 33.1%6.9% from RMB3,897RMB14,816 million to RMB15,843 million in 2010 to RMB5,188 million in 2011. This2014. The increase reflectedwas a result of (i) an increase in payment of RMB514 million to CMCC in connection with the lease of its TD-SCDMA network capacity and theleasing fees, due to an increase in TD-SCDMA network utilization rate and expansion in the asset scale relating to the TD-SCDMA network and (ii) our payment of the leasing fees of Internet ports paid to other telecommunications operators as a result ofCMCC for the rapid development of our Internet related businesses.“Village Connect” assets constructed before 2013. As a percentage of operating expenses, leased linelines and network assets expenses increased slightly from 1.2%2.9% in 20102013 to 1.4%3.0% in 2011.2014.
Interconnection expenses increaseddecreased by 7.5%9.5% from RMB21,886RMB25,983 million in 20102013 to RMB23,533RMB23,502 million in 2011,2014, primarily due to an increasea decrease in SMS and MMS settlement expenses to other operators as a result of adjustments in the interconnection voice usage volume. Our continuing marketing strategy to reorganize and re-route traffic volume has led to a lower proportion of inter-network traffic volume.settlement standards. Interconnection expenses as a percentage of operating expenses decreased from 6.5%5.1% in 20102013 to 6.2%4.4% in 2011.2014.
Depreciation expenseexpenses increased by 12.6%10.1% from RMB86,230RMB111,493 million in 20102013 to RMB97,113RMB122,805 million in 2011. This2014. The increase was mainly due to the expansion in our continuousnetwork assets, which is in turn due to large-scale capital expendituresexpenditure undertaken by us for the constructionpurpose of building and expanding our 4G network as part of our mobile telecommunications networks, support systems, transmission and structural facilities and the development of new businesses to better support the growth of customer base and voice usage and to meet an unprecedented increase in demand in wireless data traffic.strategic transformation. As a percentage of operating expenses, depreciation expense remained stable at 25.8%expenses increased from 21.9% in 20102013 to 23.0% in 2014.
Employee benefit and 2011.
Personnelrelated expenses increased by 16.9%5.6% from RMB24,524RMB66,681 million in 20102013 to RMB28,672RMB70,385 million in 2011.2014. This increase was primarily due to an increase in headcount from 164,336and social insurance costs. The total number of our personnel increased due to the need to support 4G network construction and the transformation of our development, as well as adjustment of the end of 2010 to 175,336 as of the end of 2011 as we hired new staff members to copeemployment structure in accordance with the demandsrequirements of our business development, especially in connection with our effort to achieve enhanced operational efficiency by establishing a number of subsidiaries, such as China Mobile Internationalrelevant laws, rules and China Mobile Device, that operate certain aspects of our businesses.regulations. As a percentage of operating expenses, personnelemployee benefit and related expenses increased from 7.3%was 13.1% and 13.2% in 2010 to 7.6% in 2011.2013 and 2014, respectively.
Selling expenses increaseddecreased by 6.9%17.5% from RMB90,590RMB91,719 million in 20102013 to RMB96,830RMB75,655 million in 2011.2014. This increasedecrease was principally the result of an increase in expandingour decision to optimize our marketing and sales channels and improving customer service in response to intensified market competition.model. As a percentage of operating expenses, selling expenses decreased from 27.1%18.0% in 20102013 to 25.7%14.2% in 2011.2014.
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Cost of products sold increased by 21.3% from RMB61,409 million in 2013 to RMB74,495 million in 2014. This increase was mainly due to our efforts to increase the sales of devices, especially TD-LTE smartphones, resulting in a corresponding increase in the costs of goods sold. As a percentage of operating expenses, cost of products sold increased from 12.1% in 2013 to 13.9% in 2014.
Other operating expenses increased by 16.8%11.0% from RMB107,350RMB136,523 million in 20102013 to RMB125,364RMB151,504 million in 2011. This increase was primarily due to an increase in maintenance expenses from RMB31,390 million in 2010 to RMB35,096 million in 2011, an increase in write-off of property, plant and equipment from RMB2,763 million in 2010 to RMB5,853 million in 2011, incurred principally as a result of retirement of obsolete or damaged network assets with a net book value of RMB5,853 million, and an increase in operating lease charges from RMB9,839 million in 2010 to RMB11,235 million in 2011, incurred principally as a result of our continued investments in our network equipment and facilities. This increase was also due to an increase in labor service expenses for services provided by third parties from RMB15,649 million in 2010 to RMB20,014 million in 2011, and an increase in the price of utilities, such as water, electricity and heating. Increase in other operating expenses were partially offset by a decrease in impairment loss of doubtful accounts from RMB4,019 million in 2010 to RMB3,548 million in 2011.2014. As a percentage of operating expenses, other operating expenses increased from 32.1%26.9% in 20102013 to 33.3%28.3% in 2011.2014. This increase was primarily due to an increase in network maintenance and other related expenses attributable to the expansion in our network assets. The increase in other operating expenses was partially offset by a decrease in conference and travelling expenses due to the implementation of controls over administrative expenses. For more information on our other operating expenses, see note 56 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.
Profit from Operations. As a result of the foregoing, profit from operations increaseddecreased by 0.4%10.7% from RMB150,754RMB131,424 million in 20102013 to RMB151,299RMB117,320 million in 2011,2014, and operating margin (profit from operations as a percentage of operating revenue) decreased from 31.1%20.5% in 20102013 to 28.7%18.0% in 2011.2014.
Other Net Income.Gains. Other net income represents primarily net sales from SIM cards and terminals and revenue from construction contracts. These items are included in other net income due to their insignificance. Other net incomegains increased by 9.5%18.4% from RMB2,336RMB989 million in 20102013 to RMB2,559RMB1,171 million in 2011. This increase was2014, principally due to an increase in revenuepenalty income from construction contracts and an increase in net sales from sales of SIM cards and terminals.
Non-Operating Net Income. Non-operating net income decreased by 16.6% from RMB685RMB411 million in 20102013 to RMB571RMB515 million in 2011. The higher non-operating net increase in 2010 was attributable to a write back of accounts payable while there was no such a write back in 2011. Non-operating net income is mainly comprised of penalty income and other miscellaneous non-operating income.2014.
Interest Income. Interest income increased by 48.7%5.9% from RMB5,658RMB15,368 million in 20102013 to RMB8,413RMB16,270 million in 2011,2014, mainly because the average bank and cash balance during the year increased compared to the previous year and the average yield of our bank deposits increased due to the higher interest rate in 2011 and an increase inoptimization of the composition of our bank deposits.
Finance Costs. Finance costs decreased by 37.4%59.2% from RMB902RMB1,195 million in 20102013 to RMB565RMB487 million in 2011.2014. This decrease was primarily due to the redemption of guaranteed bonds duebecause in 2011 with2014 there was no longer an aggregate principal amount of RMB5,000 million and a lower interest rate in 2011 in respect ofoutstanding balance for the deferred consideration payable in connection with the acquisition of our subsidiaries in 2002 and 2004 respectively. In 2011, the average interest rate that we paid on our outstanding borrowings was approximately 1.81%, comparedand certain repayment of entrusted loans granted by CMCC to 2.68% in 2010.China TieTong.
Share of Profit of Associates.Investments accounted for Using the Equity Method.We had a share of profit of associatesinvestments accounted for using the equity method of RMB4,306RMB8,248 million in 2011,2014, which was primarily attributable to our shareholding of 20% of the enlarged issued share capital ofin SPD Bank, compared to aRMB7,063 million in 2013. For more information on our share of profit of associates of RMB558 millioninvestments accounted for using the equity method, see note 19 to our consolidated financial statements included elsewhere in 2010. Our share of profit of associates has been adjusted to reflect the amortization of the proportionate fair value of SPD Bank’s identifiable net assets as of the date of our investment in excess of our cost of investment.this annual report on Form 20-F.
Profit before Taxation. As a result of the foregoing, profit before tax increaseddecreased by 4.7%7.2% from RMB159,071RMB153,649 million in 20102013 to RMB166,582RMB142,522 million in 2011.2014.
Taxation. Our income tax expense increaseddecreased by 4.0%9.7% from RMB39,047RMB36,746 million in 20102013 to RMB40,603RMB33,179 million in 2011.2014. This increasedecrease was mainly due to an increasea decrease in our profit before taxation.taxable income. Our effective tax rate was 24.5%23.9% in 20102013 and 24.4%23.3% in 2011,2014, respectively.
Profit Attributable to Equity Shareholders. As a result of the foregoing and after taking into account non-controlling interests, profit attributable to equity shareholders increaseddecreased by 5.2%6.5% from RMB119,640RMB116,791 million in 20102013 to RMB125,870RMB109,218 million in 2011.2014. Net profit margin (profit attributable to equity shareholders as a percentage of operating revenue) decreased from 24.7%18.2% in 20102013 to 23.8%16.8% in 2011.
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Liquidity and Capital Resources
Liquidity
Our principal source of liquidity is cash generated from our operations. As of December 31, 2012,2015, we had negative working capital (current assets minus current liabilities) of RMB148,797RMB12,341 million (US$23,8841,905 million), compared to working capital of RMB109,441RMB34,433 million as of December 31, 20112014 and working capital of RMB66,202RMB80,009 million as of December 31, 2010. The increase in our2013. We had negative working capital as of December 31, 2012 from December 31, 2011 was2015 primarily due to increasesthe decrease in our bank deposits prepayments and other current assets and accounts receivable, partially offset by a decrease in cash and cash equivalents and an increasethe increases in accrued expenses and other payables and accounts payable, as well as deferred revenue. which were partially offset by the increases in available-for-sale financial assets and other receivables.The current portion of our finance lease obligations as of December 31, 2010, 20112013, 2014 and 20122015 were RMB68 million, RMB68 million and RMB68nil, respectively.
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Bank deposits represent term deposits with banks with original maturity exceeding three months. As of December 31, 2015, we had bank deposits of RMB323,330 million (US$1149,914 million), respectively.compared to bank deposits of RMB353,507 million as of December 31, 2014 and bank deposits of RMB375,127 million as of December 31, 2013. The decrease of bank deposits in 2014 was mainly due to substantial capital expenditures resulting from the development of our 4G services, while the decrease of bank deposits in 2015 was mainly because of the consideration we paid for acquiring Target Assets and Businesses.
The following table summarizes certain cash flow information for the periods indicated.
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 (As restated)(1) | 2014 (As restated)(1) | 2015 | |||||||||||||||||||
(in millions of RMB) | (in millions of RMB) | |||||||||||||||||||||||
Net cash generated from operating activities | 231,379 | 226,756 | 230,709 | 226,905 | 216,438 | 235,089 | ||||||||||||||||||
Net cash used in investing activities | (171,572 | ) | (169,356 | ) | (191,176 | ) | (180,122 | ) | (151,230 | ) | (142,743 | ) | ||||||||||||
Net cash used in financing activities | (51,051 | ) | (58,420 | ) | (54,897 | ) | (71,312 | ) | (42,530 | ) | (86,510 | ) | ||||||||||||
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Net increase/(decrease) in cash and cash equivalents | 8,756 | (1,020 | ) | (15,364 | ) | |||||||||||||||||||
Net increase / (decrease) in cash and cash equivalents | (24,529 | ) | 22,678 | 5,836 | ||||||||||||||||||||
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(1) | As described in Note 2(b) to our consolidated financial statements, certain restatements to periods in 2013 and 2014 have been made to reflect our acquisition of Target Assets and Businesses which was accounted for using merger accounting in accordance with the Accounting Guideline 5 “Merger Accounting for Common Control Combinations” (“AG 5”) issued by the HKICPA. |
Net cash generated from operating activities increased by 1.7%8.6% from RMB226,756RMB216,438 million in 20112014 to RMB230,709RMB235,089 million (US$37,03136,291 million) in 2012, primarily reflecting2015, which is in line with the increases in our profit before taxation excluding depreciation and amortization, a larger increase in accounts payable,our deferred revenue and a larger increase in accrued expenses and other payables as well asand a decrease in inventories in 2012prepayments and other current assets, compared to an increase in inventories in 2011,2014, which was partially offset by a decrease in account payable compared to an increase in PRC enterprise income tax paid and a larger increaseaccount payable in accounts receivable. 2014.
Net cash generated from operating activities decreased by 2.0%4.6% from RMB231,379RMB226,905 million in 20102013 to RMB226,756RMB216,438 million in 2011, principally reflecting2014, which is in line with the decrease in our profit from operations excluding depreciation and amortization, a lower overalldecrease in the increase in accrued expenses and other payables, and a smalleran increase in accounts payable,the increase in prepayments and other current assets.
Net cash used in investing activities decreased by 5.6% from RMB151,230 million in 2014 to RMB142,743 million (US$22,036 million) in 2015, primarily due to a decrease in payment for investment accounted for using the equity method, a larger decrease in bank deposits, an increase in maturity of available-for-sale financial assets and a decrease in restricted bank deposits compared to an increase in restricted bank deposits in 2014, which was partially offset by an increase in our profit as a resultpurchase of the continued expansion of our customer base and growth in our voice and data businesses.available-for-sale financial assets.
Net cash used in investing activities increaseddecreased by 12.9%16.0% from RMB169,356RMB180,122 million in 20112013 to RMB191,176RMB151,230 million (US$30,686 million) in 2012,2014, primarily due tobecause there was a greater increasedecrease in our bank deposits of RMB43,426 million andin 2014 compared to an increase in our restricted bank deposits of RMB5,264 million,in 2013, which was partially offset by an increase in capital expenditure resulting from the repaymentdevelopment of trust loans granted to large state-owned enterprises through commercial banks of RMB11,300 million. Net cash used in investing activities decreased by 1.3% from RMB171,572 million in 2010 to RMB169,356 million in 2011. The higher net cash used in investing activities in 2010 was largely attributable to our acquisition of 20% of the enlarged share capital of SPD Bank in 2010. The decrease in cash used in investing activities in 2011 was partially offset by a greater increase in our bank deposits of RMB22,694 million and a net increase in trust loans of RMB11,300 million.4G services.
Net cash used in financing activities decreasedincreased by 6.0%103.4% from RMB58,420RMB42,530 million in 20112014 to RMB54,897RMB86,510 million (US$8,81213,355 million) in 2012.2015. The larger amount of cash used in financing activities in 20112015 compared to 20122014 was mainly attributable to our payment of consideration for the redemption in June 2011acquisition of guaranteed bonds due in 2011 inTarget Assets and Businesses of China TieTong and the aggregate principal amountincrease of RMB5,000 million, which was partially offset by an increase in dividends paid to shareholdersrepayment of RMB2,850 million. entrusted loans.
Net cash used in financing activities increaseddecreased by 14.4%40.4% from RMB51,051RMB71,312 million in 20102013 to RMB58,420RMB42,530 million in 2011. This increase was largely due to the redemption of guaranteed bonds due in June 2011 with the aggregate principal2014. The larger amount of RMB5,000 million.cash used in financing activities in 2013 compared to 2014 was mainly attributable to our repayment of deferred considerations in full in 2013.
Capital Expenditures
Capital expenditures incurred in 2010, 20112013, 2014 and 20122015 were RMB124,347RMB190,596 million, RMB128,548RMB215,097 millionand RMB127,403RMB195,577 million (US$20,45030,192 million), respectively. We incurred capital expenditures principally for the construction of our mobile telecommunicationscommunication networks, transmission facilities, support system and buildings, and infrastructure and development of business.power systems, business networks, support systems and others. The level of our capital expenditures increaseddecreased in 20112015 principally as a resultbecause we appropriately controlled the investment schedules and optimized the investment directions to ensure the effectiveness of our efforts to meet increased demand on our network services arising from the continued expansion of our customer base and fast growth of our data business.investments.
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We estimate that we will incur capital expenditures of approximately RMB190.2RMB186.2 billion (US$30.528.7 billion) in 2013.2016. We expect that approximately 42%43% of our capital expenditures in 20132016 will be used in the construction of mobile telecommunicationscommunications networks, approximately 31%30% will be used in the construction of transmission facilities, approximately 13%12% will be used infor the construction of buildings, infrastructure and infrastructure,power systems, approximately 6%7% will be used in buildingfor the construction of business networks, approximately 5% will be used for the construction of support systems, and approximately 6%3% will be used in business development. We expect that 22% of our capital expenditures in 2013 will be used in the construction of our TD-LTE networks and base stations.for other construction.
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We have generally funded our capital requirements primarily with cash generated from operations. We believe our available cash and cash generated from future operations will be sufficient to fund the capital expenditures and working capital necessary for the planned network expansion and continued growth of our mobile telecommunications operations through the end of 2013.2016.
We may seek to obtain additional sources of financing to fund our network expansion and possible future acquisitions, to the extent necessary.
Contractual Obligations and Commitments
Indebtedness
As of December 31, 20112014 and 2012, we did not have any long-term or short-term bank and other loans, excluding2015, our indebtedness mainly included the current portion of our finance lease obligations of RMB68 million and RMB68nil and corporate bonds of RMB5,992 million (US$11 million),and RMB4,995 million as described below, respectively.
On October 28, 2002, our wholly-owned subsidiary, Guangdong Mobile, issued RMB5,000 million guaranteed bonds due 2017.2017, with the entire net proceeds used to settle part of the deferred consideration for our acquisition of eight regional mobile companies in China from CMCC. These bonds commenced trading on the Shanghai Stock Exchange on January 22, 2003. The guaranteed bonds bear fixed interest of 4.5%, payable annually. We have issued a joint and irrevocable guarantee for the performance of these bonds, and CMCC has issued a further guarantee in relation to the performance by us of our guarantee obligation. These bonds received a consolidated credit rating of “AAA” by China Chengxin International Credit Rating Company Limited and a consolidated credit rating of “AAA” by Dagong Global Credit Rating Co. Ltd, a PRC credit rating agency. The entire net proceeds from
On August 18, 2005, China TieTong issued the offering were applied solelybonds with a principal amount of RMB1,000 million, at an issue price equal to satisfy partthe face value of the US$2,800 million deferred consideration for the acquisition by the Companybonds. The bonds are unsecured and bear interest at rate of the entire interest in China Mobile Group Anhui Co., Ltd., China Mobile Group Jiangxi Co., Ltd., China Mobile Group Chongqing Co., Ltd., China Mobile Group Sichuan Co., Ltd., China Mobile Group Hubei Co., Ltd., China Mobile Group Hunan Co., Ltd., China Mobile Group Shaanxi Co., Ltd. and China Mobile Group Shanxi Co., Ltd. in 2002.
The deferred consideration of US$2,800 million for our acquisition of the eight regional mobile telecommunications companies in 2002 and the deferred consideration of US$1,650 million for our acquisition of the ten regional mobile telecommunications companies and other telecommunications assets in 2004 are subordinated to other senior debt owed by us from time to time. In addition, these deferred considerations are payable by the 15th anniversary of the date of the completion of the respective acquisitions, and we may make an early payment of all or part of these deferred considerations at any time without penalty. We are required to pay interest semi-annually on the actual amount of these deferred considerations unpaid from the date of completion of the respective acquisitions. Interest is calculated at the two-year U.S. dollar London Inter-Bank Offered Rate, or LIBOR, swap rate at 11:00 a.m. (New York City time) on the second business day next preceding the date of the respective acquisition agreements for the first two years after completion of the respective acquisitions. Thereafter, the interest rate will be adjusted every two years to equal the two-year U.S. dollar LIBOR swap rate prevailing at 11:00 a.m. (New York City time) on the relevant interest determination dates. The payment of the deferred considerations and the interest payments can be made in Hong Kong dollars (HK$7.7993 to US$1.00 and HK$7.7995 to US$1.00 for our acquisitions of the regional mobile telecommunications companies in 2002 and 2004, respectively), RMB (RMB8.2770 to US$1.00 and RMB8.2768 to US$1.00 for our acquisitions of the regional mobile telecommunications companies in 2002 and 2004, respectively) or U.S. dollars (or other agreed currencies), with the relevant exchange rates set forth in the respective acquisition agreements. Any payment made in currencies other than U.S. dollars will be accounted for based on the exchange rates between U.S. dollars and such currencies prevailing at 12:00 noon (New York City time) on the day4.6% per annum which is two business days next preceding the date of the respective acquisition agreements.payable annually. The bonds were fully repaid on August 18, 2015.
We currently have a corporate credit rating of Aa3/Outlook StableNegative from Moody’s Investors Service and AA-/Outlook StableNegative from Standard & Poor’s, each of which is consistent withremain at levels equivalent to China’s sovereign credit rating.rating, respectively. Any downgrade in our credit rating will not trigger any events of default on our outstanding bonds or loans or our existing credit facilities.
For a discussion of our interest rate risk, please see “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”
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Other Contractual Obligations and Commitments
As of December 31, 2012,2015, we had various contractual obligations and commitments which are more fully disclosed in the notes to our consolidated financial statements. The principal components of these obligations and commitments include:
our short-term and long-term debts (in addition to the bonds described under “— Indebtedness” above), which includes finance leases;
operating leases; and
capital commitments.
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In the ordinary course of our business, we routinely enter into commercial commitments for various aspects of our operations, such as repair and maintenance. However, we believe that those commitments will not have a material effect on our financial condition, results of operations or cash flows.
For further disclosure regarding leases and other commitments, please see note 3938 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.
The following table sets forth certain information regarding our contractual obligations to make future payments (including relevant estimated interest payment) as of December 31, 2012:2015:
Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | Total | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | ||||||||||||||||||||||||||||||
(in millions of RMB) | (in millions of RMB) | |||||||||||||||||||||||||||||||||||||||
Accounts Payable | 123,896 | 123,896 | — | — | — | 243,579 | 243,579 | — | — | — | ||||||||||||||||||||||||||||||
Bills Payable | 1,159 | 1,159 | — | — | — | 645 | 645 | — | — | — | ||||||||||||||||||||||||||||||
Accrued expenses and other payables | 103,774 | 103,774 | — | — | — | |||||||||||||||||||||||||||||||||||
Deferred Consideration Payable | 24,263 | 141 | 222 | 10,156 | 13,744 | |||||||||||||||||||||||||||||||||||
Accrued Expenses and Other Payables | 163,404 | 163,404 | — | — | — | |||||||||||||||||||||||||||||||||||
Amount Due to Ultimate Holding Company | 7,339 | 7,339 | — | — | — | |||||||||||||||||||||||||||||||||||
Bonds | 6,085 | 225 | 450 | 5,410 | — | 5,410 | 225 | 5,185 | — | — | ||||||||||||||||||||||||||||||
Finance Lease Obligations | 71 | 71 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
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Total Contractual Obligations | 259,248 | 229,266 | 672 | 15,566 | 13,744 | 420,377 | 415,192 | 5,185 | — | — | ||||||||||||||||||||||||||||||
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The following table sets forth certain information regarding our other commercial commitments as of December 31, 2012:2015:
Amount of Commitment Expiration Per Period | Amount of Commitment Expiration Per Period | |||||||||||||||||||||||||||||||||||||||
Other Commercial Commitments | Total Amount Committed | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | Total Amount Committed | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | ||||||||||||||||||||||||||||||
(in millions of RMB) | (in millions of RMB) | |||||||||||||||||||||||||||||||||||||||
Operating Lease Commitments | 37,232 | 11,626 | 12,819 | 7,198 | 5,589 | 60,740 | 25,758 | 16,535 | 10,333 | 8,114 | ||||||||||||||||||||||||||||||
Capital Commitments | 212,478 | 179,056 | 33,422 | — | — | 34,666 | 29,159 | 5,507 | — | — | ||||||||||||||||||||||||||||||
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Total Commercial Commitments | 249,710 | 190,682 | 46,241 | 7,198 | 5,589 | 95,406 | 54,917 | 22,042 | 10,333 | 8,114 | ||||||||||||||||||||||||||||||
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Apart from the commitments listed above, as of December 31, 2015, the company has a commitment to invest RMB1,140 million to China Mobile Fund upon its request.
Off-Balance Sheet Arrangements
As of December 31, 2012,2015, we did not have any off-balance sheet arrangements or any written options on non-financial assets.
Foreign Exchange
We maintain our accounts in Renminbi and substantially all of our revenue and expenses are denominated in Renminbi. AllMost of our current operating subsidiaries are incorporated in Mainland China, except for Hong Kong Mobile.China. Under the current foreign exchange system in Mainland China, our subsidiaries in Mainland China may not be able to hedge effectively against currency risk, including any possible future Renminbi devaluation. See “Item 10. Additional Information — Exchange Controls.”
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Each of our operating subsidiaries in Mainland China is able to purchase foreign exchange for settlement of current account transactions, as defined in applicable regulations, in order to satisfy its foreign exchange requirements.
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Item 6. | Directors, Senior Management and Employees. |
Directors and Senior Management
The following table sets forth certain information concerning our directors and senior management as of April 25, 2013.26, 2016.
Name | Age | Position | ||
Mr. | Executive Director and Chairman | |||
Mr. LI Yue | Executive Director and Chief Executive Officer | |||
Mr. XUE Taohai | Executive Director, Vice President and Chief Financial Officer | |||
Mr. SHA Yuejia | 58 | Executive Director and Vice President | ||
Mr. | Executive Director and Vice President | |||
Dr. LO Ka Shui | 69 | Independent Non-Executive Director | ||
Mr. Frank K.S. WONG | 68 | Independent Non-Executive Director | ||
Dr. Moses M.C. CHENG | 66 | Independent Non-Executive Director | ||
Mr. | ||||
Independent Non-Executive Director |
Mr. XI GuohuaSHANG Bing has served as our Executive Director since July 2011 and our Chairman since March 2012.September 2015. He is in charge of our overall management. Mr. Xi served as our Vice Chairman from July 2011 to March 2012. Mr. XiShang is also the Chairman of CMCC and CMC. Mr. XiShang previously held positions at the Post and Telecommunications Administration of Shanghaiserved as Deputy Director General of the Telegraph Bureau, Deputya Director of theIndustrial Technology Development Centre in Liaoning Province, a General Manager of Economic and Technological Development Company in Liaoning Province, a General Manager of China United Telecommunications Division, DeputyCorporation Liaoning Branch, a Director, GeneralVice President and President of China United Telecommunications Corporation, an Executive Director Generaland President of the Long-DistanceChina United Telecommunications Bureau, Deputy Chief EngineerCorporation Limited and Deputy Director General, respectively. Mr. Xi also served as Deputy Director General of the Directorate General of Telecommunications of the Ministry of Posts and Telecommunications, Chairman and ExecutiveChina Unicom Limited, a Vice President of Shanghai Bell Company Limited, the Vice Minister of the MII, theChina Telecom, an Executive Director, President and Chief Operating Officer of China Network Communications GroupTelecom Corporation Limited and the Vice Minister of the MIIT. Mr. XiShang graduated from Shenyang Chemical Industry Institution with a Bachelor’s degree in 19771982. He received a Master’s degree in business administration from the Department of Electrical Engineering of HefeiState University of Technology,New York in 2002 and holds a Master of ManagementDoctor’s degree in Economics and Management from Shanghai Jiaotong University and a Doctor of Management degreebusiness administration from the School of Economics and Management of Tongji University.Hong Kong Polytechnic University in 2005. Mr. XiShang is a professor-level senior engineereconomist and has long-term experience in the operations and management in basic telecommunications enterprises, with extensive experience in enterprise management and telecommunications management, operations and technology.industry.
Mr. LI Yue has served as our Executive Director since March 2003 and our Chief Executive Officer since August 2010. He is in charge of our operationoperations and management. Mr. Li is also the President and director of CMCC and CMC. Mr. Li previously served as Deputy Director General and Chief Engineer of Tianjin Long-Distance Telecommunications Bureau, Deputy Director General of Tianjin Posts and Telecommunications Administration, President of Tianjin Mobile Communications Company, Deputy Head of the Preparatory Team of CMCC, Vice President of CMCC, Chairman of Aspire Holdings Limited, a non-executive director of Phoenix Satellite Television Holdings Ltd and Chairman of Union Mobile Pay Limited. Mr. Li graduated from the Correspondence College of Beijing University of Posts and Telecommunications with a Bachelor’s Degree in telephone exchange, holds a Master’s Degree in business administration from Tianjin University and a doctoral degree in business administration from Hong Kong Polytechnic University. He is a professor-level senior engineer and has won multiple national, provincial and ministerial level Science and Technology Advancement Awards. Mr. Li has many years of experience in the telecommunications industry, including experience in telecommunications network operations and maintenance, planning and construction, operational management and development strategies.
Mr. XUE Taohai has served as our Executive Director, Vice President and Chief Financial Officer since July 2002. Mr. Xue is principally in charge of our corporate affairs, finance and internal audit. Mr. Xue is also a Vice President of CMCC, a director of CMC and a director and Chairman of China Mobile Finance. Mr. Xue previously served as the Deputy Director General of the Finance Department of the former Ministry of Posts and Telecommunications, Deputy Director General of the Department of Financial Adjustment and Clearance of the MIIMinistry of Information Industry (predecessor of the MIIT) and Deputy Director General of the former Directorate General of Telecommunications. He graduated from Henan University and received an EMBA degree from Peking University. He is a senior accountant with many years of experience in the telecommunications industry and financial management.
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Mdm. HUANG Wenlin has served as our Executive Director and Vice President since September 2007. Mdm. Huang is principally in charge of human resources and inspection matters. Mdm. Huang is also a director of CMCC and CMC. Mdm. Huang previously served as a Vice President of CMCC, the Director of Domestic Communications Division and Director of Communications Organization Division of the Directorate General of Telecommunications of the former Ministry of Posts and Telecommunications, Vice President of China Telecommunications Corporation and Executive Director and Executive Vice President of China Telecom Corporation Limited. Mdm. Huang graduated in 1984 from Beijing University of Posts and Telecommunications with a major in management engineering and received an EMBA degree from Peking University. Mdm. Huang is a senior economist with many years of operational and managerial experience in the telecommunications industry.
Mr. SHA Yuejia has served as our Executive Director and Vice President since March 2006. Mr. Sha is principally in charge of marketing, data business, and corporate customers management.and international businesses. He is also a Vice President of CMCC, a director of CMC Chairman of Union Mobile Pay Limited and a non-executive director of PhoenixTV and SPD Bank. He previously served as Director of the Engineering Construction Department IV Division of Beijing Telecommunications Administration, President of Beijing Telecommunications Planning Design Institute, Deputy Director General of Beijing Telecommunications Administration, Vice President of Beijing Mobile Communications Company, and Director and Vice President, Chairman and President of Beijing Mobile. Mr. Sha graduated from Beijing University of Posts and Telecommunications, and received a Master’s Degree from the Academy of Posts and Telecommunications of the former Ministry of Posts and Telecommunications and a doctoral degree in business administration from Hong Kong Polytechnic University. He is a professor-level senior engineer with many years of experience in the telecommunications industry.
Mr. LIU Aili has served as our Executive Director and Vice President since March 2006. Mr. Liu is principally in charge of planning and construction, of network operation,operations and business support and information management.support. He is also a Vice President of CMCC and a director of CMC.CMC and a Vice President of China Internet Infrastructure Resources Association. Mr. Liu ceased to be a non-executive directorwas appointed as the Chairman of China Communications Services Corporation Limited in November 2012.Tower with effect from July 11, 2014. He previously served as Deputy Director General of Shandong Mobile Telecommunications Administration, Director General of Shandong Mobile Telecommunications Administration and General Manager of Shandong Mobile Communications Enterprises, Vice President of Shandong Mobile Communications Company, Director-General of Network Department of CMCC, and Chairman and President of China Mobile Group Shandong Co., Ltd. and Zhejiang Mobile, and Chairman of CMPak Limited and a non-executive director of China Communications Services Corporation Limited. Mr. Liu graduated from Heilongjiang Posts and Telecommunications School with an associate degree. Mr. Liu also received a Master of Management degree from Norwegian School of Management BI and a doctoral degree in business administration from Hong Kong Polytechnic University. He is a professor-level senior engineer with many years of experience in the telecommunications industry.
Dr. LO Ka Shui has served as our independent Non-Executive Director since April 2001. Dr. Lo is the Chairman and Managing Director of Great Eagle Holdings Limited, and is the chairman and non-executive director and chairman of Eagle Asset Management (CP) Limited (managerthe Manager of the publicly listed Champion Real Estate Investment Trust).Trust and Langham Hospitality Investments. He is also an independent non-executive director of Shanghai Industrial Holdings Limited, Phoenix Satellite Television Holdings Limited Winsor Properties Holdings Limited and City-e-SolutionsCity e-Solutions Limited. He is also a Vice President of the Real Estate Developers Association of Hong Kong, a Trustee of the Hong Kong Centre for Economic Research, the Vice Chairman of The Chamber of Hong Kong Listed Companies and a member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority. Dr. Lo previously served as a non-executive director of The Hongkong and Shanghai Banking Corporation Limited and an independent non-executive director of Winsor Properties Holdings Limited. Dr. Lo graduated from McGill University with a Bachelor of Science Degree and from Cornell University with a Doctor of Medicine (M.D.) Degree. He was certified in internal medicine and cardiology. He has more than 30 yearsover three decades of experience in property and hotel development and investment both in Hong Kong and overseas.
Mr. Frank K.S. WONG has served as our independent Non-Executive Director since August 2002. Mr. Wong currently serves as anthe Chairman and independent non-executive director of Industrial andMapletree Greater China Commercial Bank of China Limited, China and Mapletree Investments Pte Ltd, Singapore,Trust Management Ltd., a non-executive director of PSA International Pte Ltd, Singapore and a member of Hong Kong Financial Services Development Council.PSA Corporation Limited in Singapore. Mr. Wong previously served as Vice Chairman of DBS Bank, a member of the boards of DBS Bank and DBS Group Holdings and Chairman of DBS Bank (Hong Kong) and DBS Bank (China). He held a series of progressively senior positions with regional responsibility at Citibank, JP Morgan and NatWest from 1967 to 1999, and served asNatWest. More recently, he was an independent non-executive director of Industrial and Commercial Bank of China Limited in China, Mapletree Investment Pte Ltd and National Healthcare Group Pte Ltd.Ltd in Singapore. Mr. Wong has also served in various positions with Hong Kong’s government bodies including the Chairman of the Hong Kong Futures Exchange between 1993 and 1998.1998 and a member of the Financial Services Development Council of the Hong Kong SAR Government between 2013 and 2015. Mr. Wong has many years of finance and commercial management experience.
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Dr. Moses M.C. CHENG has served as our independent Non-Executive Director since March 2003. Dr. Cheng is a practising solicitor and the senior partnera consultant of Messrs. P.C. Woo & Co.Co after serving as its senior partner from 1994 to 2015. Dr. Cheng was a member of the Legislative Council of Hong Kong. He is the founder chairman of the Hong Kong Institute of Directors of which he currently is now the Honorary President and Chairman Emeritus. Dr. Cheng is also the Chairman of the Advisory Committee on Post-service Employment of Civil Servants and currently holds directorships in City Telecom (H.K.) Limited, China COSCO Holdings Company Limited, Liu Chong Hing Investment Limited, China Resources Enterprise,Beer (Holdings) Company, Limited, Towngas China Company Limited, Hong Kong Exchanges and Clearing Limited, Kader Holdings Company Limited, K. Wah International Holdings Limited, Guangdong Investment Limited and Tian An China Investments Company Limited, all of which are public listedpublicly-listed companies in Hong Kong. He is also an independent non-executive director of ARA Asset Management Limited, a company with shares listed on the Singapore Exchange Limited. His other directorships in public listedpublicly-listed companies in the last 3three years include ARA AssetHong Kong Television Network Limited (formerly known as City Telecom (H.K.) Limited).
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Mr. Paul M.Y. CHOW has served as our independent Non-Executive Director since May 2013. Mr. Chow currently serves as the Chairman of Hong Kong Cyberport Management (Singapore)Company Limited, a company with shares listedmember of the Advisory Committee on Innovation and Technology of the Singapore ExchangeGovernment of the Hong Kong Special Administrative Region, a member of the Asian Advisory Council of AustralianSuper, an independent non-executive director of Bank of China Limited, China COSCO Holdings Company Limitedan independent non-executive director of Julius Baer Group Ltd. and Bank Julius Baer & Co Ltd. and an independent non-executive director of CITIC Limited. Mr. Chow previously served as an executive director and Chief Executive of Hong Kong Exchanges and Clearing Limited.Limited from April 2003 to January 2010, and as the Chief Executive of the Asia Pacific Region (ex-Japan) of HSBC Asset Management (Hong Kong) Limited from 1997 to 2003.
Compensation
The aggregate amount of compensation that we paid to our executive directors and executive officersfor their services in 2012 for services performed as directors, officers or employees2015 was approximately HK$16RMB2.88 million (US$2.10.44 million). The amount of compensation that we paid to our independent non-executive directors for their services in 2015, was approximately HK$1.57 million (US$0.20 million).
We adopted a share option scheme on October 8, 1997, or the 1997 Scheme, pursuant to which our directors may, at their discretion, invite our employees, including executive directors, or employees of our subsidiaries, to take up options to subscribe for ordinary shares up to a maximum aggregate number of ordinary shares equal to 10% of our total issued share capital.
Pursuant to a resolution passed at the annual general meeting held on June 24, 2002, the 1997 Scheme was terminated and anothera share option scheme, or the 2002 Scheme, was implemented for a term of 10ten years commencing on June 24, 2002. Pursuant toUnder the 2002 Scheme, the board of directors may, at their discretion, invite the executive directors, non-executive directors and employees of our company, any of its holding companies and their respective subsidiaries, and any entity in which our company or any of its subsidiaries holds any equity interest to take up options to subscribe for shares in our company. The 2002 Scheme ceased to be effective from June 24, 2012 and no further options were granted under the 2002 Scheme thereafter. The 2002 Scheme will however remain in effect to the extent necessary to give effect to the exercise of any options granted prior to June 24, 2012 and which at that time or thereafter become capable of being exercised under the 2002 Scheme or otherwise to the extent as may be required in accordance with the 2002 Scheme. As of December 31, 2015, there were no ordinary shares which may be issued on the exercise of the outstanding options granted under the 2002 Scheme.
The maximum aggregate number of ordinary shares which can be subscribed pursuant to options that are or may be granted under the above schemes equals to 10% of the total issued share capital of our company as of the date of adoption of the 2002 Scheme. Options lapsed or cancelled in accordance with the terms of the 1997 Scheme or the 2002 Scheme will not be counted for the purpose of calculating this 10% limit.
As the 1997 Scheme was terminated with effect on June 24, 2002, no further options were granted under the 1997 Scheme thereafter. Under the 1997 Scheme, all options not exercised on or before October 7, 2007 have lapsed. Accordingly, as of December 31, 2012, there were no outstanding options granted under the 1997 Scheme. As of the same date, the total number of ordinary shares which may be issued on the exercise of the outstanding options granted or to be granted under the 2002 Scheme was 387,811,349. No share options were granted under the 2002 Scheme during the year ended December 31, 2012.
The consideration payable for the grant of option under the 2002 Scheme is HK$1.00.
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The exercise price of the options granted under the 2002 Scheme is determined by our board of directors at its discretion provided that such price may not be set below a minimum price which is the highest of:
(i) | the nominal value of an ordinary share; |
(ii) | the closing price of the ordinary shares on the Hong Kong Stock Exchange on the date on which the option was granted; and |
(iii) | the average closing price of the ordinary shares on the Hong Kong Stock Exchange for the five trading days immediately preceding the date on which the option was granted. |
Under the 2002 Scheme, the term of the option is determined by the board of directors at its discretion, provided that all options shall be exercised within 10ten years after the date on which the option is granted.
As of December 31, 2012, the directors and employees of our company had2015, there were no outstanding options exercisable to subscribe for the ordinary shares of our company granted to our directors and members of our senior management under the 2002 Scheme.our share option scheme. In 2012, 28,275,0292015, 37,056,383 of these options had been exercised. See “— Share Ownership” below for details on options granted to our directors.
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Board Practices
To enhance our corporate governance, we have three principal board committees, the audit committee, the remuneration committee and the nomination committee. The audit committee, the remuneration committee and the nomination committee are all comprised solely of independent non-executive directors.
Audit Committee
The members of our audit committee are Dr. Lo Ka Shui,Mr. Frank K.S. Wong, as chairman of the committee, Mr. Frank K.S. Wong and Dr. Moses M.C. Cheng.Cheng and Mr. Paul M.Y. Chow. The audit committee’s major responsibilities include:
to review the financial reports, the related report of the independent registered public accounting firm and management’s responses to the reports;
to discuss the audit procedures with the independent registered public accounting firm as well as any issues arising out of such procedures;
to review the appointment of the independent registered public accounting firm, the audit and non-audit fees and any matters relating to the termination or resignation of the independent registered public accounting firm; and
to examine the effectiveness of our internal controls, to review our internal audit plan and to submit relevant reports and recommendations to our Board on a regular basis.
The audit committee usually meets fourfive times each year.
Remuneration Committee
The members of our remuneration committee are Dr. Lo Ka Shui, as chairman of the committee, Mr. Frank K.S. Wong and Dr. Moses M.C. Cheng. The remuneration committee’s major responsibilities include:
to advise the Board in relation to the remuneration structure and payments of our executive directors and executives; and
to represent the Board in confirming the individual remuneration packages and employment terms of executive directors and approving their related employment contracts.
Meetings of the remuneration committee are held at least once a year.
Nomination Committee
The members of our nomination committee are Dr. Lo Ka Shui, as chairman of the committee, Mr. Frank K.S. Wong and Dr. Moses M.C. Cheng. The primary responsibilities of the nomination committee include:
to review, advise and make recommendations to the board on the matters in relation to the appointment and re-appointment of board members; and
to ensure the proper and transparent procedures for the appointment and re-appointment of directors.
Meetings of the nomination committee are held at least once a year.
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Employees
See “Item 4. Information on the Company — Business Overview — Employees.”
Share Ownership
As of December 31, 2012,2015, our directors who own shares in our company are listed as follows:
Director | Number of shares held | Percentage of ordinary shares | Number of shares held | Percentage of ordinary shares | ||||||||||||
Lo Ka Shui | 400,000 | 0.0020 | % | 700,000 | * | 0.0034 | % | |||||||||
Frank K.S. Wong | 400,000 | 0.0020 | % | 150,000 | 0.0007 | % | ||||||||||
Moses M.C. Cheng | 400,000 | 0.0020 | % |
* | Including interest of controlled corporation. |
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Under our Memorandum and Articles of Association, our directors and senior management do not have different voting rights when compared to other holders of shares in the same class.
As of December 31, 2012,2015, there were no outstanding options exercisable to subscribe for an aggregate of 6,104,675 shares had beenin our Company granted to the followingour directors and members of our senior management under our share option scheme and were outstanding. As of the same date, none of these options had been exercised.
The following options are exercisable at a price of HK$22.75 per share through October 27, 2014:scheme.
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The following options are exercisable at a price of HK$26.75 per share through December 20, 2014:
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The following options are exercisable at a price of HK$34.87 per share through November 7, 2015:
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Item 7. | Major Shareholders and Related Party Transactions. |
Major Shareholders
As of March 31, 2013,2016, approximately 74.08%72.72% of our outstanding shares were held by China Mobile Hong Kong (BVI) Limited, a wholly-owned subsidiary of China Mobile (Hong Kong) Group Limited. CMCC, a state-owned company, holds all of the voting shares and economic interest in China Mobile (Hong Kong) Group Limited. No other persons own 5% or more of our ordinary shares. Between our initial public offering and March 31, 2013,2016, our majority shareholders held, directly or indirectly, between approximately 74.08%72.72% and 76.50%76.5% of equity interest in us, except for brief periods following our equity offerings in 1999 and 2000 but before the issuance of consideration shares to our direct shareholder, China Mobile Hong Kong (BVI) Limited, for the related acquisitions, during which periods the shareholding was temporarily lower. See “Item 4. Information on the Company — The History and Development of the Company — Industry Restructuring and Changes in Our Shareholding Structure” for changes during the past three years with respect to our majority shareholders. Under our Memorandum and Articles of Association, our major shareholders do not have different voting rights when compared to other holders of shares in the same class.
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We are not aware of any arrangement which may at a subsequent date result in a change of control over us.
Related Party Transactions
As of March 31, 2013,2016, CMCC indirectly owned an aggregate of approximately 74.08%72.72% of our issued and outstanding share capital.
We and each of our subsidiaries have entered into various related party transactions. The principal terms of the agreements for these related party transactions are described below.
Certain charges for the services under these agreements are based on tariffs set by the PRC regulatory authorities. Those transactions where the charges are not set by PRC regulatory authorities are based on commercial negotiation between the parties, in each case on an arm’s lengtharm’s-length basis.
International Roaming Arrangements
Following the completion of our acquisition of the telecommunications assets from our parent company in July 2004, we no longer have inter-provincial roaming and interconnection arrangement with CMCC (except for the interconnection arrangement with China Tietong described under “— Interconnection Settlement Arrangements” below) and the handling charge with respect to roaming and international long distance calling charges are no longer shared between CMCC and us. In addition, pursuantPursuant to an agreement we entered into withbetween us and CMCC on July 1, 2004 (the “International Roaming Settlement Agreement”), CMCC maintains the existing settlement arrangements with respect to international interconnection and roaming with the relevant telecommunications services providers in foreign countries and regions, and collects the relevant usage fees and other fees from us and pays the same to the relevant mobile telecommunications services providers in foreign countries and regions. On September 13, 2012, we entered into an agreement with CMCC, pursuant to which CMCC would gradually transfer its settlement arrangements with certain telecommunications services providers in foreign countries and regions to China Mobile International, our wholly-owned subsidiary. As a result, our arrangement with CMCC with respect to international interconnection and roaming with those telecommunications services providers has been gradually phasing out.
Licensing of Trademark
CMCC is the owner of the “CHINA MOBILE” name and logo, a registered trademark in Mainland China, Australia, Brunei, Cambodia, Canada, Hong Kong, India, Indonesia, Macau, New Zealand, Pakistan, South Africa, South Korea, Taiwan, Thailand, the United States Vietnam, South Africa and Yemen. In addition, it has filed applications to register the “CHINA MOBILE” name and logo as a trademark in Malaysia for certain goods and services. CMCC has also registered the “CHINA MOBILE” name and logo as a trademark under the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks.
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On January 1, 2008,2013, we entered into the 20082013 Trademark License Agreement with CMCC, which hadhas a term of four years, would be automatically renewed for successive one-year periods unless otherwise terminated by the parties.five years. Under the 20082013 Trademark License Agreement, we and our operating subsidiaries are granted the right to use the “CHINA MOBILE” name and logo. No license fee is payable by us to CMCC during the term of the 20082013 Trademark License Agreement.
Spectrum Fees and Numbering Resources
The MIIT (and prior to April 2008, the MII) and the MOF jointly determine the standardized spectrum fees payable to the MIIT by all mobile telecommunications operators in Mainland China, including us. In accordance with a joint circular from the NDRC and the MOF, CMCC entered into an agreement with us that specifies the amount of fees to be paid to the MIIT for spectrum usage by each mobile telecommunications network operator based on the bandwidth of the frequency used.
Following the completion of our acquisition of the telecommunications assets from our parent company in July 2004, we entered intoPursuant to an agreement withbetween us and CMCC on July 1, 2004 (the “Spectrum and Numbering Resources Agreement”), pursuant to which CMCC will collect usage fees from us relating to spectrum frequency and numbering resources and make payment to the MIIT (and prior to April 2008, to the MII)Ministry of Information Industry, predecessor of the MIIT). In addition to transferring to us all existing frequency spectrum and numbering resources allocated to it by the MIIT, CMCC has also agreed to apply for new frequency spectrum and numbering resources upon our request or notice from time to time and transfer the relevant new frequency spectrum and numbering resources to us.
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Sharing of Inter-Provincial Transmission Line Leasing Fees
Following the completion of our acquisition of the telecommunications assets from our direct parent company in July 2004, we entered intoPursuant to an agreement withbetween us and CMCC on July 1, 2004 (the “Inter-Provincial Transmission Line Leasing Settlement Agreement”), pursuant to which CMCC maintains the existing settlement arrangements with respect to inter-provincial transmission line leasing with the relevant transmission line providers in Mainland China, and collects inter-provincial transmission line leasing fees from us and paypays the same to the transmission line providers in respect of the inter-provincial transmission lines we lease from such providers.
Platform Development
Aspire is 66.41% owned by us, and is our joint venture with Vodafone and Hewlett-Packard Company. Aspire entered intohas a platform development master agreement (the “Platform Development Agreement”) with CMCC, on January 10, 2001. Under the Platform Development Agreement,pursuant to which Aspire (or its subsidiaries) will provide technology platform development and maintenance services to CMCC and its subsidiaries. These services include system and gateway integration services, hardware, software and system development (including development of applications), technical support and major overhaul services for a standardized, nation-wide platform for wireless data.
Under the Platform Development Agreement, CMCC will pay Aspire equipment charges, systems integration fees, software licensing fees, technical support fees and/or major overhaul charges, which will be determined according to standards laid down by the relevant governmental departments and/or by reference to market rates.
Leasing of TD-SCDMA Network Capacity
We and CMCC entered intoPursuant to a network capacity leasing agreement on December 29, 2008between us and CMCC (the “Network Capacity Leasing Agreement”), pursuant to which we and our operating subsidiaries lease TD-SCDMA network capacity from CMCC and pay leasing fees to CMCC. The Network Capacity Leasing Agreement had ainitial term of one year with effect from January 1, 2009 and would be automatically renewed for successive one-year periods unless otherwise notified by one party to the other party. We may terminate the Network Capacity Leasing Agreement by providing 60 days’ advance notice to CMCC. In view of the expiry of the Network Capacity Leasing Agreement expired on December 31, 2012, CMCC2009 and we agreed to renew the Network Capacity Leasing Agreement on December 12, 2012agreement has been renewed for asuccessive one-year term commencing on January 1, 2013.periods since that time.
The leasing fees will beare determined on a basis that reflects our actual usage of CMCC’s TD-SCDMA network capacity and compensates CMCC for the costs of such network capacity. The amount of leasing fees payable by us to CMCC under the Network Capacity Leasing Agreement did not exceed RMB3,500RMB10,000 million in 2012,2015, and it is expected that the amount of leasing fees payable by us to CMCC under the Network Capacity Leasing Agreement (as renewed) will not exceed RMB6,000RMB10,000 million in 2013.2016. The transactions contemplated under the Network Capacity Leasing Agreement constitute our continuing connected transactions under Rule 14A.3414A.31 of the Hong Kong Listing Rules and are subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders’ approval requirements under the Hong Kong Listing Rules.
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Interconnection Settlement Arrangements
As part of the industry restructuring that commenced in 2008, China Tietong becameTieTong is a wholly-owned subsidiary of CMCC, and, as a result, our connected person.
China Tietong is a fixed-line telecommunications operator in Mainland China. From January 2002 to December 2007, CMCC entered into a series of interconnection settlement agreements (collectively, the “Interconnection Settlement Agreements”) with China Tietong to govern the interconnectionperson for purposes of the networks ofHong Kong Listing Rules. Pursuant to an agreement among us, CMCC and China Tietong and the settlement of charges for various telecommunications services, including IP phone calls, long distance calls, international telephone service and dial-up service. On November 13, 2008, we, CMCC and China Tietong entered into an agreementTieTong (the “Tripartite Agreement”), pursuant to which the rights and obligations of CMCC under the Interconnection Settlement Agreements were transferred to us. Pursuant to the Tripartite Agreement, we and China Tietong willTieTong make settlement payments to each other in respect of calls made or received by their respective customers. The initial term of the Tripartite Agreement expired on December 31, 2009, and pursuant to the terms thereof,2009. The Tripartite Agreement provides that unless the parties agree otherwise, upon the expiry of theits term, the Tripartite Agreement wasshall automatically be renewed for further terms of one year in 2010, 2011year. We, CMCC and 2012, respectively. In view of its expiration on December 31, 2012, the parties further renewedChina TieTong agreed to renew the Tripartite Agreement on December 12, 2012August 21, 2015 for a one-year term of one year commencing on January 1, 2013.2016.
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The settlement charges receivable by us from China Tietong under the Tripartite Agreement in 20122015 did not exceed the de minimis threshold under Rule 14A.33Chapter 14A of the Hong Kong Listing Rules. The settlement charges payable by us under the Tripartite Agreement did not exceed RMB700RMB800 million in 2012. It is expected that, in 2013,2015. The annual cap for the aggregate amount of settlement charges payable by us to China TietongCMCC under the Tripartite Agreement (as renewed) will not exceed RMB700 million whilefor 2016 is RMB800 million. Before the aggregate amount of settlement charges receivable by us from China Tietong will not exceed the de minimis threshold under Rule 14A.33completion of the Hong Kong Listing Rules. Theacquisition of Target Assets and Businesses on December 31, 2015, the transactions contemplated under the Tripartite Agreement constituteconstituted our continuing connected transactions under Rule 14A.3414A.31 of the Hong Kong Listing Rules and arewere subject to the reporting, annual review and announcement requirements, but arewere exempt from the independent shareholders’ approval requirements under the Hong Kong Listing Rules. Since the completion of such acquisition, the business contracts and relevant transactions between us, CMCC and China TieTong as contemplated under the Tripartite Agreement have been conducted by us and our subsidiaries. As a result, the existing interconnection settlement arrangements pursuant to the Tripartite Agreement ceased to be our continuing connected transactions pursuant to Chapter 14A of the Listing Rules.
Telecommunications Services Cooperation Agreement
In order to meet the customers’ demand for one-stop shop telecommunications services, we and CMCC and wehave entered into a telecommunications services cooperation agreement on November 6, 2009 (the “Telecommunications Services Cooperation Agreement”), pursuant to which CMCCwe and weCMCC will provide customer development services to each other by utilizing our respective existing sales channels and resources, such as sales outlets, Internet sales network, sales personnel and local sales units, and cooperate in the provision of basic telecommunications services and value-added telecommunications services to customers of the other party. The Telecommunications Services Cooperation Agreement had ainitial term of one year with effect from January 1, 2010 and was automatically renewed for successive one-year periods in 2010, 2011 and 2012, respectively. In view of the expiry of the Telecommunications Services Cooperation Agreement expired on December 31, 2012,2010 and the parties have agreed to further renew the Telecommunications Services Cooperation Agreement on December 12, 2012agreement has been renewed for asuccessive one-year term commencing on January 1, 2013.periods since that time.
The amount of charges receivable by us in 20122015 under the Telecommunications Services Cooperation Agreement did not exceed RMB900 million. The amountsRMB1,700 million, while the amount of charges payable by us in 20122015 under the Telecommunications Services Cooperation Agreement did not exceed RMB2,500RMB7,000 million. It is expectedFollowing the completion of the acquisition of Target Assets and Businesses in December 2015, we estimate that the aggregate amount of charges payable by us to CMCC under the Telecommunications Services Cooperation Agreement (as renewed) will not exceed RMB4,000 million whileand the aggregate amount of charges receivable by us from CMCC will not exceed RMB1,000 million in 2013. The transactions contemplated under the Telecommunications Services Cooperation Agreement constitute our continuing connected transactions under Rule 14A.34 of Hong Kong Listing Rules and are(as renewed) in 2016 will no longer be subject to the reporting, annual review, and announcement requirements, but are exempt from the independentor individual shareholders’ approval requirements under the Hong Kong Listing Rules.
Network Assets Leasing Agreement
In order for us to better position ourselves in the changing landscape of the telecommunications industry in China and to enable us to meet the customers’ demand for one-stop shop telecommunications services, we entered into the Network Assets Leasing Agreement with CMCC on August 18, 2011 (the “Network Assets Leasing Agreement)Agreement”), pursuant to which we and CMCC will lease our respective telecommunications network operation assets to each other in return for a leasing fee. The initial term of the Network Assets Leasing Agreement expired on December 31, 2011 and pursuant to the terms thereof, unless the parties agree otherwise, upon the expiry of the term, the Network Assets Leasing Agreement was automaticallyagreement has been renewed in 2010, 2011 and 2012, respectively. In view of the expiry of the Network Assets Leasing Agreement on December 31, 2012, CMCC and we have agreed to further renew the Network Assets Leasing Agreement on December 12, 2012 for asuccessive one-year term commencing on January 1, 2013.periods since that time.
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The leasing fees will be determined with reference to the prevailing market rates, but in any event shall not be more than the leasing fees charged to any independent third party for the same kinds of network assets. The amount of leasing fees receivable by us from CMCC in 2015 under the Network Assets Leasing Agreement did not exceed the de minimis threshold under Rule 14A.33Chapter 14A of the Hong Kong Listing Rules, and the amount of leasing fessfees payable by us to CMCC in 2015 under the Network Assets Leasing Agreement did not exceed RMB3,500 million in 2012.RMB15,000 million. It is expected, in 2016, that the amount of leasing fees payable by us to CMCC under the Network Assets Leasing Agreement (as renewed) will not exceed RMB8,000RMB5,500 million, while the aggregate amount of the leasing fees receivable by us from CMCC will not exceed the de minimis threshold under Rule 14A.3314A.76 of the Hong Kong Listing Rules in 2013.Rules. The transactions contemplated under the Network Assets Leasing Agreement constitute our continuing connected transactions under Rule 14A.3414A.31 of the Hong Kong Listing Rules and are subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders’ approval requirements under the Hong Kong Listing Rules.
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Transfer of Telecommunications Towers and Related Assets to China Tower
In October 2015, CMC entered into the Transaction Agreement with China United Network Communications Corporation Limited, China Telecom Corporation Limited, China Reform Holdings Corporation Ltd. and China Tower, pursuant to which CMC, China United Network Communications Corporation Limited and China Telecom Corporation Limited shall transfer their telecommunications towers and related assets to China Tower, China Tower shall issue and allot shares in China Tower and/or pay certain cash as consideration for such transfers and China Reform Corporation shall subscribe for new shares in China Tower in cash. The transfer of telecommunication towers and related assets was consummated in October 2015. CMC transferred its existing telecommunications towers and related assets to China Tower for a final consideration of RMB102.736 billion. In January 2016, seven subsidiaries of CMC and China Tower entered into share subscription agreements to settle the number of shares subscribed by such subsidiaries and the amount of the consideration. As of March 31, 2016, we indirectly owned 38% equity interest in China Tower through CMC, our wholly owned subsidiary.
Telecommunications Towers and Related Assets Arrangements
We are in the process of negotiating the usage arrangements with China Tower for our usage of telecommunications towers and related assets from China Tower. Upon the completion of the transfer of telecommunications towers and related assets to China Tower, based on the proposed usage pricing calculation mechanism of assets to China Tower and the actual usage, we accrued the expense of approximately RMB5.6 billion in 2015.
Miscellaneous
Following the completion of our acquisition of the telecommunications assets from CMCC in July 2004, the transactions previously entered into between our subsidiaries and prior subsidiaries of CMCC which have been acquired by us no longer constitute connected transactions under the Hong Kong Listing Rules beginning on July 1, 2004 since such prior subsidiaries of CMCC became part of us on July 1, 2004. Only those transactions between usCMCC and CMCCus or its subsidiaries (which have not been acquired by us) remain as connected transactions under the Hong Kong Listing Rules. In December 2004,As of the date of this annual report on Form 20-F, in order to streamline the management of the connected transactions between CMCC and us, we consolidated the agreements between usCMCC and CMCC into two agreements:us:
(i) | the Property Leasing and Management Services Agreement, pursuant to which we rent from CMCC various properties for use as business premises and offices, retail outlets and machining rooms and CMCC and its subsidiaries provide to us property management services. Under this agreement, for properties owned by CMCC or its subsidiaries, the charges are determined with reference to market rates. For properties leased by CMCC or its subsidiaries from third parties and sublet to us, the charges are determined according to the actual rent payable by CMCC or its subsidiaries together with any tax payable; and |
(ii) | the Telecommunications Services Agreement, pursuant to which our subsidiaries obtain telecommunications project planning, design and construction services, telecommunications line and pipeline construction services and telecommunications line maintenance services from CMCC and its subsidiaries. Pursuant to the Telecommunications Services Agreement, subsidiaries of CMCC sell transmission towers and spare parts and provide related installation and maintenance services to our subsidiaries. Under this agreement, the charges and prices payable are generally determined with reference to and cannot exceed relevant standards set by and revised from time to time by relevant governmental authorities in Mainland China. Where there are no such standards, the charges and prices are determined with reference to market rates. |
The Property Leasing and Management Services Agreement and the Telecommunications Services Agreement (together the “2004 Continuing Connected Transaction Agreements”) expired on December 31, 2007. On December 13, 2007, we entered into the 2008-2010 property leasing and management services agreement (the “2008-2010 Property Leasing Agreement”) and the 2008-2010 telecommunications services agreement (the “2008-2010 Telecommunications Services Agreement”) with CMCC, with a view to extending the continuing connected transactions under the 2004 Continuing Connected Transaction Agreements on the same terms. Each of the 2008-2010 Property Leasing Agreement and the 2008-2010 Telecommunications Services Agreement has a fixed term of three years and is effective from January 1, 2008 to December 31, 2010. The payments payable by us to CMCC and its subsidiaries under the 2008-2010 Property Leasing Agreement did not exceed RMB1,400 million, RMB1,500 million and RMB1,600 million in 2008, 2009 and 2010, respectively, while the payments payable by us to CMCC and its subsidiaries under the 2008-2010 Telecommunications Services Agreement for the same periods did not exceed RMB4,350 million, RMB4,500 million and RMB4,400 million, respectively. The 2008-2010 Property Leasing Agreement and the 2008-2010 Telecommunications Services Agreement expired on December 31, 2010.
On December 21, 2010, we entered into the 2011-2013 property leasing and management agreement (the “2011-2013 Property Leasing Agreement”) with CMCC to extend the existing continuing connected transactions under the 2008-2010 Property Leasing Agreement. On the same date, we entered into the 2011-2013 telecommunications services agreement (the “2011-2013 Telecommunications Services Agreement”) with CMCC to govern the continuing connected transactions between the parties in relation to the provision of telecommunications services, which were previously governed by the 2008-2010 Telecommunications Services Agreement. The 2011-2013 Property Leasing Agreement and the 2011-2013 Telecommunications Services Agreement are for a term of three years commencing on January 1, 2011.
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The rental and property management service charges paid by us to CMCC and its subsidiaries for each of 2011 and 2012under the Property Leasing Agreement did not exceed RMB1,000RMB1,500 million, RMB2,000 million and these service charges payable by us to CMCC and its subsidiaries under the 2011-2013 Property Leasing AgreementRMB2,200 million in 2013, are not expected to exceed RMB1,000 million annually.2014 and 2015, respectively. The charges paid by us to CMCC and its subsidiaries under the 2011–2013 Telecommunications Services Agreement did not exceed RMB2,000RMB3,500 million, RMB7,000 million and RMB2,500RMB8,000 million in 20112013, 2014 and 2012,2015, respectively, while the aggregate annual amount paid by CMCC and its subsidiaries to us in 20112013, 2014 and 20122015 did not exceed RMB2,400 million. Themillion, RMB2,300 million and RMB2,200 million, respectively.
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Following the completion of the acquisition of Target Assets and Businesses in December 2015, we estimate that the aggregate annual amount payable by us to CMCC and its subsidiaries under the 2011-2013 Telecommunications Services Agreement in 2013 is expected not2016 will no longer be subject to exceed RMB3,000 million and the aggregatereporting, annual amount payable by CMCC and its subsidiaries to us in 2013 is expected not to exceed RMB2,400 million.review, announcement or individual shareholders’ approval requirements under the Hong Kong Listing Rules. The other transactions contemplated under the 2011-2013 Property Leasing Agreement and the 2011–2013 Telecommunications Services Agreement constitute our continuing connected transactions under Rule 14A.3414A.31 of the Hong Kong Listing Rules and are subject to the reporting, annual review and announcement requirements, but exempt from the independent shareholders’ approval requirements under the Hong Kong Listing Rules.
The rental and property management service charges payable by us to CMCC and its subsidiaries under the Property Leasing Agreement in 2016 are not expected to exceed RMB2,800 million. The aggregate annual amounts payable by CMCC and its subsidiaries to us under the Telecommunications Services Agreement in 2016 are not expected to exceed RMB1,800 million, respectively.
In 2012,2015, no consideration was paid from us to CMCC or from CMCC to us under the 20082013 Trademark License Agreement, the Spectrum and Numbering Resources Agreement, the Inter-Provincial Transmission Line Leasing Settlement Agreement and the Platform Development Agreement.
Item 8. | Financial Information. |
Consolidated Financial Statements
Our audited consolidated financial statements are set forth beginning on page F-1. Other than as disclosed elsewhere in this annual report on Form 20-F, no significant change has occurred since the date of the annual financial statements.
Legal Proceedings
We are not involved in any material litigation, arbitration or administrative proceedings, and, so far as we are aware, we do not have any pending or threatened litigation, arbitration or administrative proceeding that is expected to have a material effect on our financial condition and results of operations.
Policy on Dividend Distributions
We hold in the highest regard the interests of our shareholders and the returns achieved for them, especially our minority shareholders. In consideration of our stable profitabilityoperating results in 20122015 and having taken into account our long-term future development, our board of directors recommended payment of a final dividend of HK$1.7781.196 per share for the financial year ended December 31, 20122015. This is in accordance with our dividend payout ratio of 43% planned for the full financial year of 2012.2015. This, together with the interim dividend of HK$1.6331.525 per share that was paid, in 2012, amounted to an aggregate dividend payment of HK$3.4112.721 per share for the full financial year of 2012.2015.
In 2013,2016, having taken into accountconsideration various relevant factors, such as our overall financial condition, our cash flow generating capabilities and the need of our future sustainable development needs, we plan that our dividend payout ratio for the full year of 20132016 will be 43%.
Our board of directors believes that our continuously stablefavorable profitability and stronghealthy cash flow generating capabilitiescapability will be able to provide sufficient support to our future sustainable development, while providing our shareholders with a favorable return.
Item 9. | The Offer and Listing. |
In connection with our initial public offering, our ADSs each representing twenty ordinary shares, were listed and commenced trading on the New York Stock Exchange on October 22, 1997 under the symbol “CHL”. Effective from July 5, 2000, our ADS-to-share ratio has been changed to one-to-five. Our shares were listed and commenced trading on the Hong Kong Stock Exchange on October 23, 1997. Prior to these listings, there was no public market for our equity securities. The New York Stock Exchange and the Hong Kong Stock Exchange are the principal trading markets for our ADSs and ordinary shares, which are not listed on any other exchanges in or outside the United States.
As of December 31, 20122015 and March 31, 2013,2016, there were 20,100,340,60020,475,482,897 and 20,100,615,130,20,475,482,897, respectively, of our ordinary shares issued and outstanding. As of December 31, 20122015 and March 31, 2013,2016, there were, respectively, 484483 and 481478 registered holders of American depositary receipts evidencing 90,582,87598,998,862 and 89,913,88399,191,320 of our ADSs. Since certain of the ADSs are held by nominees, the above number may not be representative of the actual number of U.S. beneficial holders of ADSs or the number of ADSs beneficially held by U.S. persons. The depositary for the ADSs is The Bank of New York Mellon.
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The high and low closing sale prices of the shares on the Hong Kong Stock Exchange and of the ADSs on the New York Stock Exchange for the periods indicated are as follows.
Price per Share (HK$) | Price per ADS (US$) | |||||||||||||||
High | Low | High | Low | |||||||||||||
2008 | 136.60 | 53.80 | 89.30 | 34.83 | ||||||||||||
2009 | 91.55 | 63.00 | 58.54 | 40.75 | ||||||||||||
2010 | 84.30 | 71.95 | 54.40 | 46.27 | ||||||||||||
2011 | ||||||||||||||||
First Quarter | 78.85 | 69.20 | 50.44 | 44.83 | ||||||||||||
Second Quarter | 73.95 | 68.15 | 47.65 | 43.77 | ||||||||||||
Third Quarter | 80.90 | 69.20 | 51.70 | 44.82 | ||||||||||||
Fourth Quarter | 76.60 | 72.60 | 49.80 | 46.36 | ||||||||||||
2012 | ||||||||||||||||
First Quarter | 87.45 | 75.05 | 56.08 | 48.62 | ||||||||||||
Second Quarter | 89.05 | 76.70 | 56.89 | 49.68 | ||||||||||||
Third Quarter | 92.55 | 81.50 | 59.30 | 52.26 | ||||||||||||
Fourth Quarter | 90.50 | 83.30 | 58.72 | 53.85 | ||||||||||||
October | 87.35 | 83.30 | 56.56 | 53.85 | ||||||||||||
November | 89.55 | 84.10 | 56.92 | 54.08 | ||||||||||||
December | 90.50 | 87.25 | 58.72 | 55.92 | ||||||||||||
2013 | ||||||||||||||||
January | 91.45 | 84.00 | 59.53 | 53.81 | ||||||||||||
February | 85.95 | 84.55 | 55.60 | 54.41 | ||||||||||||
March | 84.60 | 80.35 | 54.72 | 52.20 | ||||||||||||
First Quarter | 91.45 | 80.35 | 59.53 | 52.20 | ||||||||||||
April (through April 24) | 82.95 | 80.90 | 53.77 | 51.76 |
We may conduct in the future a public offering and listing of our shares in Mainland China. We have not set a specific timetable or decided on any specific form for an offering in Mainland China. We believe that an offering and listing of our shares in Mainland China would provide us with better access to the capital markets in Mainland China and enable our customers in Mainland China to have an opportunity to become our shareholders. A decision to proceed with such an offering, as well as the precise timing of such an offering, would depend on a number of factors, including relevant regulatory developments and market conditions.
Price per Share (HK$) | Price per ADS (US$) | |||||||||||||||
High | Low | High | Low | |||||||||||||
2011 | 80.90 | 68.15 | 51.70 | 43.77 | ||||||||||||
2012 | 92.55 | 75.05 | 59.30 | 48.62 | ||||||||||||
2013 | 91.45 | 75.05 | 59.53 | 47.74 | ||||||||||||
2014 | ||||||||||||||||
First Quarter | 80.40 | 64.50 | 51.33 | 41.55 | ||||||||||||
Second Quarter | 78.15 | 69.05 | 50.68 | 44.77 | ||||||||||||
Third Quarter | 101.70 | 75.80 | 64.91 | 48.67 | ||||||||||||
Fourth Quarter | 97.00 | 87.75 | 63.17 | 56.82 | ||||||||||||
2015 |
| |||||||||||||||
First Quarter | 108.30 | 88.75 | 69.47 | 56.70 | ||||||||||||
Second Quarter | 116.10 | 97.80 | 75.00 | 63.58 | ||||||||||||
Third Quarter | 102.80 | 89.30 | 66.03 | 56.91 | ||||||||||||
Fourth Quarter | 95.95 | 87.35 | 61.95 | 56.29 | ||||||||||||
October | 95.95 | 91.20 | 61.95 | 58.97 | ||||||||||||
November | 95.25 | 88.10 | 61.41 | 57.47 | ||||||||||||
December | 90.60 | 87.35 | 58.81 | 56.29 | ||||||||||||
2016 | ||||||||||||||||
January | 87.50 | 79.65 | 55.08 | 50.66 | ||||||||||||
February | 85.75 | 82.00 | 55.50 | 52.36 | ||||||||||||
March | 86.50 | 83.30 | 56.32 | 53.78 | ||||||||||||
First Quarter | 87.50 | 79.65 | 56.32 | 50.66 | ||||||||||||
April (through April 25) | 91.85 | 84.75 | 58.55 | 54.38 |
Item 10. | Additional Information. |
Memorandum and Articles of Association
Under Section 3 of our Memorandum of Association,According to the Companies Ordinance, we have the capacity and the rights, powers and privileges of a natural person of full age and, in addition and without limit, we may do anything that we are permitted or required to do by any enactment or rule of law.
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Directors
Material Interests. A director (or an entity connected with a director) who is in any way, whether directly or indirectly, interested in a transaction, arrangement or contract or proposed transaction, arrangement or contract with us shall declare the nature and extent of his interest in accordance with the provisions of the Companies Ordinance (Chapter 32) of Hong Kong and theour Articles of Association. A director shall not vote or(nor shall be counted in the quorum,quorum), on any resolution of the board in respect of any contract or transaction or arrangement or proposal in which he or any of his Associates (as such term is defined in the Listing Rules of the Hong Kong Stock Exchange), is to his knowledge, materially interested, and if he shall do so, his vote shall not be counted or(nor shall be counted in the quorum for that resolution.resolution). The above prohibition shall not apply to any contract, arrangement or proposal:
for the giving by us of any security or indemnity to the director or his Associates in respect of money lent or obligations incurred or undertaken by him or any of them at the request of, or for, our or any of our subsidiaries’ benefit;
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for the giving by us of any security to a third party in respect of our or any of our subsidiaries’ debt or obligation for which the director or his Associates has himself or themselves assumed responsibility or guaranteed or secured in whole or in part whether alone or jointly;
concerning an offer of the shares or debentures or other securities of or by us or any other company which we may promote or be interested in for subscription or purchase where the director or his Associates are, or are to be, interested as a participant in the underwriting or sub-underwriting of the offer;
in which the director or his Associates are interested in the same manner as other holders of our shares or debentures or other securities by virtue only of his or their interest in our shares or debentures or other securities;
concerning any other company in which the director or his Associates are interested, whether directly or indirectly, as an officer or a shareholder or in which the director or his Associates are beneficially interested in shares of that company other than a company in which the director and any of his Associates, are beneficially interested in five percent5% or more of the issued shares of any class of the equity share capital of such company (or of any third company through which his interest or that of his Associates is derived) or of the voting rights (excluding for the purpose of calculating such five percent5% interest any indirect interest of such director or his Associates by virtue of our interest in such company);
for the benefit of our or any of our subsidiaries’ employees, including the adoption, modification or operation of a pension fund or retirement, death or disability benefit scheme which relates both to both our, or any of our subsidiaries’, directors, his Associates and employees and such directors’ Associates and does not give the director or his Associates any privilege not generally accorded to the class of persons to whom such scheme or fund relates; and
concerning the adoption, modification or operation of any employees’ share scheme involving the issue or grant of options over shares or other securities by us to, or for the benefit of, our or any of our subsidiaries’ employees under which the director or his Associates may benefit.
CompensationRemuneration and Pension. The directors areshall be entitled to receive by way of remuneration for their services such sum as we may determine from time to time in general meeting. The directors areshall also be entitled to be repaid their reasonable traveling, hotel and other expenses incurred by them in or about the performance of their duties as directors. The directors may award special remuneration out of our funds by(by way of salary, commission or otherwise as the directors may determine,determine) to any director who performs services which, in the opinion of the directors, are outside the scope of the ordinary duties of a director.
The board may establish and maintain or procure the establishment and maintenance of any contributory or non-contributory pension or superannuation funds for the benefit of, or give or procure the giving of donations, gratuities, pensions, allowances or emoluments to any persons (1) who are or were at any time in employment or service of our company, (oror any of our subsidiaries)subsidiaries, or areis allied or associated with us or with any of our subsidiaries, or (2) who are or were at any time our (oror any of our subsidiaries’) directors or officers, and who are holding or who have held any salaried employment or office in our company or any of our subsidiaries, and the wives, widows, families and dependantsdependents of any of thesesuch persons. Any director holding any such employment or office isshall be entitled to participate in, and retain for his own benefit, any such donation, gratuity, pension, allowance or emolument.
Borrowing Powers. The directors may exercise all the powers of our company to borrow money and to mortgage or charge all or any part of ourthe undertaking, property and assets (present and future) and uncalled capital and to issue debentures, debenture stocks, bonds and other securities, whether outright or as collateral security for theany debt, liability or obligation of our company or any third party.
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Qualification; Retirement. A director need not hold any of our shares to qualify as a director. There is no age limit requirement for a director’s retirement or non-retirement.
Each director is subject to retirement by rotation and at least once everyeach general meeting, one-third of the directors for the time being, or, if their number is not three years.or a multiple of three, then the number nearest to one-third, shall retire from office by rotation. The directors to retire in every year shall be those who have been longest in office since their last election, but as between persons who became directors on the same day shall be determined by lot unless they otherwise agree between themselves. The retiring directors shall be eligible for re-election.
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Rights Attaching to Ordinary Shares
The sectionVoting Rights. Under the Companies Ordinance, any action to be taken by the shareholders in a general meeting requires the affirmative vote of either an ordinary or a special resolution passed at the meeting. An ordinary resolution is one passed by the majority of such shareholders as are entitled “Descriptionto, and do, vote in person or by proxy at a general meeting. A special resolution is one passed by not less than three-quarters of Share Capital”such shareholders as are entitled to, and do, vote in our Registration Statementperson or by proxy at a general meeting. Generally, resolutions of shareholders are passed by ordinary resolution. However, the Companies Ordinance stipulates that certain matters may only be passed by special resolutions.
At any general meeting a resolution put to the vote of the meeting shall be decided on Form F-3 (File No. 333-47256),a poll demanded by:
provided that a resolution put to the vote of the meeting may be decided on a show of hands to the extent permitted by Hong Kong Listing Rules.
Subject to any special rights, privileges or restrictions as filedto voting for the time being attached to any class or classes of shares, every member who (being an individual) is present in person or (being a corporation) is present by a representative duly authorized under Section 606 of the Companies Ordinance at any general meeting shall be entitled, on a show of hands, to one vote only and, on a poll, to one vote for every fully paid-up share of which he is the holder.
On a poll, votes may be given either personally or by proxy and a member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.
Modification of Rights. All or any of the special rights attached to any class of shares (unless otherwise provided for by the terms of issue of the shares of that class) for the time being in issue may subject to the provisions of the Companies Ordinance, at any time, as well before as during liquidation, be altered or abrogated either with the SEC on October 30, 2000, is incorporated by reference into this annual report on Form 20-F.
Pursuant to ordinary resolutionsconsent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at our extraordinarya separate general meeting held on November 10, 2000, our authorized share capital was increased, byof the holders of shares of that class.
Issue of Shares.A general meeting resolving upon the creation of an additional 14,000,000,000 ordinaryany new shares may direct that the same or any of them shall be offered in the first instance, to all the holders for the time being of any class of shares in the capital of our company, in proportion to the number of shares of HK$0.10 each, which rank pari passusuch class held by them respectively, or make any other provisions as to the issue and allotment of the new shares, and in default of any such direction, or so far as the same shall not extend, the new shares shall be at the disposal of the directors, and Article 9 of the Articles of the Association shall apply thereto.
Dividends. We may by ordinary resolution declare dividends, but no such dividend shall be declared in excess of the amount recommended by the directors.
The directors may, if they think fit, from time to time, resolve to pay to the members such interim dividends as appear to the directors to be justified.
Winding Up. If we shall be wound up, the liquidator (whether voluntary or official) may, with the existing ordinary shares,sanction of a special resolution, divide among the shareholders in specie or kind the whole or any part of our assets or vest any part of our assets in trustees upon such trusts for the benefit of the members or any of them as the resolution shall provide.
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Miscellaneous. The shareholders are not entitled to a totalany redemption rights, conversion rights or preemptive rights on the transfer of HK$3,000,000,000 divided into 30,000,000,000 ordinary shares.our securities.
Annual General Meetings and Extraordinary General Meetings
We must hold, in each year, a general meeting as our annual general meeting in addition to any other meetings in that year. The annual general meeting must be held within six months after the end of each financial year and at such time (which shall be within a period of not more than 15 months, or such longer period as the Registrar of Companies may authorize in writing, after the holding of the last preceding annual general meeting) and placeplace(s) as may be determined by the directors. All other general meetings are extraordinary general meetings. The directors may proceed to convene an extraordinary general meeting whenever they think fit, in accordance with the Companies Ordinance.
In general, an annual general meeting and a meeting called for the passing of a resolution requiring special resolutionnotice as stipulated under Section 578 of the Companies Ordinance shall be called by not less than 21 days’ notice in writing, and any other general meeting shall be called by not less than 14 days’ notice in writing. The notice must specify the place, date and time of the meeting and, in the case of special business, the general nature of that business.
Miscellaneous
We keep our share register with our share registrar, which is Hong Kong Registrars Limited,Ltd., Shops 1712-1716, 17th17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. In addition, we also file certain documents with the Registrar of Companies, Hong Kong, China, in accordance with the requirements of the Companies Ordinance. Our company number is 622909.
Material Contracts
See “Item 7. Major Shareholders and Related Party Transactions — Related Party Transactions” for certain arrangements we have entered into with CMCC.CMCC and China Tower.
Exchange Controls
The Renminbi currently is not a freely convertible currency. Under the “capital account”, which includes, among others, foreign direct investment, the prior approval of the State Administration of Foreign Exchange should be obtained prior to conversion of Renminbi into foreign currency. However, under the “current account”, which includes dividends, trade and service-related foreign currency transactions, the Renminbi is currently freely convertible.
The value of the Renminbi is subject to changes in PRC government policies and to international economic and political developments. Since 1994, the conversion of the Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China,PBOC, which are set daily based on the previous business day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets. From 1994 to July 20, 2005, the official exchange rate for the conversion of the Renminbi to foreign currencies was generally stable. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. The PRC government has since made and in the future may make further adjustments to the exchange rate system.
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There are no limitations on the right of non-resident or foreign owners to remit dividends or to hold or vote the ordinary shares or the ADSs imposed by Hong Kong law or by our memorandum and articlesArticles of associationAssociation or other constituent documents.
Taxation — PRC
This section describes certain PRC tax consequences relating to the ownership and disposition of our ordinary shares and ADSs. This section does not address all possible PRC tax considerations that may be relevant to an investment in our ordinary shares or ADSs in light of an investor’s specific circumstances, and is based on PRC tax laws and relevant interpretations as in effect as of the date of this annual report on Form 20-F, which are subject to change, including the possibility of having retroactive effect.Accordingly, you should consult your own tax advisor regarding the PRC and other tax consequences of an investment in our ordinary shares or ADSs under your particular circumstances.circumstances.
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Under the PRC Enterprise Income Tax Law and its implementing rules, which took effect on January 1, 2008, or the PRC income tax law, a non-resident enterprise is generally subject to PRC enterprise income tax with respect to PRC-sourced income. Moreover, the PRC tax authorities have been issuing further interpretations and notices to enhance the application of the PRC income tax law.
Taxation of Dividends
On April 22, 2009, the PRC State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of Tax Residence Status of Chinese-Controlled Offshore-Incorporated Enterprises on the Basis of De Facto Management Bodies, or the 2009 Notice, which had retroactive effect as of January 1, 2008. We are considered a PRC resident enterprise for purposes of the 2009 Notice. In accordance with the 2009 Notice and the PRC income tax law, we are required to withhold enterprise income tax equal to 10% of any dividend when it is distributed to non-resident enterprise shareholders whose names appeared on our register of members, as of the record date for such dividend, and who were not individuals.
Taxation of Capital Gains
Under the PRC income tax law, a non-resident enterprise is generally subject to PRC enterprise income tax with respect to PRC-sourced income, but uncertainties remain as to their implementation by the relevant PRC tax authorities. We intend to comply with any interpretation or notice in relation to the taxation of capital gains issued by the PRC tax authorities in the future.
AdditionalOther PRC Tax Considerations
Stamp duty.Under the Provisional Regulations of the PRC Concerning Stamp Duty and its implementing rules, both of which became effective on October 1, 1988, PRC stamp duty should not apply to acquisitions or dispositions of our ordinary shares or ADSs outside of the PRC, as the PRC stamp duty is imposed only on documents executed or received within the PRC that are legally binding in the PRC and protected under the PRC law.
Estate tax. The PRC does not currently levy estate tax.
Taxation — Hong Kong
The taxation of income and capital gains of holders of ordinary shares or ADSs is subject to the laws and practices of Hong Kong and of jurisdictions in which holders of ordinary shares or ADSs are resident or otherwise subject to tax. The following summary of certain relevant taxation provisions under Hong Kong law is based on current law and practice, is subject to changes therein and does not constitute legal or tax advice. The discussion does not deal with all possible tax consequences relating to an investment in the ordinary shares or ADSs. Accordingly, each prospective investor (particularly those subject to special tax rules, such as banks, dealers, insurance companies, tax-exempt entities and holders of 10% or more of our voting capital stock) should consult its own tax advisor regarding the tax consequences of an investment in the ordinary shares and ADSs. The discussion is based upon laws and relevant interpretations thereof in effect as of the date of this annual report on Form 20-F, all of which are subject to change. There is no reciprocal tax treaty in effect between Hong Kong and the United States.
Tax on Dividends
Under the current practices of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in respect of dividends paid by us.
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Profits Tax
No tax is imposed in Hong Kong in respect of capital gains from the sale of property (such as the ordinary shares and ADSs). Trading gains from the sale of property by persons carrying on a trade, profession or business in Hong Kong where such gains are derived from or arise in Hong Kong from such trade, profession or business will be chargeable to Hong Kong profits tax, which is currently imposed at the rate of 16.5% and 15% on corporations and unincorporated businesses, respectively, and at a maximum rate of 15% on individuals. Gains from sales of the ordinary shares effected on the Hong Kong Stock Exchange may be considered to be derived from or arise in Hong Kong. Liability for Hong Kong profits tax may thus arise in respect of trading gains from sales of ordinary shares or ADSs realized by persons carrying on a business or trading or dealing in securities in Hong Kong.
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Stamp Duty
Hong Kong stamp duty, currently charged at the rate of HK$1 per HK$1,000 or part thereof on the higher of the consideration for or the value of the ordinary shares, will be payable by the purchaser on every purchase and by the seller on every sale of ordinary shares (i.e., a total of HK$2 per HK$1,000 or part thereof is currently payable on a typical sale and purchase transaction involving ordinary shares). In addition, a fixed duty of HK$5 is currently payable on any instrument of transfer of ordinary shares. If one of the parties to the sale is a non-Hong Kong resident and does not pay the required stamp duty, the duty not paid will be assessed on the instrument of transfer (if any) and the transferee will be liable for payment of such duty. The withdrawal of ordinary shares upon the surrender of ADSs, and the issuance of ADSs upon the deposit of ordinary shares, will also attract stamp duty at the rate described above for sale and purchase transactions unless the withdrawal or deposit does not result in a change in the beneficial ownership of the ordinary shares under Hong Kong law, in which case only a fixed duty of HK$5 is payable on the transfer. The issuance of the ADSs upon the deposit of ordinary shares issued directly to the depositary or for the account of the depositary does not attract stamp duty. No Hong Kong stamp duty is payable upon the transfer of ADSs outside Hong Kong.
Estate Duty
The Revenue (Abolition of Estate Duty) Ordinance 2005 came into effect on February 11, 2006 in Hong Kong. No Hong Kong estate duty is payable and no estate duty clearance papers are needed for an application for a grant of representation in respect of holders of ordinary shares whose death occurs on or after February 11, 2006.
Taxation — United States Federal Income Taxation
This section describes the material United States federal income tax consequences of the ownership and disposition of our ordinary shares or ADSs. This section applies to you only if you are a U.S. holder, as defined below, and you hold your ordinary shares or ADSs as capital assets for United States federal income tax purposes. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
a dealer in securities;
a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;
a tax-exempt organization;
a life insurance company;
a person liable for alternative minimum tax;
a person that actually or constructively owns 10% or more of our voting stock;
a person that holds ordinary shares or ADSs as part of a straddle or a hedging or conversion transaction;
a person that purchases or sells ordinary shares or ADSs as part of a wash sale for tax purposes; or
a person whose functional currency is not the U.S. dollar.
This section is based on the Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect.effect, as well as on the agreement between the United States and the People’s Republic of China for the avoidance of double taxation (the “U.S.-PRC Treaty”). These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the representations of The Bank of New York Mellon, as depositary,the Depositary, and the assumption that each obligation in the Deposit Agreement among us, The Bank of New York Mellon, as depositary, and owners and beneficial owners of ADRs issued thereunder,deposit agreement and any related agreement will be performed in accordance with its terms.
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If a partnership holds the ordinary shares or ADSs, the United States federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the ordinary shares or ADSs should consult its tax advisor with regard to the United States federal income tax treatment of anits investment in the ordinary shares or ADSs.
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You are a U.S. holder if you are a beneficial owner of ordinary shares or ADSs and you are:
a citizen or resident of the United States;
a domestic corporation;
an estate whose income is subject to United States federal income tax regardless of its source; or
a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.
You should consult your own tax advisor regarding the United States federal, state and local and other tax consequences of owning and disposing of ordinary shares orand ADSs in your particular circumstances.
In general, and taking into account the earlier assumptions, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the ordinary shares represented by those ADRs. Exchanges of ordinary shares for ADRs, and ADRs for ordinary shares, generally will not be subject to the United States federal income tax.
Taxation of Dividends
Under the United States federal income tax laws, and subject to the passive foreign investment company or PFIC, rules discussed below, if you are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation. If you are a noncorporatenon-corporate U.S. holder, dividends that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold the ordinary shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we paythat are paid with respect to the shares or ADSs generally will be qualified dividend income provided that in the year that you receive the dividend, the shares or ADSs are readily tradable on an established securities market in the United States.States are qualified dividend income. Under this rule, we expect that the dividends we pay with respect to the ADSs will be qualified dividend income. In addition, dividends paid by a non-U.S. corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States will be qualified dividend income. As our ordinary shares are not readily tradable on an established securities market in the United States and because we are uncertain as to whether we are eligible for the benefits of the U.S-PRC Treaty, it is unclear whether dividends paid with respect to our ordinary shares will also be qualified dividend income.
You must include any PRC tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you, in the case of ordinary shares, or The Bank of New York Mellon, as depositary,the Depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Hong Kong dollar payments made, determined at the spot Hong Kong dollar/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is, in fact, converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. ThisThe gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, (asas determined for United States federal income tax purposes)purposes, will be treated as a non-taxable return of capital to the extent of your basis in the ordinary shares or ADSs and thereafter as capital gain. However, we do not expect to calculate earnings and profits in accordance with United States federal income tax principles. Accordingly, you should expect to generally treat distributions we make as dividends.
Subject to certain limitations, the PRC tax withheld and paid over to the PRC will be creditable or deductible against your United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates.
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For foreign tax credit purposes, dividendsDividends will generally be income from sources outside the United States and, will, depending on your circumstances, generallywill be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to you. If you are subject to PRC withholding tax (as discussed in “Taxation — PRC — Taxation of Dividends,” above), you must include any such tax withheld from the dividend payment in your gross income, even though you do not in fact receive it. Subject to certain limitations, the PRC tax withheld and paid over to the PRC tax authorities will be creditable against your United States federal income tax liability. To the extent a refund of the tax withheld is available under PRC law, or to the extent that you could have avoided the withholding tax by complying with any certification, identification requirement or by completing any forms, the amount of tax withheld that is refundable or that could have been avoided will not be eligible for credit against your United States federal income tax liability.
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Taxation of Capital Gains
Subject to the PFICpassive foreign investment company rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your ordinary shares or ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your ordinary shares or ADSs. Capital gain of a noncorporatenon-corporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The deductibility of capital losses isSubject to the paragraph immediately below regarding gain subject to limitations. ThePRC tax, the gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Your ability to deduct capital losses is subject to limitations. Any Hong Kong stamp duty that you pay will not be a creditable tax for United States federal income tax purposes, but you may be able to deduct such stamp duty subject to limitations under the Code.
It is not clear if PRC tax will be imposed on any gain from the disposition of your ordinary shares or ADSs (as discussed above in “Taxation — PRC — Taxation of Capital Gains”). Under the U.S.-PRC Treaty, if PRC tax were to be imposed on any gain from the disposition of your ordinary shares or ADSs, then such gain will be treated as PRC source income if you are eligible for the benefits of the U.S.-PRC Treaty. U.S. holders should consult their tax advisors regarding the possibility of PRC tax being imposed on gain from the disposition of their ordinary shares or ADSs, the tax consequences if PRC tax were to be imposed on such dispositions, and the availability of the foreign tax credit under their particular circumstances.
PFIC Rules
We believe that shares or ADSswe should not be treated as stock of a passive foreign investment company, or PFIC, for United States federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. In general, if you are a U.S. holder, we will be a PFIC with respect to you if for any taxable year in which you held our sharesADSs or ADSs:ordinary shares:
at least 75% of our gross income for the taxable year is passive income; or
at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income.
Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns, directly or indirectly, at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.
If we are treated as a PFIC, and you are a U.S. holder that diddoes not make a mark-to-market election, as described below, you will be subject to special rules with respect to:
any gain you realize on the sale or other disposition of your ordinary shares or ADSs; and
any excess distribution that we make to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the ordinary shares or ADSs during the three preceding taxable years or, if shorter, your holding period for the ordinary shares or ADSs).
Under these rules:
the gain or excess distribution will be allocated ratably over your holding period for the ordinary shares or ADSs;
the amount allocated to the taxable year in which you realized the gain or excess distribution will be taxed as ordinary income;
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the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that year; and
the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year.
Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.
If we are a PFIC and you own shares or ADSs, inthen you can make a mark-to-market election with respect to the ADSs. If we are a PFIC thatand you own ordinary shares, then you can make a mark-to-market election if the ordinary shares are treated as marketable stock you may make a mark-to-market election.under the applicable regulations. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your ordinary shares or ADSs at the end of the taxable year over your adjusted basis in your ordinary shares or ADSs. These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your ordinary shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your basis in the ordinary shares or ADSs will be adjusted to reflect any such income or loss amounts.
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Your gain, if any, recognized upon the sale of your ordinary shares or ADSs will be treatedtaxed as stock in a PFIC if we were a PFIC at any time during your holding period in your shares or ADSs, even if we are not currently a PFIC. For purposes of this rule, if you make a mark-to-market election with respect to your shares or ADSs, you will be treated as having a new holding period in your shares or ADSs beginning on the first day of the first taxable year beginning after the last taxable year for which the mark-to-market election applies.ordinary income.
In addition, notwithstanding any election you make with regard to the ordinary shares or ADSs, dividends that you receive from us will not constitute qualified dividend income to you if we are a PFIC, either in the taxable year of the distribution or the preceding taxable year. Moreover, subject to the following sentence, your ordinary shares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your ordinary shares or ADSs, even if we are not currently a PFIC. The rule in the preceding sentence will not apply, however, if you had a mark-to-market election in effect with respect to your ordinary shares or ADSs in the final year in which we are a PFIC or if you made a special “purging election” with respect to your ordinary shares or ADSs. Dividends that you receive that do not constitute qualified dividend income are not eligible for taxation at the preferential rates applicable to qualified dividend income. Instead, you must include the gross amount of any such dividend paid by us out of our accumulated earnings and profits (as determined for United States federal income tax purposes) in your gross income, and it will be subject to tax at rates applicable to ordinary income.
If you own ordinary shares or ADSs during any year that we are a PFIC with respect to you, you may be required to file Internal Revenue Service Form 8621.
Documents on Display
You may read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room and its copy charges. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.
The SEC allows us to “incorporate by reference” the information we file with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report on Form 20-F.
Item 11. | Quantitative and Qualitative Disclosures About Market Risk. |
We are subject to market rate risks due to fluctuations in interest rates. The majority of our debt is in the form of long-term loans with original maturities ranging up to fifteen years. Accordingly, fluctuations in interest rates can lead to significant fluctuations in the fair value of these debt instruments. From time to time, we may enter into interest rate swap agreements designed to mitigate our exposure to interest rate risks, although we did not consider it necessary to do so in 2012.2015.
We are also exposed to foreign currency risk relating to cash and cash equivalents denominated in foreign currencies. We may enter into foreign exchange forward contracts designed to mitigate our exposure to foreign currency risks. As of December 31, 2012,2015, we had no foreign exchange forward contracts outstanding. We expect our foreign currency hedging activity to be generally limited to the hedging of specific future commitments in foreign currencies.
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The following table provides information regarding our interest rate-sensitive financial instruments, which consist of fixed and variable rate short-term and long-term debt obligations, as of the dates indicated.
Expected Maturity Date | As of December 31, 2012 | As of December 31, 2011 | ||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total Recorded Amount | Fair Value | Total Recorded Amount | Fair Value | |||||||||||||||||||||||||||||||
(RMB equivalent in millions, except interest rates) | ||||||||||||||||||||||||||||||||||||||||
Debt: | ||||||||||||||||||||||||||||||||||||||||
Obligations under finance leases | 68 | — | — | — | — | — | 68 | 68 | 68 | 68 | ||||||||||||||||||||||||||||||
Average interest rate | 4.96 | % | — | — | — | — | — | 4.96 | % | — | 4.96 | % | — | |||||||||||||||||||||||||||
Bonds | — | — | — | — | 4,986 | — | 4,986 | 4,908 | 4,984 | 4,845 | ||||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | 4.50 | % | — | 4.50 | % | — | 4.50 | % | — | |||||||||||||||||||||||||||
Deferred consideration payable | — | — | — | — | 9,976 | 13,657 | 23,633 | 23,633 | 23,633 | 23,633 | ||||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | 0.38 | % | 0.38 | % | 0.89 | % | — | 1.19 | % | — |
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Expected Maturity Date | As of December 31, 2015 | As of December 31, 2014 | ||||||||||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total Recorded Amount | Fair Value | Total Recorded Amount | Fair Value | |||||||||||||||||||||||||||||||
(RMB equivalent in millions, except interest rates) | ||||||||||||||||||||||||||||||||||||||||
Debt: | ||||||||||||||||||||||||||||||||||||||||
Obligations under finance leases | — | — | — | — | — | — | — | — | 68 | 68 | ||||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | — | 4.96 | % | — | |||||||||||||||||||||||||||||
Bonds issued by Guangdong Mobile | — | 4,995 | — | — | — | — | 4,995 | 5,150 | 4,992 | 4,951 | ||||||||||||||||||||||||||||||
Average interest rate | — | 4.50 | % | — | — | — | — | 4.50 | % | — | 4.50 | % | — |
The following table provides information regarding our foreign currency-sensitive financial instruments and transactions, which consist of restricted bank deposits, bank deposits and cash and cash equivalents as of the dates indicated.
Expected Maturity Date | As of December 31, 2012 | As of December 31, 2011 | Expected Maturity Date | As of December 31, 2015 | As of December 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total Recorded Amount | Fair Value | Total Recorded Amount | Fair Value | 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total Recorded Amount | Fair Value | Total Recorded Amount | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(RMB equivalent in millions) | (RMB equivalent in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
On-balance sheet financial instruments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted bank deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in U.S. dollars | — | — | — | 1 | — | — | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in Hong Kong dollars | — | — | — | — | 122 | — | 122 | 122 | 154 | 154 | — | — | 42 | — | — | — | 42 | 42 | 734 | 734 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in U.S. dollars | 336 | — | — | — | — | — | 336 | 336 | 327 | 327 | 843 | — | — | — | — | — | 843 | 843 | 279 | 279 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in Hong Kong dollars | 1,803 | — | — | — | — | — | 1,803 | 1,803 | 1,558 | 1,558 | 2,763 | — | — | — | — | — | 2,763 | 2,763 | 758 | 758 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in U.S. dollars | 343 | — | — | — | — | — | 343 | 343 | 424 | 424 | 1,097 | — | — | — | — | — | 1,097 | 1,097 | 518 | 518 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in Hong Kong dollars | 1,142 | — | — | — | — | — | 1,142 | 1,142 | 1,467 | 1,467 | 777 | — | — | — | — | — | 777 | 777 | 3,564 | 3,564 |
Item 12. | Description of Securities Other than Equity Securities. |
The Bank of New York Mellon, located at One Wall101 Barclay Street, New York, New York 10286, USA as the depositary of our ADSs, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may refuse to provide delivery of ADSs or deposited shares or to provide any distributions until its fees for those services are paid.
ADR holders must pay: | For: | |||||
• | US$5 (or less) per 100 ADSs (or portion thereof) | • | Each issuance of an ADS, including as a result of a distribution of shares or rights or other property | |||
• | Each cancellation of an ADS, including if the deposit agreement terminates | |||||
• | Each distribution of securities, other than shares or ADSs, treating the securities as if they were shares for the purpose of calculating fees | |||||
• | US$0.02 (or less) per ADS | • | Any cash distribution (not including cash dividend distribution) | |||
• | Registration or transfer fees | • | Transfer and registration of shares on the share register of our transfer agent and the registrar in Hong Kong from an ADR holder’s name to the name of the depositary or its agent when the ADR holder deposit or withdraw shares |
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ADR holders must pay: | For: | |||||
• | Expenses of the depositary | • | Conversion of Hong Kong dollars to U.S. dollars | |||
• | Cable, telex and facsimile transmission expenses | |||||
• | Taxes and other governmental charges the depositary or the custodian has to pay on any ADS or share underlying an | • | As necessary |
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The Bank of New York Mellon, as the depositary, has agreed to pay for certain expenses incurred in connection with our shareholders’ meetings. The amount of such expenses paid by the Bank of New York Mellon in 20122015 was US$169,638.24,177,908.79, net of withholding tax. The Bank of New York Mellon has also agreed to waive certain fees for standard costs associated with the administration of the ADR program, and the amount of such fees waived for the year ended December 31, 2012in 2015 was US$132,919.84.132,637.09.
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Item 13. | Defaults, Dividend Arrearages and Delinquencies. |
None.
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds. |
None.
Item 15. | Controls and Procedures. |
Disclosure Controls and Procedures.Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act, of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including, without limitation, that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As of December 31, 2012,2015, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended)Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2012,2015, our disclosure controls and procedures were effective at a reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting.Management’s Report on Internal Control Over Financial Reporting is set forth below.
Management’s Report on Internal Control Over Financial Reporting
Management of China Mobile Limited (together with its consolidated subsidiaries, the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
As of December 31, 2012,2015, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of the Company’s internal control over financial reporting using criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, the Company’s management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2012.2015.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20122015 has been audited by KPMG,PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm, as stated in their report dated March 14, 2013.April 26, 2016 appearing on page F-2 of this annual report on Form 20-F.
/s/ LI Yue | /s/ XUE Taohai | |||||||
Name: | LI Yue | Name: | XUE Taohai | |||||
Title: | Executive Director and Chief Executive Officer | Title: | Executive Director, Vice President and Chief Financial Officer |
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
China Mobile Limited:
We have audited China Mobile Limited and its subsidiaries’ internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The management of China Mobile Limited and its subsidiaries is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the internal control over financial reporting of China Mobile Limited and its subsidiaries based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, China Mobile Limited and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of China Mobile Limited and its subsidiaries as of December 31, 2011 and 2012, and the related consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements for each of the years in the three-year period ended December 31, 2012 and our report dated March 14, 2013 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG
Hong Kong, China
March 14, 2013
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Changes in Internal Control Over Financial Reporting. During 2012,2015, no change to our internal control over financial reporting occurred that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. | Audit Committee Financial Expert. |
All members of our audit committee have extensive management experience. In particular, one of the members has many years of finance and commercial management experience and expertise. However, members of our audit committee do not possess direct experience or expertise in respect of the evaluation of reports filed with the SEC by SEC-reporting issuers. Our board of directors has determined that we do not currently have an audit committee financial expert, as defined in Item 16A(b) of Form 20-F, serving on our audit committee. Our audit committee may consider appointing, from time to time, an external financial expert as a consultant.
Item 16B. | Code of Ethics. |
We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Deputy Chief Financial Officer, Assistant Chief Financial Officer and our other designated senior officers. A copy of our Code of Ethics for Covered Officers was filed as Exhibit 11.1 to our annual report on Form 20-F for the fiscal year ended December 31, 2003, and may also be downloaded from our website at http://www.chinamobileltd.com/images/pdf/terms/CodeofEthics_eng.pdf.en/about/cg/ethics.pdf. Information contained on that website is not a part of this annual report on Form 20-F. Copies of our Code of Ethics for Covered Officers may also be obtained at no charge by writing to our investor relations department at 60/F, The Center, 99 Queen’s Road Central, Hong Kong.
Item 16C. | Principal Accountant Fees and Services. |
The following table sets forth the aggregate audit fees, audit-related fees, tax fees of our principal accountants and all other fees billed for products and services provided by our principal accountants other than the audit fees, audit-related fees and tax fees in 20112014 and 2012:2015:
Audit Fees(1) | Audit- Related Fees | Tax Fees | All Other Fees(2) | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
2011 | 84,000,000 | — | 600,000 | 11,000,000 | ||||||||||||
2012 | 87,000,000 | — | 2,000,000 | 12,000,000 |
Audit Fees(1) | Audit-Related Fees | Tax Fees | All Other Fees(2) | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
2014 | 91,350,000 | — | 485,000 | 5,623,000 | ||||||||||||
2015 | 96,780,000 | — | 1,057,000 | 4,421,000 |
(1) | Includes the fees for services rendered in connection with the audit of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002. |
(2) | Includes the fees for |
Before our principal accountants were engaged by us or our subsidiaries to render audit or non-audit services, the engagement was approved by our audit committee as required by applicable rules and regulations of the SEC.
Item 16D. | Exemptions from the Listing Standards for Audit Committees. |
Not applicable.
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers. |
None.
Item 16F. | Change in Registrant’s Certifying Accountant. |
Change of Principal Accountants
On March 14, 2013, the board of directors of the Company resolved, as recommended by our audit committee, to propose to replace our principal accountants, KPMG, after the completion of their audit of our consolidated financial statements as of and for the year ended December 31, 2012 and the effectiveness of our internal control over financial reporting as of December 31, 2012. Such change in our principal accountants is due to the relevant regulations issued by the Ministry of Finance and the State-Owned Assets Supervision and Administration Commission of the PRC. According to the relevant regulations, there are restrictions in respect of the number of years of audit services that an accounting firm can continuously provide to a State-owned enterprise and its subsidiaries. As a result, our company will not re-appoint KPMG at the annual general meeting to be held on May 30, 2013.
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None of the auditors’ reports issued by KPMG on our financial statements as of and for the fiscal years ended December 31, 2011 and 2012 contained an adverse opinion or a disclaimer of opinion, or was modified or qualified as to uncertainty, audit scope, or accounting principles. During the two fiscal years ended December 31, 2011 and 2012 and through March 14, 2013, there were no disagreements with KPMG, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement if not resolved to KPMG’s satisfaction would have caused them to make reference to the subject matter of the disagreement in connection with their report, nor have there been any reportable events (as defined in Item 16F(a)(1)(v) of Form 20-F). We have provided KPMG with a copy of the foregoing disclosure and have requested that KPMG furnish to us a letter addressed to the SEC stating whether or not KPMG agrees with such disclosure. A copy of the letter is filed as Exhibit 15.1 to this Form 20-F.
Engagement of New Principal Accountants
On March 14, 2013, our board of directors resolved, as recommended by our audit committee, to propose to appoint PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian CPAs Limited Company (which we understand will be renamed PricewaterhouseCoopers Zhong Tian LLP), or collectively PwC, as our new principal accountants for Hong Kong financial reporting and U.S. financial reporting purposes, respectively. Such appointment will become effective upon the close of our forthcoming annual general meeting. During the two fiscal years ended December 31, 2011 and 2012 and through March 14, 2013, neither we nor any person on our behalf consulted with PwC regarding either (i) the application of accounting principles to a specific completed or proposed transaction or regarding the type of audit opinion that might be rendered on our financial statements and no written or oral advice was provided that PwC concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issues, or (ii) any matter being the subject of disagreement (as defined in Item 16F(a)(1)(iv) of Form 20-F) or reportable event (as defined in Item 16F(a)(1)(v) of Form 20-F).Not applicable.
Item 16G. | Corporate Governance. |
As a foreign private issuer (as defined in Rule 3b-4 under the Securities Exchange Act of 1934, as amended)Act), we are permitted to follow home country practices in lieu of some of the corporate governance practices required to be followed by U.S. companies listed on the New York Stock Exchange. As a result, our corporate governance practices differ in some respects from those required to be followed by U.S. companies listed on the New York Stock Exchange.
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The significant differences between our corporate governance practices and those required to be followed by U.S. companies under the New York Stock Exchange’s listing standards include:
Section 303A.01 of the New York Stock Exchange Listed Company Manual provides that listed companies must have a majority of independent directors. As a listed company in Hong Kong, we are subject to the requirement under the Hong Kong Listing Rules that at least one-third of our board of directors be independent non-executive directors as determined under the Hong Kong Listing Rules. We currently have threefour independent directors out of a total of nine directors. The Hong Kong Listing Rules set forth standards for establishing independence, which differ from those set forth in the New York Stock Exchange Listed Company Manual.
Section 303A.03 of the New York Stock Exchange Listed Company Manual provides that listed companies must schedule regular executive sessions in which non-management directors meet without management participation. As a listed company in Hong Kong, we are subject to the requirement under the Hong Kong Listing Rules that our Chairman should hold meetings at least annually with the non-executive directors (including independent non-executive directors) without the presence of the executive directors.
Section 303A.04 of the New York Stock Exchange Listed Company Manual provides that the nominating/corporate governance committee of a listed company must have a written charter that addresses the committee’s purpose and responsibilities, which include, among others, the development and recommendation of corporate governance guidelines to the listed company’s board of directors. Our board of directors is responsible for performing the corporate governance duties, including developing and reviewing our policies and practices on corporate governance guidelines.
-67-
Section 303A.07 of the New York Stock Exchange Listed Company Manual provides that if an audit committee member simultaneously serves on the audit committee of more than three public companies, and the listed company does not limit the number of audit committees on which its audit committee members serve to three or less, then in each case, the board of directors must determine that such simultaneous service would not impair the ability of such member to effectively serve on the listed company’s audit committee and disclose such determination. We are not required, under the applicable Hong Kong law, to make such determination.
Section 303A.10 of the New York Stock Exchange Listed Company Manual provides that listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees. While we are not required, under the Hong Kong Listing Rules, to adopt such a similar code, as required under the Sarbanes-Oxley Act of 2002, we have adopted a code of ethics that is applicable to our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions.
Section 303A.12(a) of the New York Stock Exchange Listed Company Manual provides that each listed company’s chief executive officer must certify to the New York Stock Exchange each year that he or she is not aware of any violation by the company of New York Stock Exchange corporate governance listing standards. Our Chief Executive Officer is not required, under the applicable Hong Kong law, to make similar certifications.
Item 16H. | Mine Safety Disclosure. |
Not applicable.
-68--74-
Item 17. | Financial Statements. |
Not applicable.
Item 18. | Financial Statements. |
The following financial statements are filed as part of this annual report on Form 20-F.
China Mobile Limited:
| ||||
F-1 | ||||
F-2 | ||||
Item 19. | Exhibits. |
(a) | See Item 18 for a list of the financial statements filed as part of this annual report on Form 20-F. |
(b) | Exhibits to this annual report on Form 20-F: |
Exhibit | Description of Exhibit | |
1.1 | ||
2.1 | We agree to provide the SEC, upon request, copies of instruments defining the rights of holders of our long-term debt. | |
2.2 | ||
Letter of Guarantee from China Mobile Communications Corporation for the RMB3,000 million guaranteed bonds due 2007 and RMB5,000 million guaranteed bonds due 2017, both issued by Guangdong Mobile in 2002 (with English translation). | ||
4.1 | Agreement on Sharing of Administrative Services and Administrative Costs, dated April 27, 2004, between China Mobile Communication Co., Ltd. and China Mobile Communications Corporation (with English translation).(2) | |
4.2 | Agreement regarding Settlement of Interconnection and Roaming, Transmission Line Leasing, Usage of Spectrum Frequency and Numbering Resources, dated July 1, 2004, between China Mobile (Hong Kong) Limited and China Mobile Communications Corporation (with English translation). | |
4.3 | ||
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Tripartite Agreement on the Transfer of Rights and Obligations Relating to the Interconnection and Settlement Arrangements, dated November 13, 2008, among China Mobile Communications Corporation, China | ||
TD-SCDMA Network Capacity Leasing Agreement, dated December 29, 2008, between China Mobile Communications Corporation and China Mobile Limited (with English translation). | ||
Telecommunications Services Cooperation Agreement, dated November 6, 2009, between China Mobile Communications Corporation and China Mobile Limited (with English translation). | ||
Share Subscription Agreement, dated March 10, 2010, between China Mobile Group Guangdong Co., Ltd. and Shanghai Pudong Development Bank Co., Ltd. (with English summary). | ||
Property Leasing and Management Services Agreement for the Years from 2011 to 2013, dated December 21, 2010, between China Mobile Limited and China Mobile Communications Corporation (with English translation). | ||
Telecommunications Services Agreement for the Years from 2011 to 2013, dated December 21, 2010, between China Mobile Limited and China Mobile Communications Corporation (with English translation). |
-75-
Network Assets Leasing Agreement, dated August 18, 2011, between China Mobile Communications Corporation and China Mobile Limited (with English translation). | ||
Amendment and Transfer Agreement in connection with the Agreement regarding Settlement of Interconnection and Roaming, Transmission Line Leasing, Usage of Spectrum Frequency and Numbering Resources, dated September 13, 2012, between China Mobile Limited, China Mobile International Limited, China Mobile Communications Corporation and China Mobile Communication Co., Ltd. (with English translation).(8) | ||
4.11 | Trademark License Agreement, dated January 1, 2013, between China Mobile Communications Corporation, China Mobile Limited and China Mobile Communications Limited (with English translation).(9) | |
4.12 | Property Leasing and Management Services Agreement for the Years from 2014 to 2016, dated August 15, 2013, between China Mobile Limited and China Mobile Communications Corporation (with English translation).(9) | |
4.13 | Telecommunications Services Agreement for the Years from 2014 to 2016, dated August 15, 2013, between China Mobile Limited and China Mobile Communications Corporation (with English translation).(9) | |
4.14 | Promoters’ Agreement, dated July 11, 2014, among China Mobile Communication Co., Ltd., China United Network Communications Corporation Limited, and China Telecom Corporation Limited (with English translation).(10) | |
4.15 | Agreement on Purchase of Existing Telecommunications Towers and Related Assets by Issuing Shares and Paying Cash Consideration, dated October 14, 2015, among China Mobile Communication Co., Ltd., China United Network Communications Corporation Limited, China Telecom Corporation Limited, China Reform Holdings Corporation Ltd., and China Tower Corporation Limited (with English translation). | |
4.16 | Agreement on the Transfer of Business and Assets of China TieTong Telecommunications Corporation, dated November 27, 2015, between China Mobile TieTong Company Limited and China TieTong Telecommunications Corporation (with English translation). | |
4.17 | Share Subscription Agreement, dated January 30, 2016, between China Mobile Group Anhui Co., Ltd. and China Tower Corporation Limited (with English translation). | |
4.18 | Share Subscription Agreement, dated January 30, 2016, between China Mobile Group Henan Co., Ltd. and China Tower Corporation Limited (with English translation). | |
4.19 | Share Subscription Agreement, dated January 30, 2016, between China Mobile Group Hebei Co., Ltd. and China Tower Corporation Limited (with English translation). | |
4.20 | Share Subscription Agreement, dated January 30, 2016, between China Mobile Group Guangdong Co., Ltd. and China Tower Corporation Limited (with English translation). | |
4.21 | Share Subscription Agreement, dated January 30, 2016, between China Mobile Group Jiangsu Co., Ltd. and China Tower Corporation Limited (with English translation). | |
4.22 | Share Subscription Agreement, dated January 30, 2016, between China Mobile Group Shandong Co., Ltd. and China Tower Corporation Limited (with English translation). | |
4.23 | Share Subscription Agreement, dated January 30, 2016, between China Mobile Group Zhejiang Co., Ltd. and China Tower Corporation Limited (with English translation). | |
8.1 | List of Major Subsidiaries. | |
11.1 | Code of Ethics. | |
12.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a). |
-70--76-
12.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a). | |
13.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(b). | |
13.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(b). | |
(1) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2002 (File No. 1-14696), filed with the SEC on June 17, 2003. |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2003 (File No. 1-14696), filed with the SEC on June 17, 2004. |
(3) | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2004 (File No. 1-14696), filed with the SEC on June 13, 2005. |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2008 (File No. 1-14696), filed with the SEC on June 23, 2009. |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2009 (File No. 1-14696), filed with the SEC on June 7, 2010. |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2010 (File No. 1-14696), filed with the SEC on April 27, 2011. |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, |
(8) | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2012 (File No. 1-14696), filed with the SEC on April 25, 2013. |
(9) | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2013 (File No. 1-14696), filed with the SEC on April 25, 2014. |
(10) | Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2014 (File No. 1-14696), filed with the SEC on April 24, 2015. |
-71--77-
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on Form 20-F on its behalf.
CHINA MOBILE LIMITED | ||
By: | /s/ LI Yue | |
Name: | LI Yue | |
Title: | Executive Director and Chief Executive Officer |
Date: April 25, 201326, 2016
Index to Consolidated Financial Statements
Page No. | ||||
F-2 | ||||
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of China Mobile Limited:TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
We have auditedCHINA MOBILE LIMITED
In our opinion, the accompanying consolidated balance sheets of China Mobile Limited and its subsidiaries as of December 31, 2011 and 2012, and the related consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flow statements for each offlows present fairly, in all material respects, the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the managementposition of China Mobile Limited and its subsidiaries.subsidiaries (collectively, the “Company”) at December 31, 2015 and December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Management’s Report on Internal Control Over Financial Reporting included in Item 15 of this Annual Report onForm 20-F. Our responsibility is to express an opinionopinions on these consolidated financial statements and on the Company’s internal control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well asand evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China Mobile Limited and its subsidiaries as of December 31, 2011 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of China Mobile Limitedfinancial reporting and its subsidiaries asthe preparation of December 31, 2012, based on criteria establishedfinancial statements for external purposes inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2013 expressed an unqualified opinion on the effectiveness of the accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopersZhong Tian LLP
Beijing, the People’s Republic of China Mobile Limited and its subsidiaries.
/s/ KPMG
Hong Kong, China
March 14, 2013April 26, 2016
Consolidated statementsStatements of comprehensive incomeComprehensive Income
Forfor the yearsyear ended December 31
(Expressed in Renminbi)Renminbi (“RMB”))
Note | 2012 | 2011 | 2010 | Note | 2015 | 2014 | 2013 | |||||||||||||||||||||
RMB million | RMB million | RMB million | As restated | As restated | ||||||||||||||||||||||||
(Note 2(b)) | (Note 2(b)) | |||||||||||||||||||||||||||
Operating revenue (Turnover) | 3 | |||||||||||||||||||||||||||
Million | Million | Million | ||||||||||||||||||||||||||
Voice services | 368,025 | 364,189 | 343,985 | |||||||||||||||||||||||||
Data services | 166,348 | 139,330 | 120,768 | |||||||||||||||||||||||||
Others | 26,040 | 24,480 | 20,478 | |||||||||||||||||||||||||
Operating revenue | 4 | |||||||||||||||||||||||||||
Revenue from telecommunications services | 584,089 | 591,602 | 600,424 | |||||||||||||||||||||||||
Revenue from sales of products and others | 84,246 | 59,907 | 39,624 | |||||||||||||||||||||||||
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560,413 | 527,999 | 485,231 | 668,335 | 651,509 | 640,048 | |||||||||||||||||||||||
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Operating expenses | ||||||||||||||||||||||||||||
Leased lines | 9,909 | 5,188 | 3,897 | |||||||||||||||||||||||||
Leased lines and network assets | 20,668 | 15,843 | 14,816 | |||||||||||||||||||||||||
Interconnection | 25,140 | 23,533 | 21,886 | 21,668 | 23,502 | 25,983 | ||||||||||||||||||||||
Depreciation | 100,848 | 97,113 | 86,230 | 136,832 | 122,805 | 111,493 | ||||||||||||||||||||||
Personnel | 4 | 31,256 | 28,672 | 24,524 | ||||||||||||||||||||||||
Employee benefit and related expenses | 5 | 74,805 | 70,385 | 66,681 | ||||||||||||||||||||||||
Selling expenses | 104,906 | 96,830 | 90,590 | 59,850 | 75,655 | 91,719 | ||||||||||||||||||||||
Cost of products sold | 89,297 | 74,495 | 61,409 | |||||||||||||||||||||||||
Other operating expenses | 5 | 137,832 | 125,364 | 107,350 | 6 | 162,293 | 151,504 | 136,523 | ||||||||||||||||||||
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409,891 | 376,700 | 334,477 | 565,413 | 534,189 | 508,624 | |||||||||||||||||||||||
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Profit from operations | 150,522 | 151,299 | 150,754 | 102,922 | 117,320 | 131,424 | ||||||||||||||||||||||
Other net income | 6 | 2,208 | 2,559 | 2,336 | ||||||||||||||||||||||||
Gain on the transfer of Tower Assets | 7 | 15,525 | — | — | ||||||||||||||||||||||||
Non-operating net income | 7 | 615 | 571 | 685 | ||||||||||||||||||||||||
Other gains | 8 | 1,800 | 1,171 | 989 | ||||||||||||||||||||||||
Interest income | 12,661 | 8,413 | 5,658 | 15,852 | 16,270 | 15,368 | ||||||||||||||||||||||
Finance costs | 8 | (390 | ) | (565 | ) | (902 | ) | 9 | (455 | ) | (487 | ) | (1,195 | ) | ||||||||||||||
Share of profit of associates | 18 | 5,685 | 4,306 | 558 | ||||||||||||||||||||||||
Share of loss of jointly controlled entity | 19 | (1 | ) | (1 | ) | (18 | ) | |||||||||||||||||||||
Share of profit of investments accounted for using the equity method | 19 | 8,090 | 8,248 | 7,063 | ||||||||||||||||||||||||
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Profit before taxation | 171,300 | 166,582 | 159,071 | 143,734 | 142,522 | 153,649 | ||||||||||||||||||||||
Taxation | 11(a) | (41,919 | ) | (40,603 | ) | (39,047 | ) | 12(a) | (35,079 | ) | (33,179 | ) | (36,746 | ) | ||||||||||||||
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PROFIT FOR THE YEAR | 129,381 | 125,979 | 120,024 | 108,655 | 109,343 | 116,903 | ||||||||||||||||||||||
Other comprehensive income for the year: | ||||||||||||||||||||||||||||
Other comprehensive income/(loss) for the year that may be subsequently reclassified to profit or loss: | ||||||||||||||||||||||||||||
Exchange differences on translation of financial statements of overseas entities | (6 | ) | (311 | ) | (135 | ) | 603 | (169 | ) | (176 | ) | |||||||||||||||||
Share of other comprehensive income of associates | (16 | ) | (229 | ) | — | |||||||||||||||||||||||
Share of other comprehensive income/(loss) of associates | 901 | 1,224 | (767 | ) | ||||||||||||||||||||||||
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TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 129,359 | 125,439 | 119,889 | 110,159 | 110,398 | 115,960 | ||||||||||||||||||||||
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Consolidated statementsStatements of comprehensive incomeComprehensive Income (Continued)
Forfor the yearsyear ended December 31 (continued)
(Expressed in Renminbi)RMB)
Note | 2015 | 2014 | 2013 | |||||||||||||||||||||||||
As restated | As restated | |||||||||||||||||||||||||||
Note | 2012 | 2011 | 2010 | (Note 2(b)) | (Note 2(b)) | |||||||||||||||||||||||
RMB million | RMB million | RMB million | Million | Million | Million | |||||||||||||||||||||||
Profit attributable to: | ||||||||||||||||||||||||||||
Equity shareholders of the Company | 129,274 | 125,870 | 119,640 | 108,539 | 109,218 | 116,791 | ||||||||||||||||||||||
Non-controlling interests | 107 | 109 | 384 | 116 | 125 | 112 | ||||||||||||||||||||||
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PROFIT FOR THE YEAR | 129,381 | 125,979 | 120,024 | 108,655 | 109,343 | 116,903 | ||||||||||||||||||||||
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Total comprehensive income attributable to: | ||||||||||||||||||||||||||||
Equity shareholders of the Company | 129,252 | 125,332 | 119,505 | 110,043 | 110,273 | 115,849 | ||||||||||||||||||||||
Non-controlling interests | 107 | 107 | 384 | 116 | 125 | 111 | ||||||||||||||||||||||
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TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 129,359 | 125,439 | 119,889 | 110,159 | 110,398 | 115,960 | ||||||||||||||||||||||
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Earnings per share – Basic | 12(a) | RMB | 6.43 | RMB | 6.27 | RMB | 5.96 | 13(a) | RMB | 5.30 | RMB | 5.38 | RMB | 5.81 | ||||||||||||||
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Earnings per share – Diluted | 12(b) | RMB | 6.36 | RMB | 6.20 | RMB | 5.89 | 13(b) | RMB | 5.30 | RMB | 5.35 | RMB | 5.74 | ||||||||||||||
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The notes on pages F-13F-16 to F-70 formF-97 are an integral part of these consolidated financial statements.
Consolidated balance sheetsBalance Sheets
As atas of December 31
(Expressed in Renminbi)RMB)
Note | As at December 31, 2012 | As at December 31, 2011 | Note | As of December 31, 2015 | As of December 31, 2014 | |||||||||||||||
RMB million | RMB million | As restated | ||||||||||||||||||
(Note 2(b)) | ||||||||||||||||||||
Million | Million | |||||||||||||||||||
Assets | ||||||||||||||||||||
Non-current assets | ||||||||||||||||||||
Property, plant and equipment | 13 | 430,509 | 408,165 | 14 | 585,631 | 605,023 | ||||||||||||||
Construction in progress | 14 | 55,507 | 56,235 | 15 | 88,012 | 95,110 | ||||||||||||||
Land lease prepayments | 14,244 | 12,798 | ||||||||||||||||||
Land lease prepayments and others | 16 | 26,773 | 24,883 | |||||||||||||||||
Goodwill | 15 | 36,894 | 36,894 | 17 | 35,343 | 35,343 | ||||||||||||||
Other intangible assets | 16 | 924 | 818 | 768 | 787 | |||||||||||||||
Interest in associates | 18 | 48,343 | 43,794 | |||||||||||||||||
Interest in jointly controlled entity | 19 | 6 | 7 | |||||||||||||||||
Investments accounted for using the equity method | 19 | 115,933 | 70,451 | |||||||||||||||||
Deferred tax assets | 20 | 13,544 | 10,913 | 20 | 25,423 | 20,654 | ||||||||||||||
Proceeds receivable for the transfer of Tower Assets | 7 | 56,737 | — | |||||||||||||||||
Restricted bank deposits | 21 | 5,418 | 122 | 21 | 4,575 | 8,731 | ||||||||||||||
Other financial assets | 22 | 127 | 127 | 22 | 3 | 128 | ||||||||||||||
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| 939,198 | 861,110 | |||||||||||||||||
605,516 | 569,873 |
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Current assets | ||||||||||||||||||||
Inventories | 23 | 7,195 | 7,944 | 23 | 9,994 | 9,292 | ||||||||||||||
Accounts receivable | 24 | 11,722 | 9,165 | 24 | 17,743 | 16,715 | ||||||||||||||
Other receivables | 25 | 8,605 | 19,483 | 25 | 26,186 | 14,567 | ||||||||||||||
Prepayments and other current assets | 25 | 15,913 | 12,854 | 25 | 11,427 | 15,482 | ||||||||||||||
Amount due from ultimate holding company | 26 | 102 | 170 | 26 | 247 | 112 | ||||||||||||||
Tax recoverable | 11(c) | 153 | 91 | 746 | 702 | |||||||||||||||
Available-for-sale financial assets | 27 | 19,167 | 2,000 | |||||||||||||||||
Restricted bank deposits | 21 | — | 32 | 21 | 15 | 736 | ||||||||||||||
Bank deposits | 331,997 | 246,687 | 28 | 323,330 | 353,507 | |||||||||||||||
Cash and cash equivalents | 27 | 70,906 | 86,259 | 29 | 79,842 | 73,812 | ||||||||||||||
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446,593 | 382,685 | |||||||||||||||||||
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| 488,697 | 486,925 | |||||||||||||||||
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| |||||||||||||||||||
Total assets | 1,427,895 | 1,348,035 | ||||||||||||||||||
|
|
Consolidated balance sheetsBalance Sheets (Continued)
As atas of December 31 (continued)
(Expressed in Renminbi)RMB)
Note | As at December 31, 2012 | As at December 31, 2011 | Note | As of December 31, 2015 | As of December 31, 2014 | |||||||||||||||
RMB million | RMB million | As restated | ||||||||||||||||||
(Note 2(b)) | ||||||||||||||||||||
Million | Million | |||||||||||||||||||
Equity and liabilities | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Interest-bearing borrowings | 33 | — | 1,000 | |||||||||||||||||
Accounts payable | 28 | 123,896 | 116,266 | 30 | 243,579 | 227,577 | ||||||||||||||
Bills payable | 1,159 | 1,616 | 645 | 674 | ||||||||||||||||
Deferred revenue | 29 | 57,988 | 51,753 | 31 | 78,100 | 63,916 | ||||||||||||||
Accrued expenses and other payables | 31 | 103,774 | 92,362 | 32 | 163,404 | 138,706 | ||||||||||||||
Amount due to ultimate holding company | 26 | 39 | 285 | 26 | 7,276 | 14,519 | ||||||||||||||
Amount due to immediate holding company | 26 | 16 | 33 | |||||||||||||||||
Obligations under finance leases | 32 | 68 | 68 | — | 68 | |||||||||||||||
Current taxation | 11(c) | 10,856 | 10,861 | 8,034 | 6,032 | |||||||||||||||
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| |||||||||||||||||
297,796 | 273,244 | 501,038 | 452,492 | |||||||||||||||||
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| |||||||||||||||||
Net current assets | 148,797 | 109,441 | ||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Interest-bearing borrowings – non-current | 33 | 4,995 | 4,992 | |||||||||||||||||
Deferred revenue – non-current | 31 | 1,291 | 1,470 | |||||||||||||||||
Deferred tax liabilities | 20 | 203 | 98 | |||||||||||||||||
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| |||||||||||||||||
Total assets less current liabilities carried forward | 754,313 | 679,314 | ||||||||||||||||||
|
| 6,489 | 6,560 | |||||||||||||||||
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| |||||||||||||||||||
Total liabilities | 507,527 | 459,052 | ||||||||||||||||||
|
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Consolidated balance sheetsBalance Sheets (Continued)
As atas of December 31 (continued)
(Expressed in Renminbi)RMB)
Note | As at December 31, 2012 | As at December 31, 2011 | ||||||||
RMB million | RMB million | |||||||||
Total assets less current liabilities brought forward | 754,313 | 679,314 | ||||||||
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| |||||||
Non-current liabilities | ||||||||||
Interest-bearing borrowings | 30 | (28,619 | ) | (28,617 | ) | |||||
Deferred revenue, excluding current portion | 29 | (334 | ) | (261 | ) | |||||
Deferred tax liabilities | 20 | (51 | ) | (17 | ) | |||||
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| |||||||
(29,004 | ) | (28,895 | ) | |||||||
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| |||||||
NET ASSETS | 725,309 | 650,419 | ||||||||
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| |||||||
CAPITAL AND RESERVES | ||||||||||
Share capital | 2,142 | 2,140 | ||||||||
Reserves | 721,305 | 646,924 | ||||||||
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| |||||||
Total equity attributable to equity shareholders of the Company | 723,447 | 649,064 | ||||||||
Non-controlling interests | 1,862 | 1,355 | ||||||||
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| |||||||
TOTAL EQUITY | 725,309 | 650,419 | ||||||||
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|
|
Approved and authorized for issue by the Board of Directors on March 14, 2013.
Li Yue
Director
Xue Taohai
Director
Note | As of December 31, 2015 | As of December 31, 2014 | ||||||||
As restated | ||||||||||
(Note 2(b)) | ||||||||||
Million | Million | |||||||||
Equity | ||||||||||
Share capital | 35(b) | 402,130 | 400,737 | |||||||
Reserves | 515,206 | 486,179 | ||||||||
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| |||||||
Total equity attributable to equity shareholders of the Company | 917,336 | 886,916 | ||||||||
Non-controlling interests | 3,032 | 2,067 | ||||||||
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| |||||||
Total equity | 920,368 | 888,983 | ||||||||
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| |||||||
Total equity and liabilities | 1,427,895 | 1,348,035 | ||||||||
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The notes on pages F-13F-16 to F-70 formF-97 are an integral part of these consolidated financial statements.
Consolidated statementsStatements of changesChanges in equityEquity
Forfor the yearsyear ended December 31
(Expressed in Renminbi)RMB)
Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||
Share Capital | Share premium | Capital reserve | General reserve | Exchange reserve | PRC statutory reserves | Retained profits | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||||||||
As at January 1, 2010 | 2,139 | 386,375 | (291,972 | ) | 72 | (1,039 | ) | 129,918 | 281,255 | 506,748 | 886 | 507,634 | ||||||||||||||||||||||||||||
Changes in equity for 2010: | ||||||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | — | — | 119,640 | 119,640 | 384 | 120,024 | ||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | (135 | ) | — | — | (135 | ) | — | (135 | ) | |||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total comprehensive income for the year | — | — | — | — | (135 | ) | — | 119,640 | 119,505 | 384 | 119,889 | |||||||||||||||||||||||||||||
Dividends approved in respect of the previous year (note 35(a)(ii)) | — | — | — | — | — | — | (25,651 | ) | (25,651 | ) | — | (25,651 | ) | |||||||||||||||||||||||||||
Dividends declared in respect of the current year (note 35(a)(i)) | — | — | — | — | — | — | (24,550 | ) | (24,550 | ) | (24 | ) | (24,574 | ) | ||||||||||||||||||||||||||
Shares issued under share option scheme | — | 101 | (8 | ) | — | — | — | — | 93 | — | 93 | |||||||||||||||||||||||||||||
Transfer to PRC statutory reserves (note 35(c)(ii)) | — | — | — | — | — | 24,260 | (24,248 | ) | 12 | — | 12 | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||
As at December 31, 2010 | 2,139 | 386,476 | (291,980 | ) | 72 | (1,174 | ) | 154,178 | 326,446 | 576,157 | 1,246 | 577,403 | ||||||||||||||||||||||||||||
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Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||
Share capital | Share premium | Capital reserve | General reserve | Exchange reserve | PRC statutory reserves | Retained profits | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||
Million | Million | Million | Million | Million | Million | Million | Million | Million | Million | |||||||||||||||||||||||||||||||
As of January 1, 2013 (As previously reported) | 2,142 | 387,183 | (292,268 | ) | 72 | (1,489 | ) | 211,610 | 416,197 | 723,447 | 1,862 | 725,309 | ||||||||||||||||||||||||||||
Adjusted for business combination under common control | — | — | 29,250 | — | (3 | ) | 17 | (27,753 | ) | 1,511 | — | 1,511 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||
As of January 1, 2013 (As restated) | 2,142 | 387,183 | (263,018 | ) | 72 | (1,492 | ) | 211,627 | 388,444 | 724,958 | 1,862 | 726,820 | ||||||||||||||||||||||||||||
Changes in equity for 2013: | ||||||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | — | — | 116,791 | 116,791 | 112 | 116,903 | ||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | (767 | ) | — | (175 | ) | — | — | (942 | ) | (1 | ) | (943 | ) | |||||||||||||||||||||||||
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| |||||||||||||||||||||
Total comprehensive (loss)/income for the year | — | — | (767 | ) | — | (175 | ) | — | 116,791 | 115,849 | 111 | 115,960 | ||||||||||||||||||||||||||||
Dividends approved in respect of previous year (note 35(a)(ii)) | — | — | — | — | — | — | (28,460 | ) | (28,460 | ) | (21 | ) | (28,481 | ) | ||||||||||||||||||||||||||
Dividends declared in respect of current year (note 35(a)(i)) | — | — | — | — | — | — | (27,031 | ) | (27,031 | ) | — | (27,031 | ) | |||||||||||||||||||||||||||
Shares issued under share option scheme | — | 60 | (17 | ) | — | — | — | — | 43 | — | 43 | |||||||||||||||||||||||||||||
Transfer to PRC statutory reserves | — | — | — | — | — | 24,143 | (24,119 | ) | 24 | — | 24 | |||||||||||||||||||||||||||||
Capital injection from ultimate holding company to Target Assets and Businesses | — | — | 33,788 | — | — | — | — | 33,788 | — | 33,788 | ||||||||||||||||||||||||||||||
Others | — | — | — | — | 1,060 | — | (1,060 | ) | — | — | — | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||
As of December 31, 2013 (As restated) | 2,142 | 387,243 | (230,014 | ) | 72 | (607 | ) | 235,770 | 424,565 | 819,171 | 1,952 | 821,123 | ||||||||||||||||||||||||||||
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The notes on pages F-13F-16 to F-70 formF-97 are an integral part of these consolidated financial statements.
Consolidated statementsStatements of changesChanges in equityEquity (Continued)
Forfor the yearsyear ended December 31 (continued)
(Expressed in Renminbi)RMB)
Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||
Share Capital | Share premium | Capital reserve | General reserve | Exchange reserve | PRC statutory reserves | Retained profits | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||||||||
As at January 1, 2011 | 2,139 | 386,476 | (291,980 | ) | 72 | (1,174 | ) | 154,178 | 326,446 | 576,157 | 1,246 | 577,403 | ||||||||||||||||||||||||||||
Changes in equity for 2011: | ||||||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | — | — | 125,870 | 125,870 | 109 | 125,979 | ||||||||||||||||||||||||||||||
Other comprehensive income | — | — | (229 | ) | — | (309 | ) | — | — | (538 | ) | (2 | ) | (540 | ) | |||||||||||||||||||||||||
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Total comprehensive income for the year | — | — | (229 | ) | — | (309 | ) | — | 125,870 | 125,332 | 107 | 125,439 | ||||||||||||||||||||||||||||
Dividends approved in respect of the previous year (note 35(a)(ii)) | — | — | — | — | — | — | (26,718 | ) | (26,718 | ) | — | (26,718 | ) | |||||||||||||||||||||||||||
Dividends declared in respect of the current year (note 35(a)(i)) | — | — | — | — | — | — | (25,857 | ) | (25,857 | ) | — | (25,857 | ) | |||||||||||||||||||||||||||
Shares issued under share option scheme | 1 | 153 | (18 | ) | — | — | — | — | 136 | — | 136 | |||||||||||||||||||||||||||||
Transfer to PRC statutory reserves (note 35(c)(ii)) | — | — | — | — | — | 25,058 | (25,044 | ) | 14 | — | 14 | |||||||||||||||||||||||||||||
Partial disposal of a subsidiary | — | — | — | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||
As at December 31, 2011 | 2,140 | 386,629 | (292,227 | ) | 72 | (1,483 | ) | 179,236 | 374,697 | 649,064 | 1,355 | 650,419 | ||||||||||||||||||||||||||||
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Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||
Share capital | Share premium | Capital reserve | General reserve | Exchange reserve | PRC statutory reserves | Retained profits | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||
Million | Million | Million | Million | Million | Million | Million | Million | Million | Million | |||||||||||||||||||||||||||||||
As of January 1, 2014 (As previously reported) | 2,142 | 387,243 | (293,052 | ) | 72 | (600 | ) | 235,749 | 457,219 | 788,773 | 1,951 | 790,724 | ||||||||||||||||||||||||||||
Adjusted for business combination under common control | — | — | 63,038 | — | (7 | ) | 21 | (32,654 | ) | 30,398 | 1 | 30,399 | ||||||||||||||||||||||||||||
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As of January 1, 2014 (As restated) | 2,142 | 387,243 | (230,014 | ) | 72 | (607 | ) | 235,770 | 424,565 | 819,171 | 1,952 | 821,123 | ||||||||||||||||||||||||||||
Changes in equity for 2014: | ||||||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | — | — | 109,218 | 109,218 | 125 | 109,343 | ||||||||||||||||||||||||||||||
Other comprehensive income/(loss) | — | — | 1,224 | — | (169 | ) | — | — | 1,055 | — | 1,055 | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total comprehensive income/(loss) for the year | — | — | 1,224 | — | (169 | ) | — | 109,218 | 110,273 | 125 | 110,398 | |||||||||||||||||||||||||||||
Dividends approved in respect of previous year | — | — | — | — | — | — | (26,044 | ) | (26,044 | ) | (10 | ) | (26,054 | ) | ||||||||||||||||||||||||||
Dividends declared in respect of current year | — | — | — | — | — | — | (24,880 | ) | (24,880 | ) | — | (24,880 | ) | |||||||||||||||||||||||||||
Shares issued under share option scheme | 9,279 | 2,073 | (3,137 | ) | — | — | — | — | 8,215 | — | 8,215 | |||||||||||||||||||||||||||||
Transfer to PRC statutory reserves | — | — | — | — | — | 23,172 | (22,991 | ) | 181 | — | 181 | |||||||||||||||||||||||||||||
Transfer between reserves upon expiry of options (note 34(b)) | — | — | (27 | ) | — | — | — | 27 | — | — | — | |||||||||||||||||||||||||||||
Transition to no-par value regime | 389,316 | (389,316 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Others | — | — | — | — | 8 | — | (8 | ) | — | — | — | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||
As of December 31, 2014 (As restated) | 400,737 | — | (231,954 | ) | 72 | (768 | ) | 258,942 | 459,887 | 886,916 | 2,067 | 888,983 | ||||||||||||||||||||||||||||
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The notes on pages F-13F-16 to F-70 formF-97 are an integral part of these consolidated financial statements.
Consolidated statementsStatements of changesChanges in equityEquity (Continued)
Forfor the yearsyear ended December 31 (continued)
(Expressed in Renminbi)RMB)
Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||
Share Capital | Share premium | Capital reserve | General reserve | Exchange reserve | PRC statutory reserves | Retained profits | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||||||||
As at January 1, 2012 | 2,140 | 386,629 | (292,227 | ) | 72 | (1,483 | ) | 179,236 | 374,697 | 649,064 | 1,355 | 650,419 | ||||||||||||||||||||||||||||
Changes in equity for 2012: | ||||||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | — | — | 129,274 | 129,274 | 107 | 129,381 | ||||||||||||||||||||||||||||||
Other comprehensive income | — | — | (16 | ) | — | (6 | ) | — | — | (22 | ) | — | (22 | ) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total comprehensive income for the year | — | — | (16 | ) | — | (6 | ) | — | 129,274 | 129,252 | 107 | 129,359 | ||||||||||||||||||||||||||||
Dividends approved in respect of the previous year (note 35(a)(ii)) | — | — | — | — | — | — | (28,583 | ) | (28,583 | ) | — | (28,583 | ) | |||||||||||||||||||||||||||
Dividends declared in respect of the current year (note 35(a)(i)) | — | — | — | — | — | — | (26,842 | ) | (26,842 | ) | — | (26,842 | ) | |||||||||||||||||||||||||||
Shares issued under share option scheme (note 35(b)(ii)) | 2 | 554 | (25 | ) | — | — | — | — | 531 | — | 531 | |||||||||||||||||||||||||||||
Transfer to PRC statutory reserves (note 35(c)(ii)) | — | — | — | — | — | 32,374 | (32,349 | ) | 25 | — | 25 | |||||||||||||||||||||||||||||
Non-controlling interests of a new subsidiary | — | — | — | — | — | — | — | — | 400 | 400 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||
As at December 31, 2012 | 2,142 | 387,183 | (292,268 | ) | 72 | (1,489 | ) | 211,610 | 416,197 | 723,447 | 1,862 | 725,309 | ||||||||||||||||||||||||||||
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Attributable to equity shareholders of the Company | ||||||||||||||||||||||||||||||||||||||||
Share capital | Share premium | Capital reserve | General reserve | Exchange reserve | PRC statutory reserves | Retained profits | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||
Million | Million | Million | Million | Million | Million | Million | Million | Million | Million | |||||||||||||||||||||||||||||||
As of January 1, 2015 (As previously reported) | 400,737 | — | (294,992 | ) | 72 | (761 | ) | 258,918 | 492,602 | 856,576 | 2,067 | 858,643 | ||||||||||||||||||||||||||||
Adjusted for business combination under common control | — | — | 63,038 | — | (7 | ) | 24 | (32,715 | ) | 30,340 | — | 30,340 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||
As of January 1, 2015 (As restated) | 400,737 | — | (231,954 | ) | 72 | (768 | ) | 258,942 | 459,887 | 886,916 | 2,067 | 888,983 | ||||||||||||||||||||||||||||
Changes in equity for 2015: | ||||||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | — | — | 108,539 | 108,539 | 116 | 108,655 | ||||||||||||||||||||||||||||||
Other comprehensive income | — | — | 901 | — | 603 | — | — | 1,504 | — | 1,504 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total comprehensive income for the year | — | — | 901 | — | 603 | — | 108,539 | 110,043 | 116 | 110,159 | ||||||||||||||||||||||||||||||
Dividends approved in respect of previous year (note 35(a)(ii)) | — | — | — | — | — | — | (22,283 | ) | (22,283 | ) | (21 | ) | (22,304 | ) | ||||||||||||||||||||||||||
Dividends declared in respect of current year | — | — | — | — | — | — | (25,629 | ) | (25,629 | ) | — | (25,629 | ) | |||||||||||||||||||||||||||
Shares issued under share option scheme | 1,393 | — | (369 | ) | — | — | — | — | 1,024 | — | 1,024 | |||||||||||||||||||||||||||||
Transfer to PRC statutory reserves | — | — | — | — | — | 20,542 | (20,502 | ) | 40 | — | 40 | |||||||||||||||||||||||||||||
Transfer between reserves upon expiry of options (note 34(b)) | — | — | (92 | ) | — | — | — | 92 | — | — | — | |||||||||||||||||||||||||||||
Consideration for business combination under common control (note 2(b)) | — | — | (31,967 | ) | — | — | — | — | (31,967 | ) | — | (31,967 | ) | |||||||||||||||||||||||||||
Transfer of assets of entities under common control to the ultimate holding company (note 2(b)) | — | — | (808 | ) | — | — | — | — | (808 | ) | — | (808 | ) | |||||||||||||||||||||||||||
Capital injection from non-controlling interests of a subsidiary | — | — | — | — | — | — | — | — | 870 | 870 | ||||||||||||||||||||||||||||||
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As of December 31, 2015 | 402,130 | — | (264,289 | ) | 72 | (165 | ) | 279,484 | 500,104 | 917,336 | 3,032 | 920,368 | ||||||||||||||||||||||||||||
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The notes on pages F-13F-16 to F-70 formF-97 are an integral part of these consolidated financial statements.
Consolidated cash flow statementsStatements of Cash Flows
Forfor the yearsyear ended December 31
(Expressed in Renminbi)RMB)
Note | 2015 | 2014 | 2013 | |||||||||||||||||||||||||
As restated | As restated | |||||||||||||||||||||||||||
Note | 2012 | 2011 | 2010 | (Note 2(b)) | (Note 2(b)) | |||||||||||||||||||||||
RMB million | RMB million | RMB million | Million | Million | Million | |||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||
Profit before taxation | 171,300 | 166,582 | 159,071 | 143,734 | 142,522 | 153,649 | ||||||||||||||||||||||
Adjustments for: | ||||||||||||||||||||||||||||
- Depreciation of property, plant and equipment | 100,848 | 97,113 | 86,230 | 136,832 | 122,805 | 111,493 | ||||||||||||||||||||||
- Amortization of other intangible assets | 5 | 68 | 54 | 62 | 6 | 274 | 112 | 80 | ||||||||||||||||||||
- Amortization of land lease prepayments | 346 | 325 | 298 | 16 | 426 | 407 | 387 | |||||||||||||||||||||
- Loss on disposal of property, plant and equipment | 5 | 1 | 3 | — | ||||||||||||||||||||||||
- Write-off of property, plant and equipment | 5 | 2,818 | 5,853 | 2,763 | ||||||||||||||||||||||||
- Gain on the transfer of Tower Assets | 7 | (15,525 | ) | — | — | |||||||||||||||||||||||
- Gain on disposal of property, plant and equipment | 6 | (4 | ) | (1 | ) | (3 | ) | |||||||||||||||||||||
- Write-off and impairment of property, plant and equipment | 6 | 7,614 | 2,383 | 5,145 | ||||||||||||||||||||||||
- Impairment loss of doubtful accounts | 5 | 4,504 | 3,548 | 4,019 | 6 | 4,839 | 5,536 | 5,126 | ||||||||||||||||||||
- Impairment loss of inventories | 5 | 313 | 87 | 55 | ||||||||||||||||||||||||
- Write-down of inventories | 6 | 272 | 293 | 202 | ||||||||||||||||||||||||
- Interest income | (12,661 | ) | (8,413 | ) | (5,658 | ) | (15,852 | ) | (16,270 | ) | (15,368 | ) | ||||||||||||||||
- Finance costs | 8 | 390 | 565 | 902 | 9 | 455 | 487 | 1,195 | ||||||||||||||||||||
- Dividend income from unlisted securities | 7 | (11 | ) | (13 | ) | (17 | ) | 8 | (11 | ) | — | (34 | ) | |||||||||||||||
- Share of profit of associates | (5,685 | ) | (4,306 | ) | (558 | ) | ||||||||||||||||||||||
- Share of loss of jointly controlled entity | 1 | 1 | 18 | |||||||||||||||||||||||||
- Unrealized exchange (gain)/loss, net | 7 | (17 | ) | 9 | 6 | |||||||||||||||||||||||
- Share of profit of investments accounted for using the equity method | 19 | (8,090 | ) | (8,248 | ) | (7,063 | ) | |||||||||||||||||||||
- Unrealized exchange loss/(gain), net | 182 | 80 | (58 | ) | ||||||||||||||||||||||||
- Loss on disposal of a subsidiary | — | — | 18 | |||||||||||||||||||||||||
- Impairment loss of goodwill | 6 | — | 1,594 | — | ||||||||||||||||||||||||
- Gain on disposal of other financial assets | (14 | ) | — | — | ||||||||||||||||||||||||
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Operating cashflow before changes in working capital | 262,215 | 261,408 | 247,191 | |||||||||||||||||||||||||
Decrease/(increase) in inventories | 436 | (3,492 | ) | (457 | ) | |||||||||||||||||||||||
Operating cash flows before changes in working capital | 255,132 | 251,700 | 254,769 | |||||||||||||||||||||||||
Increase in inventories | (1,005 | ) | (271 | ) | (2,113 | ) | ||||||||||||||||||||||
Increase in accounts receivable | (7,063 | ) | (4,865 | ) | (5,232 | ) | (5,830 | ) | (8,165 | ) | (7,288 | ) | ||||||||||||||||
Decrease/(increase) in other receivables | 82 | (258 | ) | 170 | ||||||||||||||||||||||||
Increase in prepayments and other current assets | (3,403 | ) | (2,613 | ) | (1,087 | ) | ||||||||||||||||||||||
Decrease/(increase) in amount due from ultimate holding company | 68 | 123 | (268 | ) | ||||||||||||||||||||||||
Increase in accounts payable | 5,443 | 651 | 5,704 | |||||||||||||||||||||||||
Increase in other receivables | (1,341 | ) | (960 | ) | (239 | ) | ||||||||||||||||||||||
Decrease/(increase) in prepayments and other current assets | 276 | (8,010 | ) | (2,217 | ) | |||||||||||||||||||||||
(Increase)/decrease in amount due from ultimate holding company | (135 | ) | (18 | ) | 12 | |||||||||||||||||||||||
(Decrease)/increase in accounts payable | (6,832 | ) | 8,191 | 3,498 | ||||||||||||||||||||||||
Increase/(decrease) in bills payable | 20 | 614 | (1 | ) | 12 | (144 | ) | (563 | ) | |||||||||||||||||||
Increase in deferred revenue | 6,308 | 8,277 | 7,847 | 14,005 | 1,200 | 4,205 | ||||||||||||||||||||||
Increase in accrued expenses and other payables | 11,432 | 6,719 | 16,369 | 18,633 | 7,722 | 20,088 | ||||||||||||||||||||||
(Decrease)/increase in amount due to ultimate holding company | (246 | ) | 270 | 11 | (32 | ) | 4,249 | (17 | ) | |||||||||||||||||||
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Cash generated from operations | 275,292 | 266,834 | 270,247 | 272,883 | 255,494 | 270,135 | ||||||||||||||||||||||
Tax paid | ||||||||||||||||||||||||||||
- Hong Kong profits tax paid | (100 | ) | (134 | ) | (99 | ) | (232 | ) | (272 | ) | (27 | ) | ||||||||||||||||
- PRC enterprise income tax paid | (44,483 | ) | (39,944 | ) | (38,769 | ) | (37,562 | ) | (38,784 | ) | (43,203 | ) | ||||||||||||||||
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Net cash generated from operating activities carried forward | 230,709 | 226,756 | 231,379 | |||||||||||||||||||||||||
Net cash generated from operating activities | 235,089 | 216,438 | 226,905 | |||||||||||||||||||||||||
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Consolidated cash flow statementsStatements of Cash Flows (Continued)
Forfor the yearsyear ended December 31 (continued)
(Expressed in Renminbi)RMB)
Note | 2012 | 2011 | 2010 | |||||||||||
RMB million | RMB million | RMB million | ||||||||||||
Net cash generated from operating activities brought forward | 230,709 | 226,756 | 231,379 | |||||||||||
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Investing activities | ||||||||||||||
Capital expenditure | (123,232 | ) | (123,331 | ) | (113,203 | ) | ||||||||
Land lease prepayments | (1,792 | ) | (1,083 | ) | (1,135 | ) | ||||||||
Acquisition of other intangible assets | (174 | ) | (85 | ) | (162 | ) | ||||||||
Proceeds from disposal of property, plant and equipment | 6 | 123 | 12 | |||||||||||
Increase in bank deposits | (85,310 | ) | (41,884 | ) | (19,190 | ) | ||||||||
Increase in restricted bank deposits | (5,264 | ) | — | (162 | ) | |||||||||
Trust loan granted | — | (14,000 | ) | (2,700 | ) | |||||||||
Cash receipt from repayment of trust loan | 14,000 | 2,700 | — | |||||||||||
Interest received | 9,459 | 7,593 | 4,588 | |||||||||||
Acquisition of investment in an associate | — | — | (39,617 | ) | ||||||||||
Acquisition of investment in a jointly controlled entity | — | — | (20 | ) | ||||||||||
Proceeds from acquisition of a subsidiary (net of cash and cash equivalents acquired) | — | 140 | — | |||||||||||
Dividends received from an associate | 36(c) | 1,120 | 458 | — | ||||||||||
Dividends received from unlisted securities | 11 | 13 | 17 | |||||||||||
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Net cash used in investing activities | (191,176 | ) | (169,356 | ) | (171,572 | ) | ||||||||
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Financing activities | ||||||||||||||
Proceeds from issuance of shares under share option scheme | 35(b)(ii) | 531 | 136 | 93 | ||||||||||
Capital injection from non-controlling interests of a subsidiary | 400 | — | — | |||||||||||
Interest paid | (403 | ) | (651 | ) | (919 | ) | ||||||||
Dividends paid to the Company’s equity shareholders | 35(a) | (55,425 | ) | (52,575 | ) | (50,201 | ) | |||||||
Dividends paid to non-controlling interests | — | — | (24 | ) | ||||||||||
Repayments of bonds and other loans | — | (5,330 | ) | — | ||||||||||
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Net cash used in financing activities | (54,897 | ) | (58,420 | ) | (51,051 | ) | ||||||||
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Net (decrease)/increase in cash and cash equivalents | (15,364 | ) | (1,020 | ) | 8,756 | |||||||||
Cash and cash equivalents at beginning of year | 86,259 | 87,543 | 78,894 | |||||||||||
Effect of changes in foreign exchange rate | 11 | (264 | ) | (107 | ) | |||||||||
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Cash and cash equivalents at end of year | 27 | 70,906 | 86,259 | 87,543 | ||||||||||
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Note | 2015 | 2014 | 2013 | |||||||||||
As restated | As restated | |||||||||||||
(Note 2(b)) | (Note 2(b)) | |||||||||||||
Million | Million | Million | ||||||||||||
Investing activities | ||||||||||||||
Capital expenditure | (172,243 | ) | (174,673 | ) | (148,063 | ) | ||||||||
Land lease prepayments | (1,450 | ) | (1,028 | ) | (1,058 | ) | ||||||||
Acquisition of other intangible assets | (212 | ) | (23 | ) | (355 | ) | ||||||||
Proceeds from disposal of property, plant and equipment | 7 | 2 | 50 | |||||||||||
Decrease/(increase) in bank deposits | 30,177 | 21,620 | (42,632 | ) | ||||||||||
Decrease/(increase) in restricted bank deposits | 4,877 | (2,609 | ) | (1,399 | ) | |||||||||
Interest received | 15,655 | 14,513 | 12,472 | |||||||||||
Proceeds from disposal of a joint venture | — | — | 6 | |||||||||||
Proceeds from disposal of a subsidiary | — | — | 124 | |||||||||||
Payment for investment accounted for using the equity method | 19 | (376 | ) | (9,508 | ) | (1,363 | ) | |||||||
Dividends received from associates | 19 | 2,842 | 2,476 | 2,062 | ||||||||||
Dividends received from unlisted securities | 8 | 11 | — | 34 | ||||||||||
Purchase of available-for-sale financial assets | (24,965 | ) | (2,000 | ) | — | |||||||||
Maturity of available-for-sale financial assets | 8,294 | — | — | |||||||||||
Short-term loans granted by China Mobile Finance and other investments | 25 | (5,500 | ) | — | — | |||||||||
Proceeds from disposal of other financial assets | 140 | — | — | |||||||||||
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Net cash used in investing activities | (142,743 | ) | (151,230 | ) | (180,122 | ) | ||||||||
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Consolidated Statements of Cash Flows (Continued)
for the year ended December 31
(Expressed in RMB)
Note | 2015 | 2014 | 2013 | |||||||||||
As restated | As restated | |||||||||||||
(Note 2(b)) | (Note 2(b)) | |||||||||||||
Million | Million | Million | ||||||||||||
Financing activities | ||||||||||||||
Proceeds from issuance of shares under share option scheme | 35(b) | 1,024 | 8,215 | 43 | ||||||||||
Capital injection from ultimate holding company to Target Assets and Businesses | 35(c)(i) | — | — | 33,788 | ||||||||||
Capital injection from non-controlling shareholders of a subsidiary | 870 | — | — | |||||||||||
Interest paid | (442 | ) | (480 | ) | (1,284 | ) | ||||||||
Dividends paid to the Company’s equity shareholders | 35(a) | (47,912 | ) | (50,924 | ) | (55,491 | ) | |||||||
Dividends paid to non-controlling shareholders of subsidiaries | (21 | ) | (10 | ) | (21 | ) | ||||||||
Consideration for business combination under common control | 2(b) | (31,880 | ) | — | — | |||||||||
Proceeds from entrusted loans | 36(a) | 8,592 | 10,242 | 43,661 | ||||||||||
Repayment of entrusted loans | 36(a) | (18,834 | ) | (9,573 | ) | (67,875 | ) | |||||||
Short-term deposits placed by ultimate holding company | 36(a) | 7,274 | — | — | ||||||||||
Maturity of short-term deposits placed by ultimate holding company | 36(a) | (4,181 | ) | — | — | |||||||||
Repayment of bonds | 33 | (1,000 | ) | — | — | |||||||||
Repayment of deferred considerations and other borrowings | — | — | (24,133 | ) | ||||||||||
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Net cash used in financing activities | (86,510 | ) | (42,530 | ) | (71,312 | ) | ||||||||
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Net increase/(decrease) in cash and cash equivalents | 5,836 | 22,678 | (24,529 | ) | ||||||||||
Cash and cash equivalents at beginning of year | 73,812 | 51,180 | 75,764 | |||||||||||
Effect of changes in foreign exchange rate | 194 | (46 | ) | (55 | ) | |||||||||
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Cash and cash equivalents at end of year | 29 | 79,842 | 73,812 | 51,180 | ||||||||||
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Consolidated Statements of Cash Flows (Continued)
for the year ended December 31
(Expressed in RMB)
Significant non-cash transactions
The Group recorded payables of RMB54,816,000,000 (2011: RMB60,357,000,000; 2010: RMB61,457,000,000) and RMB409,000,000 (2011: RMB835,000,000; 2010: RMB451,000,000)RMB125,210,000,000 (2014: RMB120,327,000,000; 2013: RMB103,001,000,000) to equipment suppliers and banks respectively as atof December 31, 20122015 for additions of construction in progress during the year then ended.
On October 31, 2015, the Group completed the transfer of its telecommunications towers and related assets to China Tower Corporation Limited (“China Tower”). In addition to 45,151,000,000 equity shares at a par value of RMB1 per share issued to the Group by China Tower to pay the consideration, China Tower would also pay cash consideration of RMB57,585,000,000. In February 2016, China Tower has paid RMB5,000,000,000, and the remaining balance of cash consideration is deferred and will be settled before December 31, 2017. See note 7 for details.
The notes on pages F-13F-16 to F-70 formF-97 are an integral part of these consolidated financial statements.
Notes to the consolidated financial statements
(Expressed in RenminbiRMB unless otherwise indicated)
1 | GENERAL INFORMATION |
China Mobile Limited (the “Company”) was incorporated in the Hong Kong Special Administrative Region (“Hong Kong”) of the People’s Republic of China (the “PRC”) on September 3, 1997. The principal activities of the Company and its subsidiaries (together referred to as the “Group”) are the provision of telecommunications and related services in Mainland China and in Hong Kong (For the purpose of preparing these consolidated financial statements, Mainland China refers to the PRC excluding Hong Kong, Macau Special Administrative Region of the PRC and Taiwan). The Company’s immediate holding company is China Mobile Hong Kong (BVI) Limited (incorporated in British Virgin Islands), and the Company’s ultimate holding company is China Mobile Communications Corporation (“CMCC”). The address of the Company’s registered office is 60th Floor, The Center, 99 Queen’s Road Central, Hong Kong.
The shares of the Company were listed on The Stock Exchange of Hong Kong Limited (the “HKEx”) on October 23, 1997 and the American Depositary Shares of the Company were listed on the New York Stock Exchange on October 22, 1997.
2 | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Statement of compliance |
These financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretations issued by the IASB. These consolidated financial statements were authorized for issuance on March 14, 2013. A summary of the significant accounting policies adopted by the Company and its subsidiaries (together referred to as the “Group”)Group is set out below.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(b) | Basis of preparation |
The consolidated financial statements comprise the Group and the Group’s interest in associates and a jointly controlled entity.joint ventures.
The measurement basis used in the preparation of the financial statements is the historical cost basis.basis, as modified by the revaluation of available-for-sale financial assets which are carried at fair value.
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of IFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in note 41.40.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(b) | Basis of preparation (Continued) |
Acquisition of Target Assets and Businesses from China Tietong Telecommunications Corporation
On November 27, 2015, China Mobile TieTong Company Limited (“CM TieTong”), a wholly-owned subsidiary of the Company, entered into an acquisition agreement with China Tietong Telecommunications Corporation (“TieTong”), a wholly-owned subsidiary of CMCC, under which CM TieTong has agreed to acquire, and TieTong has agreed to sell, certain assets, businesses and related liabilities as well as its related employees in relation to the fixed-line telecommunications operations (“Target Assets and Businesses”). The final consideration for the acquisition of the Target Assets and Businesses based on the acquisition agreement was RMB31,967,000,000. The acquisition was completed on December 31, 2015 (“Completion Date”).
The acquisition of the Target Assets and Businesses was considered as a business combination under common control as CM TieTong and the Target Assets and Businesses are both ultimately controlled by CMCC.
Under IFRSs, the acquisition of the Target Assets and Businesses was accounted for using merger accounting in accordance with the Accounting Guideline 5 “Merger Accounting for Common Control Combinations” (“AG 5”) issued by the Hong Kong Institute of Certified Public Accountants (note 2(c)). Accordingly, the acquired Target Assets and Businesses are stated at predecessor values, and were included in the consolidated financial statements from the beginning of the earliest period presented as if the Target Assets and Businesses acquired had always been part of the Group. As a result, the Group has restated the 2013 and 2014 comparative amounts of the consolidated statements of comprehensive income by including the operating results of Target Assets and Businesses and eliminating its transactions with the Target Assets and Businesses, as if the acquisition had been completed on the earliest date of the periods being presented, i.e., January 1, 2013. The consolidated balance sheets of the Group as of December 31, 2014 was restated to include the assets and liabilities of Target Assets and Businesses. Certain assets that had not been acquired by the Group were included in the consolidated financial statements before the Completion Date, as they formed an integral part of the Target Assets and Businesses. Upon the completion of the acquisition of the Target Assets and Businesses on December 31, 2015, these assets amounting to RMB808,000,000 were recorded as a distribution to the ultimate holding company.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(b) | Basis of preparation (Continued) |
Acquisition of the Target Assets and Businesses from China Tietong Telecommunications Corporation (Continued)
The following is a reconciliation of the effect arising from the common control combination on the consolidated statements of comprehensive income and consolidated balance sheets in connection with the acquisition of Target Assets and Businesses:
The Group As previously | Effect arising from acquisition of Target Assets and Businesses | The Group As restated | ||||||||||
Million | Million | Million | ||||||||||
Profit for the year ended December 31, 2013 | 121,803 | (4,900 | ) | 116,903 | ||||||||
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Profit for the year ended December 31, 2014 | 109,405 | (62 | ) | 109,343 | ||||||||
Net assets as of December 31, 2014 | 858,643 | 30,340 | 888,983 | |||||||||
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The Group | Effect arising from acquisition of Target Assets and Businesses | The Group As reported | ||||||||||
Million | Million | Million | ||||||||||
Profit for the year ended December 31, 2015 | 108,661 | (6 | ) | 108,655 | ||||||||
Net assets as of December 31, 2015 | 890,828 | 29,540 | 920,368 | |||||||||
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The effect arising from the acquisition of Target Assets and Businesses has included the operating results, assets and liabilities of Target Assets and Businesses and the elimination on its transactions with the Group. The effect amounting to RMB29,540,000,000 as of December 31, 2015 was offset by the cash consideration of RMB31,967,000,000, resulting a decrease of RMB2,427,000,000 in the Group’s net assets.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(c) | Subsidiaries and non-controlling interests |
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.
Subsidiaries |
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealized profitsgains arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealized losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment. Accounting policies of subsidiaries would be changed where necessary in the consolidated financial statements to ensure consistency with the policies adopted by the Group.
Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at their proportionate share of the subsidiary’s net identifiable assets.
Non-controlling interests are presented in the consolidated balance sheets within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statements of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company.
Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognized.
When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see note 1(g)) or, when appropriate, the cost on initial recognition of an investment in an associate or jointly controlled entity (see note 1(d)).a joint venture.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(c) | Subsidiaries and non-controlling interests (Continued) |
(ii) | Business combination other than under common control |
The Group applies the acquisition method to account for business combination of entities and businesses which are not under common control. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred.
(iii) | Business combination under common control |
Under IFRSs, the Group use merger accounting to account for the business combination of entities and businesses under common control in accordance with AG 5.
The consolidated financial statements incorporate the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.
The assets and liabilities of the combining entities or businesses are combined using the carrying book values from the controlling parties’ perspective. No amount is recognized in consideration for goodwill or excess of acquirers’ interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over the consideration at the time of common control combination, to the extent of the continuation of the controlling party’s interest.
The consolidated statements of comprehensive income include the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where there is a shorter period, regardless of the date of the common control combination. Transaction costs, including professional fees, registration fees, costs of furnishing information to shareholders, costs or losses incurred in combining operations of the previously separate businesses, etc., incurred in relation to the common control combination that is to be accounted for by using merger accounting is recognized as an expense in the period in which they were incurred.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(d) |
Investments accounted for using the equity method include investment in associates and joint ventures.
An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.
A jointly controlled entity is an entity which operates under a contractual arrangement between theThe Group and other parties, wherehas applied IFRS 11 to all joint arrangements. Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual arrangement establishes thatrights and obligations of each investor. The Group has assessed the Groupnature of its joint arrangements and one or more of the other parties sharedetermined them to be joint control over the economic activity of the entity.
An investment in an associate or a jointly controlled entity is accounted for in the consolidated financial statements under the equity method.
ventures.
Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any).cost. Thereafter, the investment is adjusted for the post-acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (see notes 1(j)note 2(j)). The Group’s share of the post-acquisition post-tax results of the investee and any impairment losses for the year areis recognized as share of profit or loss of investments accounted for using the equity method in the consolidated statements of comprehensive income, whereas the Group’s share of the post-acquisition post-tax items of the investee’s other comprehensive income is recognized as its share of other comprehensive income in the consolidated statements of comprehensive income.
When the Group’s share of losses exceeds its interest in the associate or the jointly controlled entity,joint ventures, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest in the investee is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associateassociates or the jointly controlled entity.joint ventures.
Unrealized profits and losses resulting from transactions between the Group and its associates and a jointly controlled entityor joint ventures are eliminated to the extent of the Group’s interest in the investee, except where unrealized losses provide evidence of an impairment of the asset transferred, in which case they are recognized immediately in profit or loss. Accounting policies of associates or joint ventures would be changed where necessary in the consolidated financial statements to ensure consistency with the policies adopted by the Group.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(e) | Goodwill |
Goodwill represents the excess of:of
(i) | the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over |
(ii) | the net fair value of the acquiree’s identifiable assets and liabilities measured as |
When (ii) is greater than (i), then this excess is recognized immediately in profit or loss as a gain on a bargain purchase.
Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash-generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 1(j)2(j)). Each unit or groups of units to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purpose. Goodwill is monitored at the operating segment level.
On disposal of a cash-generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the gain or loss on disposal.
(f) | Other intangible assets |
Other intangible assets that are acquired by the Group are stated in the balance sheetssheet at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses (see note 1(j)2(j)). Amortization of intangible assets with finite useful lives is recorded in other operating expenses on a straight-line basis over the assets’ estimated useful lives, from the date they are available for use. Both the period and method of amortization are reviewed annually.
Intangible assets are not amortized where their useful lives are assessed to be indefinite. The useful life of an intangible asset that is not being amortized is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not,Otherwise, the change in useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortization of intangible assets with finite lives as set out above.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(g) | Other |
The Group’s accounting policies forOther financial assets represent investments in unquoted equity securities other(other than investments in subsidiaries associates and a jointly controlled entity,interest in associates), which are as follows:
Investmentsrecognized in the balance sheet at cost less impairment losses (see note 2(j)) when those investments in equity securities that do not have a quoted market price in an active market and whosetheir fair value cannot be reliably measured are recognized in the balance sheets at cost less impairment losses (see note 1(j)).
Investments are recognized/derecognized on the date the Group commits to purchase/sell the investments.measured.
(h) | Property, plant and equipment |
Property, plant and equipment are stated in the balance sheetssheet at cost less accumulated depreciation and impairment losses (see note 1(j)2(j)).
The cost of property, plant and equipment comprises the purchase price and any directly attributable costs of bringing the asset to its working location and condition for its intended use. Subsequent expenditure relating to an item of property, plant and equipment that has already been recognized is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the enterprise.entity. All other subsequent expenditure is recognized as an expense in the period in which it is incurred.
Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognized in profit or loss on the date of retirement or disposal.
Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:
Buildings | 8 - 30 years | |||
Telecommunications transceivers, switching centers, transmission and other network equipment | 5 - 10 years | |||
Office equipment, furniture, | 3 - 10 years |
Where parts of an item of property, plant and equipment have differentBoth the assets’ useful lives the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value,values, if any, are reviewed annually.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(i) | Leased assets |
An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.
(i) | Classification of assets leased to the Group |
Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.
(ii) | Assets acquired under finance leases |
Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments of such assets is included in property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided for at rates, which write off the cost of the assets over the term of the relevant lease or, where it is likely the Group will obtain ownership of the asset, the useful life of the asset as set out in note 1(h)2(h). Impairment losses are accounted for in accordance with the accounting policy as set out in note 1(j)2(j). Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred. There were no contingent rentals recognized by the Group during the years presented.
(iii) | Operating lease charges |
Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognized in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred. There were no contingent rentals recognized by the Group during the years presented.
The cost of acquiring land held under an operating lease is amortized on a straight-line basis over the period of the lease term.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(i) | Leased assets (Continued) |
(iv) | Sale and leaseback |
A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. The accounting treatment of a sale and leaseback transaction depends upon the type of lease involved. If a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount shall not be immediately recognized as income by a seller-lessee. Instead, it shall be deferred and amortized over the lease term. If a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established at fair value, any profit or loss shall be recognized immediately. If the sale price is below fair value, any profit or loss shall be recognized immediately except that, if the loss is compensated for by future lease payments at below market price, it shall be deferred and amortized in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value shall be deferred and amortized over the period for which the asset is expected to be used.
(j) | Impairment of assets |
(i) | Impairment of investments in equity securities, available-for-sale financial assets and receivables |
Investments in equity securities (other than investments in subsidiaries), available-for-sale financial assets and receivables that are stated at cost or amortized cost are reviewed at the end of each reporting date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:
– | significant financial difficulty of the |
– | a breach of contract, such as a default or delinquency in interest or principal payments; |
– | it becoming probable that the |
– | significant changes in the technological, market, economic or legal environment that have an adverse effect on the |
– | a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. |
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(j) | Impairment of assets (Continued) |
(i) | Impairment of investments in equity securities, available-for-sale financial assets and receivables (Continued) |
If any such evidence exists, any impairment loss is determined and recognized as follows:
– | For |
– | For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for such equity securities are not reversed. |
– | For debt instruments classified as available-for-sale financial assets, if any impairment evidence exists, the cumulative loss (measured as the difference between the acquisition cost (net of any principal repayment and amortization) and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss) is removed from equity and recognized in profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed |
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(j) | Impairment of assets (Continued) |
(i) | Impairment of investments in equity securities, available-for-sale financial assets and receivables (Continued) |
– | For trade and other current receivables and other financial assets carried at amortized cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where these financial assets share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group. |
If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognized, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognized in prior years. |
Impairment losses are written off against the corresponding assets directly, except for impairment losses recognized in respect of debtors included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognized in profit or loss.
SIGNIFICANT ACCOUNTING POLICIES |
(j) | Impairment of assets |
(ii) | Impairment of other assets |
Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill and intangible assets with indefinite useful lives, an impairment loss previously recognized no longer exists or may have decreased:
– | property, plant and equipment; |
– | construction in progress; |
– | prepaid interests in leasehold land classified as being held under an operating lease; |
– | investments in subsidiaries; |
– | goodwill; and |
– | other intangible assets. |
If any such indication exists, the asset’s recoverable amount is estimated. For goodwill and other intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.
– | Calculation of recoverable amount |
The recoverable amount of an asset is the greater of its fair value less costs to sellof disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(j) | Impairment of assets (Continued) |
(ii) | Impairment of other assets (Continued) |
– | Recognition of impairment losses |
An impairment loss is recognized in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell,of disposal, or value in use, if determinable.
– | Reversals of impairment losses |
In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourablefavorable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.
A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognized in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognized.
The Group prepares an interim financial report in compliance with IAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see notes 1(j)(i) and (ii)).
Impairment losses recognized in an interim period in respect of goodwill and unquoted equity securities carried at cost are not reversed in a subsequent period. This is the case even if no losses, or a smaller loss, would have been recognized had the impairment been assessed only at the end of the financial year to which the interim period relates. No impairment losses were recognized in respect of goodwill and unquoted equity securities carried at cost during the interim period.
(k) | Construction in progress |
Construction in progress is stated at cost less impairment losses (see note 1(j)2(j)). Cost comprises direct costs of construction as well as interest expense and exchange differences capitalized during the periods of construction and installation. Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided for in respect of construction in progress until it is completed and ready for its intended use. No exchange difference was capitalized to construction in progress during the years presented.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(l) | Inventories |
Inventories are carried at the lower of cost and net realizable value. Cost represents purchase cost of goods calculated using the weighted average cost method. Net realizable value is determined by reference to the sales proceeds of items sold in the ordinary course of business or to management’s estimates based on prevailing market conditions.
When inventories are sold, the carrying amount of those inventories is recognized as a deductioncost of other net income due to its insignificance.products sold. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs. No reversal of any write-down of inventories occurred during the years presented.
(m) | Accounts receivable and other receivables |
Accounts receivable and other receivables are initially recognized at fair value and thereafter stated at amortized cost using the effective interest method less allowance for impairment loss (see note 1(j)2(j)), except where the effect of discounting would be immaterial. In such case,
(n) | Available-for-sale financial assets |
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the receivablesother categories. They are statedincluded in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.
Regular way purchases and sales of available-for-sale financial assets are recognized on the trade-date (the date on which the Group commits to purchase or sell the asset). The investments are initially recognized at cost less allowance for impairmentfair value plus transaction costs and are subsequently carried at fair value. Changes in the fair value of available-for-sale financial assets are recognized in other comprehensive income.
Available-for-sale financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
When available-for-sale financial assets are sold, the accumulated fair value adjustments recognized in equity is removed and recognized in profit or loss.
Interest on available-for-sale debt instruments calculated using the effective interest method is recognized in profit or loss. Dividends on available-for-sale equity instruments are recognized in profit or loss (see note 1(j)).when the Group’s right to receive payments is established.
SIGNIFICANT ACCOUNTING POLICIES |
Deferred revenue |
Deferred revenue consists primarily of prepaid service fees received from customers which are generally not refundable and revenue deferred for unredeemed point rewards under Customer Point Reward Program (“Reward Program”, see note 2(s)(iv)) and deferred tax credit on purchase of domestic telecommunications equipment..
Revenue fromThe prepaid service fees are stated at the amount of proceeds received less the amount already recognized when the mobile telecommunications services are rendered.
Revenue deferred for unredeemed point rewards are recognized when such rewards are redeemed or has expired.
Deferred tax credit on purchase of domestic telecommunications equipment is amortized over the remaining lives of the related equipment as a reduction to income tax expense.revenue.
Interest-bearing borrowings |
Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between the amount initially recognized and redemption value being recognized in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.
Accounts payable and other payables |
Accounts payable and other payables are initially recognized at fair value and subsequently stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.immaterial.
Cash and cash equivalents |
Cash and cash equivalents comprise bank deposits with original maturity within three months, cash at banks and in hand, demand deposits with banks, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Revenue recognition |
Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in profit or loss as follows:
(i) | revenue derived from voice and data services are recognized when the service is rendered; |
(ii) |
(iii) |
(iv) |
Interest income |
Interest income is recognized as it accrues using the effective interest method.
(u) | Income tax |
Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in profit or loss except to the extent that they relate to business combination, or items recognized in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive income or directly in equity, respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(u) | Income tax (Continued) |
Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilized, are recognized. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilized.
The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from initial recognition of goodwill, not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries and associates to the extent that, in the case of taxable temporary differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.
The amount of deferred tax recognized is measured based on the expected manner of realization or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(u) | Income tax (Continued) |
Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Group has the legal,legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:
– | in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously; or |
– | in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either: |
– | the same taxable entity; or |
– | different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realize the current tax assets and settle the current tax liabilities on a net basis or realize and settle simultaneously. |
Provisions and contingent liabilities |
Provisions are recognized for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimatethe amount can be made.estimated reliably. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
Employee benefits |
(i) |
Salaries, annual bonuses, paid annual leave, leave passage, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(w) | Employee benefits (Continued) |
(i) | Short-term employee benefits and contributions to defined contribution retirement plans (Continued) |
The Company and subsidiaries incorporated in the Hong Kong Special Administrative Region of the PRC (“Hong Kong”) are required to make contributions to Mandatory Provident Funds under the Hong Kong Mandatory Provident Fund (“MPF”) Schemes Ordinance. Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$30,000 (HK$25,000 prior to June 2014). Such contributions are recognized as an expense in profit or loss as incurred.
The employees of the subsidiaries in Mainland China (For the purpose of preparing these financial statements, Mainland China refers to the People’s Republic of China (“the PRC”) excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan.) participate in the defined contribution retirement plans managed by the local government authorities whereby the subsidiaries are required to contribute to the schemes at fixed rates of the employees’ salary costs. In addition to the local governmental defined contribution retirement plans, certainthe subsidiaries also participate in supplementary defined contribution retirement plansa pension scheme launched by the Group managed by an independent insurance companiescompany whereby the subsidiaries are required to make contributions to the retirement plans at fixed rates of the employees’ salary costs or in accordance with the terms of the plans. The Group’s contributions to these plans are charged to profit or loss when incurred.
The Company and subsidiaries have no obligations for the payment of retirement and other post-retirement benefits of staff other than the contributions described above.
(ii) | Share-based payments |
The fair value of share options granted to employees is recognized as an employee cost with a corresponding increase in a capital reserve within equity. The fair value is measured at grant date using the binomial lattice model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the options, the total estimated fair value of the options is spread over the vesting period, taking into account the probability that the options will vest.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(w) | Employee benefits (Continued) |
(ii) | Share-based payments (Continued) |
During the vesting period, the number of share options that is expected to vest is reviewed.reviewed at each balance sheet date. Any resulting adjustment to the cumulative fair value recognized in prior years is charged/creditedcredited/charged to the profit or loss for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s shares.. The equity amount is recognized in the capital reserve until either the option is exercised (when it is transferred to the share capital account (share premium account)account before March 3, 2014)) or the option expires (when it is released directly to retained profits).
(iii) | Termination benefits |
Termination benefits are recognized when, and only when, the Group demonstrably commits itself to terminate employment which is without realistic possibility of withdrawal or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.
Borrowing costs |
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.
The capitalization of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization of borrowing costs is suspended or ceased when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or completed.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Translation of foreign currencies |
The primary functional currency of major entities within the Group is Renminbi (“RMB”).RMB. The Group adopted RMB as its presentation currency in the preparation of the annual financial statements, which is the currency of the primary economic environment in which most of the Group’s entities operate.
Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in currencies other than the functional currency are translatedretranslated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognized in profit or loss.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.
The results of overseas entities are translated into RMB at the exchange rates approximating the foreign exchange rate ruling at the dates of transactions. Balance sheetssheet items are translated into RMB at the exchange rates ruling at the balance sheet date. The resulting exchange differences are recognized in other comprehensive income and accumulated separately in equity in the exchange reserve. On disposal of an overseas entity, the cumulative amount of the exchange differences relating to that particular foreign operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognized.
loss.
For the purpose of the consolidated statements of cash flow statements,flows, the cash flows of overseas entities within the Group are translated into RMB by using the exchange rates approximating the foreign exchange rate ruling at the dates of the cash flows.
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Related parties |
(a) | A person, or a close member of that person’s family, is related to the Group if that person: |
(i) | has control or joint control |
(ii) | has significant influence over the Group; or |
(iii) | is a member of the key management personnel of the Group or the Group’s parent. |
(b) | An entity is related to the Group if any of the following conditions applies: |
(i) | The entity and the Group are members of the same |
(ii) | One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a |
(iii) | Both entities are joint ventures of the same third party; |
(iv) | One entity is a joint venture of a third entity and the other entity is an associate of the third entity; |
(v) | The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group; |
(vi) | The entity is controlled or jointly controlled by a person identified in note 2(z)(a); or |
(vii) | A person identified in note 2(z)(a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). |
Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.
SIGNIFICANT ACCOUNTING POLICIES |
Segment reporting |
An operating segment is a component of the Group that engages in business activities from which the Group may earn revenue and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Group’s chief operating decision makerChief Operating Decision Maker (“CODM”) in order to allocate resourceresources and assess performance of the segment. The CODM has been identified as the Executive Directors of the Company. For the periodsyears presented, the Group as a whole is an operating segment since the Group is only engaged in mobile telecommunicationtelecommunications and related business.businesses. No Group’s geographical information has been disclosed as the majority of the Group’s operating activities are carried out in Mainland China (for the purpose of preparing the financial statements, Mainland China refers to the People’s Republic of China (“PRC”) excluding the Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan).China. The Group’s assets located and operating revenue derived from activities outside Mainland China are less than 5% of the Group’s assets and operating revenue, respectively.
Dividend distribution |
Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders or directors, where appropriate.
3 | CHANGES IN ACCOUNTING POLICIES |
The IASBGroup has issued a number of new or revised IFRSs, which term collectively includes IASs and interpretations, that are firstadopted certain amended IFRS effective or available for early adoption for accounting periodsperiod beginning on or afterJanuary 1, January 2012. These developments2015. Details of the adoption are as follows:
– | Amendment to IAS 19, “Employee Benefits”. |
– | Amendments from annual improvements to IFRSs 2010–2012 Cycle, on IFRS 8, “Operating Segments”, IAS 16, “Property, Plant and Equipment”, IAS 38, “Intangible Assets” and IAS 24, “Related Party Disclosures”. |
– | Amendments from annual improvements to IFRSs 2011–2013 Cycle, on IFRS 3, “Business Combinations”, IFRS 13, “Fair Value Measurement” and IAS 40, “Investment Property”. |
The adoption of the above amended standards did not have had no material impact on the Group’s financial statements. The Group hasdid not appliedapply any other amendments, new standardstandards or interpretation that is not yet effective for the current accounting periodyear (see note 42)41).
The principal activities of the Group are the provision of mobile telecommunications and related services in Mainland China and in Hong Kong.
Turnover represents voice services revenue, data services revenue and other operating revenue. Voice services revenue includes revenue derived from voice usage services (including usage fees and monthly fee) and voice value-added services. Data services revenue is mainly derived from short message services (“SMS”), multi-media message services (“MMS”), wireless data traffic, and applications and information services. Other operating revenue mainly represents interconnection revenue.
4 |
2012 | 2011 | 2010 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Salaries, wages and other benefits | 27,573 | 25,498 | 22,039 | |||||||||
Retirement costs: contributions to defined contribution retirement plans | 3,683 | 3,174 | 2,485 | |||||||||
|
|
|
|
|
| |||||||
31,256 | 28,672 | 24,524 | ||||||||||
|
|
|
|
|
|
2015 | 2014 | 2013 | ||||||||||
As restated | As restated | |||||||||||
Million | Million | Million | ||||||||||
Revenue from telecommunications services | ||||||||||||
Voice services | 261,896 | 313,476 | 360,425 | |||||||||
Data services | 303,425 | 258,462 | 211,973 | |||||||||
Others | 18,768 | 19,664 | 28,026 | |||||||||
|
|
|
|
|
| |||||||
584,089 | 591,602 | 600,424 | ||||||||||
Revenue from sales of products and others | 84,246 | 59,907 | 39,624 | |||||||||
|
|
|
|
|
| |||||||
668,335 | 651,509 | 640,048 | ||||||||||
|
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|
|
On April 29, 2014, a notification (the “Cai Shui [2014] No. 43”) was jointly issued by the Ministry of Finance and the State Administration of Taxation of the People’s Republic of China (“SAT”), and as approved by the State Council of the People’s Republic of China, the telecommunications industry would be included in the scope of the pilot program for the transformation from business tax to value-added tax (the “VAT Program”) from June 1, 2014. According to the Cai Shui [2014] No. 43, the value-added tax rates for the provision of basic telecommunications services and value-added telecommunications services are 11% and 6%, respectively. With the implementation of the VAT Program from June 1, 2014, the Group is not required to pay the business tax of 3% on the telecommunications services.
5 | EMPLOYEE BENEFIT AND RELATED EXPENSES |
2015 | 2014 | 2013 | ||||||||||
As restated | As restated | |||||||||||
Million | Million | Million | ||||||||||
Salaries, wages, labor service expenses and other benefits | 67,622 | 64,715 | 61,834 | |||||||||
Retirement costs: contributions to defined contribution retirement plans | 7,183 | 5,670 | 4,847 | |||||||||
|
|
|
|
|
| |||||||
74,805 | 70,385 | 66,681 | ||||||||||
|
|
|
|
|
|
In accordance with requirements of reducing the proportion of labor sourced by third parties that provide services to the Group (“outsourcing labor”) among total labor under “Amendment to Labor Contract Law of the PRC” and its associated rules and regulations, the Group has made adjustment on the structure of employees and outsourcing labor. Such adjustment leads to the increase in number of employees and the decrease in number of outsourcing labor in 2015. In order to reasonably reflect the composition and fluctuation of employee benefit and related expenses, the Group presents employee benefit and related expenses by combining personnel expenses and labor service expenses, the latter of which was presented under other operating expenses prior to 2015. The comparative figures have been presented on the same basis.
6 | OTHER OPERATING EXPENSES |
2012 | 2011 | 2010 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Maintenance | 39,184 | 35,096 | 31,390 | |||||||||
Impairment loss of doubtful accounts | 4,504 | 3,548 | 4,019 | |||||||||
Impairment loss of inventories | 313 | 87 | 55 | |||||||||
Amortization of other intangible assets | 68 | 54 | 62 | |||||||||
Operating lease charges | ||||||||||||
- land and buildings | 9,367 | 8,150 | 7,208 | |||||||||
- others (Note 1) | 3,385 | 3,085 | 2,631 | |||||||||
Loss on disposal of property, plant and equipment | 1 | 3 | — | |||||||||
Write-off of property, plant and equipment | 2,818 | 5,853 | 2,763 | |||||||||
Auditors’ remuneration | ||||||||||||
- audit services (Note 2) | 87 | 84 | 83 | |||||||||
- tax services (Note 3) | 2 | 1 | 1 | |||||||||
- other services (Note 4) | 12 | 11 | 11 | |||||||||
Others (Note 5) | 78,091 | 69,392 | 59,127 | |||||||||
|
|
|
|
|
| |||||||
137,832 | 125,364 | 107,350 | ||||||||||
|
|
|
|
|
|
2015 | 2014 | 2013 | ||||||||||||
Note | As restated | As restated | ||||||||||||
Million | Million | Million | ||||||||||||
Maintenance | 53,991 | 52,883 | 45,981 | |||||||||||
Impairment loss of doubtful accounts | 4,839 | 5,536 | 5,126 | |||||||||||
Impairment loss of goodwill (note 17) | — | 1,594 | — | |||||||||||
Write-down of inventories | 272 | 293 | 202 | |||||||||||
Amortization of other intangible assets | 274 | 112 | 80 | |||||||||||
Operating lease charges | ||||||||||||||
- land and buildings | 13,447 | 12,722 | 11,025 | |||||||||||
- others | (i) | 6,186 | 4,834 | 3,858 | ||||||||||
Gain on disposal of property, plant and equipment | (4 | ) | (1 | ) | (3 | ) | ||||||||
Write-off and impairment of property, plant and equipment (note 14) | 7,614 | 2,383 | 5,145 | |||||||||||
Auditors’ remuneration | ||||||||||||||
- audit services | (ii) | 97 | 91 | 85 | ||||||||||
- tax services | 1 | — | 1 | |||||||||||
- other services | 4 | 6 | 6 | |||||||||||
Others | (iii) | 75,572 | 71,051 | 65,017 | ||||||||||
|
|
|
|
|
| |||||||||
162,293 | 151,504 | 136,523 | ||||||||||||
|
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|
|
|
|
Notes:Note:
Other operating lease charges represent the operating lease charges for motor vehicles, computer and other office equipment. |
Audit services include reporting on the Group’s internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of the United States of America |
Others consist of office expenses, utilities charges, travelling expenses, entertainment expenses, spectrum charges, consultancy and professional fees, consumables and supplies, |
2012 | 2011 | 2010 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Sales of SIM cards and terminals | 17,881 | 6,020 | 5,451 | |||||||||
Cost of SIM cards and terminals | (16,774 | ) | (4,926 | ) | (4,361 | ) | ||||||
Others | 1,101 | 1,465 | 1,246 | |||||||||
|
|
|
|
|
| |||||||
2,208 | 2,559 | 2,336 | ||||||||||
|
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|
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|
|
7 |
In 2014, China Mobile Communication Co., Ltd. (“CMC”), a wholly-owned subsidiary of the Company, entered into an agreement with China United Network Communications Corporation Limited (“China Unicom”) and China Telecom Corporation Limited (“China Telecom”) to establish China Tower. Pursuant to the agreement, CMC contributed RMB4,000,000,000 in cash, which represents 40.0% of the registered capital of China Tower upon its establishment. China Tower engages in construction, maintenance and operation of telecommunications towers. The Group recognized the investment as interest in an associate considering the Group can exercise significant influence over financial and operating policy decisions of China Tower.
On October 14, 2015, CMC, jointly with China Unicom, China Telecom, and China Reform Holdings Corporation Ltd. (“CRHC”), entered into an agreement with China Tower, pursuant to which China Tower (i) purchased telecommunications towers and related assets (“Tower Assets”) from CMC, China Unicom and China Telecom and (ii) issued new equity shares to CRHC. The consideration of Tower Assets was determined based on the appraised value and subject to adjustment in accordance with the terms of the transaction agreement by each party as of the date of delivery. China Tower agreed to settle the consideration by way of issuing its equity shares to each party, plus cash consideration equalling to the excess of total consideration over the amount settled by equity shares. Upon completion of the above transactions, China Tower would be owned by CMC, China Unicom, China Telecom and CRHC with their respective shares of equity interests of 38.0%, 28.1%, 27.9% and 6.0%.
On October 31, 2015, CMC completed the transfer of its Tower Assets to China Tower. In return, China Tower issued 45,151,000,000 equity shares at a par value of RMB1 per share to CMC. In addition, China Tower shall pay CMC the remaining cash consideration of RMB57,585,000,000, within which China Tower has made the first payment of RMB5,000,000,000 in February 2016. The remaining balance of cash consideration amounting to RMB52,585,000,000 is deferred and to be settled before December 31, 2017. In addition, China Tower will pay interest associated with the unpaid cash consideration to CMC from November 1, 2015 at a pre-determined interest rate, which is 90% of the financial institution’s one year benchmark lending rate announced by the People’s Bank of China (“PBOC”) on the completion date of the transaction, i.e. October 31, 2015.
7 | GAIN ON THE TRANSFER OF TOWER ASSETS (CONTINUED) |
The gain arising from the transfer of CMC’s Tower Assets, which has eliminated unrealized profits due to the Group’s interest in China Tower, is recorded as “Gain on the transfer of Tower Assets” in the consolidated statements of comprehensive income for the year ended December 31, 2015. The following table summarizes the calculation of the gain on the transfer of Tower Assets:
2015 | ||||
Million | ||||
Total consideration | 102,736 | |||
- Consideration in equity shares | 45,151 | |||
- Consideration in cash, deferred and undiscounted | 57,585 | |||
Net book value of the Tower Assets | (78,763 | ) | ||
Taxes, surcharges and others | (2,260 | ) | ||
Elimination of unrealized profits resulting from transactions between the Group and its associate | (6,188 | ) | ||
Gain on the transfer of Tower Assets | 15,525 | |||
The gain, net of taxation, on transfer of Tower Assets, after considering the income tax effect associated with the transfer of Tower Assets, amounted to RMB10,096,000,000.
Upon the completion of the transfer of Tower Assets, based on the proposed pricing calculation mechanism of Tower Assets’ usage and the actual usage, the Company has accrued the corresponding expense of approximately RMB5,563,000,000 in the Group’s consolidated statements of comprehensive income for the year ended December 31, 2015.
8 | OTHER GAINS |
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | |||||||||||||||||||
RMB million | RMB million | RMB million | As restated | As restated | ||||||||||||||||||||
Million | Million | Million | ||||||||||||||||||||||
Exchange gain/(loss) | 17 | (9 | ) | (6 | ) | |||||||||||||||||||
Penalty income | 256 | 257 | 257 | 658 | 515 | 411 | ||||||||||||||||||
Dividend income from unlisted securities | 11 | 13 | 17 | 11 | — | 34 | ||||||||||||||||||
Others | 331 | 310 | 417 | 1,131 | 656 | 544 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
615 | 571 | 685 | 1,800 | 1,171 | 989 | |||||||||||||||||||
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|
|
|
|
|
FINANCE COSTS |
2012 | 2011 | 2010 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Interest on bank loans and other borrowings repayable within five years | 1 | 7 | — | |||||||||
Interest on bank loans and other borrowings repayable after five years | 162 | 220 | 431 | |||||||||
Interest on bonds | 227 | 338 | 471 | |||||||||
|
|
|
|
|
| |||||||
390 | 565 | 902 | ||||||||||
|
|
|
|
|
|
2015 | 2014 | 2013 | ||||||||||
As restated | As restated | |||||||||||
Million | Million | Million | ||||||||||
Interest on bonds | 257 | 274 | 273 | |||||||||
Interest on entrusted loans and bank deposits (note 36(a)) | 194 | 211 | 862 | |||||||||
Others | 4 | 2 | 122 | |||||||||
|
|
|
|
|
| |||||||
Total borrowings costs | 455 | 487 | 1,257 | |||||||||
Less: Amount capitalized as construction in progress | — | — | (62 | ) | ||||||||
455 | 487 | 1,195 | ||||||||||
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|
DIRECTORS’ REMUNERATION |
Directors’ remuneration is as follows:
Directors’ fees | Salaries, allowances and bonuses | Contributions relating to social insurance, housing fund and retirement scheme | 2015 Total | |||||||||||||
’000 | ’000 | ’000 | ’000 | |||||||||||||
Executive directors (Expressed in RMB) | ||||||||||||||||
SHANG Bing* | — | 106.7 | 30.0 | 136.7 | ||||||||||||
XI Guohua** | — | 376.6 | 113.0 | 489.6 | ||||||||||||
LI Yue (Chief Executive Officer) | — | 437.1 | 137.8 | 574.9 | ||||||||||||
XUE Taohai | — | 386.9 | 134.6 | 521.5 | ||||||||||||
HUANG Wenlin*** | — | 138.8 | 21.6 | 160.4 | ||||||||||||
SHA Yuejia | — | 365.4 | 132.7 | 498.1 | ||||||||||||
LIU Aili | — | 365.4 | 132.7 | 498.1 | ||||||||||||
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|
|
|
|
|
| |||||||||
— | 2,176.9 | 702.4 | 2,879.3 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Independent non-executive directors (Expressed in Hong Kong dollar) | ||||||||||||||||
LO Ka Shui | 325.0 | — | — | 325.0 | ||||||||||||
WONG Kwong Shing, Frank | 470.0 | — | — | 470.0 | ||||||||||||
CHENG Mo Chi, Moses | 440.0 | — | — | 440.0 | ||||||||||||
CHOW Man Yiu, Paul | 330.0 | — | — | 330.0 | ||||||||||||
|
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|
|
|
|
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| |||||||||
1,565.0 | — | — | 1,565.0 | |||||||||||||
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|
|
Directors’ fees | Salaries, allowances and benefits in kind | Performance related bonuses | Retirement scheme contributions | 2014 Total | ||||||||||||||||
(Expressed in Hong Kong dollar) | ’000 | ’000 | ’000 | ’000 | ’000 | |||||||||||||||
Executive directors | ||||||||||||||||||||
XI Guohua | 180 | 1,174 | 565 | 256 | 2,175 | |||||||||||||||
LI Yue (Chief Executive Officer) | 180 | 1,067 | 513 | 234 | 1,994 | |||||||||||||||
XUE Taohai | 180 | 960 | 462 | 210 | 1,812 | |||||||||||||||
HUANG Wenlin | 180 | 960 | 462 | 210 | 1,812 | |||||||||||||||
SHA Yuejia | 180 | 960 | 462 | 210 | 1,812 | |||||||||||||||
LIU Aili | 180 | 960 | 462 | 210 | 1,812 | |||||||||||||||
Independent non-executive directors | ||||||||||||||||||||
LO Ka Shui | 325 | — | — | — | 325 | |||||||||||||||
WONG Kwong Shing, Frank | 470 | — | — | — | 470 | |||||||||||||||
CHENG Mo Chi, Moses | 440 | — | — | — | 440 | |||||||||||||||
CHOW Man Yiu, Paul | 330 | — | — | — | 330 | |||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
2,645 | 6,081 | 2,926 | 1,330 | 12,982 | ||||||||||||||||
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|
|
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|
|
10 | DIRECTORS’ REMUNERATION (CONTINUED) |
Directors’ remuneration is as follows (Continued):
Directors’ fees | Salaries, allowances and benefits in kind | Performance related bonuses | Retirement scheme contributions | 2012 Total | Directors’ fees | Salaries, allowances and benefits in kind | Performance related bonuses | Retirement scheme contributions | 2013 Total | |||||||||||||||||||||||||||||||
(Expressed in Hong Kong dollar) | ’000 | ’000 | ’000 | ’000 | ’000 | ’000 | ’000 | ’000 | ’000 | ’000 | ||||||||||||||||||||||||||||||
Executive directors | ||||||||||||||||||||||||||||||||||||||||
XI Guohua* | 180 | 1,152 | 660 | 282 | 2,274 | |||||||||||||||||||||||||||||||||||
WANG Jianzhou** | 40 | 242 | 146 | 83 | 511 | |||||||||||||||||||||||||||||||||||
LI Yue | 180 | 1,067 | 600 | 262 | 2,109 | |||||||||||||||||||||||||||||||||||
LU Xiangdong** | 37 | 181 | — | 39 | 257 | |||||||||||||||||||||||||||||||||||
XI Guohua | 180 | 1,174 | 634 | 287 | 2,275 | |||||||||||||||||||||||||||||||||||
LI Yue (Chief Executive Officer) | 180 | 1,067 | 577 | 263 | 2,087 | |||||||||||||||||||||||||||||||||||
XUE Taohai | 180 | 960 | 540 | 237 | 1,917 | 180 | 960 | 520 | 237 | 1,897 | ||||||||||||||||||||||||||||||
HUANG Wenlin | 180 | 960 | 540 | 237 | 1,917 | 180 | 960 | 520 | 237 | 1,897 | ||||||||||||||||||||||||||||||
SHA Yuejia | 180 | 960 | 540 | 236 | 1,916 | 180 | 960 | 520 | 236 | 1,896 | ||||||||||||||||||||||||||||||
LIU Aili | 180 | 960 | 540 | 236 | 1,916 | 180 | 960 | 520 | 236 | 1,896 | ||||||||||||||||||||||||||||||
XIN Fanfei** | 40 | 198 | 119 | 75 | 432 | |||||||||||||||||||||||||||||||||||
XU Long** | 171 | 903 | 514 | 221 | 1,809 | |||||||||||||||||||||||||||||||||||
Independent non-executive directors | ||||||||||||||||||||||||||||||||||||||||
LO Ka Shui | 505 | — | — | — | 505 | 399 | — | — | — | 399 | ||||||||||||||||||||||||||||||
WONG Kwong Shing, Frank | 440 | — | — | — | 440 | 458 | — | — | — | 458 | ||||||||||||||||||||||||||||||
CHENG Mo Chi, Moses | 440 | — | — | — | 440 | 440 | — | — | — | 440 | ||||||||||||||||||||||||||||||
CHOW Man Yiu, Paul**** | 194 | — | — | — | 194 | |||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
2,753 | 7,583 | 4,199 | 1,908 | 16,443 | ||||||||||||||||||||||||||||||||||||
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|
|
| 2,571 | 6,081 | 3,291 | 1,496 | 13,439 | |||||||||||||||||||||||||||||||
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|
|
* | Mr. SHANG Bing was appointed as an executive director and chairman of the Company with effect from September 10, 2015. |
** | Mr. XI Guohua |
*** |
**** | Mr. |
In 2015, executive directors of the Company voluntarily waived their directors’ fees.
The unpaid portion of executive directors’ performance related bonuses for 2015 will be paid based on the evaluation conducted in 2016, and the additional bonuses related to their term of service will be paid based on the evaluation conducted upon the completion of three-year evaluation period.
Directors’ fees | Salaries, allowances and benefits in kind | Performance related bonuses | Retirement scheme contributions | 2011 Total | ||||||||||||||||
(Expressed in Hong Kong dollar) | ’000 | ’000 | ’000 | ’000 | ’000 | |||||||||||||||
Executive directors | ||||||||||||||||||||
WANG Jianzhou | 180 | 1,172 | 616 | 287 | 2,255 | |||||||||||||||
XI Guohua | 78 | 462 | 244 | 115 | 899 | |||||||||||||||
LI Yue | 180 | 1,067 | 560 | 261 | 2,068 | |||||||||||||||
LU Xiangdong | 180 | 960 | 504 | 236 | 1,880 | |||||||||||||||
XUE Taohai | 180 | 960 | 504 | 236 | 1,880 | |||||||||||||||
HUANG Wenlin | 180 | 960 | 504 | 236 | 1,880 | |||||||||||||||
SHA Yuejia | 180 | 960 | 504 | 235 | 1,879 | |||||||||||||||
LIU Aili | 180 | 960 | 504 | 235 | 1,879 | |||||||||||||||
XIN Fanfei | 180 | 960 | 504 | 229 | 1,873 | |||||||||||||||
XU Long | 180 | 950 | 504 | 232 | 1,866 | |||||||||||||||
Independent non-executive directors | ||||||||||||||||||||
LO Ka Shui | 505 | — | — | — | 505 | |||||||||||||||
WONG Kwong Shing, Frank | 440 | — | — | — | 440 | |||||||||||||||
CHENG Mo Chi, Moses | 440 | — | — | — | 440 | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
3,083 | 9,411 | 4,948 | 2,302 | 19,744 | ||||||||||||||||
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|
|
|
|
INDIVIDUALS WITH HIGHEST EMOLUMENTS |
For the yearsyear ended December 31, 20112013 and 2012,2014, all of the five individuals with the highest emoluments are directors whose emoluments are disclosed in note 9.10.
For the year ended December 31, 2015, none of the five individuals with the highest emoluments in the Group are directors. The emoluments payable to the five individuals during 2015 are as follows:
2015 | ||||
(Expressed in RMB) | ’000 | |||
Salaries, allowances and benefits in kind | 8,134.8 | |||
Performance related bonuses | 1,814.1 | |||
Retirement scheme contributions | 148.2 | |||
10,097.1 | ||||
The emoluments fell within the following bands:
Number of individuals | ||||
2015 | ||||
Emolument bands (in RMB) | ||||
1,500,001 - 2,000,000 | 4 | |||
2,000,001 - 2,500,000 | 1 | |||
TAXATION |
(a) | Taxation in the consolidated statements of comprehensive income represents: |
2015 | 2014 | 2013 | ||||||||||||||||||||||||||
Note | 2012 | 2011 | 2010 | Note | As restated | As restated | ||||||||||||||||||||||
RMB million | RMB million | RMB million | Million | Million | Million | |||||||||||||||||||||||
Current tax | ||||||||||||||||||||||||||||
Provision for Hong Kong profits tax on the estimated assessable profits for the year | (i) | 191 | 112 | 123 | (i) | 164 | 113 | 173 | ||||||||||||||||||||
Provision for the PRC enterprise income tax on the estimated taxable profits for the year | (ii) | 44,325 | 41,693 | 39,726 | (ii) | 39,588 | 36,204 | 40,420 | ||||||||||||||||||||
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39,752 | 36,317 | 40,593 | ||||||||||||||||||||||||||
44,516 | 41,805 | 39,849 | ||||||||||||||||||||||||||
Deferred tax | ||||||||||||||||||||||||||||
Origination and reversal of temporary differences (note 20) | (iii) | (2,597 | ) | (1,202 | ) | (802 | ) | (iii) | (4,673 | ) | (3,138 | ) | (3,847 | ) | ||||||||||||||
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| |||||||||||||||||||||||
41,919 | 40,603 | 39,047 | 35,079 | 33,179 | 36,746 | |||||||||||||||||||||||
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|
|
|
|
(i) | The provision for Hong Kong profits tax is calculated at 16.5% |
(ii) | The provision for the PRC enterprise income tax is based on the statutory tax rate of 25% |
(iii) | Deferred taxes of the Group are recognized based on tax rates that are expected to apply to the periods when the temporary differences are realized or settled. |
(iv) | On April 22, 2009, SAT issued the “Notice regarding Matters on Determination of Tax Residence Status of Chinese-controlled Offshore Incorporated Enterprises under Rules of Effective Management” (“2009 Notice”). The Company is qualified as a PRC offshore-registered resident enterprise for purposes of the 2009 Notice. In accordance with the 2009 Notice and the PRC enterprise income tax law, the dividend income of the Company from its subsidiaries in the PRC is exempted from PRC enterprise income tax. |
12 | TAXATION (CONTINUED) |
(b) | Reconciliation between income tax expense and accounting profit at applicable tax rates: |
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | |||||||||||||||||||
RMB million | RMB million | RMB million | As restated | As restated | ||||||||||||||||||||
Million | Million | Million | ||||||||||||||||||||||
Profit before taxation | 171,300 | 166,582 | 159,071 | 143,734 | 142,522 | 153,649 | ||||||||||||||||||
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|
| ||||||||||||||||||||||
Notional tax on profit before tax, calculated at PRC’s statutory tax rate of 25% (note) | 42,825 | 41,645 | 39,768 | |||||||||||||||||||||
Notional tax on profit before tax, calculated at the PRC’s statutory tax rate of 25% (note) | 35,934 | 35,631 | 38,412 | |||||||||||||||||||||
Tax effect of non-taxable items | ||||||||||||||||||||||||
- Share of profit of associates | (1,421 | ) | (1,076 | ) | (139 | ) | (2,023 | ) | (2,062 | ) | (1,766 | ) | ||||||||||||
- Interest income | (23 | ) | (8 | ) | (3 | ) | (31 | ) | (26 | ) | (31 | ) | ||||||||||||
Tax effect of non-deductible expenses on the PRC operations | 970 | 736 | 562 | 986 | 693 | 548 | ||||||||||||||||||
Tax effect of non-deductible expenses on Hong Kong operations | 82 | 66 | 111 | 68 | 46 | 54 | ||||||||||||||||||
Rate differential of certain PRC operations | (175 | ) | (198 | ) | (561 | ) | ||||||||||||||||||
Rate differential of certain PRC operations (note 12(a)(ii)) | (1,576 | ) | (1,329 | ) | (1,243 | ) | ||||||||||||||||||
Rate differential on Hong Kong operations | (114 | ) | (16 | ) | 1 | (122 | ) | (107 | ) | (95 | ) | |||||||||||||
Tax effect of goodwill impairment loss | — | 398 | — | |||||||||||||||||||||
Tax credit on purchase of domestic telecommunications equipment | (64 | ) | (171 | ) | (352 | ) | — | — | (9 | ) | ||||||||||||||
Tax effect of unrecognized temporary difference | 98 | — | 533 | |||||||||||||||||||||
Tax effect of unrecognized tax loss for which no deferred tax asset was recognized | 356 | 116 | 98 | |||||||||||||||||||||
Tax effect on the eliminated unrealized profits related to the transfer of Tower Assets | 1,547 | — | — | |||||||||||||||||||||
Others | (161 | ) | (375 | ) | (340 | ) | (158 | ) | (181 | ) | 245 | |||||||||||||
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|
|
|
|
| |||||||||||||||||||
Taxation | 41,919 | 40,603 | 39,047 | 35,079 | 33,179 | 36,746 | ||||||||||||||||||
|
|
|
|
|
|
Note: The PRC’s statutory tax rate is adopted as the majority of the Group’s operations are subject to this rate.
2012 | 2011 | 2010 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Provision for the PRC enterprise income tax for the year | 44,325 | 41,693 | 39,726 | |||||||||
Provision for Hong Kong profits tax for the year | 191 | 112 | 123 | |||||||||
Balance of the PRC enterprise income tax recoverable relating to prior year | (91 | ) | (135 | ) | (17 | ) | ||||||
The PRC enterprise income tax paid for the year | (33,664 | ) | (30,830 | ) | (30,730 | ) | ||||||
Hong Kong profits tax paid for the year | (58 | ) | (70 | ) | (59 | ) | ||||||
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|
|
|
|
| |||||||
Balance as at December 31 | 10,703 | 10,770 | 9,043 | |||||||||
Add: Tax recoverable | 153 | 91 | 135 | |||||||||
|
|
|
|
|
| |||||||
Current taxation | 10,856 | 10,861 | 9,178 | |||||||||
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|
|
|
|
|
EARNINGS PER SHARE |
(a) | Basic earnings per share |
The calculation of basic earnings per share for the year is based on the profit attributable to equity shareholders of the Company of RMB129,274,000,000 (2011: RMB125,870,000,000; 2010: RMB119,640,000,000)RMB108,539,000,000 (2014: RMB109,218,000,000; 2013: RMB116,791,000,000) and the weighted average number of 20,090,824,42220,473,119,088 shares (2011: 20,068,193,892(2014: 20,293,253,516 shares; 2010: 20,062,910,1112013: 20,101,232,387 shares) in issue during the year, calculated as follows:
Weighted average number of shares
2012 | 2011 | 2010 | ||||||||||
Number of shares | Number of shares | Number of shares | ||||||||||
Issued shares as at January 1 | 20,072,065,571 | 20,065,423,246 | 20,060,853,651 | |||||||||
Effect of share options exercised | 18,758,851 | 2,770,646 | 2,056,460 | |||||||||
|
|
|
|
|
| |||||||
Weighted average number of shares as at December 31 | 20,090,824,422 | 20,068,193,892 | 20,062,910,111 | |||||||||
|
|
|
|
|
|
2015 | 2014 | 2013 | ||||||||||
Number of shares | Number of shares | Number of shares | ||||||||||
Issued shares as of January 1 | 20,438,426,514 | 20,102,539,665 | 20,100,340,600 | |||||||||
Effect of share options exercised | 34,692,574 | 190,713,851 | 891,787 | |||||||||
|
|
|
|
|
| |||||||
Weighted average number of shares in issue during the year | 20,473,119,088 | 20,293,253,516 | 20,101,232,387 | |||||||||
|
|
|
|
|
|
(b) | Diluted earnings per share |
The calculation of diluted earnings per share for the year is based on the profit attributable to equity shareholders of the Company of RMB129,274,000,000 (2011: RMB125,870,000,000; 2010: RMB119,640,000,000)RMB108,539,000,000 (2014: RMB109,218,000,000; 2013: RMB116,791,000,000) and the weighted average number of 20,341,515,93020,479,705,763 shares (2011: 20,315,252,412(2014: 20,408,441,343 shares; 2010: 20,321,332,4652013: 20,343,120,320 shares), calculated as follows:
Weighted average number of shares (diluted)
2012 | 2011 | 2010 | ||||||||||
Number of shares | Number of shares | Number of shares | ||||||||||
Weighted average number of shares as at December 31 | 20,090,824,422 | 20,068,193,892 | 20,062,910,111 | |||||||||
Effect of deemed issue of shares under the Company’s share option scheme for nil consideration | 250,691,508 | 247,058,520 | 258,422,354 | |||||||||
|
|
|
|
|
| |||||||
Weighted average number of shares (diluted) as at December 31 | 20,341,515,930 | 20,315,252,412 | 20,321,332,465 | |||||||||
|
|
|
|
|
|
2015 | 2014 | 2013 | ||||||||||
Number of shares | Number of shares | Number of shares | ||||||||||
Weighted average number of shares in issue during the year | 20,473,119,088 | 20,293,253,516 | 20,101,232,387 | |||||||||
Dilutive equivalent shares arising from share options | 6,586,675 | 115,187,827 | 241,887,933 | |||||||||
|
|
|
|
|
| |||||||
Weighted average number of shares (diluted) during the year | 20,479,705,763 | 20,408,441,343 | 20,343,120,320 | |||||||||
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT |
Buildings | Telecommunications transceivers, switching centers, transmission and other network equipment | Office equipments, furniture and fixtures and others | Total | Buildings | Telecommunications transceivers, switching centers, transmission and other network equipment | Office equipment, furniture, fixtures and others | Total | |||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | Million | Million | Million | Million | |||||||||||||||||||||||||
Cost: | ||||||||||||||||||||||||||||||||
As at January 1, 2011 | 85,562 | 689,702 | 27,940 | 803,204 | ||||||||||||||||||||||||||||
Additions from an acquisition of a subsidiary | — | — | 8 | 8 | ||||||||||||||||||||||||||||
Additions | 787 | 1,427 | 1,273 | 3,487 | ||||||||||||||||||||||||||||
Transferred from construction in progress | 10,176 | 111,203 | 1,112 | 122,491 | ||||||||||||||||||||||||||||
Reclassification | — | 10,915 | (10,915 | ) | — | |||||||||||||||||||||||||||
Disposals | — | (398 | ) | (22 | ) | (420 | ) | |||||||||||||||||||||||||
Assets written-off | (242 | ) | (53,198 | ) | (1,121 | ) | (54,561 | ) | ||||||||||||||||||||||||
Exchange differences | (1 | ) | (115 | ) | (5 | ) | (121 | ) | ||||||||||||||||||||||||
As of January 1, 2014 (As previously reported) | 126,205 | 927,634 | 19,334 | 1,073,173 | ||||||||||||||||||||||||||||
Acquisition of Target Assets and Businesses (note 2(b)) | 3,735 | 76,876 | 830 | 81,441 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
As at December 31, 2011 | 96,282 | 759,536 | 18,270 | 874,088 | ||||||||||||||||||||||||||||
As of January 1, 2014 (As restated) | 129,940 | 1,004,510 | 20,164 | 1,154,614 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
As at January 1, 2012 | 96,282 | 759,536 | 18,270 | 874,088 | ||||||||||||||||||||||||||||
Additions | 765 | 1,502 | 1,390 | 3,657 | 184 | 801 | 835 | 1,820 | ||||||||||||||||||||||||
Transferred from construction in progress | 12,783 | 108,733 | 849 | 122,365 | 13,906 | 191,950 | 1,998 | 207,854 | ||||||||||||||||||||||||
Disposals | — | (302 | ) | (2 | ) | (304 | ) | (3 | ) | (7 | ) | (10 | ) | (20 | ) | |||||||||||||||||
Assets written-off | (622 | ) | (38,141 | ) | (1,824 | ) | (40,587 | ) | (431 | ) | (42,416 | ) | (1,450 | ) | (44,297 | ) | ||||||||||||||||
Exchange differences | — | 1 | — | 1 | 6 | 10 | — | 16 | ||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
As of December 31, 2014 (As restated) | 143,602 | 1,154,848 | 21,537 | 1,319,987 | ||||||||||||||||||||||||||||
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|
|
| |||||||||||||||||||||||||||||
As at December 31, 2012 | 109,208 | 831,329 | 18,683 | 959,220 | ||||||||||||||||||||||||||||
As of January 1, 2015 (As previously reported) | 139,851 | 1,074,593 | 20,611 | 1,235,055 | ||||||||||||||||||||||||||||
Acquisition of Target Assets and Businesses (note 2(b)) | 3,751 | 80,255 | 926 | 84,932 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
As of January 1, 2015 (As restated) | 143,602 | 1,154,848 | 21,537 | 1,319,987 | ||||||||||||||||||||||||||||
Additions | 119 | 837 | 580 | 1,536 | ||||||||||||||||||||||||||||
Transferred from construction in progress | 13,225 | 178,285 | 2,099 | 193,609 | ||||||||||||||||||||||||||||
Transfer of Tower Assets to China Tower (note 7) | (25,014 | ) | (133,164 | ) | (212 | ) | (158,390 | ) | ||||||||||||||||||||||||
Disposals | (1 | ) | (84 | ) | (24 | ) | (109 | ) | ||||||||||||||||||||||||
Assets written-off | (2,588 | ) | (26,130 | ) | (1,199 | ) | (29,917 | ) | ||||||||||||||||||||||||
Exchange differences | 117 | 211 | 3 | 331 | ||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||
Accumulated depreciation: | ||||||||||||||||||||||||||||||||
As at January 1, 2011 | 19,315 | 383,627 | 14,966 | 417,908 | ||||||||||||||||||||||||||||
Reclassification | — | 5,422 | (5,422 | ) | — | |||||||||||||||||||||||||||
As of December 31, 2015 | 129,460 | 1,174,803 | 22,784 | 1,327,047 | ||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||
Accumulated depreciation and impairment: | ||||||||||||||||||||||||||||||||
As of January 1, 2014 (As previously reported) | 33,325 | 548,690 | 11,931 | 593,946 | ||||||||||||||||||||||||||||
Acquisition of Target Assets and Businesses (note 2(b)) | 1,464 | 38,094 | 539 | 40,097 | ||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||
As of January 1, 2014 (As restated) | 34,789 | 586,784 | 12,470 | 634,043 | ||||||||||||||||||||||||||||
Charge for the year | 4,140 | 90,142 | 2,831 | 97,113 | 5,997 | 114,243 | 2,604 | 122,844 | ||||||||||||||||||||||||
Written back on disposals | — | (284 | ) | (10 | ) | (294 | ) | (1 | ) | (7 | ) | (9 | ) | (17 | ) | |||||||||||||||||
Assets written-off | (171 | ) | (47,516 | ) | (1,021 | ) | (48,708 | ) | (389 | ) | (40,190 | ) | (1,335 | ) | (41,914 | ) | ||||||||||||||||
Exchange differences | — | (93 | ) | (3 | ) | (96 | ) | 3 | 5 | — | 8 | |||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
As of December 31, 2014 (As restated) | 40,399 | 660,835 | 13,730 | 714,964 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
As at December 31, 2011 | 23,284 | 431,298 | 11,341 | 465,923 | ||||||||||||||||||||||||||||
As of January 1, 2015 (As previously reported) | 38,796 | 618,275 | 13,189 | 670,260 | ||||||||||||||||||||||||||||
Acquisition of Target Assets and Businesses (note 2(b)) | 1,603 | 42,560 | 541 | 44,704 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||
As at January 1, 2012 | 23,284 | 431,298 | 11,341 | 465,923 | ||||||||||||||||||||||||||||
As of January 1, 2015 (As restated) | 40,399 | 660,835 | 13,730 | 714,964 | ||||||||||||||||||||||||||||
Charge for the year | 4,664 | 94,313 | 1,876 | 100,853 | 6,542 | 127,888 | 2,428 | 136,858 | ||||||||||||||||||||||||
Transfer of Tower Assets to China Tower (note 7) | (8,317 | ) | (80,765 | ) | (97 | ) | (89,179 | ) | ||||||||||||||||||||||||
Written back on disposals | — | (296 | ) | (1 | ) | (297 | ) | (1 | ) | (84 | ) | (21 | ) | (106 | ) | |||||||||||||||||
Assets written-off | (492 | ) | (35,742 | ) | (1,535 | ) | (37,769 | ) | ||||||||||||||||||||||||
Assets written-off and impairment loss | (1,813 | ) | (18,456 | ) | (1,014 | ) | (21,283 | ) | ||||||||||||||||||||||||
Exchange differences | — | 1 | — | 1 | 15 | 146 | 1 | 162 | ||||||||||||||||||||||||
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|
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| |||||||||||||||||||||||||
As at December 31, 2012 | 27,456 | 489,574 | 11,681 | 528,711 | ||||||||||||||||||||||||||||
As of December 31, 2015 | 36,825 | 689,564 | 15,027 | 741,416 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Net book value: | ||||||||||||||||||||||||||||||||
As at December 31, 2012 | 81,752 | 341,755 | 7,002 | 430,509 | ||||||||||||||||||||||||||||
As of December 31, 2015 | 92,635 | 485,239 | 7,757 | 585,631 | ||||||||||||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||
As at December 31, 2011 | 72,998 | 328,238 | 6,929 | 408,165 | ||||||||||||||||||||||||||||
As of December 31, 2014 (As restated) | 103,203 | 494,013 | 7,807 | 605,023 | ||||||||||||||||||||||||||||
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PROPERTY, PLANT AND EQUIPMENT |
During 2015, CMC transferred its Tower Assets including property, plant and equipment with cost and accumulated depreciation and impairment of RMB158,390,000,000 and RMB89,179,000,000, respectively, to China Tower. The gain arising from the transfer of the Tower Assets is recorded as “Gain on the transfer of Tower Assets” in the consolidated statements of comprehensive income for the year ended December 31, 2015. Please refer to note 7 for details.
Write-off of property, plant and equipment mainly represents the retirement of individual network assetsasset due to obsolescence or damages. Such assets have been disconnected from existing network, abandoned andor demolished. Total net book value of the write-off of such assets were RMB2,818,000,000written off was RMB2,667,000,000 in 2012 (2011: RMB5,853,000,000, 2010: RMB2,763,000,000).2015 (2014: RMB2,383,000,000; 2013: RMB3,021,000,000), including the assets of net book value amounting to RMB765,000,000 attributable to the ultimate holding company. These assets were disposed at scrap value.
With the rapid growth of the Group’s 4G operation in 2015, the strategy of ramping up the internet connection speed with lower tariff, continuing technology changes, and further development of wireline broadband business, management anticipates more pressure on the growth and profitability of the Wireless Local Area Network (“WLAN”) business. Therefore, management performed impairment testing on the WLAN and related terminal transmission equipment (“WLAN Equipment”) as of December 31, 2015. For the impairment testing purpose, the recoverable values of WLAN Equipment was determined based on value-in-use calculations, i.e. the present value of estimated future net cash flows expected to arise from the continuing use of the WLAN Equipment. In estimating the present value of future net cash flows, after considering the historical results, the prevailing market trends and the expected remaining useful lives of related WLAN Equipment, the Group has made key assumptions and estimates on the appropriate pre-tax discount rate of 10%, the period covered by the cash flow forecast of 3 years, and the estimated decrease in revenue by 10% per annum on average. Based on the impairment testing results, the Group recognized an impairment loss of RMB5,967,000,000 for the year ended December 31, 2015 (2014: nil; 2013: nil).
CONSTRUCTION IN PROGRESS |
2012 | 2011 | 2015 | 2014 | |||||||||||||
RMB million | RMB million | As restated | ||||||||||||||
Million | Million | |||||||||||||||
Balance as at January 1 | 56,235 | 54,868 | ||||||||||||||
As of January 1 | 95,110 | 91,600 | ||||||||||||||
Additions | 121,637 | 123,858 | 192,737 | 211,364 | ||||||||||||
Transferred to property, plant and equipment | (122,365 | ) | (122,491 | ) | (193,609 | ) | (207,854 | ) | ||||||||
Transfer of Tower Assets to China Tower (note 7) | (6,226 | ) | — | |||||||||||||
|
|
|
| |||||||||||||
Balance as at December 31 | 55,507 | 56,235 | ||||||||||||||
As of December 31 | 88,012 | 95,110 | ||||||||||||||
|
|
|
|
Construction in progress primarily comprises expenditure incurred on the network expansion projects and construction of office buildingsbut not yet completed as atof December 31, 2012.2015.
LAND LEASE PREPAYMENTS AND OTHERS |
For the year ended December 31, 2015, the land lease prepayments expensed in the profit or loss amounted to approximately RMB426,000,000 (2014: approximately RMB407,000,000; 2013: approximately RMB387,000,000).
17 | GOODWILL |
2012 | 2011 | |||||||
RMB million | RMB million | |||||||
Cost and carrying amount: | ||||||||
As at January 1 and December 31 | 36,894 | 36,894 | ||||||
|
|
|
|
2015 | 2014 | |||||||
As restated | ||||||||
Million | Million | |||||||
As of January 1 | 35,343 | 36,937 | ||||||
Impairment | — | (1,594 | ) | |||||
|
|
|
| |||||
As of December 31 | 35,343 | 35,343 | ||||||
|
|
|
|
Impairment tests for goodwill
As set out in IAS 36 Impairment“Impairment of Assets,Assets”, a cash-generating unit is the smallest identifiable group of assets that generate cash inflows from continuing use that are largely independent of the cash flows from other assets or groups of assets. For the purpose of impairment testingtests of goodwill, goodwill is allocated to a groupgroups of cash-generating units (being subsidiaries acquired in each acquisition). Such groupgroups of cash-generating units represent the lowest level within the Group for which the goodwill is monitored for internal management purposes.
17 | GOODWILL (CONTINUED) |
Impairment | tests for goodwill (Continued) |
As of December 31, 2015, the goodwill of RMB35,300,000,000 is attributable to the cash-generating unit in relation to the operation in Mainland China which management currently monitors. The recoverable amount of the cash-generating unitsunit is determined based on the value-in-use whichcalculations. Value-in-use is calculated by using the discounted cash flow method. This method considers the pre-tax cash flows of the subsidiaries (cash-generating units)unit) for the five years ending December 31, 20172020 with subsequent transition to perpetuity. For the five years followingending December 31, 2020, the detailed planning period,average growth rate is assumed 1.5% for the operation in Mainland China. For the years beyond December 31, 2020, the assumed continual growth rates to perpetuity of 0.5%1% is used for the operation in Hong Kong and 1% for operations in Mainland China to perpetuity are used which comply with general expectations for the business.China. The present value of cash flows is calculated by discounting the cash flow byusing pre-tax interest raterates of approximately 10% (2011: 10%)12%. ManagementThe management performed impairment teststest for the goodwill in relation to the operation in Mainland China and determined thatsuch goodwill was not impaired. Reasonably possible changes in key assumptions will not lead to the goodwill impairment loss.
For the year ended December 31, 2014, with the development of the 4G operation in Hong Kong, the competition in Hong Kong telecommunications market had become increasingly fierce. Management anticipated more pressure on the operating performance in future considering the necessity of investment in capital expenditure and increased marketing expenses to sustain the development of business. As a result, the management made a provision for impairment loss of goodwill amounting to RMB1,594,000,000 in relation to the operation in Hong Kong based on the annual impairment test result.
Brand name | Customer base | License and others | Total | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
Cost: | ||||||||||||||||
As at January 1, 2011 | 184 | 516 | 1,040 | 1,740 | ||||||||||||
Additions | — | — | 85 | 85 | ||||||||||||
Exchange differences | — | — | (39 | ) | (39 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
As at December 31, 2011 | 184 | 516 | 1,086 | 1,786 | ||||||||||||
|
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|
|
|
|
|
| |||||||||
As at January 1, 2012 | 184 | 516 | 1,086 | 1,786 | ||||||||||||
Additions | — | — | 174 | 174 | ||||||||||||
Retirements | — | — | (64 | ) | (64 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
As at December 31, 2012 | 184 | 516 | 1,196 | 1,896 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated amortization: | ||||||||||||||||
As at January 1, 2011 | — | 516 | 411 | 927 | ||||||||||||
Amortization for the year | — | — | 54 | 54 | ||||||||||||
Exchange differences | — | — | (13 | ) | (13 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
As at December 31, 2011 | — | 516 | 452 | 968 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As at January 1, 2012 | — | 516 | 452 | 968 | ||||||||||||
Amortization for the year | — | — | 68 | 68 | ||||||||||||
Retirements | — | — | (64 | ) | (64 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
As at December 31, 2012 | — | 516 | 456 | 972 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net book value: | ||||||||||||||||
As at December 31, 2012 | 184 | — | 740 | 924 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As at December 31, 2011 | 184 | — | 634 | 818 | ||||||||||||
|
|
|
|
|
|
|
|
The amortization charge for the year is included in “other operating expenses” in the consolidated statements of the comprehensive income.
The following list contains only the particulars of subsidiaries as of December 31, 2015, which principally affected the results, assets or liabilities of the Group. The class of shares held is ordinary unless otherwise stated.
Place of | Proportion of | |||||||||||||
incorporation/ | Particulars | ownership interest | ||||||||||||
establishment | of issued and | Held by the | Held by a | |||||||||||
Name of company* | and operation | paid up capital | Company | subsidiary | Principal activity | |||||||||
China Mobile Communication (BVI) Limited | British Virgin Islands (“BVI”) | HK$1 | 100% | — | Investment holding company | |||||||||
CMC * * | PRC | RMB1,641,848,326 | — | 100% | Network and business coordination center | |||||||||
China Mobile Group Guangdong Co., Ltd. (“Guangdong Mobile”) | PRC | RMB5,594,840,700 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Zhejiang Co., Ltd. | PRC | RMB2,117,790,000 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Jiangsu Co., Ltd. | PRC | RMB2,800,000,000 | — | 100% | Mobile telecom- munications operator | |||||||||
China Mobile Group Fujian Co., Ltd. | PRC | RMB5,247,480,000 | — | 100% | Mobile telecom- munications operator | |||||||||
China Mobile Group Henan Co., Ltd. | PRC | RMB4,367,733,641 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Hainan Co., Ltd. | PRC | RMB643,000,000 | — | 100% | Mobile telecom- munications operator | |||||||||
China Mobile Group Beijing Co., Ltd. (“Beijing Mobile”) | PRC | RMB6,124,696,053 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Shanghai Co., Ltd. | PRC | RMB6,038,667,706 | — | 100% | Mobile telecom- munications operator | |||||||||
China Mobile Group Tianjin Co., Ltd. | PRC | RMB2,151,035,483 | — | 100% | Mobile telecom- munications operator | |||||||||
China Mobile Group Hebei Co., Ltd. | PRC | RMB4,314,668,600 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Liaoning Co., Ltd. | PRC | RMB5,140,126,680 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Shandong Co., Ltd. | PRC | RMB6,341,851,146 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Guangxi Co., Ltd. | PRC | RMB2,340,750,100 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Anhui Co., Ltd. | PRC | RMB4,099,495,494 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Jiangxi Co., Ltd. | PRC | RMB2,932,824,234 | — | 100% | Mobiletelecom- munications operator | |||||||||
China Mobile Group Chongqing Co., Ltd. | PRC | RMB3,029,645,401 | — | 100% | Mobiletelecom- munications operator |
18 | SUBSIDIARIES (CONTINUED) |
Place of | Proportion of | |||||||||||||||||
Particulars | ownership interest | |||||||||||||||||
of issued and | Held by the | Held by a | ||||||||||||||||
Name of |
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| and operation | paid up capital | Company | subsidiary | Principal activity | |||||||||||||
China Mobile Group |
| |||||||||||||||||
|
| |||||||||||||||||
|
| |||||||||||||||||
| PRC | RMB7,483,625,572 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB3,961,279,556 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB4,015,668,593 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB3,171,267,431 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB2,773,448,313 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB2,862,621,870 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB3,277,579,314 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB4,500,508,035 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB2,541,981,749 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB4,137,130,733 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB848,643,686 | — | 100% | Mobile | |||||||||||||
China Mobile Group | PRC | RMB1,702,599,589 | — | 100% | Mobile telecom- munications operator | |||||||||||||
China Mobile Group Qinghai Co., Ltd. | PRC | RMB902,564,911 | — | 100% | Mobile telecom- munications operator | |||||||||||||
China Mobile Group Ningxia Co., Ltd. | PRC | RMB740,447,232 | — | 100% | Mobile telecom- munications operator | |||||||||||||
China Mobile Group Xinjiang Co., Ltd. | PRC | RMB2,581,599,600 | — | 100% | Mobile telecom- munications operator | |||||||||||||
China Mobile Group Design Institute Co., Ltd. | PRC | RMB160,232,500 | — | 100% | Provision of telecommunications |
Place of | Proportion of | |||||||||||||||||
Particulars | ownership interest | |||||||||||||||||
of issued and | Held by the | Held by a | ||||||||||||||||
Name of | and operation | paid up capital | Company | subsidiary | Principal activity | |||||||||||||
China Mobile |
| |||||||||||||||||
|
| |||||||||||||||||
|
| |||||||||||||||||
|
| |||||||||||||||||
| PRC | US$30,000,000 | 100% | — | Investment holding company | |||||||||||||
China Mobile (Shenzhen) | PRC | US$7,633,000 | — | 100% | Provision of roaming clearance services | |||||||||||||
Aspire Holdings Limited | | Cayman Islands | | HK$93,964,583 | 66.41% | — | Investment holding company | |||||||||||
Aspire (BVI) Limited# | BVI | US$1,000 | — | 100% | Investment holding company | |||||||||||||
Aspire Technologies (Shenzhen) | PRC | US$10,000,000 | — | 100% | Technology platform development and maintenance | |||||||||||||
Aspire Information Network (Shenzhen) | PRC | US$5,000,000 | — | 100% | Provision of mobile data solutions, system integration and development | |||||||||||||
Aspire Information Technologies (Beijing) | PRC | US$5,000,000 | — | 100% | Technology platform development and maintenance | |||||||||||||
Fujian FUNO Mobile Communication Technology Company | PRC | US$3,800,000 | — | 51% | Network planning and optimizing construction testing and supervising, technology support, development and training of Nokia GSM900/1800 Mobile Communication System | |||||||||||||
Advanced Roaming & Clearing House Limited | BVI | US$2 | 100% | — | Provision of roaming clearance services | |||||||||||||
Fit Best Limited | BVI | US$1 | 100% | — | Investment holding company | |||||||||||||
China Mobile Hong Kong Company Limited (“CMHK”) | Hong Kong | HK$ | — | 100% | Provision of mobile telecommunications and related services | |||||||||||||
China Mobile International Holdings Limited (“CMI Holdings”) | Hong Kong | 100% | — | Investment holding company | ||||||||||||||
China Mobile International Limited | Hong Kong | HK$3,000,000,000 | — | 100% | Provision of voice and roaming clearance services, internet services and value-added services | |||||||||||||
China Mobile Group Device Co., Ltd. | PRC | RMB6,200,000,000 | — | 99.97% | Provision of electronic communication products design and sale of related products |
Place of | Proportion of | |||||||||||||||||
Particulars | ownership interest | |||||||||||||||||
of issued and | Held by the | Held by a | ||||||||||||||||
Name of | and operation | paid up capital | Company | subsidiary | Principal activity | |||||||||||||
|
| |||||||||||||||||
|
| |||||||||||||||||
China Mobile Group Finance Co., Ltd. (“China Mobile Finance”) | PRC | — | 92% | Provision of non-banking financial services | ||||||||||||||
China Mobile M2M Company Limited (“M2M Company”) | PRC | RMB1,000,000,000 | — | 100% | Provision of network services | |||||||||||||
China Mobile (Suzhou) Software Technology Co., Ltd. | PRC | RMB700,000,000 | — | 100% | Provision of computer hardware and software research and development services | |||||||||||||
China Mobile (Hangzhou) Information Technology Co., Ltd. | PRC | RMB900,000,000 | — | 100% | Provision of computer hardware and software research and development services | |||||||||||||
China Mobile Online Service Co., Ltd. | PRC | RMB50,000,000 | — | 100% | Provision of call center services | |||||||||||||
MIGU Company Limited | PRC | RMB5,500,000,000 | — | 100% | Provision of Mobile Internet digital content services | |||||||||||||
CM TieTong | PRC | RMB15,000,000,000 | — | 100% | Provision of telecommunications services | |||||||||||||
China Mobile Internet Company Limited | PRC | RMB2,000,000,000 | — | 100% | Provision of value added telecommunications services |
* | The nature of all the legal entities established in the PRC is limited liability company. |
** | Companies registered as |
*** | Company registered as a sino-foreign equity joint venture in the PRC. |
# | Effective interest held by the Group is 66.41%. |
China Mobile |
The amounts recognized in the consolidated balance sheets are as follows:
As at December 31, 2012 | As at December 31, 2011 | |||||||
RMB million | RMB million | |||||||
Share of net assets of associates | 48,343 | 43,794 | ||||||
|
|
|
|
As of December 31, | As of December 31, | |||||||
Million | As restated Million | |||||||
Associates | 115,558 | 70,451 | ||||||
Joint ventures | 375 | — | ||||||
|
|
|
| |||||
115,933 | 70,451 | |||||||
|
|
|
|
Details of themajor associates are as follows:
Name of associate | Place of establishment and operation | Proportion of ownership interest held by its subsidiary | Principal | |||||
| ||||||||
China | ||||||||
| PRC | maintenance and operation of telecommunications towers | ||||||
Listed company | ||||||||
Shanghai Pudong Development Bank Co., Ltd. (“SPD Bank”) | PRC | 20% | Provision of banking services | |||||
IFLYTEK Co., Ltd. (“IFLYTEK”) | PRC | 14% | Provision of Chinese speech and language products and services | |||||
True Corporation Public Company Limited (“True Corporation”) | Thailand | 18% | Provision of telecommunications services |
All the above investments in associates are owned by Guangdong Mobile, the Company’s wholly-owned subsidiary.
The carrying amounts of Group’s share of net assets of China Motion United Telecom Limited and Shenzhen China Motion Telecom United Limited were nil. These two entities were in a net liability position based on their latest management accounts as at December 31, 2011 and 2012.
As at December 31, 2012, the interests in associates include the investment in SPD Bank, which is a company listed on The Shanghai Stock Exchange, the PRC.
During 2014, CMI Holdings, a wholly-owned subsidiary of the Company subscribed for 4,429,427,068 ordinary shares of True Corporation (a fully-integrated, nationwide telecommunications service provider in Thailand) at the price of Baht6.45 per share with a total consideration of Baht28.57 billion (equivalent to approximately RMB5.51 billion). Upon the completion of the subscription, CMI Holdings owns 18% of the share capital and has become the second largest shareholder of True Corporation and two designees nominated by CMI Holdings have been appointed as directors of True Corporation. Accordingly, the Group recognized the investment as interest in an associate considering the Group can exercise significant influence over financial and operating policy decisions of True Corporation.
Also in 2014, China Tower was established, of which the Group owns 40.0% of the registered capital upon establishment. In 2015, upon the completion of the transaction of transfer of Tower Assets to China Tower (see note 7), the Group owns 38.0% of the equity interest in China Tower. The Group recognized the investment as interest in an associate considering the Group can exercise significant influence over financial and operating policy decisions of China Tower.
19 | INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED) |
Summary financial information on SPD Bank:principal associates:
Assets | Liabilities | Revenue | Profit after tax | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
2012 | ||||||||||||||||
100% | 3,145,707 | 2,966,048 | 82,952 | 34,186 | ||||||||||||
Group’s effective interest (20%) | 629,141 | 593,210 | 16,590 | 6,837 | ||||||||||||
Assets | Liabilities | Revenue | Profit after tax | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
2011 | ||||||||||||||||
100% | 2,690,300 | 2,540,700 | 67,497 | 27,236 | ||||||||||||
Group’s effective interest (20%) | 538,060 | 508,140 | 13,499 | 5,447 |
SPD Bank | ||||||||
As of December 31 | ||||||||
2015 | 2014 | |||||||
Million | Million | |||||||
Total assets | 5,044,352 | 4,195,924 | ||||||
Total liabilities | 4,725,752 | 3,932,639 | ||||||
Total equity | 318,600 | 263,285 | ||||||
|
|
|
| |||||
Total equity attributable to ordinary equity shareholders | 285,250 | 245,209 | ||||||
Percentage of ownership of the Group | 20% | 20% | ||||||
|
|
|
| |||||
Total equity attributable to the Group | 57,050 | 49,042 | ||||||
The impact of fair value adjustments at | 9,361 | 10,512 | ||||||
|
|
|
| |||||
Interest in associates | 66,411 | 59,554 | ||||||
|
|
|
|
IFLYTEK | True Corporation | China Tower | ||||||||||||||||||||||
As of December 31 | As of December 31 | As of December 31 | ||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Million | Million | Million | Million | Million | Million | |||||||||||||||||||
Total current assets | 4,767 | 2,565 | 14,038 | 16,487 | 38,586 | 9,676 | ||||||||||||||||||
Total non-current assets | 3,623 | 2,605 | 36,959 | 27,428 | 231,793 | 454 | ||||||||||||||||||
Total current liabilities | 1,601 | 1,076 | 20,158 | 22,026 | 47,717 | 244 | ||||||||||||||||||
Total non-current liabilities | 266 | 193 | 17,279 | 8,608 | 96,535 | — | ||||||||||||||||||
Total equity | 6,523 | 3,901 | 13,560 | 13,281 | 126,127 | 9,886 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total equity attributable to equity shareholders | 6,268 | 3,707 | 13,441 | 13,170 | 126,127 | 9,886 | ||||||||||||||||||
Percentage of ownership of the Group | 14% | 15% | 18% | 18% | 38% | 40% | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total equity attributable to the Group | 878 | 556 | 2,419 | 2,371 | 47,928 | 3,954 | ||||||||||||||||||
The impact of fair value adjustments at the time of acquisition and goodwill | 827 | 876 | 3,077 | 3,133 | — | — | ||||||||||||||||||
Elimination of unrealized profits resulting from transfer of Tower Assets and its realisation | — | — | — | — | (5,989 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Interest in associates | 1,705 | 1,432 | 5,496 | 5,504 | 41,939 | 3,954 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
19 | INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED) |
Summary financial information on principal associates (Continued):
SPD Bank | IFLYTEK | |||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
Million | Million | Million | Million | Million | Million | |||||||||||||||||||
Revenue | 146,550 | 123,181 | 100,015 | 2,501 | 1,775 | 1,254 | ||||||||||||||||||
Profit before taxation | 66,877 | 62,030 | 53,849 | 465 | 434 | 321 | ||||||||||||||||||
Profit attributable to ordinary equity shareholders for the year | 49,704 | 47,026 | 40,922 | 425 | 379 | 279 | ||||||||||||||||||
Other comprehensive income | 4,458 | 6,119 | (3,835 | ) | — | — | — | |||||||||||||||||
Total comprehensive income | 54,162 | 53,145 | 37,087 | 425 | 379 | 279 | ||||||||||||||||||
Dividends received from associates | 2,824 | 2,462 | 2,052 | 18 | 14 | 10 |
True Corporation | China Tower | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Million | Million | Million | Million | |||||||||||||
Revenue | 21,416 | 20,447 | 10,325 | — | ||||||||||||
Profit/(loss) before taxation | 839 | (129 | ) | (3,864 | ) | (114 | ) | |||||||||
Profit/(loss) for the year | 795 | 267 | (2,944 | ) | (114 | ) | ||||||||||
Other comprehensive income | — | — | — | — | ||||||||||||
Total comprehensive income/(loss) | 795 | 267 | (2,944 | ) | (114 | ) | ||||||||||
Dividends received from associates | — | — | — | — |
The fair valuevalues of the interests in SPD Bank, IFLYTEK and True Corporation are disclosed as follows:
As of December 31, 2015 | As of December 31, 2014 | |||||||||||||||
Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||||
Million | Million | Million | Million | |||||||||||||
SPD Bank | 66,411 | 68,160 | 59,554 | 58,535 | ||||||||||||
IFLYTEK | 1,705 | 6,639 | 1,432 | 3,184 | ||||||||||||
True Corporation | 5,496 | 5,339 | 5,504 | 9,205 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Interest in listed associates | 73,612 | 80,138 | 66,490 | 70,924 | ||||||||||||
|
|
|
|
|
|
|
|
19 | INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED) |
The fair values of interest in SPD Bank, IFLYTEK and True Corporation are based on quoted market prices (level 1: quoted price (unadjusted) in active markets) at the balance sheet date without any deduction for transaction costs.
As of December 31, 2015, the fair value of investment in SPD Bank was RMB68,160,000,000 (2014: RMB58,535,000,000), exceeding its carrying amount by approximately 2.6% (2014: approximately 1.7% below).
As of December 31, 2015, the fair value of investment in True Corporation was RMB5,339,000,000, below its carrying amount by approximately 2.9%, which was primarily due to the depreciation of Thai Baht during 2015. Since the decline in the fair value of investment in True Corporation is disclosednot significant or prolonged, there was no objective evidence of impairment as of December 31, 2015.
For the year ended December 31, 2015, China Tower has carried out operation for a short period. There was no objective evidence of impairment associated with the investment in Note 37(e). China Tower as of December 31, 2015.
The management has determined that there was no impairment indicator of the Group’s interests in other associates as of December 31, 2014 and 2015.
On May 18, 2015, CMC entered into a partnership agreement with State Development & Investment Corporation and China Mobile State Development & Investment Management Company Limited (45% of its registered capital is owned by CMCC), under which they agreed to establish China Mobile Innovative Business Fund (Shenzhen) Partnership (Limited Partnership) (the “Fund”). The principal business of the Fund is investment in portfolio companies with high-growth potential in mobile internet and related sectors and seek favorable opportunities to exit by appropriate means. CMC committed to invest RMB1,500,000,000 in cash, which represents 58.8% equity interest in SPD Bank for the years endedFund. As of December 31, 20112015, CMC has contributed RMB360,000,000 to the Fund and 2012.has a commitment to invest RMB1,140,000,000 to the fund upon the request by the Fund.
As at December 31, 2012 | As at December 31, 2011 | |||||||
RMB million | RMB million | |||||||
Share of net assets | 6 | 7 | ||||||
|
|
|
|
Details ofThere are no contingent liabilities relating to the Group’s interest in the jointly controlled entity are as follows:
|
|
| ||||||
|
|
CSVV B.V. was formed by the Company and two other shareholders in 2008, and commenced its operation in 2009. During 2009, a new investor became the fourth shareholder and the proportion of ownership interests held by the Group and the Company decreased from 33.33% to 25%. At the end of 2011, each of the four shareholders, including the Company, has contributed US$5,000,000 (equivalent to RMB34,000,000) to CSVV B.V. in accordance with the shareholders agreement.
CSVV B.V. is considered a jointly controlled entity since the Company and other shareholders have the right to appoint an equal number of directors to the board of directors. The Company and the other shareholders share joint control over the major economic activities of CSVV B.V..
As at and for the year ended December 31, 2012, the Group’s share of the CSVV B.V.’s current assets, non-current assets, current liabilities, net assets and loss for the year of CSVV B.V. are RMB6,000,000 (2011: RMB7,000,000), RMB nil (2011: RMB1,000,000), RMB nil (2011: RMB1,000,000), RMB6,000,000 (2011: RMB7,000,000) and RMB1,000,000 (2011: RMB1,000,000), respectively.
20 | DEFERRED TAX ASSETS AND LIABILITIES |
The componentsanalysis of deferred tax assets/(liabilities) recognized in the consolidated balance sheetsassets and the movements during the year for the Groupliabilities are as follows:
As of December 31, 2015 | As of December 31, 2014 | |||||||
As restated | ||||||||
Million | Million | |||||||
Deferred tax assets: | ||||||||
- Deferred tax asset to be recovered after 12 months | 4,935 | 4,639 | ||||||
- Deferred tax asset to be recovered within 12 months | 20,488 | 16,015 | ||||||
|
|
|
| |||||
25,423 | 20,654 | |||||||
|
|
|
| |||||
Deferred tax liabilities: | ||||||||
- Deferred tax liabilities to be settled after 12 months | (166 | ) | (80 | ) | ||||
- Deferred tax liabilities to be settled within 12 months | (37 | ) | (18 | ) | ||||
|
|
|
| |||||
(203 | ) | (98 | ) | |||||
|
|
|
|
20 | DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED) |
Deferred tax assets and liabilities recognized and the movements during 20122015
As of January 1, 2015 | Credited/ (charged) to profit or loss | Exchange differences | As of December 31, 2015 | |||||||||||||||||||||||||||||
As at January 1, 2012 | Credited/ (charged) to profit or loss | Exchange differences | As at December 31, 2012 | As restated | ||||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | Million | Million | Million | Million | |||||||||||||||||||||||||
Deferred tax assets arising from: | ||||||||||||||||||||||||||||||||
Provision for obsolete inventories | 25 | 72 | — | 97 | ||||||||||||||||||||||||||||
Write-off of certain network equipment and related assets | 1,382 | 253 | — | 1,635 | ||||||||||||||||||||||||||||
Provision for certain operating expenses | 5,710 | 1,374 | — | 7,084 | ||||||||||||||||||||||||||||
Deferred revenue from customer point reward program | 2,645 | 775 | — | 3,420 | ||||||||||||||||||||||||||||
Write-down for obsolete inventories | 188 | 29 | — | 217 | ||||||||||||||||||||||||||||
Write-off and impairment of certain network equipment and related assets | 2,624 | 1,528 | — | 4,152 | ||||||||||||||||||||||||||||
Accrued operating expenses | 10,641 | 3,484 | — | 14,125 | ||||||||||||||||||||||||||||
Deferred revenue from Reward Program | 5,621 | (271 | ) | — | 5,350 | |||||||||||||||||||||||||||
Impairment loss for doubtful accounts | 1,151 | 157 | — | 1,308 | 1,580 | (1 | ) | — | 1,579 | |||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
10,913 | 2,631 | — | 13,544 | |||||||||||||||||||||||||||||
|
|
|
| 20,654 | 4,769 | — | 25,423 | |||||||||||||||||||||||||
Deferred tax liabilities arising from: | ||||||||||||||||||||||||||||||||
Capitalized interest | (1 | ) | 1 | — | — | |||||||||||||||||||||||||||
Depreciation allowance in excess of related depreciation | (16 | ) | (35 | ) | — | (51 | ) | (98 | ) | (96 | ) | (9 | ) | (203 | ) | |||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
(17 | ) | (34 | ) | — | (51 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 10,896 | 2,597 | — | 13,493 | 20,556 | 4,673 | (9 | ) | 25,220 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
20 | DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED) |
Deferred tax assets and liabilities recognized and the movements during 20112014
As at January 1, 2011 | Acquisition of a subsidiary | Credited/ (charged) to profit or loss | Exchange differences | As at December 31, 2011 | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
Deferred tax assets arising from: | ||||||||||||||||||||
Provision for obsolete inventories | 12 | 5 | 8 | — | 25 | |||||||||||||||
Write-off of certain network equipment and related assets | 1,235 | — | 147 | — | 1,382 | |||||||||||||||
Provision for certain operating expenses | 5,147 | 3 | 560 | — | 5,710 | |||||||||||||||
Deferred revenue from customer point reward program | 2,114 | — | 531 | — | 2,645 | |||||||||||||||
Impairment loss for doubtful accounts | 1,212 | 4 | (65 | ) | — | 1,151 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
9,720 | 12 | 1,181 | — | 10,913 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax liabilities arising from: | ||||||||||||||||||||
Capitalized interest | (4 | ) | — | 3 | — | (1 | ) | |||||||||||||
Depreciation allowance in excess of related depreciation | (35 | ) | — | 18 | 1 | (16 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(39 | ) | — | 21 | 1 | (17 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 9,681 | 12 | 1,202 | 1 | 10,896 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
As at December 31, 2012 | As at December 31, 2011 | |||||||
RMB million | RMB million | |||||||
Deferred tax assets recognized in the consolidated balance sheets | 13,544 | 10,913 | ||||||
Deferred tax liabilities recognized in the consolidated balance sheets | (51 | ) | (17 | ) | ||||
|
|
|
| |||||
13,493 | 10,896 | |||||||
|
|
|
|
As of January 1, 2014 | Credited to profit or loss | As of December 31, 2014 | ||||||||||
As restated | As restated | As restated | ||||||||||
Million | Million | Million | ||||||||||
Deferred tax assets arising from: | ||||||||||||
Write-down for obsolete inventories | 132 | 56 | 188 | |||||||||
Write-off of certain network equipment and related assets | 2,256 | 368 | 2,624 | |||||||||
Accrued operating expenses | 9,184 | 1,457 | 10,641 | |||||||||
Deferred revenue from Reward Program | 4,500 | 1,121 | 5,621 | |||||||||
Impairment loss for doubtful accounts | 1,450 | 130 | 1,580 | |||||||||
|
|
|
|
|
| |||||||
17,522 | 3,132 | 20,654 | ||||||||||
Deferred tax liabilities arising from: | ||||||||||||
Depreciation allowance in excess of related depreciation | (104 | ) | 6 | (98 | ) | |||||||
|
|
|
|
|
| |||||||
Total | 17,418 | 3,138 | 20,556 | |||||||||
|
|
|
|
|
|
21 | RESTRICTED BANK DEPOSITS |
As of December 31, 2015 | As of December 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||
As at December 31, 2012 | As at December 31, 2011 | Non-current assets | Current assets | Total | Non-current assets | Current assets | Total | |||||||||||||||||||||||||||||||||||||||||||||
Note | Current assets | Non-current assets | Total | Current assets | Non-current assets | Total | Note | As restated | As restated | As restated | ||||||||||||||||||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | Million | Million | Million | Million | Million | Million | |||||||||||||||||||||||||||||||||||||||||
Restricted bank deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||
- Statutory deposit reserves | (i) | — | 5,296 | 5,296 | — | — | — | (i) | 4,526 | — | 4,526 | 8,666 | — | 8,666 | ||||||||||||||||||||||||||||||||||||||
- Pledged bank deposits | (ii) | — | 122 | 122 | 32 | 122 | 154 | (ii) | 49 | 15 | 64 | 65 | 736 | 801 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
— | 5,418 | 5,418 | 32 | 122 | 154 | 4,575 | 15 | 4,590 | 8,731 | 736 | 9,467 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note:
(i) | The statutory deposit reserves are deposited by China Mobile Finance with |
(ii) |
As of December 31, 2014, current pledged bank deposits primarily represent standby letters of credit in favor of the Office of the Communications Authority of Hong Kong for CMHK fulfilling the deposit requirement for the public auction of spectrum with original maturity within one year.
22 | OTHER FINANCIAL ASSETS |
As at December 31, 2012 | As at December 31, 2011 | |||||||
RMB million | RMB million | |||||||
Investment in unlisted equity securities in the PRC, at cost | 127 | 127 | ||||||
|
|
|
|
As of December 31, | As of December 31, | |||||||
As restated | ||||||||
Million | Million | |||||||
Investment in unlisted equity securities in the PRC | 3 | 128 | ||||||
|
|
|
|
23 | INVENTORIES |
As at December 31, 2012 | As at December 31, 2011 | As of December 31, | As of December 31, | |||||||||||||
RMB million | RMB million | As restated | ||||||||||||||
Million | Million | |||||||||||||||
SIM cards and terminals | 5,000 | 5,445 | ||||||||||||||
SIM cards and handsets | 8,604 | 8,194 | ||||||||||||||
Other consumables | 2,195 | 2,499 | 1,390 | 1,098 | ||||||||||||
|
|
|
| |||||||||||||
7,195 | 7,944 | 9,994 | 9,292 | |||||||||||||
|
|
|
|
24 | ACCOUNTS RECEIVABLE |
(a) | Aging analysis |
Aging analysis of accounts receivable, net of allowance for impairment loss forof doubtful accounts is as follows:
As of December 31, | As of December 31, | |||||||||||||||
As at December 31, 2012 | As at December 31, 2011 | As restated | ||||||||||||||
RMB million | RMB million | Million | Million | |||||||||||||
Within 30 days | 7,696 | 5,979 | 10,343 | 10,007 | ||||||||||||
31 - 60 days | 1,606 | 1,447 | 2,082 | 2,247 | ||||||||||||
61 - 90 days | 882 | 732 | 1,457 | 1,244 | ||||||||||||
Over 90 days | 1,538 | 1,007 | 3,861 | 3,217 | ||||||||||||
|
|
|
| |||||||||||||
11,722 | 9,165 | 17,743 | 16,715 | |||||||||||||
|
|
|
|
Accounts receivable primarily comprise receivables from customers and telecommunications operators. Accounts receivable from the provision of telecommunications services to customers are mainly due for payment within one month from date of billing. Customers with balances that are overdue or exceed credit limits are required to settle all outstanding balances before any further telecommunications services can be provided. The increase of accounts receivable over 90 days is mainly due to receivables arising from other telecommunications operators and certain corporate customers that are within credit term.
Accounts receivable are expected to be recovered within one year.
24 | ACCOUNTS RECEIVABLE (CONTINUED) |
(b) | Impairment of accounts receivable |
Impairment loss in respect of accounts receivable areis recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against accounts receivable directly.
The following table summarizes the changes in impairment loss of doubtful accounts:
2012 | 2011 | 2010 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Balance as at January 1 | 4,400 | 4,851 | 6,095 | |||||||||
Impairment loss recognized | 4,576 | 3,683 | 4,005 | |||||||||
Accounts receivable written off | (3,702 | ) | (4,133 | ) | (5,248 | ) | ||||||
Exchange differences | — | (1 | ) | (1 | ) | |||||||
|
|
|
|
|
| |||||||
Balance as at December 31 | 5,274 | 4,400 | 4,851 | |||||||||
|
|
|
|
|
|
2015 | 2014 | |||||||
As restated | ||||||||
Million | Million | |||||||
As of January 1 | 6,575 | 6,081 | ||||||
Impairment loss recognized | 4,921 | 5,674 | ||||||
Accounts receivable written off | (4,947 | ) | (5,180 | ) | ||||
|
|
|
| |||||
As of December 31 | 6,549 | 6,575 | ||||||
|
|
|
|
(c) | Accounts receivable that are not impaired |
Accounts receivable that are neither individually nor collectively considered to be impaired are as follows:
As of December 31, | As of December 31, | |||||||||||||||
As at December 31, 2012 | As at December 31, 2011 | As restated | ||||||||||||||
RMB million | RMB million | Million | Million | |||||||||||||
Neither past due nor impaired | 11,100 | 8,672 | 17,240 | 16,034 | ||||||||||||
Less than 1 month past due | 622 | 493 | 503 | 681 | ||||||||||||
|
|
|
| |||||||||||||
11,722 | 9,165 | 17,743 | 16,715 | |||||||||||||
|
|
|
|
Receivables that were neither past due nor impaired relate to a wide range of customers for which there was no recent history of default.
Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral over these balances.
25 | OTHER RECEIVABLES, PREPAYMENTS AND OTHER CURRENT ASSETS |
Other receivables comprise certain items which are expected to be recovered within one year, primarily compriseincluding interest receivable from banks, utilities deposits and rental deposits, which are expectedand short-term loans of RMB5,000,000,000 granted to be recovered within one year except for utilities deposits and rental deposits.other companies through China Mobile Finance at the interest rate agreed by each party with reference to the market interest rate.
Prepayments and other current assets primarily consist of rental prepayment.prepayments.
As of December 31, 2014 and 2015, there were no significant overdue amounts for other receivables.
26 | AMOUNTS DUE FROM/TO ULTIMATE HOLDING COMPANY |
AmountsAmount due from/tofrom ultimate holding company areis unsecured, interest free, repayable on demand and arosearising in the ordinary course of business.
AmountAs of December 31, 2015, amount due to immediateultimate holding company representedcomprises the short-term deposits of CMCC in China Mobile Finance amounting to RMB7,274,000,000 (2014: RMB4,181,000,000) and the corresponding interest payable onarising from the deferred consideration payable (see note 30(b)), which is expecteddeposits. The deposits are unsecured and carry interest at prevailing market rate.
As of December 31, 2014, amount due to be settled within one year.ultimate holding company also comprised entrusted loans of RMB10,242,000,000 provided by CMCC to TieTong. The entrusted loans carried interest rate at 2% per annum and have been fully repaid by TieTong during 2015.
27 | AVAILABLE-FOR-SALE FINANCIAL ASSETS |
As of December 31, | As of December 31, | |||||
Million | Million | |||||
Wealth management products issued by banks | 19,167 | 2,000 | ||||
|
|
|
The available-for-sale financial assets represent wealth management products issued by banks. These wealth management products will mature within one year with variable return rates indexed to the performance of underlying assets. As of December 31, 2015, the carrying amount approximated the fair value (level 3: inputs for the assets or liability that are not based on observable market data (that is, unobservable inputs)). The fair values are based on cash flow discounted using the judgement that expected return will be obtained upon maturity.
28 | BANK DEPOSITS |
Bank deposits represent term deposits with banks with original maturity exceeding three months. The applicable interest rate is determined in accordance with the benchmark interest rate published by PBOC.
29 | CASH AND CASH EQUIVALENTS |
As of December 31, | As of December 31, | |||||||||||||||
As at December 31, 2012 | As at December 31, 2011 | As restated | ||||||||||||||
RMB million | RMB million | Million | Million | |||||||||||||
Bank deposits with original maturity within three months | 14,457 | 23,618 | 7,312 | 30,095 | ||||||||||||
Cash at banks and in hand | 56,449 | 62,641 | 72,530 | 43,717 | ||||||||||||
|
|
|
| |||||||||||||
70,906 | 86,259 | 79,842 | 73,812 | |||||||||||||
|
|
|
|
ACCOUNTS PAYABLE |
Accounts payable primarily include payables for network expansion projects expenditure, maintenance and interconnection expenses.
The aging analysis of accounts payable is as follows:
As of December 31, | As of December 31, | |||||||||||||||
As at December 31, 2012 | As at December 31, 2011 | As restated | ||||||||||||||
RMB million | RMB million | Million | Million | |||||||||||||
Due within 1 month or on demand | 102,676 | 95,744 | 205,724 | 194,006 | ||||||||||||
Due after 1 month but within 3 months | 6,847 | 6,984 | 17,002 | 14,071 | ||||||||||||
Due after 3 months but within 6 months | 5,554 | 5,237 | 8,980 | 6,897 | ||||||||||||
Due after 6 months but within 9 months | 4,176 | 3,736 | 3,488 | 3,808 | ||||||||||||
Due after 9 months but within 12 months | 4,643 | 4,565 | 8,385 | 8,795 | ||||||||||||
|
|
|
| |||||||||||||
123,896 | 116,266 | 243,579 | 227,577 | |||||||||||||
|
|
|
|
All of the accounts payable are expected to be settled within one year or are repayable on demand.
DEFERRED REVENUE |
Deferred revenue primarily includes prepaid service fees received from customers and unredeemed point rewards, and deferred tax credit on purchase of domestic telecommunications equipment.rewards.
2012 | 2011 | 2015 | 2014 | |||||||||||||||
RMB million | RMB million | As restated | ||||||||||||||||
Million | Million | |||||||||||||||||
Balance as at January 1 | 52,014 | 43,737 | ||||||||||||||||
As of January 1 | 65,386 | 64,342 | ||||||||||||||||
- Current portion | 51,753 | 43,489 | 63,916 | 63,155 | ||||||||||||||
- Non-current portion | 261 | 248 | 1,470 | 1,187 | ||||||||||||||
Additions during the year | 255,746 | 240,342 | 321,417 | 236,910 | ||||||||||||||
Recognized in the statements of comprehensive income | (249,438 | ) | (232,060 | ) | ||||||||||||||
Exchange differences | — | (5 | ) | |||||||||||||||
Recognized in the consolidated statements of comprehensive income | (307,412 | ) | (235,866 | ) | ||||||||||||||
|
|
|
| |||||||||||||||
Balance as at December 31 | 58,322 | 52,014 | ||||||||||||||||
As of December 31 | 79,391 | 65,386 | ||||||||||||||||
Less: Current portion | (57,988 | ) | (51,753 | ) | (78,100 | ) | (63,916 | ) | ||||||||||
|
|
|
| |||||||||||||||
Non-current portion | 334 | 261 | 1,291 | 1,470 | ||||||||||||||
|
|
|
|
32 | ACCRUED EXPENSES AND OTHER PAYABLES |
As of December 31, 2015 | As of December 31, 2014 | |||||||
As restated | ||||||||
Million | Million | |||||||
Receipts-in-advance | 74,040 | 66,774 | ||||||
Other payables | 21,789 | 17,794 | ||||||
Accrued salaries, wages, labor service expenses and other benefits | 5,776 | 5,667 | ||||||
Accrued expenses | 61,799 | 48,471 | ||||||
|
|
|
| |||||
163,404 | 138,706 | |||||||
|
|
|
|
INTEREST-BEARING BORROWINGS |
Note | As at December 31, 2012 | As at December 31, 2011 | ||||||||||
RMB million | RMB million | |||||||||||
Bonds | (a) | 4,986 | 4,984 | |||||||||
Deferred consideration payable | (b) | 23,633 | 23,633 | |||||||||
|
|
|
| |||||||||
28,619 | 28,617 | |||||||||||
|
|
|
|
As of December 31, | As of December 31, | |||||||||
Note | As restated | |||||||||
Million | Million | |||||||||
Bonds issued by Guangdong Mobile | (i) | 4,995 | 4,992 | |||||||
Bonds issued by TieTong | (ii) | — | 1,000 | |||||||
|
|
|
| |||||||
4,995 | 5,992 | |||||||||
Less: current portion | — | 1,000 | ||||||||
|
|
|
| |||||||
Non-current portion | 4,995 | 4,992 | ||||||||
|
|
|
|
All of the above interest-bearing borrowings are unsecured, and are not expected to be settled within one year.Note:
As at December 31, 2012, the bonds represent the balance of fifteen-year guaranteed bonds (“Fifteen-year Bonds”) issued by Guangdong Mobile, with a principal amount of RMB5,000,000,000, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 4.5% per annum and payable annually. The bonds, redeemable at 100% of the principal amount, will mature on October 28, 2017.
The Company has issued a joint and irrevocable guarantee (the “Guarantee”) for the performance of the bonds. CMCC, the ultimate holding company, has also issued a further guarantee in relation to the performance by the Company of its obligations under the Guarantee.
As at December 31, 2012, the deferred consideration payable represents the balance of the deferred consideration of RMB9,976,000,000 and RMB13,657,000,000 payable to immediate holding company in respect of the acquisitions of subsidiaries in 2002 and 2004 respectively. The balances are due on July 1, 2017 and July 1, 2019, respectively.
The deferred consideration payable is unsecured and bears interest at the rate of two-year US dollar LIBOR swap rate per annum (for the year ended December 31, 2012: 0.560% to 0.644% per annum; for the year ended December 31, 2011: 1.123% to 1.238% per annum). The balances are subordinated to other senior debts owed by the Company from time to time. The Company may make early payment of all or part of the balances at any time before the maturity date without penalty.
As at December 31, 2012 | As at December 31, 2011 | |||||||
RMB million | RMB million | |||||||
Receipts-in-advance | 60,543 | 56,015 | ||||||
Other payables | 12,232 | 12,125 | ||||||
Accrued salaries, wages and benefits | 5,560 | 5,376 | ||||||
Accrued expense | 25,439 | 18,846 | ||||||
|
|
|
| |||||
103,774 | 92,362 | |||||||
|
|
|
|
The Group’s obligations under finance leases as at December 31 are as follows:
As at December 31, 2012 | As at December 31, 2011 | |||||||||||||||||||||||
Present value of the minimum lease payments | Interest expense relating to future periods | Total minimum lease payments | Present value of the minimum lease payments | Interest expense relating to future periods | Total minimum lease payments | |||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||
Within 1 year | 68 | 3 | 71 | 68 | 3 | 71 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Employees in Mainland China are entitled to retirement benefits equal to a fixed proportion of their salary at their normal retirement age. The Group has no other material obligation for payment of basic retirement benefits beyond the annual contributions, which are calculated at a rate based on the salaries, bonuses and certain allowances of its employees.
Other than the above, certain Company’s subsidiaries also participate in supplementary defined contribution retirement plans managed by independent insurance companies whereby the subsidiaries are required to make contributions to the retirement plans at fixed rates of the employees’ salary costs or in accordance with the terms of the plans.
The |
34 | EQUITY SETTLED SHARE-BASED TRANSACTIONS |
Pursuant to a resolution passed at the Annual General Meeting held on June 24, 2002, the current share option scheme (the “Current Scheme”) was adopted.
Under the Current Scheme, the directors of the Company may, at their discretion, invite employees, including executive directors and non-executive directors of the Company, any of its holding companies and any of their respective subsidiaries and any entity in which the Company or any of its subsidiaries holds an equity interest, to receive options to subscribe for shares of the Company. The consideration payable for the grant of option under the Current Scheme is HK$1.00.
The maximum aggregate number of shares which can be subscribed for pursuant to options that are or may be granted under the above scheme equals to 10% of the total issued share capital of the Company as atof the date of adoption of the Current Scheme. Options lapsed or cancelled in accordance with the terms of the Current Scheme will not be counted for the purpose of calculating this 10% limit.
The Stock Exchange of Hong Kong Limited (the “HKEx”)HKEx requires that the exercise price of options to be at least the higher of the nominal value of a share (no longer existed after March 3, 2014, see note 35(b)), the closing price of the shares on the HKEx on the date on which the option was granted and the average closing price of the shares on the HKEx for the five trading days immediately preceding the date on which the option was granted.
For options granted under the Current Scheme, the exercise price of options shall be determined by the directors of the Company at their discretion provided that such price may not be set below a minimum price which is the highest of:
(i) | the nominal value of a |
(ii) | the closing price of the shares on the HKEx on the date on which the option was granted; and |
(iii) | the average closing price of the shares on the HKEx for the five trading days immediately preceding the date on which the option was granted. |
Under the Current Scheme, the term of the option is determined by the directors at their discretion, provided that all options shall be exercised within 10 years after the date on which the option is granted.
34 | EQUITY SETTLED SHARE-BASED TRANSACTIONS |
(a) | The terms and conditions of the grants that existed |
Number of instruments | Vesting conditions | Contractual life of options | ||||||||||||
2012 | 2011 | |||||||||||||
Options granted to directors | ||||||||||||||
- on July 3, 2002 | — | 7,000 | 50% two years from the date of grant, | 10 years | ||||||||||
50% five years from the date of grant | ||||||||||||||
- on October 28, 2004 | 473,175 | 473,175 | 40% one year from the date of grant, | 10 years | ||||||||||
30% two years from the date of grant, | ||||||||||||||
30% three years from the date of grant | ||||||||||||||
- on November 8, 2005 | 2,881,500 | 2,881,500 | 40% one year from the date of grant, | 10 years | ||||||||||
30% two years from the date of grant, | ||||||||||||||
30% three years from the date of grant | ||||||||||||||
Options granted to other employees* | ||||||||||||||
- on July 3, 2002 | — | 25,361,299 | 50% two years from the date of grant, | 10 years | ||||||||||
50% five years from the date of grant | ||||||||||||||
- on October 28, 2004 | 115,416,275 | 118,013,235 | 40% one year from the date of grant, | 10 years | ||||||||||
30% two years from the date of grant, | ||||||||||||||
30% three years from the date of grant | ||||||||||||||
- on December 21, 2004 | 475,000 | 475,000 | 40% one year from the date of grant, | 10 years | ||||||||||
30% two years from the date of grant, | ||||||||||||||
30% three years from the date of grant | ||||||||||||||
- on November 8, 2005 | 268,565,399 | 269,151,939 | 40% one year from the date of grant, | 10 years | ||||||||||
30% two years from the date of grant, | ||||||||||||||
30% three years from the date of grant | ||||||||||||||
|
|
|
| |||||||||||
Total share options | 387,811,349 | 416,363,148 | ||||||||||||
|
|
|
|
| Contractual life of | |||||||||||||
2015 | 2014 | |||||||||||||
Options granted to directors | ||||||||||||||
- on November 8, 2005 | — | 2,881,500 | 40% one year from the | �� | 10 years | |||||||||
30% two years from the | ||||||||||||||
30% three years from the date of grant | ||||||||||||||
Options granted to other employees | ||||||||||||||
- on November 8, 2005 | — | 43,351,922 | 40% one year | 10 years | ||||||||||
30% two years from the date of grant, | ||||||||||||||
30% three years from the date of grant | ||||||||||||||
Total share options | — | 46,233,422 | ||||||||||||
34 | EQUITY SETTLED SHARE-BASED TRANSACTIONS |
(b) | The number and weighted average exercise prices of share options are as follows: |
2012 | 2011 | |||||||||||||||
Weighted average exercise price | Number of shares involved in the options | Weighted average exercise price | Number of shares involved in the options | |||||||||||||
HK$ | HK$ | |||||||||||||||
As at January 1 | 30.68 | 416,363,148 | 30.59 | 423,005,473 | ||||||||||||
Exercised | 23.09 | (28,275,029 | ) | 24.72 | (6,642,325 | ) | ||||||||||
Expired | 22.85 | (276,770 | ) | — | — | |||||||||||
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As at December 31 | 31.24 | 387,811,349 | 30.68 | 416,363,148 | ||||||||||||
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Option vested as at December 31 | 31.24 | 387,811,349 | 30.68 | 416,363,148 | ||||||||||||
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2015 | 2014 | |||||||||||||||
Weighted average exercise price | Number of shares involved in the options | Weighted average exercise price | Number of shares involved in the options | |||||||||||||
HK$ | HK$ | |||||||||||||||
As of January 1 | 34.87 | 46,233,422 | 31.28 | 385,273,559 | ||||||||||||
Exercised | 34.87 | (37,056,383 | ) | 30.86 | (335,886,849 | ) | ||||||||||
Expired | 34.87 | (9,177,039 | ) | 23.33 | (3,153,288 | ) | ||||||||||
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As of December 31 | — | — | 34.87 | 46,233,422 | ||||||||||||
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Options vested as of December 31 | — | — | 34.87 | 46,233,422 | ||||||||||||
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The weighted average share price at the date of exercise for shares options exercised during the year was HK$83.35 (2011:98.58 (2014: HK$75.45)79.40).
No options were outstanding as of December 31, 2015. The options outstanding as atof December 31, 20122014 had exercise prices ranging fromprice HK$22.75 to HK$34.87 (2011: HK$22.75 to HK$34.87) and a weighted average remaining contractual life of 2.5 years (2011: 3.4 years).0.9 year.
The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the share options granted is measured based on a binomial lattice model. The contractual life of the option is used as an input into this model. Expectations of early exercise are incorporated into the binomial lattice model. No share options were granted during 20112014 and 2012.2015.
35 | CAPITAL, RESERVES AND DIVIDENDS |
(a) | Dividends |
(i) | Dividends attributable to the year: |
2012 | 2011 | 2010 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Ordinary interim dividend declared and paid of HK$1.633 (equivalent to approximately RMB1.331) (2011: HK$1.580 (equivalent to approximately RMB1.314); 2010: HK$1.417 (equivalent to approximately RMB1.236)) per share | 26,842 | 25,857 | 24,550 | |||||||||
Ordinary final dividend proposed after the balance sheet date of HK$1.778 (equivalent to approximately RMB1.442) (2011: HK$1.747 (equivalent to approximately RMB1.416); 2010: HK$1.597 (equivalent to approximately RMB1.359)) per share | 28,979 | 28,441 | 27,268 | |||||||||
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55,821 | 54,298 | 51,818 | ||||||||||
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2015 | 2014 | 2013 | ||||||||||
Million | Million | Million | ||||||||||
Ordinary interim dividend declared and paid of HK$1.525 (equivalent to approximately RMB1.203) (2014: HK$1.540 (equivalent to approximately RMB1.222); 2013: HK$1.696 (equivalent to approximately RMB1.351)) per share | 25,629 | 24,880 | 27,031 | |||||||||
Ordinary final dividend proposed after the balance sheet date of HK$1.196 (equivalent to approximately RMB1.002) (2014: HK$1.380 (equivalent to approximately RMB1.089); 2013: HK$1.615 (equivalent to approximately RMB1.270)) per share | 20,516 | 22,290 | 25,644 | |||||||||
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46,145 | 47,170 | 52,675 | ||||||||||
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The proposed ordinary final dividend which is declared in Hong Kong dollar is translated into RMB at the rate HK$1 = RMB0.81085,RMB0.83778, being the rate announced by the State Administration of Foreign Exchange in the PRC on December 31, 2012.2015 (2014: HK$1 = RMB0.78887; 2013: HK$1 = RMB0.78623). As the ordinary final dividend is declared after the balance sheet date, such dividend is not recognized as liability as atof December 31, 2012.2015.
In accordance with the 2009 Notice and the PRC enterprise income tax law, the Company is required to withhold enterprise income tax equal to 10% of any dividend when it is distributed to non-resident enterprise shareholders whose names appeared on the Company’s register of members, as of the record date for such dividend, and who were not individuals.
(ii) | Dividends attributable to the previous financial year, approved and paid during the year: |
2012 | 2011 | 2010 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Ordinary final dividend in respect of the previous financial year, approved and paid during the year, of HK$1.747 (equivalent to approximately RMB1.416) (2011: HK$1.597 (equivalent to approximately RMB1.359); 2010: HK$1.458 (equivalent to approximately RMB1.284)) per share | 28,583 | 26,718 | 25,651 | |||||||||
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2015 | 2014 | 2013 | ||||||||||
Million | Million | Million | ||||||||||
Ordinary final dividend in respect of the previous financial year, approved and paid during the year, of HK$1.380 (equivalent to approximately RMB1.089) (2014: HK$1.615(equivalent to approximately RMB1.270); 2013: HK$1.778 (equivalent to approximately RMB1.442)) per share | 22,283 | 26,044 | 28,460 | |||||||||
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35 | CAPITAL, RESERVES AND DIVIDENDS (CONTINUED) |
(b) | Share capital |
2012 | 2011 | |||||||
HK$ million | HK$ million | |||||||
Authorized: | ||||||||
30,000,000,000 ordinary shares of HK$0.10 each | 3,000 | 3,000 | ||||||
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2012 | 2011 | |||||||||||||||||||||||
Number of shares | Equivalent | Number of shares | Equivalent | |||||||||||||||||||||
HK$ million | RMB million | HK$ million | RMB million | |||||||||||||||||||||
Issued and fully paid: | ||||||||||||||||||||||||
As at January 1 | 20,072,065,571 | 2,007 | 2,140 | 20,065,423,246 | 2,006 | 2,139 | ||||||||||||||||||
Shares issued under share option scheme (note 35(b)(ii)) | 28,275,029 | 3 | 2 | 6,642,325 | 1 | 1 | ||||||||||||||||||
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As at December 31 | 20,100,340,600 | 2,010 | 2,142 | 20,072,065,571 | 2,007 | 2,140 | ||||||||||||||||||
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2015 | 2014 | |||||||||||||||||||||||
Number of shares | Equivalent | Number of shares | Equivalent | |||||||||||||||||||||
HK$ Million | RMB Million | HK$ Million | RMB Million | |||||||||||||||||||||
As of January 1 | 20,438,426,514 | 380,590 | 400,737 | 20,102,539,665 | 2,010 | 2,142 | ||||||||||||||||||
Shares issued under share option scheme | 37,056,383 | 1,673 | 1,393 | 335,886,849 | 11,004 | 9,279 | ||||||||||||||||||
Transition to no-par value regime | — | — | — | — | 367,576 | 389,316 | ||||||||||||||||||
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As of December 31 | 20,475,482,897 | 382,263 | 402,130 | 20,438,426,514 | 380,590 | 400,737 | ||||||||||||||||||
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The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.
During 2012,2015, options were exercised to subscribe for 28,275,02937,056,383 ordinary shares in the Company at a consideration of HK$652,875,0001,292,000,000 (equivalent to RMB531,193,000) ofRMB1,024,000,000) which HK$2,828,000 (equivalent to RMB2,301,000) was credited to share capital and the balance of HK$650,047,000 (equivalent to RMB528,892,000) was credited to the share premium account. RMB25,000,000capital. RMB369,000,000 has been transferred from the capital reserve to the share premiumcapital account in accordance with policy set out in note 1(u)2(w)(ii).
In accordance with the transitional provisions set out in section 37 of Schedule 11 to the new Hong Kong Companies Ordinance (Cap. 622), on March 3, 2014, any amount standing to the credit of the share premium account has become part of the Company’s share capital.
35 | CAPITAL, RESERVES AND DIVIDENDS (CONTINUED) |
(c) | Nature and purpose of reserves |
(i) | Capital reserve |
The capital reserve mainly comprises the following:
– | The fair value of unexercised share options granted to employees of the Group recognized in accordance with the accounting policy adopted for share-based payments in note |
– | RMB295,665,000,000 debit balance brought forward as a result of the elimination of goodwill arising on the acquisition of subsidiaries before January 1, 2001 against the capital reserve in previous years. |
– | The capital injection from ultimate holding company to Target Assets and Businesses in 2013 amounted to RMB33,788,000,000. |
(ii) | PRC statutory reserves |
PRC statutory reserves mainly include statutory surplus reserve and discretionary surplus reserve.
In accordance with the Company Law of the PRC, domestic enterprises in Mainland China are required to transfer 10% of their profit after taxation, as determined under accounting principles generally accepted in the PRC (“PRC GAAP”), to the statutory surplus reserve until such reserve balance reaches 50% of the registered capital.capital of relevant subsidiaries. Moreover, upon a resolution made by the shareholders, a certain percentage of domestic enterprises’ profit after taxation, as determined under PRC GAAP, is transferred to the discretionary surplus reserve. During the year, appropriations were made by each of the abovesuch subsidiaries to the statutory surplus reservereserves and discretionary surplus reserve each at 10% of their profit after taxation determined under PRC GAAP.reserves accordingly.
The statutory and discretionary surplus reservereserves can be used to reduce previous years’ losses, if any, and may be converted into paid-up capital, provided that the balancestatutory reserve after such conversion is not less than 25% of the registered capital of therelevant subsidiaries.
In accordance with relevant regulations issued by the Ministry of Finance of the PRC, a wholly owned subsidiary of the Company, China Mobile Finance, is required to set aside a reserve through appropriations of profit after tax according to a certain ratio of the ending balance of its gross risk-bearing assets to cover potential losses against such assets.
(iii) | Exchange reserve |
The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of overseas entities. The reserve is dealt with in accordance with the accounting policies set out in note 1(w)2(y).
35 | CAPITAL, RESERVES AND DIVIDENDS (CONTINUED) |
(d) | Capital management |
The Group’s primary objectives when managingof capital management are to maintain a reasonable capital structure and to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders. The Group actively and regularly reviews and manages its capital structure to maintain a balance betweenstabilize the higher shareholder returns that might be possible with higher levelscapital position and prevent operation risk. Meanwhile, the Group will maximize the shareholders’ return when having high level of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments towill make adjustment on the capital structure in light ofaccordance with the changes in economic conditions.
The Group monitors capital on the basis of total debt-to-book capitalization ratio. This ratio is calculated as total debts (including bills payable, obligations under finance leases, current and non-current interest-bearing borrowings as shown in the consolidated balance sheets) divided by book capitalization (refer(equal to the total equity attributable to equity shareholders of the Company as shown in the consolidated balance sheets and total debts)borrowings).
As atof December 31, 2012,2015, the Group’s total debt-to-book capitalization ratio was 4.0% (2011: 4.5%0.5% (2014: 1.8%).
NeitherExcept China Mobile Finance, the Company nor any ofand its subsidiaries are not subject to externally imposed capital requirements.
36 | RELATED PARTY TRANSACTIONS |
(a) | Transactions with CMCC Group |
The following is a summary of principal related party transactions entered into by the Group with CMCC and its subsidiaries (“CMCC Group”), for the yearyears ended December 31, 2010, 20112013, 2014 and 2012.2015.
Please refer to note 2(b) for the acquisition of Targets Assets and Businesses, which constitutes a related party transaction with CMCC Group. Since the acquisition of Target Assets and Businesses from TieTong has been accounted for using merger accounting in accordance with AG 5, the transactions between the Group and TieTong for the years ended December 31, 2013, 2014 and 2015 were eliminated and not disclosed as related party transactions in the consolidated financial statements.
Note | 2012 | 2011 | 2010 | |||||||||||
RMB million | RMB million | RMB million | ||||||||||||
Telecommunications services revenue | (i) | 2,113 | 1,709 | 859 | ||||||||||
Telecommunications services charges | (i) | 1,580 | 1,138 | 2,037 | ||||||||||
Property leasing and management services charges | (ii) | 785 | 776 | 951 | ||||||||||
Interest paid/payable | (iii) | 161 | 219 | 431 | ||||||||||
Interconnection revenue | (iv) | 253 | 279 | 319 | ||||||||||
Interconnection charges | (iv) | 472 | 446 | 431 | ||||||||||
Network assets leasing revenue | (iv) | 109 | 47 | 18 | ||||||||||
Network assets leasing charges | (iv) | 2,950 | 328 | 94 | ||||||||||
Network capacity leasing charges | (v) | 2,477 | 1,092 | 578 | ||||||||||
Revenue derived from cooperation of telecommunications services | (vi) | 341 | 177 | 37 | ||||||||||
Charges for cooperation of telecommunications services | (vi) | 1,936 | 1,154 | 536 |
2015 | 2014 | 2013 | ||||||||||||
Note | As restated | As restated | ||||||||||||
Million | Million | Million | ||||||||||||
Telecommunications services revenue | (i) | 474 | 869 | 1,223 | ||||||||||
Telecommunications services charges | (i) | — | 66 | 11 | ||||||||||
Property leasing and management services revenue | (ii) | 191 | 181 | 213 | ||||||||||
Property leasing and management services charges | (ii) | 956 | 923 | 870 | ||||||||||
Network assets leasing charges | (iii) | 4,376 | 4,617 | 4,374 | ||||||||||
Network capacity leasing charges | (iii) | 4,757 | 5,012 | 3,876 | ||||||||||
Entrusted loans received | (iv) | 8,592 | 10,242 | 43,661 | ||||||||||
Entrusted loans repaid | (iv) | 18,834 | 9,573 | 67,875 | ||||||||||
Short-term bank deposits received | (iv) | 7,274 | 4,181 | — | ||||||||||
Short-term bank deposits repaid | (iv) | 4,181 | — | — | ||||||||||
Interest expenses | (iv) | 194 | 211 | 965 | ||||||||||
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Notes:Note:
(i) | The amounts represent telecommunications services settlement received/receivable from or paid/payable to CMCC Group for the telecommunications project planning, design and construction services, telecommunications line and pipeline construction services, telecommunications line maintenance services, and installation and maintenance services in respect of transmission towers. |
(ii) | The amount represents the rental and property management fees received/receivable from or paid/payable to CMCC Group in respect of business premises and offices, retail outlets and warehouses. |
36 | RELATED PARTY TRANSACTIONS |
(a) | Transactions with CMCC Group |
The |
The amounts represent the |
36 | RELATED PARTY TRANSACTIONS (CONTINUED) |
(b) | Amounts due from/to CMCC Group |
Amounts due from/to CMCC Group, other than amount due from/to ultimate holding company, and amount due to immediate holding company, are included in the following accounts captions summarized as follows:
As of December 31, | As of December 31, | |||||||||||||||
As at December 31, 2012 | As at December 31, 2011 | As restated | ||||||||||||||
RMB million | RMB million | Million | Million | |||||||||||||
Accounts receivable | 921 | 654 | 558 | 790 | ||||||||||||
Other receivables | 2 | 7 | 519 | 3 | ||||||||||||
Prepayments and other current assets | 46 | 5 | ||||||||||||||
Accounts payable | 2,276 | 1,745 | 4,564 | 2,705 | ||||||||||||
Accrued expenses and other payables | 157 | 258 | 181 | 272 | ||||||||||||
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(c) |
The Group has entered into transactions with its associates over which the Group or CMCC Group can exercise significant influence. The major transactions entered into by the Group and the associates includeand amount due from/to the bank deposits placed at SPD Bank, the interest income received/receivable from SPD Bank, the mobile telecommunications services provided to SPD Bank, which were carried out in the ordinary course of business and dividend received/receivable from SPD Bank.associates are follows:
Note | 2012 | 2011 | ||||||||
RMB million | RMB million | |||||||||
Bank deposits (as at December 31) | 29,089 | 17,320 | ||||||||
Interest income | (i) | 797 | 237 | |||||||
Mobile telecommunications services fees | (ii) | 61 | 44 | |||||||
Dividend income | 1,120 | 458 |
As of December 31, 2015 | As of December 31, 2014 | |||||||||
Note | As restated | |||||||||
Million | Million | |||||||||
Bank deposits | 33,888 | 43,265 | ||||||||
Available-for-sale financial assets | 9,300 | 1,000 | ||||||||
Interest receivable | 1,187 | 934 | ||||||||
Accounts payable | 358 | 513 | ||||||||
Accrued expenses | (i) | 5,563 | — | |||||||
Other payable | 128 | — | ||||||||
Proceeds receivable for the transfer of Tower Assets (note 7) | 56,737 | — | ||||||||
Other receivables | (ii) | 8,907 | — | |||||||
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Notes:36 RELATED PARTY TRANSACTIONS (CONTINUED)
Significant transactions with associates of the Group and of CMCC Group (Continued) |
2015 | 2014 | 2013 | ||||||||||||
Note | As restated | As restated | ||||||||||||
Million | Million | Million | ||||||||||||
Interest income | (iii) | 1,699 | 1,659 | 1,358 | ||||||||||
Mobile telecommunications services revenue | (iv) | 767 | 127 | 84 | ||||||||||
Mobile telecommunications services charges | (v) | 774 | 1,839 | 2,261 | ||||||||||
Gain on the transfer of Tower Assets | (i) | 15,525 | — | — | ||||||||||
Charges for use of tower assets | (i) | 5,563 | — | — | ||||||||||
Dividend income | 2,842 | 2,476 | 2,062 | |||||||||||
Property leasing and management services revenue | (vi) | 6 | 6 | 6 | ||||||||||
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Note:
(i) | The amounts represent the gain arising from the transfer of Tower Assets on October 31, 2015 and the charges payable to China Tower for the use of relevant tower assets (note 7). |
(ii) | Other receivables represent the short-team loans granted by China Mobile Finance to China Tower and amounts due from China Tower. The loans will mature by December 2016. |
(iii) | Interest income primarily represents interest earned from deposits placed with SPD |
The amount represents the mobile telecommunications services |
(v) | The amount represents the mobile telecommunications services charges paid/payable to Union Mobile Pay Co., Ltd., an associate of CMCC Group. |
(vi) | The amount represents the property leasing services revenue received/receivable from SPD Bank. |
36 | RELATED PARTY TRANSACTIONS (CONTINUED) |
(d) | Transactions with other government-related entities in the PRC |
The Group is a government-related enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the PRC government through government authorities, agencies, affiliations and other organisationorganization (collectively referred to as “government-related entities”).
Apart from transactions with CMCC Group (note(notes 26 and 36(a)) and associates (note 36(c)) and the transaction to establish the Fund (note 19), the Group has collectively, but not individually, significant transactions with other government-related entities which include but not limited to the following:
– | rendering and receiving telecommunications services, including interconnection revenue/charges |
– | purchasing of goods, |
– | placing of bank deposits |
These transactions are conducted in the ordinary course of the Group’s business on terms comparable to the terms of transactions with other entities that are not government-related. The Group prices its telecommunications services and products in accordance with rules and regulations stipulated by related authorities of the PRC Government, where applicable, or based on commercial negotiations. The Group has also established its procurement policies and approval processes for purchases of products and services, which do not depend on whether the counterparties are government-related entities or not.
(e) | For key management personnel remuneration, please refer to note 10. |
37 | FINANCIAL RISK MANAGEMENT AND FAIR VALUES |
Exposure to credit, liquidity, interest rate and foreign currency risks arises in the normal course of the Group’s business. The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below:
(a) | Credit risk and concentration risk |
The Group’s credit risk is primarily attributable to the financial assets in the consolidated balance sheets, which mainly include deposits with banks, wealth management products issued by banks, accounts receivable, other receivables and other receivables.deferred consideration for the transfer of Tower Assets. The maximum exposure to credit risk is represented by the carrying amount of the financial assets.
Substantially all the Group’s cash at banks and cash equivalentsbank deposits are deposited in financial institutions in Mainland China and Hong Kong and Mainland China.Kong. The credit risk on liquid funds is limited as the majority of counterparties are financial institutions with high credit ratings assigned by international credit-rating agencies and large state-controlled financial institutions. Wealth management products are issued by major domestic banks investing in low risk underlying assets, which mainly consist of bank deposits, treasury bond, central bank bill, local government debt, corporate bond or debt with high credit ratings and low credit risks.
The accounts receivable of the Group areis primarily comprised of receivables due from customers and telecommunications operators. Accounts receivable from customers are spread among an extensive number of customers and the majority of the receivables from customers are due for payment within one month from the date of billing. Other receivables primarily comprise interest receivable from banks, utilities deposits and rental deposits. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis, taking into account the counter parties’ financial position, the Group’s past experience and other factors. As such, management considers the aggregate risks arising from the possibility of credit losses is limited and to be acceptable.
ConcentrationsExcept for the deferred consideration for the transfer of Tower Assets, concentrations of credit risk with respect to accounts receivable are limited due to the Group’s customer base being large and unrelated. As such, management does not expect any significant losses of accounts receivable that have not been provided for by way of allowances as shown in note 24(c).
The deferred consideration for the transfer of Tower Assets are due from China Tower, which is the Company’s associate. China Tower is expected to generate stable cash flows from its principal business of leasing tower related assets. Therefore, management considers the risk that the deferred consideration for the transfer of Tower Assets are uncollectible is low.
37 | FINANCIAL RISK MANAGEMENT AND FAIR VALUES (CONTINUED) |
(b) | Liquidity risk |
Liquidity risk refers to the risk that funds will not be available to meet liabilities as they fall due, and results from timing and amount mismatches of cash inflow and outflow. The Group manages liquidity risk by maintaining sufficient cash balances and bank deposits (which are readily convertible to known amounts of cash) to meet its funding needs, including working capital, principal and interest payments on debts, dividend payments and capital expenditures.
The following table sets out the remaining contractual maturities at the balance sheet date of the Group’s financial liabilities, which are based on the undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates at the balance sheetssheet date) and the earliest date the Group would be required to repay:
As at December 31, 2012 | As of December 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||
Carrying amount | Total contractual undiscounted cash flow | Within 1 year or on demand | More than 1 year but less than 3 years | More than 3 years but less than 5 years | More than 5 years | Carrying amount | Total contractual undiscounted cash flow | Within 1 year or on demand | More than 1 year but less than 3 years | More than 3 years but less than 5 years | ||||||||||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | Million | Million | Million | Million | Million | ||||||||||||||||||||||||||||||||||
Accounts payable | 123,896 | 123,896 | 123,896 | — | — | — | 243,579 | 243,579 | 243,579 | — | — | |||||||||||||||||||||||||||||||||
Bills payable | 1,159 | 1,159 | 1,159 | — | — | — | 645 | 645 | 645 | — | — | |||||||||||||||||||||||||||||||||
Accrued expenses and other payables | 103,774 | 103,774 | 103,774 | — | — | — | 163,404 | 163,404 | 163,404 | — | — | |||||||||||||||||||||||||||||||||
Amount due to ultimate holding company | 39 | 39 | 39 | — | — | — | 7,276 | 7,339 | 7,339 | — | — | |||||||||||||||||||||||||||||||||
Amount due to immediate holding company | 16 | 16 | 16 | — | — | — | ||||||||||||||||||||||||||||||||||||||
Interest-bearing borrowings | 4,995 | 5,410 | 225 | 5,185 | — | |||||||||||||||||||||||||||||||||||||||
- Deferred consideration payable | 23,633 | 24,263 | 141 | 222 | 10,156 | 13,744 | ||||||||||||||||||||||||||||||||||||||
- Bonds | 4,986 | 6,085 | 225 | 450 | 5,410 | — | ||||||||||||||||||||||||||||||||||||||
Obligations under finance leases | 68 | 71 | 71 | — | — | — | ||||||||||||||||||||||||||||||||||||||
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257,571 | 259,303 | 229,321 | 672 | 15,566 | 13,744 | 419,899 | 420,377 | 415,192 | 5,185 | — | ||||||||||||||||||||||||||||||||||
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As at December 31, 2011 | As of December 31, 2014 (As restated) | |||||||||||||||||||||||||||||||||||||||||||
Carrying amount | Total contractual undiscounted cash flow | Within 1 year or on demand | More than 1 year but less than 3 years | More than 3 years but less than 5 years | More than 5 years | Carrying amount | Total contractual undiscounted cash flow | Within 1 year or on demand | More than 1 year but less than 3 years | More than 3 years but less than 5 years | ||||||||||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | Million | Million | Million | Million | Million | ||||||||||||||||||||||||||||||||||
Accounts payable | 116,266 | 116,266 | 116,266 | — | — | — | 227,577 | 227,577 | 227,577 | — | — | |||||||||||||||||||||||||||||||||
Bills payable | 1,616 | 1,616 | 1,616 | — | — | — | 674 | 674 | 674 | — | — | |||||||||||||||||||||||||||||||||
Accrued expenses and other payables | 92,362 | 92,362 | 92,362 | — | — | — | 138,706 | 138,706 | 138,706 | — | — | |||||||||||||||||||||||||||||||||
Amount due to ultimate holding company | 285 | 285 | 285 | — | — | — | 14,519 | 14,588 | 14,588 | — | — | |||||||||||||||||||||||||||||||||
Amount due to immediate holding company | 33 | 33 | 33 | — | — | — | ||||||||||||||||||||||||||||||||||||||
Interest-bearing borrowings | 5,992 | 6,664 | 1,254 | 5,410 | — | |||||||||||||||||||||||||||||||||||||||
- Deferred consideration payable | 23,633 | 24,563 | 204 | 257 | 257 | 23,845 | ||||||||||||||||||||||||||||||||||||||
- Bonds | 4,984 | 6,310 | 225 | 450 | 450 | 5,185 | ||||||||||||||||||||||||||||||||||||||
Obligations under finance leases | 68 | 71 | 71 | — | — | — | 68 | 71 | 71 | — | — | |||||||||||||||||||||||||||||||||
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239,247 | 241,506 | 211,062 | 707 | 707 | 29,030 | 387,536 | 388,280 | 382,870 | 5,410 | — | ||||||||||||||||||||||||||||||||||
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37 | FINANCIAL RISK MANAGEMENT AND FAIR VALUES |
(c) | Interest rate risk |
The Group hasconsistently monitors the current and potential fluctuation of interest rates to monitor the interest rate risk as certain existingon a reasonable level. As of December 31, 2015, the Group did not have any interest-bearing borrowings are at variable rates, but had RMB5,000,000,000 (2014: RMB5,000,000,000) of bonds and thereforeRMB7,274,000,000 (2014: RMB4,181,000,000) of short-term bank deposits placed by CMCC, both of which were at fixed rate and expose the Group to cash flowfair value interest rate risk. TheseThe Group determines the amount of its fixed rate borrowings mainly include deferred consideration payable fordepending on the acquisition of subsidiaries in 2002 and 2004. The interest rates and terms of repayment of the interest-bearing borrowings of the Group are disclosed in note 30.
The following table sets out the interest rate profile of the Group’s floating interest bearing borrowings at the balance sheet date:
2012 | 2011 | |||||||||||||||
Effective interest rate | RMB million | Effective interest rate | RMB million | |||||||||||||
Deferred consideration for acquisition of subsidiaries in 2002 | 0.88 | % | 9,976 | 1.12 | % | 9,976 | ||||||||||
Deferred consideration for acquisition of subsidiaries in 2004 | 0.90 | % | 13,657 | 1.24 | % | 13,657 |
As at December 31, 2012, if the two-year US dollar LIBOR swap rate interest rate per annum increases/decreases by 100 basis points, the effective interest rate for deferred consideration payable would increase/decrease by 100 basis points, and the profit for the year and total equity of the Group would decrease/increase by RMB236,000,000 (2011: RMB236,000,000).
The sensitivity analysis above indicates the instantaneous change in the Group’s profit after tax (and retained profits) and other components of consolidated equity that would arise assuming that the change in interest rates had occurred at the balance sheet date and had been applied to those financial instruments held by the Group which expose the Group toprevailing market condition. Management does not expect fair value interest rate risk atto be high as the balance sheet date. The assumption of increase or decrease of interest rate of the two-year US dollar LIBOR swap rate represents management’s estimation of a reasonably possible change in interest rates over the period until the next interest rate re-pricing date.involved will not be significant.
As atof December 31, 2012,2015, total cash and bank balances of the Group amounted to RMB408,321,000,000 (2011: RMB333,100,000,000).RMB407,762,000,000 (2014: RMB436,786,000,000), and interest-bearing receivables amounted to RMB63,085,000,000 (2014: nil), which mainly included undiscounted deferred consideration of RMB57,585,000,000 in connection with the transfer of Tower Assets and short-term loans of RMB5,000,000,000 provided to other companies. The interest income for 20122015 was RMB12,313,000,000 (2011: RMB7,866,000,000)RMB15,852,000,000 (2014: RMB16,270,000,000; 2013: RMB15,368,000,000) and the average interest rate was 3.32% (2011: 2.51%3.75% (2014: 3.74%; 2013: 3.63%). Assuming the total cash and bank balances and interest-bearing receivables are stable in the coming year and interest rate increases/decreases by 100 basis points, the profit for the year and total equity would approximately increase/decrease by RMB3,077,000,000 (2011: RMB2,508,000,000)RMB3,531,000,000 (2014: RMB3,276,000,000; 2013: RMB3,249,000,000).
On the whole, interest rate risk of the Group is expected to be low due to the high balance of cash and cash equivalent and low level of floating rate debts. The Group consistently monitors the current and potential fluctuation of interest rates to monitor the interest risk on a reasonable level.
During the year, the Group had not entered into any interest rate swap contracts.
(d) | Foreign currency risk |
The Group has foreign currency risk as certain cash and deposits with banks are denominated in foreign currencies, principally US dollars and Hong Kong dollars. As the amount of the Group’s foreign currency cash and deposits with banks represented 0.9 % (2011: 1.2%1.4% (2014: 1.4%) of the total cash and deposits with banks and predominantly all of the business operations of the Group are transacted in RMB, the Group does not expect the appreciation or depreciation of the RMB against foreign currency will materially affect the Group’s financial position and result of operations.
During the year, the Group had not entered into any forward exchange contracts.
37 | FINANCIAL RISK MANAGEMENT AND FAIR VALUES (CONTINUED) |
(e) | Fair values |
All financial instruments are carried at amounts not materially different from their fair values as atof December 31 except as follows:
As at December 31, 2012 | As at December 31, 2011 | |||||||||||||||
Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
Interest in associate | 48,343 | 37,008 | 43,794 | 31,674 | ||||||||||||
Interest-bearing borrowings - bonds | 4,986 | 4,908 | 4,984 | 4,845 |
As of December 31, 2015 | As of December 31, 2014 | |||||||||||||||
Carrying Amount | Fair value | Carrying amount | Fair value | |||||||||||||
Million | Million | Million | Million | |||||||||||||
Interest-bearing borrowings – bonds issued by Guangdong Mobile | 4,995 | 5,150 | 4,992 | 4,951 |
The fair value of investment in associate and bonds is based on quoted market prices (level 1: quoted price (unadjusted) in active markets) at the balance sheet date without any deduction for transaction costs.
38 | COMMITMENTS |
(a) | Capital commitments |
The Group’s capital commitments outstandingexpenditure contracted for as atof December 31 but not provided for in the consolidated financial statements were as follows:
2012 | 2011 | |||||||
RMB million | RMB million | |||||||
Commitments in respect of land and buildings | ||||||||
- authorized and contracted for | 8,043 | 4,772 | ||||||
- authorized but not contracted for | 30,903 | 34,089 | ||||||
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38,946 | 38,861 | |||||||
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Commitments in respect of telecommunications equipment | ||||||||
- authorized and contracted for | 23,150 | 17,754 | ||||||
- authorized but not contracted for | 150,382 | 85,108 | ||||||
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173,532 | 102,862 | |||||||
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Total commitments | ||||||||
- authorized and contracted for | 31,193 | 22,526 | ||||||
- authorized but not contracted for | 181,285 | 119,197 | ||||||
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212,478 | 141,723 | |||||||
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2015 | 2014 | |||||||
As restated | ||||||||
Million | Million | |||||||
Land and buildings | 9,054 | 7,549 | ||||||
Telecommunications equipment | 25,612 | 24,951 | ||||||
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34,666 | 32,500 | |||||||
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38 | COMMITMENTS (CONTINUED) |
(b) | Operating lease commitments |
The total future minimum lease payments under non-cancellable operating leases as atof December 31, are as follows:
Land and buildings | Leased lines | Others | Total | Land and buildings | Leased lines and network assets | Others | Total | |||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | Million | Million | Million | Million | |||||||||||||||||||||||||
As at December 31, 2012 | ||||||||||||||||||||||||||||||||
As of December 31, 2015 | ||||||||||||||||||||||||||||||||
Within one year | 6,836 | 3,758 | 1,032 | 11,626 | 9,785 | 14,776 | 1,197 | 25,758 | ||||||||||||||||||||||||
After one year but within five years | 14,886 | 4,161 | 970 | 20,017 | 19,211 | 6,446 | 1,211 | 26,868 | ||||||||||||||||||||||||
After five years | 4,484 | 1,035 | 70 | 5,589 | 5,375 | 2,666 | 73 | 8,114 | ||||||||||||||||||||||||
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26,206 | 8,954 | 2,072 | 37,232 | 34,371 | 23,888 | 2,481 | 60,740 | |||||||||||||||||||||||||
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As at December 31, 2011 | ||||||||||||||||||||||||||||||||
As of December 31, 2014 (As restated) | ||||||||||||||||||||||||||||||||
Within one year | 6,090 | 1,718 | 838 | 8,646 | 9,801 | 7,351 | 953 | 18,105 | ||||||||||||||||||||||||
After one year but within five years | 12,993 | 2,368 | 560 | 15,921 | 18,975 | 4,020 | 1,046 | 24,041 | ||||||||||||||||||||||||
After five years | 4,050 | 574 | 92 | 4,716 | 5,848 | 991 | 21 | 6,860 | ||||||||||||||||||||||||
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23,133 | 4,660 | 1,490 | 29,283 | 34,624 | 12,362 | 2,020 | 49,006 | |||||||||||||||||||||||||
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The Group leases certain land and buildings, leased lines and network assets, motor vehicles, computer and other office equipment under operating leases. None of the leases include contingent rentals.
39 |
After the balance sheet date, the directorsBoard of Directors proposed an ordinarya final dividend.dividend for the year ended December 31, 2015. Further details are disclosed in note 35(a)(i).
On August 23, 2012, CMC , a wholly-owned subsidiary of the Company, entered into a share subscription agreement (“the Agreement”) with ANHUI USTC IFLYTEK Co., Ltd. (“Anhui USTC”). Pursuant to the Agreement, CMC has conditionally agreed to subscribe for and Anhui USTC has conditionally agreed to issue 70,273,935 ordinary shares at a total consideration and direct costs of RMB1,363,000,000. Upon completion with the terms in the Agreement, the Company will, through CMC, hold 15% equity interests in Anhui USTC. Anhui USTC’s shares are traded in The Shenzhen Stock Exchange, the PRC. The transaction was approved by China Securities Regulatory Commission on February 4, 2013.
40 |
The directors consider the ultimate holding company as at December 31, 2012 to be CMCC, a company incorporated in the PRC.
ACCOUNTING ESTIMATES AND JUDGEMENTS |
Key sources of estimation uncertainty
Notes 15 and 37 containNote 17 contains information about the assumptions and their risk factors relating to goodwill impairment, and financial instruments.note 36 contains information about the judgements on the lease classification of leasing of TD-SCDMA network capacity. Other key sources of estimation uncertainty are as follows:
Impairment loss for doubtful accounts
The Group assesses impairment loss for doubtful accounts based upon evaluation of the recoverability of the accounts receivable and other receivables at each balance sheet date. The estimates are based on the aging of the accounts receivable and other receivables balances and the historical write-off experience, net of recoveries. If the financial conditionconditions of the customers were to deteriorate, additional impairment may be required.
Depreciation
Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives. The Group reviews the estimated useful lives and residual values of the assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives and residual values are determined based on the Group’s historical experience with similar assets and take into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.
ACCOUNTING ESTIMATES AND JUDGEMENTS |
Key sources of estimation uncertainty (continued)
Amortization of other intangible assets
Amortization of other intangible assets is calculated to write off the cost of items of other intangible assets using the straight-line method over their estimated useful lives unless such lives are indefinite. The Group reviews the estimated useful lives of other intangible assets annually in order to determine the amount of amortization expense to be recorded during any reporting period. The useful lives are based on the estimate period over which future economic benefits will be received by the Group and take into account any unexpected adverse changes in circumstances or events. The amortization expense for future periods is adjusted if there are significant changes from previous estimates.
Impairment of property, plant and equipment, inventories, investmentinterest in associates, goodwill and other intangible assets
The Group’s property, plant and equipment comprise a significant portion of the Group’s total assets. Changes in technology or industry conditions may cause the estimated period of use or the value of these assets to change. Property, plant and equipment, inventories, investmentinterest in associates and other intangible assets subject to amortization, are reviewed at least annually to determine whether there is any indication of impairment. The recoverable amount is estimated whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. In addition, for goodwill and other intangible assets havewith indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.
The recoverable amount of an asset is the greater of its net selling pricefair value less costs of disposal and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, which requires significant judgement relating to level of revenue and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximationestimation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in further impairment charge or reversal of impairment in future periods. Additional information for the impairment assessment of property, plant and equipment and the goodwill impairment is disclosed in notes 14 and 17, respectively.
POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS, INTERPRETATIONS AND |
Up to the date of issue of these consolidated financial statements, the IASB has issued a number of amendments and new standards and interpretations which are not yet effective for the year ended December 31, 20122015 and which have not been adopted in these consolidated financial statements.
Of these developments, the following relate to matters that may be relevant to the Group’s operations and financial statements:
Effective for accounting periods beginning on or after | ||||
| ||||
IFRS | January 1, | |||
| January 1, | |||
| January 1, | |||
Amendment to IFRS | January 1, | |||
Amendment to IAS 28, “Investments in Associates and Joint Ventures” | * | |||
Amendment to IAS 27, | January 1, | |||
| January 1, | |||
| January 1, | |||
| January 1, | |||
| January 1, | |||
| ||||
|
The Group
* | The amendments were originally intended to be effective for annual periods beginning on or after January 1, 2016. The effective date has now been deferred/removed. Early application of the amendments continues to be permitted. |
Management is in the process of making an assessment of whatassessing the impact of these amendments,such new standards, amendments to standards and new interpretations are expectedwill adopt the relevant standards, amendments to bestandards in the period of initial application. So far the Group has concluded that while the adoption of them may result in new or amended disclosures, it is unlikely to have a significant impact on the Group’s results of operations and financial position.subsequent periods as required.
CONDENSED FINANCIAL INFORMATION OF |
(a) | Condensed statements of comprehensive income |
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | |||||||||||||||||||
RMB million | RMB million | RMB million | Million | Million | Million | |||||||||||||||||||
Dividend income | 14,400 | 68,762 | 50,613 | 43,848 | 50,451 | 67,806 | ||||||||||||||||||
Operating expenses | 111 | 83 | 89 | (77 | ) | (81 | ) | (87 | ) | |||||||||||||||
Interest income | 15 | 11 | 15 | 25 | 53 | 14 | ||||||||||||||||||
Non-operating net income | 3 | — | — | |||||||||||||||||||||
Other gains/(losses) | 61 | (93 | ) | 54 | ||||||||||||||||||||
Finance costs | (164 | ) | (241 | ) | (476 | ) | (3 | ) | (2 | ) | (105 | ) | ||||||||||||
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Profit before taxation | 14,143 | 68,449 | 50,063 | 43,854 | 50,328 | 67,682 | ||||||||||||||||||
Taxation | — | — | — | — | — | — | ||||||||||||||||||
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PROFIT FOR THE YEAR | 14,143 | 68,449 | 50,063 | 43,854 | 50,328 | 67,682 | ||||||||||||||||||
Other comprehensive income for the year: | ||||||||||||||||||||||||
Exchange differences on translation of financial statements of overseas entities | (7 | ) | (186 | ) | (53 | ) | ||||||||||||||||||
Other comprehensive income for the year | — | — | — | |||||||||||||||||||||
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TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 14,136 | 68,263 | 50,010 | 43,854 | 50,328 | 67,682 | ||||||||||||||||||
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42 | CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED) |
(b) | Condensed balance sheets |
As at December 31, 2012 | As at December 31, 2011 | As of December 31, 2015 | As of December 31, 2014 | |||||||||||||
RMB million | RMB million | Million | Million | |||||||||||||
Non-current assets | 476,790 | 476,819 | 485,109 | 485,110 | ||||||||||||
Current assets | 16,979 | 57,729 | 2,103 | 4,864 | ||||||||||||
Current liabilities | 33 | 56 | 281 | 12 | ||||||||||||
Non-current liabilities | 28,619 | 28,617 | 4,995 | 4,992 | ||||||||||||
NET ASSETS | 465,117 | 505,875 | 481,936 | 484,970 | ||||||||||||
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TOTAL EQUITY | 465,117 | 505,875 | 481,936 | 484,970 | ||||||||||||
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(c) | Condensed statements of cash |
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | |||||||||||||||||||
RMB million | RMB million | RMB million | Million | Million | Million | |||||||||||||||||||
Net cash used in operating activities | (90 | ) | (80 | ) | (92 | ) | (78 | ) | (81 | ) | (69 | ) | ||||||||||||
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Net cash generated from investing activities | 15,364 | 13,137 | 7,894 | 9,760 | 7,431 | 14,785 | ||||||||||||||||||
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Net cash used in financing activities | (15,226 | ) | (14,231 | ) | (12,060 | ) | (11,964 | ) | (5,515 | ) | (14,447 | ) | ||||||||||||
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Net increase/(decrease) in cash and cash equivalents | 48 | (1,174 | ) | (4,258 | ) | |||||||||||||||||||
Net (decrease)/increase in cash and cash equivalents | (2,282 | ) | 1,835 | 269 | ||||||||||||||||||||
Cash and cash equivalents at beginning of year | 919 | 2,259 | 6,662 | 3,030 | 1,295 | 974 | ||||||||||||||||||
Effect of changes in foreign exchange rate | 7 | (166 | ) | (145 | ) | 5 | (100 | ) | 52 | |||||||||||||||
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Cash and cash equivalents at end of year | 974 | 919 | 2,259 | 753 | 3,030 | 1,295 | ||||||||||||||||||
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Exhibit Index
F-97
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