Capital Expenditure and Cash Flows

Capital Expenditure

In 2011, in order to promote the development and reinforce the leading edge of broadband services, the Group continued to increase the investment in broadband network construction, and increase the penetration rate of fibre access and broadband access speed. In the meantime, the Group emphasized investment effectiveness, optimised investment structure, and effectively controlled investments in wireline voice services and infrastructure, etc. In 2011, capital expenditure of the Group was RMB49,551 million, an increase of 15.1% from RMB43,037 million in 2010.

Cash Flows

In 2011, net increase in cash and cash equivalents for the Group was RMB1,649 million, while the net decrease in cash and cash equivalents was RMB8,934 million in 2010.

The following table sets forth the cash flow position of the Group in 2010 and 2011:

		For the year ended 31 December
	(RMB millions)	2011	2010
	Net cash flow from operating activities	73,006	75,571
	Net cash used in investing activities	(43,637)	(45,734)
	Net cash used in financing activities	(27,720)	(38,771)
	Net increase/(decrease) in cash and cash equivalents	1,649	(8,934)

In 2011, the net cash inflow from operating activities was RMB73,006 million, a decrease of RMB2,565 million from RMB75,571 million in 2010.

In 2011, the net cash outflow for investing activities was RMB43,637 million, a decrease of RMB2,097 million from RMB45,734 million in 2010, mainly resulting from an increase in proceeds from the disposal of assets compared to 2010, and the repayment of CDMA business acquisition, amounting to RMB5,374 million in 2010.

In 2011, the net cash outflow for financing activities was RMB27,720 million, a decrease of RMB11,051 million from RMB38,771 million in 2010. The decrease in net cash outflow was mainly due to the decrease in the Group’s repayment of the bank loans and other loans when compared to 2010.

Working Capital

At the end of 2011, the Group’s working capital (total current assets minus total current liabilities) deficit was RMB67,682 million, a reduction of deficit of RMB3,996 million from RMB71,678 million in 2010. As at 31 December 2011, the Group’s unutilised committed credit facilities was RMB118,970 million (2010: RMB98,576 million). At the end of 2011, the Group’s cash and cash equivalents amounted to RMB27,372 million, amongst which cash and cash equivalents denominated in Renminbi accounted for 94.4% (2010: 91.2%).

Assets and Liabilities

In 2011, the Group continued to maintain a solid capital structure. By the end of 2011, the total assets of the Group fell to RMB419,115 million from RMB420,529 million at the end of 2010, while total indebtedness decreased to RMB52,103 million from RMB73,576 million in 2010. The ratio of the Group’s total indebtedness to total assets fell from 17.5% at the end of 2010 to 12.4% at the end of 2011.

Indebtedness

The indebtedness analysis of the Group as of the end of 2010 and 2011 is as follows:

		For the year ended 31 December
	(RMB millions)	2011	2010
	Short-term debt	9,187	20,675
	Long-term debt maturing within one year	11,766	10,352
	Long-term debt (excluding current portion)	31,150	42,549
	Total debt	52,103	73,576

By the end of 2011, the total indebtedness of the Group was RMB52,103 million, a decrease of RMB21,473 million from the end of 2010. The main reason for the decrease was the Group’s repayment of a portion of bank loans and other loans. Of the total indebtedness of the Group, the Company’s loans in Renminbi, US Dollars, Japanese Yen and Euro accounted for 94.7% (2010: 96.0%), 1.3% (2010: 1.0%), 3.1% (2010: 2.2%), and 0.9% (2010: 0.8%), respectively. 96.3% (2010: 98.5%) of this indebtedness are loans with fixed interest rates, while the remainders are loans with floating interest rates.

As of 31 December 2011, the Group did not pledge any assets as collateral for debt (2010: Nil).

Most of the Group’s revenue receipts from and payments made for its business were denominated in Renminbi, therefore the Group did not have significant risk exposure to foreign exchange fluctuations.

Contractual Obligations

	(RMB millions)	Total	1 January 2012- 31 December 2012	1 January 2013- 31 December 2013	Payable in 1 January 2014- 31 December 2014	1 January 2015- 31 December 2015	Thereafter
	Short-term debt	9,391	9,391	–	–	–	–
	Long-term debt	47,087	13,513	11,592	21,019	96	867
	Operating lease commitments	21,103	18,182	782	600	413	1,126
	Capital commitments	6,369	6,369	–	–	–	–
	Total contractual obligations	83,950	47,455	12,374	21,619	509	1,993

Note: Amounts of short-term debt and long-term debt include recognised and unrecognised interest payable, and are not discounted.