As China furthers its development into a “Cyberpower” and implements the “Broadband China” strategy, the strategic importance of telecommunications infrastructure has gained even wider recognition in 2018. In view of this, China Tower, while adhering to its core strategy of resource sharing and professional operation, has maintained a healthy growth momentum with overall operating performance continuing to improve, solidifying foundations for the Company’s sound and sustainable development.
We achieved major developments in 2018, making it a milestone in our history. On 8 August, the Company was successfully listed on the Main Board of The Stock Exchange of Hong Kong Limited, revealing investors’ recognition of the Company’s value and confidence from the capital markets in our future.
We maintained a stable and healthy revenue growth momentum in 2018, recording an operating revenue of RMB71.819 billion, up by 4.6% year-on-year. Our revenue from tower business reached RMB68.597 billion, accounting for 95.5% of total operating revenue, representing an increase of 2.3%over 2017. DAS business recorded revenue of RMB1.819 billion, accounting for 2.5% of total operating revenue, representing an increase of 41.7% from the previous year, while TSSAI business recorded revenue of RMB1.222 billion, accounting for 1.7% of total operating revenue, representing an increase of more than six times over a year ago. Our revenue structure continued to improve.
Our profitability has further improved with a significant boost in profit level during the latest reporting period, with EBITDA reaching RMB41.773 billion, up by 3.5% year-on-year. EBITDA margin maintained at a satisfactory level of 58.2%. Net profit1 reached RMB2.650 billion, up by 36.4% year-on-year.
Our cash flow continued to improve while debts were managed at a healthy and controllable level. Net cash generated from operating activities amounted to RMB45.540 billion while capital expenditures stood at approximately RMB26.466 billion, further improving our cash flow. As of 31 December 2018, the Company’s total assets amounted to RMB315.364 billion, with a gearing ratio2 of 34.4%. This is 19.4 percentage points lower compared to the previous year.
With an aim of creating higher returns to our shareholders while taking into consideration our profitability, debt levels, cash flow and capital expenditures for future development, the Board recommends the payment of a final dividend of RMB0.225 (pre-tax) per one hundred shares for the year ended 31 December 2018, equivalent to a payout ratio of 55% of our annual distributable net profit.
In 2018, we continued to reinforce our leadership role in serving TSPs while building a multi-stream revenue structure to support our long-term growth and maximizing our resource sharing strategy. As of 31 December 2018, we are managing a total of 1.948 million sites and serving more than 3.0 million tenants, representing growth of 4% and 12% respectively from the previous year. The tenancy ratio increased from 1.44 in 2017 to 1.55, reflecting continued improvement in site co-location efficiency.
(I) Adherence to sharing strategy, cementing our industry leadership in TSP market
Our core strategy is to share and coordinate the use of telecommunications infrastructure. We strive to optimize the use of existing resources and prioritize co-location over new construction to satisfy the demands of new tenants. We have proven that by doing so, we are able to increase tenancy ratio and the efficiency of assets. We also leverage social assets to which we have access, such as lamp poles, electricity towers, surveillance poles and buildings, and coordinate the effective use of these to significantly reduce construction costs. Additionally, we have developed a new construction and service model with a holistic approach to combining macro and small cells, as well as indoor and outdoor network infrastructure, in order to respond to our customers’ needs. These integrated solutions have enabled us to provide comprehensive network infrastructure and services, helping customers reduce costs and achieve differentiated yet complementary wireless network coverage. Through delivering on these promises, we have consolidated our commanding market position in China’s telecommunications tower infrastructure sector.
To speed up the growing of our DAS business, the Company has focused consistently and clearly on identifying key scenarios and premises by providing customized and diverse network solutions for locations that include commercial buildings, large venues, subways and high-speed railways. As of the end of 2018, we covered commercial buildings with a total area of approximately 1,461 million square meters. The Company also covered a cumulative length of approximately 2,887 kilometers of subways and approximately 17,691 kilometers of high-speed railways in terms of telecommunications network coverage.
(II) Building on resource sharing while strengthening multi-stream revenue structure
Building on our core strengths in resources and expertise, we continue to optimize our sharing strategy within the industry. While proactively extending this strategy across society, applying it to aid the process of digitization and enhancing data transmission. By taking a new perspective on some of our physical social assets such as the extensive network of our sites, stable power supply, centralized operating and monitoring platform, as well as our ability to precisely and effectively gather and analyze data, we have been able to explore business opportunities beyond our core industry. The Company has expanded into areas such as site resources services, data information services, and field supervision and maintenance services. In addition, we have also achieved several successful breakthroughs in the application areas such as dedicated network services, security surveillance, environmental monitoring and field supervision.
CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY
We have been consistently improving our governance structure and putting in place sound mechanisms and procedures to strengthen internal control and risk management. There has been particular focus on the monitoring and management of key items and areas to mitigate operational risks. We have continued to enhance our governance and management to promote the Company’s long-term, sustainable and healthy development.
Throughout the reporting period, we have actively fulfilled our social responsibilities and have taken practical and concrete actions that contribute positively to the society. We have adhered to our core principle in resource sharing for the benefit of all through driving the co-development of social and industrial assets. Furthermore, by following our philosophy of resources maximization, we have been able to optimize investments and reduce wastage, achieving a higher efficiency in resource utilization across society. By providing uninterrupted power supply and maintenance services to the TSPs and our TSSAI customers, we are able to fulfill our obligations to support emergency communications. The Company is a keen advocate of energy saving and emissions reduction, and of exploring the practical uses for new sources of energy. We have also launched innovative services in areas such as environmental and pollution monitoring and have adopted eco-friendly and low carbon development practices. In addition, we have undertaken multiple targeted projects to alleviate poverty and information isolation by extending communications infrastructure into villages, especially those in China’s remote western region, in order to narrow the digital divide.
Looking to the future, the Internet, big data and artificial intelligence will become increasingly intertwined with the “real” economy, as the digital economy and smart society take hold. This development path will underscore the strategic importance of telecommunications infrastructure. In view of the new industry landscape and information technology revolution that will arise from the 5G era, we will strive to capture emerging opportunities, while also deepening our resource sharing strategy. Serving TSPs will remain our overarching focus, supplemented by the TSSAI and energy operation businesses. We are confident that this One Core and Two Wings strategy will enable the Company to develop into an enterprise with the greatest growth potential in terms of both growth and value creation amongst our global peers.
(I) Reinforcing TSP business and consolidating the foundation for sustainable growth
As we continue to focus on our core business, tower and DAS businesses will remain the major constituents of the Company’s stable development. We will continue to drive resource sharing across the industry and focus on customers’ needs as we market and promote our wireless network coverage integrated solutions. We will also seek to further enhance our core capability while maintaining our competitive edge in cost control and operational efficiency, as well as quality services.
To meet the TSPs’ demands for in-depth 4G network coverage and quality 5G network infrastructure, we will strengthen our ability in site planning and resource consolidation to deliver this effectivity build-out. We will further pursue technological innovation in key areas such as tower site, power and ancillary facilities, as well as DAS sharing, in order to develop 5G-ready solutions for scale construction in 5G era.
(II) Developing the Two Wings to foster new growth sources
The TSSAI and energy operation businesses will be the two important growth areas for supporting the Company’s sustainable development. The assets we manage provide a competitive advantage for us in optimizing the value of resource sharing. By extending this strategy into the wider community and other service areas, we will create multiple growth drivers for the Company, while also creating benefit and value for other industries and wider society through maximizing resource sharing.
In order to achieve our business development goals, we will focus on key sectors, clients and business segments as the basis of establishing a robust business model and comprehensive product portfolio. This will satisfy our customers’ needs for integrated services as their businesses become more diverse, data driven and expand in scale. As we develop, nurturing a business and reputation that embodies China Tower’s franchise characteristics will continue to be our foremost concern. In order to consolidate our resources and improve market share in TSSAI and the energy operation businesses, and to put in place an organizational structure that enables the healthy development of these two business lines, we will take an innovative approach towards reviewing our systems and mechanisms to ensure professional and streamlined enterprise operations.
(III) Maximizing enterprise value and developing a company of high growth and high value-creation
Our core philosophy emphasizes resource sharing and co-development that benefits all. We will thus seek to continue enriching and expanding the scope of asset sharing to optimize the value of our extensive resources. Furthermore, we will explore means of resource sharing within the industry, while also seeking to break through barriers, and take into consideration other sectors and service areas in society. In addition, we will adopt the same sharing approach in our business development and for identifying cost-savings for customers, thus allowing us to reflect the true value of the Company. Moreover, in order to realize our goal of increasing operational efficiency and derived benefits, we will strengthen our management system by adopting new technology and implementing specialized operations for individual assets. Additionally, the Company will enhance the competitiveness of our incentive mechanisms by putting in place a diverse range of rewards, including equity incentive schemes, to motivate our employees and promote coherence throughout the organization, which ensures the alignment of the values and goals of the Company, our shareholders and employees.
Finally, on behalf of the Board, I would like to express my sincere gratitude to our shareholders, including China Mobile, China Unicom and China Telecom, our customers, and the wider society for their support and trust in China Tower. To our employees, my heartfelt thanks to all of you for your hard work and dedication ensuring the continuing successful development of the Company.
Chairman and General Manager
Hong Kong, 4 March 2019
- Net Profit for the period refers to profit attributable to owners of the Company.
- Gearing ratio is calculated by dividing net debt (total interest bearing liabilities net of cash and cash equivalents) by the sum of total equity and net debt, and multiplying the resulting value by 100%.