Hangzhou Hikvision Digital Technology Co., Ltd. 2017 Interim Report January to June 2017 July 22nd 2017 Hikvision 2017 HY Report Section I Important Notes, Contents and Definitions The Board of Directors, Board of Supervisors, directors, supervisors and senior management of Hangzhou Hikvision Digital Technology Co., Ltd. (hereinafter referred to as the “Company”) hereby guarantee that the information presented in this report shall be together be wholly liable for the truthfulness, accuracy and completeness of its contents and free of any false records, misleading statements or material omissions, and will undertake individual and joint legal liabilities. Chen ZongNian, the Company's Chairman, Jin Yan, the head of accounting (Accounting Officer) hereby declare and warrant that the financial statements in this Report are authentic, accurate and complete. All directors have attended the meeting of the board to review this report. The Company will not distribute cash dividend, distribute bonus share, or distribute share from capital reserve during the current reporting period. Note: This document is a translated version of the Chinese version 2017 Half Year Financial Report (“2017 年半年度报告”), and the published announcements in the Chinese version shall prevail. The complete published Chinese 2017 Half Year Financial Report may be obtained at http://www.cninfo.com. 2 Hikvision 2017 HY Report Please read the annual report and pay particular attention to the following risk factors: 1) Risk of technology upgrade: With the development of cloud computing, big data, artificial intelligence, and other technologies, the demand and business models of the industry will change accordingly. If the Company cannot follow the changes in the cutting-edge technologies, or fail to realize the business innovation rapidly, the risks of future development uncertainties will increase. 2) Risk of product information security: Although the Company has dedicated resources to prevent the cybersecurity risk for our products, there is still a possibility of deliberate third-party (including viruses, malicious software, hacker and similar disruptions) attempts to damage our systems or products, causing the security issues for cybersecurity. 3) Risk of foreign exchange: The overseas sales ratio has increased continuously, and the Company has to carry out operations in different countries with various currencies. Exporting transactions are mostly settled in United States Dollars ("USD"), meanwhile, parts of the imported raw materials are also mainly setteled in USD. Therefore, the fluctuation of the foreign exchange rate has a potential to affect the profits of the Company. 4) Risk of management: the Company continues to expand business scale, innovative product and business continues to increase, total number of employees also grows rapidly, which pose challenges and higher requests to the Company's management. The sustainable development of the company might face certain risk, if the management ability could not match up with the Company’s business expansion. The above notices might not be all-inclusive of all other potential risks, please pay attention to the potential investment risks 3 Hikvision 2017 HY Report Contents Section I Important Notes, Contents and Definitions 2 Section II Corporate Profile and Key Financial Data 6 Section III Corporate Business Summary 9 Section IV Operation Discussion and Analysis 10 Section V Significant Events 27 Section VI Changes in Shares and Information about Shareholders 43 Section VII Information on Preferred Shares 51 Section VIII Information on Directors, Supervisors, Senior Managements 52 Section IX Coporate Bonds 56 Section X Financial Report 57 Section XI Documents Available for Reference 153 4 Hikvision 2017 HY Report Definitions Term Definition Reporting Period From January 1st 2017 to June 30th,2017 Articles of Associations Articles of Associations for Hangzhou Hikvision Digital Technology Co., Ltd Hikvision, our Company, Company Hangzhou Hikvision Digital Technology Co., Ltd CETHIK CETHIK Group Co., Ltd. Controlling Shareholder of the Company Innovative Co-investment Partnership Hangzhou Hikvision Equity Investment Partnership (Limited Partneership) Ezviz, Ezviz Network Inc. Hangzhou Ezviz Network Co., Ltd. (According to the context, also refers to the corresponding business) Hangzhou Hikvision Robtics Technology Co., Ltd. (According to the context, also refers to the corresponding Hikvision Robotics business) Hangzhou Hikvision Automotive Technology Co., Ltd. (According to the context, also refers to the Hikvision Automotive Technology corresponding business) Hangzhou Hikvision Weiying Sensor Technology Co., Ltd. (According to the context, also refers to the Hikvision Weiying corresponding business) Hikvision Storage Wuhan HIK Storage Technology Co., Ltd. (According to the context, also refers to the corresponding business) Located in Tonglu economic development area, Hangzhou, Zhejiang province, purposes for production factories, warehousing logistics center. Initially disclosed in Announcement about the Company’s Investment in Security Industrial Base (Tonglu) Tonglu to Set up Wholly Owned Subsidiary and New Hikvision Security Industry Base (Tonglu) Project(《关于 在桐庐投资设立全资子公司及新建海康威视安防产业基地(桐庐)项目的公告》) (NO. 2014-044). Located in Binjiang district, Hangzhou, Zhejiang province, purposes for the office building. Initially disclosed Internet Security Industry Base in Announcement about the Company’s New Construction of Internet Security Industry Base Project (《关于新 建海康威视互联网安防产业基地项目的公告》)(NO. 2014-035). A long investment cycle, business prospects uncertain, has the high risk and uncertainty, in need for direct or indirect investment in exploration, in order for the Company to timely enter into new areas of business. Initially disclosed in Announcement about Management Measures for Core Staff Investment in Innovative Business (《核 Innovative Business 心员工跟投创新业务管理办法》) (www.cninfo.com) In this report, innovative business also refers to Ezviz, Hikvision Robtics, Hikvision Automotive Technology, Hikvision Weiying, and their related business or products. The Company publicly issued the bond with nominal value amounting to Euro 400 million; and the bond was settled, listed and traded on the Irish Stock Exchange on February 18th, 2016. For details, please refer to Euro Bond Announcement about Issuing Foreign Currency Bond (《关于境外发行外币债券的进展公告》) (NO. 2016-004) 5 Hikvision 2017 HY Report Section II Corporate Profile & Key Financial Data I. Corporate Information Stock abbreviation HIKVISION Stock code 002415 Stock exchange where the shares of Shenzhen Stock Exchange the Company are listed Name of the Company in Chinese 杭州海康威视数字技术股份有限公司 Abbr. of the Company name in 海康威视 Chinese (if any) Name of the Company in English (if HANGZHOU HIKVISION DIGITAL TECHNOLOGY CO., LTD any) Abbr. of the Company name in HIKVISION English (if any) Legal representative Chen Zongnian II. Contacts and contact information Board Secretary Securities Affairs Representative Name Huang Fanghong Li Yi No. 555 Qianmo Road, Binjiang District, No. 555 Qianmo Road, Binjiang District, Address Hangzhou Hangzhou Tel. 0571-89710492 0571-89710492 Fax 0571-89986895 0571-89986895 E-mail hikvision@hikvision.com hikvision@hikvision.com III. Other Relevant Information 1. Company’s contact information Whether there is any change in the Company’s registered address, office address, zip code, company website or company email address during the reporting period. □ Applicable √ Inapplicable There is no such above mentioned change during the reporting period; please refer to 2016 Annual Report for details. 2. Information disclosure and place of the report Whether there is alteration in information disclosure and place of the report during the reporting period. □ Applicable √ Inapplicable The newspaper designated by the Company for information disclosure, website specified by CSRC for release of the half-year report, and the place where the half-year report is available for inspection have not changed during the reporting period, Pleaser refer to 2016 Annual Report for details. 6 Hikvision 2017 HY Report IV. Key accounting data and Financial Indicators Whether the Company performed a retroactive adjustment or restatement of previous accounting data √ Yes □ No The reason for retroactive adjustment or restatement of previous accounting data: Accountant arrangement method for business merger under the common control\ 2016 First Half Year YoY Change 2017 First Half Year Before Adjustments After Adjustments After Adjustments Operating income (RMB) 16,447,539,736.52 12,548,198,726.12 12,553,476,748.58 31.02% Net profits attributable to 3,291,546,056.70 2,606,846,455.38 2,607,821,529.43 26.22% shareholders of the Company (RMB) Net profits attributable to shareholders of the Company 3,189,866,218.86 2,574,202,921.09 2,575,186,685.98 23.87% excluding non-recurring gains and losses (RMB) Net cash flows from operating -1,942,800,802.42 397,807,256.48 397,774,228.28 -588.42% activities (RMB) Basic earnings per share (RMB/share) 0.357 0.289 0.289 23.53% Diluted earnings per share 0.357 0.288 0.288 23.96% (RMB/share) Weighted average ROE 12.98% 12.96% 12.96% 0.02% Change(%) between December At December 31st 2016 th At June 30 2017 31st 2016 and June 30th 2017 Before Adjustments After Adjustments After Adjustments Total assets (RMB) 41,524,934,461.17 41,339,007,814.83 41,348,428,750.40 0.43% Net assets attributable to shareholders 24,043,886,222.83 24,288,634,890.08 24,283,755,426.31 -0.99% of the Company (RMB) V. Differences in Accounting Data between Domestic and Overseas Accounting Standards 1. Difference in the financial report of net profits and net assets according to the disclosure of International Financial Reporting Standards and China Accounting Standards □ Applicable √ Inapplicable There is no difference in the financial report of net profits and net assets according to the disclosure of International Financial Reporting Standards (IFRS) and China Accounting Standards in the reporting period. 7 Hikvision 2017 HY Report 2. Difference in the financial report of net profits and net assets according to the disclosure of Overseas Accounting Standards and China Accounting Standards □ Applicable √ Inapplicable There is no difference in the financial report of net profits and net assets according to the disclosure of Overseas Accounting Standards and China Accounting Standards in the reporting period. VI. Items and Amounts of Non-recurring Gains and Losse √ Applicable □ Inapplicable Unit:RMB Item Amount Profit or loss from disposal of non-current assets (including the write-off for the impairment of assets) 2,226,974.55 The government subsidies1 included in the current profits and losses (excluding the government subsidy closely related to regular course of business of the Company and government subsidy based on standard quota 14,130,234.67 or quantitative continuous application according to the state industrial policy.) Held-to-maturity financial assets, profits and losses of fair value held-for-trading financial liabilities, and investment income in disposal of held-for-trading financial assets and liabilities and available-for sale financial 88,204,679.51 assets excluding the effective hedging business related to the regular business operation of the Company. Other non-operating income and expenditures except the items mentioned above 16,422,848.73 Less: Impact of income tax 18,147,710.62 The impact of the minority interests (after tax) 1,157,189.00 Total 101,679,837.84 Explain the reasons if the Company classifies an item as a non-recurring gain/loss according to the definition in the, or classifies any non-recurring gain/loss item mentioned in the aforementioned note as a recurrent gain/loss item □ Applicable √ Inapplicable In the reporting period, the Company did not classify an item as a non-recurring gain/loss according to the definition in the , or classifies any non-recurring gain/loss item mentioned in the aforementioned note as a recurrent gain/loss item 1 Please refer to Note (V) 46 for details about government subsidy closely related to regular course of business of the Company and government subsidy based on standard quota or quantitative continuous application according to the state industrial policy. 8 Hikvision 2017 HY Report Section III Corporate Business Summary I. The principal business of the Company during the reporting period There is no significant change for the principal business of the Company during the reporting period. Please refer to 2016 Annual Report for details. II. Significant changes in main assets 1. Major Changes in Main Assets √ Applicable □ Inapplicable Major assets Explanation on Major Changes Incresead by 268.92%, mainly due to investment to Maxio Technology (Hangzhou) Ltd, totaled in Equity Assets RMB 98.00 million. Fixed Assets No significant changes Intangible Assets No significant changes Increased by 141.67%, mainly due to the investment to Phase 2 of Security Industrial Base (Tonglu) Construction in Progress project and Internet Security Industry Base. 2. Major Overseas Assets □ Applicable √ Inapplicable III. Core Competitiveness Whether the Company has to comply with the disclosure requirements of any special industry □Yes √No There is no significant change for the core competitiveness of the Company during the reporting period. Please refer to 2016 Annual Report for details. 9 Hikvision 2017 HY Report Section IV Operation Discussion and Analysis I. Overview During the reporting period, the domestic market was steady and tended to a good prospect; the overseas market maintains volatile while affected by various uncertainties. In the first half of 2017, the Company achieved total operating income of RMB 16.45 billion, increased by 31.02% on a year-over-year basis; and net profit attributed to shareholders of the listed company of RMB 3.29 billion, increased by 26.22% on a year-over-year basis. The profitability of the Company improved continuously, resulted in an overall gross profit margin of 42.72% in the first half of 2017, increased by 1.14% comparing to 2016 overall gross profit margin. 1. Continue to propel the industry layout based on the core video techonology Relying on the accumulation in video surveillance industry, the Company has been actively exploring and commercializing AI technology into various product modules and application markets. Through internal Research and Development (R&D), investments and acquisitions, joint-venture corporation, and other methods, the Company has performed beneficial exploration in upstream of the industry chain; In order to support the expansion of the Company’s products and solutions and to further extend application areas, the Company has strategically layout of uncooled infrared sensor, radar and other sensing technologys to enrich perceptual dimensions. Supported by the traditional video surveillance business, the Company continues to explore innovative businesses such as EZVIZ Smart Home, Hikvision Robotic, Hikvision Automotive Techonology, Hikvision Storage and etc., seeking to build core competitiveness in new business areas. 2. Continue to increase investments, reserve strength for sustainable development During the reporting period, the Company continued to increase investments, further speed up the recruitments of R&D, marketing and other key productive departments. At the same time, the Company continued to optimize the talent training system, speed up the telant team development, in order to reserve strength for sustainable and healthy development. 3. Continue to promote management reform, optimize organizational capability The Company continued to promote the management reform projects, optimize organizational capability, 10 Hikvision 2017 HY Report improve operational efficiency, and improve capability in creating value for customers. The Company has been actively promoting the construction of business culture, emphasizing value identity and building up incentive alignment between the developments of the Company and its employees. II. Core business analysis Overview Whether consistent with the overview disclosure under Operation Discussion and Analysis √ yes □ no Please refer to details in Section IV Operation Discussion and Analysis-I. Overview Year-over-Year Changes in Key financial data Unit:RMB YoY Change 2017 first half year 2016 first half year Note of Change (%) Operating Income increased with the Operating Income 16,447,539,736.52 12,553,476,748.58 31.02% steady increase of market demands. Operating costs 9,420,695,024.84 7,518,216,264.30 25.30% Increase with the operating income growth Selling expenses increase with the Company’s continuous increasing Selling expenses 1,726,924,956.22 1,211,831,544.28 42.51% investments on domestic and overseas sales network The Company continues to increase Administrative expenses 1,761,709,877.13 1,271,951,990.31 38.50% investments in R&D Affected by fluctionation in foreign Financial expense 65,500,627.65 -97,182,948.36 -167.40% exchange rate, increase in foreign currency exchange losses Income Tax Expenses 568,658,390.85 432,531,976.11 31.47% Increase with the profit growth The Company continues to increase R&D investments 1,454,783,663.94 968,001,812.80 50.29% investments in R&D,hiring technology talents Net Cash Flow from Payments for material procurements, tax -1,942,800,802.42 397,774,228.28 -588.42% Operating Activities payables, and 2016 year-end bonus Net Cash Flow from Collection of matured principal-guaranteed 3,188,919,897.38 704,063,230.28 352.93% Investment Activities financial products Net Cash Flow from -2,109,983,475.35 -1,288,518,254.29 -63.75% Distribution of dividends Financing Activities 11 Hikvision 2017 HY Report YoY Change 2017 first half year 2016 first half year Note of Change (%) Net increase in cash and cash Payments for material procurements, tax -995,983,078.72 -155,121,106.09 -542.07% equivalents payables, and 2016 year-end bonus Whether there is significant change in Company’s profit structure or profit source during the reporting period □ Applicable √ Inapplicable There is no such case during the reporting period. Operating income structure 2017 first half year 2016 first half year YoY Change Proportion to Proportion to (%) Amount Amount operating income operating income Total operating income 16,447,539,736.52 100% 12,553,476,748.58 100% 31.02% Classified by industry Video products and video 16,447,539,736.52 100.00% 12,553,476,748.58 100.00% 31.02% content services Classified by product Front-end equipment 8,471,727,239.99 51.51% 6,601,052,833.16 52.58% 28.34% Back-end equipment 2,581,996,973.35 15.70% 2,182,475,391.78 17.39% 18.31% Central control equipment 1,893,438,540.55 11.51% 1,182,860,160.42 9.42% 60.07% Construction projects 428,858,036.85 2.61% 408,576,652.08 3.25% 4.96% Innovative business 613,825,422.23 3.73% 234,586,712.01 1.87% 161.66% Others 2,457,693,523.55 14.94% 1,943,924,999.13 15.49% 26.43% Classified by region Domestic 11,478,885,424.15 69.79% 8,959,841,363.15 71.37% 28.11% Overseas 4,968,654,312.37 30.21% 3,593,635,385.43 28.63% 38.26% Note: in the category classified by product, the "innovative business"includes corresponding business products of innovative business subsidiaries - EZVIZ Network, Hikvision Robotics, and Hikvision Automotive Technology. Hikvision Weiying, and Hikvision Storage, Similar hereinafter. Industries, products or regions accounting for more than 10% of the Company’s operating income or operating profit √ Applicable □ Inapplicable Unit: RMB 12 Hikvision 2017 HY Report YoY Change (%) Gross YoY Change (%) YoY Change (%) Operating income Operating cost of operating margin of operating cost of gross margin income Classified by industry Video products and 16,447,539,736.52 9,420,695,024.84 42.72% 31.02% 25.30% 2.61% video content services Classified by product Front-end equipment 8,471,727,239.99 4,330,837,875.51 48.88% 28.34% 25.09% 1.33% Back-end equipment 2,581,996,973.35 1,318,164,201.90 48.95% 18.31% 8.67% 4.53% Central control 1,893,438,540.55 1,035,848,060.56 45.29% 60.07% 57.66% 0.84% equipment Construction projects 428,858,036.85 387,677,860.96 9.60% 4.96% -3.15% 7.57% Innovative business 613,825,422.23 412,952,376.29 32.72% 161.66% 163.05% -0.36% Others 2,457,693,523.55 1,935,214,649.62 21.26% 26.43% 18.82% 5.04% Classified by region Domestic 11,478,885,424.15 6,918,305,959.45 39.73% 28.11% 22.67% 2.67% Overseas 4,968,654,312.37 2,502,389,065.39 49.64% 38.26% 33.20% 1.91% Adjusted statistics of principal business are based on the caliber at the end of the reporting period of last year, if the statistics caliber of principal business has been changed during the reporting period □ Applicable √ Inapplicable Whether the Company has to comply the disclosure requirements of decorating and refurbishing industry. No III. Non-Core Business Analysis □Applicable √Inapplicable 13 Hikvision 2017 HY Report IV. Analysis of assets and liabilities 1. Material changes of asset items Unit:RMB June 30th 2017 January 1st 2017 YoY Change Note of significant change Percentage of Percentage of (%) Amount Amount total assets total assets Cash and bank balances 13,179,646,367.74 31.74% 13,638,078,139.56 32.98% -1.24% No significant change Accounts receivable 13,304,046,010.12 32.04% 11,243,843,324.90 27.19% 4.85% Increase follows the increase in sales revenue Inventory 4,935,820,439.51 11.89% 3,829,947,876.75 9.26% 2.63% Inventory increases as sales increase Mainly due to investments on Maxio Technology Long-term equity investment 129,122,297.95 0.31% 35,000,000.00 0.08% 0.23% (Hangzhou) Increase of fixed assets procurement for daily Fixed assets 2,945,144,484.51 7.09% 2,853,908,475.49 6.90% 0.19% operation Mainly due to increase of investments in Construction in process 764,850,814.58 1.84% 316,482,522.36 0.77% 1.07% Security Industrial Base Project (Tonglu) Phase 2 & Internet Security Industry Base Increase due to temporary capital Short-term loans 1,965,132,452.76 4.73% 32,291,324.85 0.08% 4.65% turnover Long-term loans 1,319,408,175.80 3.18% 1,722,207,584.33 4.17% -0.99% No significant change Financial assets measured by fair value and their changes recognized in the gains and losses during 3,004,171.92 0.01% 15,547,537.34 0.04% -0.03% Change in fair value of financial derivatives the current period 14 Hikvision 2017 HY Report June 30th 2017 January 1st 2017 YoY Change Note of significant change Percentage of Percentage of (%) Amount Amount total assets total assets Financial liabilities measured by fair value and their changes recognized in the gains and losses 18,562,128.16 0.04% 69,789,502.97 0.17% -0.13% Change in fair value of financial derivatives during the current period Maturity of principal-guaranteed financial Other Current Asset 428,103,172.17 1.03% 4,153,992,276.78 10.05% -9.02% products Long-term receivables 171,142,345.99 0.41% 251,588,919.15 0.61% -0.20% Payments received for due receivables Note Payables 536,694,693.25 1.29% 876,804,536.72 2.12% -0.83% Payments of matured note payables Payrolll payable 595,071,569.87 1.43% 1,084,951,139.10 2.62% -1.19% Payments of year-end bonus Implementation of 2016 annual profit Dividends payable 92,407,139.16 0.22% 20,105,831.16 0.05% 0.17% distribution scheme, dividend payable for restricted incentive shares increased Prepaid capital for subscription of 2016 Other payable 481,729,216.24 1.16% 1,049,164,707.44 2.54% -1.38% Restricted Incentive Shares scheme transferred to share capital after capital verification Increase in portion of long-term loans that are Non-current liabilities due within one year 714,012,975.36 1.72% 15,340,813.03 0.04% 1.68% due within one year Increase of restricted shares after registration of Other current liabilities 853,507,327.55 2.06% 300,177,750.17 0.73% 1.33% 2016 restricted incentive shares granting Deferred income increase due to cloud storage Deferred income 16,817,902.06 0.04% 10,833,745.99 0.03% 0.01% service Increase in share capital due to 2016 annual Share capital 9,228,865,114.00 22.22% 6,102,706,885.00 14.76% 7.46% profit distribution 15 Hikvision 2017 HY Report June 30th 2017 January 1st 2017 YoY Change Note of significant change Percentage of Percentage of (%) Amount Amount total assets total assets Capital reserves 1,722,277,484.29 4.15% 1,050,240,853.66 2.54% 1.61% Increase of capital reserves and treasury shares after registration of 2016 restricted incentive Treasury shares 853,507,327.55 2.06% 300,177,750.17 0.73% 1.33% shares granting Affected by fluctionation in foreign exchange Other comprehensive income -12,639,845.44 -0.03% -41,230,777.21 -0.10% 0.07% rate, increase in effect of foreign currency exchange difference 16 Hikvision 2017 HY Report 2. Assets and liabilities measured at fair value √ Applicable □ Inapplicable Unit: RMB Cumulative fair Effect of Profit or loss value change foreign Purchase Sales Opening from change in Closing Item charged to currency during the during the balance fair value during balance equity exchange period period the period difference Financial assets 1.Financial assets measured at their fair values and of which the changes are recorded 15,547,537.34 -12,543,365.42 -- -- -- -- 3,004,171.92 into the current profits and losses(exclude derivative financial assets) Subtotal of financial 15,547,537.34 -12,543,365.42 -- -- -- -- 3,004,171.92 assets Subtotal of above 15,547,537.34 -12,543,365.42 -- -- -- -- 3,004,171.92 Financial Liabilities -69,789,502.97 51,095,855.83 -- 131,518.98 -- -- -18,562,128.16 Whether there were any material changes on the measurement attributes of major assets of the Company during the Reporting Period: □ Yes √ No 3. Assets right restrictions as of the end of reporting period Unit: RMB Item Closing Book Value Reasons for being restricted Monetary fund 653,291,749.18 Various cash deposits and deposit pledge for long-term loan Notes receivable 584,027,766.90 Pledge for issuance of bank acceptance Accounts receivable 70,036,733.76 Pledge for long-term loan Total 1,307,356,249.84 V. Analysis of Investments 1. Overview √Applicable □ Inapplicable Investment during 2017 first half year Investment during 2016 first half year Fluctuation (%) (RMB) (RMB) 809,644,383.18 330,462,791.72 145.00% 17 Hikvision 2017 HY Report 2. Significant equity investment during the reporting period □Applicable√Inapplicable 3. Significant non-equity investment during the reporting period √ Applicable □ Inapplicable Unit: RMB Cumulative amount Fixed assets Investment Disclosure Project Invest Project of investment by the Source of Project investment during the Date (if Disclosure reference(if applicable) name method industry end of reporting funds schedule or not reporting period applicable) period Security Video www.cninfo.com. Announcement Industrial product Company’s about the Company’s Investment in Base Self-built YES and 16,223,496.42 651,483,201.85 90.48% own funds Tonglu to Set up Wholly Owned (Tonglu) service Subsidiary and New Hikvision phase 1 October 16th Security Industry Base (Tonglu) Security Video 2014 Project(《关于在桐庐投资设立全 Industrial product 资子公司及新建海康威视安防产 Base Self-built YES and 16,455,373.00 19,168,601.89 Bond 2.59% 业基地(桐庐)项目的公告》 (NO. (Tonglu) service 2014-044). phase 2 Video www.cninfo.com. Announcement Internet product about the Company’s New Security and September Construction of Internet Security Self-built YES 345,982,823.01 584,252,250.38 Bond 58.43% th Industry service 16 2014 Industry Base Project (《关于新建 Base 海康威视互联网安防产业基地项 目的公告》)(NO. 2014-035). Total -- -- -- 378,661,692.43 1,254,904,054.12 -- -- -- -- 18 Hikvision 2017 HY Report 4. Financial assets measured at their fair values Unit: RMB Profits or losses on the Cumulative fair Sales during Cumulative Initial investment Purchase during the Closing Source of Category changes in fair value change the reporting investment cost reporting period balance funds value in this charged to equity period income period Derivative Company's 2,485,985,565.37 38,552,490.41 -- 1,039,730,776.53 -- 22,296,650.52 792,453,647.02 instruments own funds Total 2,485,985,565.37 38,552,490.41 -- 1,039,730,776.53 -- 22,296,650.52 792,453,647.02 -- 5. Securities Investments □ Applicable √ Inapplicable No such case in the reporting period. 6. Derivatives Investments √Applicable □ Inapplicable Unit:0,000 RMB Proportion Acutual Initial of the Operation Opening closing gain or Type of investment provisions Company’s party of Whether Whether related Initial Termination balance of balance of loss derivative amount of (if net assets at derivative Related party transaction date date investment investment during the investment dirivatives apply) the end of investment amount amount reporting the reporting perio period Foreign January December Bank No No currency 248,598.56 248,598.56 -- 79,245.36 3.27% 2,229.67 1st 2017 31st 2017 hedging Total 248,598.56 -- -- 248,598.56 -- 79,245.36 3.27% 2,229.67 Source of capital Company’s own fund Announcement date for approvals of derivative investment from the board April 14th 2017 of directors (if applicable) The Company’s derivative investments were all foreign currency hedging Risk analysis and control measures (including but not limited to, market transactions,for details about risk analysis and control measures, pease refer to risk, liquidity risk, credit risk, operational risk, legal risk, etc.) of holding Anouncement of 2017 Foreign Currency Hedging Transactions(《关于 2017 年开 derivative investment 展外汇套期保值交易的公告》) disclosed on April 14th 2017(NO.2017-013). 19 Hikvision 2017 HY Report The Company’s accounting of derivatives’ fair value was mainly about the Change of market price or fair value of invested derivatives during the outstanding foreign currency forwards signed with various banks; Tradable reporting period; specific methods, related assumptions and parameter financial assets/liabilities were determined with difference between the strike rate setting of the derivative fair value analysis should be disclosed. offered in contracts and future forward exchange rate (by terms) of outstanding foreign currency forwards at the end of the reporting period. During the current reporting period, whether there was significant changes of accounting policies and bookkeeping procedures of the Company’s No significant change derivativescomparing to the prior reporting period. Specific opinions on risk control of the Company’s derivative investments Not applicable from independent directors. 7. Use of raised funds □ Applicable √ Inapplicable During the reporting period, there was no use of raised fund 8. Significant non-fundraising investment during the reporting period □ Applicable √ Inapplicable During the reporting period, there was no such case as significant non-fundraising investment. VI. Disposal of significant assets and equity 1. Disposal of significant assets: □ Applicable √ Inapplicable During the reporting period, there was no disposal of significant assets 2. Sale of significant equity: □ Applicable √ Inapplicable VII. Analysis of major subsidiaries and investees √ Applicable □ Inapplicable Information about major subsidiaries, and investees that contribute above 10% of the Company’s Net Profit Unit:RMB 20 Hikvision 2017 HY Report Company Company Registered Revenue from Principal business Total assets Net assets Operating profit Net profit name type capital operation Technology development and service: computer system integration, electronic product, communication product; Hangzhou service: the installation of Hikvision electric security System Subsidiary engineering, the design, 150 million 2,238,553,063.55 685,271,562.56 1,031,924,624.51 23,706,735.08 33,626,316.15 Technology. construction and Co., Ltd. maintenance of intelligent system; manufacturing: video surveillance system, selling its own products, import and export its own products and technology. Manufacturing: security electronic product, intelligent hardware Hangzhou products, explosion-proof Hikvision electric products., IC card 1000 Science and Subsidiary and IC card RW device, 22,452,628,980.42 1,727,048,680.71 16,097,879,917.83 173,456,062.47 204,969,378.55 million Technologies mobile phone, cordless Co. Ltd. phone, handheld wireless terminal, hand held mobile police terminal; import and export business Information about obtaining and disposal of subsidiaries during the reporting period √ Applicable □ Inapplicable Company name Equity acquisition and disposal mode Impact on overall production results Hangzhou Hik Ximu Intelligent Technology Co., Merger under common control Business development Ltd. Hikvision New Zealand Limited Cash contribution Expand overseas sales channels Wuhan HIK Storage Technology Co., Ltd. Cash contribution Business development Urumchi Hai Shi Xin An Electronics Technology Cash contribution Business development Co., Ltd. Chengdu Hikvision Digital Technology Co., Ltd. Cash contribution Business development Hikvision Kenya (Pty) Ltd. Cash contribution Expand overseas sales channels Hikvision Tashkent LLC. Cash contribution Expand overseas sales channels Hikvision Hungary Kft Cash contribution Expand overseas sales channels Wuhan Hikvision System Technology Co., Ltd. Liquidation Adjustments of organizational framwork VIII. Structural entities controlled by the Company □ Applicable √ Inapplicable 21 Hikvision 2017 HY Report IX. Guidance on the Company’s operational result from January 1st 2017 to September 30th 2017 Guidance on the Company’s operational performance during January 1 st, 2017 to September 30th, 2017: Net profits attributable to shareholders of the Company are positive, and situation of turning losses into gains is not applicable. Estimated YoY change (%) of net profits attributable to shareholders of the 15% to 35% Company from January 1st , 2017 to September 30th, 2017 Estimated variation interval of net profits attributable to shareholders of the 557,952.68 To 654,987.92 Company from January 1St , 2017 to September 30th, 2017 (0,000 RMB) Net profits attributable to shareholders of the Company from January 1 st , 485,176.24 2016 to September 30th, 2016 (0,000 RMB) (Note) Note of change in operational results The Company’s operating performance continues to have a steady growth. Note: Net profits attributable to shareholders of the Company from January 1 st , 2016 to September 30th, 2016 after making retroactive adjustments for business merger under common control. X. Risks of the Company and risk response solutions During the reporting period, there was no major change in risk factors of the Company, please refer to Section I-Important Notes. The Company has been trying hard to identify various risk exposures, actively adaptating risk response solutions to avoid and reduce risks: (1) Risk of technology upgrade: Through continuous R&D investments, the Company closely tracks the frontier technologies and keeps the competitiveness in core technology. Through steady and reliable R&D managements, the Company has developed efficient R&D that fit into the markets, maintained rapid response to market demand on products and techonologies, and realized sustainable development. 2) Risk of product information security: the Company has always been dedicating to enhance the product safty through actively applying various measures. Through building up professional cybersecurity team, establishing specific cybersecurity department, and establishing a complete set of product safety gurantee system, the Company has built various cybersecurity assurance efforts such as safety demand, safety design, safety development, and safety testing into the development lifecyle of products, in order to ensure the continuous improvements on product and system safety, and provide more secure product and solutions to customers. 3) Risk of foreign exchange: the Company pays high attention on risk management of foreign currency exchange risk, and manages foreign exchange risk through hedging products. For exchange rate risk exposure, the Company actively uses financial hedging tools, not for the purpose of speculation, to realize resonable risk management. 22 Hikvision 2017 HY Report 4) Risk of management: the Company continued to promote management reform and consistently improve organizational capabilities. During the reporting period, the Company continued to learn from the best practice in the industry, enhance orgainizational capability, and improve management level, in order to response to various potential market uncertainties through rules and procedures. XI. Reception of activities including research, communication and interviews during the report period √ Applicable □ Inapplicable (1) Reception of research activities. Type of reception Time of reception Method of reception Basic situation of the research object From January 3rd, 2017 to Site Research and Institutional and CNINF, Investor Relations Activity Record: From January 3rd, 2017 to January 20th, telephone individual January 20th, 2017 2017 communication investors From February 6th, 2017 to Site Research and CNINF, Investor Relations Activity Record: From February 6th, 2017 to February 10th, Institutional telephone February 10th, 2017 investors 2017 communication From February 13th, 2017 to Site Research and CNINF, Investor Relations Activity Record: From February 13th, 2017 to February Institutional telephone February 24th, 2017 investors 24th, 2017 communication From February 27th, 2017 to Site Research and CNINF, Investor Relations Activity Record: From February 27th, 2017 to March 10th, Institutional telephone March 10th, 2017 investors 2017 communication Annual Institutional and th April 14 , 2017 performance result individual CNINF, Investor Relations Activity Record: April 14th, 2017 Conference Call investors Site Research and CNINF, Investor Relations Activity Record: From April 17th, 2017 to April 28th, 2017 From April 17th, 2017 to April Institutional telephone 28th, 2017 investors communication Institutional and Investor Reception th May 4 , 2017 individual CNINF, Investor Relations Activity Record: May 4th, 2017 Day investors Site Research and From May 8th, 2017 to May Institutional telephone CNINF, Investor Relations Activity Record: From May 8th, 2017 to May 19th, 2017 th 19 , 2017 investors communication Site Research and From May 22nd, 2017 to May Institutional telephone CNINF, Investor Relations Activity Record: From May 22nd, 2017 to May 27th, 2017 27th, 2017 investors communication 23 Hikvision 2017 HY Report Type of reception Time of reception Method of reception Basic situation of the research object Site Research and From June 5th, 2017 to June 9th, Institutional telephone CNINF, Investor Relations Activity Record: From June 5th, 2017 to June 9th, 2017 2017 investors communication Site Research and From June 12th, 2017 to June Institutional telephone CNINF, Investor Relations Activity Record: From June 12th, 2017 to June 23rd, 2017 rd 23 , 2017 investors communication (2) Participation of conferences for investor relationship activities Time of Location Conference Name Type of reception object Method of reception conference Morgan Stanley China Technology, Media & Institutional and individual One-on-One, One-on-multi, small group January 2017 Beijing Telecoms Conference investors Meetings, and etc. One-on-One, One-on-multi, small group Institutional and individual January 2017 Shanghai UBS Greater China Conference 2017 Meetings, and etc. investors One-on-One, One-on-multi, small group Institutional and individual January 2017 Beijing Deutsche Bank Access China Conference 2017 Meetings, and etc. investors ZhongTai Securities 2017 Capital Market Institutional and individual One-on-One, One-on-multi, small group February 2017 Hangzhou Summit investors Meetings, and etc. GuangFa Securities Innovation and Recovery Institutional and individual One-on-One, One-on-multi, small group March 2017 Shanghai Summit investors Meetings, and etc. BoA Merrill Lynch 2017 Asia Pacific Institutional and individual One-on-One, One-on-multi, small group March 2017 Taibei Telecom, Media & Technology Conference investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group April 2017 Hongkong Jefferies GetSmart Experts Summit on AI investors Meetings, and etc. Guosen Securities 2017 Spring Leading Listed Institutional and individual One-on-One, One-on-multi, small group April 2017 Hangzhou Company Forum investors Meetings, and etc. CITI One-on-One, One-on-multi, small group Institutional and individual April 2017 Hongkong HK/China Corporate day – AI and Emerging Meetings, and etc. investors Technologies Haitong Securities 2017 Spring A-share Institutional and individual One-on-One, One-on-multi, small group April 2017 Hangzhou Corporation Forum investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group April 2017 Hongkong Macquarie 2017 Greater China Conference investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group April 2017 Hongkong HongKong NDR – via Macquarie investors Meetings, and etc. 24 Hikvision 2017 HY Report Time of Location Conference Name Type of reception object Method of reception conference GF Securities Spring Listed Company Institutional and individual One-on-One, One-on-multi, small group April 2017 Hangzhou Non-disclosure Investment Forum investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group May 2017 New York UBS 2nd China A-Share Conference investors Meetings, and etc. Credit Suisse SZ-HK Connection Investment Institutional and individual One-on-One, One-on-multi, small group May 2017 Shenzhen Summit investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group May 2017 Shenzhen HSBC Annual China Investment Summit investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group May 2017 Tianjin CLSA 2017 China Forum investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group May 2017 Hongkong BNP Paribas 8th Asia Pacific TMT Conference investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group May 2017 Hongkong CICC TMT Summit-AI Forum investors Meetings, and etc. Goldman Sachs TechNet Conference Asia Institutional and individual One-on-One, One-on-multi, small group May 2017 Hongkong Pacific 2017 investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group May 2017 Beijing Morgan Stanley’s Third Annual China Summit investors Meetings, and etc. Bank of America Merrill Lynch 2017 Institutional and individual One-on-One, One-on-multi, small group June 2017 Shenzhen Innovative China Forum investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group June 2017 Beijing J.P. Morgan Global China Summit 2017 investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group June 2017 Singapore Nomura Investment Forum Asia (NIFA) 2017 investors Meetings, and etc. Haitong Securities 2017 Mid-year A-share Institutional and individual One-on-One, One-on-multi, small group June 2017 Qingdao Corporation Conference investors Meetings, and etc. Merchants Securities 2017 Mid-year Institutional and individual One-on-One, One-on-multi, small group June 2017 Guangzhou Conference and Investment Summit investors Meetings, and etc. Institutional and individual One-on-One, One-on-multi, small group June 2017 NYC-Chicago USA NDR-via CITI investors Meetings, and etc. Huatai Securities 2017 Summer Investment Institutional and individual One-on-One, One-on-multi, small group June 2017 Hangzhou Conference investors Meetings, and etc. CICC 2017 2nd Half Year Investment Institutional and individual One-on-One, One-on-multi, small group June 2017 Shanghai Conferenc investors Meetings, and etc. Industrial Securities 2017 Greater China Institutional and individual One-on-One, One-on-multi, small group June 2017 Shanghai Mid-year Investment Conference investors Meetings, and etc. June 2017 Hongkong DB Access China Industrials Corporate Day Institutional and individual One-on-One, One-on-multi, small group 25 Hikvision 2017 HY Report Time of Location Conference Name Type of reception object Method of reception conference investors Meetings, and etc. (3) Investor relations activity statistics during the reporting period Number of daily research received (Site and telephone 211 conference) Number of institutional investors received (times) 1248 Number of individual investors received (ppl) 47 Number of investor relations conference participated 31 26 Hikvision 2017 HY Report Section V Significant Events I. Annual General Meeting and Extraordinary General Meetings convened during the reporting period 1. Annual General Meeting convened during the current reporting period Proportion of Meeting Nature Convened Date Disclosure Date Disclosure Index participating investors Annual General No. 2017-022; 2016 Annual General Meeting 70.01% May 4th, 2017 May 5th, 2017 Meeting www.cninfo.com.cn 2. Extraordinary general meetings convened at the request of preferred shareholders with resumed voting rights: □ Applicable √ Inapplicable II. Profit distribution and Capitalizing of Capital Reserves Plan or Proposal for the reporting period □ Applicable √ Inapplicable The Company will not distribute cash dividend, bonus shares or capitalize capital reserves during for 2017 first half year. 27 Hikvision 2017 HY Report III. Complete and incomplete commitments of the Company, Shareholders, Actual Controller, Acquirer, Directors, Supervisor, Senior Executives or other related parties √ Applicable □ Inapplicable Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments 1. Commitments in non-competition within the industry: In the period as controlling shareholders of the Hikvision, CETHIK and its controlling subsidiaries (excluding Hikvision and its subsidiaries, the same below) will not be engaged in such business that is competitive to Hikvision and its subsidiaries directly or indirectly. 2. Commitments in decrease and regulation of transactions with related party: Zhejiang Haikang Group Co., Ltd (hereinafter referred to as Haikang Group or actual controller) as the controlling shareholders of Hangzhou Hikvision Digital Technology Co., Ltd (hereinafter referred to as "Hikvision" or "Listed Company") are commited as below for the transactions with Hikvsion: (1) Haikang Group will not make use of the controlling power to offer more Commitments in favorable conditions to Hikvision than those to any independent third party offering documents 29 October, Strict CETHIK Group Co., Ltd. in any fair market transactions in the cooperation with Hikvision. Long-term or shareholding 2013 performance (2) Haikang Group will not make use of the controlling power to obtain the alterations prior right to complete the transaction with Hikvision. (3) Haikang Group will not deal with Hikvsion in not fair terms comparing to the market prices to prejudice the Company’s interests. For unavoidable related transactions, the Company will observe the principles of justice and fairness to deterimine prices according to the market on the basis of equality, voluntarily. The Company will obey the Articles of Association and other regulatory documents related to the avoiding of issues about related transactions. The related transactions will go through approval procedures in accordance with related rules and complete legal procedures, fulfilling the information disclosure obligations in respect to the related transactions 3. Commitment to the maintenance of the independence of the listed 28 Hikvision 2017 HY Report Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments Company 3.1 Commitment to Personnel Independence of the listed Company (1) Commitment that our general manager, deputy general manager, chief financial officer, secretary of the board and other members of senior management shall not assume any positions other than directors and supervisors or get any remuneration in CETHIK and/or any of its controlled entities; (2) Commitment in keeping the management of labor, human resources and issues related to remuneration of the listed Company independent from that of CETHIK; 3.2 Commitment to the independence of the asset of the listed Company (1) Commitment to independent and complete asset of the listed Company (2) Commitment free of unlawful use of cash and asset of the listed Company by the controlling shareholders 3.3 Commitment to financial independence of the listed Company (1) Commitment to an independent finance department with a team and accounting system; (2) Commitment to a regulated, independent accounting system and financial management system of the branches and subsidiaries (3) Commitment to maintaining accounts with banks independently of and not sharing any bank account with our controlling shareholders (4) Commitment that the financial staff shall not assume any positions in CETHIK (5) Commitment to paying taxes independently according to the law; (6) Commitment to implementing financial decisions independently 3.4 The Company has set up an independent organizational structure which maintains its independent operations which is independent from that of CETHIK. 3.5 Commitment to business Independence of the listed Company (1) The Company has the asset, personnel, aptitude and management capability for independent and complete business operation. The Company has the ability to operate independently in the market. (2) Commitment in independence in both business and operations 29 Hikvision 2017 HY Report Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments 4. Regarding plans for the development and relevant commitment for the listed Company, Haikang Group has committed as below for the subsequent development of Hikvsion according to the Securities Acts and relevant laws and rules, 4.1 Currently the Company has no plan to change or make significant adjustments for principal business in the next 12 months; 4.2 Currently the Company has no plan to sell, merge or operate with another Company for the assets and business of the listed Company or its subsidiaries in the next 12 months. 4.3 Currently the Company has no plan to alter the Board of the Directors and senior management and no agreement with other shareholders about the appointment and removal of the directors or senior management. The team of Board of Directors and senior management will remain unchanged for the foreseeable future. 4.4 Currently the Company has no plan to make significant changes to the Articles of Association for the listed Company. 4.5 Currently the Company has no plan to make significant changes to the existing employee recruitment for the listed Company. 4.6 Currently the Company has no plan to make significant changes for the dividend distribution plan for the listed Company. 4.7 Currently the Company has no plan to make significant changes for business and organizational structure for the listed Company. Hangzhou Weixun Investment Management During Hu Yangzhong, Wu Weiqi, JiangHaiqing, Zhou Zhiping, Xu Lirong, Commitments in Initial Public Limited Partnership(later renamed as Xinjiang Cai Dingguo, He Hongli, Zheng Yibo, Hu Dan,、Jiang Yufeng, Liu Xiang, Strict 17 May, 2010 Long term Offering or Weixun Investment Management Limited Wang Ruihong, Chen Junke’s tenure of the Company’s board of directors, performance re-financing Partnership) supervisors and senior management personnel, the annual transfer of 30 Hikvision 2017 HY Report Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments Hikvision’s total shares should not exceed 25% of total number of shares held under Weixun; within 6 months after abovementioned personnel’s dimission, should not transfer hikvision’s shares held under Weixun. During Hu Yangzhong, Wu Weiqi, Gong Hongjia’s tenure of the Company’s board of directors, supervisors and senior management personne, the annual Hangzhou Pukang Investment Limited transfer of Hikvision’s total shares should not exceed 25% of total number of Strict Partnership(later renamed as Xinjiang Pukang 17 May, 2010 Long term shares held under Pukang; whithin 6 months after abovementioned performance Investment Limited Partnership) personnel’s dimission, should not transfer hikvision’s shares held under Pukang. The Company's directors, supervisors and executive: HuYangzhong,Wu Weiqi, Jiang During their tenure of the Company’s board of directors, supervisors and Haiqing, Zhou Zhiping,Xu Lirong, Cai senior management personnel, the annual shares transfer should not exceed Strict 17 May, 2010 Long term Dingguo, He Hongli, Zheng Yibo, Hu Dan, 25% of total number of shares held under Weixun; whthin 6 months after performance Jiang Yufeng, Liu Xiang, Wang Ruihong, Chen their dimission, they should not transfer their shares held under Weixun. Junke During their tenure of the Company’s board of directors, supervisors and Directors, executive officers of the Company: senior management personnel, the annual shares transfer should not exceed Strict 17 May, 2010 Long term Hu Yangzhong, Wu Weiqi 25% of total number of shares held under Pukang; whthin 6 months after performance their dimission, they should not transfer their shares held under Pukang. During Gong Hongjia’s tenure of the Company’s board of directors, supervisors and senior management personnel, Chen’s annual shares transfer The Company’s director Gong Hongjia’s Strict should not exceed 25% of total number of shares held under Pukang; whthin 17 May, 2010 Long-term spouse, Chen Chunmei performance 6 months after the dimission of Gong Hongjia,Chen should not transfer her shares held under Pukang. China Electronics Technology Group To avoid any loss of the Company and other shareholders arising from any 18 Strict Long term Corporation competing business, China Electronics Technology Group Corporation, the September, performance 31 Hikvision 2017 HY Report Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments actual controller of the Company, issued Letters of non-competition on 18 2008 September, 2008. Gong Hongjia; To avoid any loss of the Company and other shareholders arising from any XinJiang WeiXun Investment Management competing business, Gong Hongjia, Hangzhou WeiXun Investment Limited Partnership; Management Limited Partnership, ZheJiang Orient Holdings Co., Ltd and Strict Hangzhou KangPu Investment Management Limited Partnership, the Long term XinJiang KangPu Investment Management promoters of the Company, issued Letters of non-competition on 10 July, 10 July, 2008 performance Limited Partnership;ZheJiang Orient Holdings 2008. Co., Ltd. Whether the undertaking is Yes fulfilled in time IV. Engagement and disengagement of the CPA firm The Company’s half year report was not audited. V. Explanation given by the board of directors and supervisory committee regarding the “non-standard auditor’s report” issued by the CPA firm for the current reporting period □ Applicable √ Inapplicable VI. Explanation given by the board of directors regarding the “non-standard auditor’s report” issued by the CPA firm for the prior year □ Applicable √ Inapplicable 32 Hikvision 2017 HY Report VII. Bankruptcy and restructuring □ Applicable √ Inapplicable No such case in the reporting period. VIII. Litigations Material litigation and arbitration □ Applicable √ Inapplicable No such case in the reporting period. Other litigations □ Applicable √ Inapplicable IX. Media queries □ Applicable √ Inapplicable No such case in the reporting period. X. Punishments and rectifications □ Applicable √ Inapplicable No such case in the reporting period. XI. Integrity of the Company and its controlling shareholders and actual controllers □ Applicable √ Inapplicable XII. The implementation of an Equity Incentive Plan, Employee Stock Incentive Plan, or other incentive plan √Applicable □Inapplicable 1. During the reporting period, the Company completed the first time unlocking, repurchasing and cancelling shares for 2014 Restricted Share Incentive Scheme. On December 6th 2016, Resolution for the fulfillment of the unlocking conditions of the first unlock period for the the 2014 Restricted Share Incentive Schemes and the Resolution for the first repurchase and cancelation of a portion of locked shares that already granted to personnel not fulfilling the incentive conditions for 2014 Restricted Share Incentive Schemes were approved by the 19th meeting of the third Board. Authorized by the first extraordinary general meeting for 2014,a total of 30,687,650 restricted shares of 1087 grantees was vested and circulated on January 9th 2017. Meanwhile, 2,457,000 restricted shares held by a portion of grantees not fulfilling 33 Hikvision 2017 HY Report the incentive conditions were repurchased and cancelled. On April 27th 2017, repurchase and cancelation of restricted shares was complete, thereafter, there are 1094 grantees left for 2014 Restricted Share Incentive Schemes, granted and locked shares left are 46,220,473 shares For details, please refer to in the “Indicative notice of the unlocking conditions of the third unlock period for the first batch of 2014 Restricted Share Incentive Schemes” (No. 2017-001) and the “Notice of the completion of repurchase and cancelation of a portion of locked shares that already granted to personnel not fulfilling the incentive conditions for 2014 Restricted Share Incentive Schemes” (No. 2017-021) issued on January 5th 2017 and April 28th 2017 respectively. 2. During the reporting period, the Company has completed the grants of 2016 Restricted Share Incentive Scheme On December 23rd 2016, Resolution for granting restricted shares to planned grantees for 2016 Restricted Shares Incentive Scheme was approved by the 20th Meeting of the third board. According to the Listed Company Equity Incentive Measures and other administration or relevant laws, regulations and departmental rules and regulated documents, as well as 2016 Restricted Shares Incentive Scheme (edited draft) and authorizations approved by the 2016 2nd extraordinary general meeting, the Company has completed granting and registration of 2016 Restriced Shares Incentive Sheme, with 2936 granted personnel, and 52,326,858 granted shares which were listed on January 20th 2017. For details, please refer to in the “Indicative notice of completion of granting of 2016 Restricted Share Incentive Schemes” (No. 2017-005) issued on January 19th 2017. 3. During the reporting period, unlocked restricted shares amount were adjusted according to the implement of 2016 Equity Distribution. On May 16th 2017, the Company implemented the profit distribution proposal of s bonus issue of 5 shares for each 10 ordinary shares and distribute cash dividend of RMB 6 per each 10 shares. Therefore, the granted and locked shares of 2014 Restricted Shares Incentive Scheme were adjusted to 69,330,709 shares accordingly, and 2016 Restricted Shares Incentive Scheme were adjusted to 78,490,287 shares accordingly By the end of the reporting period, the Company has 147,820,996 granted and locked shares in total, 1.60% of the Company’s total capital shares. 34 Hikvision 2017 HY Report 4. Share incentives for directors and senior executives in the Reporting Period Unit: share Restricted Shares held at the Shares unlocked in the Shares granted in the current Restricted Shares held at the Name Title beginning of the reporting current period period end of the reporting period period Hu Yangzhong Director, General Manager 292,500 117,000 160,500 336,000 Director, Executive Deputy General Wu Weiqi 261,000 104,400 148,500 305,100 Manager Jiang Haiqing Deputy General Manager 225,000 90,000 123,000 258,000 Zheng Yibo Deputy General Manager 202,500 81,000 0 121,500 Cai Dingguo Deputy General Manager 202,500 81,000 109,500 231,000 He Hongli Deputy General Manager 193,500 77,400 138,000 254,100 Fu Baijun Deputy General Manager 193,500 77,400 196,500 312,600 Xu Lirong Deputy General Manager 193,500 77,400 109,500 225,600 Zhou Zhiping Deputy General Manager 193,500 77,400 109,500 225,600 Jiang Yufen Deputy General Manager 202,500 81,000 123,000 244,500 Jin Duo Deputy General Manager 0 0 109,500 109,500 Jin Yan Deputy General Manager 0 0 174,000 174,000 Jia Yonghua Deputy General Manager 0 0 109,500 109,500 Li Pan Deputy General Manager 0 0 109,500 109,500 Cai Changyang Deputy General Manager 0 0 109,500 109,500 Bi Huijuan Deputy General Manager 0 0 150,000 150,000 Total -- 2,160,000 864,000 1,980,000 3,276,000 Note:(1) This personnels listed above are executives who were included in 2014 restricted shares incentive plan and 2016 restricted shares incentive plan. (2) The granted date of 2016 restricted incentive shares scheme was December 23 rd, 2016; and the listing date of the restricted shares was January 20th 2017 (3) During the reporting period, in respect of changes in the number of shares due to the implementation of equity distribution for 2016, the number of shares at the beginning, the number of shares unlocked, and the number of shares granted have been adjusted accordingly. 35 Hikvision 2017 HY Report 5、Impact on operating results of the Company from the accounting treatments of the Company’s share incentive and costs of share incentive The Accounting Treatment in Relation to the Restricted Share Incentive Schemes is based on the Accounting Standard for Business Enterprises No. 11 – Share-based Payment (企业会计准则第11号-股份支付)and other accounting standards. Costs in relation to the shares granted under 2014 and 2016 Restricted Share Incentive Schemes are amortized over the waiting period for vesting. During the reporting period, costs amortized in relation to 2014 and 2016 Restricted Share Incentive Schemes of the Company have no material impact on the financial position and operating results of the Company. For details please refer to Note (XI)-Share-based payment. XIII. Significant related-party transaction 1. Related-party transactions arising from routine operation √ Applicable □ Inapplicable Proportion to the Whether Content of Amount Approved Market price Type of related Tranding amount of similar above Disclosure Related party Relationship related Valuation (0’000 trading quota Settlement of similar Disclosure reference transaction price transactions. approved date transaction RMB) (0’000 RMB) transaction quota Under the common Purchase Agreed on Research institute or control of the materials, price, Payment on Procurement -- 9,444.74 0.92% 40,000 No -- subsidiaries of CETC Company’s actual receiving reference delivery controller. services market price Annoucement on The Company’s Purchase Agreed on Shanghai Fullhan projections on 2017 director or his/her materials, price, Payment on April 14th Microelectronics Procurement -- 7,206.93 0.70% 30,000 No -- related transactions relative is the director receiving reference delivery 2017 Co., Ltd. (No:2017- of the related party services market price 012) Under the common Agreed on Research institute or control of the price, Payment on Sales Sellig Products -- 19,058.82 1.16% 80,000 No -- subsidiaries of CETC Company’s actual reference delivery controller. market price 36 Hikvision 2017 HY Report Proportion to the Whether Content of Amount Approved Market price Type of related Tranding amount of similar above Disclosure Related party Relationship related Valuation (0’000 trading quota Settlement of similar Disclosure reference transaction price transactions. approved date transaction RMB) (0’000 RMB) transaction quota Total -- -- 35,710.49 -- 150,000 -- -- -- -- -- Details on significant sales return None Total amount of related transactions projected based on different categories, Daily related transaction amount between the Company and the related parties did not exceed the total limited amount of related transactions projected actual performance during the current reporting period (if any) based on different categories. Reasons on significant difference between trading price and market Not applicable referencing price(if applicable) 2. Related-party transactions regarding purchase and disposal of assets or equity □Applicable √Inapplicable No such case in the reporting period. 3. Significant related-party transactions arising from joint investments with external parties □Applicable √Inapplicable No such case in the reporting period. 4. Related-parties’ creditor's rights and debts □ Applicable √Inapplicable No such case in the reporting period. 37 Hikvision 2017 HY Report 5. Other significant related party transactions √ Applicable □ Inapplicable Pursuant to the Proposal about the Company’s subsidiary Hangzhou Hikvision Automotive Technology Co., Ltd.’s acquisition of assets and equity and related transactions with CETC 《关于控股子公司杭州海康汽车技术有限 公司购买资产、收购股权暨与中电海康集团有限公司关联交易的议案》 approved by the 21st meeting of the 3rd session of the Board of Directors held on January 8th 2017, the Company’s subsidiary Hangzhou Hikvision Automotive Technology Co., Ltd. is approved to acquire and integrate the Company’s controlling shareholder CETHIK’s automotive electronic related business subsidiary: 1) the Company’s subsidiary Hangzhou Hikvision Automotive Technology Co., Ltd. acquired the asset group of CETHIK’s Intelligent Automotive Department with acquisition target price of RMB 68.02 million. During the transitional period, the acquisition price was auditied and adjusted up with RMB 11.39 million, and the final settlement price was RMB 79.41 million; 2) Hangzhou Hik Ximu Intelligent Technology Co., Ltd.(hereinafter refer to “Hik Ximu”), CETHIK’s holding subsidiary, was acquired with RMB 16.30 million, 100% equity; of which RMB 9.78 million was for acquiring 60% shares of HIK Ximu held by CETHIK, and RMB 6.52 million was for acquiring 40% shares of HIK Ximu held by 7 individual shareholders including Yang Feng. As of the end of the reporting period, Hikvision Automotive Technology has completed the acquisition and integration of the asset group of CETHIK’s Intelligent Automotive Department, and the changes in registration related to acquisition of Hik Ximu. For details, please refer to Note (VI) 1-business merger under common control. Pursuant to the Proposal of investment and establishment of Wuhan Hik Storage Technology Co., Ltd. (temporary name) approved by the 22ned meeting of the 3rd seesion of the Board of Directors held on April 12th 2017, Hikvision and Co-investment Partnership enterprise will jointly invest RMB 100 million to establish Wuhan Hik Storage Technology Co., Ltd.; Hikvison will contribute cash capital of RMB 60 million, holding 60% of the equity of Hik Storage; Co-investment Partnership enterprise will contribute cash capital of RMB 40 million, holding 40% of the equity of Hik Storage. On April 17th 2017, Hik Storage’s industrial and commercial establishment registration was completed. Disclosure website for provisional reports on significant related transactions: Title of provisional reports Disclosure date Disclosure websidte Proposal about Acquisition of assets and equity, and January 19th 2017 www.cninfo.com.cn related transactions Proposal about investment and establishement of innovative business subsidiary and related April 14th 2017 www.cninfo.com.cn transactions XIV. Significant contracts and their execution 1. Trusteeship, contracting and leasing (1) Trusteeship □ Applicable √ Inapplicable No such case in the reporting period. 38 Hikvision 2017 HY Report (2) Contracting □ Applicable √ Inapplicable No such case in the reporting period. (3) Leasing □ Applicable √ Inapplicable No such case in the reporting period. 39 Hikvision 2017 HY Report 2. Significant guarantees √Applicable □ Inapplicable (1) Details of gurantees Unit: RMB’0000 Guarantees provided by the Company for subsidiaries Disclosrue date of Actual occurrence date Guarantee for a Guarantee Actual guaranteed Guaranteed party announcement of the (date of agreement Type of guarantee Term of guarantee Due or not related party or Cap amount guarantee cap signing) not Hangzhou Hikvision Science and Technologies April 14th 2017 750,000 December 25th 2015 373,141.38 Joint guarantee 2015.12.15-2019.2.16 No Yes Co. Ltd. Hangzhou Hikvision Zhicheng Investment and April 14th 2017 10,000 June 13th 2017 1,200 Joint guarantee 2017.6.13-2018.6.13 No Yes Development Co. Ltd. Hangzhou Hikvision System Technology Co., Ltd April 14th 2017 80,000 March 3rd 2016 1,244.05 Joint guarantee 2016.3.3-2019.11.24 No Yes HIKVISION INTERNATIONAL CO., LTD. April 14th 2017 300,000 September 8th 2016 25,163.92 Joint guarantee 2016.9.8-2017.9.8 No Yes Hangzhou Hikvision Electronics Co. Ltd. April 14th 2017 100,000 March 10th 2017 5,452.1 Joint guarantee 2017.3.10-2017.7.30 No Yes Chongqing Hikvision Science and Technologies Co., April 14th 2017 70,000 No such case during the reporting period Ltd. Chongqing Hikvision System Technology Co., Ltd. April 14th 2017 30,000 No such case during the reporting period Hangzhou Hikvision Communication Technology April 14th 2017 10,000 No such case during the reporting period Co., Ltd. Urumchi Hai Shi Xin An Electronics Technology April 14th 2017 55,000 No such case during the reporting period Co., Ltd. Total actual guarantee amount for subsidiaries Total guarantee cap for subsidiaries approved during the reporting period(B1) 194,200 471,201.45 during the reporting period(B2) Total approved guarantee cap for subsidiaries at the end of the reporting 1,405,000 Total actual guarantee balance for subsidiaries at 406,201.45 period(B3) 40 Hikvision 2017 HY Report Guarantees provided by the Company for subsidiaries Disclosrue date of Actual occurrence date Guarantee for a Guarantee Actual guaranteed Guaranteed party announcement of the (date of agreement Type of guarantee Term of guarantee Due or not related party or Cap amount guarantee cap signing) not the end of the reporting period(B4) Total guarantee amount provided by the Company (total of the above-mentioned kinds of guarantees) (During the reporting period, there was no such case as gurantee provided for external parties, or gurantees between subsidiaries, therefore, there is only item B, item A or C is nil) Total guarantee cap approved during the reporting Total actual guarantee amount during the reporting 194,200 471,201.45 period (A1+B1+C1) period (A2+B2+C2) Total approved guarantee cap at the end of reporting Total actual guarantee balance at the end of the 1,405,000 406,201.45 period (A3+B3+C3) reporting period (A4+B4+C4) Portion of the total actual guarantee amount (A4+B4+C4) in net assets of the Company 16.89% Of which Amount of guarantees provided for shareholders, the actual controller and their related parties (D) 0 Amount of debt guarantees provided directly or indirectly for entities with a liability-to-asset ratio over 70% (E) 398,305.30 Portion of the total guarantee amount in excess of 50% of net assets (F) 0 Total guarantee amount of the above-mentioned 3 kinds of guarantees (D+E+F) 398,305.30 Illustration of compound method guarantee As required by the project owner, China Electronics Technology Group Corporation has provided a joint guarantee to responsibility and duties of 41 construction projects of “Safe Chongqing, Emergency Control System Digital Construction Project,” signed by Chongqing Hikvision System Technology Co., Ltd. Meanwhile, the Company provides a counter guarantee to China Electronics Technology Group Corporation. 41 Hikvision 2017 HY Report (2) Illegal provision of guarantees for external parties □ Applicable √ Inapplicable No such case in the reporting period. (3) Other significant contracts □ Applicable √ Inapplicable No such case in the reporting period. XV. Social responsibility 1.Fulfillment of the social responsibility of targeted poverty alleviation The Company did not conduct any targeted poverty alleviation during the reporting period and had no future arrangement for targeted poverty alleviation. 2. Significant environmental problems Whether the listed Company and its subsidiaries are critical pollutant enterprises regulated by national environmental protection department Not applicable XVI. Other significant events □ Applicable √ Inapplicable No such case in the reporting period. XVII. Significant events of subsidiaries □ Applicable √ Inapplicable 42 Hikvision 2017 HY Report Section VI Changes in Shares and Information about Shareholders I. Changes in Share Capital 1. Table of changes in share capital Unit: Share Before the change Changes in the period (+, -) After the change New Shares Share Issued Bonus transferred Shares Ratio Others Sub-total Shares Ratio share from capital reserve 1. Shares subject to conditional 1,417,926,033 23.23% 52,326,858 657,071,365 -- -156,110,156 553,288,067 1,971,214,100 21.36% restriction(s) 3) Other domestic shares 580,944,783 9.50% 52,281,658 284,111,265 -- -65,003,906 271,389,017 852,333,800 9.24% Including: held by 420,578,437 6.89% 0 194,164,218 -- -32,250,000 161,914,218 582,492,655 6.31% domestic enterprises Including: held by 160,366,346 2.61% 52,281,658 89,947,047 -- -32,753,906 109,474,799 269,841,145 2.92% domestic natural person 4) Foreign shares 836,981,250 13.71% 45,200 372,960,100 -- -91,106,250 281,899,050 1,118,880,300 12.12% Including: held by overseas 0 0.00% 0 0 -- 0 0 0 0.00% enterpirses Including: held by overseas 836,981,250 13.71% 45,200 372,960,100 -- -91,106,250 281,899,050 1,118,880,300 12.12% natural person 2. Shares without restriction 4,684,780,852 76.77% 0 2,419,217,006 -- 153,653,156 2,572,870,162 7,257,651,014 78.64% 1) RMB ordinary shares 4,684,780,852 76.77% 0 2,419,217,006 -- 153,653,156 2,572,870,162 7,257,651,014 78.64% 3. Total 6,102,706,885 100.00% 52,326,858 3,076,288,371 -- -2,457,000 3,126,158,229 9,228,865,114 100.00% Reason for the changes in share capital √ Applicable □ Inapplicable (1)Grants of 2016 Restricted Share Incentive Scheme On December 23rd 2016, Resolution for granting restricted shares to planned grantees for 2016 Restricted Shares Incentive Scheme was approved by the 20th Meeting of the third board. According to the Listed Company Equity Incentive Measures and other administration or relevant laws, regulations and departmental rules and regulated documents, as well as 2016 Restricted Shares Incentive Scheme (edited draft) and authorizations 43 Hikvision 2017 HY Report approved by the 2016 2nd extraordinary general meeting, the Company has completed granting and registration of 2016 Restriced Shares Incentive Sheme, with 2936 granted personnel, and 52,326,858 granted shares which were listed on January 20th 2017. The Company’s total capital shares were increased by 52,326,858 shares to 6,155,033,743 shares from 6,102,706,885 shares. (2)First Repurchasing and Cancelling shares for 2014 Restricted Share Incentive Scheme. On December 6th 2016, Resolution for the fulfillment of the unlocking conditions of the first unlock period for the the 2014 Restricted Share Incentive Schemes and the Resolution for the first repurchase and cancelation of a portion of locked shares that already granted to personnel not fulfilling the incentive conditions for 2014 Restricted Share Incentive Schemes were approved by the 19th meeting of the third Board. Authorized by the first extraordinary general meeting for 2014,the Board agreed to repurchase and cancel 2,457,000 restricted shares held by a portion of grantees not fulfilling the incentive conditions. On April 27th 2017, the Company completed the above-mentioned repurchase and cancelling procedures, the Company’s total capital shares were decreased by 2,457,000 shares from 6,155,033,743 shares to 6,152,576,743 shares. (3)Implementation of 2016 Equity Distribution According to the “2016 Profit Distribution Scheme” approve on 2016 Annual General Meeting, based on total capital shares of 6,152,576,743 shares, all shareholders will receive a cash dividend of RMB 6 (tax inclusive) per each 10 shares; and the Company proposed to bonus issue of 5 shares (tax inclusive) for each 10 ordinary shares; share distribution from capital reserve is nil. The ex-dividend date of this equity distribution is May 16th 2017, the total Company’s capital shares were increased by 3,076,288,371 shares from 6,152,576,743 shares to 9,228,865,114 shares. Approval for changes in share capital √ Applicable □ Inapplicable (1)Grants of 2016 Restricted Share Incentive Scheme On December 23rd 2016, Resolution for granting restricted shares to planned grantees for 2016 Restricted Shares Incentive Scheme was approved by the 20th Meeting of the third session of the Board. According to the authorizations approved by the 2016 2nd extraordinary general meeting, the board agreed to grant 2989 personnels with 53,557,028 shares. The granting day was December 23rd 2016. In the payment process of capital, part of the grantees partially or completely renounce the subscription of the incentive shares, resulted in an actual granted 2936 personnels, with 52,326,858 granted shares. (2)First Repurchasing and Cancelling shares for 2014 Restricted Share Incentive Scheme. On December 6th 2016, Resolution for the first repurchase and cancelation of a portion of locked shares that already granted to personnel not fulfilling the incentive conditions for 2014 Restricted Share Incentive Schemes were approved by the 19th meeting of the third session of the Board. Authorized by the first extraordinary general meeting for 2014,the Board agreed to repurchase and cancel 2,457,000 restricted shares held by a portion of grantees not fulfilling the incentive conditions. (3)Implementation of 2016 Equity Distribution On April 12th 2017, 2016 Profit Distribution Scheme was approved by the 22nd meeting of the 3rd board; on May 4th 2017, 2016 Profit Distribution Scheme was approved by 2016 Annual General Meeting. Transfer for changes in share capital √ Applicable □ Inapplicable 44 Hikvision 2017 HY Report (1)Grants of 2016 Restricted Share Incentive Scheme 2016 granted restricted incentive shares were listed on January 20th 2017. The Company’s total capital shares were increased by 52,326,858 shares to 6,155,033,743 shares from 6,102,706,885 shares. (2)First Repurchasing and Cancelling shares for 2014 Restricted Share Incentive Scheme. On April 27th 2017, the Company completed the procedures of first Repurchasing and Cancelling shares for 2014 Restricted Share Incentive Scheme, the Company’s total capital shares were decreased by 2,457,000 shares from 6,155,033,743 shares to 6,152,576,743 shares. (3)Implementation of 2016 Equity Distribution The ex-dividend date of 2016 annual equity distribution is May 16th 2017, the total Company’s capital shares were increased by 3,076,288,371 shares from 6,152,576,743 shares to 9,228,865,114 shares. Effects of changes in share capital on the basic earning per share ("EPS"), diluted EPS, net assets per share attributable to common shareholders of the Company, and other financial indexes over the last year and last period √ Applicable □ Inapplicable 2017 Half Year 2017 Quarter 1 2016 Before After Before After Before After Item changes in changes in changes in changes in changes in changes in share capital share capital share capital share capital share capital share capital Basic Earnings per 0.537 0.357 0.245 0.163 1.227 0.815 Share(RMB/share) Diluted Earnings per 0.533 0.357 0.242 0.162 1.202 0.814 Share (RMB/share) June 30th 2017 March 31st 2017 December 31st 2016 Before After Before After Before After Item changes in changes in changes in changes in changes in changes in share capital share capital share capital share capital share capital share capital Net assets per share attributable to common 3.940 2.605 4.192 2.796 3.980 2.632 shareholders of the Company (RMB/Share) Other contents that the Company considers necessary or required by the securities regulatory authorities to disclose □ Applicable √ Inapplicable 2. Changes in restricted shares √ Applicable □ Inapplicable 45 Hikvision 2017 HY Report Unit: Share Opening restricted Unlocked in current Increased in Closing restricted Name of shareholder Note for restricted shares Date of unlocking shares period current period shares According to the relevant provisions of Gong Hongjia 1,255,246,875 136,434,375 0 1,118,812,500 Executives locked shares executives shares management Xinjiang Weixun Investment 486,607,500 48,375,000 0 438,232,500 Institution restricted share before IPO Feburary 13th 2017 Management Limited Partnership Xinjiang Pukang Investment Limited 144,260,155 0 0 144,260,155 Institution restricted share before IPO Not applicable Partnership Targets of restricted share incentive Restricted incentive shares that were listed and became 119,047,684 46,031,475 78,490,287 147,820,996 January 9th 2017 plan (summary statistic) restricted incentive equity shares Executives locked shares+ partial of the unlocked restricted Hu Yangzhong 91,750,112 73,130 117,000 91,793,982 shares turning into executives locked shares Executives locked shares+ partial of the unlocked restricted Wu Weiqi 8,221,418 65,252 104,400 8,260,566 shares turning into executives locked shares Executives locked shares+ partial of the unlocked restricted Jiang Haiqing 8,222,163 56,252 90,000 8,255,911 shares turning into executives locked shares According to the relevant provisions of Executives locked shares+ partial of the unlocked restricted executives shares management Zhou Zhiping 5,326,407 48,375 77,400 5,355,432 shares turning into executives locked shares Jia Yonghua 4,118,809 2 0 4,118,807 Executives locked shares Li Pan 4,042,926 0 0 4,042,926 Executives locked shares partial of the unlocked restricted shares turning into Huang Fanghong 45,000 45,000 70,875 70,875 executives locked shares Zheng Yibo 0 0 30,375 30,375 Partial of the unlocked restricted shares turning into 46 Hikvision 2017 HY Report Opening restricted Unlocked in current Increased in Closing restricted Name of shareholder Note for restricted shares Date of unlocking shares period current period shares executives locked shares Partial of the unlocked restricted shares turning into Jiang Yufeng 0 0 30,375 30,375 executives locked shares Partial of the unlocked restricted shares turning into Cai Dingguo 0 0 30,375 30,375 executives locked shares Partial of the unlocked restricted shares turning into Fu Baijun 0 0 29,025 29,025 executives locked shares Partial of the unlocked restricted shares turning into He Hongli 0 0 29,025 29,025 executives locked shares Partial of the unlocked restricted shares turning into Xu Lirong 0 0 29,025 29,025 executives locked shares Wang Qiuchao 0 0 11,250 11,250 Increased share holdings turning into executive locked shares Total 2,126,889,049 231,128,861 79,139,412 1,971,214,100 -- -- Note: 1. In respect of changes in shares due to the implementation of equity distribution for 2016, the number of shares at beginning balance before equity distribution, number of shares unlocked during the current period, and number of restriced shares increased during the current period have been adjusted accordingly. 2. Executives who are grantees under incentive restricted shares scheme, his/her holding incentive restricted shares are counted within the total incentive restricted shares (consolidated statistics) 3. The difference of 3,685,500 shares in total incentive restricted shares (consolidated statistics) for grantees under incentive restricted shares shceme was due to repurchasing and cancelling of 2,457,000 shares (adjusted to 3,685,500 shares in consideration of dividend distribution). Issuance and listing of securities On December 23rd 2016, Resolution for granting restricted shares to planned grantees for 2016 Restricted Shares Incentive Scheme was approved by the 20th Meeting of the third board. According to the Listed Company Equity Incentive Measures and other administration or relevant laws, regulations and departmental rules and regulated documents, as well as 2016 Restricted Shares Incentive Scheme (edited draft) and authorizations approved by the 2016 2nd extraordinary general meeting, the Company has completed granting and registration of 2016 Restriced Shares Incentive Sheme, with 2936 granted personnel, and 52,326,858 granted shares which were listed on January 20th 2017. For details, please refer to in the “Indicative notice of completion of granting of 2016 Restricted Share Incentive Schemes” (No. 2017-005) issued on January 19th 2017. 47 Hikvision 2017 HY Report II. Total number of shareholders and their shareholdings Unit: Share Total number of common shareholders at the end of the reporting period 151,799 Particulars about shares held by shareholders with a shareholding percentage over 5% or the Top 10 of them Increase/ Share- Number of Total shares held at decrease during Number of tradable Name of shareholder Nature of shareholder holding non-tradable the period-end the reporting shares held percentage (%) shares held period State-owned China Electronics Technology HIK Group Co., Ltd. 39.59% 3,653,674,956 0 0 3,653,674,956 corporation Gong Hongjia Overseas individual 16.16% 1,491,750,000 0 1,118,812,500 372,937,500 Hong Kong Securities Clearing Company Ltd.(HKSCC) Overseas corporation 7.46% 688,171,856 +648,596,333 0 688,171,856 Domestic Xinjiang Weixun Investment Management Limited non-state- 5.96% 549,720,876 -34,589,124 438,232,500 111,488,376 Partnership owned corporation Domestic non-state- Xinjiang Pukang Investment Limited Partnership 2.08% 192,346,874 0 144,260,155 48,086,719 owned corporation The 52nd Research Institute at China Electronics Technology State-owned 1.96% 180,775,044 0 0 180,775,044 Group Corporation corporation UBS AG Overseas corporation 1.35% 124,682,879 -60,290,627 0 124,682,879 Hu Yangzhong Domestic Individual 1.33% 122,786,477 +160,500 92,129,982 30,656,495 State-owned Central Huijin Investment Ltd. 0.71% 65,818,800 0 0 65,818,800 corporation Zhejiang Orient Holdings Co., Ltd. Domestic 0.55% 50,475,000 -17,380,200 0 50,475,000 3,653,674,956 48 Hikvision 2017 HY Report non-state- owned corporation China Electronics Technology HIK Group Co., Ltd. and The 52nd Research Institute at China Electronics Technology Group Corporation are all subject to control of China Electronics Technology Group Corporation. Ms. Chen Chunmei, controlling shareholder of Xinjiang Pukang Investment Limited Partnership, is the spouse of Mr. Gong Hongjia, foreign individual Explanation on associated relationship or/and persons acting shareholder of the Company. Hu Yangzhong, domestic individual, is holding shares in both Xinjiang Weixun Investment in concert among Management Limited Partnership and Xinjiang Pukang Investment Limited Partnership. the above-mentioned shareholders: Except for these, the Company does not know whether the other shareholders are related parties and whether they are acting-in-concert parties in accordance with the Measures for Management of the Disclosure (《上市公司股东持股变动信息披 露管理办法》) of the Shareholding changes of shareholders of the listed Company. Particulars about shares held by the Top 10 shareholders holding shares not subject to trading restriction(s) Type of shares Name of shareholder Number of tradable shares held at the period-end Type Number China Electronics Technology HIK Group Co., Ltd. 3,653,674,956 RMB ordinary shares 3,653,674,956 Hong Kong Securities Clearing Company Ltd.(HKSCC) 688,171,856 RMB ordinary shares 688,171,856 Gong Hongjia 372,937,500 RMB ordinary shares 372,937,500 The 52nd Research Institute at China Electronics Technology RMB ordinary shares 180,775,044 180,775,044 Group Corporation UBS AG 124,682,879 RMB ordinary shares 124,682,879 Xinjiang Weixun Investment Management Limited RMB ordinary shares 111,488,376 111,488,376 Partnership Central Huijin Investment Ltd. 65,818,800 RMB ordinary shares 65,818,800 Zhejiang Orient Holdings Co., Ltd. 50,475,000 RMB ordinary shares 50,475,000 Xinjiang Pukang Investment Limited Partnership 48,086,719 RMB ordinary shares 48,086,719 New China Life Insurance Company Ltd. – individual share RMB ordinary shares 40,170,243 40,170,243 dividend payout - Shenzhen No. 018L-FH002 49 Hikvision 2017 HY Report China Electronics Technology HIK Group Co., Ltd. and The 52nd Research Institute at China Electronics Technology Group Explanation on associated relationship or/and persons acting Corporation are all subject to control of China Electronics Technology Group Corporation. in concert among the top ten tradable shareholders and Except for these, the Company does not know whether the other shareholders are related parties and whether they are between the top ten tradable shareholders and the top ten acting-in-concert parties in according to the Measures for Management of the Disclosure (《上市公司股东持股变动信息披露管 shareholders 理办法》) of the Shareholding changes of shareholders of the listed Company. Any of the Company’s top 10 common shareholders or top 10 non-restricted common shareholders conducted any agreed buy-back in the reporting period? □ Applicable √ Inapplicable No such case during the current reporting period III. Particulars about change in controlling shareholder or actual controller Change of the controlling shareholder during the reporting period □ Applicable √ Inapplicable No such cases in the reporting period. Change of the actual controller during the reporting period □ Applicable √ Inapplicable No such cases in the reporting period. 50 Hikvision 2017 HY Report Section VII Information of Preferred Shares □ Applicable √ Inapplicable No such cases in the Reporting Period. 51 Hikvision 2017 HY Report Section VIII Information about Directors, Supervisors, Senior Management I. Shareholding changes of directors, supervisors, senior management personnel √Applicable □ Inapplicable Granted restricted Granted restricted Granted restricted Shares increased Shares decreased Shares held at the Shares held at the end shares at the beginning shares during the shares at the end of the Name Title Tenure status beginning of the Period during the Period during the Period of the Period (Shares) of the reporting period reporting period reporting period (Shares) (shares) (Shares) (shares) (shares) (shares) Chen Zongnian Chairman Incumbent 0 0 0 0 0 0 0 Gong Hongjia Vice Chairman Incumbent 1,491,750,000 0 0 1,491,750,000 0 0 0 Liu Xiang Director Incumbent 0 0 0 0 0 0 0 Director, General Hu Yangzhong Incumbent 122,625,977 160,500 0 122,786,477 292,500 160,500 336,000 Manager Director, Wu Weiqi Standing Deputy Incumbent 11,222,889 148,500 0 11,371,389 261,000 148,500 305,100 General Manager Independent Cheng Tianzong Incumbent 0 0 0 0 0 0 0 Director Independent Lu Jianzhong Incumbent 0 0 0 0 0 0 0 Director 52 Hikvision 2017 HY Report Granted restricted Granted restricted Granted restricted Shares increased Shares decreased Shares held at the Shares held at the end shares at the beginning shares during the shares at the end of the Name Title Tenure status beginning of the Period during the Period during the Period of the Period (Shares) of the reporting period reporting period reporting period (Shares) (shares) (Shares) (shares) (shares) (shares) Independent Wang Zhidong Incumbent 0 0 0 0 0 0 0 Director Independent Hong Tianfeng Incumbent 0 0 0 0 0 0 0 Director Cheng Huifang Supervisor Chairman Incumbent 0 0 0 0 0 0 0 Wang Qiuchao Supervisor Incumbent 0 15,000 0 15,000 0 0 0 Chen Junke Supervisor Incumbent 0 0 0 0 0 0 0 Deputy General Jiang Haiqing Incumbent 11,187,882 123,000 0 11,310,882 225,000 123,000 258,000 Manager Deputy General Zheng Yibo Manager Incumbent 202,500 0 -33,600 168,900 202,500 0 121,500 Deputy General Cai Dingguo Incumbent 202,500 109,500 0 312,000 202,500 109,500 231,000 Manager Deputy General He Hongli Incumbent 193,500 138,000 0 331,500 193,500 138,000 254,100 Manager Deputy General Fu Baijun Incumbent 193,500 196,500 0 390,000 193,500 196,500 312,600 Manager 53 Hikvision 2017 HY Report Granted restricted Granted restricted Granted restricted Shares increased Shares decreased Shares held at the Shares held at the end shares at the beginning shares during the shares at the end of the Name Title Tenure status beginning of the Period during the Period during the Period of the Period (Shares) of the reporting period reporting period reporting period (Shares) (shares) (Shares) (shares) (shares) (shares) Deputy General Xu Lirong Incumbent 193,500 109,500 0 303,000 193,500 109,500 225,600 Manager Deputy General Zhou Zhiping Incumbent 7,295,376 109,500 0 7,404,876 193,500 109,500 225,600 Manager Deputy General Jiang Yufeng Incumbent 202,500 123,000 0 325,500 202,500 123,000 244,500 Manager Deputy General Jin Duo Incumbent 0 109,500 0 109,500 0 109,500 109,500 Manager Deputy General Jin Yan Manager, Incumbent 0 174,000 0 174,000 0 174,000 174,000 Chief Finance Deputy General Jia Yonghua Incumbent 5,491,744 109,500 0 5,601,244 0 109,500 109,500 Manager Deputy General Li Pan Incumbent 5,390,568 109,500 0 5,500,068 0 109,500 109,500 Manager Deputy General Cai Changyang Incumbent 0 109,500 0 109,500 0 109,500 109,500 Manager Deputy General Manager Huang Fanghong Incumbent 292,500 0 0 292,500 247,500 0 247,500 Board Secretary Internal audit director 54 Hikvision 2017 HY Report Granted restricted Granted restricted Granted restricted Shares increased Shares decreased Shares held at the Shares held at the end shares at the beginning shares during the shares at the end of the Name Title Tenure status beginning of the Period during the Period during the Period of the Period (Shares) of the reporting period reporting period reporting period (Shares) (shares) (Shares) (shares) (shares) (shares) Deputy General Xu Ximing Incumbent 0 0 0 0 0 0 0 Manager Deputy General Bi Huijuan Incumbent 0 150,000 0 150,000 0 150,000 150,000 Manager Total -- -- 1,656,444,936 1,995,000 -33,600 1,658,406,336 2,407,500 1,980,000 3,523,500 Note: (1) Number of shares held by directors, supervisors, and seniormanagement personnel above are all shares directly held by them accordingly. (2) During the reporting period, in respect of changes in the number of shares due to the implementation of equity distribution for 2016, the number of shares at the beginning before equity distribution, increased, reduced, and granted have been adjusted accordingly. II. Changes of directors, supervisors and senior management personnel □Applicable √Inapplicable There is no such changes during the reporting period, please refer to 2016 annual report for details. 55 Hikvision 2017 HY Report Section IX Coporate Bonds Whether the Company has publicly issued corporate bonds on stock exchange place, which has not terminated or terminated but fail to collect the full payment before the half-year report authorized disclosure date. □ Applicable √ Inapplicable 56 Hikvision 2017 HY Report Section X Financial Report I. Audit report Whether audit has been performed on this interim financial report □ Yes √ No The Company’s 2017 Half year report has not been audited 57 Hikvision 2017 HY Report June 30th 2017 Consolidated Balance Sheet Unit: RMB Item Notes Closing balance Opening balance Current Assets: Cash and bank balances (V)1 13,179,646,367.74 13,638,078,139.56 Financial assets at fair value through (V)2 3,004,171.92 15,547,537.34 profit or loss Notes receivable (V)3 3,281,639,420.27 2,843,404,415.52 Accounts receivable (V)4 13,304,046,010.12 11,243,843,324.90 Prepayments (V)5 263,755,789.85 279,023,207.91 Other receivables (V)6 709,661,672.52 528,644,227.42 Inventories (V)7 4,935,820,439.51 3,829,947,876.75 Other current assets (V)8 428,103,172.17 4,153,992,276.78 Total Current Assets 36,105,677,044.10 36,532,481,006.18 Non-current Assets: Available-for-sale financial assets (V)9 283,836,013.00 283,836,013.00 Long-term receivables (V)10 171,142,345.99 251,588,919.15 Long-term equity investment (V)11 129,122,297.95 35,000,000.00 Fixed assets (V)12 2,945,144,484.51 2,853,908,475.49 Construction in progress (V)13 764,850,814.58 316,482,522.36 Intangible assets (V)14 412,552,471.29 410,456,789.63 Goodwill (V)15 248,364,401.47 248,364,401.47 Deferred tax assets (V)16 434,325,165.58 375,310,938.70 Other non-current assets (V)17 29,919,422.70 40,999,684.42 Total Non-current Assets 5,419,257,417.07 4,815,947,744.22 Total Assets 41,524,934,461.17 41,348,428,750.40 58 Hikvision 2017 HY Report June 30th 2017 Consolidated Balance Sheet - continued Unit: RMB Item Notes Closing balance Opening balance Current Liabilities: Short-term borrowings (V)18 1,965,132,452.76 32,291,324.85 Financial liabilities at fair value (V)19 18,562,128.16 69,789,502.97 through profit or loss Notes payable (V)20 536,694,693.25 876,804,536.72 Accounts payable (V)21 6,155,893,782.95 7,009,322,028.13 Receipts in advance (V)22 444,375,209.14 469,804,837.45 Payroll payable (V)23 595,071,569.87 1,084,951,139.10 Taxes payable (V)24 941,095,379.60 1,205,710,722.22 Dividends payable (V)25 92,407,139.16 20,105,831.16 Other payables (V)26 481,729,216.24 1,049,164,707.44 Non-current liabilities due within (V)27 714,012,975.36 15,340,813.03 one year Other current liabilities (V)28 853,507,327.55 300,177,750.17 Total Current Liabilities 12,798,481,874.04 12,133,463,193.24 Non-current Liabilities: Long-term borrowings (V)29 1,319,408,175.80 1,722,207,584.33 Bonds payable (V)30 3,099,840,000.00 2,954,449,528.77 Long-term payables 7,000,000.00 7,000,000.00 Provisions (V)31 46,550,937.15 41,933,212.54 Deferred income (V)32 16,817,902.06 10,833,745.99 Total non-current liabilities 4,489,617,015.01 4,736,424,071.63 Total liabilities 17,288,098,889.05 16,869,887,264.87 Owner’s Equity Share capital (V)33 9,228,865,114.00 6,102,706,885.00 Capital reserves (V)34 1,722,277,484.29 1,050,240,853.66 Less: Treasury stock (V)35 853,507,327.55 300,177,750.17 Other comprehensive income (V)36 (12,639,845.44) (41,230,777.21) Surplus reserve (V)37 2,615,437,822.15 2,615,437,822.15 Retained profits (V)38 11,343,452,975.38 14,856,778,392.88 Total owners' equity attributable to owner 24,043,886,222.83 24,283,755,426.31 of the Company Minority interests 192,949,349.29 194,786,059.22 Total owners' equity 24,236,835,572.12 24,478,541,485.53 Total liabilities and owners' equity 41,524,934,461.17 41,348,428,750.40 Notes are parts of the financial statements. Legal Representative: Chen Zongnian;Person in Charge of the Accounting Organization: Jin Yan; Chief Accountant: Jin Yan 59 Hikvision 2017 HY Report June 30th, 2017 Balance sheet of the company Unit: RMB Item Notes Closing balance Opening balance Current Assets: Cash and bank balances 10,621,335,282.56 10,249,118,159.19 Financial assets at fair value through 2,297,956.17 5,284,890.86 profit or loss Notes receivable 127,954,179.12 221,542,747.41 Accounts receivable (XV)1 12,373,590,336.16 10,128,753,520.42 Prepayments 2,360,072.95 8,256,040.04 Other receivables (XV)2 1,273,724,398.33 417,963,245.46 Inventories 633,416,690.67 566,168,466.17 Other current assets 185,120,553.13 3,889,519,711.57 Total Current Assets 25,219,799,469.09 25,486,606,781.12 Non-current Assets: Available-for-sale financial assets 283,221,700.00 283,221,700.00 Long-term receivables 47,241,962.91 72,153,363.60 Long-term equity investment (XV)3 2,702,920,830.76 1,714,688,703.42 Fixed assets 1,728,406,982.40 1,720,579,461.05 Construction in progress 595,814,508.02 248,447,641.34 Intangible assets 130,425,639.57 131,566,733.76 Deferred tax assets 194,230,198.07 177,568,964.27 Other non-current assets 10,932,858.00 10,782,858.00 Total Non-current Assets 5,693,194,679.73 4,359,009,425.44 Total Assets 30,912,994,148.82 29,845,616,206.56 60 Hikvision 2017 HY Report June 30th 2017 Balance sheet of the company - continued Unit: RMB Item Notes Closing balance Opening balance Current Liabilities: Short-term borrowings - - Financial liabilities at fair value 2,131,355.16 58,858,697.43 through profit or loss Accounts payable 1,326,559,996.42 138,851,152.86 Receipts in advance 205,805,219.85 233,831,105.17 Payroll payable 472,467,008.29 811,701,475.85 Taxes payable 848,899,641.38 998,754,860.91 Dividends payable 92,407,139.16 20,105,831.16 Other payables 888,362,070.06 787,861,780.95 Non-current liabilities due within 14,012,975.36 - one year Other current liabilities 853,507,327.55 300,177,750.17 Total Current Liabilities 4,704,152,733.23 3,350,142,654.50 Non-current Liabilities: Bonds payable 3,099,840,000.00 2,954,449,528.77 Provisions 34,240,710.46 28,799,848.84 Total non-current liabilities 3,134,080,710.46 2,983,249,377.61 Total liabilities 7,838,233,443.69 6,333,392,032.11 Owners’ Equity Share capital 9,228,865,114.00 6,102,706,885.00 Capital reserves 1,649,408,815.34 955,687,875.52 Less: Treasury stock 853,507,327.55 300,177,750.17 Other comprehensive income - - Surplus reserve 2,615,437,822.15 2,615,437,822.15 Retained profits 10,434,556,281.19 14,138,569,341.95 Total shareholders’ equity attributable to 23,074,760,705.13 23,512,224,174.45 shareholder of the Company Minority interests - - Total owners' equity 23,074,760,705.13 23,512,224,174.45 Total liabilities and owners' equity 30,912,994,148.82 29,845,616,206.56 61 Hikvision 2017 HY Report For the reporting period from January 1st 2017 to June 30th 2017 Consolidated Income Statement Unit: RMB Amount for the current Amount for the prior Item Notes period period I. Total operating income (V)39 16,447,539,736.52 12,553,476,748.58 Less:Total operating costs (V)39 9,420,695,024.84 7,518,216,264.30 Business taxes and surcharges (V)40 174,232,595.70 97,421,659.98 Selling expenses 1,726,924,956.22 1,211,831,544.28 Administrative expenses 1,761,709,877.13 1,271,951,990.31 Financial expense (V)41 65,500,627.65 (97,182,948.36) Impairment losses of assets (V)42 251,738,374.96 158,985,960.70 Add: Gains from changes in fair values (Losses are indicated (V)43 38,552,490.41 (8,281,896.32) by "-") Investment income (Loss is indicated by "-") (V)44 49,652,189.10 26,451,500.90 Other Income (V)45 677,411,292.41 - II. Operating profit (Loss is indicated by "-") 3,812,354,251.94 2,410,421,881.95 Add: Non-operating income (V)46 34,516,279.58 651,985,521.64 Including: Gains from disposal of non-current assets 2,798,685.80 1,320,478.05 Less: Non-operating expenses (V)47 2,280,488.42 18,048,370.81 Including: Losses from disposal of non-current assets 571,711.25 1,619,629.70 III. Total profit (total losses expressed with "-") 3,844,590,043.10 3,044,359,032.78 Less: Income tax expenses (V)48 568,658,390.85 432,531,976.11 IV. Net profit (net loss expressed with "-") 3,275,931,652.25 2,611,827,056.67 Net profit attributable to owners of parent company 3,291,546,056.70 2,607,821,529.43 Profit or loss attributable to minority shareholders (15,614,404.45) 4,005,527.24 V. Other comprehensive income, net of income tax 29,434,317.10 (11,281,600.95) Other comprehensive income attributable to owners of 28,590,931.77 (17,541,563.35) the Company, net of tax (I) Items that will not be reclassified subsequently - - to profit or loss (II) Other comprehensive income to be 28,590,931.77 (17,541,563.35) reclassified to profit or loss in subsequent periods 1. Exchange differences arising on conversion of financial statements denominated in foreign 28,590,931.77 (17,541,563.35) currencies Other comprehensive income attributable to minority 843,385.33 6,259,962.40 interests, net of tax VI. Total comprehensive income 3,305,365,969.35 2,600,545,455.72 Total comprehensive income attributable to owners of 3,320,136,988.47 2,590,279,966.08 the parent company Total comprehensive income attributable to minority (14,771,019.12) 10,265,489.64 shareholders VII. Earnings per share (I) Basic earnings per share (XVI)2 0.357 0.289 (II) Diluted earnings per share (XVI)2 0.357 0.288 There is business merger under the common control during the current reporting period, the merged party realized net profit of (209,736.97) RMB before the merge, and 1,625,123.41RMB net profit for the previous reporting period. 62 Hikvision 2017 HY Report For the reporting period from January 1st 2016 to June 30th 2016 Income statement of the Company Unit: RMB Amount for the Amount for the prior Item Notes current period period I. Total operating income (XV)4 7,509,542,127.38 6,979,393,516.54 Less: Operating Cost (XV)4 2,351,188,963.05 2,429,639,054.86 Business taxes and surcharges 104,526,475.97 88,273,983.62 Selling expenses 806,289,156.71 837,531,580.25 Administrative expenses 1,317,996,842.01 1,004,835,342.66 Financial expense (104,308,868.68) (32,972,204.31) Impairment losses of assets 156,626,616.68 139,666,067.60 Add: Gains from changes in fair values (Losses are indicated by 53,740,407.58 - "-") Investment income (Loss is indicated by "-") (XV)5 33,096,969.42 30,136,515.97 Other income 645,332,167.80 - II. Operating profit (Loss is indicated by "-") 3,609,392,486.44 2,542,556,207.83 Add: Non-operating income 20,288,238.99 614,892,213.56 Including: Gains from disposal of non-current assets 2,538,368.87 1,278,323.84 Less: Non-operating expenses 1,213,455.27 5,791,387.39 Including: Losses from disposal of non-current assets 213,415.55 1,284,454.85 III. Total profit (Total loss is indicated by "-") 3,628,467,270.16 3,151,657,034.00 Less: Income tax expenses 527,608,856.72 452,167,980.72 IV. Net profit (Net loss is indicated by "-") 3,100,858,413.44 2,699,489,053.28 V. Other comprehensive income, net of income tax - - VI. Total comprehensive income 3,100,858,413.44 2,699,489,053.28 63 Hikvision 2017 HY Report For fiscal year period from January 1st 2017 to June 30th 2017 Consolidated Cash Flow Statement Unit: RMB Amount for the current Amount for the prior Item Notes period period I. Cash flows from operating activities: Cash received from sale of goods or rendering of services 16,056,237,726.30 12,837,986,350.20 Refund of tax and levies 1,334,775,928.53 1,354,180,574.36 Other cash received relating to operating activities (V)49(1) 191,162,610.48 138,927,067.34 Sub-total of cash inflows from operating activities 17,582,176,265.31 14,331,093,991.90 Cash payments for goods purchased and services received 13,831,392,836.70 9,555,880,812.11 Cash paid to and on behalf of employees 2,562,794,533.81 1,713,828,221.06 Payments of various types of taxes 1,899,822,855.27 1,521,888,850.69 Other cash paid relating to operating activities (V)49(2) 1,230,966,841.95 1,141,721,879.76 Sub-total of cash outflows from operating activities 19,524,977,067.73 13,933,319,763.62 Net Cash Flow from Operating Activities (V)50(1) (1,942,800,802.42) 397,774,228.28 II. Cash Flows from Investing Activities: Cash receipts from disposals and recovery of investments 5,173,000,000.00 1,200,212,000.00 Cash receipts from investment income 53,398,372.17 26,870,969.07 Net cash receipts from disposals of fixed assets, intangible 11,061,674.71 368,676.75 assets and other long-term assets Other cash received relating to investing activities (V)49(3) 13,100,745.41 1,595,000.00 Sub-total of cash inflows from investing activities 5,250,560,792.29 1,229,046,645.82 Cash payments to acquire or construct fixed assets, intangible 510,640,894.91 352,509,627.05 assets and other long-term assets Cash paid to acquire investments 1,453,000,000.00 - Net cash payments for acquisitions of subsidiaries and other 98,000,000.00 172,473,788.49 business units Other cash paid relating to investing activities - - Sub-total of cash outflows from investing activities 2,061,640,894.91 524,983,415.54 Net Cash Flow from Investment Activities 3,188,919,897.38 704,063,230.28 III. Cash flows from financing activities: Cash receipts from capital contributions - - Including: cash receipts from capital contributions from - - minority owners of subsidiaries Cash receipts from borrowings 4,938,568,095.06 2,645,807,093.47 Cash receipts from bond issue - 2,950,000,000.00 Other cash receiptsd relating to financing activities (V)49(4) 1,061,515,931.39 1,258,376,312.14 Sub-total of cash inflows from financing activities 6,000,084,026.45 6,854,183,405.61 Cash repayments of amounts borrowed 2,723,867,188.71 3,744,679,765.37 Cash payments for distribution of dividends or profits or 3,755,681,574.80 2,873,234,849.22 settlement of interest expenses Including: payments for distribution of dividends or profits to - - minority owners of subsidiaries Other cash payments relating to financing activities (V)49(5) 1,630,518,738.29 1,524,787,045.31 Sub-total of cash outflows from financing activities 8,110,067,501.80 8,142,701,659.90 Net Cash Flow from Financing Activities (2,109,983,475.35) (1,288,518,254.29) IV. Net foreign exchange differences (132,118,698.33) 31,559,689.64 V. Net Increase (Decrease) in Cash and Cash Equivalents (V)50(1) (995,983,078.72) (155,121,106.09 ) Add: Opening balance of Cash and Cash Equivalents (V)50(1) 13,522,337,697.28 10,033,468,750.19 VI. Closing Balance of Cash and Cash Equivalents (V)50(3) 12,526,354,618.56 9,878,347,644.10 64 Hikvision 2017 HY Report For fiscal year period from January 1st 2017 to June 30th 2017 Cash Flow Statements of the Company Unit: RMB Amount for the Amount for the prior Item Notes current period period I. Cash Flows from Operating Activities:: Cash receipts from the sale of goods and the rendering of services 6,476,622,168.11 6,081,171,650.64 Refund of tax and levies 645,332,167.80 706,510,355.04 Other cash receipts relating to operating activities 163,967,938.23 121,281,683.17 Sub-total of cash inflows from operating activities 7,285,922,274.14 6,908,963,688.85 Cash payments for goods acquired and services received 1,741,766,982.54 2,041,784,256.82 Cash payments to and on behalf of employees 1,390,775,272.77 1,124,611,467.48 Payments of all types of taxes 1,541,060,047.84 1,164,787,793.46 Other cash payments relating to operating activities 914,241,265.56 900,643,747.02 Sub-total of cash outflows from operating activities 5,587,843,568.71 5,231,827,264.78 Net Cash Flow from Operating Activities 1,698,078,705.43 1,677,136,424.07 II. Cash Flows from Investing Activities: Cash receipts from disposals and recovery of investments 5,170,000,000.00 878,000,000.00 Cash receipts from investment income 44,435,846.99 30,136,515.97 Net cash receipts from disposals of fixed assets, intangible assets and 7,443,183.85 120,976.77 other long-term assets Net cash receipts from disposals of subsidiaries and other business units 70,271.21 - Other cash receipts relating to investing activities 732,237,447.02 364,602,027.84 Sub-total of cash inflows from investing activities 5,954,186,749.07 1,272,859,520.58 Cash payments to acquire or construct fixed assets, intangible assets 228,633,880.72 105,259,398.62 and other long-term assets Cash payments to acquire investments 1,450,000,000.00 - Net cash payments for acquisitions of subsidiaries and other business 973,000,000.00 258,468,902.52 units Other cash payments relating to investing activities 862,202,465.11 521,684,074.48 Sub-total of cash outflows from investing activities 3,513,836,345.83 885,412,375.62 Net Cash Flow from Investment Activities 2,440,350,403.24 387,447,144.96 III. Cash Flows from Financing Activities Cash receipts from borrowings 300,000,000.00 - Cash receipts from issue of bonds - 2,950,000,000.00 Other cash receipts relating to financing activities 41,000.00 585,123,067.48 Sub-total of cash inflows from financing activities 300,041,000.00 3,535,123,067.48 Cash repayments of amounts borrowed 300,000,000.00 594,840,194.74 Cash payments for distribution of dividends or profits or settlement of 3,708,086,118.95 2,857,482,627.17 interest expenses Other cash payments relating to financing activities 15,151,512.29 578,874,356.00 Sub-total of cash outflows from financing activities 4,023,237,631.24 4,031,197,177.91 Net Cash Flow from Financing Activities (3,723,196,631.24) (496,074,110.43) IV. Net foreign exchange differences (42,974,366.35) (23,219,537.14 ) V. Net increase in cash and cash equivalents 372,258,111.08 1,545,289,921.46 Add: Beginning balance of cash and cash equivalents 10,245,969,003.13 6,548,073,680.91 VI. Closing Balance of Cash and Cash Equivalents 10,618,227,114.21 8,093,363,602.37 65 Hikvision 2017 HY Report For fiscal year period from January 1st 2017 to June 30th 2017 Consolidated Statement of Changes in Owners' Equity Unit: RMB Amount for 2017 first half year Owner’s Equity Attributable to owners of the Company Item Other Minority Total owners' Less:Treasury Share capital Capital reserves comprehensive Surplus reserve Retained profits interests equity share income I. Closing balance of the preceding period 6,102,706,885.00 1,045,440,853.66 300,177,750.17 (41,230,777.21) 2,615,437,822.15 14,866,457,856.65 198,039,035.07 24,486,673,925.15 Add: Business merger under common control - 4,800,000.00 - - - (9,679,463.77) (3,252,975.85) (8,132,439.62) II. Opening balance of the current period 6,102,706,885.00 1,050,240,853.66 300,177,750.17 (41,230,777.21) 2,615,437,822.15 14,856,778,392.88 194,786,059.22 24,478,541,485.53 III. Increase or decrease in the current period 3,126,158,229.00 672,036,630.63 553,329,577.38 28,590,931.77 - (3,513,325,417.50) (1,836,709.93) (241,705,913.41) (I) Total comprehensive income - - - 28,590,931.77 - 3,291,546,056.70 (14,771,019.12) 3,305,365,969.35 (II) Owners’ contributions and reduction in capital 49,869,858.00 677,420,939.82 645,736,716.54 - - - 10,000,000.00 91,554,081.28 1. Capital contribution from shareholders 52,326,858.00 608,561,358.54 660,888,216.54 - - - 10,000,000.00 10,000,000.00 2. Share-based payment recognised in owners’ - 97,854,081.28 - - - - - 97,854,081.28 equity 3. Others (Note(V)33) (2,457,000.00) (28,994,500.00) (15,151,500.00) - - - - (16,300,000.00) (III) Profit distribution 3,076,288,371.00 - (92,407,139.16) - - (2,450,000.00) (6,804,871,474.20) (3,638,625,964.04) 1. Transfer to surplus reserve - - - - - - - - 2. Distributions to shareholders - - (92,407,139.16) - - (3,728,583,103.20) (2,450,000.00) (3,638,625,964.04) 3. Others 3,076,288,371.00 - - - - (3,076,288,371.00) - - (IV) Transfers within owners’ equity - - - - - - - - 1. Capitalisation of capital reserve - - - - - - - - 2.Others - - - - - - - - (V) Others - (5,384,309.19) - - - - 5,384,309.19 - III. Closing balance of the current period 9,228,865,114.00 1,722,277,484.29 853,507,327.55 (12,639,845.44) 2,615,437,822.15 11,343,452,975.38 192,949,349.29 24,236,835,572.12 66 Hikvision 2017 HY Report For fiscal year period from January 1st 2017 to June 30th 2017 Consolidated Statement of Changes in Owners' Equity-continued Unit: RMB Amount for 2016 first half year Owner’s Equity Attributable to owners of the Company Item Other Minority Less:Treasury Total owners' equity Share capital Capital reserves comprehensive Surplus reserve Retained profits interests share income I. Closing balance of the preceding 4,068,772,253.00 1,639,607,652.22 518,074,596.90 (27,660,017.70) 1,895,061,004.09 12,196,097,444.07 43,647,140.92 19,297,450,879.70 period Add: Business merger under common - 4,800,000.00 - - - (12,049,426.69) (4,832,951.13) (12,082,377.82) control II. Opening balance of the current 4,068,772,253.00 1,644,407,652.22 518,074,596.90 (27,660,017.70) 1,895,061,004.09 12,184,048,017.38 38,814,189.79 19,285,368,501.88 period III. Increase or decrease in the current period (decrease indicated 2,034,386,126.00 (742,135,842.76) - (17,541,563.35) - (1,420,146,635.87) 10,265,489.64 (135,172,426.34) with “-”) (I) Total comprehensive income - - - (17,541,563.35) - 2,607,821,529.43 10,265,489.64 2,600,545,455.72 (II) Owners’ contributions and - 71,618,607.24 - - - - - 71,618,607.24 reduction in capital 1. Capital contribution from - - - - - - - - shareholders 2. Share-based payment - 71,618,607.24 - - - - - 71,618,607.24 recognised in owners’ equity 3. Others - - - - - - - - (III) Profit distribution 1,220,631,676.00 - - - - (4,027,968,165.30) - (2,807,336,489.30) 1. Transfer to surplus reserve - - - - - - - - 2. Distributions to shareholders - - - - - (2,807,336,489.30) - (2,807,336,489.30) 3. Others 1,220,631,676.00 - - - - (1,220,631,676.00) - - (IV) Transfers within owners’ equity 813,754,450.00 (813,754,450.00) - - - - - - 1. Capitalisation of capital reserve 813,754,450.00 (813,754,450.00) - - - - - - 2.Others - - - - - - - - (V) Others - - - - - - - - III. Closing balance of the current 6,103,158,379.00 902,271,809.46 518,074,596.90 (45,201,581.05) 1,895,061,004.09 10,763,901,381.51 49,079,679.43 19,150,196,075.54 period 67 Hikvision 2017 HY Report For fiscal year period from January 1st 2017 to June 30th 2017 Statement of Changes in Owners' Equity of the Company Unit: RMB Amount for 2017 first half year Item Share capital Capital reserves Less: Treasury share Surplus reserve Retained profits Total owners' equity I. Closing balance of the preceding year 6,102,706,885.00 955,687,875.52 300,177,750.17 2,615,437,822.15 14,138,569,341.95 23,512,224,174.45 II. Increase or decrease in the current year (decrease indicated with “-”) 3,126,158,229.00 693,720,939.82 553,329,577.38 - (3,704,013,060.76) (437,463,469.32) (I) Total comprehensive income - - - - 3,100,858,413.44 3,100,858,413.44 (II) Owners’ contributions and reduction in capital 49,869,858.00 693,720,939.82 645,736,716.54 - - 97,854,081.28 1. Capital contribution from owners 52,326,858.00 608,561,358.54 660,888,216.54 - - - 2. Share-based payment recognised in owners’ equity - 97,854,081.28 - - - 97,854,081.28 3. Others (2,457,000.00) (12,694,500.00) (15,151,500.00) - - - (III) Profit distribution 3,076,288,371.00 - (92,407,139.16) - (3,636,175,964.04) (6,804,871,474.20) 1.Transfer to surplus reserve - - - - - - 2. Distributions to owners (or shareholders) - - (92,407,139.16) - (3,728,583,103.20) (3,636,175,964.04) 3. Others 3,076,288,371.00 - - - (3,076,288,371.00) - (IV) Transfers within owners’ equity - - - - - - 1. Capitalisation of capital reserve - - - - - - 2. others - - - - - - III. Closing balance of the current year 9,228,865,114.00 1,649,408,815.34 853,507,327.55 2,615,437,822.15 10,434,556,281.19 23,074,760,705.13 Amount for 2016 first half year Item Share capital Capital reserves Less: Treasury share Surplus reserve Retained profits Total owners' equity I. Closing balance of the preceding year 4,068,772,253.00 1,647,623,212.04 518,074,596.90 1,895,061,004.09 11,686,702,731.96 18,780,084,604.19 II. Increase or decrease in the current year (decrease indicated with “-”) 2,034,386,126.00 (742,135,842.76) - - (1,328,479,112.02) (36,228,828.78 ) (I) Total comprehensive income - - - - 2,699,489,053.28 2,699,489,053.28 (II) Owners’ contributions and reduction in capital - 71,618,607.24 - - - 71,618,607.24 1.Share-based payment recognised in owners’ equity - 71,618,607.24 - - - 71,618,607.24 2. Others - - - - - - (III) Profit distribution 1,220,631,676.00 - (4,027,968,165.30) (2,807,336,489.30) 1.Transfer to surplus reserve - - - - - - 2. Distributions to shareholders - - - - (2,807,336,489.30 ) (2,807,336,489.30 ) 3. Others 1,220,631,676.00 - - - (1,220,631,676.00) - (IV) Transfers within owners’ equity 813,754,450.00 (813,754,450.00) - - - - 1. Capitalisation of capital reserve 813,754,450.00 (813,754,450.00) - - - - III. Closing balance of the current year 6,103,158,379.00 905,487,369.28 518,074,596.90 1,895,061,004.09 10,358,223,619.94 18,743,855,775.41 68 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 I. Basic Information about the Company Hangzhou Hikvision Digital Technology Co., Ltd. (hereinafter referred to as "the Company" or "Company"), is a Sino-foreign Equity Joint Venture Company, formerly known as "Hangzhou Hikvision Digital Technology Ltd", established on December 30th 2001 in Hangzhou upon the approval letter of Hangzhou High-tech No. 604[2001] issued by Hangzhou High-tech Industrial Development Zone Management Committee. On June 25th 2008, with approval of Shang Zi No. 598[2008] issued by the MOFCOM, the company was renamed as “Hangzhou Hikvision Digital Technology Co., Ltd.”, headquartered in Hangzhou, and obtained the business license of enterprise No.91330000733796106P. On May 28th 2010, the Company was listed on the Shenzhen Stock Exchange. The registration procedures for 2016 restricted shares incentive scheme was completed on Feburary 9th 2017. Pursuant to the Articles of Association of the Company revised by the resolution of 20th Meeting of the 3rd session Board of Directors authorized by the 2nd extraordinary general meeting in 2016, the Company granted 2936 personnels, including Hu Yangzhong, with 52,326,858 granted shares (A-share), adjusted the Company’s total capital share to 6,155,033,743shares. As of April 20th 2017, authorized by the first Extraordinary General Meeting in 2014, the Company repurchased and cancelled 2,457,000.00 granted but restricted treasury shares by cash, and the total share capital of the Company was adjusted to 6,152,576,743 shares. On May 4th 2017, “2016 Profit Distribution Scheme” was approved on 2016 Annual General Meeting, Based on total capital shares of 6,152,576,743 shares, the Company proposed to bonus issue of 5 shares for each 10 ordinary shares; the total Company’s capital shares were increased by 3,076,288,371 and adjusted to 9,228,865,114 shares. As of June 30th 2017, the Company’s total registered capital is RMB 9,228,865,114,with total capital shares of 9,228,865,114 shares(face value RMB 1per share), of which restricted A-shares were 1,971,214,100 shares, A-shares without restrictions are 7,257,651,014 shares. The Company is engaged in electronic equipment manufacturing business mainly including development, production and sales of electronic products (including explosion-proof electrical products, communications equipment and its ancillary equipment, multimedia equipment). Business scope of the Company includes distribution of self-manufactured products, technical service, electronic equipment installation, electronic engineering and design of intelligent systems, construction, and maintenance. For details about business scope of the Company and its subsidiaries, please refer to Note (VII) 1. This financial report was approved for issue by the 23rd meeting of the third session Board of Directors of the Company on July 21st 2017. For consolidation scopt of the financial statements, please refer to Note (VII) “Interest in other entities”. For changes in consolidation scope of the financial statements, please refer to “changes in the consolidation scope” in Note (VI). 69 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 II. Basis for preparation of financial statements 1. Basis of preparation The Company and its subsidiaries (hereinafter referred to as "the Group") implement Accounting Standards for Business Enterprises issued by Ministry of Finance and relevant provisions. In addition, the Group also discloses relevant financial information in accordance with No. 15 Preparation Regulations regarding Information Disclosure of Company Public Issuing Securities - General Provisions of Financial Statement (revised in 2014). Bookkeeping base and valuation principles The Group measures the accounting elements in accordance with the accrual accounting basis. Except certain financial instruments are measured by fair value, these financial statements are prepared in accordance with the measurements basis of historical costs. If the asset decreases in value, the provision for impairment of assets should be made according to relevant regulations. According to the historical cost measurement, the assets shall be measured as per the amount of cash or cash equivalent paid at the time of purchase, or the fair value of consideration paid for the purchase of such assets. The liabilities shall be measured in accordance with the amount of funds or assets actually received when undertaking current obligations, or the contract amount when undertaking the current obligations, or the amount of cash or cash equivalents required for paying back the debts in daily activities. The fair value is a price received by the market participants from selling asset or transferring liability during orderly transaction at the measurement date. No matter the fair value is observable or estimated by using valuation technique, the measured and disclosed fair value in the financial statement shall be determined on this basis. Based on the observable extent of the input value of the fair value, and the importance of such input value to the fair value measurement, the fair value measurement is divided into three levels: Level 1: The input value is the offer of the same assets or liabilities on active market acquired on measurement date; Level 2: The input value is the input value of relevant assets or liabilities observable directly or indirectly in addition to level 1 input value; Level 3: The input value is the non-observable input value of assets or liabilities. 2. Sustainability concern The Group has evaluated the sustainable operation ability within 12 months from June 30th 2017, and there is no matter or condition that has significant doubt on the sustainable operation ability. Therefore, the financial statements are prepared on the basis of going-concern assumption. 70 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 III.Important accounting policies and accounting estimates 1. Statement for Compliance with Accounting Standards for Business Enterprises The financial statements prepared by the Company comply with requirements of the Accounting Standards for Business Enterprises, truly and completely reflect situations of the Company and consolidated financial on June 30th 2017, the Company and consolidated operating results as well as the Company and consolidated cash flow during first half year of 2017. 2. Accounting Period The fiscal year of the Group is January 1 to December 31 each year. 3. Business Cycle The business cycle refers to the period from purchase of assets used for processing to realization of cash or cash equivalents. The Group business cycle is usually 12 months. 4. Recording Currency RMB is the currency in the primary economic environments in which the Company and its domestic subsidiaries are operated. The Company and its domestic subsidiaries take RMB as the recording currency. Overseas subsidiaries of the Company determine their recording currency based on the main economic environment in the place of operation. For recording currency of overseas subsidiaries of the Company, see Note (V) 53. The currency adopted by the Company for preparing the financial statements is RMB. 5. Accountant arrangement method for business merger under the common control and under the different control Business merges are classified into the business merger under the common control and the business merger under the different control. 5.1 Business Merger under the Common Control Business merger under the common control refers to the enterprise participating in the merger, which is subject to the final control of the same party or the same parties before and after the merger, and such control is not temporary. 71 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 The assets and liabilities obtained during business merger shall be measured on the basis of their carrying amount of the combined party on the merger date. Adjust capital share premium of the capital reserve based on the differences between book value of net assets and that of the paid combination consideration (or total face value of issued shares); if the capital share premium is insufficient to be written down, the retained earnings shall be adjusted. Costs incurred directly attributable to the business combination are recorded in the profits and losses of the current period. 5.2 Business Merger and Goodwill under the Different Control It suggests that business involved in the combination is free from the final control of one and the same party or more than one same parties before and after the combination. Combination cost refers to asset paid by the purchaser to buy the control power from the purchased party, liabilities incurred or assumed and fair value of equity instrument issued. The expenses made by the purchaser for audit, legal service, assessment and other management related expenses during the business merger should be included into the current profit and loss as it happens. The identifiable assets, liabilities and contingent liabilities that are achieved by the purchaser in merger and confirmed by the purchased party shall be measured with the fair value on the purchase day. When combination cost is higher than fair value of the identifiable net assets acquired from the purchased party due to combination, the difference will be confirmed as goodwill and measured initially at cost. When combination cost is lower than air value of the identifiable net assets acquired from the purchased party due to combination, reexamination shall be made to the measurement of fair value of all identifiable net assets acquired from the purchased party and combination cost. If combination cost is still lower than the said air value, the difference shall be included into current profit or loss. Goodwill arising on a business combination is stated separately in the consolidated financial statement, and the measurement is made its costs minus the accumulative impairment provisions. 6. Preparation method of consolidated financial statements 6.1 Preparation method of consolidated financial statements The scope of consolidated financial statements shall be confirmed based on the control. Control right means that an investor may control an investee; the investor may participate in relevant activities of the investee to obtain variable rewards and also be able to use the control rights for the investee to influence its amount of returns. The Group will re-evaluate, if the change of the relevant facts and circumstances leading to the change of the relevant elements involved in the above definition of control. The merger of subsidiary starts from the Group obtaining the control power of the subsidiary, and terminates when the Group loses the control power of the subsidiary. 72 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 As for subsidiaries disposed by the Group, operating results and cash flow prior to the disposal date (date of losing control right) have been properly included in the consolidated profit statement and consolidated cash flow statement. For the subsidiary achieved through business merger under different control, the business performance and cash flow since the purchase day (date from obtaining the control power) have been properly included in the consolidated profit statement and consolidated cash flow statement. For a subsidiary acquired through business combination under the same control, regardless of the time of business combination in the reporting period, which is regarded to which included in the Group since the date of finally controlled by the controller, its operating results and cash flows since the beginning of the reporting period have been included in the Consolidated Income Statement and the Consolidated Cash Flow Statement. The principal accounting policies adopted by the subsidiary and the accounting policies will be specified by the Company, and determination of the accounting period. The impact of internal transaction of the Company and subsidiary, and between the subsidiaries on the consolidated financial statement shall be offset during mergers. Share in owner’s equity of subsidiaries that is not accounted for as equity of parent Company shall be recorded as the minority shareholder's interest and shall be stated as "Minority Shareholder's Interest" under shareholder's equity in the consolidated Liability Statement. Amount in subsidiaries' current profit and loss accounted for as equity of minority shareholder shall be stated as “Minority Shareholder Interest” under the net profits in the consolidated Liability Statement. Where subsidiaries' loss shared by minority shareholders exceeds the amount of owner’s interests shared by minority shareholders at the beginning of a year, the balance shall be written down to minority shareholder's equity. For the transaction of the control power of the subsidiary not lost due to purchase of minority equity of the subsidiary or disposal of partial equity investment in the subsidiary, it shall be accounted as equity transaction, and the book value attributable to the parent Company's owners' equity and minority shareholders' equity shall be adjusted to reflect the changes of related equity in the subsidiary. The capital reserve shall be adjusted by difference between the adjustment amount of the minority shareholders' equity and the fair value of payment /receipt of consideration. Retained earnings can be adjusted for the enough offset of the capital reserve. 7. Determination Standards of Cash and Cash Equivalents The term “cash” refers to cash on hand and deposits that are available for payment at any time. The term “cash equivalents” refers to short-term and highly liquid investments that could be readily convertible to known amounts of cash and which are subject to an in significant risk of change in value. 73 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 8. Foreign Currency Transaction and Conversion of Foreign Currency Statements 8.1 Foreign Currency Transaction Foreign currency transaction adopts the exchange rate conversion similar to the spot rate of transaction date during the initial recognition; the exchange rate similar to the spot rate of transaction date is calculated according to the market rate middle price of the transaction at the beginning of the month. On the balance sheet date, foreign currency monetary items are converted to recording currency by spot rate. The exchange balance between the spot rate on that day and initial spot rate or spot rate on former balance sheet date is included into current profits and losses besides the exchange balance of foreign currency borrowings meeting capitalization conditions is included into the capital cost upon capitalization during capitalization period. Where the preparation of consolidated financial statements is involved in overseas operation, in case of any foreign currency monetary items of net investment in an overseas operation substantially, then the exchange balance occurred due to exchange rate movement shall be listed in "Foreign Currency Statement Conversion Balance" of shareholders' equity. When disposing overseas operation, it is included into the profits and losses of the current period. For foreign currency non-monetary items measured by historic cost, spot rate on date of transaction occurrence shall be used for conversion and its recording currency amount. For foreign currency non-monetary items measured by fair value, spot rate on the fair value determination day will be used for conversion. The difference between the converted recording currency amount and original recording currency amount shall be taken as the fair value fluctuation (including exchange rate fluctuation) and included into current profits and losses or other comprehensive income. 8.2 Conversion of Foreign Currency Financial Statement In order to prepare the consolidated financial statements, the foreign currency financial statement of overseas operation shall be converted as RMB statement according to the following methods: All assets and liabilities items in the balance sheet shall be converted according to the spot rate of the balance sheet date; The shareholders' equity item shall be converted according to spot rate at the time of occurrence; All items in profit statement and all items of reflecting the income distribution amount shall be converted according to the exchange rate similar to spot rate of transaction date; The difference between the converted assets items and total number of liabilities items and shareholders' equity items is determined as other comprehensive incomes and is included in the shareholder's equity. The foreign currency cash flow and cash flow of overseas subsidiaries adopt the exchange rate similar to the spot rate at the date of cash flow for conversion. The affected amount of cash and cash equivalents due to the change of exchange rate, as an adjustment item, shall be separately listed as "the impact of cash and cash equivalents due to the change of exchange rate" in the cash flow statement. 74 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 Opening amount of the year and actual amount last year are presented according to the amount after conversion of financial statement last year. In case of loss of control power of foreign operation due to disposal of the Group's entire owners' equity in foreign operation, or the disposal of part of the equity investment or other reasons, the translation reserve listed in the shareholders' equities items in the balance sheet, related to the foreign operation and attributable to foreign currency conversion balance of the owners' equity of the parent company shall be totally converted into the current disposal profit and loss. In case of the decrease of the ratio of overseas business, but no loss of control power due to disposal of part of the equity investment or other reasons, the conversion balance related to the disposal of part of related currency in the overseas business shall be attributable to the minority shareholders' equities, and not converted into the current profit and loss. In case of disposal of part of equity of the associated enterprises or joint enterprise in the overseas business, the conversion balance related to the overseas business shall be converted into the current profit and loss based on the ratio to dispose overseas business. 9. Financial Instruments A financial asset or financial liability shall be recognized when the Group becomes a party of financial instrument contract. Financial asset or financial liability shall be measured at the fair value when initially recognized. For financial assets and financial liabilities measured at fair value, the change of which is included into current profits and losses, relevant transaction expenses shall be directly included into the profits and losses; for other categories of financial assets and liabilities, the relevant transaction expenses shall be included into the initial recognition amount. 9.1 Effective Interest Method The actual interest rate method refers to the method by which the post-amortization costs and the interest incomes of different installments or interest expenses are calculated in light of the actual interest rates of the financial assets or financial liabilities (including a set of financial assets or financial liabilities). The actual interest rate refers to the interest rate adopted to cash the future cash flow of a financial asset or financial liability within the predicted term of existence or within a shorter applicable term into the current carrying amount of the financial asset or financial liability. For calculation of actual interest, the Group shall predict the future cash flow on the basis of taking into account all the contractual provisions concerning the financial asset or financial liability (the future credit losses shall not be taken into account), and take into account various fee charges, trading expenses, premiums or reduced values, etc., which are paid or collected by the parties to a financial asset or financial liability contract and which form a part of the actual interest rate. 9.2 Classification, Confirmation and Measurement of the Financial Assets 75 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 Financial asset shall be classified into the following four categories when they are initially recognized: the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, the investments which will be held to their maturity, loans and the account receivables and financial assets available for sale. Financial asset bought and sold by regular means shall be recognized and derecognized in accordance with accounting at the transaction date. 9.2.1 Financial Assets Measured at the Fair Value with Their Changes Included into Current Profit and Loss The financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses, include transactional financial liabilities and the designated financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses. The financial assets or liabilities meeting any of the following requirements shall be classified as transactional financial assets or financial liabilities: (1) The purpose to acquire the said financial assets or undertake the financial liabilities is mainly for selling or repurchase of them in the near future; (2) Forming a part of the identifiable combination of financial instruments which are managed in a centralized way and for which there are objective evidences proving that the enterprise may manage the combination by way of short-term profit making in the near future; (3) Being a derivative instrument, excluding the designated derivative instruments which are effective hedging instruments, or derivative instruments to financial guarantee contracts, and the derivative instruments which are connected with the equity instrument investments for which there is no quoted price in the active market, whose fair value cannot be reliably measured, and which shall be settled by delivering the said equity instruments. Financial assets which are measured at fair value and of which the variation is included in the current profits and losses shall be measured at the fair value subsequently. Profits and losses generated from variation of fair value and earnings from dividend and interest related to the financial assets shall be included into profits and losses of the current period. 9.2.2 Investments Held To Maturity The term "held-to-maturity investment" refers to a non-derivative financial asset with a fixed date of maturity, a fixed or determinable amount of repo price and which the Group holds for a definite purpose or the enterprise is able to hold until its maturity. For held-to-maturity investments measured at the post-amortization costs by using actual interest method, the profits and losses that arise when such financial assets are terminated from recognition, or are impaired or amortized, shall be recorded into the profits and losses of the current period. 9.2.3 Loans and Receivables "Loans and accounts receivables" refers to the non-derivative financial assets for which there is no quoted price in the active market and of which the repo amount is fixed or determinable. The Group's financial 76 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 assets that are divided into the loan and receivables include notes receivables, accounts receivables, other receivables, other current assets and long-term receivables, etc. The loan and receivables adopt the effective interest method, and shall conduct subsequent measurement according to amortized costs. The gains or losses arising from derecognition, impairment or amortization should all be included into the current profits and losses. 9.2.4 Available-for-sale Financial Assets The "sellable financial assets" include the non-derivative financial assets which are designated as sellable when they are initially recognized as well as the financial assets other than financial assets measured at their fair values and of which the variation is recorded into the profits and losses of the current period, loans and accounts receivables and investments held until their maturity. The subsequent measurement may be conducted for the available-for-sale financial assets by the fair value; the gains or losses formed from the changes of fair value, except that the impairment losses as well as the relevant exchange balance between foreign currency monetary financial assets and amortized cost are included into current profits and losses, are determined as other comprehensive incomes which shall be transferred out during the derecognition of such financial assets and included into current profits and losses. Interest acquired from salable financial asset during the holding time and cash dividend that has been the investee announces to distribute shall be recorded into investment income. The equity instrument investments for which there is no quotation in the active market and whose fair value cannot be measured reliably, and the derivative financial assets which are connected with the said equity instrument and must be settled by delivering the said equity instrument shall be measured on the basis of their costs. 9.3 Financial Asset Impairment On the balance sheet date, the Group will inspect the book value of all financial assets except the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period. Where there is any objective evidence proving that such financial asset has been impaired, an impairment provision shall be made. The objective evidences showing the impairment of financial assets refer to the matters that happen after the initial recognition of financial assets and influence the expected future cash flows of financial assets, and the influence can be reliably measured by the Company. The objective evidences that can prove the impairment of financial asset shall include (1) A serious financial difficulty occurs to the Issuer or debtor; 77 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 (2) The debtor breaches any of the contractual stipulations, for example, failing to pay the interests or the principal or delay, etc.; (3) The Group makes a concession to the debtor considering the economic or legal factors; (4) The debtor will probably become bankrupt or carry out other financial restructuring; (5) The financial asset can no longer continue to be traded in the active market due to serious financial difficulties of the issuer; (6) The cash flow decrease of some property in a group of financial assets is indefinable, but after the general assessment with the public data, the predicted future cash flow of this group of financial assets has definitely decreased from the initial recognition, and the decreased amount is calculable, including: -The payment capacity of Debtor in this group of financial assets gets worse gradually; - The country or region's economy of the Debtor may lead to the financial assets unable to pay; (7) Any seriously disadvantageous change has occurred to technical, market, economic or legal environment, etc. operated by the issuers of the equity instruments, which makes the investor of an equity instrument unable to take back its cost of investment; (8) The fair value of the equity instrument investments drops significantly or non-contemporarily; (9) Other objective evidences showing the impairment of the financial asset. - The financial assets impairment measured by the amortized costs When impairment occurs, the financial assets counted as amortized cost will write-down its book value to predict present value of future cash flow confirmed as the primary actual rate of this financial assets (except for the future credit losses that not happened yet), the write-down cash will be confirmed as the impairment loss, and will be counted into the current gains and loss. Where any financial asset is recognized as having suffered from any impairment loss, if there is any objective evidence proving that the value of the said financial asset has been restored, and it is objectively related to the events that occur after such loss is recognized, the impairment-related loss as originally recognized shall be reversed and be recorded into the profiles and losses of the current period. However, the reversed carrying amounts shall not be paid more than the post-amortization costs of the said financial asset on the day of reverse under the assumption that no provision is made for the impairment. An independent impairment test shall be made by the Group on the financial assets with significant single amounts. Regarding the financial assets with insignificant single amounts, an independent impairment test shall be carried out, or they shall be included in a combination of financial assets with similar credit risk features so as to carry out an impairment-related test. Where, upon independent test, the financial asset (including those financial assets with significant amounts and those with insignificant amounts) has not been impaired, it shall be included in a combination of financial assets with similar risk features so as to conduct another impairment test. The financial assets which have suffered from an impairment loss in any single amount shall not be included in any combination of financial assets with similar risk features for any impairment test. - Available-for-sale financial assets impairment In case of impairment in available-for-sale financial assets, transfer out the accumulated losses originally included into other comprehensive incomes and formed due to fair value depreciation and include into 78 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 current profits and losses. The transferred-out accumulated losses are the balance of initial asset acquisition cost, deducting recovered principal, amortized amount, current fair value and impairment loss originally included into profits and losses. After the confirmation of impairment loss, if the objective evidence shows that the value of the financial assets is recovered after the period and it is objectively related with events happening after the confirmation of the loss, the originally confirmed impairment loss will be switched back; the impairment loss for the available-for-sale equity instrument investment is switched back and confirmed as other comprehensive incomes and the impairment loss for available-for-sale debt instrument is switched back and included into current profits and losses. - The financial assets impairment measured by the costs When equity instrument investment which is not quoted in an active market and whose fair value cannot be measured reliably, or derivative financial assets which is linked with the equity instrument and has to make settlement by delivering the equity instrument has asset depreciation, the book value shall be reduced to the present value determined by discounted cash flow based on market return of similar financial asset at that time which is recognized as impairment loss and shall be included into the current profits and losses. The impairment loss of such financial asset shall not be reversed once confirmed. 9.4 Transfer of Financial Assets Where a financial asset satisfies any of the following requirements, the recognition of is shall be terminated: (1) where the contractual rights for collecting the cash flow of the said financial asset are terminated; (2) where the said financial asset has been transferred and all of the risks and rewards related to the ownership of the said asset has been transferred to the transferee; or (3) where the financial asset has been transferred and the Group has waives its control over the financial asset though it retained nearly all of the risks and rewards related to the ownership of the said asset. If the Group does not transfer or retain nearly all of the risks and rewards related to the ownership of the financial asset, and does not waive its control over the financial asset, it shall, according to the extent of its continuous involvement in the transferred financial asset, recognize the related financial asset and recognize the relevant liability accordingly. The term "continuous involvement in the transferred financial asset" shall refer to the risk level that the enterprise faces resulting from the change of the value of the financial assets. If the transfer of an entire financial asset satisfies the conditions for derecognition, the difference between the amounts of the following 2 items shall be recorded in the profits and losses of the current period: (1) the book value of the transferred financial asset, and (2) The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in the owner's equities. If the transfer of partial financial asset satisfies the conditions to stop the recognition, the entire book value of the transferred financial asset shall, between the portion whose recognition has been stopped and the portion whose recognition has not been stopped, be apportioned according to their respective relative 79 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 fair value, and the difference between the amounts of the following 2 items shall be included into the profits and losses of the current period: (1) the sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in the owner's equities, and (2) the said apportioned book value. 9.5 Classification, Confirmation and Measurement of the Financial Liabilities The group shall classify financial instruments or its components into financial liabilities or equity instruments during the initial recognition in accordance with contract terms of the issued financial instruments and reflected economic essence in legal forms and others, in combination with definitions of financial liabilities and equity instruments. Financial liability is classified into the financial liability measured at their fair values and of which the variation is included in the current profits and losses and other financial liabilities. 9.5.1 Financial Liabilities Measured at the Fair Value with Their Changes Included into Current Profit and Loss The financial liabilities which are measured at their fair values and of which the change is included in the current profit and loss, including transactional financial liabilities and the designated financial liabilities which are measured at their fair values and of which the change is included in the current profit and loss. The financial liability meeting one of the following conditions will be classified as trading financial liabilities: (1) The purpose for bearing the financial liability is mainly to buy back in the near future; (2) Forming a part of the identifiable combination of financial instruments, initial recognition is managed in a centralized way and has objective evidences proving that the Group may manage the combination by way of short-term profit making in the near future; (3) Belong to derivative instruments excluding derivative instruments that are designated as the effective hedging instruments, derivative instruments belonging to financial guarantee contracts, and derivative instruments which are connected with the equity instrument investment, for which there is no quotation in the active market, whose the fair value cannot be measured reliably, and which shall be settled by delivering the said equity instruments. In case of meeting one of the following conditions, the financial liabilities can be measured by fair value during initial recognition and the changes can be included in the financial liabilities of current profits and losses: (1) The appointment can eliminate or obviously decrease the inconformity of gains or losses in confirmation or measurement caused by inconformity in the measurement basis of financial liabilities; (2) The official written documents on risk management or investment strategies of the Group concerned have recorded that the portfolio of said financial liabilities, or the portfolio of said financial assets and liabilities will be managed and evaluated on the basis of their fair values and be reported to the key management personnel; (3) Eligible mixed instruments, including embedded derivatives; The current profits and losses and expenses of dividends and interests, arising from the change in the fair value of the financial liabilities which is follow-up measured at its fair value and of which the change is included in the current profit and loss, shall be included in the current profit and loss. 80 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 9.5.2 Other Financial Liability The derivative financial liabilities which are connected to the equity instrument for which there is no quotation in the active market and whose fair value cannot be reliably measured, and which must be settled by delivering the equity instrument, shall be measured subsequently on the basis of the cost. These kinds of financial liabilities should be calculated subsequently with the effective rate method and in accordance with the amortized cost. The profits and losses result from the derecognition or amortization should be put in the current profit and loss. 9.5.3. Financial Guarantee Contracts The financial guarantee contract means an agreement pursuant to which a surety and a creditor agree that the surety shall perform the obligation or bear the liability according to the agreement, when the debtor fails to perform his obligation. Financial guarantee contract that doesn’t belong to financial liabilities that are specified to be measured according to fair value and the changes of which are included in the current profit and loss is initially confirmed according to fair value; after the initial confirmation, conduct subsequent measurement with the higher remaining balance after deducting the accumulated amortization amount in accordance with principles provided in Accounting Standards for Business Enterprises No. 14 - Income by the amount confirmed according to Accounting Standards for Business Enterprises No. 13 - Contingency and the initial confirmation amount. 9.6 Derecognition of Financial Liabilities For financial asset whose present obligation has been fully or partially relieved, all or part of the financial asset is derecognized. The Group (the Obligor) and the Obligee sign the agreement to substitute the new financial liability mode for the existing financial liability. The essences of the contract provisions for the new financial liability and existing financial liability are different, so the recognition of existing financial liability can be terminated and the new financial recognition be recognized at the same time. Where the recognition of a financial liability is totally or partially terminated, the enterprise concerned shall include into the profits and losses of the current period the gap between the carrying amount which has been terminated from recognition and the considerations it has paid (including the non-cash assets it has transferred out and the new financial liabilities it has assumed. 9.7 Derivative Instruments and Embedded Derivative Instruments Derivative financial instruments include forward foreign exchange contract, monetary exchange rate swap contract, interest rate swap contract and foreign exchange option contract. Conduct initial measurement and subsequent measurement for the derivative instruments on the related contract signing date based on fair value. The changes in the fair value of derivatives shall be included into the current profits and losses. If mixed instruments that include embedded derivative instruments are not designated as financial assets or liabilities measured based on fair value with the changes being included into the current profits and losses, the embedded derivative instruments are not closely related to the main contract concerning 81 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 economic characters and risks and the independent instruments conforming to the definition of derivative instruments that have the same conditions with the embedded derivative instruments are broken out from the embedded derivative instruments to be disposed as independent derivative financial instruments. Where it is unable to separately measure the embedded derivative instrument at acquisition or subsequent balance sheet date, the hybrid instruments shall be designated in whole as the financial assets or liabilities measured at fair value with changes included in current profits and losses. 9.8 Offset of Financial Assets and Financial Liabilities When the group has the legal right to offset the confirmed financial assets and financial liabilities and is entitled to perform the aforesaid legal right at the present, and meanwhile when the group intends to settle or sell off the financial assets and pay off the financial liabilities by the net amount, the financial assets and financial liabilities shall be presented in the balance sheet with the amount after the mutual offset. In all other situations, they are presented separately in the balance sheet and are not offset. 9.9 Equity instrument Equity instrument refers to a contract specifying the instrument holder’s share in the remaining equity of the Group’s asset less all its liabilities. Consideration received from issuing equity instrument less transaction cost is recorded in owners’ equity. That the group issues (including refinancing), repurchases, sells or cancels equity instruments is taken as the change treatment of rights and interests. The group does not confirm the changes of fair value of equity instruments. Transaction fees relevant to the equity transaction shall be deducted from the equity. The Group considers the allocation of the equity holder as the allocation of profits; issued share dividends do not influence the total equity of the shareholders. 10. Receivables 10.1 Receivables accounts of single significant amount and individual provision for bad debts: The Group deems that the fund with amount of more than Judgment basis or amount standard for RMB 4 million (inclusive) and accounting for more than 10% financial assets with single significant of the receivables book balance is the receivables with single amount significant amount. The Group separately conducts the impairment test on the accounts receivables with single significant amount and other receivables, the accounts receivables and other receivables without impairment after the separate test include the Withdrawing method of single impairment test in the financial asset portfolio with similar withdrawing of bad-debt provision with credit risk characteristics. The accounts receivables and other significant amount receivables with the confirmed impairment loss after the separate test on longer include the impairment test in the financial asset portfolio with similar credit risk characteristics. 82 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 10.2 Accounts receivables of withdrawing bad-debt provision as per credit risks feature combination: Method of combined bed-debt provision based on credit exposure characteristics Accounts receivables with insignificant single amount and significant single The method of aging accounting receivables amount but no single test impairment Withdrawing bad-debt provision by aging analysis method in combination Calculation and withdrawal Withdrawing percentage of Aging (more than credit period) proportion of receivables (%) other receivables (%) Within 1 year (inclusive, the same below) 5 5 1-2 years 10 10 2-3 years 30 30 3-4 years 50 50 4-5 years 80 80 More than 5 years 100 100 10.3 Receivables accounts of single non-significant amount except individual provision for bad debts: Reasons for single withdrawing of There are significant differences between the present value of bad-debt provision future cash flow of the receivables and the present value of future cash flow of the receivables as credit risk feature by ageing. Withdrawing method for bad-debt By respective impairment test, it carries out the bad debts provision preparation according to the difference of the present value of future cash flows lower than book value 11. Inventories 11.1 Classification of Inventories The Group's inventory mainly includes finished goods or commodities held for sale in the daily activities, completed outstanding assets formed in the construction contract, products in the production process, materials and supplies used in the production process or in the process of proving labor service. Initial measurement is conducted for inventory according to cost. The inventory costs include procurement cost, processing cost and other expenditures for inventory to be in current place and state. 83 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 11.2 Valuation Methods of the Inventory Issuing When the shares are issued, the actual costs of the issued shares are determined using the moving weighted average method. 11.3 Determination basis of the net realizable value of inventory: The inventory is according to cost and net realizable value low metering on the date of balance sheet. When the net realizable value is lower than cost, withdraw inventory falling price reserves. The net realizable value refers to the amount derived by deducting the potential cost, estimated selling expense and relative taxes to the completion date from the estimated sales price of inventory in daily activities. When determining net realizable value of inventories, take the obtained conclusive evidence as basis and consider the purposes of holding inventories and influence of events after the balance sheet date. Provision for inventories is generally made as the excess of the cost of single inventory item over its net realizable value. After provision for inventory depreciation reserves is made, if the factors resulting in the write-down of inventory impairment have disappeared and causing the net realizable value higher than its book value, such inventory impairment provision are recovered and reversed, and the reversed amount recorded in profits and losses of the current period. 11.4 Inventory System for Inventory The inventory system is a perpetual inventory system. 11.5 Amortization Method for Low-value Consumables and Packaging Packing materials and low-price easily-worn materials are amortized by the one-time writing-off process. 12. Long-term Equity Investment 12.1 Judgment Standard of Joint Control and Significant Impact Control right means that an investor may control an investee; the investor may participate in relevant activities of the investee to obtain variable rewards and also be able to use the control rights for the investee to influence its amount of returns. Joint control means that joint control for certain arrangement in accordance with relevant agreements; activities relevant to the arrangement cannot be decided until obtaining the unanimous approval of participants sharing the control right. The significant influence refers to having the power to participate in the formulation of financial and operating policies of the invested entity, but no power to control or jointly control the formulation of these policies together with other parties. When it is confirmed whether or not the invested unit can be controlled or significantly 84 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 influenced, the following potential vote power factors have been considered: transferable bond and warrants executable in the current period by the investing enterprise and other invested units held by it, etc. 12.2 Confirmation of Initial Investment Costs For the long-term equity investment acquired through the enterprise merger under the common control, the shares of merged party's book value of owners' equity in the final controlling party consolidated financial statements obtained on the merger date shall act as the initial investment cost of long-term equity investment. The differences between the initial investment cost of long-term equity investment and the paid cash, the transferred non-cash assets and the book value of the assumed debts are adjusted against the capital surplus; if the capital surplus is not sufficient to be offset, the remaining balance is adjusted against retained earnings. In the case of issued equity securities treated as consolidation consideration, share of book value of owner's equity of merged party in a combined financial statement of the final controlling party is regarded as initial investment cost of long-term equity investments on the date of consolidation; capital reserve shall be adjusted in accordance with taking total nominal value of issued share as capital share, the difference between the initial investment cost of long-term equity investments and total book value of issued shares; In case the capital reserve is not enough for writing down, the retained earnings shall be adjusted. The long-term equity investments obtained by the combination of controlling interests under different control and the merger cost confirmed on the purchased date are regarded as the initial investment cost. The expenses made by the combining party or purchaser for audit, legal service, assessment and other management related expenses during the business merger should be included into the current profit and loss as it happens. Conduct initial measurement according the cost for other equity investment other than the long-term equity investment formed in business merger. In case that the investor may post a significant impact on the investee or execute joint control but not constitute the control right, long-term equity investment cost is the sum of fair value of original and determined held equity investment and newly-increased investment cost in accordance with No. 22 Accounting Standards for Business Enterprises----Recognition and Measure of the Financial Instruments. 12.3 Subsequent Measurement and Profit and Loss Confirmation Method 12.3.1 Long-term Equity Investments of Cost Method Accounting Financial statement shall be calculated through the cost method, in relation to the long-term equity investments of subsidiaries. Subsidiary corporation means the investee body which can be controlled by the Group. The long-term equity investment accounted by the cost method shall be measured at its initial investment cost. If there are additional investments or disinvestments, the long-term equity investment cost shall be adjusted. Income from the investment in the current period shall be recognized in accordance with the cash dividends or profits declared and issued by the investee. 85 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 12.3.2 Long-term Equity Investments of Equity Method Accounting Investment in consortium and joint venture is accounted for using the equity method. Consortium refers to investee on which the Group has significant influence; joint venture refers to investee over which the Group is able to jointly exercise control together with other investors. Associated enterprise means that the investee which can be greatly influenced by the group; joint enterprise means a kind of joint arrangement and the group only has control rights of such net assets. When the equity method is adopted, where exceeding the Company’s share of the fair value of the invested party’s identifiable net assets at investment date, the initial investment cost of the long-term equity investment is kept unadjusted; where the initial investment cost of the long-term equity investment is less than the Company’s share of the fair value of the invested party’s identifiable net assets at the investment date, the differences are recorded as profit & loss for the current period and the costs of long-term equity investment are adjusted simultaneously. When the equity method is used for the accounting, in accordance with the shares in the net profits and losses, and other comprehensive incomes of the invested unit which the Company is entitled to share or bear, the investment income and other comprehensive incomes are determined separately, and meanwhile the book value of the long-term equity investment shall be adjusted; The Company shall accordingly reduce the book value of the long-term equity investment in terms of the part that shall be enjoyed according to the profit or cash dividends declared by the invested unit to be distributed; For other changes in the owners' equity of the invested unit other than net profits and losses, other comprehensive incomes and the profit distribution, the book value of long-term equity investment shall be adjusted and be included into the capital reserves. The Company shall, on the ground of the fair value of all identifiable assets of the invested entity when it obtains the investment, recognize the attributable share of the net profits and losses of the invested entity after it adjusts the net profits of the invested entity. If the accounting policies and accounting periods adopted by the invested unit are different from those adopted by the Company, the adjustment shall be made for the financial statements of the invested unit in accordance with the accounting policies and accounting periods of the Company to recognize the investment income and other comprehensive incomes. For the transaction incurred between the group and associated enterprises and joint ventures, invested or sold assets don't constitute a business, the part that doesn't achieve internal transaction profit or loss or belongs to the group calculated according to the enjoyed ratio will be offset, and the profit or loss on investment will be confirmed on this basis. But for the unrealized loss arising from the internal transaction between the group and the invested unit, if such transaction loss is defined as the impairment loss of the transferred asset, they cannot be offset. When the Company determines the net loss of the invested unit which shall be shared, it is necessary to write-down the book value of the long-term equity investment and other long-term equities substantially constituting the net investment of the invested unit to zero as a limit. Besides, if the group is obliged to bear extra loss for the investment unit, it shall be necessary to determine provisionsf and record them to current investment loss in compliance with obligations expected to be assumed. If the invested unit realizes any net profits later, the group shall, after the amount of its attributable share of profits offsets its attributable share of the un-confirmed losses, resume to recognize its attributable share of profits. 86 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 12.4 Disposing of Long-term Equity Investment When disposing of a long-term equity investment, the difference between its book value and the actual purchase price shall be recorded into the current profits and losses. 13. Fixed Assets 13.1 The Conditions of Recognition The fixed assets refer to tangible assets held for commodity production, rendering of labor service, renting or operation management, having a service life of more than one accounting year. The fixed asset can be confirmed only when the economic interest related to a fixed asset is likely to flow into the group, and the cost of such fixed asset can be reliably measured. Fixed assets are measured initially in accordance with costs. Subsequent expenditures related to fixed assets are included in costs of fixed assets when the associated economic benefits are likely to flow to the Group and the costs can be measured reliably, and the book value of the replaced part is derecognized; all other subsequent expenditures are included in profits and losses in the current period when incurred. Other subsequent expenditures except for the above said subsequent expenditure shall be included into the current profit and loss once occurred. 13.2 Depreciation Method From the following month when fixed assets reach the estimated applicable status on, the counting and withdrawing depreciation shall be conducted in its service life using age limit average method. The service lives, expected rates of net residual value and annual depreciation rates of the fixed assets are as follows: Depreciation life Salvage value rate Annual depreciation rate Class (year) (%) (%) Houses and buildings 20 years 10 4.5 Common facilities 3-5 years 10 18.0-30.0 Special-purpose 3-5 years 10 18.0-30.0 equipment Transport equipment 5 years 10 18.0 The predicted net residual value refers to the expected amount that the group may obtain from the current disposal of a fixed asset after deducting the expected disposal expenses at the expiration of its predicted service life. 87 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 13.3 Identification Basis, Valuation and Depreciation Method of Fixed Assets of Financial Lease On the commencement date of the lease term, record the fair value of the leasing asset or the present value of the minimum lease payments on the lease commencement date, whichever is lower, as the entry value of the leased asset, make the amount of the minimum lease payments as the entry value of long-term account payable, and recognize the balance between the entry value of the leased asset and that of the long-term account payables as unrecognized financing charges. In addition, the initial direct costs directly attributable to the leased item incurred during the process of lease negotiating and signing the leasing agreement shall be included into the asset value of the rent. The Group applies depreciation policy consistent with its own fixed assets to depreciate the rented fixed assets under financing lease. If it is reasonable to be certain that the Company will obtain the ownership of the leased asset when the lease term expires, the leased asset may be fully depreciated over its useful life. If it is not reasonable to be certain that the Company will obtain the ownership of the leased asset at the expiry of the lease term, the leased asset may be fully depreciated over the shorter one of the lease term or its useful life. If the ownership of the leased asset can be reasonably confirmed on the lease term expiry, the accrual depreciation shall be conducted within the service life of the lease asset; if not, the accrual depreciation shall be conducted within the shorter of two periods, namely the lease term and the service life of lease asset. 13.4 Other Instructions The fixed assets are derecognized when the fixed assets are in disposed state or no future economic benefits are expected from their use or disposal. The amount of proceeds on sale and transfer of a fixed asset as well as disposal of a scrapped or damaged fixed asset less its book value and related taxes, are recognized in profits and losses of the current period. The Group performs review on service life, predicted net residual value and depreciation method of fixed assets at the end of the year, any changes will be treated as changes in accounting estimates. 14. Construction in Process The cost of construction in process shall be measured as per actual costs, including various engineering expenditures in the construction process, capitalized borrowing expenses for making the engineering reach the expected serviceable condition, other relevant costs, etc. No depreciation calculated and withdrawn arises from construction in process. The construction in process shall be transferred to the fixed assets when it reaches the expected serviceable condition. For those that could reach to the expected serviceable condition, but haven't gone through the procedures for the final accounts of the completed projects, they will be converted to fixed assets according to the estimated value. When they have gone through the final accounts of the completed projects, the provisional estimate value of the original fixed assets will be adjusted according to the actual costs. 88 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 15. Borrowing Expenses Borrowing costs directly attributable to the acquisition & construction or production of assets eligible for capitalization shall be capitalized when assets expenditure, borrowing costs and necessary construction or production for bringing assets to expected conditions for use or marketing have taken place; when construction or production of assets ready for capitalization reach to expected conditions for use or marketing, capitalization shall be ceased. Other borrowing expenses are recognized as expenses in the current period. After actual interest expense generated from the specific loan for current period, minus interest income from the yet unused borrowed money kept in the bank or investment income made from temporary investment, these amounts are capitalized; The capitalizing amount is determined after the weighted average of excess part of accumulative asset expenditures compared to the asset expenditure of special borrowing multiplied by the capitalization rate of the general borrowing. The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing. In the capitalization period, all exchange balance of special foreign currency borrowing shall be capitalized; Exchange balance of general foreign currency borrowing shall be included in the current profit and loss. 16. Intangible Assets 16.1 Intangible Assets Intangible assets include land use right, intellectual property and application software, etc. The initial measurement of intangible assets shall be made at its cost. The intangible assets with the limited service life can be amortized evenly for the original value by installment through the straight-line method within its predicted service life since the time available for using. The service life and predicted net residual value of various intangible assets are shown as follows: Class Service life (year) Salvage value rate (%) Land utilization right 50 years - IP Rights 10 Years - Application Software 5-10 years - At the end of the period, the service life and amortization method of intangible assets whose service life is limited shall be reviewed and adjusted when necessary. 16.2 Internal Research and Development Expenditure Expenditures at research stage are included in current profit and loss when incurred. 89 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 Expenditures at development stage that meet all the following conditions are recognized as intangible assets, otherwise included in current profit and loss: (1) Complete the intangible asset so that it can be used or sold and has feasibility in technology; (2) Have the intents to complete, use or sell the intangible assets; (3) The usefulness of methods for intangible assets to generate economic benefits can be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally; (4) There are sufficient technical, financial and other resources to complete the development of the intangible assets, and there is ability to use or sell the intangible assets; (5) The expenditures of the intangible assets in the development stage can be reliably measured. The expenditures in the research stage and development stage, if failing to be classified, shall be totally included into the current profit and loss. 17. Long-term Assets Impairment The Group checks whether the intangible assets determined by a long-term equity investment, fixed assets, construction in process and service life have any signs of possible impairment at each balance sheet date. For the assets with signs of impairment, their recoverable amount will be estimated. The intangible assets with uncertain service life and the intangible assets which have not yet reached serviceable condition shall be give impairment test every year no matter whether there are signs of impairment. The recoverable amount of estimated assets shall be based on single assets; if it is difficult to estimate the recoverable amount of single assets, the recoverable amount of the asset group shall be determined based on its belonging asset group. The recoverable amount shall be determined in light of the higher one between the net amount of the fair value of the assets or asset group deducted by the disposal expenses and the present value of the expected future cash flow. If the recoverable amount of assets is lower than its book value, assets impairment preparation shall be counted and drawn based on its balance and be included in the current profits and losses. Goodwill impairment test shall be conducted at the end of each year at least. Goodwill impairment test shall be conducted in accordance with the concerned asset group or asset portfolio. That is to allocate the book value of goodwill to the asset group or asset portfolio that is expected to benefit from the synergies of the combination in a reasonable way from the date of purchasing. When recoverable amount of apportion-included asset group or asset portfolio of goodwill is less than book value of goodwill, impairment loss shall be confirmed. Firstly, amount of impairment loss shall be apportioned to the book value of goodwill of the said asset group or asset portfolio, and then book value of other assets, except for goodwill, in asset group or asset portfolio shall be abated in proportion. 90 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 Once above asset impairment losses are confirmed, they are not reversed in subsequent accounting periods. 18. Employee compensation 18.1 Accountant Arrangement Method of Short-term Remuneration During accounting period when the Group's employees provide services, actual short-term remuneration shall be recognized as the liabilities which are included in current profit and loss or relevant asset cost. For the employee services and benefits of the Group, they are included into current profit and loss or relevant asset cost according to actual amount during the actual period. If the staff welfare is non-monetary welfare, it shall be measured according to its fair value. During the period when the employees service the Group, the Group pays social insurance premiums such as medical insurance premium, industrial injury insurance premium, birth insurance premium and housing accumulation fund for its employees, as well as labor union expenditure and employee education expenses calculated and withdrawn according the regulations, corresponding employee remuneration amount shall be calculated and determined in accordance with specified calculation and withdrawal basis and proportion to recognize corresponding liabilities which are included into the current profit and loss or relevant asset cost. 18.2 Accountant Arrangement Method of Post-employment Benefits All post-employment benefits shall be considered as the defined contribution plan. In the accounting period when the employee serves for the Group, the deposited amount calculated based on defined contribution plan shall be recognized as liabilities and included in the current profit and loss or relevant asset cost. 18.3 Accountant Arrangement Method of the Termination Benefits Where the Group provides termination benefits, the employee remuneration liabilities caused by such termination benefits will be determined as the following date, whichever is earlier, and will be included in the current profit and loss: When the Group cannot unilaterally withdraw the termination benefits provided due to labor relation cancellation plan or employee lay-off suggestion; When the Group determines costs or expenses in relation with the restructuring of the paid termination benefits. 19 19. Provisions When the contingency obligation related to product quality guarantee and others is the present obligation of the Group, and the obligation performance may cause the outflow of economic profits, of which the amount can be measured reliably, the amount shall be confirmed as provisions. 91 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 The estimated liabilities are measured at balance sheet date in accordance with the best estimate of the necessary expenses for the performance of the current obligation and factors pertinent to contingencies such as the risks, uncertainties and the time value of money are taken into account as a whole. If the time value of money generates a great influence, the best estimate shall be determined in accordance with discounted amount of the expected future cash outflow. 20. Share-based Payment Share-based payment refers to a transaction in which the Group grants the equity instruments or undertakes the equity-instrument-based liabilities in return for services from employees. The Group's share-based payment is an equity-settled share-based payment. 20.1 Equity-settled Share-based Payment Equity-settled share-based payment granted to employees For the equity-settled share-based payment in exchange of services provided by employees, the fair value shall be measured with the equity instrument granted to the employees on the grant date. The fair value's amount is based on the optimal estimation of the number of vesting equity instruments within the waiting period, and shall be included in relevant cost or expense at the time of the granted immediate vesting according to the straight-line method, the fair value's amount is included in relevant cost or expense with a corresponding increase of capital reserve at the grant date. As for each balance sheet date in the waiting period, the Group can make best estimate according to the variations in the number of vesting staff and other subsequent information, in order to amend the amount of equity instrument of the predicated vesting right. The stated effects of evaluation shall be included into the current relevant cost or fees, and the capital reserves shall be adjusted correspondingly. When receiving the restricted share subscription fund paid the incentive object that the equity incentive plan granted, then the Group shall confirm the equity and capital reserve (capital share premium) according to the obtained subscription fund, meanwhile, fully confirm a liability and confirm treasury stock in terms of repurchase obligations incurred because the Company's incentive object fails to meet unlocking condition specified in relevant equity incentive plan. 20.2. Related Accounting Treatment of Implementation, Modification and Termination of The Share-Based Payment Plan When the Group modifies the share-based payment plan, if the modification increases the fair value of equity instrument granted, the increase of service shall be recognized according to the increase of fair value of equity instrument accordingly; If the number of equity instrument granted is modified to increase, the Group shall confirm the fair value of equity instrument increased as the increase of service obtained. The increment of fair value for equity instrument refers to the difference in fair value of the equity instrument before and after the modification on the modification date. If the modification decreases the 92 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 total amount of share-based payment fair value or adopts other ways which are adverse to the employees to modify terms and conditions of share-based payment plan, unless the Group cancels the part or all of the granted equity instruments, it shall conduct the further accounting treatment of the services acquired, and it shall be deemed that such change never happens. If the conferred equity instruments are cancelled during the waiting period, the Group shall accelerate exercising the rights of the equity instruments. The amount recognized during the remaining waiting period shall be included into current profit and loss immediately and the capital reserve shall be determined simultaneously. If the employees may meet non-exercisable conditions, but fail to not meet within the waiting period, the Group may cancel them as conferred equity instruments. 21. Income 21.1 Income from Commodity Sales The Group has transferred the main risk and remuneration from the commodity ownership to the buyer; the Group retains neither the management rights usually associated with ownership, nor the effective control of the sale of goods; the amount of incomes can be measured reliably; the related economic benefits may flow to the enterprise; when the related cost has occurred or will be occur can be measured reliably, the realization on income from commodity sales shall be confirmed. 21.2 Income From Provision of Labor Service The realization of incomes for providing labor service shall be confirmed when the amount of incomes for providing labor service can be reliably measured, relevant economic interests can probably flow into the enterprise, completion degree of transaction can be reliably determined, costs that have occurred and will occur in the transaction can be reliably measured. The Group shall confirm the labor service income provided at the balance sheet date according to the completion percentage method. The completion process of labor service transaction is determined by the ratio of the already accrued labor service cost to the total costs. In the event that result of labor service cannot be estimated reliably, revenue from such labor service is recognized in accordance with the incurred labor cost which is estimated to be compensated, and such labor cost is recognized as expenses for current period; where the incurred labor cost is estimated not to be compensated, revenue from such labor service shall not be recognized. If the labor service cost already accrued is estimated not to be compensated as predicted, its income shall not be confirmed. 21.3 Construction Contract If the results of the construction contracts can be reliably estimated, the enterprise can confirm the contract income and expenses as achieved by the completion percentage method on the balance sheet date. 93 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 Progress of contract completion will be determined based on the proportion of finished contractual amount of work covering estimated total amount of work. If the results of the construction contract cannot be estimated reliably: where the contract costs can be recovered, the contract revenue shall be recognized according to the actual contract costs that can be recovered and the contract costs shall be recognized as the expenses incurred in the current period; when the contract costs cannot be recovered, the contract costs shall be recognized as the expenses once they are incurred and the revenue shall not be recognized. Where the uncertain factors affecting the reliable estimation of the results of the construction contract have no longer been in existence, contract revenue and expenses shall be recognized based on the percentage-of-completion method. If the uncertain factors in that results of construction contracts cannot be reliably estimated disappear, the relevant incomes and expenses to construction contract shall be confirmed according to the completion percentage method. If the expected total contract costs exceed the total contract revenue, the expected loss is recognized as current expenses. The accumulative cost accrued and accumulative gross profits (losses) confirmed and already settled payments in the construction contract shall be presented as net amount after offsetting in the balance sheet. If the sum of accumulative cost accrued and accumulative gross profits (losses) confirmed is surplus settled part of payments in the construction contract, this part is listed as inventory; If the settled part of payment is surplus the sum of accumulative cost accrued and accumulative gross profits (losses) confirmed in the construction contract, this part is listed as prepayment. As for the construction business of public infrastructures in BOT, the Group will recognize the relevant income and expenses of the construction services according to Accounting Standards for Business Enterprises No. 15- Construction Contract in the project construction period; After the completion of infrastructure, the income and expenses related to the follow-up operation services will be recognized according to Accounting Standards for Business Enterprises No. 14 - Income. 22. Governmental Subsidy Governmental subsidies are the monetary and non-monetary assets obtained by the Group from the government for free. According to the subsidy object regulated in government documents, the government subsidy will be divided into government subsidy related to assets and income. The government subsidy shall be recognized when the attached conditions of government subsidies can be met and obtained. The government subsidy which is monetary assets shall be calculated by the actually receivable or received amount. Government subsidy fund that with conclusive evidence to fulfill relevant conditions prescribed by the government financial support policy and expected to be received, should be recognized under receivables; otherwise, recognized with actual received amount. For government subsidy which is non-monetary assets shall be calculated by fair value; if no realiable fair value available, calculated with nominal value of RMB 1. 94 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 22.1 Judgment Basis and Accountant Arrangement Method of Government Subsidy Related to the Assets Asset-related government subsidy refers to government subsidies that the Group obtained and used in the acquisition or construction, or formed the long-term assets by other means. Except for above situations, government subsidies shall be defined as income-related. Asset-related government subsidy shall offset the book value of related assets, or shall be booked as deferred income. Asset-related government subsidy recognized as deferred income, shall be evenly booked into profit or loss by terms, according to the service life of the related-assets. Government subsidies calculated based on nominal value shall be recognized in the current period profit or loss directly. Related assets that are sold, transferred, obsoleted, or damaged before the end of service life, the undistributed deferred income balance shall be transferred into current profit/loss from disposal of assets. 22.2 Judgment Basis and Accountant Arrangement Method of Government Subsidy Related to the Income Government subsidies that are not related to assets shall be defined as government subsidies related to income. The income-related government subsidies that used for compensating the related expenses and losses incurred shall be included into the current profit and loss directly; those used to compensate the relevant expenses and losses in the later period shall be booked as deferred income first and included into the current profit and loss in the period of confirming the related expenses/losses. For government subsidies related to both assets and income, distinguish between different parts for accounting process respectivel; for situations that are hard to disdiguish different parts, shall be categorized as government subsidy related to income as a whole. Government subsidies related to daily operations shall be booked into other income or offset related expenses; for those not related to daily operations, shall be booked into non-operating income/expense. 23. Deferred Income Tax Assets / Deferred Income Tax Liabilities The current income tax expenses include income tax and deferred income tax. 23.1. Current Income Tax On the balance sheet date, the current income tax liabilities (or assets) incurred in the current period or prior periods shall be measured on the basis of the expected payable (or refundable) amount of income tax, which is calculated according to the tax law. 23.2 Deferred Income Tax Assets and Deferred Income Tax Liabilities In case of temporary differences including the difference between the book value of assets and liabilities and the tax base and difference between the book value and the tax base of the items which are not recognized as assets and liabilities, however, the tax base of which can be determined in accordance with 95 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 tax law, the deferred income tax assets and liabilities shall be recognized by adopting the balance sheet liability method. In general, all temporary differences shall be recognized as relevant deferred income taxes. For deductible temporary differences, the Group shall confirm the related deferred income tax assets when the taxable income amount of deductible temporary differences that is likely to be deducted in future is regarded as the limit. In addition, related to the initial recognition of goodwill, and the taxable temporary differences related to the initial recognition of assets or liabilities occurred in the transaction which will not influence the accounting profit and taxable income (or deduction loss), and not the business merger, shall not confirm the deferred income tax assets or liabilities. As for any deductible loss or tax deduction that can be carried forward to the subsequent years, the corresponding deferred income tax assets shall be determined to the extent that the amount of future taxable income to be offset by the deductible loss and tax deduction to be likely obtained. The Group can confirm deferred income tax liabilities arisen by the taxable temporary differences related to investment invested with its subsidiary, except that it can control the timing of reversal of temporary differences, and the temporary differences in the foreseeable future is unlikely to be reversed. For deductible temporary differences related to the investment of the subsidiary, if it's possible that the temporary difference shall be switched back in the foreseeable future and obtain sufficient taxable income for deducting the deductible temporary difference in the future, the Group will confirm it as the deferred income tax assets. 23.2 Deferred Income Tax Assets and Deferred Income Tax Liabilities - continued On the balance sheet date, the deferred income tax assets and deferred income tax liabilities shall, under the tax law, be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled. Except that the current income tax and deferred income tax which are confirmed as other comprehensive incomes or those related to transactions and events directly included into the shareholders' equities shall be included into other comprehensive incomes or shareholders' equities, as well as the book value of deferred income tax for goodwill adjustment arising from business merger, the remaining current income tax and deferred income tax expenses or revenues shall be included into current profit and loss. At balance sheet date, it shall recheck the book value of deferred income tax assets. If taxable income is likely to fail to cover the profits generated from the deferred income tax assets, then it is necessary to write down the book value of deferred income tax assets. When adequate taxable income is likely to obtain, recover the deducted amount. When adequate taxable income is likely to obtain, the deducted amount shall be recovered. 23.3 Offset of Income Tax 96 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 When having the legal rights settled at a net amount are owned and it is intended to make settlement at a net amount, obtain assets or repay liabilities simultaneously, the Group's current income tax assets and current income tax liabilities shall be presented at a net amount after offsetting. The deferred income tax assets and liabilities of the Group shall be presented at the net amount after deducting when having the legal right of settling income tax assets and liabilities in current period at net amount and the deferred income tax assets and liabilities are pertinent to income tax of the same taxation subject or different subjects collected by the same tax collection and administration department, however during each period of significance when the deferred income tax assets and liabilities are reversed, the taxation subjects involved intend to settle the income tax assets and liabilities in current period at net amount or obtain assets and settle liabilities simultaneously. 24. Lease Transfer the financing lease of all risks and remunerations related to the ownership of assets in essence. Operating leases refer to the leases other than finance leases. 24.1 Accountant Arrangement Method of The Operating Lease 24.1.1 The Group will record operating leasing business as the lessee. Any rental payment from operating leases shall be recognized in relevant asset costs or current profit and loss in accordance with the straight-line method in each period within the lease term. Initial direct expenses shall be included in current profit and loss while the contingent rents shall be included in current profit and loss when they actually occur. The initial direct costs shall be included into the current profit and loss. The contingent rental shall be included into the current profit and loss when it is actually incurred. 24.1.2 The Group will record operating leasing business as the lesser. The rental income of operating lease during each period within the lease term will be recognized as the current profit and loss according to the straight-line method. A large amount of initial direct costs shall be capitalized when occurring and be included into current profit and loss according to the same installment of rental income in the entire lease term; the other initial direct costs of smaller amount will be included into the current profit and loss when it occurs. The contingent rental shall be included into the current profit and loss when it is actually incurred. 24.2. Accountant Arrangement Method of the Financing Lease 24.2.1 The Group will record financing lease business as the lessee. For relevant accountant arrangement method, see Note (III) "15.3 Identification basis, valuation and depreciation method of fixed assets of financing lease". 97 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 Where the unrecognized financing costs are within the lease term, the current financing costs shall be recognized in accordance with the effective interest method. Contingent rents shall be included in current profit and loss when they actually occur. The minimum rental payment shall be presently respectively as long-term liabilities and long-term liabilities due within one year after deducting the unrecognized financing costs. The contingent rental shall be included into the current profit and loss when it is actually incurred. The remaining balance of the minimum leasing payment deducting unrecognized financing charges is respectively presented as long-term liability and long-term liability due in one year. 24.2.2 The Group will record financing lease business as the lesser. At the beginning date of the lease term, a lessor shall recognize the sum of the minimum lease receipts on the lease beginning date and the initial direct costs as the entry value in an account of the financing lease values receivables, and record the un-guaranteed residual value at the same time; The balance between the sums of the minimum lease receipts, the initial direct costs and the unguaranteed residual value, and the sum of their present values shall be recognized as unrealized financing income. The unrealized financing incomes adopt the effective interest method during each lease term to calculate and recognize the current financing incomes. The contingent rental shall be included into the current profit and loss when it is actually incurred. The balance of the receivables financing lease amount deducting unrealized financing revenue is respectively presented as long-term creditor's rights and long-term creditor's rights due in one year. 25. Repurchase the company’s own shares When repurchasing this Company shares, the treatment of treasury stock shall be implemented according to actually-paid amount and the future reference shall be registered at the same time. If the repurchased shares are cancelled, then the difference between the total amount of cancelled share face value and share face value of cancelled number of shares and the consideration amount paid by the actual repurchase shall offset the capital reserve, if the capital reserve is insufficient, then the retained earnings shall be offset. If the transaction expense paid in the process of repurchasing this Company shares reduces the shareholders' equity, then gains or losses shall not be determined. 26. Important judgments used during accounting policy process and key assumptions and uncertainty factors used in accounting estimate During the process of using accounting policy described in note (III), due to the uncertainty in operation activities, the group should judge, estimate and assume the book value which may not be metered accurately. These judgments, estimates and assumptions are based on the historical experience of the Group's management level and other key factors. Differences may exist in the actual results and the group estimate. 98 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 The Group regularly reviews the above judgments, assumptions and estimations on the basis of continuous operation. If the changes of accounting estimate only influence current period, the influence number will be affirmed during the changing period; if it influences the current period and future period, the influence number will be recognized in the current period and future period. - Key assumptions and uncertainties used in accounting estimate On balance sheet date, key assumptions and uncertainties in book value of assets and liabilities in future period caused by the accounting estimate mainly are Impairment of the fixed assets At the balance sheet date, the Group will check whether fixed assets have signs that depreciation is likely to occur. When the signs indicate that the carrying amount cannot be repurchased, then the impairment test shall be implemented. The impairment occurred when the book value of assets or asset group is higher than the recoverable amount, namely the net amount of fair value minus the disposal expenses or the present value of expected future cash flow (which is higher). The net amount of fair value minimum disposal expenses is determined by deducting the incremental cost which directly belongs to the assets disposal referring to the price of sales agreement of similar assets in fair transaction or the observable market price. When predicting present value of future cash flows, management level must estimate the predicted future cash flows of the said asset or asset portfolio, and shall select proper discount rate to confirm the present value of future cash flows. Based on the above procedure, the Group's management level deems that fixed assets shall not need to calculate and withdraw the impairment reserve. Service life and predicted net residual value of fixed asset The Group's estimation of fixed assets serviceable life is based on the historical experience of actual usable term of fixed assets with similar properties and functions, the estimation of predicted net residual value is the amount obtained currently by the Group from the assets after deducting the anticipated disposal expense based on the anticipated status assuming that fixed assets' predicted service life expires and fixed assets are at the end of service life. The Group shall conduct the review on the predicted service life and predicted net residual value of fixed assets at least at the end of each year, this year the Group's management level fails to find the conditions to make the Group's fixed asset service life shortened or extended and need to change predicted net residual value. Impairment of accounts receivables When there is a clear evidence to make the accounts receivables recovery in doubt, then the Group will calculate and withdraw the impairment preparation to the accounts receivables. Because the Group's management level needs to decide the historic payment collection, aging, debtor's financial condition and overall economic environment when considering the impairment reserve, so the calculation of impairment reserve has the uncertainty. Although there is no reason to believe that the based estimation will have a major change in the future when calculating the impairment of accounts receivables, the book 99 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 value and impairment loss of accounts receivables will change when the future actual result is different from the anticipated and original estimation. Accrued liabilities of product quality assurance Accrued liabilities of product quality assurance are an estimation made by the Group according to the repair and replacement cost of predicted relevant products. The estimation is involved in the product claim rate trend, history defect rate, industry practice and other major estimations. The management level deems that the current estimation on accrued liabilities of product quality assurance is reasonable, but the Group will continue to review the product after-sales service, the Group will conduct adjustment during the period of sign occurrence once there are indications that the accounting assumptions need to be adjusted Provision for impairment of inventories Inventories are stated at the lower of cost and net realizable value. The Group will regularly conduct a comprehensive inventory to determine whether there are outmoded and dull inventory and to review the impairment circumstances, in addition, the Group's management level will regularly review the impairment circumstance of inventory with long storage time according to the inventory storage time list. The review procedure includes the comparison between book value of outmoded, dull inventory and inventory with long storage time and its corresponding net realizable value in order to determine whether the outmoded, dull inventory and inventory with long storage time need to calculate and withdraw reserve in the financial statements. Based on the above procedure, the Group's management level deems that the full falling price reserves have been calculated and withdrawn for the outmoded, dull inventory and inventory with long storage time Assets from deferred income tax The realization of deferred income tax assets mainly depends on the future actual profit and the effective tax rate of temporary difference in the future use year. If the actual profit in the future is less than the estimation, or actual tax rate is lower than the estimation, then the confirmed deferred income tax assets will be turned back and be confirmed in the income statement during the period of return-back. If the actual profit in the future is more than the estimation, or actual tax rate is higher than the estimation, then the corresponding deferred income tax assets will be adjusted and be confirmed in the income statement during the condition occurrence. Goodwill impairment When the goodwill conducts the impairment test, this needs to calculate the predicted present value of future cash flow of relevant asset group or asset group combination included in the goodwill, and needs to predict the future cash flow of relevant asset group or asset group combination, and needs to determine a proper pretax rate that reflects the current market time value of money and specific asset risk. When the future actual result is different from the original estimation, then the goodwill impairment loss will change. 100 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 27. Significant alternation in accounting policy and accounting estimations Pursuant to edied regulations of Accounting Standards for Enterprises No. 16 - Government Subsidies (Accounting (2017) No.15,since January 1st 2017, government subsidies related to the enterprise’s daily operation shall be recognized other “Other Income” or offset related cost/expense; for those not related to daily operations, shall be booked into non-operating income. During the current reporting period, the Company booked RMB 677,411,292.4 of VAT Rebate under Other Income. IV. Taxes 1. Major tax categories and rates Tax category Taxation basis Tax rate Enterprise income Taxable income 25% (Note 1) tax For the taxable product sales revenue or taxable labor 6%, 11%, 17% and revenue, the Company and its domestic subsidiaries are an VAT simple collection ordinary VAT payer; the VAT payable is the balance after rate of 3% (Note 2) the substituted money on VAT minus deductible input tax. Business tax Assessable Income 5%, 3% (Note 3) Urban maintenance and construction Actual payable turnover tax 7% tax Education Actual payable turnover tax 3% surcharges Local education Actual payable turnover tax 2% surcharges Note 1: Except that this Company and subsidiaries in China are applicable to the following tax preference, this Company's other subsidiaries in China are applicable to 25% of enterprise income tax rate, the overseas subsidiaries are applicable to local tax rate. 2. Tax Preference (1) In accordance with the Notice on Publishing the List of First Batch of 722 identified High-tech Enterprises of Zhejiang Province in 2014 (ZGQR [2014] No. 03) issued by Zhejiang high-tech enterprise identification management work leading group on September 19, 2014, the Company was identified as the high-tech enterprise with a valid term of 3 years from 2014 to 2016. According to the Announcement of implementation of high-tech enterprise income tax preferential policy issued by state administration of taxation, within one year after the hign-tech qualification expires, before re-recognition, the enterprise income tax could be temporarily paid in advance with a tax rate of 15%. (2) In accordance with the Letter of Reply on Publishing the Registration of First Batch of High-tech Enterprises of Zhejiang Province in 2016 (GKH ZI [2016] No. 149) issued by Zhejiang high-tech enterprise identification management work leading group on December 9, 2016, this Company was 101 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 identified as the high-tech enterprise with a valid term of 3 years from 2016 to 2018. Therefore, the enterprise income tax this year shall be calculated and paid according to tax rate of 15%. (3) In accordance with CS [2011] No. 58 Document of Ministry of Finance, SAT and General Administration of Customs, the wholly-owned subsidiaries - Chongqing Hikvision Science and Technology Co., Ltd. and Chongqing Hikvision System Technology Co., Ltd. Can enjoy the west development preferential tax policy from 2011 to 2020, this year the enterprise income rate shall be calculated and paid on the basis of 15%. Note 2: In accordance with the Notice on Software Product Value-added Tax Policy (CS [2011] No. 100) of Ministry of Finance and SAT, as for the sales of software products developed by this Company and its all wholly-owned subsidiaries, such as Shanghai Gaodewei, Hangzhou System, Shanghai Hundure, Beijing Brainaire Storage Technology Co., Ltd., Hangzhou EZVIZ Network Co., Ltd. and Hangzhou HIK Robot Technology Co., Ltd., The VAT shall be calculated and paid by tax rate of 17%, the part with actual tax bearing more than 3% shall be refunded after the approval of the SAT. Note 3: In accordance with the Notice on Fully Implementing the Change from Business Tax to Value-Added Tax (CS [2016] No. 36) the Group's business tax has been changed as VAT since May 1, 2016, of which the engineering integration income is applicable to the 11% of VAT rate, engineering project management income is applicable to the VAT rate with a simple collection rate of 3%. 102 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 V. Notes to items in the consolidated financial statements 1. Cash and bank balances Unit: RMB Closing Balance Opening Balance Foreign currency Exchange rate for Foreign currency Exchange rate for Item RMB amount RMB amount amount conversion amount conversion Cash: RMB - - 181,497.38 - - 72,198.75 USD 258,537.93 6.7744 1,751,439.35 54,518.00 6.9370 378,191.37 EUR 38,612.98 7.7496 299,235.15 9,914.76 7.3665 73,036.78 GBP 42,477.63 8.8144 374,414.82 3,194.57 8.5094 27,183.87 ZAR 20,000.00 0.5208 10,416.00 20,000.00 0.5083 10,165.18 INR - - - 648,250.61 0.1023 66,308.91 RUB - - - 700,327.10 0.1151 80,584.44 AED 1,437.81 1.8445 2,652.04 22,038.00 1.8876 41,599.39 Bank balance: RMB - - 6,754,002,999.78 - - 9,012,033,851.31 USD 772,342,355.90 6.7744 5,232,156,055.84 557,895,047.74 6.9370 3,870,112,669.33 EUR 29,602,740.91 7.7496 229,409,400.98 63,105,958.57 7.3086 461,213,364.03 GBP 1,247,825.21 8.8144 10,998,830.49 1,162,906.87 8.5162 9,903,554.55 JPY 408.04 0.0605 24.68 408.00 0.0596 24.31 CHF 4,350.90 7.0888 30,842.66 4,350.83 6.7989 29,580.86 ZAR 15,779,608.31 0.5208 8,218,020.01 479,939.35 0.5083 243,938.69 INR 608,165,494.36 0.1049 63,816,629.82 741,278,806.84 0.1023 75,824,667.94 RUB 890,058,303.33 0.1142 101,644,658.24 376,048,117.90 0.1149 43,219,734.70 HKD 51,493,186.84 0.8679 44,690,936.86 113,182.52 0.8945 101,242.90 AUD 686,452.93 5.2099 3,576,351.12 358,996.02 5.0157 1,800,616.34 AED 12,658,350.68 1.8445 23,348,327.83 8,811,007.21 1.8876 16,631,825.02 BRL 8,281,430.57 2.0536 17,006,745.82 8,453,226.09 2.1336 18,035,803.19 SGD 532,848.44 4.9135 2,618,150.81 34,035.93 4.7995 163,355.45 PLN 2,195,578.21 1.8271 4,011,434.07 1,403,342.82 1.6569 2,325,147.58 KRW - - - 120,990,676.00 0.0058 696,509.57 CAD 800,551.39 5.2144 4,174,395.17 42,307.32 5.1406 217,485.01 KZT 20,606,680.35 0.0210 433,691.09 27,890,915.57 0.0207 577,341.95 COP 20,290,312.14 0.0222 450,447.69 261,841,960.55 0.0023 604,226.04 TRY 1,191,712.76 1.9217 2,290,114.42 21,242.60 1.9702 41,851.47 SEK 317,290,452.24 0.0059 1,880,263.22 - - - NZD 293,093.09 4.9569 1,452,833.16 - - - HUF 3,761,879.86 0.3997 1,503,740.00 - - - Other currency funds: RMB - - 306,041,493.26 - - 102,586,217.99 USD 53,500,000.00 6.7744 362,430,400.00 3,019,477.89 6.6811 20,173,564.54 EUR 108,383.14 7.7496 839,925.98 108,432.98 7.3068 792,298.10 Total 13,179,646,367.74 13,638,078,139.56 including: deposited in 557,929,832.30 565,682,133.09 overseas banks As of June 30th 2017, other currency funds book value of the Group in RMB totalled RMB 669,311,819.24, including a RMB closing balance of RMB 306,041,493.26 (opening balance: RMB 102,586,217.99). The balance of other currency funds mainly includes cash deposit guaranteed for letter of guarantee of RMB 7,800,907.01 (opening blance: RMB 103 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 4,659,173.02), cash deposit guaranteed for forward foreign exchange transaction of RMB 3,100,000.00 (opening balance RMB 3,100,000.00), cash deposit guaranteed for bank acceptance bill of RMB 243,520,516.19 (opening balance RMB 57,015,406.62), Cash deposit guaranteed for letter of credit of RMB 600,000.00 (opening balance:USD 3,019,477.89, equivalent to RMB 20,173,564.54), bank deposit of RMB 35,000,000.00 (opening blance: RMB 30,000,000.00) pledged for long-term borrowing. Other currency funds book value in US Dollar totaled USD 53,500,000.00 (equivalent to RMB 362,430,400.00) (Opening balance: nil), pledged for short-term borrowing. 2. Financial assets as fair value through profit and loss Unit: RMB Item Closing Balance Opening Balance Held-for-trading financial assets 3,004,171.92 15,547,537.34 including: derivative financial assets 3,004,171.92 15,547,537.34 Total 3,004,171.92 15,547,537.34 Derivative financial assets includes forwards and interest rate swap contracts, not designated as a hedging instrument, gains or losses due to changes in fair value is directly included in the current period profits and losses. 3. Notes receivable (1)Categories of notes receivable Unit:RMB Category Closing Balance Opening Balance Bank acceptance bill 3,185,981,920.01 2,762,741,337.04 Commercial acceptance bill 95,657,500.26 80,663,078.48 Total 3,281,639,420.27 2,843,404,415.52 (2) Notes receivable pledged at the closing of the reporting period Unit:RMB th Category Pledged amount by June 30 2017 Bank acceptance bill 584,027,766.90 Commercial acceptance bill - Total 584,027,766.90 (3) Notes receivable discounted or endorsed at the closing of the reporting period Unit:RMB Category Derecognised amount (Note) Not Derecognised amount Bank acceptance bill 115,108,297.43 - Commercial acceptance bill - - Total 115,108,297.43 - Note:After the notes receivable discounted was discounted or endorsed, the main risk such as interest rate has been transferred to bank or others, therefore, all discounted and endorsed bank acceptance bills have been derecognised by the Group. (4) As of June 30th, 2017, there is no such case the Group has to transfer the defaulted note receivable into account receivable. 104 Hikvision 2017 HY Report Notes on Financial Statements For reporting period from January 1st 2017 to June 30th 2017 4. Account Receivable (1) Disclosure of accounts receivable by categories Unit: RMB Closing Balance Beginning Balance Carrying amount Bad debt provision Carrying amount Bad debt provision Category Proportion Proportion Carrying Value Proportion Proportion Carrying Value Amount Amount Amount Amount (%) (%) (%) (%) Accounts receivable that are individually significant and for which bad debt provision - - - - - - - - - - has been assessed individually Accounts receivable with provision accrued 14,351,244,174.53 100 1,047,198,164.41 7.30 13,304,046,010.12 12,105,157,539.88 100 861,314,214.98 7.12 11,243,843,324.90 collectively on a portfolio basis for credit risk Accounts receivable that are not individually significant but for which bad debt provision - - - - - has been assessed individually 12,105,157,539.8 861,314,214.9 11,243,843,324.9 Total 14,351,244,174.53 100 1,047,198,164.41 7.30 13,304,046,010.12 100 7.12 8 8 0 Note: The group categorizes account receivable above RMB 4 million or account for more than 10% of the total account receivable closing balance as accounts receivable that are individually significant. The aging analysis of bad debt provision of account receivable in portfolio basis Unit: RMB Closing Balance Aging Carrying amount Bad debt provision Proportion (%) Within 1 year 12,707,954,069.05 635,397,703.45 5.00 More than 1 year but not exceeding 2 years 932,922,441.86 93,292,244.19 10.00 More than 2 year but not exceeding 3 years 405,799,534.20 121,739,860.26 30.00 More than 3 year but not exceeding 4 years 167,015,619.45 83,507,809.72 50.00 More than 4 year but not exceeding 5 years 121,459,815.88 97,167,852.70 80.00 More than 5 years 16,092,694.09 16,092,694.09 100.00 Subtotal 14,351,244,174.53 1,047,198,164.41 7.30 105 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 (2) Provision, re-collection, or reverse of the bad debt allowance in current reporting period In the current reporting period, the Company recorded a bad debt allowance of RMB 191,073,904.14; recovered bad debts of 192,000.00 RMB. (3) Actual write-off of accunt receivable during current reporting period In the current reporting period, the amount of accounts receivable write-off is RMB 5,381,954.71. (4) Top five debtors based on corresponding closing balance of account recievable Unit: RMB Name of the Relationship with the Book balance of account Closing balance for bed debt Proportion Party Company receivable provision (%) rd Company A 3 party 433,808,155.64 21,690,407.78 3.02 Related party A Related Party 247,324,689.92 5,029,000.00 1.72 rd Company B 3 party 170,013,497.62 100,778,387.06 1.18 rd Company C 3 party 85,675,854.30 4,283,792.72 0.60 Related party B Related Party 85,557,593.00 4,277,879.65 0.60 Total 1,022,379,790.48 136,059,467.21 7.12 (5) As of June 30, 2017, there is no termination of account receivable booking due to transfer of a financial asset. (6) As of June 30, 2017, the Group has no assets/liabilities booked due to transferred account receivable that the Group still keep recourse or retain part of the corresponding rights or interests. 5. Prepayments (1) Aging analysis of prepayments is as follows Unit: RMB Closing Balance Opening Balance Aging Carrying amount Proportion (%) Carrying amount Proportion (%) Within 1 year 226,606,771.94 85.92 259,870,967.78 93.14 More than 1 year but not exceeding 2 years 36,515,492.31 13.84 16,963,621.71 6.08 More than 2 year but not exceeding 3 years 257,148.00 0.10 137,873.42 0.05 More than 3 years 376,377.60 0.14 2,050,745.00 0.73 Total 263,755,789.85 100.00 279,023,207.91 100.00 (2) Closing balances of top five prepayments parties As of June 30th 2017, the Group’s top five balances of prepayments amounted to RMB 186,157,547.85, accounting for 70.58% of total closing balance of prepayments. 106 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 6. Other receivables (1) Disclosure of other receivables by categories Unit: RMB Closing Balance Opening Balance Carrying amount Bad debt provision Carrying amount Bad debt provision Category Carrying Proportion Proportion Carrying Value Proportion Proportion Amount Amount Amount Amount Value (%) (%) (%) (%) Other receivables that are individually significant and for - - - - - - - - - - which bad debt provision has been assessed individually Other receivables with provision accrued collectively on a 774,367,945.00 100.00 64,706,272.48 8.36 709,661,672.52 572,247,211.16 100.00 43,602,983.74 7.62 528,644,227.42 portfolio basis for credit risk Other receivables that are not individually significant but for - - - - - - - - - - which bad debt provision has been assessed individually 572,247,211.1 43,602,983.7 528,644,227.4 Total 774,367,945.00 100.00 64,706,272.48 8.36 709,661,672.52 100.00 7.62 6 4 2 Note: The group categorizes other receivables above RMB 4 million or accounts for more than 10% of the total other receivables closing balance as other receivables that are individually significant. The aging analysis of bad debt provision of other receivables in portfolio basis Unit: RMB Closing Balance Aging Carrying amount Bad debt provision Proportion (%) Within 1 year 591,451,980.82 29,572,599.04 5 More than 1 year but not exceeding 2 years 121,980,205.93 12,198,020.59 10 More than 2 year but not exceeding 3 years 41,792,138.85 12,537,641.66 30 More than 3 year but not exceeding 4 years 16,585,633.75 8,292,816.87 50 More than 4 year but not exceeding 5 years 2,263,956.65 1,811,165.32 80 More than 5 years 294,029.00 294,029.00 100 Total 774,367,945.00 64,706,272.48 8.36 (2) Provision, re-collection, or reverse of the bad debt allowance in current reporting period During the reporting period, the Company recorded a bad debt allowance of RMB 21,104,888.74, there is no such case as reversed bad debt allowance or recovered bad debts. (3) Actual write-off of other receivables during current reporting period In current reporting period, the actual write-off of other receivables is RMB 1,600.00. 107 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 (4) Nature of other receivables Unit: RMB Nature of other receivables Closing balance Beginning balance Other receivables for interim payments 482,014,732.57 397,044,897.11 Guarantee deposits 141,025,042.33 120,485,983.73 Tax rebate 131,327,417.62 17,096,975.74 Others 20,000,752.48 2,619,354.58 Investment intention fund - 35,000,000.00 Total 774,367,945.00 572,247,211.16 (5) Top five debtors based on corresponding closing balance of other receivables Unit: RMB Entities Nature Carrying amount Aging Proportion of total (%) Bad debt Provision The government tax Within 1 year Tax refund 131,327,417.62 16.96 6,566,370.88 authorities Company D Guarantee deposits 20,873,680.00 Within 2 years 2.70 2,075,128.00 Other receivables for Company E 20,699,153.07 Within 1 year 2.67 1,034,957.65 interim payments Other receivables for Within 1 year Company F 18,986,564.70 2.45 949,328.24 interim payments Other receivables for Within 3 years Company G 16,054,560.00 2.07 4,816,368.00 interim payments Total 207,941,375.39 26.85 15,442,152.77 (6) As of June 30th 2017, the Group does not have other receivables related to government subsidies. (7) As of June 30th 2017, there is no termination of other receivables booking due to transfer of a financial asset. (8) As of June 30th 2017, the Group has no assets/liabilities booked due to any transferred other receivable that the Group still keep recourse or retain part of the corresponding rights or interests. 7. Inventories (1) Categories of inventories Unit: RMB Closing Balance Opening Balance Provision for Provision for Category Carrying amount decline in value of Carrying value Carrying amount decline in value Carrying value inventories of inventories Raw materials 1,212,317,055.77 2,353,324.00 1,209,963,731.77 874,786,611.19 1,516,317.17 873,270,294.02 Work-in-progress 534,939,035.22 - 534,939,035.22 159,844,928.42 - 159,844,928.42 Finished goods 3,059,979,848.55 103,432,184.68 2,956,547,663.87 2,680,562,932.70 86,718,096.08 2,593,844,836.62 Completed but unsettled assets 234,370,008.65 - 234,370,008.65 202,987,817.69 - 202,987,817.69 formed by construction contracts Total 5,041,605,948.19 105,785,508.68 4,935,820,439.51 3,918,182,290.00 88,234,413.25 3,829,947,876.75 (2) Provision for decline in value of inventories Unit: RMB Decrease in the current period Effect of foreign Increase in the currency Category Opening balance Closing Balance current period Reversals write-offs exchange difference Raw materials 1,516,317.17 1,339,124.71 - 502,117.87 - 2,353,324.01 Finished goods 86,718,096.08 38,220,457.37 - 21,200,265.93 (306,102.85) 103,432,184.67 Subtotal 88,234,413.25 39,559,582.08 - 21,702,383.80 (306,102.85) 105,785,508.68 108 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 At the closing of the reporting period, the Company determined provision for inventory on a divididual basis, with net realizable value calculated based on estimated selling price for finished goods, and estimated selling price less all estimated cost of completion and costs necessary to make the sale for inventories. For the reporting period, the reversals or write-of of provision for inventories is due to those inventories being used or sold. (3) Completed but unsettled assets formed by construction contracts at the end of June 30th, 2017 Unit: RMB Item Amount Accumulated occurred costs of construction 544,342,448.43 Accumulated booked gross profit margin 18,083,801.89 Less: estimated losses - Settled amounts 328,056,241.67 Completed but unsettled assets formed by construction contracts 234,370,008.65 8. Other current assets Unit: RMB Item Closing balance Opening balance Principal-garanteed bank finance products (Note) 100,000,000.00 3,820,000,000.00 Deductible VAT input 285,333,990.28 293,158,008.82 Prepaid income tax 42,769,181.89 40,834,267.96 Total 428,103,172.17 4,153,992,276.78 Note:The management team agreed that there won’t be significant differences between the estimated interests and risks of those bank entrusted financial products and the book value of those products, because those financial products are all principal-garanteed, with a termination period less than one year. 9. Available-for-sale financial assets (1) Available-for-sale financial assets Unit: RMB Closing Balance Opening Balance Item Carrying amount Provision for decline in value Carrying Value Carrying amount Provision for decline in value Carrying Value Available-for-sale equity instruments 283,836,013.00 - 283,836,013.00 283,836,013.00 - 283,836,013.00 Cost method 283,836,013.00 - 283,836,013.00 283,836,013.00 - 283,836,013.00 Total 283,836,013.00 - 283,836,013.00 283,836,013.00 - 283,836,013.00 (2) Closing balance of available-for-sale financial assets using cost method 109 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Unit: RMB Carrying Balance Provision for decline in value Proportion of Cash Dividend in the The invested entity (Note 1) Opening shareholding in the current reporting Opening balance Increase Decrease Closing balance Increase Decrease Closing balance invested entity (%) period balance Zhejiang Tuxun Technology Co., Ltd. (浙江图 28,800,000.00 - - 28,800,000.00 - - - - 9.5238 - 讯科技股份有限公司) Confirmware Technology (Hangzhou) Co., 26,629,200.00 - - 26,629,200.00 - - - - 10.0000 - Ltd.(康奋威科技(杭州)有限公司) Nanwang Group Co., Ltd (南望信息产业集 604,313.00 - - 604,313.00 - - - - 0.2518 - 团有限公司) Hangzhou Hikvision Equity Investment Partnership (Limited Partnership) (杭州海康 10,000.00 - - 10,000.00 - - - - 0.0017 - 威视股权投资合伙企业(有限合伙)) CETC Finance Co., Ltd (Note2) (中国电子科 227,792,500.00 - - 227,792,500.00 - - - - 3.8300 8,505,842.42 技财务有限公司) Total 283,836,013.00 - - 283,836,013.00 - - - - - 8,505,842.42 Note1: The Group’s equity investments listed are all non-listed companities; therefore, the Group has no control, joint control or significant influence on the invested entities. Note2: CETC Finance Co., Ltd is one of the companies held under CETC, which is the Company’s ultimate controlling shareholder. 10. Long-term receivables (1) Details of long-term receivables Unit: RMB Closing balance Opening balance Item Provision for Provision for Range of discount rate Carrying amount Carrying value Carrying amount Carrying value decline in value decline in value Financial leases receivables 61,887,821.73 - 61,887,821.73 74,504,325.33 - 74,504,325.33 2.08% - 2.52% including:Unrealized income from 1,029,448.82 - 1,029,448.82 1,513,690.63 - 1,513,690.63 financing Borrowings for project 18,000,000.00 - 18,000,000.00 18,000,000.00 - 18,000,000.00 Installment payment for selling products 91,254,524.26 - 91,254,524.26 159,084,593.82 - 159,084,593.82 Total 171,142,345.99 - 171,142,345.99 251,588,919.15 - 251,588,919.15 As of June 30th, 2017,there is no termination of long-term receivables booking due to transfer of a financial asset. As of June 30th, 2017, the Group has no assets/liabilities booked due to any transferred long-term receivable that the Group still keep recourse or retain part of the corresponding rights or interests. 110 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 11. Long-term equity investment Unit: RMB Decrease/Increase in the current period Closing Blance Opening Adjustment: Closing For The invested entity Investment Profit/Loss Declaration of Provision Balance Other Other Balance Provision Additional Investment confirmed under the cash dividends for comprehensive Changes others for decline Investments reduction Equity Method or profit decline in income in equity in value distribution value Associated Companies Wuhu Sensor 35,000,000.00 - - (1,409,148.78) - - - - - 33,590,851.22 - Technology Co, Ltd. Maxio Technology - 98,000,000.00 - (2,468,553.27) - - - - - 95,531,446.73 - (Hangzhou) Ltd. Subtotal 35,000,000.00 98,000,000.00 - (3,877,702.05) - - - - - 129,122,297.95 - Total 35,000,000.00 98,000,000.00 - (3,877,702.05) - - - - - 129,122,297.95 - 111 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Note: According to the equity transfer agreement signed between the Company and Hangzhou Lingqi Technology Co., Ltd, the Company’s subsidiary, Hangzhou Hikvision Science and Technology Co., Ltd acquired 26.68% equity of Maxio Technology (Hangzhou) Co., Ltd. (hereinafter refers to as “Maxio Technology”) with RMB 50 million. Payment for equity transfer was paid in January 2017, and relevant property rights transfer was processed. According to the Equity Capital Increase Agreements signed between the Company and MaxioTechnology and its shareholders, the Company increase capital investment of RMB 48 million on Maxio Techonology, and increased capital has been paid in May 2017. After this capital increment, the Company and its subsidiary together are holding 41.63% equity of Maxio Techonology. 12. Fixed Aseets (1) Details Unit: RMB Office and other Machinery and Transportation Items Building Total equipment Equipment vehicles Total original carrying amount 1. Opening balance 2,557,263,629.24 153,875,892.42 634,591,114.67 61,860,747.84 3,407,591,384.17 2. Increased 17,641,729.41 34,484,534.90 207,573,141.96 3,212,496.64 262,911,902.91 1) purchase 17,641,729.41 34,484,534.90 185,821,460.76 3,212,496.64 241,160,221.71 2) transferred from - - 21,751,681.20 - 21,751,681.20 construction in progress 3.Decrease 5,328,312.71 3,730,649.72 4,325,102.02 2,268,366.81 15,652,431.26 1) disposal or write-off 5,328,312.71 3,730,649.72 4,325,102.02 2,268,366.81 15,652,431.26 4. Effect of foreign currency (1,656,941.04) 589,585.35 200,980.64 610,329.50 (256,045.55) exchange difference 5.Closing Balance 2,567,920,104.90 185,219,362.95 838,040,135.25 63,415,207.17 3,654,594,810.27 Accumulated depreciation 1. Opening blance 275,060,799.95 59,217,137.26 173,740,268.29 45,664,703.18 553,682,908.68 2. Increased 58,077,078.09 18,258,632.77 82,770,437.77 3,201,860.53 162,308,009.16 (1) provided 58,077,078.09 18,258,632.77 82,770,437.77 3,201,860.53 162,308,009.16 3. Decreased 1,518,569.11 2,544,510.56 700,280.68 2,041,775.20 6,805,135.55 (1) disposal or 1,518,569.11 2,544,510.56 700,280.68 2,041,775.20 6,805,135.55 write-off 4. Effect of foreign currency (62,719.76) (161,726.46) 287,001.59 201,988.10 264,543.47 exchange difference 5.Closing balance 331,556,589.17 74,769,533.01 256,097,426.97 47,026,776.61 709,450,325.76 Provision for decline in value 1.Opening balance - - - - - 2.Increased - - - - - 3. Decreased - - - - - 4.Closing balance - - - - - Total carrying amount 1. Closing balance 2,236,363,515.73 110,449,829.94 581,942,708.28 16,388,430.56 2,945,144,484.51 2. Opening balance 2,282,202,829.29 94,658,755.16 460,850,846.38 16,196,044.66 2,853,908,475.49 (2) As of June 30th 2017, the Group does not have any idle fixed assets. (3) As of June 30th 2017, the Group has not leased any fixed asset through financial leasing. (4) As of June 30th 2017, the Group has not rent out any fixed asset through operating leasing (5) Fixed assets of which certificates of title have not been granted as of June 30th 2017 Unit: RMB Carrying Item Reason for certificates of title not granted amount Office building for branches In the process of obtaining the real estate certificates 149,433,978.73 Tonglu Security Industrial Base (Phase 1) -the factory In the process of obtaining the real estate certificates after 617,155,169.94 and dormitory transferred from construction in process Total 766,589,148.67 112 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 13. Construction in progress (1) Details of construction in progress Unit: RMB Closing balance Opening balance Item Carrying amount Provision Carrying value Carrying amount Provision Carrying value Security industrial (Tonglu) base (Phase 1) 34,328,031.91 - 34,328,031.91 18,104,535.49 - 18,104,535.49 Security industrial (Tonglu) base (Phase 2) 19,168,601.89 - 19,168,601.89 2,713,228.89 - 2,713,228.89 Internet Security Industry Base 584,252,250.38 - 584,252,250.38 238,269,427.37 - 238,269,427.37 Public Security Monitoring Site Project 81,785,245.91 - 81,785,245.91 42,542,379.61 - 42,542,379.61 Others 45,316,684.49 - 45,316,684.49 14,852,951.00 - 14,852,951.00 Total 764,850,814.58 - 764,850,814.58 316,482,522.36 - 316,482,522.36 (2) Changes in significant construction in progress Unit: RMB Transferred to Amount Including: Transferred to Accumulated Capitalizati long-term invested as a Constructio capitalized interest Budget fixed assets capitalized interest on rate for Source of Item Opening balance Increased receivables Closing balance proportion of n Progress and profit/loss on (RMB 0,000) during the and profit/loss on the current funds during the current budget (%) exchange for the current period exchange (Note) period (%) period amount (%) current period Security industrial Self- (Tonglu) base 72,000.00 18,104,535.49 16,223,496.42 - - 34,328,031.91 90.48 90.48 - - financing (Phase 1) Security industrial (Tonglu) base 74,100.00 2,713,228.89 16,455,373.00 - - 19,168,601.89 2.59 2.59 - - Bond (Phase 2) Internet Security 100,000.00 238,269,427.37 345,982,823.01 - - 584,252,250.38 58.43 58.43 107,883,858.92 212,883,858.92 1.25% Bond Industry Base Self- Others - 57,395,330.61 91,822,469.04 21,751,681.20 364,188.05 127,101,930.40 - - - - financing Total - 316,482,522.36 470,484,161.47 21,751,681.20 364,188.05 764,850,814.58 - - - - Note:This amount is calculated by interest expense for specific foreign currency borrowings, less interest income for ununsed borrowing fund and profit/loss on exchange rate difference. As of June 30th 2017, the Group dose not have any sign of impairment of projects under construction, therefore, no provision for impairment loss was booked. 113 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 14. Intangible assets (1) Details of Intangible assets Unit: RMB Intellectual property Item Land use right right Software Total Total original carrying amount 1.Opening balance 323,531,470.36 27,923,432.16 143,092,986.87 494,547,889.39 2. Increased 2,611,200.00 889,118.71 18,896,994.95 22,397,313.66 (1) Purchase 2,611,200.00 889,118.71 18,896,994.95 22,397,313.66 3.Decreased - - - - (1)Disposal or write-off - - - - 4.Effect of foreign currency - 1,196,147.85 - 1,196,147.85 exchange 5.Closing balance 326,142,670.36 30,008,698.72 161,989,981.82 518,141,350.90 Total accumulated amortization 1.Opening balance 12,088,524.92 9,121,583.99 62,880,990.85 84,091,099.76 2.Increased 3,236,766.72 1,810,515.68 16,068,501.11 21,115,783.51 (1)Provided 3,236,766.72 1,810,515.68 16,068,501.11 21,115,783.51 3.Decreased - - - - (2)Disposal or write-off - - - - 4.Effect of foreign currency - 381,996.34 - 381,996.34 exchange 5. Closing balance 15,325,291.64 11,314,096.01 78,949,491.96 105,588,879.61 Provision for decline in value 1.Opening balance - - - - 2.Increased - - - - 3. Decreased - - - - 4.Closing balance - - - - Total carrying amount Closing balance 310,817,378.72 18,694,602.71 83,040,489.86 412,552,471.29 Opening balance 311,442,945.44 18,801,848.17 80,211,996.02 410,456,789.63 15. Goodwill (1) Goodwill book value Unit: RMB Increased Decreased The invested entity Opening balance Business combination not Closing balance Disposal under common control ZAO Hikvision 67,349.64 - - 67,349.64 Beijing Brainaire Storage Technology Co., 42,695,573.44 - - 42,695,573.44 Ltd. (北京邦诺存储科技有限公司) Henan HuaAn Intelligence Development Co., Ltd. (河南华安保全智能发展有限公司) and 61,322,871.63 - - 61,322,871.63 its subsidiaries Hundure Technology (Shanghai) Co., 13,774,405.88 - - 13,774,405.88 Ltd.( 汉军智能系统(上海)有限公司) Hangzhou Hikvision Zhicheng Investment and Development Co. Ltd. (杭州海康智城投 12,573.42 - - 12,573.42 资发展有限公司) Secure Holdings Limited 130,491,627.46 - - 130,491,627.46 Total 248,364,401.47 - - 248,364,401.47 (2) Provision of decline in value for goodwill 114 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 The Group performed impairment test at the end of the reporting period.The key assumptions used in the Group’s annual impairment test performed for goodwill at the end of the reporting period: The recoverable amounts of the the relevant assets have been determined on the discounted present value of the future cash flow projections. The cash flow projections are based on 2017-2021 Financial Budgets approved by management covering a 5-year period, with discount rates of 18% to 20%. The sets of cash flows beyond the 5-year period are projected without growth. This growth rates are based on the relevant industry growth forecasts and do not exceed the average long-term growth rate for the relevant industry. Expected cash inflows/outflows, which include budgeted net sales, cost of revenue and operating expenses, have been determined by management based on past performance and expectations for the future market development. There was no case recognized that the recoverable amount of the goodwill is less than the carrying value of the goodwill, therefore, no provision for impairment loss was booked during the period. 16. Deferred tax assets/deferred tax liabilities (1) Deferred tax assets that are not presented at net off basis Unit: RMB Closing balance Opening balance Item Deductible temporary Deductible temporary Deferred tax assets Deferred tax assets differences differences Provision for impairment 1,065,338,332.12 214,297,107.80 857,050,100.60 183,020,355.82 losses of assets Payroll payables 174,795,783.91 26,219,367.59 174,795,783.91 26,219,367.59 Share-based compensation 234,532,772.22 32,796,191.15 136,678,690.94 18,118,078.96 Provisions 46,550,937.15 6,982,640.58 28,799,848.84 4,319,977.33 Unrealized profit from 1,017,081,996.99 151,536,034.90 918,416,162.13 137,762,424.32 inter-group transactions Changes in the fair value of derivative financial 18,562,128.16 2,944,449.35 60,459,998.68 9,229,129.93 instruments Total 2,556,861,950.55 434,775,791.37 2,176,200,585.10 378,669,333.95 (2) Deferred tax liabilities that are not presented on net off basis Unit: RMB Closing balance Opening balance Item Taxable temporary Taxable temporary Deferred tax liabilities Deferred tax liabilities differences differences Changes in the fair value of derivative financial 3,004,171.92 450,625.79 15,547,537.34 3,358,395.25 instruments Total 3,004,171.92 450,625.79 15,547,537.34 3,358,395.25 (3) Deferred tax assets and deferred tax liabilities that are presented at the net amount after offset Unit: RMB Closing balance Opening balance Item Deferred tax assets or Deferred tax assets or Offset amount Offset amount liabilities liabilities Deferred tax assets 450,625.79 434,325,165.58 3,358,395.25 375,310,938.70 Deferred tax liabilities 450,625.79 - 3,358,395.25 - 17. Other non-current assets Unit: RMB 115 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Item Closing balance Opening balance Prepayments for acquisition of real estate 10,932,858.00 10,782,858.00 Prepayments for purchase of equipments 18,986,564.70 30,216,826.42 Total 29,919,422.70 40,999,684.42 18. Short-term borrowings (1) Categories of short-term loans Unit: RMB Item Closing balance Opening balance Fiduciary loan 10,044,523.17 1,448,732.40 Guaranteed loans 1,593,386,873.62 21,842,592.45 Secured loans (pledged) 361,701,055.97 9,000,000.00 Total 1,965,132,452.76 32,291,324.85 (2) As of June 30th 2017, the Group did not have any overdue short-term loans that were failed to repay. 19. Financial liabilities booked at fair value, and differences in fair value booked through profit or loss in the current period Unit: RMB Item Closing balance Opening balance Held-for-trading financial liabilities 18,562,128.16 69,789,502.97 Including: derivative financial liabilities 18,562,128.16 69,789,502.97 total 18,562,128.16 69,789,502.97 Derivative financial assets includes forwards and foreign currency structured contracts. 20. Notes payable Unit: RMB Item Closing balance Opening balance Bank acceptance Bill 536,694,693.25 876,804,536.72 Total 536,694,693.25 876,804,536.72 As of June 30th 2017, the Group did not have any unpaid matured notes payables. 21. Accounts payable (1) List of accounts payable Unit: RMB Item Closing balance Opening balance Loans 6,150,299,056.87 6,944,209,175.02 Payment for construction 5,594,726.08 65,112,853.11 Total 6,155,893,782.95 7,009,322,028.13 As of June 30th, 2017, the Group did not have any significant account payable with aging above one year. 22. Receipts in advance 1. List of receipts in advance Unit: RMB 116 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Item Closing balance Opening balance Advanced payments from sales of goods 366,062,570.34 357,102,290.89 Advanced payments from construction 78,312,638.80 112,702,546.56 contracts Total 444,375,209.14 469,804,837.45 As of June 30th 2017, the Group did not have any significant receipts in advance with aging above one year 23. Payroll payable (1) Details of payroll payables Unit: RMB Increase in the Decrease in the current Item Opening balance Closing balance current period period Short-term remuneration 1,084,423,286.90 1,953,579,173.11 2,445,180,248.45 592,822,211.56 Dimission benefits – defined contribution 527,852.20 119,335,791.47 117,614,285.36 2,249,358.31 scheme Total 1,084,951,139.10 2,072,914,964.58 2,562,794,533.81 595,071,569.87 (2) List of Short-term remuneration Unit: RMB Increase in the Decrease in the current Item Opening balance Closing balance current period period 1.Wages or salaries, bonuses, allowances 1,049,466,834.71 1,687,793,714.26 2,192,427,673.07 544,832,875.90 and subsidies 2.Staff welfare 2,967,561.72 77,250,760.29 73,213,181.75 7,005,140.26 3.Social insurance contributions 225,829.18 89,958,289.94 89,705,859.74 478,259.38 Including: medical insurance 208,370.79 79,249,412.46 78,994,755.04 463,028.21 injury insurance 2,635.97 4,097,137.71 4,097,106.22 2,667.46 maternity insurance 14,822.42 6,611,739.77 6,613,998.48 12,563.71 4.Housing funds 812,400.00 78,578,246.76 78,035,109.76 1,355,537.00 5.Labor union and education fund 30,950,661.29 19,998,161.86 11,798,424.13 39,150,399.02 subtotal 1,084,423,286.90 1,953,579,173.11 2,445,180,248.45 592,822,211.56 (3) Defined contribution scheme (Note) Unit: RMB Increase in the Decrease in the current Item Opening balance Closing balance current period period Basic pension insurance 472,261.07 111,959,526.54 110,393,061.60 2,038,726.01 Unemployment insurance 55,591.13 7,376,264.93 7,221,223.76 210,632.30 Subtotal 527,852.20 119,335,791.47 117,614,285.36 2,249,358.31 Note: During the reporting periods, the employees of the Company are the members of state-managed retirement benefit plan, and unemployment insurance plan, operated by the respective governments of these jurisdictions. The Group is required to contribute specified percentage out of payroll costs to the retirement benefit schemes and unemployment insurance schemes to fund the benefits. The Group has no other material obligation for the payment of pension benefits beyond the contributions described above, and corresponding expenses are booked into profits and losses of related assets during the current period. 117 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 24. Taxes payable Unit: RMB Item Closing balance Opening balance Enterprise income tax 788,850,622.73 898,545,866.96 Value-added tax 104,391,785.87 229,179,164.71 City construction and maintenance tax 19,224,829.95 28,164,970.24 Local education surcharges 11,072,061.70 8,216,807.76 Education surcharges 9,978,050.97 15,154,496.86 Others 7,578,028.38 26,449,415.69 Total 941,095,379.60 1,205,710,722.22 25. Dividends payable Unit: RMB Item Closing balance Opening balance Dividends of restricted shares (Share Incentive Scheme) 92,407,139.16 20,105,831.16 Total 92,407,139.16 20,105,831.16 26. Other payables (1) List of other payables according to the nature of the payment Unit: RMB Item Closing balance Opening balance Collection and payment on behalf 232,204,209.43 101,627,498.81 Accrued expenses 101,590,445.51 127,849,041.50 Guarantee and deposit fees 88,799,182.25 110,171,087.75 Others 59,135,379.05 48,628,862.84 Subscription proceeds for restricted shares 660,888,216.54 Total 481,729,216.24 1,049,164,707.44 (2) As of June 30th 2017, the Group does not have any significant other payables aging over one year. 27. Non-current liabilities due within one year Unit:RMB Item Closing balance Opening balance Long-term borrowings due within one year (Note (V)29) 700,000,000.00 15,340,813.03 Bond Interest Payable due within one year 14,012,975.36 - Total 714,012,975.36 15,340,813.03 28. Other current liabilities Unit: RMB Item Closing balance Opening balance Payment for subscription of restricted shares 853,507,327.55 300,177,750.17 Total 853,507,327.55 300,177,750.17 118 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 29. Long-term borrowings Unit: RMB Item Closing balance Opening balance Pledged loan (Note 1) 20,947,334.00 31,421,001.00 Guaranteed loans 1,800,000,000.00 1,500,000,000.00 Fiduciary loan 8,460,841.80 16,127,396.36 Other borrowing (Note 2) 190,000,000.00 190,000,000.00 Less:Long-term loans due within one year (Note (V) 27) 700,000,000.00 15,340,813.03 Total 1,319,408,175.80 1,722,207,584.33 As of June 30th 2017, the GBP loans, with book value RMB 8,300,291.68, carry annual interest rate ranging from 2.1% to 3.45% (as of December 31st 2016: 1.20% to 3.50%);the RMB loans, with book value RMB 1,310,947,334.00, carry annual interest rate ranging from 2.65% to 5.00% (as of December 31st 2016: range from 2.65% to 5.00%). Note 1:The Group pledged RMB 70,036,733.76 account receivables for this pledged loan, maturity date September 21st 2018, annual rate 5%. Note 2: During the reporting period, the Group entered into an agreement with CDB Development Fund(国开发 展基金, as "CDBDF") to jointly inject capital into Hikvision Electronics Co., Ltd. ("Hangzhou Electronics"), a subsidiary of the Group. Pursuant to the capital injection agreement, CDBDF would not participate in senior management personnel such as directors or take part in decision-making. The Group shall pay a 1.2% annualized return to CDBDF by way of dividends or interest payments, and the Group is required to redeem the CDBDF's equity investment by instalment each year from 2021 to 2024. Therefore, the capital injection by CDBDF is treated as a long-term loan. As of June 30th 2017, CDBDF has aggregately invested RMB 190 million (December 31st 2016: RMB 190 million). 119 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 30. Bonds payable (1) Bonds payable Unit: RMB Item Closing balance Beginning balance Euro Bond (Note) 3,099,840,000.00 2,954,449,528.77 Total 3,099,840,000.00 2,954,449,528.77 (2) Change in bond payable balance Note: On February 3rd, 2016, the Company publicaly issued the bond with nominal value amounting to Euro 400 million ("Euro Bond"); and the bond was settled, listed and traded on the Irish Stock Exchange on February 18th, 2016. The Euro bond has a maturity term for 3 years, maturity date is Feburary 18th, 2019, the issuance price of the bond is 99.959% of the nominal value, and interest rate is 1.25% per annum, with interest payment date of Feburary 18th per annum, and one-time principal repayment on maturity date. The Euro Bonds are mainly used for the company's security industry base construction and the Internet security industry base construction。 Unit: RMB Amortization Payments Issuance Interests expenses in the Issue in Foreign accrued based on Less: interest paid Interests due of premiums Item Face value Maturity Issuance Opening blance current Closing balance Date current exchange effects the principal in the current year within one year or discounts reporting period amount period Irish Euro Euro 400,000, Feburary 3 years 2,903,120,000.00 2,954,449,528.77 - 177,120,000.00 25,519,995.30 43,236,548.71 14,012,975.36 - - 3,099,840,000.00 Bond 000.00 18th 2016 (Note) Euro 400,000, - Total 2,903,120,000.00 2,954,449,528.77 - 177,120,000.00 25,519,995.30 43,236,548.71 14,012,975.36 - 3,099,840,000.00 000.00 120 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 31. Provisions Unit: RMB Item Closing balance Beginning balance Sales warranty 46,550,937.15 41,933,212.54 Total 46,550,937.15 41,933,212.54 32. Deferred income Unit: RMB Item Beginning balance Increase in current Decrease in current Closing balance Details Period period Cloud storage service income 10,833,745.99 20,609,104.65 14,624,948.58 16,817,902.06 Note Total 10,833,745.99 20,609,104.65 14,624,948.58 16,817,902.06 As of June 30th 2017, the Company has no deferred income related to government subsidies. Note: This is revenue related to the cloud storage service the Company provides to its customers; and the Company will recognize the revenue accordingly during the period the service is actually provided. 33. Share capital Unit: RMB Changes for the period(”-” represents decrease) Opening balance Closing balance New issue of shares (Note Bonus issue (Note 2) Others (Note 3) Subtotal 1) 2017.6.30: Total 6,102,706,885.00 52,326,858.00 3,076,288,371.00 (2,457,000.00) 3,126,158,229.00 9,228,865,114.00 shares Note 1: Pursuant to the Articles of Association of the Company revised by the resolution of 20th Meeting of the 3rd session Board of Directors authorized by the 2nd extraordinary general meeting in 2016, the company was approved to grant 53,557,028 shares RMB common shares (A-share) to Hu Yangzhong and other grantees totaled in 2989, with face value RMB 1 and issuing price of RMB 12.63 per share. In the payment process of capital, 1 grantee left the company and became unqualified, part of the grantees partially or completely renounce the subscription of the incentive shares because of personal resons, 3 grantees were postponed, resulted in an actual granted 2936 personnels, with 52,326,858 actual granted shares.,increased paid-in capital of RMB 52,326,858.00, resulted in capital reserve of RMB 608,561,358.54. The above Change in Equity has been inspected by Tianjian Accounting Firm (special general partnership), and the capital verification report was issued on December 31st 2016 (TianJian Verification (2016) No.556). The registration procedures were completed on Feburary 9th 2017. Note 2:Pursuant to shareholder's resolution of 2016 annual General Meeting dated on May 4th 2017, based upon the total capital share of 6,152,576,743 shares, the company proposed to distribute bonus 5 shares for each 10 ordinary shares (tax inclusive), As a result, 3,076,288,371 shares were distributed, with face value RMB 1, and a total increase in capital share of RMB 3,076,288,371.00. Note 3:Pursuant to the Articles of Association of the Company revised by the resolution of 19th General Meeting of 3rd session Board of Directors authorized by the first Extraordinary General Meeting in 2014, the Company repurchased and cancelled 2,457,000.00 granted but restricted treasury shares by cash, and the total share capital of the Company decreased by RMB 2,457,000.00, capital reserve decreased by RMB 12,694,500. The registration procedures were completed on April 20th 2017. 121 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 34. Capital reserves Unit: RMB Increased in the Decreased in the Item Opening balance current period current period Closing balance (Note 1) (note 2) 2017.06.30 Share premium 907,959,832.49 608,561,358.54 34,378,809.19 1,482,142,381.84 Other capital reserves 142,281,021.17 97,854,081.28 - 240,135,102.45 Total 1,050,240,853.66 706,415,439.82 34,378,809.19 1,722,277,484.29 Note 1:The increase of RMB 608,561,358.54 in share premium is due to the Company’s new issued restricted shares, please refer to Note (V) 33; The increase of RMB 97,854,081.28 in other capital reserves is due to recognition of equity investment payments into capital reserve, please refer to Note (XI). Note 2: The decrease of RMB 12,694,500.00 in share premium was due to the Company’s repurchase and cancel of 2,457,000.00 granted but restricted treasury shares by cash, please refer to Note (V) 33-Note 3. The decrease of RMB 19,559,953.47 in share premium was due to business merger under common control for Hangzhou Hikvision Ximu Intelligent Technology Co., Ltd. (of which RMB 16,300,000 was acquisition payment, RMB 3,259,953.47 was payments for acquiring minority’s equity and increase capital reserves). The decrease of RMB 2,124,355.72 in share premium was due to restriced shares distributed to subsidiaries. 35. Treasury shares Unit: RMB Increased in the Decreased in the Item Opening Balance Closing balance current year (Note 1) current year (Note 2) 2017.06.30 Restricted shares incentive scheme 300,177,750.17 660,888,216.54 107,558,639.16 853,507,327.55 Total 300,177,750.17 660,888,216.54 107,558,639.16 853,507,327.55 Note 1:Treasury shares increased of RMB 660,888,216.54 due to granted 52,326,858 shares RMB common shares (A-share) to Hu Yangzhong and other grantees totaled in 2936, with issuing price of RMB 12.63 per share. Note 2: Treasury shares decreased of RMB 107,558,639.16,including a decrease of RMB 15,151,500 due to the repurchase and cancellation of 2,457,000.00 restricted ordinary shares of 2014 Restricted Share Incentive Scheme;And a decrease of RMB 92,407,139.16 due to provision of cash dividend allocated to restricted shareholders. 36. Other comprehensive income Unit: RMB Change for the period Less: transfer to current period Attributable to Less: Attributable Item Opening balance Before tax P/L from income the owner of the to minority Closing balance balance previous other tax Company (after interest expense (after tax) comprehensive tax) income 2017.06.30 Items that may be reclassified (41,230,777.21) 29,434,317.10 - - 28,590,931.77 843,385.33 (12,639,845.44) subsequently to profit or loss Included: Effect on conversion of financial statements denominated in (41,230,777.21) 29,434,317.10 - - 28,590,931.77 843,385.33 (12,639,845.44) foreign currencies Other comprehensive income (41,230,777.21) 29,434,317.10 - - 28,590,931.77 843,385.33 (12,639,845.44) 122 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 37. Surplus reserve Unit: RMB Increased in the current Decreased in the current Item Surplus reserve Closing balance period period 2017.06.30 Statutory surplus reserve (Note) 2,615,437,822.15 - - 2,615,437,822.15 Total 2,615,437,822.15 - - 2,615,437,822.15 38. Retained earnings Unit: RMB Item First half-year of 2017 First half-year of 2016 Retained Earnings at the close of previous reporting period before 14,866,457,856.65 12,196,097,444.07 adjustment Adjustment of initial retained earnings under the common control (9,679,463.77) (12,049,426.69) Retained earnings at the beginning of the year 14,856,778,392.88 12,184,048,017.38 Add: Net profit attributable to owners of the Company for the current 3,291,546,056.70 2,607,821,529.43 period Less: Appropriation to statutory surplus reserve Dividends on ordinary shares (Note) 3,728,583,103.20 2,807,336,489.30 Share bonus (Note) 3,076,288,371.00 1,220,631,676.00 Retained earnings at the end of the period 11,343,452,975.38 10,763,901,381.51 Note:Pursuant to the 2016 shareholder's equity distribution scheme approved by 2016 annual General Meeting dated on May 4th 2017, based upon the total capital share of 6,152,576,743 shares, for each 10 ordinary shares, the company proposed distributing cash dividends of RMB 6 (tax inclusive), and distributing 5 bonus shares for each 10 ordinary shares to all shareholders, the rest of retained earnings were all carried forward for future distributions. 39. Operating income/operating cost Unit: RMB 2017 first half year 2016 first half year Item Revenue Cost Revenue Cost Operating income 16,190,840,525.65 9,290,852,501.98 12,346,411,908.82 7,355,238,670.80 Other operating income 256,699,210.87 129,842,522.86 207,064,839.76 162,977,593.50 Total 16,447,539,736.52 9,420,695,024.84 12,553,476,748.58 7,518,216,264.30 40. Business Taxes and Surcharges Unit: RMB Amount recognized in 2017 first Amount recognized in 2016 first Items (Note) half-year half-year Business tax 1,889,150.09 6,584,762.49 City construction and maintenance tax 81,381,228.77 52,958,623.11 Education surcharges 36,835,581.00 22,705,021.67 Local education surcharges 28,681,113.91 15,173,252.71 Real estate tax 15,144,057.60 - Stamp duty 8,924,393.79 - Tax on use of land 1,104,700.47 - Vehicle and vessel tax 272,370.07 - Total 174,232,595.70 97,421,659.98 Note: According to the Value-added Tax Accounting Regulations (《增值税会计处理规定》) issued by Ministry of Finance (Finance and Accounting [2016] no. 22), the company accounted real eastate tax, tax on use of land, and stamp duty under “Business taxes and Surcharges” starting from May 1st, 2016 123 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 41. Financial Expenses Unit: RMB Amount recognized in 2017 first Amount recognized in 2016 first Items half-year half-year Interest expenses 81,683,226.19 61,229,707.83 Less:Interest income 159,445,016.70 117,541,491.86 Effect on foreign exchange 346,869,555.21 (48,838,147.23) Less﹕Foreign exchange effect on specific loan and the 212,883,858.92 - capitalization of specific loan interests Others 9,276,721.87 7,966,982.90 Total 65,500,627.65 (97,182,948.36) 42. Impairment losses of assets Unit: RMB Amount recognized in 2017 first Amount recognized in 2016 first Items half-year half-year Bad debt provision 212,178,792.88 140,744,360.17 Inventory provision 39,559,582.08 18,241,600.53 Total 251,738,374.96 158,985,960.70 43. Gains from changes in fair values (losses) Unit: RMB Amount recognized in 2017 first Amount recognized in 2016 first Sources of gains/losses from changes in fair values half-year half-year Financial assets measured by fair value and their changes (12,543,365.42) (8,281,896.32) recognized in the gains and losses during the current period Including: Profits or losses on the changes in fair value of (12,543,365.42) (8,281,896.32) derivative financial asset Financial liabilities measured by fair value and their changes 51,095,855.83 - recognized in the gains and losses during the current period Including: Profits or losses on the changes in fair value of 51,095,855.83 - derivative financial asset Total 38,552,490.41 (8,281,896.32) 44. Investment income Unit: RMB Amount recognized in 2017 first Amount recognized in 2016 first Item half-year half-year Disposal G/L of financial assets measured by fair value and their changes recognized in the gains and losses during the current 22,296,650.52 (4,317,198.97) period Investment income on matured financial product redemption 22,727,398.21 30,768,699.87 Long-term equity investment gains (losses) based on equity (3,877,702.05) - method Investment gains (losses) for available-for-sale financial assets 8,505,842.42 - during the holding period Total 49,652,189.10 26,451,500.90 45. Other income Unit: RMB Amount recognized in 2017 first Amount recognized in 2016 Pertinent to assets / Government Subsidy Item Pertinent to incomes half-year first half-year VAT Refund 677,411,292.41 - Pertinent to incomes 124 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 46. Non-operating income Unit: RMB Item Amount recognized in Amount recognized in Amount incurred in nonrecurring gains and 2017 first half-year 2016 first half-year loss in the current period Profits from disposal of non-current 2,798,685.80 1,320,478.05 2,798,685.80 assets Government subsidies 14,130,234.67 641,245,222.90 14,130,234.67 Fines and confiscations 10,498,710.41 5,794,336.34 10,498,710.41 Others 7,088,648.70 3,625,484.35 7,088,648.70 Total 34,516,279.58 651,985,521.64 34,516,279.58 Government subsidies recognized in current period P/L: Unit: RMB Amount recognized in Amount recognized in Pertinent to assets or Item 2017 first half-year 2016 first half-year Pertinent to incomes 2 VAT Refund - 629,279,468.11 Pertinent to incomes Grants and subsidies3 12,859,922.90 11,943,630.07 Pertinent to incomes Refund of tax and levies4 1,270,311.77 22,124.72 Pertinent to incomes Total 14,130,234.67 641,245,222.90 / 47. Non-operating expenses (4) Unit: RMB Amount recognized in Amount recognized in Amount recorded into the current period Item 2017 first half-year 2016 first half-year non-recurring profits (losses)t Total losses from disposal of 571,711.25 1,619,629.70 571,711.25 non-current assets Local water conservancy construction 544,266.79 15,952,521.87 - fund Others 1,164,510.38 476,219.24 1,164,510.38 Total 2,280,488.42 18,048,370.81 1,736,221.63 48. Income tax expenses Unit: RMB Item Amount for 2017 first half-year Amount for 2016 first half-year Current income tax 627,672,617.73 497,553,186.34 Deferred income tax (59,014,226.88) (65,021,210.23) Total 568,658,390.85 432,531,976.11 49. Notes to consolidated cash flow statement (1) Other cash receipts relating to operating activities Unit: RMB Item Amount for 2017 first half-year Amount for 2016 first half-year Interest income 159,445,016.70 117,541,491.86 5 Government subsidies 14,130,234.67 11,965,754.79 Others 17,587,359.11 9,419,820.69 Total 191,162,610.48 138,927,067.34 2 VAT Refund: Standard VAT tax rebate regulated by Ministry of Finance and State Administration of Taxation. (Finance and Tax No.[2011]100) 3 Grants and subsidies: local government incentives provided to businesses (including foreign-owned businesses) that promote employment and economic development. 4 Refund of tax and levies: Standard tax rebate, such as tax rebate for local water conservancy constructions. 5 Please refer to Note (V) 46 for details about government subsidy closely related to regular course of business of the Company and government subsidy based on standard quota or quantitative continuous application according to the state industrial policy. 125 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 (2) Other cash payments relating to operating activities Unit: RMB Item Amount for 2017 first half-year Amount for 2016 first half-year Office expenses and business expenses 201,114,049.99 209,942,116.75 Advertising and Selling services 350,742,415.17 296,680,515.19 R&D expense 232,735,332.67 242,322,051.41 Shipping and transportation expense 220,925,130.08 153,119,230.11 Travelling expense 110,284,099.64 67,269,016.25 Rental expense 57,015,437.63 36,637,946.55 Others 58,150,376.77 135,751,003.50 Total 1,230,966,841.95 1,141,721,879.76 (3) Other cash receipts relating to investing activities Unit: RMB Item Amount for 2017 first half-year Amount for 2016 first half-year Receipts of financing leases 13,100,745.41 1,595,000.00 Total 13,100,745.41 1,595,000.00 (4) Other cash receipts relating to financing activities Unit: RMB Item Amount for 2017 first half-year Amount for 2016 first half-year Bank acceptance deposit 1,037,596,477.69 933,662,704.53 Letter of Credit Deposit 20,817,664.54 - Guarantee deposit 3,101,789.16 2,754,149.98 Guarantee deposit for Forwards settlement and sale - 321,959,457.63 Total 1,061,515,931.39 1,258,376,312.14 (5) Other cash payments relating to financing activities Unit: RMB Item Amount for 2017 first half-year Amount for 2016 first half-year Repurchase of shares 15,151,500.00 - Payments for merger under the common control 16,300,000.00 - Short-term borrowing deposit 362,430,400.00 - Long-term borrowing deposit 5,000,000.00 - Letter of Credit deposit 1,244,100.00 - Bank acceptance deposit 1,224,149,215.14 1,512,537,047.82 Gurantee Deposit 6,243,523.15 12,083,933.16 Guarantee deposit for Forwards settlement and sale - 166,064.33 Total 1,630,518,738.29 1,524,787,045.31 126 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 50. Supplementary information about cash flow statement (1) Supplementary information about cash flow statement Unit: RMB Amount for 2017 first Amount for 2016 first Supplementary information half-year half-year 1. Reconciliation of net profit to cash flows from operating activities: Net profit 3,275,931,652.25 2,611,827,056.67 Add: Impairment of assets 251,738,374.96 158,985,960.70 Fixed assets depreciation 162,308,009.16 90,401,370.71 Amortization of intangible assets 21,115,783.51 16,502,102.99 Losses on disposal of fixed assets, intangible assets and other (2,226,974.55) 299,151.65 long-term assets (gains expressed with “-”) Losses on discarding of fixed assets (gains expressed with “-”) - - Losses from changes in fair value (gains expressed with “-”) (38,552,490.41) 8,281,896.32 Financial expenses (incomes expressed with “-”) 215,668,922.48 12,391,560.60 Investment losses (gains expressed with “-”) (49,652,189.10) (26,451,500.90) Share-based payment based on equity 97,854,081.28 - Decrease in deferred income tax assets (increase expressed with “-”) (59,014,226.88) (65,021,210.23) Decrease in inventories (increase expressed with “-”) (1,145,432,144.84) (773,634,492.70) Decrease in operating receivables (increase expressed with “-”) (2,803,131,577.53) (1,541,366,267.97) Increase in operating payables (decrease expressed with “-”) (1,875,392,178.82) (94,441,399.56) Decrease in deferred income (increase expressed with “-”) 5,984,156.07 - Net cash flow from operating activities (1,942,800,802.42) 397,774,228.28 2. Significant investing and financing activities not involving cash receipts and payments: 3. Net changes in cash and cash equivalents: Ending balance of cash 12,526,354,618.56 9,878,347,644.10 Less: Beginning balance of cash 13,522,337,697.28 10,033,468,750.19 Add: Ending balance of cash equivalents - - Less: Beginning balance of cash equivalents - - Net increase (decrease) in cash and cash equivalents (995,983,078.72) (155,121,106.09) (2) Constituents of cash and cash equivalents Unit: RMB Item Closing balance Opening balance Cash 12,526,354,618.56 13,522,337,697.28 Including: Cash on hand 2,619,654.74 748,616.60 Bank deposit for payment at any time 12,507,714,893.76 13,513,777,442.33 Other monetary capital for payment at any time 16,020,070.06 7,811,638.35 Cash equivalents - - Ending balance of cash and cash equivalents 12,526,354,618.56 13,522,337,697.28 Among the total balance of RMB 669,311,819.24 of the other monetary fund(s) at the end of the period, RMB 653,291,749.18 are various guarantee deposits, not cash and cash equivalents. 51. Assets with restriction in ownership or use rights Unit: RMB Item Amount Cause of restriction Cash and bank balances Various guarantee deposits, pleged for obtaining long-term 653,291,749.18 borrowing Notes receivable 584,027,766.90 Pledged for bank acceptance bill Accounts receivable 70,036,733.76 Pledged for obtaining long-term borrowing Total 1,307,356,249.84 127 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 52. Monetary items of foreign currencies (1) foreign currencies Unit: RMB Balance in foreign currency at Exchange rate for Balance of RMB converted at Item the end of period conversion the end of period Monetary funds Including: USD 758,578,206.92 6.7744 5,138,912,204.98 EUR 7,592,210.06 7.7496 58,836,565.39 GBP 49,984.27 8.8144 440,581.33 CHF 4,350.90 7.0888 30,842.66 JPY 408.00 0.0605 24.68 Accounts receivable Including: USD 220,083,935.04 6.7744 1,490,936,609.54 EUR 4,147,353.93 7.7496 32,140,334.02 Short-term borrowing Including: GBP 2,500,000.00 8.8144 22,036,000.00 Accounts Payable Including: USD 122,316,676.82 6.7744 828,622,095.45 Bond Payable Including: EUR 400,000,000.00 7.7496 3,099,840,000.00 (2) Details of Overseas Operational Entities Main Recordin overseas g Name of overseas subsidiaries Basis of selection operational Currenc office y Selection based on local economic Hikvision USA,Inc. USA USD environment Selection based on local economic HDT International Ltd. Hongkong HKD environment Selection based on local economic Prama Hikvision Indian Private Limited India INR environment Netherland Selection based on local economic Hikvision Europe BV EUR s environment Selection based on local economic Hikvision FZE Dubai USD environment Selection based on local economic Hikvision Singapore Pte. Ltd Singapore SGD environment South Selection based on local economic Hikvision South Africa (Pty) Ltd. ZAR Africa environment Selection based on local economic Hikvision Italy (S.R.L.) Italy EUR environment Selection based on local economic Hikivision do Brasil Comercio de Equipamentos de Segurana Ltd. Brazil BRL environment Selection based on local economic Hikvision Australia PTY Ltd. Australia AUD environment Selection based on local economic Hikvision International Co., Limited Hongkong HKD environment Selection based on local economic Hikvision France SAS France EUR environment Selection based on local economic Hikvision Spain,S.L. Spain EUR environment Selection based on local economic ZAO Hikvision Russia RUB environment Selection based on local economic Hikvision Uk Limited UK GBP environment 128 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Main Recordin overseas g Name of overseas subsidiaries Basis of selection operational Currenc office y Selection based on local economic Hikvision Poland Spolka Z ograniczona Odpowiedzialnoscia. Poland PLN environment Netherland Selection based on local economic Cooperative Hikvision Europe U.A. USD s environment Selection based on local economic Hikvision Canada INC. Canada CAD environment Selection based on local economic Hikvision LLC Russia RUB environment Selection based on local economic Hikvision Korea Limited Korea KRW environment Selection based on local economic Ezviz Inc. USA USD environment Selection based on local economic Hikvision Kazakhstan limited liability partnership Kazakhstan KZT environment Selection based on local economic Secure Holdings limited UK GBP environment Selection based on local economic Pyronix Ltd UK GBP environment Selection based on local economic Microwave Solutions.Limited UK GBP environment Hikvision Turkey Technology And Security Systems Commerce Selection based on local economic Turkey TRL Corporation environment Selection based on local economic Hikvision Colombia SAS Columbia COP environment Selection based on local economic Hikvision Hungary Kft Hungary HUF environment New Selection based on local economic Hikvision New Zealand Limited NZD Zealand environment Selection based on local economic Hikvision Tashkent LLC. Uzbekistan UZS environment Selection based on local economic Hikvision Kenya (Pty) Ltd Kenya KES environment 129 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 VI. Changes in consolidation scope 1. Business merger involving enterprises under common control (1) Business merger involving enterprises under common control during the reporting period Hangzhou Hik Ximu Intelligent Technology Co., Ltd. (杭州海康希牧智能科技有限公司) Pursuant to the resolution approved by the 21st meeting of the 3rd session of the Board of Directors held on January 18th 2017, the Company’s subsidiary Hangzhou Hikvision Automotive Technology Co., Ltd. , CETHIK and 7 individual shareholders including Yang Feng signed the agreement to 100% acquire CETHIK’s subsidiary Hangzhou Hik Ximu Intelligent Technology Co., Ltd. (hereinafter refer to as “HIK Ximu”) with RMB 16.3 million, of which RMB 9.78 million was for acquiring 60% shares of HIK Ximu held by CETHIK, and RMB 6.52 million was for acquiring 40% shares of HIK Ximu held by 7 individual shareholders including Yang Feng. The acquicision was completed on May 24th 2017. Unit:RMB Equity Net profit of acquiree Income of acquiree from Net profit of acquiree Basis for Business Income of acquiree from Name of the acquisition Date of acquisition Basis for determining from beginning of the beginning of the prior from beginning of the merger under common beginning of the year to acquiree ratio date of acquisition year to the date of year to the date of prior year to the date of control the date of acquisition (%) acquisition acquisition in prior year acquisition in prior year Both parties are under the common control of Equity transfer date of CETHIK before and after HIK Ximu 100 April 12th 2017 acquiring the control of 6,146.76 (209,736.97) 5,278,022.46 1,625,123.41 the business acquiree combination, which is not temporary (2) Cost of business merger Unit:RMB Cost of business merger HIK Ximu - Cash 16,300,000.00 130 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 (3) Acquiree’s book value of assets and liabilities at the date of acquisition Unit: RMB HIK Ximu On date of acquisition Ending balance at the end of prior year Assets: Cash and bank balances 2,462,383.90 382,694.41 Accounts receivable 919,422.04 3,191,155.73 Inventories 4,788,664.47 4,755,416.17 Prepayments 16,557.43 15,103.89 Fixed assets 123,067.64 237,137.87 Intangible assets 197,649.60 216,346.18 Deferred income tax asset 55,862.09 39,137.72 Liabilities: Accounts payable 867,089.36 3,105,113.00 Other payables 15,927,658.68 15,693,470.53 Net assets (8,174,510.52 ) (18,457,254.41) less:minority interests Net assets acquired (8,174,510.52) (18,457,254.41) 2. Changes of consolidation scope due to other causes (1) The subsidiaries newly established and incorporated in the consolidation scope during the current period as follows: Amount of Time of Ratio of Company Name Registered capital contribution of the establishment contribution (%) Company Hikvision New Zealand Limited (New Zealand March 2017 NZD 300,000 NZD 300,000 100 Subsidiary) Wuhan HIK Storage Technology Co., Ltd. (“Wuhan April 2017 RMB 100 million RMB 60 million 60 Storage”) Note 1 Urumchi Hai Shi Xin An Electronics Technology Co., April 2017 Ltd. (乌鲁木齐海视新安电子技术有限公司) RMB 120 million RMB 108 million 90 (“Hai Shi Xin An”) Chengdu Hikvision Digital Technology Co., Ltd. April 2017 RMB 80 million RMB 80 million 100 (“Chengdu Hikvision”) Note 2 Hikvision Kenya (Pty) Ltd April 2017 KES 26 million KES 26 million 100 (“Kenya Subsidiary’) Note 3 Hikvision Tashkent LLC. April 2017 USD 130,000 USD 130,000 100 (“Uzbekistan Subsidiary”) Note 4 Hikvision Hungary Kft May 2017 HUF 58 million HUF 58 million 100 (“Hungary Subsidiary”) Note 1: At the end of the reporting period, the actual paid-up capital of Wuhan Storage was RMB 25,000,000.00, of which, RMB 15,000,000.00 that resulted in 60% equity holding percentage was contributed by the Company, Note 2: At the end of the reporting period, Chengdu Hikvision has not completed capital contribution yet; therefore, its actual paid-up capital was nil. 131 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Note 3: At the end of the reporting period, Kenya Subsidiary has not completed capital contribution yet; therefore, its actual paid-up capital was nil. Note 4:At the end of the reporting period, Uzbekistan Subsidiary has not completed capital contribution yet; therefore, its actual paid-up capital was nil. (2) Cancellation of the Company’s Subsidiary during the current reporting period: Net profit from Method of equity Data of equity Net asset on the date Company Name beginning of 2017 to the Disposition disposition of equity disposition date of equity disposition Wuhan Hikvision System Liquidation March 2017 9,929,719.62 16,361.84 Technology Co., Ltd. VII. Interest in other entities 1. Equity in subsidiaries (1) Composition of corporate group Shareholding ratio Location of Place of Acquisition Name Nature of business (%) operation registration Method Direct Indirect Hangzhou, System integration, 100.00 Hangzhou Hikvision System Technology Co., Ltd. Hangzhou Establishment Zhejiang Technology development Hangzhou Hikvision Science and Technology Co., Hangzhou, 100.00 Hangzhou manufacture Establishment Ltd. Zhejiang Hangzhou Hikvision Security Equipment Leasing Hangzhou, 100.00 Hangzhou Finance lease Establishment Services Ltd. Zhejiang Chongqing Hikvision System Technology 100.00 Chongqing Chongqing System integration Establishment Co., Ltd. Hikvision USA, Inc. USA Los Angeles Sales 100.00 Establishment HDT International Ltd. Hong Kong Hong Kong Sales 95.00 5.00 Establishment Business combination Prama Hikvision Indian Private Limited India Mumbai Sales 58.00 not under common control Hikvision Europe BV Europe Amsterdam Sales 100.00 Establishment Hikvision FZE Dubai Dubai Sales 100.00 Establishment Hikvision Singapore Pte. Ltd Singapore Singapore Sales 100.00 Establishment Chongqing Hikvision Science and Technology Co., 100.00 Chongqing Chongqing Manufacture Establishment Ltd. Beijing Hikvision Security Technology Services Co., 100.00 Beijing Beijing Services Establishment Ltd. Hangzhou Fuyang Hikvision Baotai Security Hangzhou, 51.00 Hangzhou Construction Establishment Technology Services Co., Ltd. (Note 1) Zhejiang Hikvision South Africa (Pty) Ltd. South Africa South Africa Sales 100.00 Establishment Hikvision Italy (S.R.L.) Italy Milan Sales 100.00 Establishment Hikvision do Brasil Comercio de Equipamentos de Brazil Brazil Sales 95.00 5.00 Establishment Seguran Ltda. Hikvision Australia PTY Ltd. Australia Australia Sales 100.00 Establishment Hikvision International Co., Limited Hong Kong Hong Kong Sales 100.00 Establishment Hikvision France SAS France France Sales 100.00 Establishment Hikvision Spain,S.L. Spain Spain Sales 100.00 Establishment Business combination Shanghai Goldway Intelligent Traffic System Co., 100.00 Shanghai Shanghai Manufacture not under common Ltd. control Business combination ZAO Hikvision Russia St. Peterburg Sales 100.00 not under common control Business combination Beijing Brainaire Storage Technology Co., Ltd. Beijing Beijing Manufacture 100.00 not under common 132 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Shareholding ratio Location of Place of Acquisition Name Nature of business (%) operation registration Method Direct Indirect control Business combination Henan Hua’an Intelligence 51.00 Zhengzhou Zhengzhou Construction not under common Development Co., Ltd. control Business combination Henan Hua’an Security Services Co., Ltd. (Note 2) Zhengzhou Zhengzhou Services 90.00 not under common control Business combination Hundure Technology (Shanghai) Co., Ltd. Shanghai Shanghai Manufacture 100.00 not under common control Hikvision Uk Limited UK UK Sales 100.00 Establishment Hikvision Poland Spolka Z ograniczona Establishment Poland Poland Sales 100.00 Odpowiedzialnoscia Hangzhou Hikvision Electronics Co., Ltd.(Note 3) Hangzhou Hangzhou Manufacture 71.30 Establishment Cooperative Hikvision Europe U.A. Netherlands Netherlands Sales 99.00 1.00 Establishment Hikvision Canada INC. Canada Canada Sales 100.00 Establishment Hikvision LLC Moscow Moscow Sales 100.00 Establishment Hikvision Korea Limited Korea Korea Sales 100.00 Establishment Technology 60.00 Establishment Hangzhou EZVIZ Network Co., Ltd. Hangzhou Hangzhou development Ezviz Inc. USA Los Angeles Sales 100.00 Establishment Business combination Hangzhou Hikvision Zhicheng Investment Hangzhou Hangzhou System integration 80.00 not under common Development Co., Ltd control Hangzhou Hikvision Robtics Technology Co. Ltd. Technology 60.00 Establishment Hangzhou Hangzhou development Hangzhou Hikvision Investment Management Co., Investment 100.00 Establishment Hangzhou Hangzhou Ltd. Management Technology 60.00 Establishment Hangzhou Hik Automotive Technology Co., Ltd. Hangzhou Hangzhou development Hangzhou Hikvision Communication Technology Technology 70.00 Establishment Hangzhou Hangzhou Co., Ltd. development Hangzhou Hikvision Weiying Sensory Technology Technology 60.00 Establishment Hangzhou Hangzhou Co., Ltd. development Hikvision Turkey Technology And Security Systems Establishment Turkey Istanbul Sales 100.00 Commerce Corporation Hikvision Colombia SAS Columbia Santa Fe Bogota Sales 100.00 Establishment Hikvision Kazakhstan limited liability partnership Kazakhstan Astana Sales 100.00 Establishment Manufacture Business combination Secure Holding Limited British Sheffield 100.00 not under common control Manufacture Business combination Pyronix Limited British Sheffield 100.00 not under common control Manufacture Business combination Microwave Solutions Limited British Sheffield 100.00 not under common control Tianjin Hikvision System Technology Co., Ltd. Tianjin Tianjin System integration 100.00 Establishment Hikvision Hungary Kft Hungary Hungary Sales 100.00 Establishment Hikvision New Zealand Limited New Zealand Auckland Sales 100.00 Establishment Technology Wuhan HIK Storage Technology Co., Ltd. Wuhan Wuhan 60.00 Establishment development Urumchi Hai Shi Xin An Electronics Technology Urumchi, Urumchi Construction 90.00 Establishment Co., Ltd. Xinjiang Business combination Hangzhou, Hangzhou Hik Ximu Intelligent Technology Co., Ltd Hangzhou Manufacture 60.00 under common Zhejiang control Hikvision Tashkent LLC. Uzbekistan Tashkent Sales 100.00 Establishment Hikvision Kenya (Pty) Ltd Kenya Kenya Sales 100.00 Establishment Note 1: Hangzhou Fuyang Hikvision Baotai Security Technology Services Co., Ltd. is a subsidiary controlled by Hangzhou Hikvision System Co., Ltd who holds 51% equity interests. According to the Articles of Association of the 133 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Company, the dividend payout ratio of Hangzhou Hikvision Systems Co., Ltd. was 50% in the said company (Fuyang Baotai). Note 2: Henan Hua’an Security Services Co., Ltd. is a subsidiary controlled by Henan Hua’an Intelligence Development Co., Ltd. Note 3: The remaining 29.70% equity interests of Hangzhou Hikvision Electronics Co., Ltd.is held by China Development Bank Fund. Please refer to Note (V) 29 for details. 2. Equity in joint ventures or associates (1) Aggregated financial information of insignificant joint ventures or associates Unit:RMB Closing balance / amount for Opening balance / amount for 2017 first half-year 2016 first half year Associates: The aggregate carrying amount of investments in associates 133,000,000.00 35,000,000.00- The aggregate amount of its share percentage of the associates - - --Total net profit and comprehensive income (3,877,702.05) - VIII. Risks associated with financial instrument The Group's principal financial instruments include cash and bank balances, equity investments, notes receivable, accounts receivable, other receivables, long-term receivables, borrowings, accounts payable, interest payable, other payables, other current assets, note payables, dividends payable, bonds payable, long-term payables, derivative financial instruments, etc. Details of these financial instruments are set out in Note (v). Below are the risks associated with such financial instruments and the risk management policies adopted by the Group to mitigate such risks. The management of the Group manages and monitors such risk exposures to ensure such risks are contained within a prescribed scope. The Company adopts sensitivity analysis techniques to analyse the possible effects of rational and probable changes in risk variables to profit or loss for the period or to the interests of shareholders. Since risk variables seldom change on a stand-alone basis, while the correlation between variables may have significant influence to the ultimate amount of change effected by the change in a single risk variable, the analysis below is based on the assumption that the changes in each variable occurred separately. 1. Objectives and policies of risk management The Group engages in risk management with the aim of achieving an appropriate balance between risk and return, where the negative effects of risks against the Group’s operating results are minimized, in order to maximize the benefits of shareholders and other stakeholders. Based on such objective in risk management, the underlying strategy of the Group’s risk management is to ascertain and analyze all types of risks exposures of the Group, establish appropriate risk tolerance thresholds, carry out risk management procedures and perform risk monitoring on all kinds of risks in a timely and reliable manner, thus containing risk exposures within a prescribed scope. 134 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 1.1 Market risks 1.1.1. Foreign exchange risks Foreign exchange risks refer to the risk that losses will occur because of changes in foreign exchange rates. The Company is primarily exposed to risks relating to the currencies such as USD and EUR. The Group’s subsidiaries in the mainland of China whose procurement, sales and financing are denominated in RMB, USD and EUR, other principal activities are settled in RMB. The Group’s subsidiaries in Hong Kong and outside China are principally engaged in procurement, sales, financing and other major business activities in local currencies such as USD, EUR, GBP and RUB. As of June 30th 2017, except for monetary items of foreign currencies set out in Note (V), 53, the Group mainly adopted the functional currency of each of its subsidiary to present the balance of its assets and liabilities. The foreign exchange risks arising from assets and liabilities denominated in USD and EUR (which has been translated into RMB) as follows may affect the operating results of the Group. Unit: RMB Assets Liabilities Currencies Closing balance Opening balance Closing balance Opening balance USD 6,629,848,814.52 5,368,890,321.65 828,622,095.45 858,395,317.22 EUR 90,976,899.41 459,593,188.17 3,099,840,000.00 2,954,449,528.77 The Company has been paying close attention to the effect of fluctuation in exchange rate on the foreign exchange risks of the Group and has purchased forward foreign exchange contracts to mitigate the foreign exchange risk exposure. Sensitivity analysis on exchange rate risk With other variables unchanged, the exchange rate might float within a reasonable range, and has the following before tax effect on profit or loss and shareholders’ equity for the current period: Unit: RMB 2017 first HY 2016 first HY Change in interest rates Effect on shareholders’ Effect on shareholders’ Effect on profit Effect on profit equity equity 5% appreciation of USD against functional currency 290,061,335.95 290,061,335.95 128,413,114.07 128,413,114.07 5% depreciation of USD against functional currency (290,061,335.95) (290,061,335.95) (128,413,114.07) (128,413,114.07) 5% appreciation of EUR against functional currency (150,443,155.03) (150,443,155.03) (136,377,609.77) (136,377,609.77) 5% depreciation of EUR against functional currency 150,443,155.03 150,443,155.03 136,377,609.77 136,377,609.77 1.1.2. Interest rate risk-risk related to changes in cash flow . The Group's risk related to changes in the cash flow of financial instruments due to changes in interest rates is mainly related to floating interest rate bank borrowings. The Group's policy is to maintain the floating rate of these borrowings to eliminate the risk of changes in the fair value of interest rates. 135 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Sensitivity analysis on interest rate risk The sensitivity analysis on interest rate risk is carried out based on following assumptions: Changes in market interest rate have influence on the interest revenue or cost of financial instruments with variable rate; For the financial instruments with fixed rate and measured with fair value, changes in market interest rate only have influence on their interest revenue or cost; Based on the above assumptions, with other variables unchanged, the interest rate might float within a reasonable range, and has the following before tax effect on profit or loss and shareholders’ equity for the current period: Unit:RMB 2017 first HY 2016 first HY Change in interest rates Effect on profit Effect on shareholders’ Effect on profit Effect on profit equity Increase by 50 basis points of the 199,227,031.43 199,227,031.43 46,421,647.15 46,421,647.15 borrowing rates Decrease by 50 basis points of the (199,227,031.43) (199,227,031.43) (46,421,647.15) (46,421,647.15) borrowing rates 1.2 Credit risk As at June 30th 2017, the biggest credit risk exposure that may cause financial loss suffered by the Group was mainly due to the other party’s inability to fulfill obligations that caused the loss on the Group’s financial assets, which include: The book value of a confirmed financial asset in the consolidated balance sheet : for those financial instruments that are measured by fair value, the book value reflects its risk exposure rather than its biggest risk exposure, the biggest risk exposure will change as the future fair value changes. In order to minimize credit risk, the Group has established a team responsible for formulating credit limit, credit approval and implementing other monitoring procedures to ensure necessary follow-up measures are carried out to recover the overdue debts. In addition, the Group reviews the recovery of each individual receivable at each balance sheet date to ensure that sufficient provision for bad debts is made for uncollectible funds. As such, the management of the Group believes that the Group’s exposure to credit risk has been significantly lowered. The Group only deposits cash and cash equivalents into banks with relatively high level of credit rating; as such the risk of cash and cash equivalents is low. The Group has adopted necessary policies to ensure that all the sales customers have good credit records. Since the Group’s risk exposure exists in several parties to the contract and certain customers, the Group has no other significant concentration of credit risk. 136 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 1.3. Liquidity risk The Group maintains and monitors a level of cash and cash equivalents deemed adequate by the management to meet the operation needs of the Group and to reduce the effect of cash flow movements when managing liquidity risk. The management of the Company monitors the usage of bank borrowings, and ensures compliance with borrowing agreements. According to the term to maturity of non-discounted and remaining contract obligations, the financial liabilities held by the Group are analyzed as below: Unit:RMB June 30th 2017 Total Within one year 1-5 years More than five years Non-derivative financial liabilities Short-term borrowings 1,994,061,514.71 - - 1,994,061,514.71 Notes payables 536,694,693.25 - - 536,694,693.25 Accounts payables 6,155,893,782.95 - - 6,155,893,782.95 Other payables 481,729,216.24 - - 481,729,216.24 Other current liabilities 853,507,327.55 - - 853,507,327.55 Bonds payable 24,735,024.64 3,138,588,000.00 - 3,163,323,024.64 Dividends payable 92,407,139.16 - - 92,407,139.16 Long-term borrowings 30,829,735.04 1,152,834,814.08 194,165,808.22 1,377,830,357.34 Long-term payables - 7,466,200.00 - 7,466,200.00 Non-current liabilities due within 730,275,989.06 - - 730,275,989.06 one year Derivative financial liabilities Forward foreign exchange contracts- settled in the gross amount - Cash inflow 707,652,770.72 - 707,652,770.72 - Cash outflow 727,049,704.21 - 727,049,704.21 - Net cash outflow 19,396,933.49 - 19,396,933.49 IX. Fair value disclosure 1. The financial assets and financial liabilities measured at fair value at the balance sheet date: Unit:RMB Closing fair value Items Level 1 Level 2 Level 3 Total I. Continuous fair value measurement (15,557,956.24) (15,557,956.24) (I) Financial assets designated as fair value through profit and loss - 1. Tradable Financial Assets 3,004,171.92 3,004,171.92 -- Derivative financial assets 3,004,171.92 3,004,171.92 Total assets measured continuously at fair value 3,004,171.92 3,004,171.92 (II) Tradable Financial Liabilities 18,562,128.16 18,562,128.16 - Derivative financial liabilities 18,562,128.16 18,562,128.16 Total liabilities measured continuously at fair value 18,562,128.16 18,562,128.16 137 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 2. Information on the estimation technique and important parameters adopted as for continuous Level 2 fair value measurement items Fair value at June 30th Estimation technique Inputs 2017 Discounted cash flow Forward exchange rate Forward Foreign Exchange 2,297,956.17 approach discounted rate that reflects the credit risk of Contracts (Assets) counterparties Discounted cash flow Forward exchange rate Interest rate swap contracts 706,215.75 approach discounted rate that reflects the credit risk of (Assets) counterparties Discounted cash flow Forward exchange rate Forward Foreign Exchange (18,562,128.16) approach discounted rate that reflects the credit risk of Contracts (Liabilities) counterparties 3. Items measured at continuous fair value. There were no transfers between levels for the current reporting period. There was no estimation technique change for the current reporting period 4. Fair values of financial assets and financial liabilities that not measured at fair value The Company’s management believes that the carrying amounts of financial assets and financial liabilities stated in current assets and current liabilities in financial statements approximate to their respective fair values. The financial liabilities which are not subsequently measured at fair values by the Group include long-term borrowings, bonds payable and long-term payables, and the differences between their carrying amounts and their respective fair values are small. X. Related parties and related transactions 1. Information on parent company of the Company Percentage of voting Shareholding ratio of Place of Nature of rights of parent Name Registered capital parent company in the registration business company to the Company (%) Company (%) China Electronics Technology Investment Hangzhou, HIK Group Co., Ltd. and asset RMB 660 million 39.59 39.59 Zhejiang (CETHIK) management The ultimate controlling party of the Company is China Electronics Technology Group Corporation ("CETE"). 2. Information on the subsidiaries of the Company For details of the subsidiaries of the Company, see Note (VII). 3. Information on the joint ventures and associated companies of the Company For details of the associated companies of the Company, see Note (V) 11. 4. Information on other related parties Name Relationship Gong Hongjia Director of the company, holds 16.16% of the share of the Company Shanghai Fullhan Microelectronics Co., Ltd. (“Shanghai Fullhan”) Gong Hongjia or his relative(s) serve(s) as the director(s) Beijing Woqi Co., Ltd.(“Beijing Woqi”) Gong Hongjia or his relative(s) serve(s) as the director(s) (Note) Subsidiaries of CETE Under common control of the ultimate controlling party of the Company Zhejiang Tuxun Technology Co.,Ltd. (“Tuxun Technology”) Joint-stock corporation, the Company’s senior management serve(s) as director(s) Wuhu Sensor Technology Co, Ltd. (“SensorTech”) Associated company,the Company’s senior management serve(s) as director(s) Maxio Technology (Hangzhou) Ltd. (“Maxio Technology”) Associated company,the Company’s senior management serve(s) as director(s) Note: Mr Gong Hongjia left Beijing Woqi as a director on November, 2016. 138 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 5. Related party transactions (1) Sales and purchases of goods, provision of services and receiving services Purchase of commodities/receiving of services: Unit: RMB Amount for 2017 first half AAmount for 2016 first half Related party Transaction type year year Purchase of materials and Subsidiaries of CETE 94,447,392.66 56,328,655.64 receiving of services Purchase of materials and Shanghai Fullhan 72,069,293.64 55,709,889.89 receiving of services Beijing Woqi Purchase of materials 2,058,082.38 1,471,794.90 SensorTech Purchase of materials 4,489,736.27 - Maxio Technology receiving of services 23,584,904.76 - Total 196,649,409.71 113,510,340.43 Sales of commodities/rendering of services: Unit: RMB Amount for the current Related party Transaction content Amount for the prior year year Subsidiaries of CETE Sales of products 190,588,282.71 28,171,629.23 Tuxun Technology Sales of products 419,664.11 - Total 191,007,946.82 28,171,629.23 The above transactions are executed at market prices. (2) Guaranteed by the related party As required by the project owner, China Electronics Technology Group Corporation has provided a joint guarantee to responsibility and duties of 41 construction projects of “Safe Chongqing, Emergency Control System Digital Construction Project,” signed by Chongqing Hikvision System Technology Co., Ltd. Meanwhile, the Company provides a counter guarantee to China Electronics Technology Group Corporation. (3) Other related party transactions During the current reporting period, the Company’s subsidiary Hangzhou Hikvision Automotive Technology Co., Ltd. acquired the asset group of CETHIK’s Intelligent Automotive Department with acquisition target price of RMB 68.02 million. During the transitional period, the acquisition price was auditied and adjusted up with RMB 11.39 million, and the final settlement price was RMB 79.41 million; Hangzhou Hik Ximu Intelligent Technology Co., Ltd., CETHIK’s holding subsidiary, was acquired by the Company with RMB 16.30 million, holding 100% equity, please refer to Note (VI) 1 for details. As of June 6th 2017, the Company made a one-year saving of RMB 200.00 million into CETC Finance Co., Ltd. As of June 30th 2017, the balance of the saving account is 200.00 million. 139 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 6. Receivables from related parties and Payable to related parties (1) Receivables from related parties Unit: RMB Closing balance Opening balance Item Related Party Carrying balance Bad debt provision Carrying balance Bad debt provision Accounts Subsidiaries of CETE 440,236,780.92 22,599,774.54 417,423,058.74 21,711,986.75 receivable Tuxun Technology 905,290.01 45,264.50 Total 441,142,070.93 22,645,039.04 417,423,058.74 21,711,986.75 Prepayments SensorTech 445,487.19 - - - Maxio Techonology 5,419,526.77 - - - Total 5,865,013.96 - - - Other Subsidiaries of CETE 23,553,271.93 1,177,663.60 - - Receivables Total 23,553,271.93 1,177,663.60 - - (2) Payables to related parties Unit: RMB Item Related Party Closing balance Opening balance Accounts payable Subsidiaries of CETE 134,900,796.42 144,521,684.68 Accounts payable Shanghai Fullhan 64,682,871.01 40,115,748.45 Accounts payable Beijing Woqi 1,272,000.00 888,807.70 Total 200,855,667.43 185,526,240.83 Receipts in advance Subsidiaries of CETE - 22,293,294.23 Total - 22,293,294.23 Other payables Subsidiaries of CETE 32,343,298.26 29,057,883.21 Total 32,343,298.26 29,057,883.21 XI. Share-based payments 1. Overview of share-based payments According to the “Approval of the Implementation of the Restrictive Share Incentive Scheme of Hangzhou Hikvision Digital Technology Co., Ltd. (关于杭州海康威视数字技术股份有限公司实施限制性股票激励计 划的批复)” (Guo Zi Fen Pei [2012] No. 426) issued by the State-owned Assets Supervision and Administration Commission of the State Council and the “Opinion the Restrictive Share Incentive Scheme of Hangzhou Hikvision Digital Technology Co., Ltd. (关于杭州海康威视数字技术股份有限公司限制性股票激励计划的 意见)” (Shang Shi Bu Han [2012] No. 353) issued by China Securities Regulatory Commission, the Company convened the ninth meeting of the second session of the Board of Directors on July 25th 2012 and the first extraordinary general meeting for 2012 on August 13th 2012, whereat the Proposal Relating to the Restrictive Share Scheme (Amendments to the Draft) of the Company and Highlights was reviewed and passed. The purpose of the Share Incentive Scheme is to: further improve the Company’s governance structure to establish a good and balanced value allocation system; establish a profit-sharing and restriction mechanism among shareholders, the Company and its employees, so as to provide shareholders with sustainable return; fully mobilize the positivity of core employees to support the Company in realizing its strategies and long-term sustainable development; attract and retain core employees to ensure the Company’s long-term development. The Scheme shall be effective for a term of 10 years commencing from the date of approval by general meeting of the Company, during which the Company may grant restricted shares to Participants under the Scheme. In principle, each grant should be at an interval of two years. After the expiry of the Scheme, no restricted shares could be granted to Participants under the Scheme. However, all the provisions of the Scheme remain valid to the restricted shares granted under the Scheme. The total number of subject Shares related to the Restricted Shares granted under the Scheme (excluding lapsed restricted shares) and the total number of subject Shares related to other effective share incentive schemes of the 140 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Company (if any) in aggregate shall not exceed 10% of the total issued share capital of the Company. Unless approval is obtained at the general meeting by way of special resolution, the total number of Restricted Shares granted or to be granted to any Participant under this Scheme or other effective share incentive schemes of the Company (if any) in aggregate shall not exceed 1% of the total issued share capital of the Company. The grant price for restricted shares, being the purchase price by staff, shall be determined by the Board of Directors. The grant price shall not be lower than 50% of the following price, whichever is the highest: (I) The closing price of the subject shares of the Company for one trading day prior to publication of the summary Share Incentive Scheme draft; (II) The average closing price of the subject shares of the Company for 30 trading days prior to publication of the summary Share Incentive Scheme draft; (III) The average price of the subject shares of the Company for 20 trading days prior to publication of the summary Share Incentive Scheme draft; or (IV) The unit nominal value of the subject shares of the Company. Each batch of restricted shares shall not be unlocked unless fulfilling, each time, by the Company its unlock performance criteria, including net asset yield and operating income growth rate, and by Participants their individual performance criteria simultaneously. Where, during any year of the unlocking period, any one or more unlock criteria for the Company or individuals is or are not fulfilled, such portion of subject shares shall be cancelled, and no Participants shall be entitled to make another application for unlocking those subject shares in the future years. The cancelled restricted shares will be repurchased by the Company based on the grant price. On 24 October 2014, after consideration and approval by the general meeting, the Company granted 52,910,082 restricted shares to Participants at a grant price of RMB 9.25 per share (“2014 Share Incentive Scheme”). The Lock-up Period of the Subject Shares shall last for a period of 24 months commencing on the grant date, during which the Subject Shares granted to Participants under the scheme shall be subject to lock-up and shall not be transferable. The Unlocking Period shall be the 24 to 60 months following the grant of restricted shares (including Lock-up Period), during which Participants may, subject to unlocking conditions stipulated by the scheme being satisfied, apply for unlocking in 3 tranches: the first unlocking period shall be the 24 to 36 months following the grant date and the number of shares to be unlocked shall be 40% of the aggregate number of the Subject Shares granted; the second unlocking period shall be the 36 to 48 months following the grant date and the number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted; the third unlocking period shall be the 48 to 60 months following the grant date and the number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted. On 23 December 2016, after consideration and approval by the general meeting, the Company granted 52,326,858 restricted shares to Participants at a grant price of RMB 12.63 per share (“2016 Share Incentive Scheme”). The Lock-up Period of the Subject Shares shall last for a period of 24 months commencing on the grant date, during which the Subject Shares granted to Participants under the scheme shall be subject to lock-up and shall not be transferable. The Unlocking Period shall be the 24 to 60 months following the grant of restricted shares (including Lock-up Period), during which Participants may, subject to unlocking conditions stipulated by the scheme being satisfied, apply for unlocking in 3 tranches: the first unlocking period shall be the 24 to 36 months following the grant date and the number of shares to be unlocked shall be 40% of the aggregate number of the Subject Shares granted; the second unlocking period shall be the 36 to 48 months following the grant date and the number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted; the third unlocking period shall be the 48 to 60 months following the grant date and the number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted. The registration of restricted shares under 2016 Share Incentive Scheme was completed on 20 January 2017. 141 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Unit: share 2014 Share Incentive Scheme Current reporting period Total of equity instruments outstanding at the beginning of the year 46,220,473 Total of equity instruments granted (share dividend) during the current reporting period 23,110,236 Total of equity instruments vested during the current reporting period - Total of equity instruments forfeited during the current reporting period - Total of equity instruments outstanding at the end of the reporting period 69,330,709 The exercise price and the remaining period of the contract of the outstanding Share-based payments of the Company (ex-rights) issued at the end of the year RMB 4.11 per share and 28 months. Unit: share 2016 Share Incentive Scheme Current reporting period Total of equity instruments outstanding at the beginning of the year 52,326,858 Total of equity instruments granted (share dividend) during the current reporting period 26,163,429 Total of equity instruments vested during the current reporting period - Total of equity instruments forfeited during the current reporting period - Total of equity instruments outstanding at the end of the reporting period 78,490,287 The exercise price and the remaining period of the contract of the outstanding Share-based payments of the Company (ex-rights) issued at the end of the year RMB 8.42 per share an 54 months 2. Information of the equity settled share-based payment Unit: RMB 2014 Share Incentive Scheme 2016 Share Incentive Scheme Determined based on stock price at the grant Determined based on stock price at the grant Method of determing the fair value of date and the costs of restricted shares during date and the costs of restricted shares during equity instruments at the grant date Lock-up Period Lock-up Period Recognition basis of the number of the Determined based on the results estimation of Determined based on the results estimation of vested equity instruments each release period each release period Reasons of the significant difference between the estimates of the current year None None with that of the prior year Accumulative amount of the equity settled with share-based payment and included in 318,752,215.19 69,423,390.50 the capital reserve Total amount of the expenses recognized according to the equity settled with 28,430,690.78 69,423,390.50 share-based payment in the current reporting period 3. There is no share-based payment through cash settlements 142 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 XII. Commitments and contingencies 1. Significant commitments (1) Capital commitments Unit: RMB’000 Closing balance Opening balance Contracted but not yet recognised in financial statements - Commitment on construction of long-term assets 908,924 490,098 Total 908,924 490,098 (2) Operating lease commitments At the balance sheet date, the Group had the following external commitments in respect of non-cancellable operating leases: Unit: RMB’000 Closing balance Opening balance Minimum lease payments under non-cancellable operating leases: First year from the balance sheet date 67,003 61,829 Second year from the balance sheet date 72,087 40,469 Third year from the balance sheet date 33,183 23,452 Subsequent years 34,544 42,010 Total 206,817 167,760 (3) As of June 30th 2017, the Group has no other commitments to be disclosed. 2. Contingencies The Group has no important contingencies to be disclosed. XIII.Events after the balance sheet date 1. Significant unadjusted events The Group did not have any significant unadjusted events after the balance sheet date. XIV.Other significant events 1. Management Measures for Core Staff’s Co-Investment in Innovative Business According to Management Measures for Core Staff’s Investment in Innovative Business (Draft) approved by The fifth meeting of the third board and the second provisional shareholders' meeting in 2015, core employees can invest at the innovation business of Company via Hangzhou Hikvision Equity Investment Partnership (Limited Partnership). The Group will assess the fair values of the investee companies before employees make investments at the fair values. Hangzhou Hikvision Equity Investment Partnership (Limited Partnership) was established in the year, 99.9983% of which is hold by core employees. Hangzhou Hikvision Equity Investment Partnership (Limited Partnership) holds 40% of its subsidiaries Hangzhou EZVIZ, Hangzhou Robotic Technology Co., Ltd., Hangzhou Hikvision Automotive Technology Co., Ltd., Hangzhou Hikvision Weiying Sensory Technology Co., Ltd., and Wuhan HIK Storage Technology Co., Ltd. respectively. 2. Segment information 2.1 Report segment determining and accounting policy 143 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 According to the Group's internal organization structure, management requirements and internal report principles, the Group has only one operating segment i.e. the research and development, production and sales of security products. 2.2 Segment financial reporting External revenue by product or business segments Unit: RMB Amount for 2017 first half-year Item Operating income Operating cost Front-end equipment 8,471,727,239.99 4,330,837,875.51 Back-end equipment 2,581,996,973.35 1,318,164,201.90 Central control equipment 1,893,438,540.55 1,035,848,060.56 Construction project(s) 428,858,036.85 387,677,860.96 Innovative business 613,825,422.23 412,952,376.29 Others 2,200,994,312.68 1,805,372,126.76 Total 16,190,840,525.65 9,290,852,501.98 Unit: RMB Amount for 2016 first half-year Item Operating income Operating cost Front-end equipment 6,601,052,833.16 3,462,274,282.21 Back-end equipment 2,182,475,391.78 1,212,978,813.40 Central control equipment 1,182,860,160.42 657,013,996.25 Construction project(s) 408,576,652.08 400,274,058.19 Innovative business 234,586,712.01 156,985,171.41 Others 1,736,860,159.37 1,465,712,349.34 Total 12,346,411,908.82 7,355,238,670.80 External revenue by geographical area and non-current assets by geographical location Unit: RMB Item Amount for 2017 first half year Amount for 2016 first half year External revenue generated in domestic 11,478,885,424.15 8,959,841,363.15 area External revenue generated in overseas 4,968,654,312.37 3,593,635,385.43 area Total 16,447,539,736.52 12,553,476,748.58 Unit: RMB Item (Note) Closing balance Opening balance Non-current assets in domestic area 4,233,625,800.15 3,524,816,425.20 Non-current assets in overseas area 167,205,794.40 345,030,264.81 Total 4,400,831,594.55 3,869,846,690.01 Note: the non-current assets above did not include available-for-sale financial assets, long-term receivables, long-term equity investment and deferred tax assets. 144 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 XV. Notes to major items of financial statements of the parent company 1. Accounts receivable (1) Accounts receivable disclosed by categories: Unit: RMB Closing balance Opening balance Carrying balance Bad debt provision Carrying balance Bad debt provision Category Percentage Percentage Carrying value Percentage Percentage Carrying value Amount Amount Amount Amount (%) (%) (%) (%) Accounts receivable that are individually significant and for - - - - - - - - - - which bad debt provision has been assessed individually Accounts receivable with provision accrued collectively on 13,220,744,215.33 100 847,153,879.17 6.41 12,373,590,336.16 10,908,625,274.90 100 779,871,754.48 7.15 10,128,753,520.42 a portfolio basis for credit risk. Accounts receivable that are not individually significant but for - - - - - - - - - - which bad debt provision has been assessed individually Total 13,220,744,215.33 100 847,153,879.17 6.41 12,373,590,336.16 10,908,625,274.90 100 779,871,754.48 7.15 10,128,753,520.42 The Group recognizes accounts receivable of over RMB 4 million (representing over 10% of balance in total) as accounts receivables that are individually significant. 145 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Accounts receivable with bad debt provision provided by aging analysis on portfolio basis: Unit: RMB Closing balance Aging Amount Bad debt provision Percentage (%) Within 1 year 12,490,500,098.43 624,525,004.92 5.00 1–2 years 346,250,470.11 34,625,047.01 10.00 2–3 years 190,112,808.12 57,033,842.44 30.00 3–4 years 88,853,019.38 44,426,509.69 50.00 4–5 years 92,421,720.90 73,937,376.72 80.00 Over 5 years 12,606,098.39 12,606,098.39 100.00 Total 13,220,744,215.33 847,153,879.17 6.41 (2) Bad debt provision provided, recovered or reversed during the reporting period The amount of bad debt provision in the current reporting period was RMB 67,090,124.69, and the recovered bad debt provision was RMB 192,000.00. (3) Accounts receivable actually written off in the current reporting period. The accounts receivable actually written off in the current reporting period was nil. (4) The five largest accounts receivable assembled by debtors Unit: RMB Proportion of ending balance Relationship with Ending balance of bad debt Company name Carrying balance of accounts receivables in the Company provision total (%) Subsidiary A Subsidiary 10,979,742,688.75 548,987,134.44 83.05 Company B Third party 73,311,121.80 50,431,328.89 0.55 Company H Third party 67,606,358.90 3,380,317.95 0.51 Subsidiary B Subsidiary 56,318,865.55 11,569,524.33 0.43 Company I Third party 48,285,230.00 7,167,535.70 0.37 Total 11,225,264,265.00 621,535,841.31 84.91 (5) At the end of the reporting period, there are no accounts receivable derecognised due to the transfer of financial assets. (6) At the end of the reporting period, there are no assets or liabilities formed by continuing involvement in derecognised accounts receivables. 146 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 2. Other receivables (1) Other receivables disclosed by category Unit:RMB Closing balance Opening balance Carrying amount Bad debt provision Carrying amount Bad debt provision Category Percentage Percentage Carrying value Percentage Percentage Carrying value Amount Amount Amount Amount (%) (%) (%) (%) Other receivables that are individually significant and for - - - - - - - - - which bad debt provision has been assessed individually Other receivables with provision accrued collectively on a portfolio 1,356,649,784.14 100.00 82,925,385.81 6.11 1,273,724,398.33 449,863,926.01 100.00 31,900,680.55 7.09 417,963,245.46 basis for credit risk Other receivables that are not individually significant but for - - - - - - - - - - which bad debt provision has been assessed individually Total 1,356,649,784.14 100.00 82,925,385.81 6.11 1,273,724,398.33 449,863,926.01 100.00 31,900,680.55 7.09 417,963,245.46 The Group determined that a single other receivable in an amount of RMB 4 million or more and representing more than 10% of the total amount was considered individually significant. 147 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Other receivables with bad debt provision provided by aging analysis on portfolio basis: Unit:RMB Closing balance Aging Percentage of appropriation Carrying amount Bad debt provision (%) Within 1 year 1,262,042,816.79 63,102,140.84 5.00 1–2 years 55,517,977.00 5,551,797.70 10.00 2–3 years 28,122,124.50 8,436,637.35 30.00 3–4 years 9,795,609.20 4,897,804.60 50.00 4–5 years 1,171,256.65 937,005.32 80.00 Total 1,356,649,784.14 82,925,385.81 6.11 (2) The provision, recovery and reversal of bad debt allowance for the current reporting period The amount of bad debt provision in the current reporting period was RMB 51,024,705.26. (3) The write-off of other receivables for the year No write-off of other receivables was recorded for the current reporting period. (4) Other receivables by nature Unit:RMB Nature Closing balance Opening balance Guarantee deposit 44,511,291.46 31,242,843.36 Other lending 1,029,782,567.45 149,296,781.06 Temporary receivables 276,484,294.96 232,789,859.54 Investment deposit - 35,000,000.00 Others 5,871,630.27 1,534,442.05 Total 1,356,649,784.14 449,863,926.01 (5) Top 5 debtors of other receivables in terms of closing balance Unit:RMB Percentage to The name of entity Nature Closing balance Aging total other Bad debt provision receivables (%) Subsidiary B Other lending 485,209,165.76 Within 1 year 35.77 24,260,458.29 Subsidiary C Other lending 451,047,563.85 Within 1 year 33.25 22,552,378.19 Subsidiary A Other lending 45,752,855.06 Within 1 year 3.37 2,287,642.75 Company J Temporary 20,699,153.07 Within 1 year 1.53 1,034,957.65 receivables Company K Temporary 7,017,000.00 Within 1 year 0.52 350,850.00 receivables Total 1,009,725,737.74 74.43 50,486,286.88 (6) At the end of the reporting period, there were no other receivables derecognized due to the transfer of financial assets. (7) At the end of the reporting period, there were no assets or liabilities formed by continuing involvement in derecognised other receivables. 148 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 3. Long-term equity investment Details of long-term equity investment: Unit:RMB Decrease during the current reporting period Increase during the current reporting period Provision for Accounting Provision for Name of investee Opening balance Closing balance impairment losses for method Additional Increase due to the grant Investment Income recognized Cancellation of impairment losses the year investment of share options based on equity method subsidiary Hikvision System Technology Co. Ltd. Cost method 233,378,669.31 - 17,942,647.96 - - 251,321,317.27 - - Hangzhou Hikvision Science and Technologies Cost method 108,430,558.84 900,000,000.00 3,387,738.78 - - 1,011,818,297.62 - - Co. Ltd. Hangzhou Hikvision Security Equipment Cost method 200,000,000.00 - - - - 200,000,000.00 - - Leasing Services Ltd. Chongqing Hikvision Cost method 200,000,000.00 - - - - 200,000,000.00 - - System Technology Co., Ltd. Hikvision USA,Inc. Cost method 1,546,160.00 - - - - 1,546,160.00 - - HDT International Ltd. Cost method 87,786.14 - - - - 87,786.14 - - Prama Hikvision Indian Private Limited Cost method 1,585,696.80 - - - - 1,585,696.80 - - Hikvision Dubai FZE Cost method 1,870,351.40 - - - - 1,870,351.40 - - Hikvision Singapore Pte. Ltd Cost method 1,900,590.00 - - - - 1,900,590.00 - - Chongqing Hikvision Science and Cost method 100,000,000.00 - - - - 100,000,000.00 - - Technologies Co., Ltd. Beijing Hikvision Security Technology Cost method 10,000,000.00 - - - - 10,000,000.00 - - Services Co., Ltd. Shanghai Goldway Intelligent Traffic Cost method 23,000,000.00 - - - - 23,000,000.00 - - System Co., Ltd. Beijing Brainaire Storage Technology Cost method 96,482,439.85 - - - - 96,482,439.85 - - Co., Ltd. Hikvision South Africa (Pty) Ltd. Cost method 1,578,650.00 - - - - 1,578,650.00 - - Wuhan Hikvision System Technologies Cost method 10,000,000.00 - - - 10,000,000.00 - - - Co., Ltd. Henan Hua’an Cost method 67,475,000.00 - - - - 67,475,000.00 - - Intelligence Development Co., Ltd. Hikvision do Brasil Comercio de Cost method 4,579,750.50 - - - - 4,579,750.50 - - Equipamentos de Segurana Ltda. Hikvision Australia PTY Ltd. Cost method 2,866,850.00 - - - - 2,866,850.00 - - Hikvision International Co., Limited Cost method 79,423.52 - - - - 79,423.52 - - Hundure Technology Cost method 37,247,790.28 - - - - 37,247,790.28 - - (Shanghai) Co., Ltd. Hangzhou Hikvision Electronics Co. Cost method 397,745,645.00 - - - - 397,745,645.00 - - Ltd. Cooperative Hikvision Europe U.A. Cost method 65,485.53 - - - - 65,485.53 - - Hikvision Canada inc. Cost method 994,442.54 - - - - 994,442.54 - - Hikvision LLC Cost method 647,249.19 - - - - 647,249.19 - - HIKVISION Korea Limited Cost method 1,535,850.00 - - - - 1,535,850.00 - - 149 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 Decrease during the current reporting period Increase during the current reporting period Provision for Accounting Provision for Name of investee Opening balance Closing balance impairment losses for method Additional Increase due to the grant Investment Income recognized Cancellation of impairment losses the year investment of share options based on equity method subsidiary Hangzhou EZVIZ Network Co., Ltd. Cost method 1,000,000.00 - 2,520,069.08 - - 3,520,069.08 - - Hangzhou Hikvision Zhicheng Cost method 24,000,000.00 - - - 24,000,000.00 - - Investment and Development Co., Ltd. Hangzhou Hikvision robotic Technology Cost method 10,000,000.00 - 1,617,565.00 - - 11,617,565.00 - - Co., Ltd. Hangzhou Hikvision Investment Cost method 100,000.00 - - - 100,000.00 - - Management Co., Ltd. Hangzhou Hik Automotive Technology Cost method 72,000,000.00 - 1,173,255.30 - - 73,173,255.30 - - Co., Ltd. Hangzhou Hikvision Communication Cost method 7,000,000.00 - - - - 7,000,000.00 - - Technology Co. Ltd. Hangzhou Hikvision Weiying Sensory Cost method 60,000,000.00 - - - - 60,000,000.00 - - Technology Co., Ltd. Hikvision Turkey Technology And Security Systems Commerce Cost method 1,148,115.83 - - - - 1,148,115.83 - - Corporation Hikvision Colombia SAS Cost method 1,337,440.00 - - - - 1,337,440.00 - - Hikvision Kazakhstan limited liability Cost method 4,758.69 - - - - 4,758.69 - - partnership Wuhu Sensor Technology Co. Ltd. Equity method 35,000,000.00 - - (1,409,148.78) - 33,590,851.22 - - Tianjin Hikvision System Technology Cost method - 10,000,000.00 - - - 10,000,000.00 - - Co., Ltd. Wuhan HIK Storage Technology Co., Cost method - 15,000,000.00 - - - 15,000,000.00 - - Ltd. Maxio Technology (Hangzhou) Ltd. Equity method - 48,000,000.00 - - - 48,000,000.00 - - Total 1,714,688,703.42 973,000,000.00 26,641,276.12 (1,409,148.78) 10,000,000.00 2,702,920,830.76 - - As of June 30th 2017, there were no restrictions on the capability of transferring fund to the Company from investees in which the Company held long-term equity investment. 150 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 4. Operating income and operating cost Unit:RMB 2017 first half year 2016 first half year Item Income Cost Income Cost Operating income 6,798,573,690.37 2,251,271,391.25 6,340,292,309.26 1,861,474,489.65 Other operating 710,968,437.01 99,917,571.80 639,101,207.28 568,164,565.21 income Total 7,509,542,127.38 2,351,188,963.05 6,979,393,516.54 2,429,639,054.86 5. Investment income (1) Details of investment income Unit:RMB Item Amount for 2017 first half year Amount for 2016 first half year Long-term equity investment income measured by equity (1,409,148.78) - method Long-term equity investment income measured by cost (7,379,719.62) - method Disposal G/L of financial assets measured by fair value and their changes recognized in the gains and losses during the 4,064,470.64 30,136,515.97 current period Investment gains (losses) for available-for-sale financial 8,505,842.42 - assets during the holding period Investment income from redemption of finance products of 29,315,524.76 - banks upon expiry Total 33,096,969.42 30,136,515.97 XVI. Supplementary information 1. Details of current non-recurring gains and losses Unit:RMB Item Amount Description Profit or loss from disposal of non-current assets 2,226,974.55 The government subsidies included in the current profits and losses (excluding the government subsidy6 closely related to regular course of business of the Company and government 14,130,234.67 subsidy based on standard quota or quantitative continuous enjoyment according to the state industrial policy) Held- for-trading financial assets, profits and losses from change in fair value of held-for-trading financial liabilities, and investment income from disposal of held-for-trading financial 88,204,679.51 assets and liabilities and available-for-sale financial assets excluding the effective hedging business related to the regular business operation of the Company Other non-operating income and expense except the items 16,422,848.73 mentioned above Impact of income tax (18,147,710.62) The impact of minority interests (1,157,189.00) Total 101,679,837.84 6 Please refer to Note (V) 46 for details about government subsidy closely related to regular course of business of the Company and government subsidy based on standard quota or quantitative continuous application according to the state industrial policy. 151 Hikvision 2017 HY Report Notes on Financial Statements For fiscal year period from January 1st 2017 to June 30th 2017 2. Return on net assets and earnings per share The return on net assets and earnings per share have been prepared by Hangzhou Hikvision Digital Technology Co., Ltd. in accordance with the Information Disclosure and Presentation Rules for Companies Making Public Offering of Securities No. 9 – Calculation and Disclosure of Return on Net Assets and Earnings per Share (Revised in 2010) issued by China Securities Regulatory Commission. Unit:RMB Weighted average Earnings per share Profit for the reporting period return on net assets Basic earnings per Diluted earnings per (%) share share Net profit attributable to ordinary shareholders of the 12.98% 0.357 0.357 Company Net profit excluding non-recurring items of profit or loss 12.55% 0.346 0.346 attributable to ordinary shareholders of the Company 152 Hikvision 2017 HY Report Section XI Documents Available for Reference 1. The financial report was signed a by the Company's legal representative. 2. The financial report was signed and sealed by the person in charge of the Company, responsible person in charge of accounting work and person in-charge of accounting organization. 3. Original copy of all the Company's documents and announcements were published on the newspapers designated by CSRC within the Reporting Period. The above documents are completely placed at the company's board of directors’ office. Hangzhou Hikvision Digital Technology Co., Ltd. Chairman: Chen Zongnian July 22nd 2017 153