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/ China Communications Services Corporation Limited /
Management’sDiscussionandAnalysis of Financial Conditions andResults ofOperations
Gross Profit
In 2011, the Group’s gross profit amounted to RMB8,509.08 million, representing an increase of 15.1% over
RMB7,393.34 million in 2010. The Group’s gross profit margin in 2011 was 15.9%, representing a decrease of 0.4
percentage points over 16.3% in 2010. Due to the market competition and costs increase for certain businesses and
expenses, the Group’s gross profit margin was affected to certain extent. However, operational efficiency on most of
our businesses remained stable as a result of our strengthened management over business collaboration and costs
control.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses in 2011 were RMB6,401.10 million, representing an increase
of 13.6% over RMB5,637.14 million in 2010, and accounting for 12.0% of our total revenues. In 2011, the Group
strengthened cost control on selling and administrative expense and realized economies of scale while its business
grew rapidly. Selling, general and administrative expenses as a percentage of total revenues decreased by 0.4
percentage points compared to 2010.
Finance Costs
In 2011, the Group’s finance costs were RMB60.31 million and increased slightly by 4.5% over RMB57.73 million in
2010. In 2011, the tightening macroeconomic policy in China led to a rising loan interest rate and our corresponding
finance costs. However, the Group also reduced finance costs by implementing effective centralized fund
management. As a result of the two factors above, the finance costs of the Group remained relatively stable during
the year.
Income Tax
Certain of our domestic subsidiaries were recognized as new and high-technology enterprises and were entitled to
a preferential income tax rate of 15%. Our subsidiaries in Shenzhen, Zhuhai, Xiamen and Hainan Special Economic
Zones were entitled to an income tax rate of 24%. Apart from these subsidiaries, the Company and other domestic
subsidiaries of the Group were subject to an income tax rate of 25%. The overseas subsidiaries of the Group
were subject to different countries’ tax rate. The income tax of the Group in 2011 was RMB534.19 million and our
effective tax rate was 20.2%, remaining relatively stable compared to 20.3% in 2010. The difference between our
effective tax rate and the statutory tax rate was mainly due to the preferential income tax treatment for new and
high-technology enterprises and the preferential policy of deduction for research and development expenses before
income tax enjoyed by certain of our subsidiaries.
Profit Attributable to Equity Shareholders of the Company
In 2011, profit attributable to equity shareholders of the Company was RMB2,114.86 million, representing an
increase of 17.2% over RMB1,803.75 million in 2010. Profit attributable to equity shareholders of the Company
accounted for 4.0% of our total revenues, remaining at a stable level as in 2010.
Capital Expenditure
We implemented stringent budget management over capital expenditure, and adjusted our capital expenditure plan
according to the changes of market condition. In 2011, our capital expenditure amounted to RMB823.14 million, a
decrease of 1.2% from RMB832.96 million in 2010. The capital expenditure in 2011 accounted for 1.5% of our total
revenues. Our capital expenditure included the purchases of production facilities and equipment, machinery and
meters, plant and office buildings, intangible assets and other operating assets.