Comba Telecom Systems Holdings Limited

The presentation will now begin. Good morning, ladies and gentlemen. On behalf of Comber Telecom Systems Holdings Limited, I would like to welcome all of you joining the 2021 Ending Results Investor Presentation video conference. In today's meeting, there will be a presentation for the right Q&A section. If you'd like to raise question in the Q&A, please click on the raise hand button on the screen. And today we have four senior management joining us from Guangzhou and Hong Kong. From Guangzhou, may I introduce the chairman, Mr. Huo Donglin, Executive Director and President of the group, Mr. Xu Huijun, Mr. Xu Huijun, and Executive Director and Senior Vice President of the group, Ms. Huo Xinru. And from Hong Kong may I introduce the Executive Director and Group CFO, Mr. Ken Zhang. Now may I invite Mr. Ken Zhang, the Executive Director and Group CFO, to present the financial highlights of 2021. Mr. Zhang, please. Thank you. Good morning, everyone, and welcome to Comba 2021 results section.

During 2021, Comba recorded 592 million loss to equity shareholder. The losses mostly come from non-operating, non-cash adjustments in account receivable, inventory, and an increase in R&D amortization expenses. On the operating side, our result was actually very stable. And in fact, we even demonstrate good strength in the second half of 2021. Overall revenue increased by 16%, gross profit down by 1.5%, and net loss is 592 million. There are a few major adjustment that affect our account. As we have been always practicing prudent operating and accounting policy, after we do rigorous analysis on our age, account receivable and inventory, we increase our AR and inventory provisions. Due to COVID pandemic that affect the overall customer recoverability, we raise the AR provision, especially on long-age AR. Likewise, due to the fast changing technology landscape in 5G, we have also made relevant inventory provision for those products that are either obsolete in 5G or have depreciated greatly in value. AR and inventory provisions altogether account for close to 486 million lots. On the R&D side, as we previously capitalized R&D that reaches major research milestone that trigger accounting policy for amortization. This is particularly true on those 5G products and innovations. The speed of the amortization of R&D expenses have picked up because of a significant increase in amortization expenses over the new R&D that are newly capitalized. The effect alone was reducing profit by about 74 million. Lastly, we have been also busy preparing our spinoff of Combat Network IPO in the Asia market. as we have conducted the A and B round funding on this entity, as well as establishing employee stock platform. There are also certain non-cash, non-operating accounting treatment on those market value adjustment. So this slide illustrate the four major adjustment that we had. Now, let us also take a look, if we were to remove those four adjustment, how the account would look like. So first of all, we can see that a positive 3.46 million profit against the 592 million loss. Gross profit margin would have been 28.2%. And gross profit would have gone up by 8.2%. We also could have seen a sharp drop in the OPEX ratio, which we will illustrate a little bit later. So overall, the OPEX as a percentage of revenue is 39.1%, which is a 1.1% increase from 2020. of which finance costs and income tax have come down while the other expenses because of the major adjustment that we have made have all gone up. On the other hand, if we were to remove the four major adjustment that we had, the OPEX ratio could have come down from the Apple to Apple adjustment back in 2020 at around 36.5%. coming down to 2021 at about 32.9%. We are in a solid financial position. Our net cash at 844 million, which is 71% increase from 2020. Net asset is 3.77 billion, which is 8.1% down because of the provision that we have made. On the key financial indicators, we have seen the inventory turnover day and AR turnover day have all come down. Inventory turnover day decreased by 17 days. AR turnover day decreased by 36 days. Cash conversion cycle remained healthy at 13 days. One thing worth highlighting is our operating cash flow remains strong at 374 million, which is a sharp recovery from the negative cash flow recorded in 2020. Gross giving ratio at 12.5%, again, remain healthy. Debt to asset ratio at 63.7%. Looking at five years, currently the gross giving ratio at 12.5%, which is only 0.3% higher than what we had in 2020. and over the last two years, the gross gain ratio is actually at the low level compared with our five year trending line. Similarly, our operating cash flow now at positive. If we look at our operating cash flow versus net profit or losses over the last 10 years, we can actually see that even though occasionally some of the years we record losses, we still record most of the years in positive operating cash flow. Let us review our revenue by customers. So besides China Tower, which decreased revenue by 3.8%, we have seen all our customer segments have increased in revenue. Particularly on China Mobile, we have seen an year-on-year increase of 43.6%. And particularly, we have seen the speed of the increase picked up in the second half of 2021. In the second half of 2021, China Mobile, the year-on-year increase is more than 100%. And likewise, China Unicom, China Telecom also have seen the increase by about 8.7% and 15.9% respectively. International market currently represent about 34% of the total pie, increasing revenue by 7.8%. Other revenue increased by 14.1%. And our subsidiary ETL, which is the third largest operator in Laos, accounting for 3.6 of our total revenue, increased the revenue by 26.5%. Let us also look at the business breakdown by business segment. We actually have seen all segment increases revenue year on year. And particularly on antenna and subsystem, overall the whole year increased revenue year on year by 34%. And if we break it by the first half and the second half, we actually see an interesting trend, which is the first half, we have seen the decrease in revenue by 13%. And on the second half, the recovery rebounded very strongly and recorded 75% increase year on year. On the other hand, our network system have seen a strong performance in the overseas market. where we have seen over 50% increase and currently overseas market representing close to 37% of network system segment. Servers increased by close to 7% and our wireless transmission and others increased by close to 15%. So we have been progressing on our spinoff Asia IPO. And over the last two years, we have been making progress. So this is one thing to highlight. At the end of 2019, we have completed the business restructuring for the network system. And in June, 2020, we have completed the employee share platform. And at the end of 2020, we have completed the share restructure and also the change of company name. And last year we completed the A and B round funding. We introduced several renowned investors, including Intel and others. And lastly, at the end of last year, we have been granted PN15 approval from the Hong Kong Stock Exchange. So I finished my part. So I would turn my time to our president, Mr. Xu Huijun.

Thank you, Mr. Chang. May I now invite Mr. Xu Huijun, executive director and president of the group to present the industry development and company outlook. We now invite Mr. Xu Huijun, CEO and CEO of the Group, to introduce the future of the industry and the future of the company. We invite Mr. Xu.