Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report April 2019 1 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section I. Important Notice, Contents and Paraphrase Board of Directors, Supervisory Committee, all directors, supervisors and senior executives of Nanjing Putian Telecommunications Co., Ltd. (hereinafter referred to as the Company) hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. Wang Wenkui, Principal of the Company, Cao Xurong, person in charge of accounting works and Guan Xiaojian, person in charge of accounting organ (accounting principal) hereby confirm that the Financial Report of 2018 Annual Report is authentic, accurate and complete. All directors attended the Board Meeting for report deliberation. Concerning the forward-looking statements with development strategy, operation plans and targets involved in the Report, they do not constitute a substantial commitment for investors. Investors are advised to exercise caution when investment risks exist. The Company has analyzed the risk factors that the Company may face in the future in the “Section IV. Discussion and Analysis of Operation” of this report, investors are advised to check the information. The Company has no plan of cash dividends carried out, bonus issued and capitalizing of common reserves either. 2 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Contents Section I Important Notice, Contents and Paraphrase ................................................................. 2 Section II Company Profile and Main Finnaical Indexes ............................................................. 5 Section III Summary of Company Business ................................................................................ 10 Section IV Discussion and Analysis of Operation ....................................................................... 14 Section V Important Events .......................................................................................................... 34 Section VI Changes in shares and particular about shareholders............................................... 68 Section VII Preferred Stock……………………………………………………………………….75 Section VIII Particulars about Directors, Supervisors,Senior Executives and Employees ...... 76 Section IX Corporate Governance ................................................................................................. 88 Section X Corporate Bonds ........................................................................................................... 93 Section XI Financial Report .......................................................................................................... 94 Section XII Documents available for reference ......................................................................... 184 3 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Paraphrase Items Refers to Contents CSRC Refers to China Securities Regulatory Commission SZ Stock Exchange Refers to Shenzhen Stock Exchange China Potevio Company Limited (controlling shareholder of the China Potevio Refers to Company) The Company, Company, Nanjing Putian Refers to Nanjing Putian Telecommunications Co., Ltd. Nanjing Southern Telecom Co., Ltd.(controlling subsidiary of the Southern Telecom, Southern Company Refers to Company) Nanjing Putian Telege Intelligent Building Ltd.(controlling Telege Building Refers to subsidiary of the Company) Nanjing Putian Datang Information Electronic Co., Ltd. Datang Company Refers to (controlling subsidiary of the Company) Reporting period Refers to Year of 2018 4 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section II Company Profile and Main Financial Indexes I. Company information Short form of the stock NJ TEL B Stock code 200468 Stock exchange for listing Shenzhen Stock Exchange Name of the Company (in 南京普天通信股份有限公司 Chinese) Short form of the Company 南京普天 (in Chinese) Foreign name of the Nanjing Putian Telecommunications Co., Ltd. Company(if applicable) Legal representative Wang Wenkui No. 58 Qinhuai Road, Jiangning Economics and Technology Development Zone, Nanjing, Jiangsu Registrations add. Province Code for registrations add 211100 Offices add. No. 1 Putian Road, Qinhuai District Nanjing, Jiangsu Province Codes for office add. 210012 Company’s Internet Web Site www.postel.com.cn E-mail securities@postel.com.cn II. Person/Way to contact Secretary of the Board Rep. of security affairs Name Li Jing Xiao Hong No. 1 Putian Road, Qinhuai District No. 1 Putian Road, Qinhuai District Contact address Nanjing, Jiangsu Province Nanjing, Jiangsu Province Tel. 86-25-58962308 86-25-58962072 Fax. 86-25-52409954 86-25-52409954 E-mail lijing@postel.com.cn xiaohong@postel.com.cn III. Information disclosure and preparation place Newspaper appointed for information disclosure Securities Times; Hong Kong Commercial Daily Website for annual report publish appointed by CSRC www.cninfo.com.cn Preparation place for annual report Office of the Board 5 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report IV. Registration changes of the Company Organization code 91320000134878054G Changes of main business since listing (if No change applicable) The original controlling shareholder of the Company was China Putian Corporation. In Previous changes for controlling 2005, China Putian Corporation transferred all the holding shares free to China Potevio shareholders (if applicable) Company Limited. The controlling shareholder of the Company changed to China Potevio Company Limited. V. Other relevant information CPA engaged by the Company Name of CPA Pan-China Certified Public Accountants (LLP) 17/F, Tower B, Beijing International Building, No. 18, Nandajie Jia, ZOL, Haidian District, Offices add. for CPA Beijing He Jiangxing, Jin Jingyu He Jiangxing, Jin Jingyu Sponsor engaged by the Company for performing continuous supervision duties in reporting period √Applicable □ Not applicable Office address of sponsor Sponsor institution Sponsor representative Continuous supervision period institution 3/F, Tower B, Kaiheng Center, China Securities Co., Ltd. No.2 Chaonei St., Dongcheng Zhuang Yunzhi, Wang Min 2018.8.15-2019.12.31 District, Beijing Financial consultant engaged by the Company for performing continuous supervision duties in reporting period □ Applicable √ Not applicable VI. Main accounting data and financial indexes Whether it has retroactive adjustment or re-statement on previous accounting data or not √ Yes □No Reasons for retrospective adjustment or restatement Correction of accounting error Changes over 2017 2016 last year 2018 Before After After Before After adjustment adjustment adjustment adjustment adjustment 1,995,627,772. 2,254,399,406. 2,254,399,406. 1,853,911,278. 1,853,911,278. Operating revenue (RMB) -11.48% 60 04 04 83 83 Net profit attributable to 5,859,214.84 11,885,170.28 8,982,857.76 -34.77% -6,434,558.27 -5,063,843.89 6 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report shareholders of the listed Company(RMB) Net profit attributable to shareholders of the listed Company after deducting -21,461,955.87 9,156,761.14 6,254,448.62 -443.15% -11,286,693.14 -9,915,978.76 non-recurring gains and losses(RMB) Net cash flow arising from -155,418,733.8 -47,217,136.32 -47,220,769.58 -229.13% 109,145,940.57 109,087,237.73 operating activities(RMB) 3 Basic earnings per share 0.03 0.06 0.04 -25.00% -0.03 -0.02 (RMB/Share) Diluted earnings per share 0.03 0.06 0.04 -25.00% -0.03 -0.02 (RMB/Share) Weighted average ROE 1.66% 3.43% 2.60% -0.94% -1.87% 1.47% Changes over End of 2017 End of 2016 end of last year End of 2018 Before After After Before After adjustment adjustment adjustment adjustment adjustment 2,120,744,292. 2,116,312,318. 2,114,332,229. 2,304,519,167. 2,307,031,427. Total assets (RMB) 0.30% 41 51 50 54 07 Net assets attributable to shareholder of listed Company 355,289,728.24 352,228,571.54 350,248,482.53 1.44% 339,838,415.21 340,760,638.72 (RMB) Reasons of accounting policy change and accounting error correction According to the relevant requirements addressed by the Jiangsu Securities Regulatory Bureau in the Decision Relating to Issue of Warning Letter to Nanjing Putian Communications Co., Ltd., the Company made correction to the accounting errors for the financial statements for the years 2014 to 2017 under retrospective restatement method as discussed and approved at the 10 th session of the 7th BOD of the Company held on 13 July 2018. For details, please refer to the Notice on Correction of Earlier Accounting Errors released on 14 July 2018. VII. Difference of the accounting data under accounting rules in and out of China 1. Difference of the net profit and net assets disclosed in financial report, under both IAS (International Accounting Standards) and Chinese GAAP (Generally Accepted Accounting Principles) □ Applicable √ Not applicable The Company had no difference of the net profit or net assets disclosed in financial report, under either IAS (International Accounting Standards) or Chinese GAAP (Generally Accepted Accounting Principles) in the period. 7 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 2. Difference of the net profit and net assets disclosed in financial report, under both foreign accounting rules and Chinese GAAP (Generally Accepted Accounting Principles) □ Applicable √ Not applicable The Company had no difference of the net profit or net assets disclosed in financial report, under either foreign accounting rules or Chinese GAAP (Generally Accepted Accounting Principles) in the period. VIII. Quarterly main financial index In RMB First quarter Second quarter Third quarter Fourth quarter Operating revenue 579,271,964.31 387,578,640.64 445,518,808.43 583,258,359.22 Net profit attributable to -6,411,052.72 -4,010,652.88 -7,943,829.27 24,224,749.71 shareholders of the listed Company Net profit attributable to shareholders of the listed Company -29,910,522.65 -13,682,092.82 -2,803,874.44 24,934,534.04 after deducting non-recurring gains and losses Net cash flow arising from -181,745,941.41 -43,529,287.52 -26,400,359.58 96,256,854.68 operating activities Whether there are significant differences between the above-mentioned financial index or its total number and the relevant financial index disclosed in the Company’s quarterly report and semi-annual report □Yes √ No IX. Items and amounts of extraordinary profit (gains)/loss √Applicable □ Not applicable In RMB Item 2018 2017 2016 Note Gains/losses from the disposal of non-current asset (including the write-off 33,483,456.05 -481,922.28 210,219.85 that accrued for impairment of assets) Governmental subsidy reckoned into current gains/losses (not including the subsidy enjoyed in quota or ration according to 8,554,841.22 5,534,839.79 6,572,800.76 national standards, which are closely relevant to enterprise’s business) Gains/losses of debt restructuring -34,865.18 Other non-operating revenue and expenditure except for the aforementioned -165,751.16 49,304.02 1,094,096.82 items 8 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Payable unable to paid 1,332,427.34 Less: impact on revenue tax 5,400,947.05 1,150,984.62 133,851.87 Impact on minority shareholders’ 10,482,855.69 1,187,962.59 2,891,130.69 equity (post-tax) Total 27,321,170.71 2,728,409.14 4,852,134.87 -- Concerning the extraordinary profit (gain)/loss defined by Q&A Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the Public --- Extraordinary Profit/loss, and the items defined as recurring profit (gain)/loss according to the lists of extraordinary profit (gain)/loss in Q&A Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the Public --- Extraordinary Profit/loss, explain reasons □ Applicable √ Not applicable In reporting period, the Company has no particular about items defined as recurring profit (gain)/loss according to the lists of extraordinary profit (gain)/loss in Q&A Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the Public --- Extraordinary Profit/loss 9 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section III Summary of Company Business I. Main businesses of the Company in the reporting period Does the Company need to comply with the disclosure requirement of the special industry No 1.During the reporting period, main business and products as well as the utilization that the Company mainly engaged in, including the operation mode, main performance drivers The Company is a state-controlled communications equipment manufacturing Company, of which the main business is R&D, production and sales of information communication equipment. The products of the company and its subsidiaries cover optical communication networks, wireless communication networks, data applications, and industrial electrical and other fields, the main products are optical communication network connection equipment, private network communication products, multimedia communication equipment, integrated wiring, etc., customers include domestic telecom operators, tower companies and industry customers in the government, finance, electric power, medical and other fields, and the products cover all provinces and cities in the country and are exported to foreign countries. At present, the business of the company’s headquarters includes optical wiring network and communication supporting overall solutions (ODN overall solution, optical network intelligent solution, energy-saving data center solution), private network communication products. The optical wiring network and communication supporting overall solution are mainly used for domestic communication network construction, radio and television network transformation, high-speed rail communication construction, urban subway construction, etc., and have made breakthroughs in the e-commerce industry. The private network communication products mainly produce and process ad-hoc network communication equipment according to customer requirements for establishing small and medium-sized dedicated communication networks. The business of main subsidiaries includes multimedia communication and application solutions, building intelligent integrated solutions, industrial intelligent power distribution systems, solar street light control systems, etc., among them, the main business of the subsidiary Nanjing Southern Telecom Co., Ltd. is to offer remote collaborative application solutions for large and medium-sized industry customers in governments, finance, medical, education and other fields, and the main products are video conferencing products. The subsidiary Nanjing Putian Telege Intelligent Building Co., Ltd. mainly provides medium- and high-end integrated wiring and intelligent application solutions for customers. The subsidiary Nanjing Mennekes Electric Appliances Co., Ltd. provides industrial intelligent power distribution products for various industrial sites such as rail transit, airports, ports, etc. The subsidiary Nanjing Putian Datang Information Electronics Co., Ltd. mainly provides solar street lamp controllers and IOT street lamp monitoring systems. . The company has market networks covering all parts of the country, and its main customers include domestic telecom operators and customers in various industries. The company mainly obtains business opportunities by 10 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report participating in project bidding, designs schemes according to the project requirements, produces or purchases the equipment required by the customer, and takes responsible for the installation and debugging, and realizes the profit after deducting the cost from the contract price. The company’s operating results are mainly affected by factors such as capital expenditures, informatization investment and bidding results, fluctuations in raw material prices and changes in other costs of telecom operators and industry customers. 2. Industry development status and industry position of the company during the reporting period During the reporting period, China’s external environment was complex and severe, and the economy was facing downward pressure, but the national economy was generally stable. However, during the reporting period, the 4G investment of operators entered the later stage, and the investment in 4G construction slowed down, and the competitive pressure in the industry market further increased. The information and communication industry was developing rapidly, the information and communication industry was in the midst of a major transformation period of system innovation and intelligence leading, new technologies such as big data, cloud computing, artificial intelligence, internet of things, and 5G continued to break through and integrated with manufacturing and energy, and new products, new models, and new business forms were emerging one after another, pushing human development to accelerate into the age of intelligence. Therefore, the company is still in a period of valuable development opportunities, the company will adhere to the initial intention and responsibility of the national team of information and communication, focus on high-quality development, continuously strengthen the company’s technological innovation capabilities, and increase the training and development of independent industries and independent products. As a state-owned holding communication equipment manufacturer, the company has good brand strength and influence in the industry market. In 2018, the company won the “Top 10 Most Competitive Enterprises in China’s Optical Transmission and Network Access Equipment” for the consecutive eleventh year, and the “Internet of Things Platform Based on NB-IoT Technology” products won the China Potevio Innovation Award; completed the corresponding communication support tasks of Two Sessions, Shanghai Cooperation Organization summit, World Internet Conference, and the International Import Expo; Telege Building Company’s six types of integrated wiring and security cable products helped the construction of the 2022 Beijing Winter Olympics venue; the mixed cloud management solution provided by Southern Telecom for Guodu Securities won the “2018 China Information Communication and Big Data Application Innovation Outstanding Achievement Award”, and the “Ruijing” audio video digital integrated solution was awarded the “2017 China Information Technology Annual Best Solution Award” by the China Information Technology Executive Conference. II. Major changes in main assets 1. Major changes in main assets Major assets Note of major changes 11 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Equity assets No major changes in the period Fixed assets No major changes in the period Intangible assets No major changes in the period Construction in progress No major changes in the period Account paid in advance has 189 million Yuan at end of the Year, increased 135 million Yuan over that of year-beginning, mainly because the account paid in advance for Account paid in advance purchase of raw material for private network communication business increased in the Period Inventory has 287 million Yuan at end of the Year, decreased 203 million Yuan over that Inventory of year-beginning, mainly because the external sales of private network communication products in the period, thus the inventory decline. Investment real estate has 8.3971 million Yuan at end of the Year, decreased 4.4054 million Yuan over that of year-beginning, mainly because the subsidiary’s original Investment real estate investment real estate leased abroad has been converted to self-use, transfer to fixed assets 2. Main overseas assets □ Applicable √ Not applicable III. Core Competitiveness Analysis Does the Company need to comply with the disclosure requirement of the special industry No As a subsidiary of the national large-scale enterprise Putian Group, the company adheres to the “product + solution + service” strategy, and continuously accelerates the product innovation, industrial structure adjustment and transformation and upgrading. After years of efforts, it has gradually transformed from a communication manufacturer to an information communication integrated solution service provider. The company’s business belongs to the key development and support area of the country, and has a large market demand and development space. The company has a complete industrial chain structure, and good research and development capabilities, production capacity, and marketing capabilities, and has established a good brand strength and influence in the industry market and operator market. The company is market-oriented, adheres to independent innovation, and constantly improves the technical level of its products. In 2018, the company invested 76,275,100 yuan in research and development, an increase of 12.36% compared with 2017. In 2018, the company added 17 patents (including 3 invention patents), obtained 12 software copyrights, and 27 technical research and development projects passed the evaluation of market and government experts. The company’s leading products have strong market competitiveness in the industry. The company has a mature market network nationwide, has good product promotion and marketing capabilities, has long-term good cooperative relations with operators, has rich varieties in wiring products, and has won many awards in the wiring industry. The subsidiary Southern Telecom has rich professional experience in the video conferencing field, in 12 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report recent years, it has increased independent innovation, and its proportion of independent product management has gradually increased, and its sustainable development capability has further improved. The subsidiary Telege Building has stable and good channel resources in integrated wiring products, pays attention to independent innovation, and has won the top ten brands of integrated wiring for consecutive years. The subsidiary Nanman Electric’s industrial intelligent power distribution products have a high market share in the rail transit market segment with high product professionalism and strong competitiveness. The subsidiary Putian Datang’s solar street lamp controller ranks first in the industry market. The company is accelerating the transformation and upgrading from “manufacturing” to “intelligent manufacturing” to comprehensively enhance the industrial competitiveness. 13 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section IV Discussion and Analysis of Operation 1. Introduction During the reporting period, the company focused on the main business of information and communication, increased the scientific and technological innovation according to market demand, promoted product structure adjustment, explored new cooperation, opened up new markets, continuously expanded business areas, promoted the industrial transformation and upgrading, and strive to create new situation for development of the main business, and the business development was generally stable. Affected by factors such as the shrinking scale of telecom operators’ 4G construction and the decline in the market price of industrial products, during the reporting period, the company achieved operating income of 1.996 billion yuan, a decrease of 11.48% on a year-on-year basis; realized total profit of 28,907,200 yuan, a decrease of 17.81% on a year-on-year basis; and realized net profit attributable to the owner of parent company was 5,859,200 yuan, a decrease of 34.77% on a year-on-year basis. The company’s wiring products and integrated equipment cabinets were selected for the next round of competition by Tower Group in many provinces. The company has become the A-level supplier for the optical distribution frame of China Telecom, and successfully landed the new time space time computer room project of Jiangsu Unicom by the innovative cooperation mode and leveraging the resources of operators, and won the bidding for projects such as Taihu Information Center and Nanjing Telecom Data Center. The company vigorously expanded the industry market, won the bidding for projects such as Guizhou Radio and Television, Jiangsu Radio and Television Monitoring Hall. The company’s products served the Jingdong data room construction, and achieved new breakthroughs in the e-commerce industry. Southern Telecom continued to improve its software and hardware R&D and integration services capabilities, actively explored the integration of high-definition video conferencing technology into the vertical domain integration and other business applications, and gradually improved the independent product system, and Ruijing multimedia integrated communication system has been applied in projects such as Postal Savings Bank of China and Department of Transportation of Hunan Province. The video conferencing “Cloud Service” application solution has successfully served customers and projects such as China Putian Group and Midea Group. In the traditional video, we actively expanded big customers such as the government, and finance, and maintained the leading position in the industry. Cloud network data communication completes product integration and the product has been running stably and reliably. Telege Company MPO (high speed transmission optical fiber jumper wire) pre-intervention products passed the selection test of Shandong Mobile Henghua. Products such as Fengshang and Yishang series cables have passed the third-party testing of domestic authorities and obtained relevant test reports. Six types of integrated wiring and security cable products helped build the 2022 Beijing Winter Olympics venues. Nanman Company successfully signed projects such as Xi’an Metro Line 4, Shenzhen Metro Line 9 and Shenyang Metro, and continued to maintain its leading position in the rail transit industry, and successfully signed projects such as the high pole lamp distribution project at the Capital New Airport and the Shuanghe Pharmaceutical Project. Datang Company passed the identification of high-tech enterprises in Jiangsu Province in 2018, and the sales of 14 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report street lamp controllers exceeded 850,000 units throughout the year, ranking second in the sub-sector and enjoying a high market reputation. The system integration division made new breakthroughs in the industry market, won the bid for the Lianyungang Hengyuan power project and the State Grid Power Lianyungang Branch project; and achieved breakthroughs in the railway market and won the bid for railway materials procurement in many railway bureaus such as Xi’an, Taiyuan and Chengdu. . At the same time, the company further teased out the industrial structure. By continuously increasing the cooperation between school-enterprise and national thousand talents plan, actively deployed the intelligent access based on IoT and big data applications, focused on the development goals of “low-carbon, intelligentization, networked, and informationization” and information security to upgrade the company’s various products. In terms of management, the company increased internal business and personnel adjustment, promoted the system reform of subsidiaries, increased the governance to the loss-making entity, and strive to improve profitability; continuously strengthened the enterprise management with financial management as the core, and increased the clean-up efforts of the receivables and stocks, optimized asset quality, strengthened procurement and cost reduction, and carried out all kinds of operating management in a solid manner to ensure the sustainable and healthy development of the company’s operations. II. Main business analysis 1. Introduction See the “I-Introduction” in “Discussion and Analysis of Operation” 2. Revenue and cost (1) Constitute of operation revenue In RMB 2018 2017 Increase/decrease Ratio in operation Ratio in operation Amount Amount y-o-y revenue revenue Total operation 1,995,627,772.60 100% 2,254,399,406.04 100% -11.48% revenue Industries Communication industry -Main 1,767,327,767.31 88.56% 2,046,250,382.47 90.77% -13.63% business revenue Communication industry -Other 64,642,486.98 3.24% 43,554,406.50 1.93% 48.42% business revenue Electrical industry 159,936,978.03 8.01% 163,553,620.33 7.25% -2.21% -Main business 15 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report revenue Electrical industry -Other business 3,720,540.28 0.19% 1,040,996.74 0.05% 257.40% revenue Products Video conference products- main 438,095,192.19 21.95% 502,964,251.00 22.31% -12.90% business revenue General cabling products- main 329,431,898.41 16.51% 353,100,631.57 15.66% -6.70% business revenue Low-voltage distribution 159,936,978.03 8.01% 163,553,620.33 7.25% -2.21% products-main business revenue Private network communication 329,938,045.09 16.53% 512,809,145.60 22.75% -35.66% products -main business revenue Wiring and other products-main 741,819,481.65 37.17% 773,769,849.91 34.32% -4.13% business revenue Interior offset -71,956,850.03 -3.61% -96,393,495.61 -4.28% 25.35% Other business 68,363,027.26 3.43% 44,595,403.24 1.98% 53.30% revenue Regions Domestic area-main 1,907,330,806.93 95.58% 2,209,400,566.06 98.00% -13.67% business revenue Domestic area -Other business 68,363,027.26 3.43% 44,595,403.24 1.98% 53.30% revenue Abroad -main 19,933,938.41 1.00% 403,436.74 0.02% 4,841.03% business revenue (2) About the industries, products, or regions accounting for over 10% of the Company’s operating income or operating profit √Applicable □ Not applicable Does the Company need to comply with the disclosure requirement of the special industry No 16 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report In RMB Increase/decrease Increase/decrease Increase/decrease Operating Operating cost Gross profit ratio of operating of operating cost of gross profit revenue revenue y-o-y y-o-y ratio y-o-y Industries Communication industry-main 1,767,327,767.31 1,465,056,721.74 17.10% -13.63% -14.94% 1.28% business revenue Communication industry-other 64,642,486.98 45,595,608.35 29.46% 48.42% 43.52% 2.40% business revenue Electrical industry-main 159,936,978.03 129,682,091.07 18.92% -2.21% 3.12% -4.19% business revenue Electrical industry-other 3,720,540.28 2,781,101.22 25.25% 257.40% 364.21% -17.20% business revenue Products main business revenue-Video 438,095,192.19 350,079,260.49 20.09% -12.90% -15.22% 2.19% conference products main business revenue-General 329,431,898.41 251,844,898.81 23.55% -6.70% -9.57% 2.43% cabling products main business revenue-Low-volt 159,936,978.03 129,682,091.07 18.92% -2.21% 3.12% -4.19% age distribution products main business revenue-Private network 329,938,045.09 322,000,131.86 2.41% -35.66% -34.20% -2.17% communication products main business revenue-Wiring 741,819,481.65 613,799,045.44 17.26% -4.13% -3.80% -0.28% and other products Interior offset -71,956,850.03 -72,666,614.86 -0.99% 25.35% 24.61% -0.99% other business 68,363,027.26 48,376,709.57 29.24% 53.30% 49.45% 1.82% 17 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report revenue Regions Domestic area-main 1,907,330,806.93 1,581,172,774.03 17.10% -13.67% -14.43% 0.74% business revenue Domestic area-other 68,363,027.26 48,376,709.57 29.24% 53.30% 49.45% 1.82% business revenue Abroad -main 19,933,938.41 13,566,038.78 31.95% 4,841.03% 3,507.01% 25.17% business revenue Under circumstances of adjustment in reporting period for statistic scope of main business data, adjusted main business based on latest one year’s scope of period-end □ Applicable √ Not applicable (3) Income from physical sales larger than income from labors √ Yes □ No Increase/decrease Industries Item Unit 2018 2017 y-o-y Sales volume Yuan 1,831,970,254.29 2,089,804,788.97 -12.34% Communication Production volume Yuan 1,603,585,767.76 2,040,493,030.98 -21.41% industry Inventory Yuan 243,314,835.5 430,882,498.28 -43.53% Sales volume Yuan 163,657,518.31 164,594,617.07 -0.57% Electrical industry Production volume Yuan 148,299,756.32 173,089,551.31 -14.32% Inventory Yuan 43,657,797.09 59,015,559.08 -26.02% Note: due to the wide variety of the Company’s products, it is difficult to unify the measurement unit, so the sales volume, production volume and inventory are all expressed by the amount Reasons for y-o-y relevant data with over 30% changes √Applicable □Not applicable Inventory of the communication industry has major declined on a y-o-y basis, mainly because at beginning of the year, products of private network communications are sales in the period, thus the Inventory declined. (4) Fulfillment of the Company’s signed significant sales contracts up to this reporting period □ Applicable √ Not applicable (5) Constitute of operation cost Industry classification In RMB 18 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 2018 2017 Increase/decrease Industries Item Ratio in operation Ratio in operation Amount Amount y-o-y cost cost Cost of raw Communication material 1,374,600,698.15 83.66% 1,601,919,525.89 85.18% -14.19% industry (procurement cost) Communication Labor cost 52,344,772.26 3.19% 58,358,356.28 3.10% -10.30% industry Communication Depreciation 3,182,986.82 0.19% 4,348,175.64 0.23% -26.80% industry cost Communication Other business 45,595,608.35 2.77% 31,769,953.88 1.69% 43.52% industry cost Cost of raw Electrical material 120,718,703.99 7.35% 112,920,411.71 6.00% 6.91% industry (procurement cost) Electrical Labor cost 5,130,063.12 0.31% 4,713,481.46 0.25% 8.84% industry Electrical Depreciation 483,128.69 0.03% 304,478.21 0.02% 58.67% industry cost Electrical Other business 2,781,101.22 0.17% 599,107.33 0.03% 364.21% industry cost Explanation (6) Whether the changes in the scope of consolidation in Reporting Period □ Yes √ No (7)Major changes or adjustment in business, product or service of the Company in Reporting Period □Applicable √Not applicable (8) Major sales and main suppliers Major sales client of the Company Total top five clients in sales (RMB) 612,012,777.44 Proportion in total annual sales volume for top five clients 30.67% Sales of related parties in annual sales from top five 18.06% clients Information of top five clients of the Company 19 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Serial Name Sales (RMB) Proportion in total annual sales China Potevio Company Limited and other 1 360,483,509.53 18.06% enterprise with the same controller China Telecom Corporation and the 2 98,665,173.19 4.94% subordinate enterprises controlled China United Network Communications 3 Group Co.,Ltd and the subordinate 62,568,665.31 3.14% enterprises controlled 4 Beijing Transtrue Technology Inc. 45,323,446.65 2.27% Beijing UniStrong Science & Technology 5 44,971,982.76 2.25% Co., Ltd. Total -- 612,012,777.44 30.67% Other situation of main clients √Applicable □ Not applicable Among the top five clients, China Potevio Company Limited is the controlling shareholder of the Company Main suppliers of the Company Total purchase amount from top five suppliers (RMB) 476,265,748.23 Proportion in total annual purchase amount for top five 32.35% suppliers Purchase of related parties in annual amount from top five 0.00% suppliers Information of top five suppliers of the Company Serial Supplier Sales (RMB) Proportion in total annual sales Jiangsu Sainty International Group 1 251,391,365.14 17.08% Machinery Imp.&Exp. Co., Ltd. POLYCOM communications technology 2 89,541,823.03 6.08% (Beijing) Co., LTD Shanghai Xingditong Communication 3 52,161,750.00 3.54% Technology Co., Ltd. Zhejiang Xinwang Energy Engineering 4 43,170,258.61 2.93% Co., Ltd. 5 Hongan Group Co., Ltd. 40,000,551.45 2.72% Total -- 476,265,748.23 32.35% Other notes of main suppliers of the Company □Applicable √Not applicable 20 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 3. Expenses In RMB Increase/decrease 2018 2017 Note of major changes y-o-y Sales expense 153,522,328.27 159,627,776.44 -3.82% Management expense 86,503,114.41 76,037,302.46 13.76% Interest expenditure increased on a Financial expense 22,540,260.58 16,288,251.03 38.38% y-o-y basis 。 R&D expenses 76,275,133.26 67,887,029.53 12.36% 4. Investment in R&D √ Applicable □ Not applicable The company was market-oriented, adhered to independent innovation, and constantly improved the technical level of its products. In 2018, the products researched and developed by the company included ADSS self-supporting outdoor aerial optical cable withstand voltage fixing device, intelligent fiber optic main distribution frame, iron tower AC distribution box, and intelligent optical cable splice box based on NB IoT. In 2018, the company added 17 patents (including 3 invention patents, 9 utility model patents, and 5 appearance patents), 12 software copyrights, and 27 technical research and development projects passed the evaluation of market and government experts, and obtained the project approval of Nanjing Municipality, and enjoyed the relevant tax policies. R&D investment of the Company 2018 2017 Change ratio(+/-) Number of R&D (people) 438 383 14.36% Ratio of number of R&D 28.72% 26.27% 2.45% R&D investment (Yuan) 76,275,133.26 67,887,029.53 12.36% R&D investment accounted for 3.82% 3.01% 0.81% R&D income R&D investment capitalization 0.00 0.00 0.00% (Yuan) Capitalization R&D investment 0.00% 0.00% 0.00% accounted for R&D investment The reason of great changes in the proportion of total R&D investment accounted for operation income than last year □ Applicable √ Not applicable Reason for the great change in R&D investment capitalization rate and rational description □ Applicable √ Not applicable 21 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 5. Cash flow In RMB Item 2018 2017 Y-o-y changes Subtotal of cash in-flow from 1,685,497,160.30 1,996,119,868.02 -15.56% operation activity Subtotal of cash out-flow from 1,840,915,894.13 2,043,340,637.60 -9.91% operation activity Net cash flow arising from -155,418,733.83 -47,220,769.58 -229.13% operating activities Subtotal of cash in-flow from 41,013,389.72 884,622.95 4,536.26% investment activity Subtotal of cash out-flow from 17,752,720.09 15,350,838.65 15.65% investment activity Net cash flow from investment 23,260,669.63 -14,466,215.70 260.79% activity Subtotal of cash in-flow from 455,510,000.00 482,500,000.00 -5.59% financing activity Subtotal of cash out-flow from 432,686,230.26 597,231,500.28 -27.55% financing activity Net cash flow from financing 22,823,769.74 -114,731,500.28 119.89% activity Net increased amount of cash -109,687,601.75 -173,627,061.79 36.83% and cash equivalent Main reasons for y-o-y major changes in aspect of relevant data √ Applicable □ Not applicable Net cash flow arising from operating activities has major declined from a year earlier: the cash paid for purchasing raw materials increased due to the growth of account receivable in the period Cash in-flow from investment activity and net cash flow arising from investment activity have major growth from a year earlier: during the period, received compensation due to part of the houses from subsidiary Bada Telecommunications are to be expropriated by the government, which has an increase on a y-o-y basis in cash-inflow and net cash flow arising from investment activity. Net cash flow arising from financing activities has major growth over that of last year: the loans paid to the bank declined on a y-o-y basis. Net increased amount of cash and cash equivalent has major growth over that of last year: the cash flow arising from investment and financing activities increased over that of last year. Reasons of major difference between the cash flow of operation activity in report period and net profit of the Company √Applicable □Not applicable Net cash flow arising from operating activities in the year was negative, which is lower than the net profit, mainly because the cash paid for purchasing raw materials increased due to the growth of account receivable in the period. 22 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report III. Analysis of the non-main business √ Applicable □ Not applicable In RMB Amount Ratio in total profit Cause of formation Whether be sustainable (N/Y) Income of long-term equity Investment income -3,085,858.80 -10.68% investment measured by N equity Gain/loss of fair 0.00% - N value changes Loss of bad debts and Asset impairment 20,599,295.35 71.26% N inventory depreciation Non-operation Non-operation revenue as 2,988,810.42 10.34% N revenue government grants External donation, Non-operation 372,499.09 1.29% compensation and other N expenditure non-operation expenses Compensation for property Income from assets 33,522,820.90 115.97% expropriation received in N disposal the period IV. Assets and liability 1. Major changes of assets composition In RMB End of 2018 End of 2017 Ratio Ratio in total Ratio in total Notes of major changes Amount Amount changes assets assets 261,938,068.7 Monetary fund 12.35% 327,477,701.36 15.49% -3.14% 2 Account 941,068,459.3 44.37% 780,089,607.41 36.90% 7.47% receivable 5 Inventory of private network 286,972,632.5 communication products at year Inventory 13.53% 489,898,057.36 23.17% -9.64% 9 beginning are sales in the Period, thus the inventory at period-end declined Investment real 8,397,113.98 0.40% 12,802,485.28 0.61% -0.21% estate Long-term equity 183,244,080.2 8.64% 186,977,506.23 8.84% -0.20% investment 3 23 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 112,504,807.1 Fix assets 5.30% 119,741,921.78 5.66% -0.36% 1 Construction in 9,472,383.76 0.45% 2,163,267.89 0.10% 0.35% process 445,010,000.0 Short-term loans 20.98% 387,550,000.00 18.33% 2.65% 0 Long-term loans 0.00% 0.00% 0.00% 2. Assets and liability measured by fair value □ Applicable √ Not applicable 3. The assets rights restricted till end of the period Assets with ownership or usage rights restricted: Item Book value at period –end Restriction reason Monetary funds 60,568,751.30 Note margin and guarantee margin Account receivable 52,167,500.00 Secured borrowings Fixed assets 31,763,049.94 Mortgage loan Intangible assets 3,393,821.96 Mortgage loan Investment real estate 2,274,411.81 Mortgage loan Total 150,167,535.01 Saved as disclosed above, the Company pledged its stock rights of 4.8 million Yuan (40% equity in total) in the subsidiary Nanjing Putian Telege Intelligent Building Ltd., stock rights of 33.17 million Yuan (96.99% equity in total) in the subsidiary Nanjing Southern Telecom Co., Ltd., stock rights of 5.07 million Yuan (50.7 % equity in total)in the subsidiary Nanjing Putian Changle Telecommunication Equipment Co., Ltd., stock rights of 60.4273 million Yuan ( 67% equity in total) in Nanjing Putian Wangzhi Electronic Co., Ltd and stock rights of 7.8 million Yuan (78% equity in total) in Nanjing Putian Network Co., Ltd to the parent Company for entrusting the loan from Bank of Beijing, and handled the Company's equity registration respectively at Market Supervision Administration in Jiangning District, Hi-Tech Industry District, Yuhuatai District and Qinghuai District of Nanjing City. The stock rights of the aforesaid subsidiaries are restricted before the pledge being lifted. V. Investment 1. Overall situation √ Applicable □ Not applicable Investment in the same period of last year Investment in the reporting (RMB) Changes(%) ( RMB) 12,596,188.70 14,617,352.43 -13.83% 24 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 2. The major equity investment obtained in the reporting period □ Applicable √ Not applicable 3. The major non-equity investment doing in the reporting period □ Applicable √ Not applicable 4. Financial assets investment (1) Securities investment □ Applicable √ Not applicable The Company had no securities investment in the reporting period. (2) Derivative investment □ Applicable √ Not applicable The Company has no derivatives investment in the Period 5. Application of raised proceeds □ Applicable √ Not applicable The Company had no application of raised proceeds in the reporting period. VI. Sales of major assets and equity 1. Sales of major assets □ Applicable √ Not applicable The Company had no sales of major assets in the reporting period. 2. Sales of major equity □ Applicable √ Not applicable VII. Analysis of main holding Company and stock-jointly companies √ Applicable □ Not applicable Particular about main subsidiaries and stock-jointly companies net profit over 10% In RMB Company Main Register Operating Operating Type Total assets Net Assets Net profit name business capital revenue profit Multimedia Nanjing Subsidiary communicati 34,205,147.8 346,598,053. 102,985,220. 438,495,192. 11,964,069.0 11,263,613.8 25 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Southern on and 3 41 80 19 8 9 application Telecom Co., solutions Ltd. General cabling, Nanjing development, Putian Telege production 20,000,000.0 300,491,563. 123,688,502. 332,950,645. 20,802,587.8 17,793,037.1 Subsidiary Intelligent and sales of 0 44 02 89 4 3 Building Ltd. the building intelligent products Manufacture and sales of Nanjing software of Putian telecommuni 10,000,000.0 41,958,775.1 26,655,859.0 34,215,494.8 Subsidiary 613,435.42 993,856.82 Network Co., cations, 0 8 6 5 Ltd. network and electronic equipment Out-door patch, sub-line equipment, Nanjing network Putian box(cube)of Changle out-door and 10,000,000.0 60,002,503.9 31,894,974.6 35,352,405.1 Telecommun Subsidiary 582,042.85 832,042.85 machinery 0 3 7 8 ications office, Equipment manufacture Co., Ltd. and sales of communicati on electrical products Nanjing Bada Manufacture Telecommun of 11,301,400.0 -3,100,346.1 11,608,929.4 11,608,929.4 ications Subsidiary card-terminal 7,262,455.72 440,683.85 0 2 7 7 Equipment communicati Co., Ltd. on equipment Putian Export and Telecommun import of HK$ 2 -18,034,893. ications Subsidiary telecommuni 4,129,128.10 -23,451.92 -23,451.92 million 52 (H.K.) Co., cation Ltd. equipment, 26 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Hi-tech R & D and transfer, technology trade Nanjing Production, Putian sales and 59,490,000.0 32,465,396.1 10,120,114.3 Wangzhi Subsidiary processing of 4,556,153.15 1,086,091.19 801,300.17 0 7 6 Electronic electrical Co., Ltd products Nanjing Manufacture Putian and sales of Information electrical and 14,000,000.0 Subsidiary 8,338,876.35 5,235,118.97 4,556,153.15 -846,908.72 -818,264.15 Technology telecommuni 0 Company cation Ltd. products Electronic components Nanjing assembly, Putian electronic Telecommun products, 10,659,181.8 ication Subsidiary 5,000,000.00 887,550.68 3,196,397.12 -983,060.77 -924,590.44 telecommuni 4 Technology cation Company equipment, Ltd. Hi-tech R & D and sales Manufacture Nanjing and sales of Mennekes industrial US$ 5.2 215,685,611. 95,002,902.1 163,657,518. Subsidiary 1,518,578.87 1,273,541.57 Electrics Co., intelligent million 14 3 31 Ltd. distribution products R&D, manufacture and sales of Nanjing solar Putian controller, Datang 10,000,000.0 48,150,112.1 26,845,441.9 48,222,944.2 Subsidiary and 5,582,314.91 5,671,918.69 Information 0 6 4 3 production & Electronic processing Co., Ltd. business of electronic products 27 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Development and manufacture SEI-Nanjing of ODN Putian Joint-stock products, 37,088,800.0 23,735,362.5 22,256,636.6 15,440,522.0 -4,335,549.0 -4,335,549.0 Optical Company optical 0 6 7 8 1 1 Network communicati on components and RFTS R&D of communicati on technology products, sales, Potevio network Hi-tech Joint-stock 337,548,141. 352,625,584. 344,343,245. 21,089,902.4 system 1,304,078.01 983,452.15 Industry Co., Company 29 59 13 3 integration, Ltd. rental of industrial park venue and property management etc. Particular about subsidiaries obtained or disposed in report period □ Applicable √ Not applicable Notes of holding and shareholding companies Subsidiary Nanjing Bada Telecommunications Equipment Co., Ltd. achieved a net profit of 11.6089 million Yuan in 2018 with an increase of 10.5435 million Yuan from a year earlier; mainly because received a compensation for housing expropriation in the period Share participated enterprise SEI-Nanjing Putian Optical Network achieved a net profit of -4.3355 million Yuan in 2018 with a decrease of 3.304 million Yuan from a year earlier; mainly due to the personnel resettlement for business adjustment VIII. Structured vehicle controlled by the Company □ Applicable √ Not applicable IX. Future Development Prospects 1. Analysis of industry competition pattern and development trend From the perspective of macro economy, China’s national economy is generally stable and has a steady progress, and the external environment is complex and severe, but it is still in the period of important strategic opportunities for development, and the long-term positive trend of the economy will not change. From the perspective of industry 28 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report environment, 4G investment is in the late stage, 5G is expected to be put into commercial use in 2019, currently, the communication industry is in the transition phase from 4G to 5G. According to the forecast of China Academy of Information and Communications Technology, in 2020, telecom operators will invest more than 220 billion Yuan in 5G network equipment, and the expenditure on 5G equipment in various industries will exceed 54 billion Yuan. At the same time, with the deep integration of new technologies such as mobile internet, cloud computing, big data, and internet of things with various industries, the multimedia communication and video conferencing will also be deeply applied to all walks of life, and the applications of multimedia communication and video conferencing will also usher a new round of rapid growth opportunities. 2. The company’s development strategy Focusing on the spirit of structural reform of the supply side of the country, combining with the needs of sustainable and healthy development of enterprises, we will actively grasp the wave of major changes in system innovation and intelligence leading of the information and communication industry, take the market-oriented, optimize the company’s industrial structure, improve the core competitiveness of independent products, control risks, strengthen the fund management, improve the operation quality, promote the healthy development of the company, and continuously promote the transformation of the company from a traditional communication equipment manufacturer to an informatization integrated solution provider and service provider. 3. Business plan for the next year In 2019, the company will adhere to the general tone of making progress while ensuring stability in work, adhere to the customer-centered and market-oriented, focus on the four key areas of income increasing, expenditure reducing, innovation, and assessment, continuously consolidate the company’s operating basics, strive to enhance the company’s development quality and core competitiveness, deepen the reform and innovation, and create a new situation of transformation and development. The measures to be taken are as follows: (1) Recognize the development situation and strengthen the development confidence Concentrate on making a stronger leading industry. Adhere to the customer-centered and market-oriented, firmly grasp the new round of scientific and technological revolution and industrial transformation opportunities, vigorously strengthen independent innovation, concentrate on independent research and development, and increase the source of innovation. Focus on its own superior technology, industry and customers, realize technological innovation of key applications, form its own unique products and solutions with distinctive characteristics, and continuously enhance the company’s core competitiveness. Specially-assigned persons do special projects, accomplish the marketing of key projects, promote the cooperation and win-win among internal entities on the basis of projects, actively explore the future development direction of main business and increment, and strive to achieve new breakthroughs in high-quality development. Information communication industry sector Focus on the optical connector requirements in the 5G era and the trend of optical connector construction in the next generation data center, and the development of high-density optical fiber connectors; complete the new product research and development for intelligent precision monitoring systems and data center micro-module systems for power distribution cabinets and array cabinets, and continue to create a one-stop service for intelligent, modular, 29 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report and high-performance data center high-speed connection systems. Ensure that the central purchasing of wiring products of four major operators be selected to win the bid, increase the operation of important projects of the operators, and continue to expand sales in the private network market. Expand market sales of new products that have been initially formed for sale, such as melting end quick-connect, adaptive protection stickers, and hardware fittings, and the new products such as intelligent manhole cover, and intelligent machine room monitoring which are in trial stages should be able to form actual sales. Make efforts to promote the development transformation of industrial hardware into a soft and hard combination of operation, and continuously innovate products and cultivate them to become new profit growth points. Take advantage of the sales network and combine the advantages of other industries of the company to actively explore the joint transformation and upgrading of the large wiring industry. Data application industry sector Southern Telecom will continue to strengthen its software development capabilities, cultivate and enhance the company’s future core competitiveness; further adjust its business structure, focus on the stability of multimedia integration business and independent product development, and enhance the annual revenue of independent products; actively explore new and deeper market field, on the basis of maintaining the channel customers, take the financial and medical customer industries as the key market targets. Establish the model projects through the independent products, and seize the opportunity to extend to the government’s peripheral fifth- and sixth-level networks. Combine with the new opportunities of market development, and carry out exploration and development of the storage industry. Integrated access and electrical complete set industry sector Telege Company should continue to increase investment in technology research and development, complete the research and development of the integrated wiring fashion series and put it on the market, and seek new growth points for the development of the company’s optical product. Pursue market innovation, pilot and promote the market’s general agent sales model. Pay close attention to the development trend of the optical wiring market, strengthen the tracking of key projects of key customers, and ensure the company’s position in the industry. Nanman Company has gradually realized the transition from an equipment provider to a system integration service provider by introducing high-quality components and enriching product lines. Explore the sales model throughout the industry and region, and increase the proportion of social project operations while maintaining the market share of the rail transit industry. Strengthen the brand promotion of “Nanman Electric” and “Nanman Annuo”. Smart city and emerging industry sector Datang Company will increase the market promotion of the smart city products using single-string controllers, strive for 20,000 sets of IoT photovoltaic street lamp to enter the network and smart cruise ships and other projects to achieve market breakthroughs, and focus on per capital output and improve the annual efficiency. Internal exploration for different industries such as oil, electricity, railway, etc. customizes product design, increase the share of industry market, focus on per capital output, and improve annual efficiency. (2) Optimize the industrial structure and deepen reform and innovation. Promote reforms in response to the company’s current situation: delayering of organizational structure, projectization of research and development 30 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report organization, iron hand of work implementation, prioritization of support work, reversion of cost control, and normalization of cultural construction. Adhere to taking the “information communication and security” as the main industry, insist on the working concepts of strengthening the traditional main business, cultivating and expanding emerging industries, and intensively upgrading the weak industries, and actively optimize and adjust the company’s original four industry sectors by actively introducing new resources and new businesses. Give full play to the resource agglomeration effect and continuously improve the core competitiveness of the company’s industrial chain, increase the internal restructuring of similar businesses, accelerate the reform and adjustment of business units with poor economic returns, shut down or transfer, and centralize the company’s operating resources to highlight the development of main business. Actively promote the mixed ownership reform in southern companies, continuously explore the driving force behind the company’s internal growth, and improve the company’s own cohesiveness and market competitiveness. (3) Deepen “quality improvement and efficiency improvement” and promote the operations quality. Continue to increase the clear-up work of receivables and de-stocking, and strengthen internal control management and assessment efforts. Continue to promote cost reduction and efficiency enhancement, and promote the cost and expense management of whole value chain and whole life cycle in accordance with the principle that all costs are controllable, continuously strengthen the centralized management of procurement and bidding, and strictly control the controllable expenses; continue to do a good job in downsizing staffs for improving efficiency, continuously improves the company’s per capita profit rate, and supplement the necessary core talents to ensure the company’s sustainable and healthy development. Further strengthen the special governance of loss-making enterprises, improve the long-term mechanism for the management of loss-making enterprises, and further consolidate the company’s operation quality. (4) Strictly carry out budget management and strengthen risk prevention. Advance financial management in the business activities, further strengthen the overall management of operating funds, actively explore the stock assets to revitalize the business value, continue to improve the quantitative assessment of budget, strengthen the incentives, and further promote the comprehensive budget management. Establish a long-term mechanism to prevent and resolve major operational risks, and improve the scientific management level and risk prevention and control level. 4. Maintain the current business and complete the capital needs of the investment project under construction In 2019, the company will mainly obtain the required circulating funds by dispatching its own funds and financing to financial institutions. In order to maintain the current business and complete the circulating funds for projects under construction, it is estimated that the financing scale will be around 590 million Yuan in 2019. 5. Risks the Company may face in the future development Policy risk The communications equipment manufacturing industry is vulnerable to the impacts of macroeconomic performance, economic cycles and industrial policies. line with the 13th Five-Year Plan of the country, in later years, China will continue to accelerate the construction of a high-speed, mobile, and safe new generation of information infrastructure. If China's economic growth slows down in the future or the country adopts the 31 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report constrictive macro-control policies to infrastructure investment, the Company’s operating conditions will face negative effects. Communications industry cycle risk The Company is mainly engaged in the manufacture and sales of communications products, customers include several major telecom operators in China. The establishment and adjustment of network construction period and investment plan of the operators have a significant impact on the operation of the Company and bring the industry cycle risk. The Company will continue to further integrate quality resources, accelerate industry upgrade, expand industry market and improve industry profitability. Technology R&D risk The telecommunication industry is experiencing rapid change of technology development and product upgrade. Therefore, the Company’s business operation will be adversely affected if it cannot adapt to market change, lag behind in the technology reform or the developed products do not satisfy market demands. The Company will actively follow up the latest development trend of industrial technology, develop and introduce technology based on market requirements, focus on organization, planning and management of product development and expand development of new products, aiming to maintaining the leading position in terms of technology. Market competition risk The industry in which the Company operates is highly competitive with substantial market players. Besides, customers, such as various operators, continue to adopt centralized procurement policy which led to very furious market competition. Benefiting from long-term operation, the Company has accumulated certain competitive advantages in terms of brand, technology, quality and marketing. If our products fail to cater for the market variation in future, we may lose the existing advantages in market competition. The Company will continue to capitalize on the existing advantages to consolidate traditional market while expanding special network and industry markets actively. Through continuous cost control and scientific innovation, it continues to improve production and research capability, which leads to rapid development of the new products and enables the Company to maintain and improve profitability. Cash flow shortage risk Cash flow is essential for our survival and development. Insufficient provision of cash flow makes it difficult to meet capital requirements for technology upgrade and business development, thus limit our business expansion and long-term development to certain extent. 32 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report The Company implements capital budget management, prepare capital collection plan and capital payment budget to ensure dynamic balance of cash flow. Besides, it increases management on inventory and trade receivables, reinforces performance assessment, urges prompt collection of goods payment, strengthens inventory management and reduced capital occupation. Adhering to the basic control principle of “pay-as-you-go” and management the funds strictly; obtain liquidity financing from the banks and other financial institutions X. Reception of research, communication and interview 1. In the report period, reception of research, communication and interview □ Applicable √ Not applicable No reception of research, communication and interview occurred in the period 33 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section V. Important Events I. Profit distribution plan of common stock and capitalizing of common reserves plan Formulation, Implementation and Adjustment of common stock Profit Distribution Policy Especially Cash Dividend policy during the Reporting Period □ Applicable √ Not applicable Profit distribution plan (pre-plan) of common stock and capitalizing of common reserves plan (pre-plan) in latest three years (including the reporting period) The Company did not distribute profits or capital reserve in recent three years. In RMB Ratio of the Ratio of the Ratio of the total cash Net profit cash bonus by cash bonus in bonus (other attributable to other ways in net profit ways included) common stock Proportion for net profit attributable to Total cash in net profit Amount for shareholders of cash bonus by attributable to Year for bonus common stock bonus attributable to cash bonus (tax listed company other ways(i.e. common stock shares shareholders of (including common stock included) in share shareholders of listed company other ways) shareholders of consolidation buy-backs) listed company contained in listed company statement for contained in consolidation contained in bonus year consolidation statement consolidation statement statement 2018 0.00 5,859,214.84 0.00% 0.00 0.00% 0.00 0.00% 2017 0.00 8,982,857.76 0.00% 0.00 0.00% 0.00 0.00% 2016 0.00 -5,063,843.89 0.00% 0.00 0.00% 0.00 0.00% The Company gains profits in reporting period and the retained profit of common stock shareholders provided by parent Company is positive but no plan of cash dividend proposed of common stock □ Applicable √ Not applicable II. Profit distribution plan and capitalizing of common reserves plan for the Period □ Applicable √ Not applicable The Company has no plans of cash dividend distributed, no bonus shares and has no share converted from capital reserve either for the year. III. Implementation of commitment 1. Commitments that the actual controller, shareholders, related party, buyer and the Company have fulfilled during the reporting period and have not yet fulfilled by the end of reporting period 34 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report √Applicable □Not applicable 35 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Type of Commitm Commitment Commitme Commitments commitment Content of commitments Implementation ent party date nt term s Commitments for share merger reform Commitments in report of acquisition or equity change Commitments in assets reorganization Commitments make in initial public offering or re-financing Equity incentive commitment Commitm “As Nanjing Putian Telecommunications Co., Ltd. (hereinafter referred to as “Nanjing Putian”) ents on intended to apply for resumption of listing to the Shenzhen Stock Exchange, the Company, as a Other horizontal controlling shareholder of Nanjing Putian, made the following commitments: First, ensure the China commitments competitio personnel independence of Nanjing Putian. (1) Ensure that the production and management and Potevio for medium n, related public administration (including labour, personnel and wage management, etc.) of Nanjing Putian 8 April 2018 Long-term Implementing Company and small transactio are completely independent of the Company and other subordinate companies and enterprises of the Limited shareholders n and Company. (2) Ensure that the general manager, deputy general manager, chief financial officer, occupatio secretary of the board and other senior management staff of Nanjing Putian work full time in n of fund Nanjing Putian and get remuneration from Nanjing Putian, and don’t take part time jobs in other 36 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report positions other than directors and supervisors in the Company or other companies and enterprises of the Company, nor get remuneration from the Company or other companies and enterprises of the Company, and ensure that the financial staff of Nanjing Putian don’t take part time jobs or get remuneration from the Company or other companies and enterprises of the Company. (3) Ensure that the candidates recommended by the Company to take up the posts of directors, supervisors and senior management in Nanjing Putian are checked by legal procedures, the Company does not interfere with the personnel appointment and dismissal decision made by the board of directors and the general meeting of shareholders of Nanjing Putian. Second, ensure the assets independence and integrity of Nanjing Putian. (1) Ensure the independence and integrity of the assets of Nanjing Putian and its subsidiaries, and all of these assets are under the control of Nanjing Putian and its subsidiaries, and are independently owned and operated by Nanjing Putian and its subsidiaries. (2) Ensure that the Company and the subordinate companies and enterprises of the Company do not illegally occupy the assets, funds and other resources of Nanjing Putian. Third, ensure the business independence of Nanjing Putian. (1) Ensure that Nanjing Putian has independent procurement and sales systems, and has the assets, personnel, qualifications to carry out independent business activities and the ability to operate independently in the market. (2) Ensure that the Company and other companies and enterprises affiliated to the Company avoid horizontal competition with Nanjing Putian and its subsidiaries. (3) Ensure strict control of related transactions, and minimize the continuous related transactions between Nanjing Putian and its subsidiaries with the Company and other companies and enterprises under the Company. Eliminate the illegal occupation of funds and assets of Nanjing Putian, and don’t require Nanjing Putian and its subsidiaries to provide any form of guarantee to the Company and other companies and enterprises affiliated to the Company. For the unavoidable related transactions, insist on the principle of “fairness, justice and openness”, and keep the transaction prices same as the non-related enterprises, and carry out the information disclosure in a timely manner. (4) Ensure not to interfere with the major decision-making matters of Nanjing Putian in any way other than the exercise of shareholders’ rights in accordance with the law through a separate or concerted action, nor affect the independence of Nanjing Putian’s assets, personnel, finance, organization and business. Fourth, ensure the institution independence of Nanjing Putian. (1) Ensure that Nanjing Putian and its subsidiaries establish and improve the corporate governance structure according to law, and completely separate from the Company and 37 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report other companies and enterprises under the Company; ensure that the office facilities and production and operation sites of Nanjing Putian and its subsidiaries are completely separated from the Company and other companies and enterprises affiliated to the Company, and there is no situation in which institutions are mixed. (2) Ensure that Nanjing Putian and its subsidiaries operate independently, and the Company will not directly or indirectly interfere with the decision-making and operation of Nanjing Putian by surpassing the board of directors and shareholders’ meeting of Nanjing Putian. (3) Ensure that the shareholders’ meeting, board of directors, independent directors, board of supervisors, and senior management personnel of Nanjing Putian independently exercise their official powers in accordance with laws, regulations, and articles of association. Fifth, ensure the financial independence of Nanjing Putian. (1) Ensure that Nanjing Putian sets up an independent financial accounting department and has an independent financial accounting system, and has a standardized and independent financial accounting system and financial management system. (2) Ensure that Nanjing Putian maintains independence in financial decision-making, the Company and other companies and enterprises affiliated to the Company do not interfere with the use and dispatch of funds by Nanjing Putian. (3) Ensure that Nanjing Putian maintains its own independent bank account and does not share a bank account with the Company and other companies and enterprises under the Company. (4) Ensure that Nanjing Putian shall pay taxes independently according to law. The above commitments are valid and cannot be changed or revoked while the Company is a shareholder of Nanjing Putian. If the above commitments are violated and economic losses are caused to Nanjing Putian, the Company will compensate Nanjing Putian.” “As Nanjing Putian Telecommunications Co., Ltd. (hereinafter referred to as “Nanjing Putian”) Commitm intended to apply for resumption of listing to the Shenzhen Stock Exchange, the Company, as a ents on controlling shareholder of Nanjing Putian, made the following commitments: (1), do not influence horizontal China and require Nanjing Putian and its subsidiaries to give rights superior to the third parties in the competitio Potevio market in business cooperation, nor engage in any acts to damage the interests of Nanjing Putian and n, related 8 April 2018 Long-term Implementing Company its subsidiaries by using its controlling shareholder status at Nanjing Putian. (2)do not influence and transactio Limited require preferential rights to make deals with Nanjing Putian and its subsidiaries by using its n and controlling shareholder status at Nanjing Putian. (3) when conducting necessary and inevitable occupatio related transactions, guarantee to conduct according to the principle of marketization and fair price, n of fund and perform the transaction procedures and information disclosure obligations in strict accordance 38 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report with the relevant laws, regulations, regulatory documents and the relevant provisions of the articles of association of listed companies, and guarantee not to damage the legitimate rights and interests of Nanjing Putian and other shareholders through related transactions. The above commitments are valid and cannot be changed or revoked while the Company is a shareholder of Nanjing Putian. If the above commitments are violated and economic losses are caused to Nanjing Putian, the Company will compensate Nanjing Putian. “As Nanjing Putian Telecommunications Co., Ltd. (hereinafter referred to as “Nanjing Putian”) intended to apply for resumption of listing to the Shenzhen Stock Exchange, the Company, as a controlling shareholder of Nanjing Putian, made the following commitments:(i) the Company and other related enterprise controlled by the Company have not engaged in any production and business operations or activities that directly or indirectly compete with Nanjing Putian; and guarantee that they will not engage in any production and business operations or activities that directly or indirectly compete with Nanjing Putian in the future. (ii) the Company does not own, manage, control, invest or engage in any business or project that is the same or similar to the business of Nanjing Putian. Commitm (iii) if the Company or any related enterprise obtains any business opportunity from any third party ents on that has substantial competition with the business of Nanjing Putian or may have substantial horizontal China competition in the future, the Company will immediately notify Nanjing Putian, and transfers the competitio Potevio business opportunity to Nanjing Putian after obtaining the promise from the third party. (iv) the n, related 8 April 2018 Long-term Implementing Company Company will supervise and restrict the production and operation activities of itself and other related transactio Limited enterprises. If the Company and other related enterprises have products or business the same or n and similar to those of Nanjing Putian, the Company promises to take the following measures to resolve: occupatio (1) When Nanjing Putian considers it necessary, the Company and other related enterprises will n of fund reduce the holdings until all the relevant assets and businesses held by the Company and related enterprises are transferred; (2) When Nanjing Putian considers it necessary, the relevant assets and businesses held by the Company and other related enterprises may be preferentially acquired through appropriate means; (3) If the Company and related enterprises have conflicts of interest with Nanjing Putian due to horizontal competition, give priority to the interests of Nanjing Putian; (4) Other measures that help avoid horizontal competition. The above commitments are valid and cannot be changed or revoked while the Company is a shareholder of Nanjing Putian. If the above commitments are violated and the economic losses are caused to Nanjing Putian, the Company will 39 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report compensate Nanjing Putian. “As Nanjing Putian Telecommunications Co., Ltd. (hereinafter referred to as “Nanjing Putian”) intended to apply for resumption of listing to the Shenzhen Stock Exchange, the Company, as an actual controller of Nanjing Putian, made the following commitments: First, ensure the personnel independence of Nanjing Putian. (1) Ensure that the production and management and public administration (including labour, personnel and wage management, etc.) of Nanjing Putian are completely independent of the Company and other subordinate companies and enterprises of the Company. (2) Ensure that the general manager, deputy general manager, chief financial officer, secretary of the board and other senior management staff of Nanjing Putian work full time in Nanjing Putian and get remuneration from Nanjing Putian, and don’t take part time jobs in other positions other than directors and supervisors in the Company or other companies and enterprises of Commitm the Company, nor get remuneration from the Company or other companies and enterprises of the ents on Company, and ensure that the financial staff of Nanjing Putian don’t take part time jobs or get horizontal remuneration from the Company or other companies and enterprises of the Company. (3) Ensure that competitio the candidates recommended by the Company to take up the posts of directors, supervisors and China Putian n, related senior management in Nanjing Putian are checked by legal procedures, the Company does not 8 April 2018 Long-term Implementing Corporation transactio interfere with the personnel appointment and dismissal decision made by the board of directors and n and the general meeting of shareholders of Nanjing Putian. Second, ensure the assets independence and occupatio integrity of Nanjing Putian. (1) Ensure the independence and integrity of the assets of Nanjing n of fund Putian and its subsidiaries, and all of these assets are under the control of Nanjing Putian and its subsidiaries, and are independently owned and operated by Nanjing Putian and its subsidiaries. (2) Ensure that the Company and the subordinate companies and enterprises of the Company do not illegally occupy the assets, funds and other resources of Nanjing Putian. Third, ensure the business independence of Nanjing Putian. (1) Ensure that Nanjing Putian has independent procurement and sales systems, and has the assets, personnel, qualifications to carry out independent business activities and the ability to operate independently in the market. (2) Ensure that the Company and other companies and enterprises affiliated to the Company avoid horizontal competition with Nanjing Putian and its subsidiaries. (3) Ensure strict control of related transactions, and minimize the continuous related transactions between Nanjing Putian and its subsidiaries with the Company and other companies and enterprises under the Company. Eliminate the illegal occupation of funds 40 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report and assets of Nanjing Putian, and don’t require Nanjing Putian and its subsidiaries to provide any form of guarantee to the Company and other companies and enterprises affiliated to the Company. For the unavoidable related transactions, insist on the principle of “fairness, justice and openness”, and keep the transaction prices same as the non-related enterprises, and carry out the information disclosure in a timely manner. (4) Ensure not to interfere with the major decision-making matters of Nanjing Putian in any way other than the exercise of shareholders’ rights in accordance with the law through a separate or concerted action, nor affect the independence of Nanjing Putian’s assets, personnel, finance, organization and business. Fourth, ensure the institution independence of Nanjing Putian. (1) Ensure that Nanjing Putian and its subsidiaries establish and improve the corporate governance structure according to law, and completely separate from the Company and other companies and enterprises under the Company; ensure that the office facilities and production and operation sites of Nanjing Putian and its subsidiaries are completely separated from the Company and other companies and enterprises affiliated to the Company, and there is no situation in which institutions are mixed. (2) Ensure that Nanjing Putian and its subsidiaries operate independently, and the Company will not directly or indirectly interfere with the decision-making and operation of Nanjing Putian by surpassing the board of directors and shareholders’ meeting of Nanjing Putian. (3) Ensure that the shareholders’ meeting, board of directors, independent directors, board of supervisors, and senior management personnel of Nanjing Putian independently exercise their offical powers in accordance with laws, regulations, and articles of association. Fifth, ensure the financial independence of Nanjing Putian. (1) Ensure that Nanjing Putian sets up an independent financial accounting department and has an independent financial accounting system, and has a standardized and independent financial accounting system and financial management system. (2) Ensure that Nanjing Putian maintains independence in financial decision-making, the Company and other companies and enterprises affiliated to the Company do not interfere with the use and dispatch of funds by Nanjing Putian. (3) Ensure that Nanjing Putian maintains its own independent bank account and does not share a bank account with the Company and other companies and enterprises under the Company. (4) Ensure that Nanjing Putian shall pay taxes independently according to law. The above commitments are valid and cannot be changed or revoked while the Company is a shareholder of Nanjing Putian. If the above commitments are violated and economic losses are caused to Nanjing Putian, the Company will compensate Nanjing Putian.” 41 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report “As Nanjing Putian Telecommunications Co., Ltd. (hereinafter referred to as “Nanjing Putian”) intended to apply for resumption of listing to the Shenzhen Stock Exchange, the Company, as a actual controller of Nanjing Putian, made the following commitments: (1)do not influence and require Nanjing Putian and its subsidiaries to give rights superior to the third parties in the market in Commitm business cooperation, nor engage in any acts to damage the interests of Nanjing Putian and its ents on subsidiaries by using its actual controller status at Nanjing Putian. (2) do not influence and require horizontal preferential rights to make deals with Nanjing Putian and its subsidiaries by using its actual competitio China Putian controller status at Nanjing Putian. (3) when conducting necessary and inevitable related n, related 8 April 2018 Long-term Implementing Corporation transactions, guarantee to conduct according to the principle of marketization and fair price, and transactio perform the transaction procedures and information disclosure obligations in strict accordance with n and the relevant laws, regulations, regulatory documents and the relevant provisions of the articles of occupatio association of listed companies, and guarantee not to damage the legitimate rights and interests of n of fund Nanjing Putian and other shareholders through related transactions. The above commitments are valid and cannot be changed or revoked while the Company is a actual controller of Nanjing Putian. If the above commitments are violated and economic losses are caused to Nanjing Putian, the Company will compensate Nanjing Putian. “As Nanjing Putian Telecommunications Co., Ltd. (hereinafter referred to as “Nanjing Putian”) intended to apply for resumption of listing to the Shenzhen Stock Exchange, the Company, as a actual controller of Nanjing Putian, made the following commitments: (i)the Company and other Commitm related enteprises controlled by the Company have not engaged in any production and business ents on operations or activities that directly or indirectly compete with Nanjing Putian; and guarantee that horizontal they will not engage in any production and business operations or activities that directly or indirectly competitio China Putian compete with Nanjing Putian in the future. (ii) the Company does not own, manage, control, invest n, related 8 April 2018 Long-term Implementing Corporation or engage in any business or project that is the same or similar to the business of Nanjing Putian. transactio (iii) if the Company or any related enterprise obtains any business opportunity from any third party n and that has substantial competition with the business of Nanjing Putian or may have substantial occupatio competition in the future, the Company will immediately notify Nanjing Putian, and transfers the n of fund business opportunity to Nanjing Putian after obtaining the promise from the third party. (iv) the Company will supervise and restrict the production and operation activities of itself and other related enterprises. If the Company and other related enterprises have products or business the same or 42 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report similar to those of Nanjing Putian, the Company promises to take the following measures to resolve: (1) When Nanjing Putian considers it necessary, the Company and other related enterprises will reduce the holdings until all the relevant assets and businesses held by the Company and related enterprises are transferred; (2) When Nanjing Putian considers it necessary, the relevant assets and businesses held by the Company and other related enterprises may be preferentially acquired through appropriate means; (3) If the Company and related enterprises have conflicts of interest with Nanjing Putian due to horizontal competition, give priority to the interests of Nanjing Putian; (4) Other measures that help avoid horizontal competition. The above commitments are valid and cannot be changed or revoked while the Company is a shareholder of Nanjing Putian. If the above commitments are violated and the economic losses are caused to Nanjing Putian, the Company will compensate Nanjing Putian. “The Group makes statements and commitments regarding the business condition and future development planning of the private network communications business of Nanjing Putian, and the operations of the Group and other enterprises controlled by the Group (other than Nanjing Putian and its controlled enterprises) as follows: in order to optimize the internal resources allocation of the group, make full use of the business capability of Nanjing Putian, starting from 2016, the Group will convert the private network communication products originally purchased by China Potevio Information Industry Co., Ltd. (hereinafter referred to as “Potevio Shares”), a wholly-owned subsidiary of the Group, into commissioning Nanjing Putian for production. The Group’s private Other network communication business which was originally a trade-oriented business and was purchased China Putian commitme by Potevio Shares from external suppliers to sell has successfully transformed into an independent 19 June 2018 Long-term Implementing Corporation nt processing and production business in 2016, and the current business model is that Potevio Shares obtains orders from customers, and then signs entrusted production contracts with Nanjing Putian and its subsidiary Nanfang Company, and Nanjing Putian is responsible for the specific production. At present, the customer of Potevio Shares is Fushen Industrial Co., Ltd., and the annual order amount of the existing model products remains above 500 million Yuan, and it is predicted that there will be a stable demand period of 3 to 5 years. The Group promises to take Nanjing Putian as the business entity of the private network communication services, including but not limited to: 1. Nanjing Putian is the military-civilian integration industrial base of the Group, and is the only production entity of the existing product multi-mesh cloud data processing communication 43 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report equipment and related military-civilian integration project (i.e. the private network communication service signified in this commitment), which is exclusive; 2. The Group promises to gradually integrate the complete business processes and related resources of the private network communication business, including the sales link, into Nanjing Putian within three years; if relevant business resources cannot be integrated into Nanjing Putian due to external factors, for example, downstream customers have special requirements for the direct partner’s subject qualification (for example, must be non-foreign-invested enterprises), the Group will cooperate with Nanjing Putian to carry out related business in accordance with the requirements of relevant laws and regulations, that is, to undertake related business in the name of the Group or its subsidiaries, and Nanjing Putian is responsible for the actual operation. The above commitments shall take effect on the date of signing this commitment, and shall remain in force and irrevocable during the period of existence of Nanjing Putian and during the period that the Group is deemed to be a related person whom is not allowed to engage in the same or similar business with the private network communication business of Nanjing Putian in accordance with relevant regulations. If the above commitment proved to be untrue or not complied with, all the benefits obtained by the Group in violation of the commitment shall be owned by Nanjing Putian, and the Group will compensate Nanjing Putian for all direct and indirect losses and bear corresponding legal liabilities.” As of May 2018, those that had been “In order to protect the legitimate rights and interests of all types of investors, China Potevio fulfilled included: Company Limited (hereinafter referred to as “China Potevio”), as the controlling shareholder of NJ Share 1.China Potevio did TEL B (200468), now makes the following commitments: (i) China Potevio, as a responsible keeping not reduce its China controlling shareholder, starting from July 8, 2015, will not reduce the company’s stock within the Other commitmen shareholding of the Potevio next six months. (ii) at present, NJ TEL B has stable operations and its main business is running commitme 8 July 2015 t: within six Company within 6 Company normally. China Potevio will continue to promote the transformation and upgrading and structural nt months months from the Limited adjustment of listed companies by asset restructuring and optimizing allocation of resources so as to since 8 July date of its vigorously improve the quality of listed companies. (iii) China Potevio will accelerate the long-term 2015 commitment on July mechanism of improving the return of investors in listed companies, and improve the operation 8, 2015. 2. In order quality and profitability of listed companies so as to continuously improve investor returns.” to optimize resource allocation, make full 44 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report use of the company’s business capabilities, and enhance the company’s profitability and comprehensive competitiveness, since 2016, China Potevio has been supporting the company’s introduction of the production and processing business for private network communication products, and its private network communication products that was previously purchased externally has been commissioned to the company for production and processing since 2017, which increased new 45 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report economic growth points for the company and accelerated the transformation and upgrading of the company’s industries. Continued to provide guarantees for the company’s bank loans, and since 2016, the newly increased entrusted loans to the company have been providing financial supports for the company’s main business development; continued to guide the company to carry out work to improve quality and efficiency and strengthen internal control management so as to improve operational capacity 46 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report and risk management and control of the company. 3. With the support of China Potevio, the company has gradually improved operations quality and profitability by actively promoting the adjustment of leading industrial structure and the market development, clearing out the unprofitable business, strengthening the internal management, and optimizing asset structure and resource allocations, in 2017, the company turned loss into gain, the business performance 47 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report continued to improve, which laid the foundation for returning investors. For details, please refer to the “Announcement on the Progress of the Implementation of the Commitment of the Controlling Shareholders” of the company on May 7, 2018. Completed on Y time(Y/N) As for the commitment out of the commitment - time, explain the specific reasons and further plans 48 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 2. Concerning assets or project of the Company, which has profit forecast, and reporting period still in forecasting period, explain reasons of reaching the original profit forecast □ Applicable √ Not applicable IV. Non-operational fund occupation from controlling shareholders and its related party □ Applicable √ Not applicable No non-operational fund occupation from controlling shareholders and its related party in period. V. Explanation from Board of Directors, Supervisory Committee and Independent Directors (if applicable) for “Modified Audit Report” that issued by CPA □ Applicable √ Not applicable VI. Particulars about the changes in aspect of accounting policy, estimates and calculation method compared with the financial report of last year √Applicable □ Not applicable Accounting policy changes due to the change of Accounting Standards for Business Enterprises 1) In accordance with the Notice of Ministry of Finance on Revising and Issuing the Format of General Enterprise Financial Statement for 2018 (CK [2018] No.15) and interpretation for the Notice, the Company prepared the financial statement of 2018 in line with the requirement of Accounting Standards, therefor, the accounting policy change adopts the retrospective adjustment. The items and amount with major influence in financial statement of 2017 are as: Item and amount in original statement Item and amount in new statement Note receivable 32,477,463.59 Note receivable and account 812,567,071.00 Account receivable 780,089,607.41 receivable Note payable 20,161,687.14 Note payable and account payable 826,833,861.31 Account payable 806,672,174.17 Interest payable 531,667.36 Other account payable 63,027,802.63 Dividend payable 1,692,213.38 Other account payable 60,803,921.89 Administrative expenses 143,924,331.99 Administrative expenses 76,037,302.46 R&D expenses 67,887,029.53 2) In 2017, the Ministry of Finance issued the “Accounting Standards for Business Enterprises Interpretation No. 9 - Accounting Treatment of Net Loss of Investment Under the Equity Method”, “Accounting Standards for Business Enterprises Interpretation No. 10 - Depreciation Method Based on Income from the Use of Fixed Assets”, “Accounting Standards for Business Enterprises Interpretation No. 11 - Amortization Method Based on Income from the Use of Intangible Assets” and “Accounting Standards for Business Enterprises Interpretation No. 12 - If the Provider and Recipient Served by Key Managers Are Related Parties. The company has implemented the above-mentioned interpretations of the accounting standards for business enterprises since January 1, 2018, and the implementation of the above interpretations had no impact on the company’s financial data at the beginning of the 49 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report period. The change of the accounting policy was approved by the 22nd meeting of the Seventh BOD. VII. Major accounting errors within reporting period that needs retrospective restatement √Applicable □ Not applicable According to the relevant requirements of the Decision on the Adoption of Warning Letters for Nanjing Putian Telecommunications Co., Ltd. ([2018] No. 38) made by Jiangsu Securities Regulatory Bureau, and reviewed and approved by the 10th session of the 7th board of directors of the company held on July 13, 2018, the company adopted the retrospective restatement method to correct the accounting errors in the 2014-2017 financial reports. For details, please refer to the “Announcement on Correction of Previous Accounting Errors” disclosed by the company on July 14, 2018. VIII. Compare with last year’s financial report; explain changes in consolidation statement’s scope □ Applicable √ Not applicable No changes occurred in consolidate scope during the reporting period IX. Appointment and non-reappointment (dismissal) of CPA Accounting firm appointed Name of domestic accounting firm Pan-China Certified Public Accountants (LLP) Remuneration for domestic accounting firm (in 10 thousand 101 Yuan) Continuous life of auditing service for domestic accounting firm 5 Name of domestic CPA He Jiangxing, Jin Jingyu Continuous service years from domestic CPA 5 years, 3 years Re-appointed accounting firms in this period □ Yes √ No Appointment of internal control auditing accounting firm, financial consultant or sponsor √Applicable □ Not applicable Pan-China Certified Public Accountants (LLP) was engaged as audit institute of internal control for the Company of 2018, auditing fee for internal control was 0.32 million Yuan. The Company engaged China Securities Co., Ltd as sponsors for resumption of listing for application of resumption, fee for sponsoring amounted as 1.06 million Yuan. 50 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report X. Particular about suspended and delisting after annual report disclosed □ Applicable √Not applicable XI. Bankruptcy reorganization □ Applicable √ Not applicable No bankruptcy reorganization for the Company in reporting period XII. Significant lawsuits and arbitration of the Company □Applicable √Not applicable No significant lawsuits and arbitration occurred in the Period. The amount involved in other lawsuits that fail to meet the criteria for disclosure of major lawsuits counted as 21.5182 million Yuan without liability accrual. XIII. Penalty and rectification √ Applicable □Not applicable Types of Conclusion (if item/name Type Cause investigation Disclosure date Disclosure index applicable) penalty As a Director of the Shanghai Received a Potevio, he is the Decision on other person who Investigated on Administrative is directly file or Punishment from responsible for Li Linzhen Director administrative Shanghai the illegal acts of punishment by Securities information CSRC Regulatory disclosure of Bureau Shanghai Potevio. Warned and fined 40,000 Yuan XIV. Integrity of the Company and its controlling shareholders and actual controllers □ Applicable √ Not applicable XV. Implementation of the Company’s stock incentive plan, employee stock ownership plan or other employee incentives □ Applicable √ Not applicable 51 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report During the reporting period, the Company has no stock incentive plan, employee stock ownership plan or other employee incentives that have not been implemented. XVI. Major related transaction 1. Related transaction with routine operation concerned √ Applicable □ Not applicable Approv Proporti Whethe Market ed Trading on in the r to price of Related Related transacti Means Index Related Related Pricing amount amount exceed similar Date of transacti transacti Dealing on of of transactio relations principl (in 10 of the the transacti disclosu on on price amount paymen disclos n parties hip e thousan same approve on re type content (in 10 ts ure d Yuan) transacti d availabl thousan on amount e d Yuan) Enterpri se with share particip ated by the Notice Compan Purchas on y, e Forecas SEI-Nanji director product t of ng Putian of the Telecom Market Bank 30 Nov. and 195.73 195.73 0.13% 2,100 N 195.73 Routine Optical Compan product price transfer 2017 receive Related Network y has labor Transac hold a services tion for concurr 2018 ent post as director in the enterpri se Director Purchas China Controll e The Potevio ing product Telecom Market Bank 30 Nov. 0 0 0.00% 1,000 N 0 same as Company sharehol and product price transfer 2017 above Limited der receive labor 52 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report services Other enterpri se Actual Purchas controll control is e ed by the other product The controlli Telecom Market Bank 30 Nov. enterprise and 149.18 0.00% 1,100 N 0 same as ng product price transfer 2017 of receive above sharehol Potevio labor der/actu Co., Ltd. services al controll er Other enterpri se -Includin Purchas controll g:Nanjing e ed by Putian product The controlli Telecom Market Bank 30 Nov. Honyar and 19.44 19.44 0.01% N 19.44 same as ng product price transfer 2017 Electrics receive above sharehol Tech. Co., labor der/actu Ltd services al controll er Other enterpri se -Includin Purchas controll g:Potevio e ed by Informati product The controlli Telecom Market Bank 30 Nov. on and 129.74 129.74 0.09% N 129.74 same as ng product price transfer 2017 Technolo receive above sharehol gy Co., labor der/actu Ltd. services al controll er Other Sales of Potevio enterpri product The Telecom Market Bank 30 Nov. Industrial se and 137.13 137.13 0.07% 1,000 N 137.13 same as product price transfer 2017 Co., Ltd controll provide above ed by labor 53 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report controlli services ng sharehol der/actu al controll er Sales of China Controll product The Potevio ing and Telecom Market 33657.5 33,657. Bank 33657.5 30 Nov. 16.87% 87,000 N same as Company sharehol provide product price 7 57 transfer 7 2017 above Limited der labor services Other enterpri se Potevio controll Sales of Informati ed by product The on controlli and Telecom Market 1,935.4 Bank 30 Nov. 1935.43 0.97% 13,000 N 1935.43 same as Technolo ng provide product price 3 transfer 2017 above gy Co., sharehol labor Ltd. der/actu services al controll er Other enterpri se controll Sales of Actual ed by product The control is controlli and Telecom Market Bank 30 Nov. 318.22 0.00% 1,100 N 0 same as China ng provide product price transfer 2017 above Potevio sharehol labor der/actu services al controll er -Includin Other Sales of g:Beijig enterpri product The Telecom Market Bank 30 Nov. Putian se and 1.2 1.2 0.00% N 1.2 same as product price transfer 2017 Taili controll provide above Communi ed by labor 54 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report cation controlli services Technolo ng gy Co., sharehol Ltd. der/actu al controll er Other enterpri se -Includin controll Sales of g:Putian ed by product The Internatio controlli and Telecom Market Bank 30 Nov. 2.73 2.73 0.00% N 2.73 same as nal ng provide product price transfer 2017 above Trading sharehol labor Co., Ltd. der/actu services al controll er Other enterpri se -Includin controll Sales of g:Nanjing ed by product The Putian controlli and Telecom Market Bank 30 Nov. 1 1 0.00% N 1 same as Honyar ng provide product price transfer 2017 above Electrics sharehol labor Co., Ltd der/actu services al controll er Other enterpri -Includin se Sales of g:Chengd controll product u Putian ed by The and Telecom Market Bank 30 Nov. Telecom controlli 6.15 6.15 0.00% N 6.15 same as provide product price transfer 2017 municatio ng above labor ns Cable sharehol services Co., Ltd der/actu al controll 55 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report er Other enterpri se controll Sales of -Includin ed by product The g:Eastco controlli and Telecom Market Bank 30 Nov. 17.81 17.81 0.01% N 17.81 same as m Co., ng provide product price transfer 2017 above Ltd sharehol labor der/actu services al controll er Other enterpri se -Includin controll Sales of g:Putian ed by product Eastern The controlli and Telecom Market Bank 30 Nov. Communi 123.85 123.85 0.06% N 123.85 same as ng provide product price transfer 2017 cations above sharehol labor Group der/actu services Co., Ltd. al controll er Other enterpri se controll Sales of -Includin ed by product The g:PutianT controlli and Telecom Market Bank 30 Nov. 152.42 152.42 0.08% N 152.42 same as ongxin ng provide product price transfer 2017 above Co., Ltd sharehol labor der/actu services al controll er -Includin Other Sales of g:Tianjin enterpri product The Telecom Market Bank 30 Nov. Zhongtian se and 13.06 13.06 0.01% N 13.06 same as product price transfer 2017 Tongxin controll provide above Co., Ltd ed by labor 56 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report controlli services ng sharehol der/actu al controll er Other enterpri se House controll and Putian ed by Leasing building The Hi-Tech controlli and s, Market 322.80 Bank 30 Nov. 377.61 377.61 600 N 377.611 same as Industry ng property property price % transfer 2017 above Co., Ltd sharehol charge service der/actu expense al s controll er Enterpri se with share particip ated by the Compan y, SEI-Nanji director House The ng Putian of the and Market Bank 30 Nov. Rent out 65.55 65.55 24.73% 100 N 65.55 same as Optical Compan building price transfer 2017 above Network y has s hold a concurr ent post as director in the enterpri se Director Total -- -- 36,836. -- 107,000 -- -- -- -- -- 57 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 42 Details of major sold-out order sent N/A back It is estimated that routine related transactions occurred in 2018 will not exceed 1.07 billion Yuan (of which, the amount purchase product and received labor services from related party will not be more than 42 million Yuan, sales of product and provide labor services to related The actual implementation of routine party will not be more than 1021 million Yuan, paying rentals and relevant service costs to related transactions that is about to related party will not be more than 6 million Yuan and received rental and relevant service occurred in the Period with total costs from related party will not be more than one million Yuan); the related transaction amount estimated by category (if actually occurred amounted as 368.3642 million Yuan (of which, 3.4491 million Yuan from applicable) purchasing goods and receiving labor service, 360.4835 million Yuan from sales of product and provide labor services, rental and property expenses amounted as 3.7761 million Yuan and 655,500 Yuan obtained from rental income ) in total that not more than expected at beginning of the year. Reason for the great difference between trade price and market Not applicable reference price (if any) 2. Related transactions by assets acquisition and sold □ Applicable √ Not applicable No related transactions by assets acquisition and sold for the Company in reporting period 3. Main related transactions of mutual investment outside □ Applicable √ Not applicable No main related transactions of mutual investment outside for the Company in reporting period 4. Contact of related credit and debt √ Applicable □ Not applicable Whether the Company had non-operating contact of related credit and debt □ Yes √ No The Company had no non-operating contact of related credit and debt in the reporting period. 5. Other related transactions √ Applicable □ Not applicable The Company apply for entrusted loan from controlling shareholder of 207 million Yuan in the reporting period. Website for temporary disclosure of the major connected transaction Announcement Date of disclosure Website for disclosure Relation Transaction of Applying Entrust Loan 24 April 2018 Juchao Website from Controlling Shareholder Relation Transaction of Applying Entrust Loan 31 October 2018 Juchao Website 58 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report from Controlling Shareholder XVII. Significant contract and implementations 1. Trusteeship, contract and leasing (1) Trusteeship □ Applicable √ Not applicable No trusteeship for the Company in reporting period (2) Contract □ Applicable √ Not applicable No contract for the Company in reporting period (3) Leasing √ Applicable □ Not applicable Explanation on leasing: During the reporting period, the Company and its subsidiary rent other party’s property for production and office use, the cost for leasing recognized in the period amounted as 3.04 million Yuan. During the reporting period, subsidiary of the Company rent-out property to others, the rental recognized in the period amounted as 2.65 million yuan. Items that bringing gain/loss to the Company more than 10% of the total profits in reporting period √ Applicable □ Not applicable Amount of Leasing Basis for Impact of Whether assets income determinin lease its is a Assets Lease Lease Incidence Lessor Tenantry leasing (10 (10 g the income on related leasing From Ended relation thousand thousand leasing the transaction Yuan) Yuan) income Company (Y/N) Subsidiary of the controlling shareholde r; Nanjing enterprise Putian Contract Putian 31 with share Hi-Tech 1 January and Cost Telecomm Property December -187.44 Y participate Industry 2018 accounting formation unications 2018 d by the Co., Ltd rules Co., Ltd. Company, director of the Company has hold a concurrent 59 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report post as director in the enterprise 2. Major guarantees √ Applicable □ Not applicable (1) Guarantees In 10 thousand Yuan Particulars about the external guarantee of the Company (Barring the guarantee for subsidiaries) Guarante Related e for Announce Actual Implemen Name of the Company Guarantee Actual date of Guarantee Guarantee ment guarantee related guaranteed limit happening type term ted (Y/N) disclosure limit date party (Y/N) Guarantee of the Company for the subsidiaries Guarante Related e for Announce Actual Implemen Name of the Company Guarantee Actual date of Guarantee Guarantee ment guarantee related guaranteed limit happening type term ted (Y/N) disclosure limit date party (Y/N) Jointly Nanjing Southern 29 April 2018.2.5-201 6,400 5 Feb. 2018 1,000 liability N N Telecom Co., Ltd. 2017 9.2.5 guaranty Jointly Nanjing Southern 29 April 2018.3.13-20 6,400 13 Mar. 2018 1,000 liability Y N Telecom Co., Ltd. 2017 18.10.22 guaranty Jointly Nanjing Southern 29 April 2018.6.8-201 6,400 8 Jun. 2018 2,000 liability N N Telecom Co., Ltd. 2017 9.6.8 guaranty Jointly Nanjing Southern 24 Apr. 2018.9.7-201 6,000 7 Sept. 2018 1,000 liability N N Telecom Co., Ltd. 2018 9.6.7 guaranty Jointly Nanjing Southern 24 Apr. 2018.12.25-2 6,000 25 Dec. 2018 2,000 liability N N Telecom Co., Ltd. 2018 019.9.27 guaranty Nanjing Putian Telege Jointly 24 Apr. 2018.8.22-20 Intelligent Building 2,500 22 Aug. 2018 1,000 liability N N 2018 19.8.20 Ltd. guaranty 60 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telege Jointly 24 Apr. 2018.10.26-2 Intelligent Building 2,500 26 Oct. 2018 1,000 liability N N 2018 019.4.26 Ltd. guaranty Total amount of actual Total amount of approving occurred guarantee for guarantee for subsidiaries in report 8,500 9,000 subsidiaries in report period period (B1) (B2) Total balance of actual Total amount of approved guarantee for subsidiaries at guarantee for subsidiaries at the 8,500 8,000 the end of reporting period end of reporting period (B3) (B4) Guarantee of the subsidiary for subsidiaries Guarante Related e for Announce Actual Implemen Name of the Company Guarantee Actual date of Guarantee Guarantee ment guarantee related guaranteed limit happening type term ted (Y/N) disclosure limit date party (Y/N) Total amount of guarantee of the Company( total of three above mentioned guarantee) Total amount of approving Total amount of actual guarantee in report period 8,500 occurred guarantee in report 9,000 (A1+B1+C1) period (A2+B2+C2) Total amount of approved Total balance of actual guarantee at the end of report 8,500 guarantee at the end of 8,000 period (A3+B3+C3) report period (A4+B4+C4) The proportion of the total amount of actually guarantee in the net 22.52% assets of the Company (that is A4+ B4+C4) Including: Amount of guarantee for shareholders, actual controller and its 0 related parties(D) The debts guarantee amount provided for the guaranteed parties 0 whose assets-liability ratio exceed 70% directly or indirectly(E) Proportion of total amount of guarantee in net assets of the 0 Company exceed 50%(F) Total amount of the aforesaid three guarantees(D+E+F) 0 Explanations on possibly bearing joint and several liquidating N/A responsibilities for undue guarantees (if applicable) Explanations on external guarantee against regulated procedures N/A (if applicable) Explanation on guarantee with composite way Not applicable 61 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (2)Guarantee outside against the regulation □Applicable √Not applicable No guarantee outside against the regulation in Period. 3. Entrust others to cash asset management (1) Trust financing □ Applicable √ Not applicable The Company had no trust financing in the reporting period. (2) Entrusted loans □ Applicable √ Not applicable The Company had no entrusted loans in the reporting period. 4. Other material contracts □ Applicable √ Not applicable No other material contracts for the Company in reporting period XVIII. Social responsibility 1. Performance of social responsibility During the reporting period, the company continued to keep a foothold in the communications industry, continuously improved the quality of business operations and the core competitiveness, kept being honest and trustworthy, operated according to law, attached importance to environmental protection, actively participated in social welfare undertakings, and maintained the legitimate rights and interests of the companies, shareholders, employees, customers and suppliers and other cooperative partners, and actively undertook social obligations and fulfilled social responsibilities while pursuing economic benefits. 2. Precise poverty alleviation social responsibility (1) Precise poverty alleviation plan According to the spirit of the relevant documents of the Nanjing Municipal Party Committee and the Municipal Government, under the unified arrangement of the Economic and Information Commission of Municipal Committee, the company provides assistance to the Jasmine Village of the economically underdeveloped village in Liuhe District during the period of 2016-2020. Guided by the spirit of the 19th National Congress of the Communist Party of China and the spirit of the important speech of General Secretary Xi Jinping, and guided by the socialist ideology with Chinese characteristics in Xi Jinping new era, the company adheres to the basic principle of precise poverty alleviation. The company has formulated the “partnering with assistance work plan” to focus on improving the living conditions of poor households, to help poor households get rid of poverty and become better off, and to adhere to the combination of “blood transfusion” and “blood making” to effectively help poor households. The company also adheres to overall planning and differential poverty alleviation; adheres to the work thinking of self-reliance and treating both the symptoms and the root causes, and provides in-depth and effective assistance to Jasmine Village through financial support and emotional condolences. 62 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (2) Summary of annual precise poverty alleviation In 2018, based on its actual operations, the company insisted on visiting the village for regular visits, in the middle of the year, the company signed an agreement to contribute money for building roads with the village after sufficient surveys so as to help improve the village roads and facilitate the villagers to go out, and the construction of some roads has been completed, which effectively strengthened the infrastructure construction of Jasmine Village, and the company actively fulfilled its social responsibility as a central enterprise. (3) Results of the poverty Target Measurement unit Numbers/ implementation i. Overall —— —— In 10 thousand Including: 1. capital 9.5 Yuan ii. Invested by specific project —— —— 1. Industrial development poverty —— —— 2. Transfer employment —— —— 3.Relocation the poor —— —— 4.Education poverty —— —— 5.Health poverty alleviation —— —— 6.Ecological protection and poverty —— —— alleviation 7.Fallback protection —— —— 8.Social poverty alleviation —— —— 8.2 Capital input in fixed poverty In 10 thousand 9.5 alleviation work Yuan 9. Other —— —— iii. Awards (content and grade) —— —— (4) Follow-up of precise poverty alleviation In 2019, continue to giver priority to the implementation of helping the poverty, help the villages get rid of poverty and become rich. The Company plans to input 85,000 Yuan for the poverty alleviation. 3. Environmental protection The listed Company and its subsidiary whether belongs to the key sewage units released from environmental protection department No The listed Company and its subsidiary did not belongs to the key sewage units released from environmental protection department 63 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report XIX. Explanation on other significant events √ Applicable □ Not applicable Index of the material events that disclosed in reporting period: Event Disclosure date Index of information on appointed website Notice on the Measures Taken to Resume Listing and the 2018.1.6 Juchao Website: www.cninfo.com.cn Progress of the Relevant Work Notice on System-Changing and Renamed of the Actual 2018.1.18 Juchao Website: www.cninfo.com.cn Controller Performance Forecast for Year of 2017 2018.1.31 Juchao Website: www.cninfo.com.cn Notice on the Measures Taken to Resume Listing and the 2018.2.7 Juchao Website: www.cninfo.com.cn Progress of the Relevant Work Notice on the Measures Taken to Resume Listing and the 2018.3.6 Juchao Website: www.cninfo.com.cn Progress of the Relevant Work Notice on Signing of a Framework Agreement on 2018.3.20 Juchao Website: www.cninfo.com.cn Expropriation and Compensation Notice on the Measures Taken to Resume Listing and the 2018.4.10 Juchao Website: www.cninfo.com.cn Progress of the Relevant Work Notice on Progress of Housing Expropriation 2018.4.14 Juchao Website: www.cninfo.com.cn Preliminary Earnings Estimate for 2017 2018.4.14 Juchao Website: www.cninfo.com.cn Performance Forecast for 1Q of 2018 2018.4.14 Juchao Website: www.cninfo.com.cn th th Notice on Resolution of 6 Session of 7 BOD 2018.4.24 Juchao Website: www.cninfo.com.cn Notice on Resolution of 4th Session of 7th Supervisory 2018.4.24 Juchao Website: www.cninfo.com.cn Committee Summary of Annual Report 2017 2018.4.24 Juchao Website: www.cninfo.com.cn Notice on Provision for Impairment of Assets for 2017 2018.4.24 Juchao Website: www.cninfo.com.cn Notice on Change of Accounting Policy 2018.4.24 Juchao Website: www.cninfo.com.cn Notice on Guarantee for Controlling Subsidiary 2018.4.24 Juchao Website: www.cninfo.com.cn Notice on Related Transaction of Applying for Entrust 2018.4.24 Juchao Website: www.cninfo.com.cn Loans to Controlling Shareholder Notice on Capital Reduction for Subsidiary 2018.4.24 Juchao Website: www.cninfo.com.cn th th Notice on Resolution of 7 Session of 7 BOD 2018.4.28 Juchao Website: www.cninfo.com.cn Text of First Quarterly Report 2018 2018.4.28 Juchao Website: www.cninfo.com.cn Notice on Application for Resumption of Listing to 2018.5.3 Juchao Website: www.cninfo.com.cn Shenzhen Stock Exchange Notice on Progress of Commitments of Controlling 2018.5.7 Juchao Website: www.cninfo.com.cn Shareholder Notice on the Measures Taken to Resume Listing and the 2018.5.8 Juchao Website: www.cninfo.com.cn Progress of the Relevant Work Notice on Accepting the Application for Resumption of 2018.5.11 Juchao Website: www.cninfo.com.cn 64 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Listing from Shenzhen Stock Exchange Notice on Receiving the Letter of Matters Concerning the 2018.5.11 Juchao Website: www.cninfo.com.cn Submission of Supplementary Materials for the Resumption of Listing from Shenzhen Stock Exchange Notice on Resolution of 8th Session of 7th BOD 2018.5.23 Juchao Website: www.cninfo.com.cn Notice on Convening the AGM of 2017 2018.5.23 Juchao Website: www.cninfo.com.cn Notice on the Measures Taken to Resume Listing and the 2018.6.7 Juchao Website: www.cninfo.com.cn Progress of the Relevant Work Progress of Guarantee for Controlling Subsidiary 2018.6.12 Juchao Website: www.cninfo.com.cn Notice on Resolution of AGM of 2017 2018.6.16 Juchao Website: www.cninfo.com.cn Notice on the Measures Taken to Resume Listing and the 2018.6.23 Juchao Website: www.cninfo.com.cn Progress of the Relevant Work Notice on Resolution of 9th Session of 7th BOD 2018.6.30 Juchao Website: www.cninfo.com.cn Notice on the Measures Taken to Resume Listing and the 2018.7.5 Juchao Website: www.cninfo.com.cn Progress of the Relevant Work Notice on Receiving Warning Letter from Jiangsu Securities 2018.7.11 Juchao Website: www.cninfo.com.cn Regulatory Bureau Progress of the Housing Expropriation 2018.7.13 Juchao Website: www.cninfo.com.cn Performance Forecast for Semi-Annual of 2018 2018.7.14 Juchao Website: www.cninfo.com.cn Notice on Resolution of 10th Session of 7th BOD 2018.7.14 Juchao Website: www.cninfo.com.cn th th Notice on Resolution of 6 Session of 7 Supervisory 2018.7.14 Juchao Website: www.cninfo.com.cn Committee Notice on Correction of Earlier Accounting Errors 2018.7.14 Juchao Website: www.cninfo.com.cn Notice on Correction of the Annual Report 2017 2018.7.31 Juchao Website: www.cninfo.com.cn Notice on the Reply to the Letter of Matters Concerning the 2018.7.31 Juchao Website: www.cninfo.com.cn Submission of Supplementary Materials for the Resumption of Listing from Management Department of Shenzhen Stock Exchange Notice on Commitment of the Actual Controller and the 2018.7.31 Juchao Website: www.cninfo.com.cn Controlling Shareholder Notice on the Approval of Shenzhen Stock Exchange on the 2018.8.1 Juchao Website: www.cninfo.com.cn Resumption of Shares Listing Notice on Resolution of 11th Session of 7th BOD 2018.8.1 Juchao Website: www.cninfo.com.cn Notice on Applying for Withdrawing the Delisting Risk 2018.8.1 Juchao Website: www.cninfo.com.cn Warning for Company’s Stock to Shenzhen Stock Exchange Notice on the Measures Taken to Resume Listing and the 2018.8.2 Juchao Website: www.cninfo.com.cn Progress of the Relevant Work Resumption of Listing 2018.8.8 Juchao Website: www.cninfo.com.cn Notice on Withdrawal the Delisting Risk Warning of the 2018.8.8 Juchao Website: www.cninfo.com.cn Company’s Stock 65 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Notice on Resolution of 12th Session of 7th BOD 2018.8.10 Juchao Website: www.cninfo.com.cn Rectification Report on the Relevant Issues in Decision on 2018.8.10 Juchao Website: www.cninfo.com.cn Administrative Supervision Measures of Jiangsu Securities Regulatory Bureau Indicative Notice on the Resumption of the First Day for 2018.8.15 Juchao Website: www.cninfo.com.cn Trading of the Company’s Share Notice on Receipt of the Regulatory Letter from Shenzhen 2018.8.18 Juchao Website: www.cninfo.com.cn Stock Exchange Notice on Listed in the Enterprise of “Double Hundred 2018.8.18 Juchao Website: www.cninfo.com.cn Action” in State-Owned Enterprises Reform Notice on Resolution of 13th Session of 7th BOD 2018.8.28 Juchao Website: www.cninfo.com.cn th th Notice on Resolution of 7 Session of 7 Supervisory 2018.8.28 Juchao Website: www.cninfo.com.cn Committee Summary of Semi-Annual Report of 2018 2018.8.28 Juchao Website: www.cninfo.com.cn Notice on Provision for Impairment of Assets 2018.8.28 Juchao Website: www.cninfo.com.cn Progress of Guarantee for Controlling Subsidiary 2018.9.11 Juchao Website: www.cninfo.com.cn Notice of Independent Director Resignation 2018.10.9 Juchao Website: www.cninfo.com.cn Performance Forecast of 3Q of 2018 2018.10.13 Juchao Website: www.cninfo.com.cn th th Notice on Resolution of 14 Session of 7 BOD 2018.10.31 Juchao Website: www.cninfo.com.cn Notice on Related Transaction of Applying for Entrust 2018.10.31 Juchao Website: www.cninfo.com.cn Loans to Controlling Shareholder Notice on Convening the 1st Extraordinary Shareholders 2018.10.31 Juchao Website: www.cninfo.com.cn General Meeting of 2018 Text of 3Q report of 2018 2018.10.31 Juchao Website: www.cninfo.com.cn Notice on Resolution of 15th Session of 7th BOD 2018.11.3 Juchao Website: www.cninfo.com.cn Notice on Carry Out Accounts Receivable Factoring 2018.11.3 Juchao Website: www.cninfo.com.cn Progress of Guarantee for Controlling Subsidiary 2018.11.6 Juchao Website: www.cninfo.com.cn th th Notice on Resolution of 16 Session of 7 BOD 2018.11.15 Juchao Website: www.cninfo.com.cn Notice on Abnormal Volatility in Stock Trading 2018.11.16 Juchao Website: www.cninfo.com.cn st Notice on Resolution of 1 Extraordinary Shareholders 2018.11.17 Juchao Website: www.cninfo.com.cn General Meeting of 2018 Notice on Resolution of 17th Session of 7th BOD 2018.12.1 Juchao Website: www.cninfo.com.cn nd Notice on Convening the 2 Extraordinary Shareholders 2018.12.1 Juchao Website: www.cninfo.com.cn General Meeting of 2018 Notice on Resolution of 2nd Extraordinary Shareholders 2018.12.18 Juchao Website: www.cninfo.com.cn General Meeting of 2018 Progress of Guarantee for Controlling Subsidiary 2018.12.29 Juchao Website: www.cninfo.com.cn 66 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report XX. Significant event of subsidiary of the Company □ Applicable √ Not applicable 67 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section VI. Changes in Shares and Particular about Shareholders I. Changes in shares 1.Changes in shares In Share Before the Change Increase/Decrease in the Change (+, -) After the Change Capitaliza New Bonus tion of Proportio Amount Proportion shares Others Subtotal Amount shares public n issued reserve 115,000,0 115,000,0 I. Unlisted shares 53.49% 53.49% 00 00 115,000,0 115,000,0 1. Sponsor’s shares 53.49% 53.49% 00 00 Including: state-owned 115,000,0 115,000,0 53.49% 53.49% shares 00 00 100,000,0 100,000,0 II. Listed shares 46.51% 46.51% 00 00 2. Domestically listed 100,000,0 100,000,0 46.51% 46.51% foreign shares 00 00 215,000,0 215,000,0 III. Total shares 100.00% 100.00% 00 00 Reasons for share changed □ Applicable √ Not applicable Approval of share changed □ Applicable √ Not applicable Ownership transfer of share changes □ Applicable √ Not applicable Progress of share repurchase □ Applicable √ Not applicable Implementation progress of reducing holdings of repurchase shares by centralized bidding □ Applicable √ Not applicable Influence on the basic EPS and diluted EPS as well as other financial indexes of net assets per share attributable to common shareholders of Company in latest year and period □ Applicable √ Not applicable Other information necessary to disclose or need to disclosed under requirement from security regulators □ Applicable √ Not applicable 68 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 2. Changes of restricted shares □ Applicable √ Not applicable II. Securities issuance and listing 1. Security offering (without preferred stock) in Reporting Period □ Applicable √ Not applicable 2. Changes of total shares and shareholders structure as well as explanation on changes of assets and liability structure □ Applicable √ Not applicable 3. Current internal staff shares □ Applicable √ Not applicable III. Shareholder and actual controller of the Company 1. Amount of shareholders of the Company and particulars about shares holding In Share Total preference Total preference shareholders Total common shareholders with voting Total common stock with voting rights recovered stock shareholders at rights recovered at end of last shareholders in 8,628 8,979 0 0 end of last month at end of month before reporting before annual reporting period annual report period-end report disclosed (if applicable) disclosed (if (see note8) applicable) (see note8) Particulars about shares held above 5% by shareholders or top ten shareholders Total Number of share pledged/frozen Amount sharehol Amount Proportio Changes of Full name of Nature of n of ders at of listed in report un-listed Shareholders shareholder shares the end shares State of share Amount held period shares of report held held period China Potevio State-owned 115,000, 115,000, 115,000, 53.49% 0 Company Limited corporation 000 000 000 69 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report GUOTAI JUNAN SECURITIES(H Foreign 6,950,09 -2,646,43 3.23% 0 6,950,095 ONGKONG) corporation 52 LIMITED Shenwan Foreign 5,646,50 -3,941,42 HongYuan (H.K.) 2.63% 0 5,646,500 corporation 05 Limited Domestic nature 2,443,93 Zheng Enyue 1.14% 38,200 0 2,443,939 person 9 Domestic nature 2,007,11 Sun Huiming 0.93% - 0 2,007,110 person 0 Domestic nature 1,992,59 1,615,25 Wang Xiaoyan 0.93% 0 1,992,590 person 05 Domestic nature 1,862,37 Gu Jinhua 0.87% 78,600 0 1,862,371 person 1 Guosen Securities Foreign 1,861,88 (H.K.) Broker 0.87% - 0 1,861,882 corporation 2 Co., Ltd. BOCI Foreign 1,716,94 SECURITIES 0.80% - 0 1,716,945 corporation 5 LIMITED LI SHERYN Foreign nature 1,146,70 0.53% 1,700 0 1,146,700 ZHAN MING person 0 Strategy investors or general legal person becomes top 10 shareholders Not applicable due to rights issued (if applicable) (see note3) Explanation on associated Among the top ten shareholders, China Potevio Company Limited is neither a related party relationship or concerted action nor a person acting in concert with the others. It’s unknown by the Company whether there among the aforesaid shareholders are related parties or persons acting in concert among the other shareholders. Top 10 shareholders with circulation shares held Type of shares Shareholders’ name Amount of listed shares held at end of the Period Type Amount GUOTAI JUNAN Domestically SECURITIES(HONGKONG) 6,950,095 listed foreign 6,950,095 LIMITED shares Domestically Shenwan HongYuan (H.K.) Limited 5,646,500 5,646,500 listed foreign 70 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report shares Domestically Zheng Enyue 2,443,939 listed foreign 2,443,939 shares Domestically Sun Huiming 2,007,110 listed foreign 2,007,110 shares Domestically Wang Xiaoyan 1,992,590 listed foreign 1,992,590 shares Domestically Gu Jinhua 1,862,371 listed foreign 1,862,371 shares Domestically Guosen Securities (H.K.) Broker 1,861,882 listed foreign 1,861,882 Co., Ltd. shares Domestically BOCI SECURITIES LIMITED 1,716,945 listed foreign 1,716,945 shares Domestically LI SHERYN ZHAN MING 1,146,700 listed foreign 1,146,700 shares Domestically Jin Yunhua 950,162 listed foreign 950,162 shares Expiation on associated relationship or consistent actors within the top 10 It’s unknown by the Company whether there are related parties or persons acting in concert un-restrict shareholders and between among the above mentioned shareholders. top 10 un-restrict shareholders and top 10 shareholders Explanation on shareholders involving margin business about top ten common stock shareholders with N/A un-restrict shares held(if applicable) (see note4) Whether top ten common stock shareholders or top ten common stock shareholders with un-restrict shares held have a buy-back agreement dealing in reporting period □ Yes √ No The top ten common stock shareholders or top ten common stock shareholders with un-restrict shares held of the Company have no buy-back agreement dealing in reporting period. 71 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 2. Controlling shareholder of the Company Nature of controlling shareholders: central state-owned holding Type of controlling shareholders: legal person Legal person/person Controlling shareholder Date of foundation Organization code Main operation business in charge of the unit China Potevio is a large central enterprise under direct administration of State-owned Assets Supervision and Administration Commission of the State Council, focusing on manufacture and trading of China Potevio Company Lv Weiping 23 July 2003 91110000710931555N information Limited telecommunication products, relevant technology research and services. The operation scope covers information telecommunication, broadcasting, industrial information, financial electrics and new energy. Equity of other Domestic and overseas listed companies directly controlled includes Shanghai Potevio Co., Ltd., domestic/oversea listed Nanjing Putian Telecommunications Co., Ltd., Chengdu Potevio Cable Co., Ltd.; Domestic and Company control by overseas listed companies indirectly controlled includes Eastern Communications Co., Ltd., controlling shareholder as Eastcompeace Smart Card Co., Ltd., the Company takes no stake in domestic and overseas listed well as stock-joint in report Company. period Changes of controlling shareholders in reporting period □ Applicable √ Not applicable The Company had no changes of controlling shareholders in reporting period 3. Actual controller and person acting in concert of the Company Nature of actual controller: central state-owned assets management Type of actual controller: legal person Legal Actual controlling shareholders Date of foundation Organization code Main operation business person/person in 72 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report charge of the unit A large central enterprise under direct administration of State-owned Assets Supervision and Administration Commission of the State Council, focusing on manufacture and trading of information telecommunication China Putian Corporation Lv Weiping 29 March 1980 9111000010000157XE products, relevant technology research and services. The operation scope covers information telecommunication, broadcasting, industrial information, financial electrics and new energy. No domestic and overseas listed Company directly controlled and held by the Company. Domestic Equity of domestic/oversea and overseas listed Company indirectly controlled by China Potevio includes Shanghai Potevio listed Company control by Co., Ltd, Nanjing Putian Telecommunications Co., Ltd., Chengdu Putian Telecommunications actual controller in report period Cable Co., Ltd, Eastern Communications Co., Ltd. and Eastcompeace Smart Card Co., Ltd. Changes of actual controller in reporting period □ Applicable √ Not applicable No changes of actual controllers for the Company in reporting period. Property right and controlling relationship between the actual controller and the Company is as follow: State-owned Assets Supervision and Administration Commission of the State Council 100% China Putian Corporation 100% China Potevio Company Limited 53.49% Nanjing Putian Telecommunications Co., Ltd. Actual controller controlling the Company by entrust or other assets management □ Applicable √ Not applicable 73 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 4. Particulars about other legal person shareholders with over 10% shares held □ Applicable √ Not applicable 5. Limitation and reducing the holdings of shares of controlling shareholders, actual controllers, restructuring side and other commitment subjects □ Applicable √ Not applicable 74 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section VII. Preferred Stock □ Applicable √ Not applicable The Company had no preferred stock in the reporting. 75 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section VIII. Particulars about Directors, Supervisors, Senior Executives and Employees I. Changes of shares held by directors, supervisors and senior executives Amount Amount Shares Shares of shares of shares Start held at Other held at Working End date increased decreased dated of Title Sex(M/F) Age of office period-be changes period-en Name status office in this in this term term gin (share) d period period (Share) (Share) (Share) (Share) Director( Currently 23 Aug. Xu Qian M 56 0 0 0 0 0 President) in office 2013 Currently 21 Jan. Director M 44 0 0 0 0 0 in office 2019 Wang Deputy Wenkui Currently 19 Apr.. President M 44 0 0 0 0 0 in office 2019 of BOD Cheng Currently 23 Aug. Director F 48 0 0 0 0 0 Wei in office 2017 Currently 23 Aug. Qin Zhen Director M 50 0 0 0 0 0 in office 2017 Wang Currently 23 Aug. Director F 48 0 0 0 0 0 Jinfeng in office 2017 Independ Tang Currently 23 Aug. ent F 62 0 0 0 0 0 Fuxin in office 2017 director Independ Xie Currently 23 Aug. ent M 55 0 0 0 0 0 Manlin in office 2017 director Independ Du Currently 23 Aug. ent F 50 0 0 0 0 0 Xiaorong in office 2017 director Superviso r(Chairma Zhao Currently 23 Aug. n of the M 52 0 0 0 0 0 Xinping in office 2017 Superviso ry 76 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Committe e) Zhang Superviso Currently 23 Aug. F 45 0 0 0 0 0 Hong r in office 2017 Qiu Superviso Currently 23 Aug. F 45 0 0 0 0 0 Huizhen r in office 2017 Wang Currently 4 Jan. GM M 44 0 0 0 0 0 Wenkui in office 2019 Deputy Currently 26 Aug. Qin Zhen M 50 0 0 0 0 0 GM in office 2016 Jia Deputy Currently 29 June F 38 0 0 0 0 0 Haowen GM in office 2018 Chief Cao Currently 29 June Accounta M 43 0 0 0 0 0 Xurong in office 2018 nt Liu General Currently 20 Apr. F 47 0 0 0 0 0 Xiaodong Counsel in office 2018 Secretary Currently 23 Aug. Li Jing of the F 43 0 0 0 0 0 in office 2017 Board Office 23 Aug. 4 Jan. Liu Yun Director F 45 0 0 0 0 0 leaving 2017 2019 Li Office 15 Jun. 4 Jan. GM M 47 0 0 0 0 0 Linzhen leaving 2016 2019 Director( Li deputy Office 23 Aug. 18 Apl. M 47 0 0 0 0 0 Linzhen president leaving 2017 2019 ) Total -- -- -- -- -- -- 0 0 0 0 0 II. Changes of directors, supervisors and senior executives √ Applicable □ Not applicable Name Title Type Date Reasons Liu Xiaodong General Counsel Appointment 20 Apr. 2018 Appointment by the Board Jia Haowen Deputy GM Appointment 29 June 2018 Appointment by the Board Cao Xurong Chief Accountant Appointment 29 June 2018 Appointment by the Board Liu Yun Director Office leaving 4 Jan. 2019 Resignation 77 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Contract Li Linzhen GM 4 Jan. 2019 Director Contract termination termination Wang Wenkui GM Appointment 4 Jan. 2019 Appointment by the Board Wang Wenkui Director Election 21 Jan. 2019 Election in Shareholder General Meeting Director(deputy Li Linzhen Office leaving 18 Apr. 2019 Resignation president ) III. Post-holding Professional background, major working experience and present main responsibilities in Company of directors, supervisors and senior executive at the present Director: Xu Qian (Male), born in 1962, owes a graduate degree, a senior executive getting a MBA. He joints the work in 1984, and worked as engineer of the communication equipment dept. in China P&T Appliances from August 1984 to July 1993; a deputy GM of communication device department in China P&T Appliances from July 1993 to July 1994; deputy GM of China P&T Appliances Beijing Company from July 1994 to July 1995 and GM from July 1995 to March 1998; vice-secretary (secondment for getting experience) of CPC Lankao County Committee, Henan Province from March 1998 to March 1999; GM assistant of China P&T Appliances from March 1999 to August 2000; deputy GM of China P&T Appliances from August 2000 to February 2002 and deputy GM of China P&T Appliances Group from February 2002 to June 2003; Party members and deputy GM in China P&T Appliances Group from June 2003 to April 2009; Party members and deputy GM of the China Potevio from April 2009 to December 2017; senior vice president (concurrently) of China Potevio Company Limited and GM (concurrently) of communications industry business from June 2009 to May 2016; party secretary of the Company from May 2013 to June 2016; and he servers as president (concurrently) of China Potevio Company Limited since May 2016; he also serves as Standing committee of the Party Committee and Deputy GM of China Potevio since December 2017. Mr. Xu Qian hold a concurrent post as Director and President of the Company since August 2013. Wang Wenkui, male, born in 1974, bachelor degree, a major in communication engineering, joined in work in 1996. From July 1996 to December 2002, he served as the deputy manager and WCDMA project manager of WCDMA project department of the Network Communication Research Institute of Eastcom Co., Ltd.; from December 2002 of to August 2004, he served as the manager of WCDMA Project Department of the Network Communication Research Institute of Eastcom Co., Ltd.; from August 2004 to December 2007, he was dispatched and appointed as the deputy general manager of Hangzhou Sanxing Eastcom Network Technology Co., Ltd. by the Investment Management Department of Eastcom Co., Ltd.; from December 2007 to November 2009, he served as the deputy general manager of Trunked Radio Business Division of Eastcom Co., Ltd.; from November 2009 to April 2012, he served as the general manager of Manufacturing Business Division of Eastcom Co., Ltd.; from April 2012 to June 2015, he served as the vice president and the general manager of Manufacturing Business Division (concurrently) of Eastcom Co., Ltd.; from June 2015 to December 2018, he served as the vice president and the general manager of Financial Business Division (concurrently) of Eastcom Co., Ltd.; since January 2019, he has been serving as the general manager of Nanjing Putian Telecommunications Co., Ltd. Mr. Wang Wenkui hold a concurrent post as Director of the Company since January 2019 and as Deputy President of the BOD since April 2019.. 78 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Cheng Wei (Female), born in 1970, obtaining a master’s degree with major in fluid power transmission and control, started her career in 1992. Mr. Cheng was engaged in the R&D work at the institute affiliated to Hubei Yichang Machine-tool Industry Company from August 1992 to April 1994; she took on technical development work at the equipment department of No. 57619 Troops of China’s People’s Liberation Army from May 1994 to August 1995; Ms. Cheng successively served as the director of new technology institute and deputy chief engineer of Beijing Post and Telephone Equipment Factory from June 1998 to May 2002; She held the position of vice factory manager of Beijing Post and Telephone Equipment Factory from June 2002 to December 2005; Ms. Cheng successively worked as the general manager of system business unit and the third department of marketing of communications industry business unit of China Potevio Company Limited from January 2006 to October 2010; she held the position of deputy general manager of communications industry business unit as well as held a concurrent post of general manger of third department of marketing of China Potevio Company Limited from October 2010 to September 2014;a GM of third department of marketing of China Potevio Company Limited from September 2014 to October 2018; Ms. Cheng serves as the Party Secretary of Potevio New Energy Co., Ltd since October 2018. Ms. Cheng Wei hold a concurrent post as Director of the Company since August 2017. Qin Zhen (Male), born in 1969, bachelor degree, major in administrative engineering. He worked in 1990 and successively worked as the production office scheduling and department assistant in Nanjing Communication Equipment Plant from August 1990 to January 1999; he worked as the deputy GM and deputy secretary of the Party branch in wiring Company of Nanjing Putian Telecommunication Co., Ltd. from January 1999 to March 2001; and served as deputy director of the enterprise development dept. and enterprise management dept. and director of the enterprise management dept. in Nanjing Putian Telecommunication Co., Ltd. and GM of the Putian Industrial Co., Ltd. from March 2001 to January 2006; served as deputy GM in network cabinet division of the Company from January 2006 to November 2006; he served as GM in Putian manufacturing department and party branch secretary of the Company from November 2006 to March 2012; the director of party committee of the Company from March 2012 and August 2015; serves as deputy chairman of the labor union in the Company from May 2012 to March 2013 an acted as GM assistant from March 2013 to September 2016; now he serves as deputy GM of the Company since September 2016. Mr. Qin Zhen hold a concurrent post as Director of the Company since August 2017. Wang Jinfeng (Female), born in 1970, obtained a bachelor’s degree with major in accounting, started her career in 1993. Ms. Wang worked as the accountant of the financial department of Beijing Posts and Telecommunications Equipment Factory from August 1993 to April 1995; she served as the accounting officer of the marketing center of Beijing Posts and Telecommunications Equipment Factory from April 1995 to February 2002; she held the position of financial accounting manager of Beijing Capitek Co. Ltd. from March 2002 to April 2005; Ms. Wang successively served as the financial manager of terminal services, agency services, agency and telecommunications services of China Potevio Company Limited from April 2005 to November 2013; she has worked as the assistant of the general manager of financial department of China Potevio Company Limited from November 2013 until now. Ms. Wang Jinfeng hold a concurrent post as Director of the Company since August 2017. Tang Fuxin (Female), born in 1956, obtaining a master’s degree with major in business administration, started her career in 1975. Ms. Tang worked at the countryside in Shunyi Beijing from March 1975 to December 1976; she successively served as an accountant of financial division and the deputy director of inspection division of the original ministry of posts and telecommunications from September 1976 to October 1998; she served as the manager of planning financial department of the original Guoxin Paging Co.,Ltd. from October 1998 to July 2000; she worked as the vice general manager of financial department of China United Communications 79 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Limited from July 2000 to September 2001; she served as the vice general manger of financial department of China United Communications Limited from September 2001 to March 2005; Ms. Tang held the position of general manager of the financial department of China United Communications Limited from March 2005 to February 2006; she served as the general manager of auditing department of China United Communications Limited from February 2006 to April 2011; she worked as the senior manager of auditing department of China United Communications Limited from April 2011 to February 2016. Ms. Tang Fuxin hold a concurrent post as independent director of the Company since August 2017. Xie Manlin (Male), born in 1963, bachelor degree major in the laws. He worked in 1986, and in the Nanjing Second Laws Firm from August 1986 to September 1989; he worked in Nanjing Jinling Laws Firm from October 1989 to October 1994; and serves as director of Jiangsu Xie Manlin Laws Firm since December 1994. Mr. Xie Manlin hold a concurrent post as independent director of the Company since August 2017. Du Xiaorong (Female), born in 1968, holding a doctor’s degree with major in technological economy and management, started her career in 1989. Ms. Du worked as an assistant teacher at the management department of Hohai University from July 1989 to March 1995; she served as a lecturer of International Business School of Hohai University from April 1995 to March 2001; Ms. Du worked as an associate professor of Business School of Hohai University from April 2001 to March 2002; Ms. Du was put on field practice at Taihu Basin Administration and worked as the assistant of the director of planning department from April 2002 to April 2003; She served as an assistant professor of Business School and the deputy director of Chrematistics Department of Hohai University from May 2003 to December 2003 ;She served as an assistant professor of Business School as well as the director of Chrematistics Department of Hohai University from January 2004 to May 2008; she worked as a professor of Business School and director of Chrematistics Department of Hohai University from June 2008 to September 2010; Ms. Du also worked as a professor and the director of Finance Department of Business School of Hohai University from October 2010 to May 2013; She also serves as a professor and Head of Accounting Dept. of Hohai University since June 2013 Ms. Du Xiaorong hold a concurrent post as independent director of the Company since August 2017. Supervisor: Zhao Xinping(Male), born in 1966, holding a doctor’s and a master’s degree with major in international trade, started his career 1989. Mr. Zhao worked at the rural development research center of state council from July 1989 to September 1989; he successively served as the senior accountant of financial department, deputy general manager of investment management department and general manager of investment department of China Posts and Telecommunications Industries Co.,Ltd. from September 1989 to September 1999; he successively held the post of as the general manager of investment management department and general manager of business financial department, assistant general manager, deputy chief accountant (a concurrent post) and chief accountant of Potevio Company Limited from September 1999 to December 2006; he worked as the financial director of China Potevio Company Limited from July 2003 to February 2005; Mr. Zhao held the position of secretary of the Board of China Potevio Company Limited from February 2005 to August 2014; worked as the general manager of purchasing center of China Potevio Company Limited from January 2003 to December 2014; general manager of in investment and financing development department of China Potevio Company Limited from March 2011 to January 2013; Mr. Zhao also serves as the chairman of the supervisory committee of China Potevio Company Limited since September 2014; he held a post of general manager of the legal department of auditing and supervision of China Potevio Company Limited from March 2015 to December 2017; and a GM of audit dept. In Potevio Company limited since October 2018. Mr. Zhao Xinping hold a concurrent post as Chairman of the Supervisory Committee in the Company since August 2017 80 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Zhang Hong(Female), born in 1973 with bachelor degree of law. She commenced to work in 1994, with details as follows: acted as a lawyer in Jiangxi Jingde Law Office during the period from September 1994 to December 2000; a lawyer in Beijing Hechuan Law Office during the period from January 2001 to December 2003; legal manager in Beijing Shouxin Co., Ltd. during the period from December 2003 to July 2014; a senior solicitor in the department of audit, supervision and law of China Potevio Company Limited from July 2014 to October 2018, she serves as supervisor of the Company since August 2017; and a senior lawyers of law &risk control dept. in Potevio Company Limited since October 2018. Ms. Zhang Hong hold a concurrent post as supervisor in the Company since August 2017. RTQi Huizhen(Female), born in 1973 with bachelor degree major in accounting. She commenced to work in 1997, with details as follows: successively served as the female director and secretary of the Youth League Committee in Shaokou Village Government, Wan’an County, Jiangxi Province from July 1997 to January 2000; served as the cost accountant and the CFO in the finance department of Nanjing Putian Telecommunications Co., Ltd from February 2000 to October 2004; the deputy director of the HR department of Nanjing Putian Telecommunications Co., Ltd from November 2004 to November 2005; successively served as the deputy director and director of the finance department of Nanjing Putian Telecommunications Co., Ltd from December 2005 to September 2016, she serves as director of the department of audit, supervision and law of Nanjing Putian Telecommunications Co., Ltd since October 2016. Ms. Qiu Huizhen hold a concurrent post as the staff representative supervisor of the Company since August 2017 Senior Executives: GM Mr. Wang Wenkui found in the introduction in Director. Deputy GM Mr. Qin Zhen found in the introduction in Director. Jia Haowen (female) born in 1980, bachelor degree, a major in land management, joined in work in 2002, worked on administrative management and sales at Shanghai Xinhaoshi Real Estate Company from July 2002 to March 2004; from April 2004 to April 2007, she served as the confidential secretary and secretary of the President Office of Nanjing Putian Telecommunications Co., Ltd.; from April 2007 to February 2008, she successively served as the assistant director of the General Management Department and the assistant director of the Human Resources Department of Nanjing Putian Telecommunications Co., Ltd.; from February 2008 to October 2009, she served as the deputy director of Human Resources Department of Nanjing Putian Telecommunications Co., Ltd.; from October 2009 to March 2012, she served as the director of Human Resources Department of Nanjing Putian Telecommunications Co., Ltd.; from March 2012 to August 2012, she served as the director of the General Management Department and the director of Human Resources Department of Nanjing Putian Telecommunications Co., Ltd.; from August 2012 to June 2013, she served as the director of the General Management Department of Nanjing Putian Telecommunications Co., Ltd. (during the period, from May 2012 to May 2013), she was studying in the class for further studies as a business administration major at the Graduate School of Tsinghua University); from June 2013 to November 2014, she served as the assistant general manager and the director of General Management Department of Nanjing Putian Telecommunications Co., Ltd.; from November 2014 to August 2015, she served as the assistant general manager and the director of General Management Department and the director of Multimedia Application Industry Department of Nanjing Putian Telecommunications Co., Ltd.; from August 2015 to September 2016, she served as the assistant general manager and the director of Multimedia Application Industry Department of Nanjing Putian Telecommunications Co., Ltd.; from September 2016 to November 2017, she served as the assistant general manager of Nanjing Putian Telecommunications Co., Ltd.; since November 2017, she has been serving as a member of the party committee and the assistant general manager of Nanjing Putian Telecommunications Co., Ltd.; and since July 2018, she has been serving as the deputy general manager of Nanjing Putian 81 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Telecommunications Co., Ltd. Cao Xurong (male) born in 1975, bachelor degree, a major in economic management, joined in work in 1993, and served as a cashier at the Finance Department of Nanjing Putian Telecommunications Co., Ltd. from August 1993 to July 1996. From July 1996 to May 1997, he served as the accountant in charge at Shanghai Huaning Co., Ltd. which was subordinate to Nanjing Putian Telecommunications Co., Ltd.; from May 1997 to April 2006, he served as the financial controller of Putian Yuhua Electroplating Factory, Bada Company, Hongyan Company and Building Company under Nanjing Putian Telecommunications Co., Ltd.; from September 2005 to March 2006, he successively served as the assistant director of Finance Department and the chief financial officer of the Wiring Industry Department of Nanjing Putian Telecommunications Co., Ltd.; from March 2006 to January 2007, he served as general department manager of the Wiring Business Division of Nanjing Putian Telecommunications Co., Ltd.; from January 2007 to April 2009, he served as the general manager of the wiring marketing department of Nanjing Putian Telecommunications Co., Ltd.; from April 2009 to July 2012, he successively served as the executive deputy general manager of the Wiring System Department and the general manager of the Wiring Marketing Department (concurrently) of Nanjing Putian Telecommunications Co., Ltd.; from July 2012 to March 2013, he successively served as the executive deputy general manager of the Wiring System Department and the general manager of the Wiring Marketing Department (concurrently) of Nanjing Putian Telecommunications Co., Ltd., and the general manager of Nanjing Putian Telecommunications Technology Co., Ltd.; from March 2013 to July 2013, he successively served as the general manager of the Wiring System Department of Nanjing Putian Telecommunications Co., Ltd. and the general manager of Telecommunications Technology Company; from July 2013 to April 2015, he served as the general manager of the Wiring System Department of Nanjing Putian Telecommunications Co., Ltd.; from April 2015 to February 2017, he successively served as the general manager of the Wiring System Department of Nanjing Putian Telecommunication Co., Ltd. and the general manager of Changle Company; from February 2017 to November 2017, he served as the assistant to the general managerand the general manager of the wiring system department (concurrently) of Nanjing Putian Telecommunications Co., Ltd., and the general manager of Changle Company (concurrently); since November 2017, he has been serving as a member of the party committee, the general manager assistant, and the general manager of the Wiring System Department (concurrently) of Nanjing Putian Telecommunications Co., Ltd., and the general manager of Changle Company (concurrently); since June 2018, he has been serving as the chief accountant of Nanjing Putian Telecommunications Co., Ltd. Liu Xiaodong (female) born in 1971, bachelor degree, a major in accounting, joined in work in 1995, served as the Company’s accountant, auditor, deputy director of the audit department, deputy director of the Audit and Supervision Department. From April 2006 to September 2016, she served as the head of the Audit and Supervision Department, and the head of the Audit Law Department, and the head of the Audit and Supervision Law Department of Nanjing Putian Telecommunications Co., Ltd. From July 2007 to July 2016, she served as the deputy secretary of the Disciplinary Inspection Committee of Nanjing Putian Telecommunications Co., Ltd. From May 2009 to August 2017, she served as the employee supervisor of Nanjing Putian Telecommunications Co., Ltd. Since June 2013, she has been serving as the general counsel of Nanjing Putian Telecommunications Co., Ltd. Since July 2016, she has been serving as the deputy secretary of the Party Committee and the secretary of the Disciplinary Inspection Committee and the chairman of the Labor Union of Nanjing Putian Telecommunications Co., Ltd. Li Jing (Female), born in 1975 with equivalent master degree of business administration, a master degree and major in business management. She commenced to work in 1996, with details as follows: worked as the secretary and customs declaring in Nanjing Mennekes from August 1996 to March 1998; worked as the buyer and industrial officer of Nanjing Potevio Computer Co., Ltd from March 1998 to August 2001; served as the investment management officer and deputy director of the corporate development department of Nanjing Putian Telecommunications Co., Ltd from August 2001 to August 2015; serves as the director of the strategic investment department of Nanjing Putian Telecommunications Co., Ltd since August 2015 and GM assistant and secretary of the Board of Nanjing Putian Telecommunications Co., Ltd since August 2017. 82 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Post-holding in shareholder’s unit √ Applicable □ Not applicable Received Position in Start dated of End date of remuneration from Name Name of shareholder’s unit shareholder’s office term office term shareholder’s unit unit n (Y/N) Xu Qian China Potevio Company Limited President 5 May 2016 Y Director, Executive Director, Xu Qian China Potevio Company Limited 19 May 2011 Y member of the executive council Deputy GM Wang Jinfeng China Potevio Company Limited of Finance 13 Dec. 2017 Y dept. Chairman of the Zhao Xinping China Potevio Company Limited 24 Sept. 2014 Y Supervisory Committee Post-holding in other unit √ Applicable □ Not applicable Received Position in Start dated of End date of office remuneration Name Name of other units other unit office term term from other unit (Y/N) Standing committee of Xu Qian Potevio Company Limited the Party 27 Dec. 2017 N Committee, Deputy GM Director, Xu Qian Potevio Guomai Networks Ltd 23 Oct. 2012 N President Beijig Putian Taili Communication Director, Xu Qian 11 Jun. 2015 N Technology Co., Ltd. President Director, Xu Qian Shanghai Potevio Co., Ltd. 20 Nov. 2015 N President Xu Qian Putian Eastern Communications Group Co., Director, 30 May. 2016 N 83 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Ltd. President Director, Xu Qian Hangzhou Honyar Electric Co., Ltd. 28 Jun. 2017 N President Cheng Wei Potevio New Energy Co., Ltd GM 16 Oct. 2018 Party Cheng Wei Potevio New Energy Co., Ltd 10 Oct. 2018 Secretary Cheng Wei Shanghai Potevio Co., Ltd. Director 20 Nov. 2015 N Qin Zhen Putian Hi-Tech Industry Co., Ltd Director 1 Dec. 2016 N Beijig Putian Taili Communication Wang Jinfeng Director 19 Jun. 2015 N Technology Co., Ltd. Wang Jinfeng Puxing Mobile Telecom Equipment Ltd Director 21 Dec. 2015 N Xie Manlin Jiangsu Xie Manlin Laws Firm Executive 1 Dec. 1994 Y Independent Xie Manlin Jiangsu NandaSoft Company Limited 10 Jun. 2011 Y director Professor, Head of Du Xiaorong Business School of Hohai University 15 Jun. 2013 Y Accounting Dept. Part-time supervisor of the Supervisory Zhao Xinping Potevio Company Limited 23 Dec. 2016 N Committee(St aff representative s) GM of Audit Zhao Xinping Potevio Company Limited 22 Oct. 2018 N Dept. Great Dragon Information Technology Zhao Xinping Director 1 Nov. 2001 N Group Co., ltd Director, Zhao Xinping Putian International Fund Management ltd deputy 30 Jul. 2003 N president Zhao Xinping Putian Innovation Venture Management ltd Supervisor 22 Jan. 2016 N Senior lawyers of Zhang Hong Potevio Company Limited 22 Oct. 2018 Y law & risk control dept. 84 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Cao Xurong SEI-Nanjing Putian Optical Network Director 27 Jul. 2017 N Punishment of securities regulatory authority in recent three years to the Company’s current and outgoing directors, supervisors and senior management during the reporting period √ Applicable □ Not applicable Found more in the XIII. Penalty and rectification under the Section V in the Report IV. Remuneration for directors, supervisors and senior executives Decision-making procedures, recognition basis and payment for directors, supervisors and senior executives The Company has not paid directors and supervisors, the directors and supervisors get paid as the Company's administrative duties. The independent directors receive the allowance in the Company, while subsidiary standard is determined by the general meeting of shareholders. Senior management personnel salary standard and assessment methods are decided by the board of directors. The Company implements performance salary system on senior management, making evaluation and paying compensation according to the completion of the production and operation as well as performance of the senior management personnel. Remuneration for directors, supervisors and senior executives in reporting period In 10 thousand Yuan Total Whether remuneration remuneration Post-holding Name Title Sex (M/F) Age obtained from the obtained from status Company (before related party of taxes) the Company Director(Presiden Currently in Xu Qian M 56 Y t) office Director(deputy Currently in Wang Wenkui M 44 N president ) office Currently in Cheng Wei Director F 48 Y office Currently in Qin Zhen Director M 50 N office Currently in Wang Jinfeng Director F 48 Y office Independent Currently in Tang Fuxin F 62 9N director office Independent Currently in Xie Manlin M 55 9N director office 85 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Independent Currently in Du Xiaorong F 50 9N director office Supervisor(Chair man of the Currently in Zhao Xinping M 52 Y Supervisory office Committee) Currently in Zhang Hong Supervisor F 45 Y office Currently in Qiu Huizhen Supervisor F 45 20.99 N office Currently in Wang Wenkui GM M 44 N office Currently in Qin Zhen Deputy GM M 50 51.73 N office Currently in Jia Haowen Deputy GM F 38 20.4 N office Currently in Cao Xurong Chief Accountant M 43 22.77 N office Currently in Liu Xiaodong General Counsel F 47 40.6 N office Secretary of the Currently in Li Jing F 43 26.73 N Board office Liu Yun Director F 45 Office leaving Y Li Linzhen GM M 47 Office leaving 68.78 N Director(deputy Currently in Li Linzhen M 47 N president ) office Total -- -- -- -- 279 -- Delegated equity incentive for directors, supervisors and senior executives in reporting period □ Applicable √ Not applicable V. Particulars of workforce 1. Number of staff, professional composition and education background The number of On-the-job staff of the parent Company (people) 594 The number of On-the-job staff of major subsidiaries (people) 931 The total number of on-the-job staff (people) 1,525 Total number of staff receiving remuneration in the current 1,810 period (people) 86 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report The number of the retired staff of the parent Company and the 424 major subsidiaries bearing the expenses (people) Professional composition Category of professional composition Number of professional composition (people) Production staff 410 Salesman 514 Technical staff 438 Financial staff 37 Administrative staff 126 Total 1,525 Education background Category of education Number (people) Master’s degree above 42 Bachelor 617 Junior college 517 High School and above 349 Total 1,525 2. Remuneration policy The company strictly implements the national, provincial and municipal laws and regulations, and normatively implemented the distribution and payment of compensation and benefits. In order to further mobilize the enthusiasm, initiative and creativity of the employees, the company implements an efficiency-oriented, performance-based compensation distribution mechanism, and formulates salary and performance appraisal methods for different positions according to their different characteristics, and at the same time, pays five insurances and one housing fund and enterprise annuities according to relevant national regulations. 3. Training programs The company always adheres to the people-oriented development concept, continuously carries out employee training, and establishes and continuously improves the matching training system according to the company’s development needs, and improves the quality of the staff. According to the company’s development strategy, we will continue to innovate talent training methods around the annual business plan, pay attention to the cultivation of compound talents, rationally arrange flexible learning methods, strengthen training in layers and grades, formulate annual training plans, and do a good job in talent reserves and cultivation of young cadres for the company to implement innovation transformation. 4. Labor outsourcing □ Applicable √ Not applicable 87 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section IX. Corporate Governance I. Corporate governance of the Company In reporting period, by strictly followed requirement of laws, regulations of Company Law, Securities Laws, Rules of Corporate Governance for Listed Company, Rules of Stock Listing in Main Board of Shenzhen Stock Exchange as well as requirement of relevant documents from CSRC and Shenzhen Stock Exchange , the Company constantly improve structure of the corporate governance, complete and perfected the internal control system, and promoted the standards of corporate governance and regulative operations. The internal governance structure of the company is sound, and the shareholders’ meeting, the board of directors, the board of supervisors and the managerial level have clear rights and responsibilities, and the operation is standardized and complies with the Company Law and the Securities Law and other laws and regulations, and the requirements of regulatory documents about corporate governance issued by the China Securities Regulatory Commission and the Shenzhen Stock Exchange. Is there any difference between the actual condition of corporate governance and relevant regulations about corporate governance for listed Company from CSRC □Yes √ No There are no differences between the actual condition of corporate governance and relevant regulations about corporate governance for listed Company from CSRC. II. Independence of a Company relative to its controlling shareholder in business, personnel, assets, institution and finance The Company owes self-management ability with independence in aspect of business, personnel, assets, institute and finance relative to its controlling shareholder. III. Horizontal competition □ Applicable √ Not applicable IV. In the report period, the Company held AGM and extraordinary shareholders’ general meeting 1. Shareholders’ General Meeting in the report period Ratio of investor Session of meeting Type Meeting date Date of disclosure Index of disclosure participation Resolution Notice of Annual General AGM 55.70% 15 June 2018 16 June 2018 AGM of 2017 on Meeting 2017 Juchao Website Resolution Notice of First Extraordinary First Extraordinary Extraordinary Shareholders Shareholders Shareholders 54.99% 16 Nov. 2018 17 Nov. 2018 General Meeting of General Meeting of General Meeting 2018 2018 on Juchao Website 88 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Resolution Notice of Second Second Extraordinary Extraordinary Extraordinary Shareholders Shareholders 53.49% 17 Dec. 2018 18 Dec. 2018 Shareholders General Meeting of General Meeting General Meeting of 2018 2018 on Juchao Website 2. Request for extraordinary general meeting by preferred stockholders whose voting rights restore □ Applicable √ Not applicable V. Responsibility performance of independent directors 1. The attending of independent directors to Board Meeting and shareholders general meeting The attending of independent directors to Board Meeting and shareholders general meeting Times of Absent the Times of Times of Times of Times of Board meeting Times of Board Meeting presence on Independent Presence on attending by entrusted supposed to Absence in for the second shareholders director the Board communicatio presence in attend in the Board Meeting time in a row general Meeting n Board Meeting report period (Y/N) meeting Tang Fuxin 12 0 12 0 0N 0 Xie Manlin 12 0 12 0 0N 1 Du Xiaorong 12 1 11 0 0N 2 Explanation of absent the Board Meeting for the second time in a row There are no independent directors absent the Board Meeting for the second time in a row in reporting period 2. Objection for relevant events from independent directors Independent directors come up with objection about Company’s relevant matters □Yes √No Independent directors has no objections for relevant events in reporting period 3. Other explanation about responsibility performance of independent directors The opinions from independent directors have been adopted √ Yes □ No Explanation on advice that accepted/not accepted from independent directors In 2018, the independent directors of the Company earnestly exercised the relevant laws and regulations and the various functions and powered conferred by the Articles of Association, actively attended the board of directors and shareholders' meetings of the Company, carefully reviewed the proposals, exercised their rights to vote with cautious attitude; independently and objectively 89 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report express independent opinions on relevant important issues in line with the regulations of the regulatory authorities; actively promote the scientific decision-making for the Board, and maintained communication with the Company’s operating management layer via telephone and seminars, and other channels, gave counsels to the Company's operation status and information disclosure, making out plans and ideas for the development of the Company by their owned professional knowledge, urged the Company to regulate the operations in strict accordance with the requirements of relevant laws and regulations, and effectively safeguarded the Company's overall interests and the legitimate rights and interests of the majority of small and medium shareholders. VI. Duty performance of the special committees under the board during the reporting period In 2018, the Audit Committee of the Board of Directors deliberated on major events as previous periodic reports and the appointment of audit institution as well as submit the proposal to the Board; in accordance with the relevant provisions of Annual Report Working Rules of the Audit Committee, actively performed their duties in the annual report auditing process, made audit opinions on the financial statements, supervised and urged the accounting firm to complete the auditing work. The Remuneration and Appraisal Committee of the Board of Directors reviewed and made audit opinions on the remuneration of the directors, supervisors and senior executives disclosed in the annual report in accordance with relevant provisions. VII. Works from Supervisory Committee The Company has risks in reporting period that found in supervisory activity from supervisory committee □ Yes √ No Supervisory committee has no objection about supervision events in reporting period VIII. Examination and incentives of senior management The Company exercise performance year-income system for senior executives carries on appraisals and paying remuneration to senior executives based on operation target and performance of target implementation of senior executives. IX. Internal Control 1. Details of major defects in IC appraisal report that found in reporting period □Yes √ No 2. Appraisal Report of Internal Control Disclosure date of full internal control 23 April 2019 evaluation report Disclosure index of full internal control Appraisal report of internal control for year of 2018 of Nanjing Putian evaluation report Telecommunications Co., Ltd. published on Juchao Website (www.cninfo.com.cn) The ratio of the total assets of units included in the scope of evaluation accounting for the total assets on the 100.00% Company's consolidated financial statements The ratio of the operating income of units 100.00% 90 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report included in the scope of evaluation accounting for the operating income on the Company's consolidated financial statements Defects Evaluation Standards Category Financial Reports Non-financial Reports Indicators for material defect of internal Indicators for material defect of internal control in financial report: invalid control control in non-financial report: environment; fraud by our directors, decision-making procedures lead to supervisors and senior management, which material faults; lack of system control or brings significant loss and negative system void for major business, and lack influences to the Company; external auditor of effective compensation control; finds material misstatement which is not first serious loss of senior management and found by the Company; the board of senior technicians; assessment results of directors or the authorized body and internal internal control, especially material audit department conduct invalid supervision defects, are not rectified; other situations over our internal control. Indicators for that would materially and adversely major defect of internal control in financial affect the Company. Indicators for major report: not select and apply accounting defect of internal control in non-financial Qualitative criteria policies under the generally accepted report: decision-making procedures lead accounting principles; not establish to general fault; defects exist in major anti-fraud procedures and controlling business systems; serous loss of key measures; not establish corresponding staff; assessment results of internal controlling system or not implement control, especially major defects, are not corresponding compensation control in rectified; other situations that would connection with accounting for abnormal or relatively materially and adversely affect special transactions; one or more defects the Company. Indicators for general exist in control of ending financial reports defect of internal control in non-financial and there is no assurance that financial report: low efficiency of statement prepared correspondingly is decision-making procedures; defects truthful and accurate. General defect: other exist in general business systems; serious internal control defects that do not constitute loss of general staff; general defects are material or major defects. not rectified. Any of the following situations may be viewed as material defect: potential Major deficiencies: the amount of direct misstatement of total profit ≥ 5% of total property loss is or more than 10 million profit; potential misstatement of total assets Yuan; Significant deficiencies: the ≥ 1% of total assets; potential misstatement amount of direct property loss is between Quantitative standard of operating income ≥ 1% of total operating 5 million Yuan and 10 million Yuan (5 income. Any of the following situation may million Yuan included); Common be viewed as major defect: 3% of total profit deficiencies: the amount of direct ≤ potential misstatement of total profit< property loss is less than 5 million Yuan. 5% of total profit; 0.5% of total assets ≤ 91 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report potential misstatement of total assets < 1% of total assets; :0.5% of total operating income ≤ potential misstatement of operating income < 1% of total operating income. Any of the following situation may be viewed as general defect: potential misstatement of total profit<3% of total profit; potential misstatement of total assets < 0.5% of total assets; potential misstatement of operating income < 0.5% of total operating income. Amount of significant defects in financial 0 reports Amount of significant defects in 0 non-financial reports Amount of important defects in financial 0 reports Amount of important defects in 0 non-financial reports X. Auditing report of internal control √ Applicable □ Not applicable Deliberations in Internal Control Audit Report We believe that according to relevant regulations and Basic Norms of Internal Control, the Company maintained an efficiency internal control of financial report dated 31st December 2018, in all material aspects. Disclosure details of audit report of Disclosed internal control Disclosure date of audit report of 23 April 2019 internal control (full-text) Index of audit report of internal Audit report of internal control for year of 2018 of Nanjing Putian Telecommunications Co., control (full-text) Ltd. published on Juchao Website (www.cninfo.com.cn) Opinion type of auditing report of Standard unqualified IC whether the non-financial report No had major defects Carried out modified opinion for internal control audit report from CPA □Yes √ No The internal control audit report, issued by CPA, has concerted opinion with self-evaluation report, issued from the Board √ Yes □ No 92 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section X Corporate Bond Whether the Company has a corporation bonds that issuance publicly and listed on stock exchange and without due on the date when annual report approved for released or fail to cash in full on due No 93 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section XI. Financial Report I. Audit report Type of audit opinion Standard unqualified Signing date of audit report 19 April 2019 Name of audit institute Pan-China Certified Public Accountants (LLP) Document serial of audit report Pan-China Shen〔2019〕No.1-349 Name of CPA He Jiangxing, Jin Jingyu Auditor’s Report Auditor’s Report PCCPAAR [2019] No. 1-349 To the Shareholders of Nanjing Putian Telecommunications Co.,Ltd.: I. Audit Opinion We have audited the financial statements of Nanjing Putian Telecommunications Co.,Ltd. (hereinafter referred to as ”the Company”), which comprise the consolidated and parent company balance sheets as at December 31, 2018, the consolidated and parent company income statements, the consolidated and parent company cash flow statements, and the consolidated and parent company statements of changes in equity for the year then ended, as well as notes to financial statements. In our opinion, the financial statements present fairly, in all material respects the financial position of the Company’s as at December 31, 2018, and of its financial performance and its cash flows for the year then ended in accordance with China Accounting Standards for Business Enterprises. II. Basis for Audit Opinion We conducted our audit in accordance with the Standards on Auditing for Certified Public Accountants. The auditor's responsibility for the audit of financial statements is further elaborated by the auditor's responsibility for the audit of financial statements. According to the code of professional ethics for Certified Public Accountants. We are independent of the Company and fulfill other responsibilities of professional ethics. We believe that the audit evidence we have obtained is 94 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report fair and adequate to provide the basis for the publication of the audit opinion. III. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not express a separate opinion on these matters. (I) Revenue recognition 1.Key audit matters Please refer to section III,24 and V,1 of the notes to the financial statements for details. Revenue of the Company’s mainly from Video conferencing products,Generic cable products, Electrical products,Special network communication products, Wiring products etc. The Company’s revenue shown 1,995,627,772.60 yuan in Financial Statements in 2018. The main products sold by the Company have the characteristics of long period from the products received to the final confirmation. Therefore, the revenue recognition may have the risk of multi-period. Authenticity and fairness of revenue of the Company is a key indicator on the financial statements. Thus we regarded the recognition of revenue as a key audit matter. 2. Responsive audit procedures In connection with revenue recognition, our audit procedures mainly include: (1)We obtained understandings of key internal controls related to revenue recognition, assessed the effectiveness of its design and execution, and tested the effectiveness of its operation; (2)Based on the customer's classification, we conduct such as analytical procedures to test the customer's gross profit, and then carry out detailed test procedures to those customer's with high gross profit margin and high gross profit contribution; (3)Check the contract, the goods delivery documents, the transport records and the final confirmation, etc; (4)Taking interviews with new customers; (5)In conjunction with the accounts receivable letter of credit, confirme the revenue of its major customers by sampling; (6)We checked whether information related to operating revenue had been presented and disclosed appropriately in the financial statements. 95 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (II) Impairment of accounts receivable 1. Key audit matters Please refer to section III,11 and V,2 of the notes to the financial statements for details. As of December 31, 2018, the book balance of accounts receivable amounts to 997,288,551.79 yuan with provision for bad debts of 56,220,092.44 yuan, and the carrying amount amounts to 941,068,459.35 yuan. For accounts receivable with impairment tested on an individual basis, if there is objective evidence indicating impairment loss, the Management shall estimate present value of future cash flow and determine to accrue provision for bad debts based on a comprehensive consideration of debtors’ industry condition, management situation, financial status, lawsuits, repayment records and other factors, then estimate the present value of future cash flow and determine the provision for bad debts. For accounts receivable with impairment tested on a collective basis, the Management classifies portfolios of accounts receivable based on ages, asset type, industry segment, and overdue state, and estimates present value of future cash flow and determines accrued provision for bad debts based on the historical loss rate of portfolios with similar credit risk features after making adjustments in combination with actual situation. Therefore, the amount of accounts receivable shown a significant part of the Company’s Financial Statement and impairment of accounts receivables involving major management judgment. Thus we regarded the impairment of accounts receivables as a key audit matter. 2. Responsive audit procedures In connection with impairment of accounts receivables, our audit procedures mainly include: (1)Understanding the internal control of the impairment of accounts receivables and evaluating the design of its internal control, then evaluate whether being Implemented; (2)Obtain the accounts receivable listed by its age, analyze the reasonableness of the age and review whether the bad debt provision of accounts receivable is fully accounted according to the portfolio proportion determined by the accounting policy; (3)Implement the procedure of letter of credit; (4)Check the post-period payment of accounts receivable and evaluate the rationality of Management's provision for bad debts of accounts receivable; (5)Check the information related to revenue has been properly presented and disclosed in the financial statements; 96 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (Ⅲ) Impairment of inventory 1. Key audit matters Please refer to section III,12 and V,2 of the notes to the financial statements for details. As at December 31, 2018, the book balance of inventory is 312,321,117.28 yuan with provision of 25,348,484.69 yuan and its carrying amount totaled286,972,632.59 yuan. As at December 31, 2018, impairment of inventory is determined by an difference between estimation of the net realizable value of inventory and its costs classified by category. The determination of the net realizable value of the inventory requires Management to estimate selling price,contract price and any estimated selling price for the same or similar product market price. Then the net realizable value of the inventory is determined by the estimated selling price minus the estimated cost of the completion, estimated selling expenses and related taxes. Therefore, the amount of inventory shown a significant part of the Company’s Financial Statement and the net realizable value of the inventory involving major management judgment. Thus we regarded the impairment of inventory as a key audit matter.s 2. Responsive audit procedures In connection with impairment of inventory our audit procedures mainly include: (1)Understanding the internal control of the impairment of inventory and evaluating the design of its internal control, then evaluate whether being Implemented; (2)Review the cost accounting process, check the large amount of items included in the cost of the product and determine whether relevant accounting is accurate; (3)Implementing the supervisory procedures for the inventory at the year end, implementing the letter of credit procedure for the inventories that cannot be counted,. Checking the status of the inventory on the spot, and identifying whether there are obsolete and outdated inventories; (4)Evaluation the rationality of the Management’s assumptions involved in the net realizable value and checking the completeness of impairment of inventory at the year end. Re-calculate the amount of impairment of inventory when necessary. (5)Check the information related to the net realizable value of the inventory has been properly presented and disclosed in the financial statements; IV. Other Information Management is responsible for the other information. The other information comprises the 97 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report information included in the Company’s annual report, but does not include the financial statements and our auditor’s report. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of other information, we are required to report that fact. We have nothing to report in this regard. V. Responsibilities of the Management and Those Charged with Governance for the Financial Statements The Management is responsible for preparing and presenting fairly the financial statements in accordance with China Accounting Standards for Business Enterprises, as well as designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, Management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and use the going concern basis of accounting unless the Management either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. VI. Certified Public Accountants’ Responsibility for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with China Standards on Auditing will always detect a material misstatement when it exists. Misstatement can arise from fraud or error and are considered 98 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. We exercise professional judgement and maintain professional skepticism throughout the audit performed in accordance with China Standards on Auditing. We also: (I) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (II) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in circumstances. (III) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management. (IV) Conclude on the appropriateness of the Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. (V) Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (VI) Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsibility for our audit opinion. We communicate with those charged with governance regarding the planned audit scope, time 99 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report schedule and significant audit findings, including any deficiencies in internal control of concern that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Pan-China Certified Public Accountants LLP Chinese Certified Public Accountant: He Jiangxing Hangzhou China Chinese Certified Public Accountant: Jin Jingyu Date of Report: April 19, 2019 The auditor’s report and the accompanying financial statements are English translations of the Chinese auditor’s report and statutory financial statements prepared under accounting principles and practices generally accepted in the People’s Republic of China. These financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in other countries and jurisdictions. In case the English version does not conform to the Chinese version, the Chinese version prevails. II. Financial Statement Units in Notes of Financial Statements is RMB (CNY) 100 Nanjing Putian Telecommunications Co., Ltd. Consolidated balance sheet as at December 31, 2018 (Expressed in Renminbi Yuan) Note Assets Closing balance Opening balance No. Current assets: Cash and bank balances 1 261,938,068.72 327,477,701.36 Settlement funds Loans to other banks Financial assets at fair value through profit or loss Derivative financial assets Notes receivable and accounts receivable 2 987,544,115.36 812,567,071.00 Advances paid 3 188,848,712.69 53,821,937.79 Premiums receivable Reinsurance accounts receivable Reinsurance reserve receivable Other receivables 4 33,734,948.67 29,325,423.73 Reverse-REPO financial assets Inventories 5 286,972,632.59 489,898,057.36 Assets classified as held-for-sale Non-current assets due within one year Other current assets 6 13,497,540.69 45,282,892.44 Total current assets 1,772,536,018.72 1,758,373,083.68 Non-current assets: Loans and advances paid Available-for-sale financial assets 7 741,953.00 741,953.00 Held-to-maturity investments Long-term receivable Long-term equity investments 8 183,244,080.23 186,977,506.23 Investment property 9 8,397,113.98 12,802,485.28 Fixed assets 10 112,504,807.11 119,741,921.78 Construction in progress 11 9,472,383.76 2,163,267.89 Productive biological assets Oil & gas assets Intangible assets 12 30,285,598.77 30,736,816.88 Development expenditures Goodwill Long-term prepayments 13 3,562,336.84 2,795,194.76 Deferred tax assets Other non-current assets Total non-current assets 348,208,273.69 355,959,145.82 Total assets 2,120,744,292.41 2,114,332,229.50 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Consolidated balance sheet as at December 31, 2018 (continued) Liabilities & Equity Note No. Closing balance Opening balance Current liabilities: Short-term borrowings 14 445,010,000.00 387,550,000.00 Central bank loans Absorbing deposit and interbank deposit Loans from other banks Financial liabilities at fair value through profit or loss Derivative financial liabilities Notes payable and accounts payable 15 827,403,870.61 826,833,861.31 Advances received 16 259,545,648.66 317,197,824.66 Proceeds from sale of repurchase financial assets Handling fee and commission payable Employee benefits payable 17 21,132,336.19 21,033,311.73 Taxes and rates payable 18 17,230,159.02 18,883,017.18 Other payables 19 55,128,492.65 63,027,802.63 Reinsurance accounts payable Insurance policy reserve Deposit for agency security transaction Deposit for agency security underwriting Liabilities classified as held-for-sale Non-current liabilities due within one year Other current liabilities Total current liabilities 1,625,450,507.13 1,634,525,817.51 Non-current liabilities: Long-term borrowings Bonds payable Including: Preferred shares Perpetual bonds Long-term payables Long-term employee benefits payable Special payables Provisions Deferred income 20 7,296,315.00 8,664,102.90 Deferred tax liabilities Other non-current liabilities Total non-current liabilities 7,296,315.00 8,664,102.90 Total liabilities 1,632,746,822.13 1,643,189,920.41 Equity: Share capital 21 215,000,000.00 215,000,000.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserve 22 185,374,533.85 185,374,533.85 Less: Treasury shares Other comprehensive income 23 -4,947,588.58 -4,129,619.45 Special reserve Surplus reserve 24 589,559.77 589,559.77 General risk reserve Undistributed profit 25 -40,726,776.80 -46,585,991.64 Total equity attributable to the parent company 355,289,728.24 350,248,482.53 Non-controlling interest 132,707,742.04 120,893,826.56 Total equity 487,997,470.28 471,142,309.09 Total liabilities & equity 2,120,744,292.41 2,114,332,229.50 102 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Parent company balance sheet as at December 31, 2018 (Expressed in Renminbi Yuan) Note Closing balance Opening balance Assets No. Current assets: Cash and bank balances 80,553,208.65 124,709,891.97 Financial assets at fair value through profit or loss Derivative financial assets Notes receivable and accounts receivable 1 593,256,056.62 434,748,479.96 Advances paid 155,717,638.43 22,368,455.10 Other receivables 2 31,077,389.58 41,195,020.22 Inventories 143,432,315.11 349,450,010.57 Assets classified as held-for-sale Non-current assets due within one year Other current assets 6,222,172.75 38,624,058.06 Total current assets 1,010,258,781.14 1,011,095,915.88 Non-current assets: Available-for-sale financial assets 741,953.00 741,953.00 Held-to-maturity investments Long-term receivable Long-term equity investments 3 333,367,967.90 355,814,155.43 Investment property Fixed assets 50,769,872.87 56,349,626.12 Construction in progress 5,839,892.88 1,830,131.25 Productive biological assets Oil & gas assets Intangible assets 12,305,246.69 12,676,942.23 Development expenditures Goodwill Long-term prepayments 3,403,376.01 2,580,098.76 Deferred tax assets Other non-current assets Total non-current assets 406,428,309.35 429,992,906.79 Total assets 1,416,687,090.49 1,441,088,822.67 103 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Parent company balance sheet as at December 31, 2018(continued) (Expressed in Renminbi Yuan) Liabilities & Equity Note No. Closing balance Opening balance Current liabilities: Short-term borrowings 355,000,000.00 309,000,000.00 Financial liabilities at fair value through profit or loss Derivative financial liabilities Notes payable and accounts payable 421,165,578.08 406,799,442.90 Advances received 227,951,168.81 290,793,176.69 Employee benefits payable 7,854,213.23 7,816,724.35 Taxes and rates payable 8,674,579.20 4,595,540.32 Other payables 187,172,612.82 214,064,398.45 Liabilities classified as held-for-sale Non-current liabilities due within one year Other current liabilities Total current liabilities 1,207,818,152.14 1,233,069,282.71 Non-current liabilities: Long-term borrowings Bonds payable Including: Preferred shares Perpetual bonds Long-term payables Long-term employee benefits payable Special payables Provisions Deferred income 1,000,000.00 1,770,926.90 Deferred tax liabilities Other non-current liabilities Total non-current liabilities 1,000,000.00 1,770,926.90 Total liabilities 1,208,818,152.14 1,234,840,209.61 Equity: Share capital 215,000,000.00 215,000,000.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserve 172,417,299.81 172,417,299.81 Less: Treasury shares Other comprehensive income Special reserve Surplus reserve 589,559.76 589,559.76 Undistributed profit -180,137,921.22 -181,758,246.51 Total equity 207,868,938.35 206,248,613.06 104 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Total liabilities & equity 1,416,687,090.49 1,441,088,822.67 105 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Consolidated income statement for the year ended December 31, 2018 (Expressed in Renminbi Yuan) Note Current period Preceding period Items No. cumulative comparative I. Total operating revenue 1,995,627,772.60 2,254,399,406.04 Including: operating revenue 1 1,995,627,772.60 2,254,399,406.04 Interest proceeds Premium earned Revenue from handling charges and commission II. Total operating cost 2,013,476,293.44 2,230,277,628.20 Including: Operating cost 1 1,643,115,522.38 1,880,588,070.75 Interest expenses Handling charges and commission expenditures Net payment of insurance claims Net provision of insurance policy reserve Premium bonus expenditures Reinsurance expenses Taxes & surcharge for operations 2 10,920,639.19 12,757,598.28 Selling expenses 3 153,522,328.27 159,627,776.44 Administrative expenses 4 86,503,114.41 76,037,302.46 R&D expenses 5 76,275,133.26 67,887,029.53 Financial expense 6 22,540,260.58 16,288,251.03 Including: Interest expenses 23,694,841.52 17,476,700.08 Interest income 2,665,279.32 1,936,342.59 Assets impairment loss 7 20,599,295.35 17,091,599.71 Add: Other income 8 13,702,488.41 7,848,445.31 Investment income (or less: losses) 9 -3,085,858.80 339,423.07 Including: Investment income from associates and joint ventures -3,085,858.80 339,423.07 Gains on foreign exchange (or less: losses) Gains on net exposure to hedging risk (or less: losses) Gains on changes in fair value (or less: losses) Gains on asset disposal (or less: losses) 10 33,522,820.90 -481,922.28 Gains on foreign exchange (or less: losses) III. Operating profit (or less: losses) 26,290,929.67 31,827,723.94 Add: Non-operating revenue 11 2,988,810.42 3,698,387.13 Less: Non-operating expenditures 12 372,499.09 353,388.50 IV. Profit before tax (or less: total loss) 28,907,241.00 35,172,722.57 Less: Income tax 13 4,793,925.22 10,462,423.88 V. Net profit (or less: net loss) 24,113,315.78 24,710,298.69 (I) Categorized by the continuity of operations 1. Net profit from continuing operations (or less: net loss) 24,113,315.78 24,710,298.69 2. Net profit from discontinued operations (or less: net loss) (II) Categorized by the portion of equity ownership 1. Net profit attributable to owners of parent company (or less: net loss) 5,859,214.84 8,982,857.76 2. Non-controlling interest (or less: net loss) 18,254,100.94 15,727,440.93 VI. Other comprehensive income after tax -908,854.59 561,095.61 Items attributable to the owners of the parent company -817,969.13 504,986.05 (I) Not reclassified subsequently to profit or loss 1.Changes in re-measurement on the net defined benefit liability/asset 2. Items attributable to investees under equity method that will not reclassified to profit or loss (II) To be reclassified subsequently to profit or loss -817,969.13 504,986.05 1. Items attributable to investees under equity method that may be reclassified to profit or 2.lossProfit or loss from changes in fair value of available-for-sale financial assets 3. Profit or loss from reclassification of held-to-maturity investments as available-for-sale 4.financialorassets on cash flow hedging Profit loss 5. Translation reserve -817,969.13 504,986.05 Items attributable to non-controlling shareholders -90,885.46 56,109.56 VII. Total comprehensive income 23,204,461.19 25,271,394.30 Items attributable to the owners of the parent company 5,041,245.71 9,487,843.81 Items attributable to non-controlling shareholders 18,163,215.48 15,783,550.49 VIII. Earnings per share (EPS): (I) Basic EPS (yuan per share) 0.03 0.04 (II) Diluted EPS (yuan per share) 0.03 0.04 106 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Parent company income statement for the year ended December 31, 2018 (Expressed in Renminbi Yuan) Current period Preceding period Items Note No. cumulative comparative I. Operating revenue 1 1,005,618,954.77 1,149,882,076.74 Less: Operating cost 1 879,422,579.08 1,009,471,690.52 Taxes & surcharge for operations 4,045,978.34 5,436,025.44 Selling expenses 63,547,170.31 71,732,907.18 Administrative expenses 41,683,221.44 39,353,899.91 R&D expenses 20,833,986.09 19,218,627.53 Financial expense 21,327,399.26 15,303,143.73 Including: Interest expenses 20,350,309.17 17,781,593.38 Interest income 339,683.88 914,493.95 Assets impairment loss 16,723,520.48 9,758,175.28 Add: Other income 2,257,355.96 44,991.45 Investment income (or less: losses) 2 22,697,079.67 25,937,027.85 Including: investment income from associates and -1,679,620.33 360,327.85 joint ventures Gains on net exposure to hedging risk (or less: losses) Gains on changes in fair value (or less: losses) Gains on asset disposal (or less: losses) 17,375,709.64 105,464.90 II. Operating profit (or less: losses) 365,245.04 5,695,091.35 Add: Non-operating revenue 1,488,857.87 2,441,273.80 Less: Non-operating expenditures 233,777.62 344,877.30 III. Profit before tax (or less: total loss) 1,620,325.29 7,791,487.85 Less: Income tax IV. Net profit (or less: net loss) 1,620,325.29 7,791,487.85 (I) Net profit from continuing operations (or less: net loss) 1,620,325.29 7,791,487.85 (II) Net profit from discontinued operations (or less: net loss) V. Other comprehensive income after tax (I) Not reclassified subsequently to profit or loss 1. Changes in re-measurement on the net defined benefit liability/asset 2. Items attributable to investees under equity method that will not reclassified to profit or loss (II) To be reclassified subsequently to profit or loss 1. Items attributable to investees under equity method that may be reclassified to profit or loss 2. Profit or loss from changes in fair value of available-for-sale financial assets 3. Profit or loss from reclassification of held-to-maturity investments as available-for-sale financial assets 4. Profit or loss on cash flow hedging 107 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 5. Translation reserve 6. Others VI. Total comprehensive income 1,620,325.29 7,791,487.85 108 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2018 Note Current period Preceding period Items No. cumulative comparative I. Cash flows from operating activities: Cash receipts from sale of goods or rendering of services 1,645,891,322.05 1,911,479,191.10 Net increase of client deposit and interbank deposit Net increase of central bank loans Net increase of loans from other financial institutions Cash receipts from original insurance contract premium Net cash receipts from reinsurance Net increase of policy-holder deposit and investment Net increase from disposal of financial assets at fair value through profit or loss Cash receipts from interest, handling charges and commission Net increase of loans from others Net increase of repurchase Receipts of tax refund 4,667,521.81 5,675,665.48 Other cash receipts related to operating activities 1 34,938,316.44 78,965,011.44 Subtotal of cash inflows from operating activities 1,685,497,160.30 1,996,119,868.02 Cash payments for goods purchased and services received 1,333,326,749.70 1,532,813,633.94 Net increase of loans and advances to clients Net increase of central bank deposit and interbank deposit Cash payments for insurance indemnities of original insurance contracts Cash payments for interest, handling charges and commission Cash payments for policy bonus Cash paid to and on behalf of employees 253,307,248.13 245,012,685.14 Cash payments for taxes and rates 84,108,218.81 111,403,246.49 Other cash payments related to operating activities 2 170,173,677.49 154,111,072.03 Subtotal of cash outflows from operating activities 1,840,915,894.13 2,043,340,637.60 Net cash flows from operating activities -155,418,733.83 -47,220,769.58 II. Cash flows from investing activities: Cash receipts from withdrawal of investments Cash receipts from investment income 647,567.20 444,774.40 Net cash receipts from the disposal of fixed assets, intangible assets and other 40,365,822.52 439,848.55 long-term assets Net cash receipts from the disposal of subsidiaries & other business units Other cash receipts related to investing activities Subtotal of cash inflows from investing activities 41,013,389.72 884,622.95 Cash payments for the acquisition of fixed assets, intangible assets and other 17,752,720.09 15,350,838.65 long-term assets Cash payments for investments Net increase of pledged borrowings Net cash payments for the acquisition of subsidiaries & other business units Other cash payments related to investing activities Subtotal of cash outflows from investing activities 17,752,720.09 15,350,838.65 Net cash flows from investing activities 23,260,669.63 -14,466,215.70 III. Cash flows from financing activities: Cash receipts from absorbing investments 109 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Note Current period Preceding period Items No. cumulative comparative Including: Cash received by subsidiaries from non-controlling shareholders as investments Cash receipts from borrowings 455,510,000.00 482,500,000.00 Cash receipts from issuing of bonds Other cash receipts related to financing activities Subtotal of cash inflows from financing activities 455,510,000.00 482,500,000.00 Cash payments for the repayment of borrowings 402,050,000.00 568,450,000.00 Cash payments for distribution of dividends or profits and for interest expenses 29,795,475.55 28,781,500.28 Including: Cash paid by subsidiaries to non-controlling shareholders as dividend 6,023,300.00 8,149,300.00 or profit Other cash payments related to financing activities 840,754.71 Subtotal of cash outflows from financing activities 432,686,230.26 597,231,500.28 Net cash flows from financing activities 22,823,769.74 -114,731,500.28 IV. Effect of foreign exchange rate changes on cash & cash equivalents -353,307.29 2,791,423.77 V. Net increase in cash and cash equivalents -109,687,601.75 -173,627,061.79 Add: Opening balance of cash and cash equivalents 311,056,919.17 484,683,980.96 VI. Closing balance of cash and cash equivalents 201,369,317.42 311,056,919.17 110 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Parent company cash flow statement for the year ended December 31, 2018 (Expressed in Renminbi Yuan) Note Current period Preceding period Items No. cumulative comparative I. Cash flows from operating activities: Cash receipts from sale of goods and rendering of services 596,822,761.48 741,103,540.01 Receipts of tax refund 232,835.32 47,333.61 Other cash receipts related to operating activities 43,490,459.56 77,605,361.99 Subtotal of cash inflows from operating activities 640,546,056.36 818,756,235.61 Cash payments for goods purchased and services received 569,778,580.54 660,412,117.17 Cash paid to and on behalf of employees 100,282,989.10 105,895,483.90 Cash payments for taxes and rates 24,563,084.92 45,330,877.54 Other cash payments related to operating activities 64,030,303.24 56,697,024.80 Subtotal of cash outflows from operating activities 758,654,957.80 868,335,503.41 Net cash flows from operating activities -118,108,901.44 -49,579,267.80 II. Cash flows from investing activities: Cash receipts from withdrawal of investments Cash receipts from investment income 197,567.20 64,821,474.40 Net cash receipts from the disposal of fixed assets, intangible 21,918,919.67 331,631.08 assets and other long-term assets Net cash receipts from the disposal of subsidiaries & other business units Other cash receipts related to investing activities Subtotal of cash inflows from investing activities 22,116,486.87 65,153,105.48 Cash payments for the acquisition of fixed assets, intangible assets 11,043,203.93 12,730,476.73 and other long-term assets Cash payments for investments Net cash payments for the acquisition of subsidiaries & other business units Other cash payments related to investing activities Subtotal of cash outflows from investing activities 11,043,203.93 12,730,476.73 Net cash flows from investing activities 11,073,282.94 52,422,628.75 III. Cash flows from financing activities: Cash receipts from absorbing investments Cash receipts from borrowings 351,000,000.00 369,000,000.00 Other cash receipts related to financing activities Subtotal of cash inflows from financing activities 351,000,000.00 369,000,000.00 Cash payments for the repayment of borrowings 309,000,000.00 410,000,000.00 Cash payments for distribution of dividends or profits and for 20,350,309.17 15,761,925.59 interest expenses Other cash payments related to financing activities 840,754.71 Subtotal of cash outflows from financing activities 330,191,063.88 425,761,925.59 Net cash flows from financing activities 20,808,936.12 -56,761,925.59 IV. Effect of foreign exchange rate changes on cash and cash 287,252.28 -420,300.63 equivalents V. Net increase in cash and cash equivalents -85,939,430.10 -54,338,865.27 Add: Opening balance of cash and cash equivalents 109,752,099.29 164,090,964.56 VI. Closing balance of cash and cash equivalents 23,812,669.19 109,752,099.29 111 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Consolidated statement of changes in equity for the year ended December 31, 2018 (Expressed in Renminbi Yuan) Current period cumulative Equity attributable to parent company Items Other equity instruments Non-controlling Less: Other General Total equity Special Surplus interest Share capital Preferred Perpetual Others Capital reserve treasury comprehensive reserve risk Undistributed profit income reserve reserve shares bonds shares I. Balance at the end of prior year 215,000,000.00 185,374,533.85 -4,129,619.45 589,559.77 -44,605,902.63 120,893,826.56 473,122,398.10 Add: Cumulative changes of accounting policies Error correction of prior period -1,980,089.01 -1,980,089.01 Business combination under common control Others II. Balance at the beginning of current year 215,000,000.00 185,374,533.85 -4,129,619.45 589,559.77 -46,585,991.64 120,893,826.56 471,142,309.09 III. Current period increase (or less: decrease) -817,969.13 5,859,214.84 11,813,915.48 16,855,161.19 (I) Total comprehensive income -817,969.13 5,859,214.84 18,163,215.48 23,204,461.19 (II) Capital contributed or withdrawn by owners 2,169,320.00 2,169,320.00 1. Capital contributed by owners 2,169,320.00 2,169,320.00 2. Capital contributed by holders of other equity instruments 3. Amount of share-based payment included in equity 4. Others (III) Profit distribution -8,518,620.00 -8,518,620.00 1. Appropriation of surplus reserve 2. Appropriation of general risk reserve 3. Appropriation of profit to owners -8,518,620.00 -8,518,620.00 4. Others (IV) Internal carry-over within equity 1. Transfer of capital reserve to capital 2. Transfer of surplus reserve to capital 3. Surplus reserve to cover losses 4. Others 112 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Current period cumulative Equity attributable to parent company Items Other equity instruments Non-controlling Less: Other General Total equity Special Surplus interest Share capital Capital reserve treasury comprehensive reserve risk Undistributed profit Preferred Perpetual Others reserve shares income reserve shares bonds (V) Special reserve 1. Appropriation of current period 2. Application of current period (VI) Others IV. Balance at the end of current period 215,000,000.00 185,374,533.85 -4,947,588.58 589,559.77 -40,726,776.80 132,707,742.04 487,997,470.28 113 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Consolidated statement of changes in equity for the year ended December 31, 2018 (continued) (Expressed in Renminbi Yuan) Preceding period comparative Equity attributable to parent company Items Other equity instruments Non-controlling Less: Other General Total equity Special Surplus Undistributed interest Share capital Preferred Perpetual Others Capital reserve treasury comprehensive reserve risk profit income reserve reserve shares bonds shares I. Balance at the end of prior year 215,000,000.00 185,374,533.85 -4,634,605.50 589,559.77 -56,491,072.91 112,578,132.06 452,416,547.27 Add: Cumulative changes of accounting policies Error correction of prior period 922,223.51 681,444.01 1,603,667.52 Business combination under common control Others II. Balance at the beginning of current year 215,000,000.00 185,374,533.85 -4,634,605.50 589,559.77 -55,568,849.40 113,259,576.07 454,020,214.79 III. Current period increase (or less: decrease) 504,986.05 8,982,857.76 7,634,250.49 17,122,094.30 (I) Total comprehensive income 504,986.05 8,982,857.76 15,783,550.49 25,271,394.30 (II) Capital contributed or withdrawn by owners 1. Capital contributed by owners 2. Capital contributed by holders of other equity instruments 3. Amount of share-based payment included in equity 4. Others (III) Profit distribution -8,149,300.00 -8,149,300.00 1. Appropriation of surplus reserve 2. Appropriation of general risk reserve 3. Appropriation of profit to owners -8,149,300.00 -8,149,300.00 4. Others (IV) Internal carry-over within equity 1. Transfer of capital reserve to capital 2. Transfer of surplus reserve to capital 3. Surplus reserve to cover losses 4. Others 114 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Preceding period comparative Equity attributable to parent company Items Other equity instruments Non-controlling Less: Other General Total equity Special Surplus Undistributed interest Share capital Preferred Perpetual Others Capital reserve treasury comprehensive reserve risk profit income reserve reserve shares bonds shares (V) Special reserve 1. Appropriation of current period 2. Application of current period (VI) Others IV. Balance at the end of current period 215,000,000.00 185,374,533.85 -4,129,619.45 589,559.77 -46,585,991.64 120,893,826.56 471,142,309.09 115 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Parent company statement of changes in equity for the year ended December 31, 2018 (Expressed in Renminbi Yuan) Current period cumulative Other equity instruments Items Other Less: treasury Special Undistributed Share capital Preferred Perpetual Others Capital reserve comprehensive Surplus reserve Total equity shares reserve profit shares bonds income I. Balance at the end of prior year 215,000,000.00 172,417,299.81 589,559.76 -179,778,157.50 208,228,702.07 Add: Cumulative changes of accounting policies Error correction of prior period -1,980,089.01 -1,980,089.01 Others II. Balance at the beginning of current year 215,000,000.00 172,417,299.81 589,559.76 -181,758,246.51 206,248,613.06 III. Current period increase (or less: decrease) 1,620,325.29 1,620,325.29 (I) Total comprehensive income 1,620,325.29 1,620,325.29 (II) Capital contributed or withdrawn by owners 1. Capital contributed by owners 2. Capital contributed by holders of other equity instruments 3. Amount of share-based payment included in equity 4. Others (III) Profit distribution 1. Appropriation of surplus reserve 2. Appropriation of profit to owners 3. Others (IV) Internal carry-over within equity 1.Transfer of capital reserve to capital 2.Transfer of surplus reserve to capital 3.Surplus reserve to cover losses 4.Others (V) Special reserve 1. Appropriation of current period 2. Application of current period (VI) Others IV. Balance at the end of current period 215,000,000.00 172,417,299.81 589,559.76 -180,137,921.22 207,868,938.35 116 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Parent company statement of changes in equity for the year ended December 31, 2018 (continued) (Expressed in Renminbi Yuan) Preceding period comparative Other equity instruments Items Less: Other Special Share capital Preferred Perpetual Others Capital reserve treasury comprehensive Surplus reserve Undistributed profit Total equity reserve shares bonds shares income I. Balance at the end of prior year 215,000,000.00 172,417,299.81 589,559.76 -188,427,625.86 199,579,233.71 Add: Cumulative changes of accounting policies Error correction of prior period -1,122,108.50 -1,122,108.50 Others II. Balance at the beginning of current year 215,000,000.00 172,417,299.81 589,559.76 -189,549,734.36 198,457,125.21 III. Current period increase (or less: decrease) 7,791,487.85 7,791,487.85 (I) Total comprehensive income 7,791,487.85 7,791,487.85 (II) Capital contributed or withdrawn by owners 1. Capital contributed by owners 2. Capital contributed by holders of other equity instruments 3. Amount of share-based payment included in equity 4. Others (III) Profit distribution 1. Appropriation of surplus reserve 2. Appropriation of profit to owners 3. Others (IV) Internal carry-over within equity 1.Transfer of capital reserve to capital 2.Transfer of surplus reserve to capital 3.Surplus reserve to cover losses 4.Others (V) Special reserve 1. Appropriation of current period 117 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 2. Application of current period (VI) Others IV. Balance at the end of current period 215,000,000.00 172,417,299.81 589,559.76 -181,758,246.51 206,248,613.06 [Wang Wen Kui] [Cao Xu Rong] [Guan Xiao Jian] [Legal representative] [Officer in charge of accounting] [Head of accounting department] (Signature and stamp) (Signature and stamp) (Signature and stamp) 118 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nanjing Putian Telecommunications Co., Ltd. Notes to Financial Statements for the year ended December 31, 2018 Monetary unit: RMB Yuan I. Company profile Nanjing Putian Telecommunications Co., Ltd. (the “Company”), whose predecessor is Nanjing Telecommunication Facility Factory, was established as a limited liability company (by shares) through financing under the approval of National Economic Institutional Reform Commission with document of approval numbered TGS [1997] 28 dated March 21, 1997. The Company is headquartered in Nanjing City, Jiangsu Province. Currently it holds a business license with unified social credit code of 91320000134878054G, with registered capital of 215,000,000.00 yuan, total share of 215,000,000.00 shares, with par value of 1 yuan per share. Among them, 115,000,000 shares are state-owned legal person shares, and 100,000,000 shares are B shares. The Company was listed on the Shenzhen Stock Exchange on May 22, 1997. The Company belongs to telecommunication equipment manufacture industry and is mainly engaged in R&D, production, and sale of data, wire and wireless telecommunication equipment, distribution and allocation of layout of telecommunication product, multimedia computer, digital television, vehicle electronics and conference video system. The main services rendered by the Company include installation and maintenance equipment, communication information network and computer information system projects design, and systems integration and related consultancy service. The financial statements have been deliberated and approved for issue by the Board of Directors dated April 12, 2019. The Company has brought 11 subsidiaries including Nanjing South Telecommunications Company Limited, Nanjing Putian Telege Intelligent Building Ltd. and Nanjing Mennekes Electrics Co., Ltd. etc. into the consolidated scope. Please refer to notes to changes in the consolidated scope and interest in other entities for details. II. Preparation basis of the financial statements (I) Preparation basis The financial statements have been prepared on the basis of going concern. (II) Assessment of the ability to continue as a going concern The Company has no events or conditions that may cast significant doubts upon the Company’s ability to continue as a going concern within the 12 months after the balance sheet date. III. Significant accounting policies and estimates Important note: The Company has set up accounting policies and estimates on transactions or events such as provision for bad debts of receivables, depreciation of fixed assets, amortization of intangible assets, and revenue recognition, etc. based on the Company’s actual production and operation features. (I) Statement of compliance The financial statements have been prepared in accordance with the requirements of China Accounting Standards for Business Enterprises (CASBEs), and present truly and completely the financial position, results of operations and cash flows of the Company. 119 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (II) Accounting period The accounting year of the Company runs from January 1 to December 31 under the Gregorian calendar. (III) Operating cycle The Company has a relatively short operating cycle for its business, an asset or a liability is classified as current if it is expected to be realized or due within 12 months. (IV) Functional currency The Company’s functional currency is RMB Yuan. (V) Accounting treatments of business combination under and not under common control 1. Accounting treatment of business combination under common control Assets and liabilities arising from business combination are measured at carrying amount of the combined party included in the consolidated financial statements of the ultimate controlling party at the combination date. Difference between carrying amount of the equity of the combined party included in the consolidated financial statements of the ultimate controlling party and that of the combination consideration or total par value of shares issued is adjusted to capital reserve, if the balance of capital reserve is insufficient to offset, any excess is adjusted to retained earnings. 2. Accounting treatment of business combination not under common control When combination cost is in excess of the fair value of identifiable net assets obtained from the acquiree at the acquisition date, the excess is recognized as goodwill; otherwise, the fair value of identifiable assets, liabilities and contingent liabilities, and the measurement of the combination cost are reviewed, then the difference is recognized in profit or loss. (VI) Compilation method of consolidated financial statements The parent company brings all its controlled subsidiaries into its consolidation scope. The consolidated financial statements are compiled by the parent company according to “CASBE 33 - Consolidated Financial Statements”, based on relevant information and the financial statements of the parent company and its subsidiaries. (VII) Classification of joint arrangements and accounting treatment of joint operations 1. Joint arrangements include joint operations and joint ventures. 2. When the Company is a joint operator of a joint operation, it recognizes in relation to its interest in a joint operation: (1) its assets, including its share of any assets held jointly; (2) its liabilities, including its share of any liabilities incurred jointly; (3) its revenue from the sale of its share of the output arising from the joint operation; (4) its share of the revenue from the sales of the output by the joint operation; and (5) its expenses, including its share of any expenses incurred jointly. (VIII) Recognition criteria of cash and cash equivalents Cash as presented in cash flow statement refers to cash on hand and deposit on demand for payment. Cash equivalents refer to short-term, highly liquid investments that can be readily converted to cash and that are 120 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report subject to an insignificant risk of changes in value. (IX) Foreign currency translation 1. Translation of transactions denominated in foreign currency Transactions denominated in foreign currency are translated into RMB yuan at the spot exchange rate at the transaction date at initial recognition. At the balance sheet date, monetary items denominated in foreign currency are translated at the spot exchange rate at the balance sheet date with difference, except for those arising from the principal and interest of exclusive borrowings eligible for capitalization, included in profit or loss; non-cash items carried at historical costs are translated at the spot exchange rate at the transaction date, with its RMB amount unchanged; non-cash items carried at fair value in foreign currency are translated at the spot exchange rate at the date when the fair value was determined, with difference included in profit or loss or other comprehensive income. 2. Translation of financial statements measured in foreign currency The assets and liabilities in the balance sheet are translated into RMB at the spot rate at the balance sheet date; the equity items, other than undistributed profit, are translated at the spot rate at the transaction date; the revenues and expenses in the income statement are translated into RMB at the spot exchange rate at the transaction date. The difference arising from foreign currency translation is included in other comprehensive income. (X) Financial instruments 1. Classification of financial assets and financial liabilities Financial assets are classified into the following four categories when initially recognized: financial assets at fair value through profit or loss (including held-for-trading financial assets and financial assets designated at initial recognition as at fair value through profit or loss), held-to-maturity investments, loans and receivables, and available-for-sale financial assets. Financial liabilities are classified into the following two categories when initially recognized: financial liabilities at fair value through profit or loss (including held-for-trading financial liabilities and financial liabilities designated at initial recognition as at fair value through profit or loss), and other financial liabilities. 2. Recognition criteria, measurement method and derecognition condition of financial assets and financial liabilities When the Company becomes a party to a financial instrument, it is recognized as a financial asset or financial liability. The financial assets and financial liabilities initially recognized by the Company are measured at fair value; for the financial assets and liabilities at fair value through profit or loss, the transaction expenses thereof are directly included in profit or loss; for other categories of financial assets and financial liabilities, the transaction expenses thereof are included into the initially recognized amount. The Company measures its financial assets at fair value subsequent to initial recognition, and does not deduct the transaction expenses that may occur when it disposes of the said financial asset in the future. However, those under the following circumstances are excluded: (1) the held-to-maturity investments, loans and 121 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report receivables are measured at amortized costs using effective interest method; (2) 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 the delivery of the said equity instrument are measured at their costs. The Company measures its financial liabilities at the amortized costs using effective interest method, with the exception of those under the following circumstances: (1) for the financial liabilities at fair value through profit or loss, they are measured at fair value, and none of the transaction expenses may be deducted, which may occur when the financial liabilities are settled in the future; (2) for 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 the delivery of the equity instrument, they are measured at their costs; (3) for the financial guarantee contracts which are not designated as a financial liability at fair value through profit or loss, and for the commitments to grant loans which are not designated as at fair value through profit or loss and which will enjoy an interest rate lower than that of the market, they are measured subsequent to initial recognition at the higher of the following two items 1) The amount as determined according to “CASBE13 - Contingencies”; 2) the surplus after accumulative amortization as determined according to “CASBE14 - Revenues”. The gains or losses arising from changes in fair value of financial assets or financial liabilities, if not related to hedging, are measured with the following methods: (1) Gains or losses, arising from the changes in fair value of financial asset or liability at its fair value through profit or loss, is included in gains or losses on changes in fair value; interests or cash dividends gained during the asset-holding period are recognized as investment income; when disposing of the assets, investment income is recognized at the difference between the actual amount received and the initial recorded amount, at the same time, gains or losses on changes in fair value are adjusted accordingly. (2) For available-for-sale financial asset, changes in fair value are recorded as other comprehensive income during the holding period, interests measured at effective interest method are recorded as investment income; cash dividends from available-for-sale equity instrument investment are recognized as investment income at the date of dividend declaration; when disposing of the assets, investment income is recognized at the difference between the actual amount received and the book value deducting the accumulative amount of changes in fair value originally included in other comprehensive. Financial assets are derecognized when the contractual rights for collecting the cash flow of the said financial assets expire or substantially all risks and rewards related to the said financial assets have been transferred. Only when the underlying present obligations of a financial liability are relieved totally or partly may the financial liability be derecognized accordingly. 3. Recognition criteria and measurement method of financial assets transfer Where the Company has transferred substantially all of the risks and rewards related to the ownership of the financial asset to the transferee, it derecognizes the financial asset. If it retained substantially all of the risks and rewards related to the ownership of the financial asset, it continues recognizing the financial asset, and the consideration received is recognized as a financial liability. Where the Company does not transfer or 122 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report retain substantially all of the risks and rewards related to the ownership of a financial asset, it is dealt with according to the circumstances as follows respectively: (1) if the Company gives up its control over the financial asset, it derecognizes the financial asset; (2) if the Company does not give up its control over the financial asset, according to the extent of its continuing involvement in the transferred financial asset, it recognizes the related financial asset and recognizes the relevant liability accordingly. If the transfer of an entire financial asset satisfies the conditions for derecognition, the difference between the amounts of the following two items are included in profit or loss: (1) the book value of the transferred financial asset; (2) the sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally included in equity. If the transfer of financial asset partially satisfies the conditions to derecognition, the entire book value of the transferred financial asset is, between the portion which is derecognized and the portion which is not, apportioned according to their respective relative fair value, and the difference between the amounts of the following two items are included into profit or loss: (1) the book value of the portion which is derecognized; (2) the sum of consideration of the portion which is derecognized, and the portion of the accumulative amount of the changes in the fair value originally included in equity which is corresponding to the portion which is derecognized. 4. Fair value determination method of financial assets and liabilities The Company use valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value. The inputs to valuation techniques used to measure fair value are arranged in the following hierarchy and used accordingly: (1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date. (2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability, for example, interest rates and yield curves observable at commonly quoted intervals; market-corroborated inputs; (3) Level 3 inputs are unobservable inputs for the asset or liability. Level 3 inputs include interest rate that is not observable and cannot be corroborated by observable market data at commonly quoted intervals, historical volatility, future cash flows to be paid to fulfill the disposal obligation assumed in business combination, and financial forecast developed using the Company’s own data, etc. 5. Impairment test and provision for impairment loss of financial assets (1) An impairment test is carried out at the balance sheet date on the financial assets other than those at fair value through profit or loss, and provisions for impairment loss should be made if there is objective evidence indicating impairment loss. (2) For held-to-maturity investments, borrowings, and receivables, an impairment test is made on an individual basis on financial assets of individually significant amount; with regard to the financial assets of individually insignificant amount, they may be included in a portfolio of financial assets with similar credit risk features so as to carry out an impairment-related test; where, upon the impairment test on an individual 123 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report basis, the financial asset (including those financial assets of individually significant amount and of individually insignificant amount) is not impaired, it is included in a portfolio of financial assets with similar credit risk features so as to conduct further impairment test. Where a financial asset is impaired, the carrying amount of the said financial asset is written down to the present value of the predicted future cash flow. (3) Available-for-sale financial assets 1) Objective evidence indicating that available-for-sale debt instrument investments may be impaired includes: a. significant financial difficulties in the debtor; b. breach of contract by the debtor, such as principal or interest past due or default; c. concessions made to debtors with financial difficulties considering economic and legal factors; d. it is highly probable that the debtor is going to dissolve or going through other terms of financial restructuring; e. owing to significant financial difficulties occurred to the debtor, the debt instrument is discontinued to trade in active market; or f. Other circumstances indicating that available-for-sale debt instrument may be impaired. 2) Evidence indicating that available-for-sale equity instrument investment may be impaired includes the fair value of equity instrument investment is suffered from significant or non-temporary decline and the technical, market, economic, or legal environment in which the investee operates has significant adverse changes under which the Company may not be able to recover its investment cost. The Company performs review on available-for-sale equity instrument investment on an individual basis at the balance sheet date. For equity instrument investment at fair value, if the balance sheet date fair value is 50% or above lower than the cost, or the balance sheet date fair value has been lower than the cost for a consecutive of 12 months or longer, it is determined that such equity instrument investment is impaired; if the balance sheet date fair value is 20% or above but not exceeding 50% lower than the cost, or the balance sheet date fair value has been lower than the cost for a consecutive of 6 months or longer but not exceeding 12 months, the Company may take other factors such as price volatility into consideration in determining whether such equity instrument investment is impaired. For equity instrument investment at cost, the Company considers whether the technical, market, economic, or legal environment in which the investee operates has significant adverse changes to determine whether such equity instrument is impaired. When an available-for-sale financial asset at fair value is impaired, the cumulative loss arising from decline in fair value that has been recognized directly in other comprehensive income is reclassified to impairment loss. If, after an impairment loss has been recognized on available-for-sale debt instrument investment, there is objective evidence of a recovery in value of the financial asset which can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. Subsequent fair value increase in available-for-sale debt instrument investment whose impairment loss has been recognized is directly recognized in other comprehensive income. When an available-for-sale equity instrument at cost is impaired, impairment loss on such equity instrument investment is recognized at any excess of its carrying amount over the present value of future cash flows, and such impairment loss is not reversed upon recognition. (XI) Receivables 124 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 1. Receivables of individually significant amount and with provision made on an individual basis Judgment basis or amount criteria of Receivables amounting to more than 10 million yuan individually significant amount Provision method for receivables of Provisions are made on the difference between the individually significant amount and lower of present value of future cash flow and their with provision made on an individual carrying amount based on impairment testing on an basis individual basis. 2. Receivables with provision made on a collective basis using portfolios with similar credit risk features (1) Specific portfolios and provision method Provision method of provision being made on collective basis using portfolios with similar credit risk features: Portfolio 1 Grouped with related party balances within the consolidation scope Portfolio 2 Grouped with age Portfolios and provision method Provisions are made on the difference between the lower of Portfolio 1 present value of future cash flow and their carrying amount based on impairment testing on an individual basis. Portfolio 2 Age analysis method (2) Age analysis method Ages Proportion of provision for Proportion of provision for accounts receivable (%) other receivables (%) Within 1 year (inclusive, the 0.00 0.00 same hereinafter) 1-2 years 0.00 0.00 2-3 years 10.00 10.00 3-4 years 30.00 30.00 4-5 years 40.00 40.00 5-6 years 80.00 80.00 Over 6 years 100.00 100.00 3. Receivables of individually insignificant amount but with provision made on an individual basis Reasons for provision made on an Impairment test on an individual basis with objective individual basis evidence indicating that the receivable is impaired Provision method Provision method made on an individual basis For other receivables such as notes receivable, interest receivable and long-term receivable, etc., provision for bad debts is made at the difference between the present value of future cash flow and the carrying amount. (XII) Inventories 1. Classification of inventories Inventories include finished goods or goods held for sale in the ordinary course of business, work in process in the process of production, and materials or suppliers etc. to be consumed in the production process or in the rendering of services. 2. Accounting method for dispatching inventories: 125 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Inventories dispatched from storage are accounted for with weighted average method. 3. Basis for determining net realizable value At the balance sheet date, inventories are measured at the lower of cost or net realizable value; provisions for inventory write-down are made on the excess of its cost over the net realizable value. The net realizable value of inventories held for sale is determined based on the amount of the estimated selling price less the estimated selling expenses and relevant taxes and surcharges in the ordinary course of business; the net realizable value of materials to be processed is determined based on the amount of the estimated selling price less the estimated costs of completion, selling expenses and relevant taxes and surcharges in the ordinary course of business; at the balance sheet date, when only part of the same item of inventories have agreed price, their net realizable value is determined separately and is compared with their costs to set the provision for inventory write-down to be made or reversed. 4. Inventory system Perpetual inventory method is adopted. 5. Amortization method of low-value consumables and packages (1) Low-value consumables Low-value consumables are amortized with one-off method. (2) Packages Packages are amortized with one-off method. (XIII) Non-current assets or disposal groups classified as held for sale 1. Classification of non-current assets or disposal groups as held for sale Non-current assets or disposal groups are accounted for as held for sale when the following conditions are all met: (1)the asset must be available for immediate sale in its present condition subject to terms that are usual and customary for sales of such assets or disposal groups; (2)its sales must be highly probable, i.e., the Company has made a decision on the sale plan and has obtained a firm purchase commitment, and the sale is expected to be completed within one year. When the Company acquires a non-current asset or disposal group with a view to resale, it shall classify the non-current asset or disposal group as held for sale at the acquisition date only if the requirement of “expected to be completed within one year” is met at that date and it is highly probable that other criteria for held for sale will be met within a short period (usually within three months). An asset or a disposal group is still accounted for as held for sale when the Company remains committed to its plan to sell the asset or disposal group in the circumstance that non-related party transactions fail to be completed within one year due to one of the following reasons: (1) a buyer or others unexpectedly set conditions that will extend the sale period, while the Company has taken timely actions to respond to the conditions and expects a favorable resolution of the delaying factors within one year since the setting; (2) a non-current asset or disposal group classified as held for sale fails to be sold within one year due to rare cases, and the Company has taken action necessary to respond to the circumstances during the initial one-year period and the criteria for held for sale are met. 2. Measurement of non-current assets or disposal groups as held for sale (1) Initial measurement and remeasurement For initial measurement and remeasurement as at the balance sheet date of a non-current asset or disposal group as held for sale, where the carrying amount is higher than the fair value less costs to sell, the carrying amount is written down to the fair value less costs to sell, and the write-down is recognized in profit or loss as assets impairment loss, meanwhile, provision for impairment of assets as held for sale shall be made. 126 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report For a non-current asset or disposal group classified as held for sale at the acquisition date, the asset or disposal group is measured on initial recognition at the lower of its initial measurement amount had it not been so classified and fair value less costs to sell. Apart from the non-current asset or disposal group acquired through business combination, the difference arising from the initial recognition of a non-current asset or disposal group at the fair value less costs to sell shall be included into profit or loss. The assets impairment loss recognized for a disposal group as held for sale shall reduce the carrying amount of goodwill in the disposal group first, and then reduce its carrying amount based on the proportion of each non-current asset’s carrying amount in the disposal group. No provision for depreciation or amortization shall be made on non-current assets as held for sale or non-current assets in disposal groups as held for sale, while interest and other expenses attributable to the liabilities of a disposal group as held for sale shall continue to be recognized. (2) Reversal of assets impairment loss When there is a subsequent increase in fair value less costs to sell of a non-current asset as held for sale at the balance sheet date, the write-down shall be recovered, and shall be reversed not in excess of the impairment loss that has been recognized after the non-current asset was classified as held for sale. The reversal shall be included into profit or loss. Assets impairment loss that has been recognized before the classification is not reserved. When there is a subsequent increase in fair value less costs to sell of a disposal group as held for sale at the balance sheet date, the write-down shall be recovered, and shall be reversed not in excess of the non-current assets impairment loss that has been recognized after the disposal group was classified as held for sale. The reversal shall be included into profit or loss. The reduced carrying amount of goodwill and non-current assets impairment loss that has been recognized before the classification is not reserved. The subsequent reversal of the impairment loss that has been recognized in a disposal group as held for sale, the carrying amount is increased based on the proportion of carrying amount of each non-current assets (excluding goodwill) in the disposal group. (3) Non-current asset or disposal group that is no longer classified as held for sale and derecognized A non-current asset or disposal group that does not met criteria for held for sale and no longer classified as held for sale, or a non-current asset that removed from a disposal group as held for sale shall be measured at the lower of: a. its carrying amount before it was classified as held for sale, adjusted for any depreciation. Amortization or impairment that would have been recognized had it not been classified as held for sale; and b. its recoverable amount. When a non-current asset or disposal group classified as held for sale is derecognized, unrecognized gains or losses shall be included into profit or loss. (XIV) Long-term equity investments 1. Judgment of joint control and significant influence Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of these policies. 2. Determination of investment cost (1) For business combination under common control, if the consideration of the combining party is that it makes payment in cash, transfers non-cash assets, assumes its liabilities or issues equity securities, on the date of combination, it regards the share of the carrying amount of the equity of the combined party included the consolidated financial statements of the ultimate 127 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report controlling party as the initial cost of the investment. The difference between the initial cost of the long-term equity investment and the carrying value of the combination consideration paid or the par value of shares issued offsets capital reserve; if the balance of capital reserve is insufficient to offset, any excess is adjusted to retained earnings. When long-term equity investments are obtained through business combination under common control achieved in stages, the Company determines whether it is a “bundled transaction”.If it is a “bundled transaction”, stages as a whole are considered as one transaction in accounting treatment. If it is not a “bundled transaction”, investment cost is initially recognized at the share of the carrying amount of net assets of the combined party included the consolidated financial statements of the ultimate controlling party. The difference between the acquisition-date investment cost of long-term equity investments and the carrying amount of the previously held long-term equity investments plus the carrying amount of the consideration paid for the newly acquired equity is adjusted to capital reserve; if the balance of capital reserve is insufficient to offset, any excess is adjusted to retained earnings. (2) For business combination not under common control, investment cost is initially recognized at the acquisition-date fair value of considerations paid. When long-term equity investments are obtained through business combination not under common control achieved in stages, the Company determined whether they are stand-alone financial statements or consolidated financial statements in accounting treatment: 1) In the case of stand-alone financial statements, investment cost is initially recognized at the carrying amount of the previously held long-term equity investments plus the carrying amount of the consideration paid for the newly acquired equity. 2) In the case of consolidated financial statements, the Company determines whether it is a “bundled transaction”. If it is a “bundled transaction”, stages as a whole are considered as one transaction in accounting treatment. If it is not a “bundled transaction”, the carrying value of the acquirer’s previously held equity interest in the acquire is re-measured at the acquisition-date fair value, and the difference between the fair value and the carrying amount is recognized in investment income; when the acquirer’s previously held equity interest in the acquire involves other comprehensive income under equity method, the related other comprehensive income is reclassified as income for the acquisition period, excluding other comprehensive income arising from changes in net liabilities or assets from re-measurement of defined benefit plan of the acquiree. (3) Long-term equity investment obtained through ways other than business combination: the initial cost of a long-term equity investment obtained by making payment in cash is the purchase cost which is actually paid; that obtained on the basis of issuing equity securities is the fair value of the equity securities issued; that obtained through debt restructuring is determined according to “CASBE12 - Debt Restructuring”; and that obtained through non-cash assets exchange is determined according to “CASBE7 - Non-cash Assets Exchange”. 3. Subsequent measurement and recognition method of gain or loss For long-term equity investment with control relationship, it is accounted for with cost method; for long-term equity investment with joint control or significant influence relationship, it is accounted for with equity method. 4. Disposal of a subsidiary in stages resulting in the Company’s loss of control (1) Stand-alone financial statements The difference between the carrying amount of the disposed equity and the consideration obtained thereof is recognized in profit or loss. If the disposal does not result in the Company’s loss of significant influence or joint control, the remained equity is accounted for with equity method; however, if the disposal results in the Company’s loss of control, joint control, or significant influence, the remained equity is reclassified as available-for-sale financial assets, and accounted for according to CASBE 22 –Financial Instruments: Recognition and Measurement. 128 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (2) Consolidated financial statements 1) Disposal of a subsidiary in stages not qualified as “bundled transaction” resulting in the Company’s loss of control Before the Company’s loss of control, the difference between the disposal consideration and the proportionate share of net assets in the disposed subsidiary from acquisition date or combination date to the disposal date is adjusted to capital reserve (capital premium), if the balance of capital reserve is insufficient to offset, any excess is adjusted to retained earnings. When the Company loses control, the remained equity is re-measured at the loss-of-control-date fair value. The aggregated value of disposal consideration and the fair value of the remained equity, less the share of net assets in the disposed subsidiary held before the disposal from the acquisition date or combination date to the disposal date is recognized in investment income in the period when the Company loses control over such subsidiary, and meanwhile goodwill is offset correspondingly. Other comprehensive income related to equity investments in former subsidiary is reclassified as investment income upon the Company’s loss of control. 2) Disposal of a subsidiary in stages qualified as “bundled transaction” resulting in the Company’s loss of control In case of “bundled transaction”, stages as a whole are considered as one transaction resulting in loss of control in accounting treatment. Before the Company loses control, the difference between the disposal consideration at each stage and the proportionate share of net assets in the disposed subsidiary is recognized as other comprehensive income at the consolidated financial statements and reclassified as profit or loss in the period when the Company loses control over such subsidiary. (XV) Investment property 1. Investment property includes land use right of rent-out property and of property held for capital appreciation and buildings that have been leased out. 2. The initial measurement of investment property is based on its cost, and subsequent measurement is made using the cost model, the depreciation or amortization method is the same as that of fixed assets and intangible assets. (XVI) Fixed assets 1. Recognition principles of fixed assets Fixed assets are tangible assets held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and expected to be used during more than one accounting year. Fixed assets are recognized if, and only if, it is probable that future economic benefits associated with the assets will flow to the Company and the cost of the assets can be measured reliably. 2. Depreciation method of different categories of fixed assets Estimated residual Annual Categories Depreciation method Useful life value proportion depreciation (years) (%) rate (%) Buildings and structures Straight-line method 15-35 3.00 2.77-6.47 Machinery Straight-line method 10-15 3.00 6.47-9.70 Transport facilities Straight-line method 6-8 3.00 12.13-16.17 Electronic equipment Straight-line method 4-11 3.00 2.2-24.25 Office equipment and others Straight-line method 4-11 3.00 2.2-24.25 3. Recognition and pricing principles of fixed assets rented-in under finance lease Finance lease is determined when one or a combination of the following conditions are satisfied: (1) the ownership has been transferred to the lessee when the leasing term is due; (2) the lessee has the option to purchase the leasing asset at a price that is much lower than its fair value, so it can be reasonably determined that the lessee will take the option at the very beginning of 129 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report the lease; (3) the leasing term accounts for most time of the useful life (ordinarily accounting for 75% or higher) even if the ownership does not transfer to the lessee; (4) the present value of the minimum amount of rent that the lessee has to pay at the first day of the lease amounts to 90% or higher of its fair value at the same date; or the present value of the minimum amount of rent that the lessor collects at the first day of the lease amounts to 90% or higher of its fair value at the same date; and/or (5) the leased assets are of such a specialized nature that only the lessee can use them without major modifications. Fixed assets rented-in under finance lease are recorded at the lower of fair value and the present value of the minimum lease payment at the inception of the lease, and are depreciated following the depreciation policy for self-owned fixed assets. (XVII) Construction in progress 1. Construction in progress is recognized if, and only if, it is probable that future economic benefits associated with the item will flow to the Company, and the cost of the item can be measured reliably. Construction in progress is measured at the actual cost incurred to reach its designed usable conditions. 2. Construction in progress is transferred into fixed assets at its actual cost when it reaches its designed usable conditions. When the construction completion cost reaches final estimating and auditing of the construction in progress was not finished while it reaching the designed usable conditions, it is transferred to fixed assets using estimated value first, and then adjusted accordingly when the actual cost is settled, but the accumulated depreciation is not to be adjusted retrospectively. (XVIII) Borrowing costs 1. Recognition principle of borrowing costs capitalization Where the borrowing costs incurred to the Company can be directly attributable to the acquisition and construction or production of assets eligible for capitalization, it is capitalized and included in the costs of relevant assets; other borrowing costs are recognized as expenses on the basis of the actual amount incurred, and are included in profit or loss. 2. Borrowing costs capitalization period (1) The borrowing costs are not capitalized unless they following requirements are all met: 1) the asset disbursements have already incurred; 2) the borrowing costs have already incurred; and 3) the acquisition and construction or production activities which are necessary to prepare the asset for its intended use or sale have already started. (2) Suspension of capitalization: where the acquisition and construction or production of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs is suspended; the borrowing costs incurred during such period are recognized as expenses, and are included in profit or loss, till the acquisition and construction or production of the asset restarts. (3) Ceasing of capitalization: when the qualified asset under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs is ceased. 3. Capitalization rate and capitalized amount of borrowing costs For borrowings exclusively for the acquisition and construction or production of assets eligible for capitalization, the to-be-capitalized amount of interests is determined in light of the actual interest expenses incurred (including amortization of premium or discount based on effective interest method) of the special borrowings at the present period minus the income of interests earned on the unused borrowings as a deposit 130 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report in the bank or as a temporary investment; where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the Company calculates and determines the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. (XIX) Intangible assets 1. Intangible asset includes land use right, patent right and non-patented technology etc. The initial measurement of intangible asset is based its cost. 2. For intangible assets with finite useful lives, its amortization amount is amortized within its useful lives systematically and reasonably, if it is unable to determine the expected realization pattern reliably, intangible assets are amortized by the straight-line method with details as follows: Items Amortization period (years) Software 3-10 Patent right and non-patented technology 5-10 Land use right 40-50 3. Expenditures on the research phase of an internal project are recognized as profit or loss when it is incurred. An intangible asset arising from the development phase of an internal project is recognized if the Company can demonstrate all of the following: (1) the technical feasibility of completing the intangible asset so that it will be available for use or sale; (2) its intention to complete the intangible asset and use or sell it; (3) how the intangible asset will generate probable future economic benefits. Among other things, the Company can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; (4) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and (5) its ability to measure reliably the expenditure attributable to the intangible asset during its development. (XX) Impairment of part of non-current assets For non-current assets such as long-term equity investments, investment property at cost model, fixed assets, construction in progress, intangible assets with finite useful life, etc., if at the balance sheet date there is indication of impairment, the recoverable amount is estimated. For goodwill recognized in business combination and intangible assets with indefinite useful life, no matter whether there is indication of impairment, impairment test is performed annually. Impairment test on goodwill is performed on related group of assets or a portfolio of groups of assets. When the recoverable amount of such non-current assets is lower than their carrying amount, the difference is recognized as assets impairment loss through profit or loss. (XXI) Long-term prepayments Long-term prepayments are expenses that have been recognized but with amortization period over one year (excluding one year). They are recorded with actual cost, and evenly amortized within its beneficiary period or stipulated period. If items of long-term prepayments fail to be beneficial to the following accounting periods, residual values of such items are included in profit or loss. (XXII) Employee benefits 131 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 1. Employee benefits include short-term employee benefits, post-employment benefits, termination benefits and other long-term employee benefits. 2. Short-term employee benefits The Company recognizes, in the accounting period in which an employee provides service, short-term employee benefits actually incurred as liabilities, with a corresponding charge to profit or loss or the cost of a relevant asset. 3. Post-employment benefits The Company classifies post-employment benefit plans as either defined contribution plans or defined benefit plans. (1) The Company recognizes in the accounting period in which an employee provides service the contribution payable to a defined contribution plan as a liability, with a corresponding charge to profit or loss or the cost of a relevant asset. (2) Accounting treatment by the Company for defined benefit plan usually involves the following steps: 1) In accordance with the projected unit credit method, using unbiased and mutually compatible actuarial assumptions to estimate related demographic variables and financial variables, measure the obligations under the defined benefit plan, and determine the periods to which the obligations are attributed. The Company discounts obligations under the defined benefit plan using the discount rate to determine the present value of the defined benefit plan obligations and the current service cost; 2) When a defined benefit plan has assets, the Company recognizes the deficit or surplus by deducting the present value of the defined benefit plan obligation from the fair value of defined benefit plan assets as a net defined benefit plan liability or net defined benefit plan asset. When a defined benefit plan has a surplus, the Company measures the net defined benefit plan asset at the lower of the surplus in the defined benefit plan and the asset ceiling; 3) At the end of reporting period, the Company recognizes the following components of employee benefits cost arising from defined benefit plan: a. service cost; b. net interest on the net defined benefit plan liability (asset); and c. Changes as a result of re-measurement of the net defined benefit liability (asset). Item a and item b are recognized in profit or loss or the cost of a relevant asset. Item c is recognized in other comprehensive income and is not to be reclassified subsequently to profit or loss. However, the Company may transfer those amounts recognized in other comprehensive income within equity. 4. Termination benefits Termination benefits provided to employees are recognized as an employee benefit liability for termination benefits, with a corresponding charge to profit or loss at the earlier of the following dates: a. when the Company cannot unilaterally withdraw the offer of termination benefits because of an employment termination plan or a curtailment proposal; or b. when the Company recognizes cost or expenses related to a restructuring that involves the payment of termination benefits. 5. Other long-term employee benefits When other long-term employee benefits provided by the Company to the employees satisfied the conditions for classifying as a defined contribution plan, those benefits are accounted for in accordance with the requirements relating to defined contribution plan. The Company recognizes and measures the net liability or net asset of other long-term employee benefits in accordance with the requirements relation to defined benefit plan. At the end of the reporting period, the Company recognizes the components of cost of employee benefits arising from other long-term employee benefits as the followings: a. service cost; b. net interest on the net liability or net assets of other long-term employee benefits; and c. changes as a result of re-measurement of the net liability or net assets of other long-term employee benefits. As a practical expedient, the net total of the aforesaid amounts are recognized in profit or loss or included in the cost of a relevant asset. (XXIII) Provisions 1. Provisions are recognized when fulfilling the present obligations arising from contingencies such as 132 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report providing guarantee for other parties, litigation, products quality guarantee, onerous contract, etc., may cause the outflow of the economic benefit and such obligations can be reliably measured. 2. The initial measurement of provisions is based on the best estimated expenditures required in fulfilling the present obligations, and its carrying amount is reviewed at the balance sheet date. (XXIV) Revenue 1. Revenue recognition principles (1) Sale of goods Revenue from sale of goods is recognized if, and only if, the following conditions are all satisfied: a) significant risks and rewards of ownership of the goods is transferred to the buyer; b) the Company retains neither continuing managerial involvement of ownership nor effective control over the goods sold; c) the amount of revenue can be measured reliably; d) it is probable that the economic benefits of the transaction will flow to the Company; and e) the costs of the transaction incurred and to be incurred can be measured reliably. (2) Rendering of services When the outcome of the transaction can be estimated reliably (the amount of revenue can be measured reliably, it is probable that the economic benefits will flow to the Company, the percentage of completion of the transaction can be determined reliably, and the costs of the transaction incurred and to be incurred can be measured reliably), revenue from rendering of services is recognized using the percentage of completion method, and the stage of completion is determined at the proportion of costs incurred to the estimated total costs. When the outcome of the transaction cannot be estimated reliably at the balance sheet date, revenue is recognized based on the amount of the costs incurred and the costs incurred are charged off at the same amount when the costs incurred are expected to be recoverable; and no revenue is recognized and the costs incurred are charged off as an expense of the period when the costs incurred are not expected to be recovered. (3) Revenue arising from use by others of assets Revenue arising from use by others of assets is recognized if, and only if, it is probable that economic benefits associated with the transaction will flow to the Company and the amount of the revenue can be measured reliably. Interest income is recognized based on the length of time for which the Company’s cash is used by others and the effective interest rate; and royalties are recognized according to the period and method of charging as specified in relevant contract or agreement. 2. Revenue recognition method adopted by the Company The Company’s main product is the telecommunication product. Revenue is recognized if, and only if, the following conditions are all met: the Company has delivered goods to the purchaser based on contractual agreements; customers have accepted goods and settled the payment; goods payment has been collected or the Company has obtained receipts invoices and it is probable that economic benefits associated with the transaction will flow to the Company; and the costs of the transaction incurred and to be incurred can be 133 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report measured reliably. (XXV) Government grants 1. Government grants related to assets Government grants related to assets are government grants, with which the Company purchase, construct or otherwise acquire non-current assets. They are recognized as deferred income, and amortized on a straight-line method over the useful lives of the relevant assets, and included in profit or loss. However, those measured at notional amount is directly included into profit or loss. 2. Government grants related to income Government grants related to income are government grants other than those related to assets. Government grants related to income if used for compensating the related future expenses or losses of the Company are recognized as deferred income and are included in profit or loss during the period when the relevant expenses are recognized; if used for compensating the related expenses or losses incurred to the Company are directly included in profit or loss. (XXVI) Deferred tax assets/Deferred tax liabilities 1. Deferred tax assets or deferred tax liabilities are calculated and recognized based on the difference between the carrying amount and tax base of assets and liabilities (and the difference of the carrying amount and tax base of items not recognized as assets and liabilities but with their tax base being able to be determined according to tax laws) and in accordance with the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled. 2. A deferred tax asset is recognized to the extent of the amount of the taxable income, which it is most likely to obtain and which can be deducted from the deductible temporary difference. At the balance sheet date, if there is any exact evidence that it is probable that future taxable profits will be available against which deductible temporary differences can be utilized, the deferred tax assets unrecognized in prior periods are recognized. 3. At the balance sheet date, the carrying amount of deferred tax assets is reviewed. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the benefit of the deferred tax asset to be utilized. Such reduction is subsequently reversed to the extent that it becomes probable that sufficient taxable income will be available. 4. The income tax and deferred tax for the period are treated as income tax expenses or income through profit or loss, excluding those arising from the following circumstances: (a) business combination; and (b) the transactions or items directly recognized in equity. (XXVII) Leases 1. Operating leases When the Company is the lessee, lease payments are recognized as cost or profit or loss with straight-line method/unit-of-production method over the lease term. Initial expenses are recognized directly into profit or loss. Contingent rents are charged as profit or loss in the periods in which they are incurred. When the Company is the lessor, lease income is recognized as profit or loss with straight-line method/unit-of-production method over the lease term. Initial expenses, other than those with material amount and eligible for capitalization which are recognized as profit or loss by installments, are recognized 134 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report directly as profit or loss. Contingent rents are charged as profit or loss in the periods in which they are incurred. 2. Finance leases When the Company is the lessee, at the commencement of the lease term, lessees recognize finance leases as assets and liabilities in their balance sheets at amounts equal to the lower of fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease, and recognize the minimum lease payments as the entering value of long-term payable, and treat the difference of the two as unrecognized finance expense. Any initial direct costs of the lessee are added to the amount recognized as an asset. The effective interest method is used to recognize finance expense of the period during the lease term. When the Company is the lessor, at the commencement of the lease, lessor recognizes the aggregate of minimum lease receipts and initial direct costs, each determined at the inception of the lease, as the entering value of finance lease receivables, and recognize the unguaranteed residual value at the same time. The difference between the aggregate of the minimum lease receipts, the initial direct costs and the unguaranteed residual value, and the sum of their present values is recognized as unrealized finance income. The effective interest method is used to recognize finance income of the period during the lease term. (XXVIII) Segment reporting Reportable segments are identified based on operating segments which are determined based on the structure of the Company’s internal organization, management requirements and internal reporting system. An operating segment is a component of the Company that: 1.Engages in business activities from which it may earn revenues and incur expenses; 2.Whose financial performance are regularly reviewed by Management to make decisions about resource to be allocated to the segment and assess its performance; and 3. For which financial information regarding financial position, financial performance and cash flows is available. (XXIX) Other significant accounting policies and estimates 1. Recognition criteria and accounting treatment of discontinued operations A component of the Company that has been disposed of, or is classified as held for sale and can be clearly distinguished is recognized as a discontinued operation when it fulfills any of the following conditions: (1) it represents a separate major line of business or a separate geographical area of operations; (2) it is part of a related plan to dispose of a separate major line of business or a separate geographical area of operations; or (3) it is a subsidiary acquired exclusively with a review to resale. (XXX) Significant changes in accounting policies and estimates 1. Significant changes in accounting policies (1) Changes in accounting policies arising from changes in CASBEs a. The Company prepared the financial statements for the year ended December 31, 2018 in accordance with “Notice of the Ministry of Finance on Revising and Issuing Financial Statement Templates for General Enterprises” (numbered Cai Kuai 135 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report [2018] 15), its interpretations and CASBEs, and changes in accounting policies are applicable to retrospective application method. Financial statement items and amounts significantly affected are as follows: Original financial statement items and amounts Revised financial statement items and amounts Notes receivable 32,477,463.59 Notes receivable and 812,567,071.00 Accounts receivable 780,089,607.41 accounts receivable Notes payable 20,161,687.14 Notes payable and accounts 826,833,861.31 Accounts payable 806,672,174.17 payable Interest payable 531,667.36 Dividend payable 1,692,213.38 Other payables 63,027,802.63 Other payables 60,803,921.89 Administrative expenses 76,037,302.46 Administrative expenses 143,924,331.99 R&D expenses 67,887,029.53 Note: Government grants related to assets actually received in amount of XX yuan which was presented under “other cash receipts related to investing activities” is adjusted to be presented under “other cash receipts related to operating activities”. b. The Ministry of Finance of PRC has promulgated “Interpretation of the Accounting Standard for Business Enterprises No.9 – Accounting Treatment of Net Investment Loss under Equity Method”, “Interpretation of the Accounting Standard for Business Enterprises No.10 – Depreciation Method Based on Income from Fixed Assets”, “Interpretation of the Accounting Standard for Business Enterprises No.11 – Amortization Method Based on Income from Intangible Assets” and “Interpretation of the Accounting Standard for Business Enterprises No.12 – About Whether Provider and Receiver of Key Management’s Services are Related Parties” in 2017, and the Company adopted the above interpretations since January 1, 2018. Adoption of these interpretations has no significant impact on the Company’s financial data at the beginning of the period. 2. Significant changes in accounting estimates IV. Taxes (I) Main taxes and tax rates Taxes Tax bases Tax rates Value-added tax (VAT) The taxable revenue from sales of goods or 17%,16%,6% rendering of services For housing property levied on the basis of price, housing property tax is levied at the rate of 1.2% of the balance after deducting 30% of the cost; for Housing property tax 1.2%,12% housing property levied on the basis of rent, housing property tax is levied at the rate of 12% of rent revenue. Urban maintenance and Turnover tax payable 7% construction tax Education surcharge Turnover tax payable 3% Local education surcharge Turnover tax payable 2% Enterprise income tax Taxable income 15%,16.5%,25% 136 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Different enterprise income tax rates applicable to different taxpayers: Taxpayers Income tax rate The Company 15% Nanjing Mennekes Electric Appliances Co., Ltd 15% Nanjing Putian Telege Intelligent Building Ltd. 15% Nanjing Putian Changle Telecommunications Equipment Co., Ltd. 15% Nanjing Putian Datang Information Electronic Co., Ltd. 15% Nanjing Putian Network Co., Ltd. 15% Putian Telecommunications (H.K.) Co., Ltd. 16.5% Taxpayers other than the above-mentioned 25% The subsidiary, Putian Telecommunications (H.K.) Co., Ltd., was established in Hong Kong on December 1, 2000, and is subject to the enterprise income tax at a rate of 16.5%, according to relevant rules in Hong Kong. (II) Tax preferential policies The Company obtained high-tech enterprise certificate in December, 2018, valid for 3 years. It is subject to the enterprise income tax at a rate of 15% The subsidiary, Nanjing Putian Telege Intelligent Building Ltd., obtained high-tech enterprise certificate in December, 2017, valid for 3 years. It is subject to the enterprise income tax at a rate of 15%. The subsidiary, Nanjing Mennekes Electric Appliances Co., Ltd obtained high-tech enterprise certificate in October, 2016, valid for 3 years. It is subject to the enterprise income tax at a rate of 15%. The subsidiary, Nanjing Putian Changle Telecommunications Equipment Co., Ltd., obtained high-tech enterprise certificate in October, 2018, valid for 3 years. It is subject to the enterprise income tax at a rate of 15%. The subsidiary, Nanjing Putian Network Co., Ltd., obtained high-tech enterprise certificate in December, 2017, valid for 3 years. It is subject to the enterprise income tax at a rate of 15%. The subsidiary, Nanjing Putian Datang Information Electronic Co., Ltd., obtained high-tech enterprise certificate in November, 2018, valid for 3 years. It is subject to the enterprise income tax at a rate of 15%. The subsidiary, Nanjing Telecommunication Equipment Factory - the Seventh Branch, is a social welfare enterprise. Accordance to the provisions of Guo Shui Fa [2007] No.067, it enjoys the preferential tax policy of VAT refund upon collection and plus deduction of wages paid to the disabled employees. The subsidiaries, Nanjing Putian Datang Information Electronic Co., Ltd. and Nanjing Putian Telecommunication Technology Co., Ltd., were certified as software enterprises, and some of the software products produced by Nanjing South Telecommunications Company Limited and Nanjing Putian Network Co., Ltd. are entitled to enjoy the preferential tax policy of VAT refund upon collection in accordance with the provisions of Cai Shui [2011] No.100. 137 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report V. Notes to items of consolidated financial statements (I) Notes to items of the consolidated balance sheet 1. Cash and bank balances (1) Details Items Closing balance Opening balance Cash on hand 1,886.33 5,458.17 Cash in bank 201,367,431.09 311,051,461.00 Other cash and bank balances 60,568,751.30 16,420,782.19 Total 261,938,068.72 327,477,701.36 (2) Details of other cash and bank balances Items Closing balance Opening balance Bank acceptance deposit 38,442,848.22 deposit for L/G 22,125,903.08 16,420,782.19 Total 60,568,751.30 16,420,782.19 2. Notes receivable and accounts receivable (1) Details Items Closing balance Opening balance Notes receivable 46,475,656.01 32,477,463.59 Accounts receivable 941,068,459.35 780,089,607.41 Total 987,544,115.36 812,567,071.00 (2) Notes receivable 1) Details Closing balance Opening balance Items Book balance Provision for Carrying Book balance Provision for Carrying bad debts amount bad debts amount Bank 37,837,668.81 37,837,668.81 20,715,749.22 20,715,749.22 acceptance Trade 8,637,987.20 8,637,987.20 11,761,714.37 11,761,714.37 acceptance Total 46,475,656.01 46,475,656.01 32,477,463.59 32,477,463.59 2) Endorsed or discounted but undue notes at the balance sheet date Items Closing balance derecognized Closing balance not yet derecognized Bank acceptance 204,608,629.46 Trade acceptance 4,871,041.97 Subtotal 209,479,671.43 Due to the fact that the acceptor of bank acceptance is commercial bank, which is of high credit level, there is very little possibility of failure in recoverability when it is due. Based on this fact, the Company derecognized the endorsed or discounted 138 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report bank acceptance. However, if any bank acceptance is not recoverable when it is due, the Company still holds joint liability on such acceptance, according to the China Commercial Instrument Law. In the current period, trade acceptance is endorsed for goods payment. As it relates to many endorsements and the drawer is always in good commercial credit level, it is with low default risk and thus derecognized. 3) Translated to accounts receivable due to drawers not redeem the agreement at the balance sheet date Items Closing balance translated to accounts receivable Trade acceptance 448,319.70 Subtotal 448,319.70 (3) Notes receivable 1) Details a. Details on categories Closing balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) Receivables of individually significant amount and with provision made on an individual basis Receivables with provision made on a collective basis 985,126,409.03 98.78 44,057,949.68 4.47 941,068,459.35 using portfolios with similar credit risk features Portfolio 1 Portfolio 2 985,126,409.03 98.78 44,057,949.68 4.47 941,068,459.35 Receivable of individually insignificant amount but 12,162,142.76 1.22 12,162,142.76 100.00 with provision made on an individual basis Total 997,288,551.79 100.00 56,220,092.44 5.64 941,068,459.35 (Continued) Opening balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) Receivables of individually significant amount and with provision made on an individual basis Receivables with provision made on a collective basis 815,282,308.11 98.56 35,192,700.70 4.32 780,089,607.41 using portfolios with similar credit risk features Portfolio 1 139 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Opening balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) Portfolio 2 815,282,308.11 98.56 35,192,700.70 4.32 780,089,607.41 Receivable of individually insignificant amount but 11,901,554.08 1.44 11,901,554.08 100.00 with provision made on an individual basis Total 827,183,862.19 100.00 47,094,254.78 5.69 780,089,607.41 b. In portfolios, accounts receivable with provision made on a collective basis with age analysis method Closing balance Ages Book balance Provision for bad debts Provision proportion (%) Within 1 year 759,064,787.67 1-2 years 116,414,243.85 2-3 years 46,975,564.97 4,697,556.51 10.00 3-4 years 19,701,035.07 5,910,310.52 30.00 4-5 years 14,282,491.27 5,712,996.51 40.00 5-6 years 4,756,000.28 3,804,800.23 80.00 Over 6 years 23,932,285.92 23,932,285.91 100.00 Subtotal 985,126,409.03 44,057,949.68 2) Provisions made, collected or reversed in current period Provision for bad debts made in current period totaled 8,864,988.98 yuan, and provision increased due to fluctuations in exchange totaled 260,848.68yuan. 3) Details of the top 5 debtors with largest balances Proportion to the Debtors Book balance total balance of Provision for accounts bad debts receivable (%) Beijing UniStrong Science & Technology Co., Ltd. 52,167,500.00 5.23 Beijing Zhongrui Haotian Information Technology 30,300,000.00 3.04 Co., Ltd. China United Network Communications Group Co., 28,936,702.90 2.90 Ltd., Henan Branch Beijing Transtrue Technology Inc. 28,851,409.75 2.89 Shenzhen PEMT Technology Co., Ltd. 27,766,504.60 2.78 Subtotal 168,022,117.25 16.84 557,462.59 3. Advances paid (1) Age analysis 140 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Closing balance Ages Book balance % to total Provision for bad Carrying amount debts Within 1 year 179,718,854.19 95.17 179,718,854.19 1-2 years 3,256,231.30 1.72 3,256,231.30 2-3 years 1,176,772.69 0.62 1,176,772.69 Over 3 years 4,696,854.51 2.49 4,696,854.51 Total 188,848,712.69 100.00 188,848,712.69 (Continued) Opening balance Ages Book balance % to total Provision for bad Carrying amount debts Within 1 year 36,704,841.98 68.20 36,704,841.98 1-2 years 11,206,192.14 20.82 11,206,192.14 2-3 years 1,456,310.44 2.70 1,456,310.44 Over 3 years 4,454,593.23 8.28 4,454,593.23 Total 53,821,937.79 100.00 53,821,937.79 (2) Details of the top 5 debtors with largest balances Proportion to the total Debtors Closing balance balance of advances paid (%) Shanghai Xingditong Communication Technology 97,513,446.00 51.64 Co., Ltd. Jiangsu Sainty Machinery IMP.&EXP.Co.,Ltd. 43,039,580.69 22.79 Shaanxi Xinjiang Technology Information Co., Ltd. 11,596,000.00 6.14 Zhejiang Xinwang Energy Engineering Co., Ltd. 3,516,413.77 1.86 Jiangsu Xinxin Home Network Technology Co., 2,380,440.00 1.26 Ltd. Subtotal 158,045,880.46 83.69 4. Other receivables (1) Details Items Closing balance Opening balance Interest receivable Dividend receivable Other receivables 33,734,948.67 29,325,423.73 Total 33,734,948.67 29,325,423.73 141 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (2) Other receivables 1) Details a. Details on categories Closing balance Categories Book balance Provision for bad debts Carrying amount Amount % to total Amount Provision proportion (%) Receivables of individually significant amount and with 28,912,122.71 42.85 28,912,122.71 100.00 provision made on an individual basis Receivables with provision made on a collective basis 38,562,293.97 57.15 4,827,345.30 12.52 33,734,948.67 using portfolios with similar credit risk features Including: Portfolio 1 Portfolio 2 38,562,293.97 57.15 4,827,345.30 12.52 33,734,948.67 Receivable of individually insignificant amount but with provision made on an individual basis Total 67,474,416.68 100.00 33,739,468.01 50.00 33,734,948.67 (Continued) Opening balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) Receivables of individually significant amount and with 28,912,122.71 45.97 28,912,122.71 100.00 provision made on an individual basis Receivables with provision made on a collective basis 33,987,705.89 54.03 4,662,282.16 13.72 29,325,423.73 using portfolios with similar credit risk features Including: Portfolio 1 Portfolio 2 33,987,705.89 54.03 4,662,282.16 13.72 29,325,423.73 Receivable of individually insignificant amount but with provision made on an individual basis Total 62,899,828.60 100.00 33,574,404.87 53.38 29,325,423.73 b. Other receivables of individually significant amount and with provision made on an individual basis Debtors Book balance Provision for Provision Reasons for bad debts proportion (%) provision made With long age 北京立康普通信设备有限公司 28,912,122.71 28,912,122.71 100.00 and hard to (Beijing Likangpu Communications recover 142 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Debtors Book balance Provision for Provision Reasons for bad debts proportion (%) provision made Equipment Co., Ltd.1) Subtotal 28,912,122.71 28,912,122.71 100.00 c. In portfolios, other receivables with provision made on a collective basis with age analysis method Closing balance Ages Book balance Provision for bad debts Provision proportion (%) Within 1 year 24,688,722.26 1-2 years 5,852,249.67 2-3 years 2,153,959.22 215,395.92 10.00 3-4 years 1,414,598.00 424,379.40 30.00 4-5 years 310,993.92 124,397.57 40.00 5-6 years 392,992.43 314,393.94 80.00 Over 6 years 3,748,778.47 3,748,778.47 100.00 Subtotal 38,562,293.97 4,827,345.30 2) Provisions made, collected or reversed in current period Provision for bad debts made in current period totaled 206,402.92 yuan, the deduction of write-off of bad debts provision for this period totaled 42,828.80,and provision increased due to fluctuations in exchange totaled 1,489.02 yuan. 3) Other receivables categorized by nature Nature of receivables Closing balance Opening balance Temporary advance payment receivable 33,879,523.33 27,377,794.22 Deposits 24,126,517.87 21,876,987.95 Petty cash for business traveling 2,652,720.79 2,856,176.36 Others 6,815,654.69 10,788,870.07 Total 67,474,416.68 62,899,828.60 4) Details of the top 5 debtors with largest balances Proportion to the Debtors Book balance Ages total balance of Provision for Nature of receivables other receivables bad debts (%) Beijing Likangpu Temporary advance 28,912,122.71 42.85 28,912,122.71 Communications Over 6 years payment receivable Equipment Co., Ltd. Ping An International 4,000,000.00 5.93 Deposits Within 1 year Financial Leasing Co., Ltd. China Potevio Deposits 3,839,000.00 1-3 years 5.69 40,000.00 Information 1 The English name is for identification purpose only. 143 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Proportion to the Debtors Book balance Ages total balance of Provision for Nature of receivables other receivables bad debts (%) Industry Inc Temporary advance 1,972,731.64 2.92 VAT refund Within 1 year payment receivable Potevio Hi-tech Temporary advance 1,209,297.25 1.79 Within 1 year Industry Co., Ltd. payment receivable Subtotal 39,933,151.60 59.18 28,952,122.71 5. Inventories (1) Details Closing balance Opening balance Items Book Provision for Carrying amount Book balance Provision for Carrying amount balance write-down write-down Raw materials 84,431,224.04 3,401,987.55 81,029,236.49 32,589,471.27 2,938,752.56 29,650,718.71 Work in process 33,004,830.02 33,004,830.02 9,304,009.61 9,304,009.61 Goods on hand 80,895,523.20 7,337,485.59 73,558,037.61 310,378,245.32 3,087,176.10 307,291,069.22 Merchandise shipped 108,005,683.58 13,804,319.56 94,201,364.02 147,425,970.58 7,758,200.35 139,667,770.23 Materials in 5,983,856.44 804,691.99 5,179,164.45 4,789,181.58 804,691.99 3,984,489.59 consignors Total 312,321,117.28 25,348,484.69 286,972,632.59 504,486,878.36 14,588,821.00 489,898,057.36 (2) Provision for inventory write-down Increase Decrease Items Opening balance Closing balance Provision Others Reversal or Others written-off Raw materials 2,938,752.56 536,531.98 73,296.99 3,401,987.55 Goods on hand 3,087,176.10 4,299,904.00 49,594.51 7,337,485.59 Goods dispatched 7,758,200.35 6,691,467.47 645,348.26 13,804,319.56 Materials on consignment for further 804,691.99 804,691.99 processing Subtotal 14,588,821.00 11,527,903.45 768,239.76 25,348,484.69 6. Other current assets Items Closing balance Opening balance Input VAT to be credited 13,497,540.69 45,282,892.44 Total 13,497,540.69 45,282,892.44 7. Available-for-sale financial assets (1) Details Closing balance Opening balance Items Book balance Provision for Carrying Book balance Provision for Carrying impairment amount impairment amount 144 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Closing balance Opening balance Items Book balance Provision for Carrying Book balance Provision for Carrying impairment amount impairment amount Available-for-sale equity instrument Including: at cost 2,596,863.00 1,854,910.00 741,953.00 2,596,863.00 1,854,910.00 741,953.00 Total 2,596,863.00 1,854,910.00 741,953.00 2,596,863.00 1,854,910.00 741,953.00 (2) Available-for-sale financial assets at cost Book balance Investees Opening Increase Decrease Closing balance balance Nanjing Yuhua Electroplating Factory 420,915.00 420,915.00 Hangzhou Honyar Electrical Co., Ltd. 321,038.00 321,038.00 Beijing Likangpu Communications 1,854,910.00 1,854,910.00 Equipment Co., Ltd. [Note] Subtotal 2,596,863.00 2,596,863.00 (Continue) Provision for impairment Holding Cash dividend Investees proportion in in current Opening Increase Decrease Closing investees (%) period balance balance Nanjing Yuhua 10.00 Electroplating Factory Hangzhou Honyar 2.26 Electrical Co., Ltd. Beijing Likangpu Communications 1,854,910.00 1,854,910.00 51.00 Equipment Co., Ltd. [Note] Subtotal 1,854,910.00 1,854,910.00 Note: Up to the end of 2007, Beijing Likangpu Communications Equipment Co., Ltd. was significantly insolvent and was shut down with no operations since 2008. In October 2007, Beijing Administration for Industry and Commerce issued the decision on treatment of cancellation of license and required it to carry out liquidation under laws and regulations. Pursuant to “CASBE 33 - Consolidated Financial Statements”, Beijing Likangpu Communications Equipment Co., Ltd. shall no longer be brought into consolidation scope since 2008 and such event has been reported to China Potevio Information Industry Inc. and State-owned Assets Supervision and Administration Commission of the State Council. 8. Long-term equity investments (1) Categories Closing balance Opening balance Items Book balance Provision for Carrying Book balance Provision for Carrying impairment amount impairment amount Investments in 11,128,318.34 11,128,318.34 13,296,092.84 13,296,092.84 joint ventures Investments in 172,115,761.89 172,115,761.89 173,681,413.39 173,681,413.39 associates Total 183,244,080.23 183,244,080.23 186,977,506.23 186,977,506.23 145 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (2) Details Increase/decrease Opening Investees Adjustment in Investment income balance Investments Investments other recognized under increased decreased comprehensive equity method income Joint ventures SEI-Nanjing Potevio Optical 13,296,092.84 -2,167,774.50 Network Co., Ltd. Subtotal 13,296,092.84 -2,167,774.50 Associates Nanjing Potevio Telege Cable Co., 3,040,101.44 1,406,238.47 Ltd. Potevio Hi-tech Industry Co., Ltd. 170,641,311.95 488,154.17 173,681,413.3 Subtotal -918,084.30 9 186,977,506.2 Total -3,085,858.80 3 (Continued) Increase/decrease Closing balance Investees Cash Closing balance of provision for Changes in dividend/profit Provision for Others impairment other equity declared for impairment distribution Joint ventures SEI-Nanjing Potevio Optical 11,128,318.34 Network Co., Ltd. Subtotal 11,128,318.34 Associates Nanjing Potevio Telege 450,000.00 1,183,862.97 Cable Co., Ltd. Potevio Hi-tech Industry Co., 197,567.20 170,931,898.92 Ltd. Subtotal 647,567.20 172,115,761.89 Total 647,567.20 183,244,080.23 9. Investment property Items Buildings and structures Land use right Total Cost Opening balance 23,851,020.30 3,642,147.87 27,493,168.17 Increase Decrease 5,204,622.95 5,204,622.95 146 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Items Buildings and structures Land use right Total 1) Transferred into fixed assets 2) Other transferred 5,204,622.95 5,204,622.95 Closing balance 18,646,397.35 3,642,147.87 22,288,545.22 Accumulated depreciation and amortization Opening balance 11,083,691.02 1,764,573.87 12,848,264.89 Increase 611,185.80 119,960.64 731,146.44 1) Accrual or amortization 611,185.80 119,960.64 731,146.44 Decrease 1,530,398.09 1,530,398.09 1) Transferred into fixed assets 2) Other transferred 1,530,398.09 1,530,398.09 Closing balance 10,164,478.73 1,884,534.51 12,049,013.24 Provision for impairment Opening balance 1,842,418.00 1,842,418.00 Increase Decrease Closing balance 1,842,418.00 1,842,418.00 Carrying amount Closing balance 6,639,500.62 1,757,613.36 8,397,113.98 Opening balance 10,924,911.28 1,877,574.00 12,802,485.28 10. Fixed assets (1) Details Office Items Buildings and Machinery Transport Electronic Total equipment structures equipment facilities equipment and others Cost 154,660,368.4 Opening balance 58,096,595.23 13,247,627.08 6,659,225.73 50,842,510.16 283,506,326.68 8 Increase 6,052,528.08 1,152,339.25 618,809.35 1,518,943.74 60,802.95 9,403,423.37 1) Acquisition 847,905.13 1,152,339.25 618,809.35 1,518,943.74 60,802.95 4,198,800.42 2) Investment 5,204,622.95 5,204,622.95 property transferred Decrease 13,978,427.88 11,738,605.66 909,877.95 800,989.49 4,436,772.77 31,864,673.75 1) Disposal/scrap 13,978,427.88 11,738,605.66 909,877.95 800,989.49 4,436,772.77 31,864,673.75 Closing balance 146,734,468.6 47,510,328.82 12,956,558.48 7,377,179.98 46,466,540.34 261,045,076.30 147 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Office Items Buildings and Machinery Transport Electronic Total equipment structures equipment facilities equipment and others 8 Accumulated depreciation Opening balance 53,189,862.57 47,038,059.99 12,073,510.18 5,875,572.02 44,637,453.40 162,814,458.16 Increase 7,094,290.32 1,443,695.06 414,175.94 717,253.62 2,160,247.91 11,829,662.85 1) Accrual 5,563,892.22 1,443,695.06 414,175.94 717,253.62 2,160,247.91 10,299,264.75 2) Investment 1,530,398.10 1,530,398.10 property transferred Decrease 9,668,203.42 11,451,668.72 856,463.77 767,685.18 4,096,656.31 26,840,677.40 1) Disposal/scrap 9,668,203.42 11,451,668.72 856,463.77 767,685.18 4,096,656.31 26,840,677.40 Closing balance 50,615,949.47 37,030,086.33 11,631,222.35 5,825,140.46 42,701,045.00 147,803,443.61 Provision for impairment Opening balance 539,124.00 10,863.02 103,112.78 296,846.94 949,946.74 Increase Decrease 92,064.43 121,056.73 213,121.16 Closing balance 539,124.00 10,863.02 11,048.35 175,790.21 736,825.58 Carrying amount Closing balance 95,579,395.21 10,469,379.47 1,325,336.13 1,540,991.17 3,589,705.13 112,504,807.11 100,931,381.9 Opening balance 11,047,672.22 1,174,116.90 680,540.93 5,908,209.82 119,741,921.78 1 (2) Fixed assets temporarily idle Items Cost Accumulated Provision for Carrying amount depreciation impairment Machinery equipment 208,085.00 192,141.10 11,048.35 4,895.55 Transport facilities 225,000.00 218,250.00 6,750.00 Electronic equipment 36,000.00 34,920.00 1,080.00 Office equipment and others 370,885.18 184,349.93 175,408.71 11,126.54 Subtotal 839,970.18 629,661.03 186,457.06 23,852.09 (3) Fixed assets with certificate of titles being unsettled Items Carrying amount Reasons for unsettlement Buildings and structures 2,455,263.86 Not applicable for allocated land Buildings and structures 31,920,799.34 Under procedure Subtotal 34,376,063.20 148 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 11. Construction in progress (1) Details Closing balance Opening balance Projects Book Book Provision for Carrying Provision for Carrying balance impairment amount balance impairment amount Nanjing putian science and technology pioneer park intelligent park construction 5,781,757.54 5,781,757.54 1,830,131.25 1,830,131.25 related building intelligent equipment. Reconstruction of distribution 1,160,141.27 1,160,141.27 333,136.64 333,136.64 building Nanjing Yiming Litong Information Technology Co., 58,135.34 58,135.34 Ltd. Nanjing Putian Datang Information Electronics Co., 2,472,349.61 2,472,349.61 Ltd. Product Development Center Total 9,472,383.76 9,472,383.76 2,163,267.89 2,163,267.89 (2) Changes in significant projects Projects Budgets Opening Increase Transferred to Other Closing balance fixed assets decrease balance Nanjing putian science and technology pioneer park intelligent park 5,920,000.00 1,830,131.25 3,951,626.29 5,781,757.54 construction related building intelligent equipment. Nanjing Putian Datang Information Electronics Co., Ltd. Product 30,000,000.00 2,472,349.61 2,472,349.61 Development Center Subtotal 35,920,000.00 1,830,131.25 6,423,975.90 8,254,107.15 (Continued) Accumulated Amount of Accumulate Completion Annual Projects amount of borrowing cost Fund d investment percentage capitalization borrowing cost capitalization in source to budget (%) rate (%) capitalization current period Nanjing putian science and technology pioneer 97.66 90.00 Self-owned park intelligent park fund construction related building intelligent equipment. Nanjing Putian Datang Information 8.24 10.00 Self-owned Electronics Co., Ltd. fund Product Development Center Subtotal 12. Intangible assets Items Land use right Software Patent right Non-patent Total technology Cost 149 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Items Land use right Software Patent right Non-patent Total technology Opening balance 34,760,072.04 10,889,840.33 607,500.00 4,560,000.00 50,817,412.37 Increase 1,088,272.41 1,088,272.41 1) Acquisition 1,088,272.41 1,088,272.41 Decrease 121,725.35 121,725.35 1) Disposal 121,725.35 121,725.35 Closing balance 34,638,346.69 11,978,112.74 607,500.00 4,560,000.00 51,783,959.43 Accumulated amortization Opening balance 6,054,711.03 8,858,384.46 607,500.00 4,560,000.00 20,080,595.49 Increase 862,052.13 606,975.48 1,469,027.61 1) Accrual 862,052.13 606,975.48 1,469,027.61 Decrease 51,262.44 51,262.44 1) Disposal 51,262.44 51,262.44 Closing balance 6,865,500.72 9,465,359.94 607,500.00 4,560,000.00 21,498,360.66 Carrying amount Closing balance 27,772,845.97 2,512,752.80 30,285,598.77 Opening balance 28,705,361.01 2,031,455.87 30,736,816.88 13. Long-term prepayments Items Opening balance Increase Amortization Other decreases Closing balance Reconstruction of 503,316.01 418,181.82 131,736.80 789,761.03 canteen Reconstruction of 1,181,112.19 3,152,091.25 1,069,728.37 2,001,028.38 1,262,446.69 office building Others 1,110,766.56 535,723.54 136,360.98 1,510,129.12 Total 2,795,194.76 4,105,996.61 1,337,826.15 2,001,028.38 3,562,336.84 14. Short-term borrowings Items Closing balance Opening balance Pledged borrowings 250,000,000.00 164,000,000.00 Mortgaged borrowings 65,010,000.00 78,550,000.00 Secured borrowings 130,000,000.00 145,000,000.00 Total 445,010,000.00 387,550,000.00 15. Notes payable and accounts payable (1) Details 150 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Items Closing balance Opening balance Notes payable 84,374,916.99 20,161,687.14 Accounts payable 743,028,953.62 806,672,174.17 Total 827,403,870.61 826,833,861.31 (2) Notes payable Items Closing balance Opening balance Trade acceptance 15,932,068.77 20,161,687.14 Bank acceptance 68,442,848.22 Total 84,374,916.99 20,161,687.14 (3) Accounts payable 1) Details Items Closing balance Opening balance Purchase of materials 742,212,386.80 790,597,232.04 Project payment 816,566.82 16,074,942.13 Total 743,028,953.62 806,672,174.17 2) Significant accounts payable with age over one year Items Closing balance Reasons for unsettlement Jiangsu Sainty Machinery 32,819,861.10 Settlement is not completed IMP.&EXP.Co.,Ltd. China Potevio Information Industry Inc. 19,466,652.30 Settlement is not completed SEI-Nanjing Potevio Optical Network 18,533,668.54 Settlement is not completed Co., Ltd. POLYCOM Communication Technology 17,737,438.13 Settlement is not completed (Beijing) Co., Ltd. LDL Technology Limited 4,917,823.33 Settlement is not completed Subtotal 93,475,443.40 16. Advances received Items Closing balance Opening balance Payment for goods 259,545,648.66 317,197,824.66 Total 259,545,648.66 317,197,824.66 17. Employee benefits payable (1) Details Items Opening balance Increase Decrease Closing balance Short-term employee benefits 21,033,311.73 225,416,361.50 225,317,337.04 21,132,336.19 Post-employment benefits - 27,985,490.49 27,985,490.49 defined benefit plan 151 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Total 21,033,311.73 253,401,851.99 253,302,827.53 21,132,336.19 (2) Details of short-term employee benefits Items Opening balance Increase Decrease Closing balance Wage, bonus, allowance and 11,712,169.62 137,827,939.61 138,285,582.61 11,254,526.62 subsidy Employee welfare fund 11,740,305.55 11,740,305.55 Social insurance premium 15,288,041.80 15,288,041.80 Including: Medicare premium 13,908,588.54 13,908,588.54 Occupational injuries 537,148.99 537,148.99 premium Maternity premium 842,304.27 842,304.27 Housing provident fund 119,044.35 11,093,719.95 11,056,231.07 156,533.23 Trade union fund and 9,202,097.76 4,370,615.43 3,851,436.85 9,721,276.34 employee education fund Short-term paid leave 4,077,923.42 4,077,923.42 Others 41,017,815.74 41,017,815.74 Subtotal 21,033,311.73 225,416,361.50 225,317,337.04 21,132,336.19 (3) Details of defined benefit plan Items Opening balance Increase Decrease Closing balance Basic endowment insurance 24,895,411.93 24,895,411.93 premium Unemployment insurance 853,269.89 853,269.89 premium Company annuity payment 2,236,808.67 2,236,808.67 Subtotal 27,985,490.49 27,985,490.49 18. Taxes and rates payable Items Closing balance Opening balance VAT 11,419,693.22 10,280,548.54 Enterprise income tax 3,685,037.85 6,499,756.88 Individual income tax 233,032.97 237,453.57 Urban maintenance and 900,385.94 864,522.72 construction tax Housing property tax 248,142.34 275,272.72 Land use tax 83,316.67 81,754.17 Education surcharge 655,635.04 614,539.00 Other taxes 4,914.99 29,169.58 152 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Items Closing balance Opening balance Total 17,230,159.02 18,883,017.18 19. Other payables (1) Details Items Closing balance Opening balance Interest payable 454,333.33 531,667.36 Dividend payable 2,018,213.38 1,692,213.38 Other payables 52,655,945.94 60,803,921.89 Total 55,128,492.65 63,027,802.63 (2) Interest payable Items Closing balance Opening balance Short-term borrowings interest 454,333.33 531,667.36 Total 454,333.33 531,667.36 (3) Dividend payable Items Closing balance Opening balance Dividend of ordinary shares 2,018,213.38 1,692,213.38 Total 2,018,213.38 1,692,213.38 (4) Other payables Items Closing balance Opening balance Temporary receipts payable 23,338,514.42 27,480,668.40 Unsettled installation cost 18,165,474.04 12,669,525.02 Deposits 5,611,697.12 7,451,700.88 Operating expenses 2,899,584.68 6,466,718.07 Others 2,640,675.68 6,735,309.52 Total 52,655,945.94 60,803,921.89 20. Deferred income (1) Details Items Opening balance Increase Decrease Closing balance Government grants 8,664,102.90 2,300,000.00 3,667,787.90 7,296,315.00 Total 8,664,102.90 2,300,000.00 3,667,787.90 7,296,315.00 (2) Other remarks The condition of government subsidies carried in profit and loss of current period are showed in the explanations of notes to items of consolidated financial statements as detailed. 153 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 21. Share capital Movements Items Opening balance Reserve Closing balance Issue of Bonus Others Subtotal transferred to new shares shares shares Total shares 215,000,000.00 215,000,000.00 22. Capital reserve Items Opening balance Increase Decrease Closing balance Share/capital premium 139,592,332.04 139,592,332.04 Other capital reserve 45,782,201.81 45,782,201.81 Total 185,374,533.85 185,374,533.85 23. Other comprehensive income (OCI) Current period cumulative Closing Items Opening balance Current period Less: OCI Less: Attributable to Attributable to cumulative carried forward balance income parent non-controlling before income transferred to tax company interest tax profit or loss Items to be reclassified -4,129,619.45 -908,854.59 -817,969.13 -90,885.46 -4,947,588.58 subsequently to profit or loss Including: Translation -4,129,619.45 -908,854.59 -817,969.13 -90,885.46 -4,947,588.58 reserve Total -4,129,619.45 -908,854.59 -817,969.13 -90,885.46 -4,947,588.58 24. Surplus reserve Items Opening balance Increase Decrease Closing balance Statutory surplus reserve 589,559.77 589,559.77 Total 589,559.77 589,559.77 25. Undistributed profit (1) Details Items Current period Preceding period cumulative comparative Balance before adjustment at the end of preceding -44,605,902.63 -56,491,072.91 period Add: Increase due to adjustment (or less: decrease) -1,980,089.01 922,223.51 Opening balance after adjustment -46,585,991.64 -55,568,849.40 Add: Net profit attributable to owners of the parent 5,859,214.84 8,982,857.76 company 154 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Items Current period Preceding period cumulative comparative Closing balance -40,726,776.80 -46,585,991.64 (2) Details of increase or decrease due to adjustment Pursuant to related requirements stipulated in the CASBEs, adjustments of -1,980,089.01 yuan are made on opening balance of undistributed profit on retroactive basis. (II) Notes to items of the consolidated income statement 1. Operating revenue/Operating cost Current period cumulative Preceding period comparative Items Income Cost Income Cost Revenue from main 1,927,264,745.34 1,594,738,812.81 2,209,804,002.80 1,848,219,009.54 operations Revenue from other 68,363,027.26 48,376,709.57 44,595,403.24 32,369,061.21 operations Total 1,995,627,772.60 1,643,115,522.38 2,254,399,406.04 1,880,588,070.75 2. Taxes and surcharge for operations Items Current period cumulative Preceding period comparative Urban maintenance and 4,620,799.94 5,390,988.07 construction tax Education surcharge 3,292,038.83 4,350,866.00 Housing property tax 1,453,355.85 1,602,058.75 Land use tax 589,112.16 614,566.57 Others 965,332.41 799,118.89 Total 10,920,639.19 12,757,598.28 3. Selling expenses Items Current period cumulative Preceding period comparative Employee benefits 70,194,402.37 71,047,508.40 Transport fees and transport 20,909,275.08 22,277,590.51 damages Business entertainment 20,664,396.74 23,278,939.74 Travelling expenses 15,966,752.60 16,428,798.90 Office expenses 4,199,890.00 6,170,439.90 Sales service charges 2,451,675.69 1,563,427.22 Promotion expenses 1,910,941.70 1,465,821.83 Conference expenses 1,446,273.00 2,719,394.66 155 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Items Current period cumulative Preceding period comparative Equipment maintain fees 616,140.73 785,949.50 Others 15,162,580.36 13,889,905.78 Total 153,522,328.27 159,627,776.44 4. Administrative expenses Items Current period cumulative Preceding period comparative Employee benefits 51,771,703.92 46,223,900.45 Consulting, intermediary and legal 6,818,156.63 4,025,123.78 fees Depreciation and amortization 5,022,564.80 5,342,285.86 Office expenses 3,751,126.94 3,303,069.26 Lease expenses 3,406,740.99 4,745,201.46 Travelling expense 3,185,065.89 2,009,842.84 Business entertainment 2,797,113.99 2,799,167.57 Funding for Party Building 1,060,733.94 Taxes 528,279.47 Others 8,689,907.31 7,060,431.77 Total 86,503,114.41 76,037,302.46 5. R&D expenses Items Current period cumulative Preceding period comparative Employee benefits 55,938,206.12 48,504,130.31 Intermediate test fee 3,785,739.52 2,079,478.97 Travelling expenses 3,667,575.96 3,344,399.48 Material use 3,081,505.47 4,730,882.41 Depreciation and amortization 1,739,684.27 3,526,704.92 Commissioned development 1,221,605.55 Others 6,840,816.37 5,701,433.44 Total 76,275,133.26 67,887,029.53 6. Financial expenses Items Current period cumulative Preceding period comparative Interest expenditures 23,694,841.52 17,476,700.08 Less: Interest income 2,665,279.32 1,936,342.59 156 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Losses on foreign exchange -293,209.60 377,800.03 Financial institution fees 897,134.41 370,093.51 Financing fee 840,754.71 Others 66,018.86 Total 22,540,260.58 16,288,251.03 7. Assets impairment loss Items Current period cumulative Preceding period comparative Bad debts 9,071,391.90 10,710,178.97 Inventory write-down 11,527,903.45 6,381,420.74 Total 20,599,295.35 17,091,599.71 8. Other income Amount included in Items Current period Preceding period non-recurring profit or cumulative comparative loss Government subsidies 13,702,488.41 7,848,445.31 7,065,841.22 related to income Total 13,702,488.41 7,848,445.31 7,065,841.22 9. Investment income Items Current period cumulative Preceding period comparative Investment income from long-term equity investments -3,085,858.80 339,423.07 under equity method Total -3,085,858.80 339,423.07 10. Gains on disposal of assets The amount included in Preceding period Items Current period cumulative the current non-recurring comparative profit and loss. Gains on disposal of 33,522,820.90 -481,922.28 33,522,820.90 non-current assets Total 33,522,820.90 -481,922.28 33,522,820.90 11. Non-operating revenue Amount included in Items Current period Preceding period non-recurring profit or cumulative comparative loss Government grants 1,489,000.00 3,330,559.79 1,489,000.00 157 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Amount included in Items Current period Preceding period non-recurring profit or cumulative comparative loss Unpayable payables 1,332,427.34 1,332,427.34 Penalty income 65,602.74 65,602.74 Others 101,780.34 367,827.34 101,780.34 Total 2,988,810.42 3,698,387.13 2,988,810.42 12. Non-operating expenditures Items Current period Preceding period Amount included in cumulative comparative non-recurring profit or loss Penalty expense 195,554.97 266,414.61 195,554.97 Donation expenditures 105,000.00 10,000.00 105,000.00 Fixed assets damages 39,364.85 39,364.85 Others 32,579.27 76,973.89 32,579.27 Total 372,499.09 353,388.50 372,499.09 13. Income tax expenses (1) Details Items Current period cumulative Preceding period comparative Current period income tax expenses 4,793,925.22 10,462,423.88 Total 4,793,925.22 10,462,423.88 (2) Reconciliation of accounting profit to income tax expenses Items Current period cumulative Preceding period comparative Profit before tax 28,907,241.00 35,172,722.57 Income tax expenses based on statutory tax rate applicable to the 4,336,086.15 8,793,180.64 parent company Effect of different tax rate applicable 2,329,261.16 -1,076,036.90 to subsidiaries Effect of prior income tax -1,024,603.99 -518,242.07 reconciliation Effect of non-taxable income 462,878.82 -180,081.96 Effect of non-deductible costs, 2,909,790.78 2,640,736.91 expenses and losses Effect of deducible losses that deferred income tax assets not -5,499,920.41 recognized in previous period Effect of reverse of taxable 184,062.99 184,062.99 temporary differences that deferred 158 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Items Current period cumulative Preceding period comparative income tax liabilities not recognized in previous period Effect of deducible temporary differences or deductible losses not 6,085,709.68 3,216,251.42 recognized Deduction of R&D expenditures -4,989,339.96 -2,597,447.15 Income tax expenses 4,793,925.22 10,462,423.88 (III) Notes to items of the consolidated cash flow statement 1. Other cash receipts related to operating activities Items Current period cumulative Preceding period comparative Government grants 4,887,053.32 18,243,896.42 Interest income 2,665,279.32 1,936,342.59 Intercourse 14,580,000.00 53,492,754.29 VAT refund 1,674,556.65 Others 11,131,427.15 5,292,018.14 Total 34,938,316.44 78,965,011.44 2. Other cash payments related to operating activities Items Current period cumulative Preceding period comparative Selling and Administrative 136,557,091.67 127,383,298.87 expenses paid in cash Interest income 22,923,883.09 26,409,249.84 Guaranteed payment 5,705,120.89 Others 4,987,581.84 318,523.32 Total 170,173,677.49 154,111,072.03 3. Other cash payments related to financing activities Items Current period cumulative Preceding period comparative Financing fee 840,754.71 Total 840,754.71 4. Supplement information to the cash flow statement (1) Supplement information to the cash flow statement Supplement information Current period Preceding period cumulative comparative (1) Reconciliation of net profit to cash flow from operating activities: 159 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Supplement information Current period Preceding period cumulative comparative Net profit 24,113,315.78 24,710,298.69 Add: Provision for assets impairment loss 19,831,055.59 17,091,599.71 Depreciation of fixed assets, oil and gas assets, 11,030,411.19 10,964,949.63 productive biological assets Amortization of intangible assets 1,469,027.61 1,265,066.10 Amortization of long-term prepayments 1,337,826.15 1,853,316.84 Loss on disposal of fixed assets, intangible assets and -33,522,820.90 481,922.28 other non-current assets (Less: gains) Fixed assets retirement loss (Less: gains) 39,364.85 Losses on changes in fair value (Less: gains) Financial expenses (Less: gains) 24,535,596.23 17,854,500.11 Investments losses (Less: gains) 3,085,858.80 -339,423.07 Decrease of deferred tax assets (Less: increase) Increase of deferred tax liabilities (Less: decrease) Decrease in inventories (Less: increase) 192,165,761.08 36,587,333.90 Decrease in operating receivables (Less: increase) -318,167,229.87 -141,323,024.96 Increase of operating payables (Less: decrease) -81,336,900.34 -16,367,308.81 Others Net cash flow from operating activities -155,418,733.83 -47,220,769.58 (2) Significant investing and financing activities not related to cash receipts and payments: Conversion of debt into share capital Convertible bonds due within one year Fixed assets rented in under finance leases (3) Net changes in cash and cash equivalents: Cash at the end of the period 201,369,317.42 311,056,919.17 Less: Cash at the beginning of the period 311,056,919.17 484,683,980.96 Add: Cash equivalents at the end of the period Less: Cash equivalents at the beginning of the period Net increase of cash and cash equivalents -109,687,601.75 -173,627,061.79 (2) Cash and cash equivalents Items Closing balance Opening balance 1) Cash 201,369,317.42 311,056,919.17 Including: Cash on hand 1,886.33 5,458.17 Cash in bank on demand for payment 201,367,431.09 311,051,461.00 160 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 2) Cash equivalents 3) Cash and cash equivalents at the end of the period 201,369,317.42 311,056,919.17 Including: Cash and cash equivalents of parent company or 4,129,128.10 4,181,096.54 subsidiaries with use restrictions (3) The amount of endorsement of a commercial bill that does not involve cash payments Items Current period cumulative Preceding period comparative Endorsement of trade acceptance 469,756,030.30 759,242,019.92 Including: For goods payment 469,756,030.30 759,242,019.92 (IV) Others 1. Assets with title or use right restrictions Items Closing carrying amount Reasons for restrictions Cash and bank balances 60,568,751.30 Deposit for acceptance and deposit for L/G Accounts receivable 52,167,500.00 Pledged borrowings Fixed assets 31,763,049.94 Providing mortgaged guarantee for borrowings Intangible assets 3,393,821.96 Providing mortgaged guarantee for borrowings Investment property 2,274,411.81 Providing mortgaged guarantee for borrowings Total 150,167,535.01 Note: We remind users of financial statements that, apart from the above assets with title or use right restrictions, in order to entrust the parent company to apply for loans from Bank of Beijing, Jiangning Sub-branch, the Company pledged its holding equities to the parent company, which include equity of Nanjing South Telecommunications Co Ltd. 4.80 million yuan, equity of Nanjing Putian Changle Telecommunications Equipment Co., Ltd. 5.07 million yuan, equity of Nanjing Putian Wangzhi Electronic Co., Ltd. 60.43 million yuan, equity of Nanjing Putian Network Co., Ltd. 7.80 million yuan. The Company has registered the equity pledge at Nanjing Jiangning Market Supervision Administration. Those equities are with use restrictions before released. 2. Monetary items in foreign currencies Items Closing balance in foreign Exchange rate RMB equivalent currencies Cash and bank balances 4,925,077.50 Including: USD 634,859.24 6.8632 4,357,165.94 EUR 522.27 7.8473 4,098.41 HKD 641,407.96 0.8762 562,001.65 GBP 208.79 8.6762 1,811.50 3. Government grants 1. Details (1) Government grants related to income and used to compensate future relevant costs, expenses or losses 161 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Presented Closing Asset or Opening Presented Items under balance of income balance of Increase under other non-operating deferred deferred income income related revenue income Government subsidies on technical income development plans and 1,000,000.00 1,000,000.00 related technical funding targets. Zombie enterprise income 6,893,176.00 2,300,000.00 2,896,861.00 6,296,315.00 financial aid. related Nanjing Qinhuai district science and technology income 770,926.90 770,926.90 department’s high-end related talent team project funds subsidy Subtotal 8,664,102.90 2,300,000.00 3,667,787.90 7,296,315.00 (2) Government grants related to income and used to compensate incurred relevant costs, expenses or losses Items Amounts Presented under Remarks Qinhuai science and technology department’s reward 647,200.00 other income Hardship enterprise subsidy 1,380,000.00 other income Stable subsidy from Nanjing Social Insurance 341,853.32 other income Management Center Provincial reward of R&D 510,800.00 other income Jiangning development zone’s intellectual property award 3,800.00 other income Jiangning development zone’s patents subsidy 8,400.00 other income Jiangning development zone’s reward 6,000.00 other income Qinhuai science and technology department’s science and 500,000.00 other income technology development funding VAT refund by software company 6,636,647.19 other income non-operating Special funds for national services trading 639,000.00 revenue non-operating High-tech company reward 750,000.00 revenue non-operating Jiangning development zone’s brand reward 100,000.00 revenue Subtotal 11,523,700.51 VI. Interest in other entities (I) Interest in significant subsidiaries 162 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report 1. Significant subsidiaries (1) Basis information Main Holding Subsidiaries Place of Business proportion (%) Acquisition operating registration nature Direct Indirect method place Nanjing Putian Changle Nanjing Nanjing Manufacture 50.70 Set up Telecommunications City City Equipment Co., Ltd. Nanjing Putian Telege Nanjing Nanjing Manufacture 45.77 Set up Intelligent Building Ltd. City City Nanjing South Nanjing Nanjing Manufacture 96.99 1.38 Set up Telecommunications City City Company Limited Nanjing Mennekes Nanjing Nanjing Manufacture 75.00 Set up Electrics Co., Ltd. City City Nanjing Putian Nanjing Nanjing Manufacture 78.00 Set up Network Co., Ltd. City City Nanjing Putian Datang Nanjing Nanjing Manufacture 40.00 Set up Information Electronic City City Co., Ltd. (2) Other remarks 1) Remarks on inconsistency between holding proportion owned and voting rights proportion owned in subsidiaries The Company holds 40% equity of Nanjing Putian Datang Information Electronic Co., Ltd. The Company signed the agreement with 严耀明 (Yan Yaoming), a shareholder of Nanjing Putian Datang Information Electronic Co., Ltd., to exercise his 21% right to vote. The agreement is valid during the period of the existence of Nanjing Putian Datang Information Electronic Co., Ltd. The Company has 61% of the voting right during the existence period of Nanjing Putian Datang Information Electronic Co., Ltd. 2) Basis for the control of an investee while holding its half or less than half voting rights, and the non-control of an investee while holding its more than half voting rights The Company holds 45.767% of voting rights in Nanjing Putian Telege Intelligent Building Ltd., the other voting rights are decentralized. The Company has over half member of the Board of Directors, and it not only controls this company but also has a privileged variable return by taking part in Nanjing Putian Telege Intelligent Building Ltd’s related activity. The Company has the ability to impact the amount of return and control over Nanjing Putian Telege Intelligent Building Ltd. 2. Significant not wholly-owned subsidiaries (1) Details Holding Profit or loss Dividend Closing Subsidiaries proportion of attributable to declared to balance of non-controlling non-controlling non-controlling non-controlling shareholders shareholders shareholders shareholders Nanjing South Telecommunications 1.63% 183,596.91 326,000.00 1,678,659.1 Company Limited Nanjing Putian Telege 54.233% 9,649,164.04 7,592,620.00 67,079,451.5 Intelligent Building Ltd. 3. Main financial information of significant not wholly-owned subsidiaries 163 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (1) Assets and liabilities Closing balance Subsidiaries Current Current assets Non-current Total assets Non-current Total liabilities assets liabilities liabilities Nanjing South Telecommunications 342,548,804.01 4,049,249.40 346,598,053.41 243,612,832.61 243,612,832.61 Company Limited Nanjing Putian Telege Intelligent 263,041,060.54 37,450,502.90 300,491,563.44 176,803,061.42 176,803,061.42 Building Ltd. (Continued) Opening balance Subsidiaries Current Current assets Non-current Total assets Non-current Total liabilities assets liabilities liabilities Nanjing South Telecommunications 309,537,813.81 13,592,176.13 323,129,989.94 211,408,383.03 211,408,383.03 Company Limited Nanjing Putian Telege Intelligent 256,432,695.75 39,896,214.78 296,328,910.53 180,433,445.64 180,433,445.64 Building Ltd. (2) Profit or loss and cash flows Current period cumulative Subsidiaries Total Cash flows from Operating Net profit comprehensive operating revenue income activities Nanjing South Telecommunications 438,495,192.19 11,263,613.89 11,263,613.89 52,316,402.25 Company Limited Nanjing Putian Telege 332,950,645.89 17,793,037.13 17,793,037.13 13,930,731.99 Intelligent Building Ltd. (Continued) Preceding period comparative Subsidiaries Total Cash flows from Operating Net profit comprehensive operating revenue income activities Nanjing South Telecommunications 503,230,917.67 11,370,431.55 11,370,431.55 -17,569,028.23 Company Limited Nanjing Putian Telege 357,455,410.15 21,294,286.18 21,294,286.18 23,855,136.08 Intelligent Building Ltd. (II) Interest in joint venture or associates 1. Significant joint ventures or associates Main Holding Joint ventures or Place of Business nature proportion (%) Accounting operating associates registration Direct Indirect treatment place Potevio Hi-tech Nanjing Nanjing Industrial park venue 49.64 Equity Industry Co., Ltd. City City rental management etc. method 2. Main financial information of significant associates 164 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Closing balance/ Opening balance/ Items current period cumulative preceding period comparative Potevio Hi-tech Industry Co., Ltd. Current assets 161,743,478.51 190,785,584.52 Non-current assets 190,882,106.08 160,501,673.73 Total assets 352,625,584.59 351,287,258.25 Current liabilities 8,282,339.46 7,529,465.27 Non-current liabilities Total liabilities 8,282,339.46 7,529,465.27 Non-controlling interest Equity attributable to owners of 344,343,245.13 343,757,792.98 parent company Proportionate share in net assets 170,931,898.92 170,641,311.95 Adjustments Goodwill Unrealized profit in internal trading Others Carrying amount of investments 170,931,898.92 170,641,311.95 in associates Fair value of equity investments in associates in association with quoted price Operating revenue 21,089,902.43 14,951,512.04 Net profit 983,452.15 1,765,051.64 Net profit of discontinued operations Other comprehensive income Total comprehensive income 983,452.15 1,765,051.64 Dividend from associates 197,567.20 444,774.40 received in current period 3. Aggregated financial information of insignificant joint ventures and associates Opening Items Closing balance/current balance/preceding period period cumulative comparative Joint ventures Total carrying amount of investments 11,128,318.34 13,296,092.84 Proportionate shares in the following items Net profit -2,167,774.50 -515,787.30 Total comprehensive income -2,167,774.50 -515,787.30 Associates 165 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Opening Items Closing balance/current balance/preceding period period cumulative comparative Total carrying amount of investments 1,183,862.97 3,040,101.44 Proportionate shares in the following items Net profit -1,406,238.47 -20,904.78 Total comprehensive income -1,406,238.47 -20,904.78 Cash dividend 450,000.00 VII. Risks related to financial instruments The Company aims to seek the appropriate balance between the risks and benefits from its use of financial instruments and to mitigate the adverse effects that the risks of financial instruments have on the Company’s financial performance. Based on such objectives, the Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The Company has exposure to the following risks from its use of financial instruments, which mainly include: credit risk, liquidity risk, and market risk. Management have deliberated and approved policies concerning such risks, and details are: (I) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company’s credit risk is primarily attributable to bank balances and receivables. In order to control such risks, the Company has taken the following measures: 1. Bank balances The Company deposits its bank balances in financial institutions with relatively high credit levels, hence, its credit risk is relatively low. 2. Receivables The Company performs credit assessment on customers who uses credit settlement on a regular basis. The Company selects credible and well-reputed customers based on credit assessment result, and conducts ongoing monitoring on receivables, to avoid significant risks in bad debts. As the Company’s credit risks fall into several business partners and customers, as of December 31, 2017, 11.25% (December 31, 2016: 17.49%) of the total accounts receivable was due from the five largest customers of the Company. The Company has no significant central credit risk. (1) Analysis of receivables neither past due nor impaired and receivables past due but not impaired are as follows: Closing balance Items Past due but not impaired Neither past due Total nor impaired Within 1 1-2 years Over 2 year years Notes and accounts 805,540,443.68 116,414,243.85 921,954,687.53 receivable 166 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Closing balance Items Past due but not impaired Neither past due Total nor impaired Within 1 1-2 years Over 2 year years Other 24,688,722.26 5,852,249.67 30,540,971.93 receivables Subtotal 830,229,165.94 122,266,493.52 952,495,659.46 (Continued) Opening balance Items Past due but not impaired Neither past due Total nor impaired Within 1 1-2 years Over 2 year years Notes and accounts 664,788,771.21 91,179,774.98 755,968,546.19 receivable Other 21,000,423.00 4,758,360.87 25,758,783.87 receivables Subtotal 685,789,194.21 95,938,135.85 781,727,330.06 (2) Please refer to notes to receivables for receivables with provision for impairment made on individual basis. (II) Liquidity risk Liquidity risk is the risk that the Company may encounter deficiency of funds in meeting obligations associated with cash or other financial assets settlement, which is possibly attributable to failure in selling financial assets at fair value on a timely basis, or failure in collecting liabilities from counterparts of contracts, or early redemption of debts, or failure in achieving estimated cash flows. In order to control such risk, the Company utilized financing tools such as notes settlement and bank borrowings, etc. to optimizing financing structures, and finally maintains a balance between financing sustainability and flexibility. The Company has obtained credit limit from several commercial banks to meet working capital requirements and expenditures. Financial instruments classified based on remaining time period till maturity Closing balance Items Carrying amount Contract amount not Within 1 year 1-3 years Over 3 years yet discounted Bank 445,010,000.00 456,135,250.00 456,135,250.00 borrowings Notes and accounts 827,403,870.61 827,403,870.61 827,403,870.61 payable Other 2,472,546.71 2,472,546.71 780,333.33 1,692,213.38 payable Subtotal 1,274,886,417.32 1,286,011,667.32 1,284,319,453.94 1,692,213.38 (Continued) Items Opening balance 167 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Carrying amount Contract amount Within one year 1-3 years Over 3 years not yet discounted Bank 387,550,000.00 394,339,062.52 394,339,062.52 borrowings Notes and accounts 826,833,861.31 826,833,861.31 826,833,861.31 payable Other 2,223,880.74 2,223,880.74 531,667.36 1,692,213.38 payable Subtotal 1,216,607,742.05 1,223,396,804.57 1,221,704,591.19 1,692,213.38 (III) Market risk Market risk is the risk that the Company may encounter fluctuation in fair value of financial instruments or future cash flows due to changes in market price. 1. Interest risk Interest risk is the risk that an enterprise may encounter fluctuation in fair value of financial instruments or future cash flows due to changes in market interest. The Company’s interest risk relates mainly to borrowings with floating interest rate. As of December 31, 2018, balance of borrowings with interest accrued at floating interest rate totaled 445,010,000.00 yuan (December 31, 2017: 387,550,000.00 yuan). If interest rates had been 50 basis points higher/lower and all other variables were held constant, financial effect on the Company would be insignificantly. 2. Foreign currency risk Foreign currency risk is the risk arising from changes in exchange rate. The Company is mainly operated in mainland China, with a small amount of imports and exports, and its main activities are denominated in RMB, hence, the Company bears insignificant market risk arising from foreign exchange changes. Please refer to notes to foreign currency monetary items for details in foreign currency financial assets and liabilities at the end of the period. VIII. Related party relationships and transactions (I) Related party relationships 1. Details of parent company (1) Parent company Registered Holding Voting right Parent company Business capital Place of registration proportion over proportion over nature (in million) the Company the Company No.2 Tudi 2 Road, China Potevio Information Zhongguan Village 1,903,05 53.49% 53.49% Information Economy Zone, Haidian industry Industry Inc District, Beijing The Company’s ultimate controlling party is China POTEVIO Corporation Limited. 2. The details of the company's important subsidiaries are illustrated in the notes to the financial statements in other subjects. 3. Joint ventures and associates of the Company 168 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Please refer to notes to interest in other entities for details on the Company’s significant joint ventures and associates. Details of other joint ventures or associates carrying out related party transactions with the Company in current period or in preceding period but with balance in current period are as follows: Joint ventures or associates Relationships with the Company Potevio Hi-tech Industry Co., Ltd. Associates Nanjing Potevio Telege Cable Co., Ltd. Associates SEI-Nanjing Potevio Optical Network Co., Ltd. Joint ventures 4. Other related parties of the Company Related parties Relationships with the Company An affiliated company of the ultimate Nanjing Honyar Electrical Technology Co., Ltd. controlling party An affiliated company of the ultimate Nanjing Honyar Electrical Co., Ltd. controlling party Shanghai Potevio Post and Telecommunications Technology Co., An affiliated company of the ultimate Ltd. controlling party An affiliated company of the ultimate Beijing Potevio Taili Communications Technology Co., Ltd. controlling party An affiliated company of the ultimate Hangzhou Honyar Dongbei Photoelectric Technology Co., Ltd. controlling party An affiliated company of the ultimate Shanghai Potevio Network Technology Co., Ltd. controlling party An affiliated company of the ultimate POTEVIO Telecommunications Co., Ltd. controlling party An affiliated company of the ultimate Potevio Information Technology Co., Ltd. controlling party Beijing Picom Telecommunications Equipment Co., Ltd. An affiliated company of the Company Non-controlling shareholder of the Mennekes Electric Industrial Co., Ltd. (China) Company’s subsidiary An affiliated company of the ultimate Potevio Heping Technology Co., Ltd. controlling party An affiliated company of the ultimate Hangzhou Honyar Electrical Co., Ltd. controlling party An affiliated company of the ultimate Potevio International Trading Co., Ltd. controlling party (II) Related party transactions 1. Purchase and sale of goods, rendering and receiving services (1) Purchase of goods and receiving of services Related parties Content of transaction Current period Preceding period cumulative comparative SEI-Nanjing Potevio Optical Telecommunication 1,957,326.89 6,892,761.28 Network Co., Ltd. products Nanjing Potevio Telege Cable Co., Telecommunication 488,838.48 29,130,281.06 Ltd. products Nanjing Honyar Electrical Telecommunication 194,401.64 Technology Co., Ltd. products Nanjing Honyar Electrical Co., Ltd. Telecommunication 395,742.40 169 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Related parties Content of transaction Current period Preceding period cumulative comparative products China Potevio Information Industry Telecommunication 297,092.82 Inc products Potevio Telecommunications Co., Telecommunication 1,297,363.25 1,021,988.46 Ltd. products Mennekes Electric Industrial Co., Telecommunication 4,684,031.63 4,412,289.93 Ltd. (China) products (2) Sale of goods and rendering of services Related parties Content of transaction Current period Preceding period cumulative comparative Potevio Information Technology Telecommunication 19,354,250.44 28,052,650.90 Co., Ltd. products China Potevio Information Industry Telecommunication 336,575,675.56 293,658,926.93 Inc products Beijing Potevio Taili Telecommunication 11,992.64 Communications Technology Co., products Ltd. Potevio Heping Technology Co., Telecommunication 30,769.23 Ltd. products Telecommunication 251,865.98 Potevio Hi-tech Industry Co., Ltd. products SEI-Nanjing Potevio Optical Telecommunication 532,374.48 Network Co., Ltd. products Potevio International Trading Co., Telecommunication 27,349.06 428,827.16 Ltd. products Telecommunication 10,017.24 233,428.23 Nanjing Honyar Electrical Co., Ltd. products Telecommunication 61,500.00 Chengdu Putian Cable Co., Ltd. products Telecommunication 178,100.00 Eastern Communications Co., Ltd. products Putian Eastern Communication Telecommunication 1,238,450.81 Group Co., Ltd. products Putian Science & Technology Telecommunication 1,371,335.80 Industrial Co., Ltd. products Telecommunication 1,524,198.32 Putian Communication Co., Ltd. products Tianjin Putian Innovation and Telecommunication 130,639.66 Entrepreneur Technology Co., Ltd. products 2. Related party leases (1) The Company as the lessor Lessees Lease income for Lease income for the Types of asset leased current period preceding period SEI-Nanjing Potevio Optical Buildings and 655,524.56 607,946.68 Network Co., Ltd. structures (2) The Company as the lessee Lease expenses Property Lease expenses Property Lessors Types of asset for the services for the for current services for leased preceding preceding period current period period period 170 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Lease expenses Property Lease expenses Property Lessors Types of asset for the services for the for current services for leased preceding preceding period current period period period Potevio Hi-tech Buildings and 1,874,351.66 1,825,502.57 1,901,756.27 2,051,001.23 Industry Co., Ltd. structures 3. Related party guarantees The Company and its subsidiaries as guaranteed parties Whether the Guarantors Amount Commence-m Maturity date guarantee is guaranteed ent date mature China Potevio Information Industry Inc 20,000,000.00 2017/3/31 2018/1/15 YES China Potevio Information Industry Inc 20,000,000.00 2017/3/31 2018/1/15 YES China Potevio Information Industry Inc 30,000,000.00 2017/11/30 2018/11/30 YES China Potevio Information Industry Inc 30,000,000.00 2017/10/9 2018/1/12 YES China Potevio Information Industry Inc 10,000,000.00 2017/7/28 2018/1/12 YES China Potevio Information Industry Inc 40,000,000.00 2018/10/10 2019/7/9 No China Potevio Information Industry Inc 30,000,000.00 2018/3/9 2019/3/8 No 4. Related party entrusted loan and interest expenditure Entrusted loans and interest expenses with China Potevio Information Current period cumulative Preceding period comparative Industry Inc Entrusted loans 207,000,000.00 164,000,000.00 Entrusted interest expenses 9,459,773.88 7,624,099.99 5. Key management’s emoluments Items Current period cumulative Preceding period comparative Key management’s emoluments 2,310,164.00 1,390,684.00 (III) Balance due to or from related parties 1. Balance due from related parties Closing balance Opening balance Items Related parties Book balance Provision for Book balance Provision for bad debts bad debts Notes and accounts receivable Potevio International 3,987,403.60 Trading Co., Ltd. China Potevio 20,981,660.73 709,020.78 16,718,161.88 557,462.59 Information Industry Inc Potevio Information 12,941,118.68 20,991,047.20 Technology Co., Ltd. 171 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Closing balance Opening balance Items Related parties Book balance Provision for Book balance Provision for bad debts bad debts Shanghai Potevio Network Technology Co., 536,319.70 429,055.76 984,639.40 83,060.00 Ltd. Shanghai Potevio Post 8,755,534.00 8,755,534.00 8,755,534.00 7,004,427.20 Technology Co., Ltd. Potevio Hi-tech Industry 14,455.30 Co., Ltd. Potevio Heping 333,706.00 333,706.00 Technology Co., Ltd. Potevio Eastern Communications Group 206,596.00 Co.Ltd. SEI-Nanjing Potevio 199,000.00 Optical Network Co., Ltd. Potevio Eastern Communication Group 941,969.60 Co., Ltd. Potevio Communication 1,768,070.00 Co., Ltd. Tianjin Potevio Innovation and 4,546.26 Technology Co., Ltd. China Potevio Information Industry 629,899.32 186,044.64 Group Co., Ltd. Mannecos Industrial 12,709.44 Electric (China) Co., Ltd. Subtotal 47,311,129.73 10,079,655.18 51,784,947.38 7,644,949.79 Advances paid Potevio Heping 436,294.00 436,294.00 Technology Co., Ltd. Subtotal 436,294.00 436,294.00 Other receivables China Potevio 3,839,000.00 400,000.00 1,020,000.00 2,000.00 Information Industry Inc Potevio Hi-tech Industry 1,209,297.25 255,238.96 Co., Ltd. Potevio Eastern 30,000.00 Communications Group Co.Ltd. Putian Information 1,300.00 Engineering Design Service Co., Ltd. Potevio Information 1,203,052.00 Technology Co., Ltd. Subtotal 6,282,649.25 400,000.00 1,275,238.96 2,000.00 2. Balance due to related parties 172 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Items Related parties Closing balance Opening balance Notes and accounts payable SEI-Nanjing Potevio Optical Network 20,819,725.66 22,584,894.54 Co., Ltd. China Potevio Information Industry Inc 19,641,228.50 19,466,652.30 Nanjing Putian Hongyan Electric Co., 242,595.99 266,805.30 Ltd. Shanghai Potevio Network Technology 11,685.00 11,685.00 Co., Ltd. Mennekes Electric Industrial Co., Ltd. 5,433,476.69 3,149,290.03 (China) Potevio Information Technology Co., 69,950.00 845,976.50 Ltd. Nanjing Putian Hongyan Electric 86,243.30 Technology Co., Ltd. Subtotal 46,304,905.14 46,325,303.67 Advances received China Potevio Information Industry Inc 223,246,886.73 282,208,394.21 Nanjing Honyar Electrical Technology 82,000.00 Co., Ltd. Subtotal 223,246,886.73 282,290,394.21 Other payables SEI-Nanjing Potevio Optical Network 31,165.00 Co., Ltd. POTEVIO Telecommunications Co., 200,000.00 Ltd. China Potevio Information Industry Inc 14,580,000.00 18,260,000.00 Subtotal 14,780,000.00 18,291,165.00 IX. Commitments and contingencies None X. Events after balance sheet day None XI. Other significant events (I) Corrections of prior period errors Retroactive restatement method Financial statement Contents of error Correction process Cumulative effects items affected in corrections comparative periods Correction of Deliberated and approved by the Cash and bank balances -274,365.37 10th meeting of the No.7 transportation Inventories -1,705,723.64 session of the Board of 173 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report costs, cost errors,Directors, errors are corrected Undistributed profit -1,980,089.01 based on retroactive restatement bank accounts and Operating cost -3,964,698.85 method. statements not in Selling expenses 8,453,414.13 2017 and prior Financial expenses 3,633.26 years Income tax expenses -908,592.01 Net profit attributable to shareholders of the -2,902,312.52 parent company Net asset attributable to shareholders of the -1,980,089.01 parent company (II) Segment information 1. Identification basis for reportable segments Reportable segments are identified based on operating segments which are determined based on the structure of the Company’s internal organization, management requirements and internal reporting system. The Company identified reportable segments based on products, which include video conferencing products, generic cable products, electrical products, wiring products, and other products. Assets and liabilities shared by different segments are allocated pro rata among segments. The Company identified reportable segments based on products, assets and liabilities of each segment are the actual amount of its proportion in assets and liabilities, and revenue from main operations and cost of main operations are those generated or incurred by each product segment. 2. Financial information of reportable segments Products segment Video Special network Items Generic cable Electrical Wiring products Inter-segment Total conferencing communication products products offsetting products products Revenue from 438,095,192.19 329,431,898.41 159,936,978.03 329,938,045.09 741,819,481.65 -71,956,850.03 1,927,264,745.34 main operations Cost of main 350,079,260.49 251,844,898.81 129,682,091.07 322,000,131.86 613,799,045.44 -72,666,614.86 1,594,738,812.81 operations -371,684,455.5 Total assets 346,598,053.41 300,491,563.44 215,685,611.14 269,942,160.40 1,359,711,359.54 2,120,744,292.41 2 -249,632,542.4 Total liabilities 243,612,832.61 176,803,061.42 120,682,709.01 232,380,621.51 1,108,900,140.04 1,632,746,822.13 6 XII. Notes to items of parent company financial statements (I) Notes to items of parent company balance sheet 1. Notes and accounts receivable (1) Details Items Closing balance Opening balance 174 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Notes receivable 6,620,178.00 9,184,642.99 Accounts receivable 586,635,878.62 425,563,836.97 Total 593,256,056.62 434,748,479.96 (2) Notes receivable Closing balance Opening balance Book balance Provision Carrying Book balance Provision Carrying Items for bad amount for bad amount debts debts Bank 6,620,178.00 6,620,178.00 5,197,239.39 5,197,239.39 acceptance Trade 3,987,403.60 3,987,403.60 acceptance Total 6,620,178.00 6,620,178.00 9,184,642.99 9,184,642.99 (3) Accounts receivable 1) Details a. Details on categories Closing balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) Receivables of individually significant amount and with provision made on an individual basis Receivables with provision made on a collective basis 616,632,950.89 99.70 29,997,072.27 4.86 586,635,878.62 using portfolios with similar credit risk features Portfolio 1 14,042,487.00 2.27 14,042,487.00 Portfolio 2 602,590,463.89 97.43 29,997,072.27 4.98 572,593,391.62 Receivable of individually insignificant amount but 1,881,238.51 0.30 1,881,238.51 100.00 with provision made on an individual basis Total 618,514,189.40 100.00 31,878,310.78 5.15 586,635,878.62 (Continued) Opening balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) Receivables of individually significant amount and with provision made on an individual basis 175 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Opening balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) Receivables with provision made on a collective basis 447,892,760.42 99.58 22,328,923.45 4.99 425,563,836.97 using portfolios with similar credit risk features Portfolio 1 Portfolio 2 447,892,760.42 99.58 22,328,923.45 4.99 425,563,836.97 Receivable of individually insignificant amount but 1,881,238.51 0.42 1,881,238.51 100.00 with provision made on an individual basis Total 449,773,998.93 100.00 24,210,161.96 5.38 425,563,836.97 c. In portfolios, accounts receivable with provision made on a collective basis with age analysis method Closing balance Ages Book balance Provision for bad debts Provision proportion (%) Within 1 year 483,268,462.37 1-2 years 54,168,955.54 2-3 years 25,002,443.25 2,500,244.33 10.00 3-4 years 12,365,997.38 3,709,799.21 30.00 4-5 years 5,731,959.09 2,292,783.64 40.00 5-6 years 2,792,005.87 2,233,604.70 80.00 Over 6 years 19,260,640.39 19,260,640.39 100.00 Subtotal 602,590,463.89 29,997,072.27 2) Provisions made, collected or reversed in current period Provision for bad debts made in current period totaled 7,668,148.82 yuan. 3) Details of the top 5 debtors with largest balances Proportion to the Debtors Book balance total balance of Provision for bad accounts receivable debts (%) Beijing UniStrong Science & Technology Co., 52,167,500.00 8.43 Ltd. Beijing Zhongrui Haotian Information 30,300,000.00 4.90 Technology Co., Ltd. China United Network Communications Group 28,936,702.90 4.68 Co., Ltd., Henan Branch Shenzhen PEMT Technology Co., Ltd. 27,766,504.60 4.49 Guizhou Radio and Television Information 25,728,336.70 4.16 Network Co., Ltd. 176 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Proportion to the Debtors Book balance total balance of Provision for bad accounts receivable debts (%) Subtotal 164,899,044.20 26.66 2. Other receivables (1) Details Items Closing balance Opening balance Interest receivable Dividend receivable 400,000.00 Other receivables 30,677,389.58 41,195,020.22 Total 31,077,389.58 41,195,020.22 (2) Other receivables 1)Details a. Details on categories Closing balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) Receivables of individually significant amount and with 28,912,122.71 37.21 28,912,122.71 100.00 provision made on an individual basis Receivables with provision made on a collective basis 34,283,915.75 50.95 3,606,526.17 10.52 30,677,389.58 using portfolios with similar credit risk features Portfolio 1 6,913,310.33 10.27 6,913,310.33 Portfolio 2 27,370,605.42 40.68 3,606,526.17 13.18 23,764,079.25 Receivable of individually insignificant amount but 4,097,886.33 6.09 4,097,886.33 100.00 with provision made on an individual basis Total 67,293,924.79 100.00 36,616,535.21 54.41 30,677,389.58 (Continued) Opening balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) Receivables of individually significant amount and with 28,912,122.71 37.21 28,912,122.71 100.00 provision made on an individual basis Receivables with provision 44,691,252.14 57.52 3,496,231.92 7.82 41,195,020.22 made on a collective basis 177 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Opening balance Categories Book balance Provision for bad debts Carrying amount Amount Amount Provision % to total proportion (%) using portfolios with similar credit risk features Portfolio 1 23,644,138.80 30.43 23,644,138.80 Portfolio 2 21,047,113.34 27.09 3,496,231.92 16.61 17,550,881.42 Receivable of individually insignificant amount but 4,097,886.33 5.27 4,097,886.33 100.00 with provision made on an individual basis Total 77,701,261.18 100.00 36,506,240.96 46.98 41,195,020.22 b. Other receivables of individually significant amount and with provision made on an individual basis Debtors Book balance Provision for bad Provision Reasons for debts proportion (%) provision made Beijing Likangpu With long age Communications Equipment 28,912,122.71 28,912,122.71 100.00 and hard to Co., Ltd. recover Subtotal 28,912,122.71 28,912,122.71 c. In portfolios, other receivables with provision made on a collective basis with age analysis method Closing balance Ages Book balance Provision for bad debts Provision proportion (%) Within 1 year 16,702,512.55 1-2 years 4,434,733.31 2-3 years 1,908,959.22 190,895.92 10.00 3-4 years 977,998.00 293,399.40 30.00 4-5 years 285,955.00 114,382.00 40.00 5-6 years 262,992.43 210,393.94 80.00 Over 6 years 2,797,454.91 2,797,454.91 100.00 Subtotal 27,370,605.42 3,606,526.17 2) Provisions for bad debts made in current period totaled 110,294.25 yuan. 3) Other receivables categorized by nature Nature of receivables Closing balance Opening balance Temporary advance payment receivable 46,230,393.22 60,415,760.57 Deposits 18,558,706.28 14,639,263.54 Petty cash for business traveling 1,348,181.93 1,210,331.33 178 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Nature of receivables Closing balance Opening balance Others 1,156,643.36 1,435,905.74 Total 67,293,924.79 77,701,261.18 4) Details of the top 5 debtors with largest balances Proportion to the Debtors Nature of Book balance Ages total balance of Provision for receivables other receivables bad debts (%) Beijing Likangpu Temporary Communications advance payment 28,912,122.71 Over 6 years 42.96 28,912,122.71 Equipment Co., Ltd. receivable Putian Temporary 4,097,886.33 Telecommunications advance payment Over 6 years 6.09 4,097,886.33 (H.K.) Co., Ltd. receivable Ping An International 4,000,000.00 Financial Leasing Co., Deposits Within 1 year 5.94 Ltd. China Potevio 3,834,000.00 Information Industry Deposits 1-3 years 5.70 46,000.00 Inc Potevio Hi-tech Temporary 1,209,297.25 Industry Co., Ltd. advance payment Within 1 year 1.80 receivable Subtotal 42,053,306.29 62.49 33,056,009.04 3. Long-term equity investments (1) Categories Closing balance Opening balance Items Book balance Provision for Carrying amount Book balance Provision for Carrying amount impairment impairment Investments in 153,218,270.64 1,910,520.00 151,307,750.64 173,787,270.64 1,910,520.00 171,876,750.64 subsidiaries Investments in associates 182,060,217.26 182,060,217.26 183,937,404.79 183,937,404.79 and joint ventures Total 335,278,487.90 1,910,520.00 333,367,967.90 357,724,675.43 1,910,520.00 355,814,155.43 (2) Investments in subsidiaries Provision for Opening Closing balance Investees Increase Decrease Closing balance impairment of provision for balance made in current impairment period Nanjing Mennekes Electrics Co., Ltd. 57,831,011.71 57,831,011.71 Nanjing Bada Communication 5,610,000.00 5,610,000.00 Equipment Co., Ltd. Nanjing Putian Changle Telecommunications Equipment Co., 2,610,457.00 2,610,457.00 Ltd. Nanjing Putian Telecommunication 1,294,510.00 1,294,510.00 Technology Co., Ltd. Nanjing Putian Information Technology 13,860,000.00 13,860,000.00 Co., Ltd.* 179 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Provision for Opening Closing balance Investees Increase Decrease Closing balance impairment of provision for balance made in current impairment period Nanjing Putian Telege Intelligent 3,320,003.45 3,320,003.45 Building Ltd. Putian Telecommunications (H.K.) Co., 1,910,520.00 1,910,520.00 1,910,520.00 Ltd. Nanjing Putian Network Co., Ltd. 7,741,140.41 7,741,140.41 Nanjing Putian Wangzhi Electronic Co., 40,997,683.00 20,569,000.00 20,428,683.00 Ltd. Nanjing South Telecommunications 33,175,148.00 33,175,148.00 Company Limited Nanjing Putian Datang Information 5,436,797.07 5,436,797.07 Electronic Co., Ltd. 173,787,270.6 Subtotal 20,569,000.00 153,218,270.64 1,910,520.00 4 (3) Investments in associates and joint ventures Increase/decrease Investees Opening balance Adjustment in Investment income Investments Investments other recognized under increased decreased comprehensive equity method income Joint ventures SEI-Nanjing Potevio Optical 13,296,092.84 -2,167,774.50 Network Co., Ltd. Subtotal 13,296,092.84 -2,167,774.50 Associates Potevio Hi-tech Industry 170,641,311.95 488,154.17 Co., Ltd. Subtotal 170,641,311.95 488,154.17 Total 183,937,404.79 -1,679,620.33 (Continued) Increase/decrease Closing Investees Cash Closing balance balance of Changes in dividend/profit Provision for Others provision for other equity declared for impairment impairment distribution Joint ventures SEI-Nanjing Potevio 11,128,318.34 Optical Network Co., Ltd. Subtotal 11,128,318.34 Associates Potevio Hi-tech Industry 197,567.20 170,931,898.92 Co., Ltd. Subtotal 197,567.20 170,931,898.92 180 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Increase/decrease Closing Investees Cash Closing balance balance of Changes in dividend/profit Provision for Others provision for other equity declared for impairment impairment distribution Total 197,567.20 182,060,217.26 (II) Notes to items of the parent company income statement 1. Operating revenue/ Operating cost Current period cumulative Preceding period comparative Items Revenue Cost Revenue Cost Revenue from main 948,501,070.96 838,026,882.71 1,122,674,427.01 988,803,227.94 operations Revenue from other 57,117,883.81 41,395,696.37 27,207,649.73 20,668,462.58 operations Total 1,005,618,954.77 879,422,579.08 1,149,882,076.74 1,009,471,690.52 2. Investment income Items Current period cumulative Preceding period comparative Investment income from long-term equity investments 24,376,700.00 25,576,700.00 under cost method Investment income from long-term equity investments -1,679,620.33 360,327.85 under equity method Total 22,697,079.67 25,937,027.85 XIII. Other supplementary information (I) Non-recurring profit or loss 1. Schedule of non-recurring profit or loss of current period Items Amount Remarks Gains on disposal of non-current assets, including 33,483,456.05 written-off of provision for impairment Government grant included in profit or loss (excluding those closely related to operating activities, or regular 8,554,841.22 government grants) Unpayable payables 1,332,427.34 Other non-operating income and expenses other than -165,751.16 the above Subtotal 43,204,973.45 Less: enterprise income tax affected 5,400,947.05 Non-controlling interest affected (after tax) 10,482,855.69 Net non-recurring profit or loss attributable to 27,321,170.71 shareholders of the parent company 181 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report (II) RONA and EPS 1. Details EPS (yuan/share) Profit of the reporting period Weighted average RONA (%) Basic EPS Diluted EPS Net profit attributable to shareholders 1.66 0.0273 0.0273 of ordinary shares Net profit attributable to shareholders of ordinary shares after deducting -6.08 -0.0998 -0.0998 non-recurring profit or loss 2. Calculation process of weighted average RONA Items Symbols Current period cumulative Net profit attributable to shareholders of ordinary shares A 5,859,214.84 Non-recurring profit or loss B 27,321,170.71 Net profit attributable to shareholders of ordinary shares C=A-B -21,461,955.87 after deducting non-recurring profit or loss Opening balance of net assets attributable to shareholders D 350,248,482.53 of ordinary shares Net assets attributable to shareholders of ordinary shares increased due to offering of new shares or conversion of E debts into shares Number of months counting from the next month when the F net assets were increased to the end of the reporting period Net assets attributable to shareholders of ordinary shares decreased due to share repurchase or cash dividends G appropriation Number of months counting from the next month when the H net assets were decreased to the end of the reporting period Translation reserve I -817,969.13 increased in current period Number of months counting Others from the next month when the net assets were J 6 increased or decreased to the end of the reporting period Number of months in the reporting period K 12 Weighted average net assets L= D+A×1/2 352,769,105.39 + E×F/K-G×H/K±I×J/K Weighted average ROE M=A/L 1.66 Weighted average ROE after deducting non-recurring profit N=C/L -6.08 or loss 3. Calculation process of basic EPS and diluted EPS (1) Calculation process of basic EPS Items Symbols Current period cumulative Net profit attributable to shareholders of ordinary shares A 5,859,214.84 Non-recurring profit or loss B 27,321,170.71 182 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Items Symbols Current period cumulative Net profit attributable to shareholders of ordinary shares C=A-B -21,461,955.87 after deducting non-recurring profit or loss Opening balance of total shares D 215,000,000.00 Number of shares increased due to conversion of reserve to E share capital or share dividend appropriation Number of shares increased due to offering of new shares F or conversion of debts into shares Number of months counting from the next month when the G share was increased to the end of the reporting period Number of shares decreased due to share repurchase H Number of months counting from the next month when the I share was decreased to the end of the reporting period Number of shares decreased in the reporting period J Number of months in the reporting period K 12.00 Weighted average of outstanding ordinary shares L=D+E+F×G/K-H×I/K-J 215,000,000.00 Basic EPS M=A/L 0.0273 Basic EPS after deducting non-recurring profit or loss N=C/L -0.0998 (2) The calculation process of diluted EPS is the same with that of basic EPS. . 183 Nanjing Putian Telecommunications Co., Ltd. 2018 Annual Report Section XII. Documents Available for Reference (i) Accounting statement bearing signature and seal of the legal representative, person in charge of accounting works and person in charge of accounting institution of the Company (ii) Original auditing report bearing seal of CPAs and signature and seal of CPA. (iii) Text of notice and original draft that public on website appointed by CSRC within report period. Board of Directors of Nanjing Putian Telecommunications Co., Ltd. 23 April 2019 184