Hangzhou Hikvision Digital Technology Co., Ltd. 2018 Interim Report January to June 2018 July 21st 2018 Hikvision 2018 Half Year Report Section I Important Notes, Contents and Definitions The Board of Directors, Board of Supervisors, directors, supervisors and senior management of Hangzhou Hikvision Digital Technology Co., Ltd. (hereinafter referred to as the “Company”) hereby guarantee that the information presented in this report shall be together be wholly liable for the truthfulness, accuracy and completeness of its contents and free of any false records, misleading statements or material omissions, and will undertake individual and joint legal liabilities. Chen ZongNian, the Company's legal representative; Jin Yan, the person in charge of the Company’s accounting work and the head of accounting department (accountant in charge), hereby declare and warrant that the financial statements in this report are authentic, accurate and complete. All directors have attended the meeting of the board to review this report. The half year proposal of profit distribution and share distribution from capital reserve passed upon deliberation at the meeting of the Board of Directors (not applicable): The Company will not distribute cash dividend, distribute bonus share, or distribute shares from capital reserve during the current reporting period. Note: This document is a translated version of the Chinese version 2018 Half Year Financial Report (“2018 年半年度报告”), and the published announcements in the Chinese version shall prevail. The complete published Chinese 2018 Half Year Financial Report may be obtained at www.cninfo.com.cn. 1 Hikvision 2018 Half Year Report Please read the annual report and pay particular attention to the following risk factors: 1) Risk of technology upgrade: With the development of cloud computing, big data, artificial intelligence, and other technologies, the demand and business models of the industry will change accordingly. If the Company cannot follow the changes in the cutting-edge technologies, or fail to realize the business innovation rapidly, the risks of future development uncertainties will increase. 2) Risk of cyber-security: Risk of cyber-security: The Company has always attached importance and taken active measures to enhance security performance of our products and systems, but under the Internet application environment, there is still a possibility of deliberate attempts,including computer viruses, malicious software, hacker and similar disruptions,to damage our systems or products, causing the security issues. 3) Risk of exchange rate fluctuation: At the overseas market, the Company carries out operations in various countries and regions with different currencies. The risk of exchange rate mainly comes from foreign exchange exposures arising out of sales, purchase and financing that not settled in RMB (mainly in USD) as well as the exchange rate fluctuations, which may probably affect the profitability level of the Company. 4) Risk of internal management: The continual expansion of business scale, the continuous increase of new products and new businesses, the sustained growth in total number of employees and the significant rise of internal management complexity have posed challenges to the Company’s management work and raised higher requirements on the Company's management team. The Company’s sustainable development will face certain risks if the management level fails to match up with the Company’s business expansion. 5) Risk of global market expansion: The Company’s business covers more than 150 countries and regions worldwide. If various situations such as trade protectionism, debt problem or political conflict occur in the country where our business is carried out, adverse impact may be caused to the Company’s business development. 6) Risk of local debt: In the government-related project field, the Company has been maintaining a prudent attitude towards PPP (Public-Private Partnership) and other construction modes, and endeavors to reduce risks in the course of management and control for signing the project and implementing project. However, the risk of extension of project schedule and failure of capital recovery might still appear if some government policies change or the financial payment ability reduces. 7) Risk of intellectual property (IP) rights: The Company continues to maintain the relative large scale of R&D investment, and produces considerable technical achievements. At the same time, the Company implements well-organized intellectual property right (IPR) protection measures, however, the risk of provoking IPR disputes and suffering from IPR infringements still exists. The above notices might not be all-inclusive of all other potential risks, please pay attention to the potential investment risks 2 Hikvision 2018 Half Year Report CONTENTS Section I Important Notes, Contents and Definitions ........................................................................................... 1 Section II Corporate Profile & Key Financial Data .............................................................................................. 5 Section III Corporate Business Summary ........................................................................................................... 10 Section IV Operation Discussion and Analysis .................................................................................................. 11 Section V Significant Events .............................................................................................................................. 26 Section VI Changes in Shares and Information about Shareholders................................................................... 40 Section VII Information of Preferred Shares ...................................................................................................... 48 Section VIII Information about Directors, Supervisors, Senior Management .................................................... 49 Section IX Corporate Bonds ............................................................................................................................... 54 Section X Financial Report ................................................................................................................................. 55 Section XI Documents Available for Reference ............................................................................................... 159 3 Hikvision 2018 Half Year Report Definitions Term Definition Reporting Period From January 1st 2018 to June 30th 2018 Articles of Associations Articles of Associations for Hangzhou Hikvision Digital Technology Co., Ltd Hikvision, our Company, the Hangzhou Hikvision Digital Technology Co., Ltd Company CETHIK CETHIK Group Co., Ltd. Controlling Shareholder of the Company Located in Tonglu economic development area, Hangzhou, Zhejiang province, purposes for production factories, warehousing logistics center. Initially disclosed in Announcement about Security Industrial Base (Tonglu) the Company’s Investment in Tonglu to Set up Wholly Owned Subsidiary and New Hikvision Security Industry Base (Tonglu) Project(《关于在桐庐投资设立全资子公司及新建海康威 视安防产业基地(桐庐)项目的公告》) (NO. 2014-044). Located in Chongqing, purposes for manufacturing facility, initially disclosed in Chongqing Manufacture Base Announcement about Resolution of the 20th Meeting of the 3rd Session Board(No:2016-068) A long investment cycle, business prospects uncertain, has the high risk and uncertainty, in need for direct or indirect investment in exploration, in order for the Company to timely enter into new areas of business. Initially disclosed in Announcement about Management Measures for Core Staff Investment in Innovative Business (《核心员工跟投创新业务管理办法》) Innovative Business (www.cninfo.com.cn) In this report, innovative business also refers to Ezviz, Hikvision Robtics, Hikvision Automotive Technology, Hikvision Weiying, Hikvision Storage, and their related business or products. The Company publicly issued the bond with nominal value amounting to Euro 400 million; and the bond was settled, listed and traded on the Irish Stock Exchange on February 18th Euro Bond 2016. For details, please refer to Announcement about Issuing Foreign Currency Bond (《关 于境外发行外币债券的进展公告》) (NO. 2016-004) 4 Hikvision 2018 Half Year Report Section II Corporate Profile & Key Financial Data I. Corporate Information Stock abbreviation HIKVISION Stock code 002415 Stock exchange where the shares of the Company Shenzhen Stock Exchange are listed Name of the Company in Chinese (if any) 杭州海康威视数字技术股份有限公司 Abbr. of the Company name in Chinese 海康威视 Name of the Company in English (if any) HANGZHOU HIKVISION DIGITAL TECHNOLOGY CO., LTD Abbr. of the Company name in English (if any) HIKVISION Legal representative Chen Zongnian II. Contacts and contact information Board Secretary Securities Affairs Representative Name Huang Fanghong Li Yi No. 518 WuLianWang Street, Binjiang No. 518 WuLianWang Street, Binjiang Address District, Hangzhou District, Hangzhou Tel. 0571-89710492 0571-89710492 Fax 0571-89986895 0571-89986895 E-mail hikvision@hikvision.com hikvision@hikvision.com III. Other Relevant Information 1. Company’s contact information Whether there is any change in the Company’s registered address, office address, zip code, company website or company email address during the reporting period. √Applicable □Inapplicable Registered address No. 555 Qianmo Road, Binjiang District, Hangzhou Postal code of Registered address 310051 Business address No. 518 WuLianWang Street, Binjiang District, Hangzhou Postal code of Business address 310051 Company website www.hikvision.com E-mail market@hikvision.com; ir@hikvision.com 5 Hikvision 2018 Half Year Report 2. Information disclosure and place of the report Whether there is alteration in information disclosure and place of the report during the reporting period. □ Applicable √ Inapplicable The newspaper designated by the Company for information disclosure, website specified by CSRC for release of the half-year report, and the place where the half-year report is available for inspection have not changed during the reporting period, Please refer to 2017 Annual Report for details. 6 Hikvision 2018 Half Year Report IV. Key accounting data and Financial Indicators Whether the Company performed a retroactive adjustment or restatement of previous accounting data □Yes √No Unit: RMB 2018 First Half Year 2017 First Half year YoY Change (%) Operating income (RMB) 20,875,758,224.63 16,447,539,736.52 26.92% Net profits attributable to shareholders of the Company 4,147,395,535.86 3,291,546,056.70 26.00% (RMB) Net profits attributable to shareholders of the Company 4,009,270,961.25 3,189,866,218.86 25.69% excluding non-recurring gains and losses (RMB) Net cash flows from operating activities (RMB) -1,621,193,358.00 -1,942,800,802.42 16.55% Basic earnings per share (RMB/share) 0.449 0.357 25.77% Diluted earnings per share (RMB/share) 0.449 0.357 25.77% Weighted average ROE 13.08% 12.98% 0.10% At June 30th 2018 At December 31st 2017 YoY Change (%) Total assets (RMB) 50,019,711,616.85 51,570,963,466.61 -3.01% Net assets attributable to shareholders of the Company 30,013,518,648.59 30,358,072,874.22 -1.13% (RMB) 7 Hikvision 2018 Half Year Report V. Differences in Accounting Data between Domestic and Overseas Accounting Standards 1. Difference in the financial report of net profits and net assets according to the disclosure of International Financial Reporting Standards and China Accounting Standards □ Applicable √ Inapplicable There is no difference in the financial report of net profits and net assets according to the disclosure of International Financial Reporting Standards (IFRS) and China Accounting Standards in the reporting period. 2. Difference in the financial report of net profits and net assets according to the disclosure of Overseas Accounting Standards and China Accounting Standards □ Applicable √ Inapplicable There is no difference in the financial report of net profits and net assets according to the disclosure of Overseas Accounting Standards and China Accounting Standards in the reporting period. VI. Items and Amounts of Non-recurring Gains and Losses √ Applicable □ Inapplicable Unit:RMB Item Amount Profit or loss from disposal of non-current assets (including the write-off for the impairment of 3,763,578.84 assets) The government subsidies1 included in the current profits and losses (excluding the government subsidy closely related to regular course of business of the Company and government subsidy 32,403,527.17 based on standard quota or quantitative continuous application according to the state industrial policy.) Held-to-maturity financial assets, profits and losses of fair value held-for-trading financial liabilities, and investment income in disposal of held-for-trading financial assets and liabilities 69,626,477.45 and available-for sale financial assets excluding the effective hedging business related to the regular business operation of the Company. Other non-operating income and expenditures except the items mentioned above 57,609,365.54 Less: Impact of income tax 24,177,242.28 The impact of the minority interests (after tax) 1,101,132.11 Total 138,124,574.61 Explain the reasons if the Company classifies an item as a non-recurring gain/loss according to the definition in the, or classifies any non-recurring gain/loss item mentioned in the 1 Please refer to Note (V) 46 for details about government subsidy, which is closely related to daily operations of the Company. 8 Hikvision 2018 Half Year Report aforementioned note as a recurrent gain/loss item □ Applicable √ Inapplicable In the reporting period, the Company did not classify an item as a non-recurring gain/loss according to the definition in the into a recurrent gain/loss item 9 Hikvision 2018 Half Year Report Section III Corporate Business Summary I. The principal business of the Company during the reporting period There is no significant change for the principal business of the Company during the reporting period. Please refer to 2017 Annual Report for details. II. Significant changes in main assets 1. Major Changes in Main Assets Major assets Explanation on Major Changes Equity Assets No significant changes Increased by 34.76%, mainly due to the transfer of Internet Security Industry Base into fixed assets Fixed Assets after completion. Increased by 86.37%, mainly due to purchase of land for Chengdu Science and Technology Base Intangible Assets project. Decreased by 50.87%, mainly due to the transfer of Internet Security Industry Base into fixed assets Construction in Progress after completion. 2. Major Overseas Assets □ Applicable √ Inapplicable III. Core Competitiveness There is no significant change for the core competitiveness of the Company during the reporting period. Please refer to 2017 Annual Report for details. 10 Hikvision 2018 Half Year Report Section IV Operation Discussion and Analysis I. Overview During the first half year of 2018, facing geopolitical headwinds domestically and overseas, the Company focused on technology innovation, adhered to customer orientation, continued investment in research and development (R&D). Meanwhile, the Company continued to promote its core video businesses, enhance the Company’s management ability and maintain a healthy balance between scale growth and profitability level, according to the middle-to-long term strategic plan. During the reporting period, the Company achieved total operating income of RMB 20.88 billion, representing a 26.92 percent increase compared to the first six months of 2017; and net profit attributable to shareholders of the listed company of RMB 4.15 billion, up 26.00 percent on a year-over-year basis. 1. Continues to increase R&D investments, promote core video businesses During the reporting period, with the rapid development of Artificial Intelligence (AI) technology, the Company devotes itself to continue its research and development of AI technology and applications. Under the AI Cloud framework of “edge perception, on-demand (data) convergence, multi-layered cognition, multi-tier application”, the Company cooperates with numerous partners from different markets to promote development of the Internet of Things (IoT) industry. 2. Continue global market expansion, actively cope with trade protectionism The Company continued to increase investments in overseas marketing, strengthened localized marketing and service capabilities, optimize the global marketing and sales network, and further expanded and developed the global market. While the risk of uncertainties in the international environment is ongoing, the Company seeks to maintain steady and healthy growth through adopting targeted regional strategies. 3. Continue to optimize domestic sales and marketing network to support business expansion In domestic market, in order to optimize the domestic sales and marketing network, the company facilitated the marketing strategy of delivering resource downward, allowing regional offices to well support their business as well as to improve business efficiency. In the channel market, the company strengthened sales supervision with regulation and standardization. 11 Hikvision 2018 Half Year Report 4. Continue to promote management reform and optimize organizational capabilities The Company continues to make effort on management reform, optimizing organizational capabilities, improving operational efficiency, and further enhance its capability to create value for customers. The Company is committed to promoting a strong corporate culture that promotes professional and business growth of both employees and the Company. II. Core business analysis 1. Overview Whether consistent with the overview disclosure under Operation Discussion and Analysis √ yes □ no Please refer to details in Section IV Operation Discussion and Analysis-I. Overview Year-over-Year Changes in Key financial data Unit:RMB YoY Change 2018 First Half Year 2017 First Half Year Note of Change (%) Operating Income increased with the Operating Income 20,875,758,224.63 16,447,539,736.52 26.92% steady increase of market demands. Operating costs 11,586,298,826.07 9,420,695,024.84 22.99% Increase with the operating income growth Selling expenses increase with the Company’s continuous increasing Selling expenses 2,649,393,264.42 1,726,924,956.22 53.42% investments on domestic and overseas sales network The operation scale expands, and the R&D Administrative expenses 2,503,531,051.09 1,761,709,877.13 42.11% investment increases Affected by the increase in interest income and the fluctuation in foreign exchange Financial expense -158,521,317.81 65,500,627.65 -342.01% rate, increase in foreign currency exchange gains Income Tax Expenses 665,802,758.48 568,658,390.85 17.08% Increase with the profit growth The Company continues to increase R&D investments 1,912,682,599.24 1,454,783,663.94 31.48% investments in R&D Net Cash Flow from Increase in collection of accounts -1,621,193,358.00 -1,942,800,802.42 16.55% Operating Activities receivable for sales Net Cash Flow from 986,123,427.08 3,188,919,897.38 -69.08% Significant amount of collection of 12 Hikvision 2018 Half Year Report YoY Change 2018 First Half Year 2017 First Half Year Note of Change (%) Investment Activities matured principal-guaranteed financial products in 2017 first half year (prior year same period). Net Cash Flow from -2,425,626,823.45 -2,109,983,475.35 -14.96% Increase in distribution of dividends Financing Activities Significant amount of collection of Net increase in cash and cash matured principal-guaranteed financial -3,062,665,051.63 -995,983,078.72 -207.50% equivalents products in 2017 first half year (prior year same period). Whether there is significant change in Company’s profit structure or profit source during the reporting period □ Applicable √ Inapplicable There is no such case during the reporting period. Operating income structure Unit:RMB 2018 First Half Year 2017 First Half Year YoY Change Proportion to Proportion to (%) Amount Amount operating income operating income Total operating income 20,875,758,224.63 100.00% 16,447,539,736.52 100.00% 26.92% Classified by industry Video products and video 20,875,758,224.63 100.00% 16,447,539,736.52 100.00% 26.92% services Classified by product Front-end equipment 10,285,314,406.66 49.27% 8,471,727,239.99 51.51% 21.41% Back-end equipment 2,994,583,467.04 14.34% 2,581,996,973.35 15.70% 15.98% Central control equipment 2,798,476,654.30 13.41% 1,893,438,540.55 11.51% 47.80% Constructions 1,077,104,977.68 5.16% 428,858,036.85 2.61% 151.16% Others 2,613,813,622.58 12.52% 2,457,693,523.55 14.94% 6.35% Subtotal 19,769,293,128.26 94.70% 15,833,714,314.29 96.27% 24.86% Smart home business 725,865,396.10 3.48% 459,861,958.09 2.80% 57.84% Other innovative businesses 380,599,700.27 1.82% 153,963,464.14 0.93% 147.20% Subtotal 1,106,465,096.37 5.30% 613,825,422.23 3.73% 80.26% 13 Hikvision 2018 Half Year Report 2018 First Half Year 2017 First Half Year YoY Change Proportion to Proportion to (%) Amount Amount operating income operating income Classified by region Domestic 14,580,485,895.05 69.84% 11,478,885,424.15 69.79% 27.02% Overseas 6,295,272,329.58 30.16% 4,968,654,312.37 30.21% 26.70% Note: “Other innovative businesses” includes corresponding business products of innovative business subsidiaries - Hikvision Robotics, and Hikvision Automotive Technology, Hikvision Weiying, Hikvision Storage, and Similar hereinafter. Industries, products or regions accounting for more than 10% of the Company’s operating income or operating profit √ Applicable □ Inapplicable Unit: RMB YoY Change (%) Gross YoY Change (%) YoY Change (%) Operating income Operating cost of operating margin of operating cost of gross margin income Classified by industry Video products and 20,875,758,224.63 11,586,298,826.07 44.50% 26.92% 22.99% 1.78% video services Classified by product Front-end equipment 10,285,314,406.66 5,171,808,124.76 49.72% 21.41% 19.42% 0.84% Back-end equipment 2,994,583,467.04 1,618,843,751.15 45.94% 15.98% 22.81% -3.01% Central control 2,798,476,654.30 1,314,431,389.49 53.03% 47.80% 26.89% 7.74% equipment Constructions 1,077,104,977.68 921,303,977.95 14.46% 151.16% 137.65% 4.86% Others 2,613,813,622.58 1,863,871,939.74 28.69% 6.35% -3.69% 7.43% Subtotal 19,769,293,128.26 10,890,259,183.09 44.91% 24.86% 20.90% 1.80% Smart home business 725,865,396.10 462,125,654.34 36.33% 57.84% 49.07% 3.75% Other innovative 380,599,700.27 233,913,988.64 38.54% 147.20% 127.20% 5.41% businesses Subtotal 1,106,465,096.37 696,039,642.98 37.09% 80.26% 68.55% 4.37% Classified by region Domestic 14,580,485,895.05 8,054,514,491.59 44.76% 27.02% 16.42% 5.03% Overseas 6,295,272,329.58 3,531,784,334.48 43.90% 26.70% 41.14% -5.74% 14 Hikvision 2018 Half Year Report Adjusted statistics of principal business are based on the caliber at the end of the reporting period of last year, if the statistics caliber of principal business has been changed during the reporting period □ Applicable √ Inapplicable Explanations on relevant data changed for more than 30% on a year-over-year base √Applicable □Inapplicable YoY Change (%) YoY Change of operating (%) of operating Note on YoY change (%) above 30% income cost Classified by product In the category of central control equipment, the income of data Central control equipment 47.80% 28.69% center products and software increases As the number of system integration projects increases, the income Constructions 151.16% 137.65% and cost of project construction increase synchronously The smart home business is developing rapidly, with revenue and Smart home business 57.84% 49.07% cost increasing simultaneously Other innovative Other innovative businesses are growing rapidly 147.20% 127.20% businesses Classified by region Exchange rate fluctuation and overseas product structure change Overseas 26.70% 41.14% lead to the growth rate of overseas operating costs higher than the overseas income growth rate. III. Non-Core Business Analysis □Applicable √Inapplicable 15 Hikvision 2018 Half Year Report IV. Analysis of assets and liabilities 1. Material changes of asset items Unit:RMB June 30th 2018 December 31st 2017 YoY Change Note of significant change Percentage of Percentage of (%) Amount Amount total assets total assets Cash and bank balances 13,751,564,452.20 27.49% 16,468,430,702.64 31.93% -4.44% No significant change Accounts receivable 16,949,626,312.71 33.89% 14,705,210,072.81 28.51% 5.38% Increase with the increase in sales revenue Inventory 5,507,182,528.93 11.01% 4,940,332,311.65 9.58% 1.43% No significant change Long-term equity investment 160,012,824.27 0.32% 130,474,733.58 0.25% 0.07% No significant change Fixed assets 4,075,143,444.28 8.15% 3,024,025,496.31 5.86% 2.29% Mainly due to the transfer of Internet Security Industry Base into fixed assets after completion. Construction in process 705,731,687.16 1.41% 1,436,319,118.30 2.79% -1.38% Increased Short-term borrowing used for Short-term loans 3,396,803,881.03 6.79% 97,114,655.91 0.19% 6.60% temporary capital turnover Long-term loans 190,000,000.00 0.38% 490,000,000.00 0.95% -0.57% Long-term loans were repaid at maturity 16 Hikvision 2018 Half Year Report 2. Assets and liabilities measured at fair value √ Applicable □ Inapplicable Unit: RMB Difference on translation of Provision for Profit or loss financial decline in Purchase Sales Opening from change in Closing Item statements value during during the during the balance fair value during balance dominated in the current period period the period foreign period currency Financial assets 1.Financial assets at fair value through profits and 4,100,657.54 16,449,323.23 20,549,980.77 losses(exclude derivative financial assets) Financial Liabilities 15,946,836.46 -22,551,871.25 2,630.29 38,501,338.00 Whether there were any material changes on the measurement attributes of major assets of the Company during the Reporting Period: □ Yes √ No 3. Assets right restrictions as of the end of reporting period None V. Analysis of Investments 1. Overview √Applicable □ Inapplicable Investment during 2018 First Half Year Investment during 2017 First Half Year Fluctuation (%) (RMB) (RMB) 945,650,502.12 809,644,383.18 16.80% 2. Significant equity investment during the reporting period □Applicable √Inapplicable 17 Hikvision 2018 Half Year Report 3. Significant non-equity investment during the reporting period √ Applicable □ Inapplicable Unit: RMB Fixed assets Cumulative amount of Invest Project Investment during the Source of Project Project name investment investment by the end of method industry current reporting period funds schedule or not reporting period Security Video Industrial Base Self-built YES product and 70,144,256.02 370,833,169.98 Bond 69.00% (Tonglu) phase 2 video service Chongqing Video Manufacture Self-built YES product and 81,633,434.51 171,027,046.32 Self-fund 67.00% Base video service Total -- -- -- 151,777,690.53 541,860,216.30 -- -- 4. Financial assets measured at fair values √ Applicable □ Inapplicable Unit: RMB Current profits or Initial investment losses on the Purchase during the Cumulative Source of Category Closing balance cost changes in fair reporting period investment income funds value Derivative Company's 1,400,293,692.23 -6,102,548.02 6,763,085,343.78 -2,018,145.43 2,372,393,794.45 instruments own funds Total 1,400,293,692.23 -6,102,548.02 6,763,085,343.78 -2,018,145.43 2,372,393,794.45 -- 5. Securities Investments □ Applicable √ Inapplicable No such case in the reporting period. 6. Derivatives Investments □ Applicable √ Inapplicable No such case in the reporting period. 18 Hikvision 2018 Half Year Report 7. Use of raised funds □ Applicable √ Inapplicable During the reporting period, there was no use of raised fund 8. Significant non-fundraising investment during the reporting period □ Applicable √ Inapplicable During the reporting period, there was no such case as significant non-fundraising investment. VI. Disposal of significant assets and equity 1. Disposal of significant assets: □ Applicable √ Inapplicable During the reporting period, there was no disposal of significant assets 2. Sale of significant equity: □ Applicable √ Inapplicable 19 Hikvision 2018 Half Year Report VII. Analysis of major subsidiaries and investees √ Applicable □ Inapplicable Information about major subsidiaries, and investees that contribute above 10% of the Company’s Net Profit Unit:RMB Company Registered Company name Principal business Total assets Net assets Operating revenue Operating profit Net profit type capital Manufacturing: video surveillance system; Technology development and service: computer Hangzhou system integration, electronic product, Hikvision communication product; service: the installation of System Subsidiary 600 million 4,156,311,514.88 1,217,816,653.36 1,641,898,662.44 73,734,226.54 62,412,604.43 electric security engineering, the design, Technology. construction and maintenance of intelligent Co., Ltd. system; selling its self-produced products, import and export its own products and technology. Manufacturing: security electronic product, intelligent hardware electronic products, explosion-proof electric products., IC card and IC card RW device, mobile phone, cordless phone, handheld wireless police terminal, hand held mobile police terminal; technology development, technology consulting, results transferring: Hangzhou computer software, electronic product, Hikvision communication product, digital security product; Science and Subsidiary wholesale: security electronic product and its 1000 million 26,881,127,646.92 2,193,176,674.65 19,102,322,131.27 113,451,802.21 199,136,942.96 Technology auxiliary equipment, intelligent hardware Co. Ltd. electronic product, explosion-proof electrics, security electronic product and its auxiliary equipment, intelligent hardware electronic product, explosion-proof electrics, IC card and IC card RW device, mobile phone, cordless phone, handheld wireless police terminal, hand held mobile police terminal;;import and export business 20 Hikvision 2018 Half Year Report Information about obtaining and disposal of subsidiaries during the reporting period √ Applicable □ Inapplicable Equity acquisition and disposal Impact on overall Company name method during the reporting period production results Xi’An Hikvision Digital Technology Ltd. Cash contribution Business development Wuhan Hikvision Science and Technology Ltd. Cash contribution Business development Wuhan Hikvision Technology Ltd. Cash contribution Business development Xi’an Hikvision System Technology Ltd. Cash contribution Business development Hangzhou Huiying Technology Ltd. Cash contribution Business development Yu Tian Hai Shi Mei Tian Electronic Technology Ltd. Cash contribution Business development Luo Pu District Hai Shi Ding Xin Electronic Technology Ltd. Cash contribution Business development Adjustments of Beijing Hikvision Security and Protection Technology Service Ltd. Liquidation and Cancellation organizational framework VIII. Structural entities controlled by the Company □ Applicable √ Inapplicable IX. Guidance on the Company’s operational result from January 1st 2018 to September 30th 2018 Guidance on the Company’s operational performance during January 1 st, 2018 to September 30th, 2018: Net profits attributable to shareholders of the Company are positive, and situation of turning losses into gains is not applicable. Estimated YoY change (%) of net profits attributable to shareholders of the 15.00% to 35.00% Company from January 1st , 2018 to September 30th, 2018 Estimated variation interval of net profits attributable to shareholders of the 707,573.63 to 830,629.92 Company from January 1St , 2018 to September 30th, 2018 (0,000 RMB) Net profits attributable to shareholders of the Company from January 1st , 615,281.42 2017 to September 30th, 2017 (0,000 RMB) The Company’s operating performance continues to have a steady and healthy Note of change in operational results growth. X. Risks of the Company and risk response solutions During the reporting period, there was no major change in risk factors of the Company, please refer to Section I-Important Notes. The Company has been working hard to identify various risk exposures, actively adopting risk response solutions to avoid and reduce risks: (1) Risk of technology upgrade: Through continuous R&D investments, the Company investigates frontier 21 Hikvision 2018 Half Year Report technologies and keeps its competitiveness in core technology. Through steady and reliable R&D management, the Company has developed an efficient R&D system that addresses market needs, can rapidly respond to market demand for products and technologies, and achieve sustainable development. (2) Risk of cyber-security: The Company has always been dedicated to enhancing the security of its product and system. The Company built a professional cybersecurity team and established a cybersecurity department, and it has instituted a complete product security assurance system. To ensure continuous improvement to product and system security, and provide more secured product and solutions to customers using the Internet/IoT applications, the Company has built cybersecurity demand, cybersecurity design, cybersecurity development, and cybersecurity testing into its product development procedure. (3) Risk of foreign exchange fluctuation: The Company pays attention to risk management of foreign exchange risk, and manages foreign exchange risk by means of centralized management of foreign currency funds, purchase and payment on hedging products. For foreign exchange risk exposure, the Company actively applies financial hedging tools, not for the purpose of speculation, to realize reasonable risk management. (4) Risk of internal management: The Company continues to promote management reform and consistently improve organizational capabilities. During the reporting period, the Company continued to learn from the best practice in the industry, enhance organizational capability, and improve management level, in order to response to various potential market uncertainties through regulated and standardized rules and procedures. (5) Risk of global market expansion: The Company continues to increase investments in global market localization, and strengthen the capability of localized sales and marketing. Meanwhile, the Company actively studies and researches regional laws and regulations and major changes in regional policies in various countries around the world, so as to formulate countermeasures in advance and reduce various trade compliance risks that might occur. (6) Risk of local debt: In the process of signing and implementing PPP (Public-Private Partnership) and other types of local government finance projects, the Company endeavors to reduce risks through prudent evaluation and reasonable control. (7) Risk of intellectual property (IP) rights: The Company has established a full-time IP rights team to conduct daily management and protection of IP rights, such as trademarks and patents. Through various legal means, such as administrative investigation, court proceedings and so on, the company will accurately combat acts that violate the company's IP rights. 22 Hikvision 2018 Half Year Report XI. Reception of activities including research, communication and interviews during the report period √ Applicable □ Inapplicable (1) Reception of research activities during the reporting period. Time of reception Method of reception Type of reception object Basic situation of the research Site Research and telephone From January 1st 2018 to February 2nd 2018 Institutional investors CNINF, Investor Relations Activity Record: From January 1st 2018 to February 2nd 2018 communication Site Research and telephone From February 5th 2018 to March 2nd 2018 Institutional investors CNINF, Investor Relations Activity Record: From February 5th 2018 to March 2nd 2018 communication Site Research and telephone From March 5th 2018 to March 16th 2018 Institutional investors CNINF, Investor Relations Activity Record: From March 5th 2018 to March 16th 2018 communication Annual performance result Institutional and April 23rd 2018 CNINF, Investor Relations Activity Record: April 23rd 2018 Conference Call individual investors Institutional and May 11th 2018 Investor Reception Day CNINF, Investor Relations Activity Record: May 11th 2018 individual investors Site Research and telephone Institutional investors From May 14th 2018 to May 25th 2018 CNINF, Investor Relations Activity Record: From May 14th 2018 to May 25th 2018 communication Site Research and telephone Institutional investors From May 28th 2018 to June 8th 2018 CNINF, Investor Relations Activity Record: From May 28th 2018 to June 8th 2018 communication Site Research and telephone Institutional investors From June 11th 2018 to June 22nd 2018 CNINF, Investor Relations Activity Record: From June 11th 2018 to June 22nd 2018 communication 23 Hikvision 2018 Half Year Report (2) Participation of conferences for investor relationship activities during the reporting period. Time of conference Location Conference Name Type of reception object Method of reception January 2018 Shanghai Ever-Bright Securities 2018 Investment Conference All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. January 2018 Las Vegas Nomura@CES 2018 All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. January 2018 Beijing Morgan Stanley China TMT Conference All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. January 2018 Beijing 16th Annual DBAccess China Conference All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. January 2018 New York Bank of America Merrill Lynch 2018 A-share Conference All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. January 2018 New York-Boston US NDR- via Bank of America Merrill Lynch All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. January 2018 Hong Kong CICC TMT Forum 2018 All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. March 2018 Taibei Bank of America Merrill Lynch APAC TMT Conference 2018 All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. April 2018 Hangzhou Haitong Securities 2018 Spring Corporate Conference All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Los Angeles Jefferies Technology conference 2018 All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 NYC-SFO US NDR- via Jefferies All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Beijing JP Morgan Global China Summit All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Shenzhen CICC Industrial Internet Forum All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Hong Kong BNP 2018 TMT Conference All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Hong Kong Macquarie Greater China Conference 2018 All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Shenzhen HSBC 5th Annual China Conference All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Hangzhou 23rd CLSA China Forum All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Hongkong Goldman Sachs TechNet Conference 2018 All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Beijing Morgan Stanley 4th Annual China Summit All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. May 2018 Chengdu Essence Securities 2018 Mid-Year Investment Conference All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. June 2018 Beijing Huatai Securities Mid-Year Conference All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. 24 Hikvision 2018 Half Year Report Time of conference Location Conference Name Type of reception object Method of reception London-Paris- June 2018 Europe NDR-via CLSA All kinds of investors One-on-One, One-on-multi, small group Meetings, and etc. Geneva-Zurich (3) Investor relations activity statistics during the current year Number of daily research received (Site and telephone conference, times) 156 Number of institutional investors received (ppl) 1593 Number of individual investors received (ppl) 47 Number of investor relations conference participated 22 25 Hikvision 2018 Half Year Report Section V Significant Events I. Annual General Meeting and Extraordinary General Meetings convened during the reporting period 1. Annual General Meeting convened during the current reporting period Proportion of Meeting Nature Convened Date Disclosure Date Disclosure Index participating investors 2018 First Extraordinary Extraordinary No. 2018-011; 70.80% March 7th 2018 March 8th 2018 General Meeting General Meeting www.cninfo.com.cn Annual General No. 2018-032; 2017 Annual General Meeting 73.66% May 11th 2018 May 12th 2018 Meeting www.cninfo.com.cn 2. Extraordinary general meetings convened at the request of preferred shareholders with resumed voting rights: □ Applicable √ Inapplicable II. Profit distribution of ordinary shares and capitalization of capital reserves plan or proposal for the reporting period □ Applicable √ Inapplicable The Company will not distribute cash dividend, distribute bonus share, or distribute share from capital reserve during the half year period. 26 Hikvision 2018 Half Year Report III. Performance of commitments 1. Complete and incomplete commitments of the Company and its actual controller, shareholders, related parties, acquirers, and other related parties for the commitments by the end of the reporting period. √ Applicable □ Inapplicable Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments 1. Commitments in non-competition within the industry: In the period as controlling shareholders of the Hikvision, CETHIK and its controlling subsidiaries (excluding Hikvision and its subsidiaries, the same below) will not be engaged in such business that is competitive to Hikvision and its subsidiaries directly or indirectly. 2. Commitments in decrease and regulation of transactions with related party: Zhejiang Haikang Group Co., Ltd (hereinafter referred to as Haikang Group or actual controller) as the controlling shareholders of Hangzhou Hikvision Digital Technology Co., Ltd (hereinafter referred to as "Hikvision" or "Listed Company") are commited as below for the transactions with Hikvsion: Commitments in (1) Haikang Group will not make use of offering the controlling power to offer more October 29th Strict documents or CETHIK Group Co., Ltd. Long-term favorable conditions to Hikvision than 2013 performance shareholding those to any independent third party in alterations any fair market transactions in the cooperation with Hikvision. (2) Haikang Group will not make use of the controlling power to obtain the prior right to complete the transaction with Hikvision. (3) Haikang Group will not deal with Hikvsion in not fair terms comparing to the market prices to prejudice the Company’s interests. For unavoidable related transactions, the Company will observe the principles of justice and fairness to deterimine prices according to the market on the basis of equality, voluntarily. The Company will obey the Articles of Association and other regulatory documents related to the avoiding of issues about related transactions. The related transactions will go through 27 Hikvision 2018 Half Year Report Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments approval procedures in accordance with related rules and complete legal procedures, fulfilling the information disclosure obligations in respect to the related transactions 3. Commitment to the maintenance of the independence of the listed Company 3.1 Commitment to Personnel Independence of the listed Company (1) Commitment that our general manager, deputy general manager, chief financial officer, secretary of the board and other members of senior management shall not assume any positions other than directors and supervisors or get any remuneration in CETHIK and/or any of its controlled entities; (2) Commitment in keeping the management of labor, human resources and issues related to remuneration of the listed Company independent from that of CETHIK; 3.2 Commitment to the independence of the asset of the listed Company (1) Commitment to independent and complete asset of the listed Company (2) Commitment free of unlawful use of cash and asset of the listed Company by the controlling shareholders 3.3 Commitment to financial independence of the listed Company (1) Commitment to an independent finance department with a team and accounting system; (2) Commitment to a regulated, independent accounting system and financial management system of the branches and subsidiaries (3) Commitment to maintaining accounts with banks independently of and not sharing any bank account with our controlling shareholders (4) Commitment that the financial staff shall not assume any positions in CETHIK (5) Commitment to paying taxes independently according to the law; (6) Commitment to implementing financial decisions independently 3.4 The Company has set up an independent organizational structure which maintains its independent 28 Hikvision 2018 Half Year Report Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments operations which is independent from that of CETHIK. 3.5 Commitment to business Independence of the listed Company (1) The Company has the asset, personnel, aptitude and management capability for independent and complete business operation. The Company has the ability to operate independently in the market. (2) Commitment in independence in both business and operations 4. Regarding plans for the development and relevant commitment for the listed Company, Haikang Group has committed as below for the subsequent development of Hikvsion according to the Securities Acts and relevant laws and rules, 4.1 Currently the Company has no plan to change or make significant adjustments for principal business in the next 12 months; 4.2 Currently the Company has no plan to sell, merge or operate with another Company for the assets and business of the listed Company or its subsidiaries in the next 12 months. 4.3 Currently the Company has no plan to alter the Board of the Directors and senior management and no agreement with other shareholders about the appointment and removal of the directors or senior management. The team of Board of Directors and senior management will remain unchanged for the foreseeable future. 4.4 Currently the Company has no plan to make significant changes to the Articles of Association for the listed Company. 4.5 Currently the Company has no plan to make significant changes to the 29 Hikvision 2018 Half Year Report Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments existing employee recruitment for the listed Company. 4.6 Currently the Company has no plan to make significant changes for the dividend distribution plan for the listed Company. 4.7 Currently the Company has no plan to make significant changes for business and organizational structure for the listed Company. During Hu Yangzhong, Wu Weiqi, JiangHaiqing, Zhou Zhiping, Xu Lirong, Cai Dingguo, He Hongli, Zheng Yibo, Hu Dan,、Jiang Yufeng, Liu Xiang, Wang Ruihong, Chen Junke’s Hangzhou Weixun tenure of the Company’s board of Investment Management directors, supervisors and senior Limited Partnership(later May 17th Strict management personnel, the annual Long term renamed as Xinjiang Weixun 2010 performance transfer of Hikvision’s total shares Investment Management should not exceed 25% of total number Limited Partnership) of shares held under Weixun; within 6 months after abovementioned personnel’s dimission, should not transfer Hikvision’s shares held under Commitments in Weixun. Initial Public During Hu Yangzhong, Wu Weiqi, Gong Offering or re-financing Hongjia’s tenure of the Company’s board of directors, supervisors and Hangzhou Pukang Investment senior management personne, the Limited Partnership(later annual transfer of Hikvision’s total May 17th Strict renamed as Xinjiang Pukang shares should not exceed 25% of total Long term 2010 performance Investment Limited number of shares held under Pukang; Partnership) whithin 6 months after abovementioned personnel’s dimission, should not transfer Hikvision’s shares held under Pukang. The Company's directors, During their tenure of the Company’s supervisors and executive: board of directors, supervisors and May 17th Strict HuYangzhong,Wu Weiqi, senior management personnel, the Long term 2010 performance Jiang Haiqing, Zhou annual shares transfer should not exceed Zhiping,Xu Lirong, Cai 25% of total number of shares held 30 Hikvision 2018 Half Year Report Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments Dingguo, He Hongli, Zheng under Weixun; whthin 6 months after Yibo, Hu Dan, Jiang Yufeng, their dimission, they should not transfer Liu Xiang, Wang Ruihong, their shares held under Weixun. Chen Junke During their tenure of the Company’s board of directors, supervisors and senior management personnel, the Directors, executive officers annual shares transfer should not exceed May 17th Strict of the Company: Long term 25% of total number of shares held 2010 performance Hu Yangzhong, Wu Weiqi under Pukang; whthin 6 months after their dimission, they should not transfer their shares held under Pukang. During Gong Hongjia’s tenure of the Company’s board of directors, supervisors and senior management The Company’s director personnel, Chen’s annual shares transfer May 17th Strict Gong Hongjia’s spouse, Chen should not exceed 25% of total number Long-term 2010 performance Chunmei of shares held under Pukang; whthin 6 months after the dimission of Gong Hongjia,Chen should not transfer her shares held under Pukang. To avoid any loss of the Company and other shareholders arising from any China Electronics Technology competing business, China Electronics Group Corporation(later September Strict Technology Group Corporation, the th Long term renamed as China Electronics 18 2008 performance actual controller of the Company, issued Technology Group Co., Ltd.) Letters of non-competition on 18 September, 2008. Gong Hongjia; Hangzhou Weixun To avoid any loss of the Company and Investment Management other shareholders arising from any Limited Partnership(later competing business, Gong Hongjia, renamed as Xinjiang Weixun Hangzhou WeiXun Investment Investment Management Management Limited Partnership, Limited Partnership); ZheJiang Orient Holdings Co., Ltd and Strict Long term Hangzhou Pukang Investment Hangzhou KangPu Investment July 10th 2008 performance Management Limited Partnership, the Limited Partnership(later promoters of the Company, issued renamed as Xinjiang Pukang Commitment Letters of non-competition Investment Limited in the same industry on 10 July, 2008. Partnership);ZheJiang Orient Holdings Co., Ltd. 31 Hikvision 2018 Half Year Report Date of Term of Commitments Giver of commitments Details of commitments Performance commitments commitments Whether the undertaking is Yes fulfilled in time IV. Engagement and disengagement of the CPA firm Whether the half year report was audited □Yes √No The Company’s half year report was not audited. V. Explanation given by the board of directors, supervisory committee and independent directors (if applicable) regarding the “non-standard auditor’s report” issued by the CPA firm for the current reporting period □ Applicable √ Inapplicable VI. Explanation given by the board of directors regarding the “non-standard auditor’s report” issued by the CPA firm for the prior year. □ Applicable √ Inapplicable VII. Bankruptcy and restructuring □ Applicable √ Inapplicable No such case in the reporting period. VIII. Material litigation and arbitration Material litigation and arbitration □ Applicable √ Inapplicable No such case in the reporting period. Other litigations □ Applicable √ Inapplicable IX. Media queries □ Applicable √ Inapplicable There was no prevalent media query during the reporting period. 32 Hikvision 2018 Half Year Report X. Punishments and rectifications □ Applicable √ Inapplicable No such case in the reporting period. XI. Integrity of the Company and its controlling shareholders and actual controllers □ Applicable √ Inapplicable XII. The implementation of an Equity Incentive Plan, Employee Stock Incentive Plan, or other incentive plans √Applicable □Inapplicable 1) During the reporting period, the Company completed the second time unlocking, repurchasing and cancelling shares for 2014 Restricted Share Incentive Scheme. On December 15th 2017, Resolution for the fulfillment of the unlocking conditions of the Second unlock period for the 2014 Restricted Share Incentive Schemes and the Resolution for the Second repurchase and cancelation of the locked shares that already granted for 2014 Restricted Share Incentive Schemes were approved by the 26th meeting of the third Board. Authorized by the first extraordinary general meeting for 2014,a total of 33,803,907 restricted shares of 1068 grantees were vested and circulated on January 8th 2018. Meanwhile, 1,594,641 restricted shares held by a portion of grantees not fulfilling the incentive conditions were repurchased and cancelled. On March 27th 2018, repurchase and cancelation process of the restricted shares was complete. Thereafter, there are 1072 grantees left for 2014 Restricted Share Incentive Schemes, granted and locked shares leftover are 33,932,161 shares. For details, please refer to in the Indicative Notice of Listing the Unlocked Shares during the Second Unlocking Period of 2014 Restricted Share Incentive Schemes (No. 2018-002) and the Notice of the Completion of Second Repurchase and Cancelation of Locked Shares that Already Granted for 2014 Restricted Share Incentive Schemes (No. 2018-017) issued on January 5th 2018 and March 29th 2018 respectively. By the end of the reporting period, the Company has a total of 112,422,448 granted and restricted shares, accounts for 1.22% of the Company’s total share capital. 33 Hikvision 2018 Half Year Report XIII. Significant related-party transaction 1. Related-party transactions arising from routine operation √ Applicable □ Inapplicable Trading Whether Content of Proportion to the Approved Type of related Amount above Settlement Related party Relationship related Valuation amount of similar trading quota Disclosure date Disclosure reference transaction (0’000 approved method transaction transactions. (0’000 RMB) RMB) quota Purchase Under the common control Reference Subsidiaries of materials, Payment on of the Company’s actual Procurement market price; 15,349.53 1.24% 50,000 No CETC receiving delivery controller. Agreed on price services Purchase The Company’s director or Reference Shanghai Fullhan materials, Payment on his/her relative is the Procurement market price; 12,043.28 0.97% 40,000 No Micro receiving delivery director of the related party Agreed on price services Announcement on Purchase projections on 2018 Reference April 21st 2018 Maxio Technology A joint venture affiliated materials, Payment on related transactions Procurement market price; 4,420.87 0.36% 8,000 No and its subsidiaries business held by the Group receiving delivery (No:2018-024) Agreed on price services Purchase Reference Wuhu Sensor A joint venture affiliated materials, Payment on Procurement market price; 1,948.62 0.16% 4,000 No Technology business held by the Group receiving delivery Agreed on price services Subsidiaries of Under the common control Selling goods Reference Payment on Sales 23,716.53 1.14% 120,000 No CETC of the Company’s actual and providing market price; delivery 34 Hikvision 2018 Half Year Report Trading Whether Content of Proportion to the Approved Type of related Amount above Settlement Related party Relationship related Valuation amount of similar trading quota Disclosure date Disclosure reference transaction (0’000 approved method transaction transactions. (0’000 RMB) RMB) quota controller. services Agreed on price The Company’s director or Selling goods Reference Payment on Zhejiang Tuxun his/her relative is the Sales and providing market price; 96.46 0.01% 500 No delivery director of the related party services Agreed on price The Company’s director or Selling goods Reference Hangzhou Payment on his/her relative is the Sales and providing market price; 52.46 0.00% 100 No Comfirmware delivery director of the related party services Agreed on price A joint venture affiliated Selling goods Reference Maxio Technology Payment on business held by the Group Sales and providing market price; 3.91 0.00% 100 No and its subsidiaries delivery services Agreed on price A joint venture affiliated Selling goods Reference Wuhu Sensor Payment on business held by the Group Sales and providing market price; 3.64 0.00% 500 No Technology delivery services Agreed on price Total -- 57,635.3 -- 223,200 -- -- -- -- Details on significant sales return None Total amount of related transactions projected based on different categories, actual Routine related transaction amount between the Company and the related parties is within the range of the total disclosed amount of related party performance during the current reporting period (if any) transactions projected based on different categories. Reasons on significant difference between trading price and market referencing Not applicable price (if applicable) 35 Hikvision 2018 Half Year Report 2. Related-party transactions regarding purchase and disposal of assets or equity □Applicable √Inapplicable No such case in the reporting period. 3. Significant related-party transactions arising from joint investments on external parties □Applicable √Inapplicable No such case in the reporting period. 4. Related-parties’ creditor's rights and debts □ Applicable √Inapplicable No related-parties’ creditor’s rights or debts during the reporting period. 5. Other significant related party transactions □ Applicable √Inapplicable No such case in the reporting period. XIV. Significant contracts and their execution 1. Trusteeship, contracting and leasing (1) Trusteeship □ Applicable √ Inapplicable No such case in the reporting period. (2) Contracting □ Applicable √ Inapplicable No such case in the reporting period. (3) Leasing □ Applicable √ Inapplicable No significant leasing during the reporting period. 2. Significant guarantees √Applicable □ Inapplicable 36 Hikvision 2018 Half Year Report (1) Details of guarantees Unit: RMB’0000 Guarantees provided by the Company for subsidiaries Disclosure date of Actual occurrence Actual Guarantee Guarantee Type of Due Guaranteed party announcement of date (date of signing guaranteed Term of guarantee for a related Cap guarantee or not the guarantee cap agreement) amount party or not Hangzhou Hikvision Science and Technology Ltd. May 12th 2018 670,000 December 6th 2016 443,282.95 Joint guarantee 2016.12.06-2020.12.31 No Yes Hangzhou Hikvision System Technology Ltd May 12th 2018 80,000 October 10th 2017 10,105.48 Joint guarantee 2017.10.10-2020.12.31 No Yes HIKVISION INTERNATIONAL CO., LTD. May 12th 2018 350,000 December 27th 2017 25,446.22 Joint guarantee 2017.12.27-2018.09.20 No Yes Hangzhou Hikvision Electronics Ltd. May 12th 2018 370,000 Not happened during the reporting period Chongqing Hikvision Science and Technologies Ltd. May 12th 2018 110,000 Not happened during the reporting period Chongqing Hikvision System Technology Ltd. May 12th 2018 50,000 Not happened during the reporting period Chengdu Hikvision Digital Technology Ltd. May 12th 2018 80,000 Not happened during the reporting period Hangzhou Haikang Zhicheng Investment and May 12th 2018 Not happened during the reporting period 10,000 Development Ltd. Urumchi HaiShi Xin’An Electronic Technology Ltd. May 12th 2018 50,000 Not happened during the reporting period Mo Yu Hai Shi Electronic Technology Ltd. May 12th 2018 30,000 Not happened during the reporting period Pi Shan Hai Shi Yong An Electronic Technology Ltd. May 12th 2018 35,000 Not happened during the reporting period Luo Pu District Hai Shi Ding Xin Electronic May 12th 2018 Not happened during the reporting period 30,000 Technology Ltd. Yu Tian Hai Shi Mei Tian Electronic Technology Ltd. May 12th 2018 30,000 Not happened during the reporting period Wuhan Hikvision Technology Ltd. May 12th 2018 120,000 Not happened during the reporting period Wuhan Hikvision Science and Technology Ltd. May 12th 2018 120,000 Not happened during the reporting period Xi’An System Technology Ltd. May 12th 2018 60,000 Not happened during the reporting period 37 Hikvision 2018 Half Year Report Guarantees provided by the Company for subsidiaries Disclosure date of Actual occurrence Actual Guarantee Guarantee Type of Due Guaranteed party announcement of date (date of signing guaranteed Term of guarantee for a related Cap guarantee or not the guarantee cap agreement) amount party or not Xi’An Hikvision Digital Technology Ltd. May 12th 2018 50,000 Not happened during the reporting period Total guarantee cap for subsidiaries approved during the reporting period(B1) 2,245,000 Total actual guarantee amount for subsidiaries during the reporting period(B2) 601,495.35 Total approved guarantee cap for subsidiaries at the end of the reporting Total actual guarantee balance for subsidiaries at the end of the reporting 2,245,000 478,834.65 period(B3) period(B4) Total guarantee amount provided by the Company (total of the above-mentioned kinds of guarantees) (During the reporting period, there was no such case as guarantee provided for external parties, or guarantees between subsidiaries, therefore, there is only item B, item A or C is nil) Total guarantee cap approved during the Total actual guarantee amount during the 2,245,000 601,495.35 reporting period (A1+B1+C1) reporting period (A2+B2+C2) Total approved guarantee cap at the end of Total actual guarantee balance at the end 2,245,000 478,834.65 reporting period (A3+B3+C3) of the reporting period (A4+B4+C4) Portion of the total actual guarantee amount (A4+B4+C4) in net assets of the Company 15.95% Of which The balance of guarantee for shareholders, actual controllers and their affiliates. (D) 0 Amount of debt guarantees provided directly or indirectly for entities with a liability-to-asset ratio over 70% (E) 478,834.65 Total amount of guarantee exceeding 50% of net assets (F) 0 Total guarantee amount of the above-mentioned 3 kinds of guarantees (D+E+F) 478,834.65 Illustration of compound method guarantee As required by the project owner, China Electronics Technology Group Co., Ltd. (CETC) has provided a joint guarantee to responsibility and duties of projects of “Safe Chongqing, Emergency Control System Digital Construction Project”, including 41 districts/counties construction projects, signed by Chongqing Hikvision System Technology Co., Ltd. Meanwhile, the Company provides a counter guarantee to CETC’s joint responsibilities above. 38 Hikvision 2018 Half Year Report (2) Illegal provision of guarantees for external parties □ Applicable √ Inapplicable No such case in the reporting period. 3. Other significant contracts □ Applicable √ Inapplicable No such case in the reporting period. XV. Social responsibility 1. Significant environmental problems Whether the Company or the Company’s subsidiaries are critical pollutant enterprises disclosed by national environmental protection department No 2. Fulfillment of the social responsibility of targeted poverty alleviation □ Applicable √ Inapplicable The Company did not conduct any targeted poverty alleviation during the reporting period and had no future arrangement for targeted poverty alleviation. XVI. Other significant events □ Applicable √ Inapplicable No such case in the reporting period. XVII. Significant events of the Company’s subsidiaries □ Applicable √ Inapplicable 39 Hikvision 2018 Half Year Report Section VI Changes in Shares and Information about Shareholders I. Changes in Share Capital 1. Table of changes in share capital Unit: Share Before the change Changes in the period (+, -) After the change Share New Shares Bonus transferred Shares Ratio Issued Others Sub-total Shares Ratio share from capital reserve 1. Shares subject to conditional 1,971,217,850 21.36% -651,012,744 -651,012,744 1,320,205,106 14.31% restriction(s) 3) Other domestic shares 852,337,550 9.24% -570,992,769 -570,992,769 281,344,781 3.05% Including: held by domestic 582,492,655 6.31% -582,492,655 -582,492,655 0 0.00% enterprises held by domestic natural 269,844,895 2.92% 11,499,886 11,499,886 281,344,781 3.05% person 4) Foreign shares 1,118,880,300 12.12% -80,019,975 -80,019,975 1,038,860,325 11.26% held by overseas natural 1,118,880,300 12.12% -80,019,975 -80,019,975 1,038,860,325 11.26% person 2. Shares without restriction 7,257,647,264 78.64% 649,418,103 649,418,103 7,907,065,367 85.69% 1) RMB ordinary shares 7,257,647,264 78.64% 649,418,103 649,418,103 7,907,065,367 85.69% 3. Total 9,228,865,114 100.00% -1,594,641 -1,594,641 9,227,270,473 100.00% Reason for the changes in share capital √ Applicable □ Inapplicable The second time repurchasing and cancelling shares for 2014 Restricted Share Incentive Scheme: On December 15th 2017, Resolution for the Second repurchase and cancelation of the locked shares that already granted for 2014 Restricted Share Incentive Schemes were approved by the 26th meeting of the third Board. Authorized by the first extraordinary general meeting for 2014, a total of 1,594,641 restricted shares held by a 40 Hikvision 2018 Half Year Report portion of grantees not fulfilling the incentive conditions were repurchased and cancelled. On March 27th 2018, repurchase and cancelation process of the restricted shares was complete. The Company’s total share capital decreased from 9,228,865,114 shares to 9,227,270,473 shares by 1,594,641 shares. Approval for changes in share capital √ Applicable □ Inapplicable On December 15th 2017, Resolution for the Second repurchase and cancelation of the locked shares that already granted for 2014 Restricted Share Incentive Schemes were approved by the 26th meeting of the third Board. Authorized by the first extraordinary general meeting for 2014, the board of directors agreed to repurchase and cancel 1,594,641 restricted shares held by a portion of grantees not fulfilling the incentive conditions. Transfer for changes in share capital √ Applicable □ Inapplicable On March 27th 2018, the process of the second time repurchasing and cancelling shares for 2014 Restricted Share Incentive Scheme was complete. The Company’s total share capital decreased from 9,228,865,114 shares to 9,227,270,473 shares by 1,594,641 shares. Effects of changes in share capital on the basic earnings per share ("EPS"), diluted EPS, net assets per share attributable to common shareholders of the Company, and other financial indexes over the last year and last period □Applicable √Inapplicable Other contents that the Company considers necessary or required by the securities regulatory authorities to disclose □ Applicable √ Inapplicable 2. Changes in restricted shares √ Applicable □ Inapplicable Unit: Share Opening Vested in Increased in Closing Name of shareholder Note for restricted shares Date of unlocking restricted shares current period current period restricted shares According to the relevant Gong Hongjia 1,118,812,500 80,019,975 - 1,038,792,525 Executives locked shares provisions of executives shares management Xinjiang Weixun 438,232,500 438,232,500 - 0 Institution restricted share before IPO March 19th 2018 Investment Management 41 Hikvision 2018 Half Year Report Opening Vested in Increased in Closing Name of shareholder Note for restricted shares Date of unlocking restricted shares current period current period restricted shares Limited Partnership Xinjiang Pukang Investment Limited 144,260,155 144,260,155 - 0 Institution restricted share before IPO March 19th 2018 Partnership Grantees of restricted share incentive plan 147,820,996 33,803,907 - 112,422,448 Restricted incentive equity shares January 8th 2018 (consolidated) Executives locked shares+ partial of Hu Yangzhong 91,793,982 - 44,597,626 136,391,608 the unlocked restricted shares turning into executives locked shares Executives locked shares+ partial of Wu Weiqi 8,260,566 - 41,176 8,301,742 the unlocked restricted shares turning into executives locked shares Executives locked shares+ partial of Jiang Haiqing 8,255,911 - 36,750 8,292,661 the unlocked restricted shares turning into executives locked shares Jia Yonghua 4,118,807 - 1 4,118,808 Executives locked shares Li Pan 4,042,926 27,375 - 4,015,551 Executives locked shares Executives locked shares+ partial of Huang Fanghong 70,875 - 74,250 145,125 the unlocked restricted shares turning into executives locked shares According to the relevant provisions of executives Executives locked shares+ partial of shares management Jiang Yufeng 30,375 - 30,000 60,375 the unlocked restricted shares turning into executives locked shares Executives locked shares+ partial of He Hongli 29,025 - 23,550 52,575 the unlocked restricted shares turning into executives locked shares Executives locked shares+ partial of Fu Baijun 29,025 - 8,925 37,950 the unlocked restricted shares turning into executives locked shares Partial of the unlocked restricted Xu Lirong 29,025 - 30,675 59,700 shares turning into executives locked shares Wang Qiuchao 15,000 - - 15,000 Executives locked shares As taking the Company’s Director Qu Liyang - - 11,812 11,812 position, partial of the shares held were turning into executives locked 42 Hikvision 2018 Half Year Report Opening Vested in Increased in Closing Name of shareholder Note for restricted shares Date of unlocking restricted shares current period current period restricted shares shares. Partial of the unlocked restricted shares turning into executives locked Zhou Zhiping 5,355,432 - 1,881,894 7,237,326 shares +all locked up within in six months after leaving his post Partial of the unlocked restricted shares turning into executives locked Zheng Yibo 30,375 - 77,775 108,150 shares +all locked up within in six months after leaving his post Partial of the unlocked restricted shares turning into executives locked Cai Dingguo 30,375 - 111,375 141,750 shares +all locked up within in six months after leaving his post Total 1,971,217,850 696,343,912 46,925,809 1,320,205,106 -- -- Note: 1. Executives who are grantees under incentive restricted shares scheme, his/her holding incentive restricted shares are counted within the total incentive restricted shares (consolidated statistics) on the fourth row. 2. The difference of 1,594,641 shares between ending balance of restricted shares of total incentive restricted shares (consolidated statistics) for grantees and the calculated balance (opening balance - unlocked shares + increased restricted shares) was due to repurchasing and cancelling of 1,594,641 shares on March 27th 2018. 3. Issuance and listing of securities None 43 Hikvision 2018 Half Year Report II. Total number of shareholders and their shareholdings Unit: Share Total number of common shareholders at the end of the reporting Total number of preferred shareholders (if any) whose voting rights have been 150,262 0 period recovered at the end of the reporting period Particulars about shares held by shareholders with a shareholding percentage over 5% or the Top 10 of them Share- The number of Pledged or frozen Increase/ The number of shares Nature of holding Total shares held at the common shares Name of shareholder decrease during the held without trading shareholder percentage period-end held with trading Status Amount reporting period restrictions (%) restrictions China Electronics Technology State-owned 39.60% 3,653,674,956 0 0 3,653,674,956 Pledged 50,000,000 HIK Group Co., Ltd. corporation Overseas Gong Hongjia 13.60% 1,255,056,700 -130,000,000 1,038,792,525 216,264,175 Pledged 237,700,000 individual Hong Kong Securities Clearing Overseas 11.16% 1,029,994,200 128,783,753 0 1,029,994,200 - - Company Ltd.(HKSCC) corporation Domestic Xinjiang Weixun Investment non-state- 4.89% 450,795,176 -78,925,700 0 450,795,176 Pledged 166,100,000 Management Limited Partnership owned corporation Domestic Xinjiang Pukang Investment non-state- 1.98% 182,510,174 -9,836,700 0 182,510,174 Pledged 106,530,000 Limited Partnership owned corporation Domestic Hu Yangzhong 1.97% 182,186,477 59,400,000 136,639,858 45,546,619 Pledged 86,530,000 Individual The 52nd Research Institute at State-owned China Electronics Technology 1.96% 180,775,044 0 0 180,775,044 - - corporation Group Corporation 44 Hikvision 2018 Half Year Report Domestic CITIC Securities Company non-state- 0.97% 89,183,758 -66,798,871 0 89,183,758 - - Limited owned corporation Overseas UBS AG 0.79% 72,894,443 -36,029,007 0 72,894,443 - - corporation State-owned Central Huijin Investment Ltd. 0.71% 65,818,800 0 0 65,818,800 - - corporation China Electronics Technology HIK Group Co., Ltd. and The 52nd Research Institute at China Electronics Technology Group Co., Ltd. are all subject to control of China Electronics Technology Group Corporation. Ms. Chen Chunmei, limited partner of Xinjiang Pukang Investment Limited Partnership, is the spouse of Mr. Gong Hongjia, foreign individual shareholder of the Company. Hu Yangzhong, Explanation on associated relationship or concerted domestic individual, is holding shares in both Xinjiang Weixun Investment Management Limited Partnership and Xinjiang Pukang actions among the above-mentioned shareholders: Investment Limited Partnership. Except for these, the Company does not know whether the other shareholders are related parties or whether they are acting-in-concert parties in accordance with the Measures for Management of the Disclosure of the Shareholding Changes of Shareholders of the Listed Company. Particulars about shares held by the Top 10 common shareholders holding shares that are not subject to trading restriction(s) Number of common shares without trading restrictions held at the Type of shares Name of shareholder period-end Type Number China Electronics Technology HIK Group Co., Ltd. 3,653,674,956 RMB ordinary shares 3,653,674,956 Hong Kong Securities Clearing Company RMB ordinary shares 1,029,994,200 1,029,994,200 Ltd.(HKSCC) Xinjiang Weixun Investment Management Limited 450,795,176 450,795,176 Partnership Gong Hongjia 216,264,175 RMB ordinary shares 216,264,175 Xinjiang Pukang Investment Limited Partnership 182,510,174 RMB ordinary shares 182,510,174 The 52nd Research Institute at China Electronics 180,775,044 RMB ordinary shares 180,775,044 45 Hikvision 2018 Half Year Report Technology Group Corporation CITIC Securities Company Limited 89,183,758 RMB ordinary shares 89,183,758 UBS AG 72,894,443 RMB ordinary shares 72,894,443 Central Huijin Investment Ltd. 65,818,800 RMB ordinary shares 65,818,800 Hu Yangzhong 45,546,619 RMB ordinary shares 45,546,619 China Electronics Technology HIK Group Co., Ltd. and The 52nd Research Institute at China Electronics Technology Group Co., Ltd. are all subject to control of China Electronics Technology Group Corporation. Ms. Chen Chunmei, limited partner of Xinjiang Pukang Explanation on associated relationship and concerted Investment Limited Partnership, is the spouse of Mr. Gong Hongjia, foreign individual shareholder of the Company. Hu Yangzhong, actions among top ten common shareholders without domestic individual, is holding shares in both Xinjiang Weixun Investment Management Limited Partnership and Xinjiang Pukang trading restrictions, and among top ten common Investment Limited Partnership. shareholders and top ten common shareholders Except for these, the Company does not know whether the other shareholders are related parties or whether they are acting-in-concert without trading restrictions parties in accordance with the Measures for Management of the Disclosure of the Shareholding Changes of Shareholders of the Listed Company. Any of the Company’s top 10 common shareholders or top 10 non-restricted common shareholders conducted any agreed buy-back in the reporting period? □ Applicable √ Inapplicable No such cases during the current reporting period. 46 Hikvision 2018 Half Year Report III. Particulars about change in controlling shareholder or actual controller Change of the controlling shareholder during the reporting period □ Applicable √ Inapplicable No such cases in the reporting period. Change of the actual controller during the reporting period □ Applicable √ Inapplicable No such cases in the reporting period. 47 Hikvision 2018 Half Year Report Section VII Information of Preferred Shares □ Applicable √ Inapplicable No existed preferred shares for the Company during the reporting period. 48 Hikvision 2018 Half Year Report Section VIII Information about Directors, Supervisors, Senior Management I. Shareholding changes of directors, supervisors, senior management personnel √Applicable □ Inapplicable Number of restricted Shares increased Shares decreased Shares held at the Number of restricted Number of restricted Shares held at the shares held at the Name Title Tenure status beginning of the Period during the Period during the Period end of the Period shares granted during shares held at the end beginning of the (Shares) (shares) (Shares) (Shares) the period (shares) of the period (shares) period (shares) Chen Zongnian Chairman Incumbent 0 0 0 0 0 0 0 Gong Hongjia Vice Chairman Incumbent 1,385,056,700 0 130,000,000 1,255,056,700 0 0 0 Qu Liyang Director Incumbent 15,750 0 0 15,750 0 0 0 Director, Hu Yangzhong Incumbent 122,786,477 59,400,000 0 182,186,477 336,000 0 248,250 General Manager Director, Wu Weiqi Standing Deputy Incumbent 11,371,389 0 0 11,371,389 305,100 0 226,800 General Manager Independent Cheng Tianzong Incumbent 0 0 0 0 0 0 0 Director Independent Lu Jianzhong Incumbent 0 0 0 0 0 0 0 Director Independent Wang Zhidong Incumbent 0 0 0 0 0 0 0 Director 49 Hikvision 2018 Half Year Report Number of restricted Shares increased Shares decreased Shares held at the Number of restricted Number of restricted Shares held at the shares held at the Name Title Tenure status beginning of the Period during the Period during the Period end of the Period shares granted during shares held at the end beginning of the (Shares) (shares) (Shares) (Shares) the period (shares) of the period (shares) period (shares) Independent Hong Tianfeng Incumbent 0 0 0 0 0 0 0 Director Cheng Huifang Supervisor Chairman Incumbent 0 0 0 0 0 0 0 Wang Qiuchao Supervisor Incumbent 20,000 0 0 20,000 0 0 0 Supervisor; person in charge Xu Lirong Incumbent 303,000 0 0 303,000 225,600 0 167,550 of internal audit Senior Deputy General Jiang Haiqing Incumbent 11,310,882 0 0 11,310,882 258,000 0 190,500 Manager Senior Deputy General Jia Yonghua Incumbent 5,601,244 0 0 5,601,244 109,500 0 109,500 Manager Senior Deputy General Li Pan Incumbent 5,500,068 0 0 5,500,068 109,500 0 109,500 Manager Senior Deputy General He Hongli Incumbent 331,500 0 0 331,500 254,100 0 196,050 Manager Senior Deputy General Fu Baijun Incumbent 390,000 0 0 390,000 312,600 0 254,550 Manager Senior Deputy General Cai Changyang Incumbent 109,500 0 0 109,500 109,500 0 109,500 Manager 50 Hikvision 2018 Half Year Report Number of restricted Shares increased Shares decreased Shares held at the Number of restricted Number of restricted Shares held at the shares held at the Name Title Tenure status beginning of the Period during the Period during the Period end of the Period shares granted during shares held at the end beginning of the (Shares) (shares) (Shares) (Shares) the period (shares) of the period (shares) period (shares) Senior Deputy General Xu Ximing Incumbent 0 0 0 0 0 0 0 Manager Senior Deputy General Bi Huijuan Incumbent 150,000 0 0 150,000 150,000 0 150,000 Manager Senior Deputy General Jiang Yufeng Incumbent 325,500 0 0 325,500 244,500 0 183,750 Manager Senior Deputy General Pu Shiliang Incumbent 293,900 0 0 293,900 293,900 0 243,900 Manager Senior Deputy General Jin Duo Incumbent 109,500 0 0 109,500 109,500 0 109,500 Manager Senior Deputy General Jin Yan Manager, Incumbent 174,000 0 0 174,000 174,000 0 174,000 Person in charge of finance Senior Deputy General Huang Fanghong Manager, Incumbent 292,500 0 0 292,500 148,500 0 74,250 Board Secretary Senior Deputy General Chen Junke Incumbent 0 0 0 0 0 0 0 Manager Liu Xiang Director Left the post 0 0 0 0 0 0 0 Chen Junke Supervisor Left the post 0 0 0 0 0 0 0 51 Hikvision 2018 Half Year Report Number of restricted Shares increased Shares decreased Shares held at the Number of restricted Number of restricted Shares held at the shares held at the Name Title Tenure status beginning of the Period during the Period during the Period end of the Period shares granted during shares held at the end beginning of the (Shares) (shares) (Shares) (Shares) the period (shares) of the period (shares) period (shares) Zheng Yibo Deputy General Manager Left the post 168,900 0 0 168,900 121,500 0 60,750 Cai Dingguo Deputy General Manager Left the post 312,000 0 0 312,000 231,000 0 170,250 Zhou Zhiping Deputy General Manager Left the post 7,404,876 0 0 7,404,876 225,600 0 167,550 Xu Lirong Deputy General Manager Left the post 303,000 0 0 303,000 225,600 0 167,550 Total -- -- 1,552,330,686 59,400,000 130,000,000 1,481,730,686 3,944,000 0 3,113,700 Note: (1) Number shares held at the beginning of the period, shares increased during the period, shares decreased during the period for directors, supervisors, and senior management personnel above are all shares directly held by them accordingly, including restricted shares. (2) During the reporting period, the number shares held at the beginning of the period, shares increased during the period, shares decreased during the period for newly appointed directors, supervisors, and senior management personnel is the data after their appointment II. Changes of directors, supervisors and senior management personnel √Applicable □Inapplicable Name Position Type Date Reasons Qu Liyang Director Appointment and dismissal March 7th 2018 The general election of the board of directors Liu Xiang Director Leave the post when terms were up March 7th 2018 Termination on term of office Xu Lirong Employee Supervisor Appointment and dismissal March 21st 2018 The general election of the workers and staff 52 Hikvision 2018 Half Year Report Name Position Type Date Reasons congress Chen Junke Employee Supervisor Leave the post when terms were up March 21st 2018 Termination on term of office Pu Shiliang Senior management personnel Appointment and dismissal March 21st 2018 Appointment Chen Junke Senior management personnel Appointment and dismissal March 21st 2018 Appointment Zheng Yibo Senior management personnel Leave the post when terms were up March 21st 2018 Termination on term of office Cai Dingguo Senior management personnel Leave the post when terms were up March 21st 2018 Termination on term of office Zhou Zhiping Senior management personnel Leave the post when terms were up March 21st 2018 Termination on term of office Xu Lirong Senior management personnel Leave the post when terms were up March 21st 2018 Termination on term of office 53 Hikvision 2018 Half Year Report Section IX Corporate Bonds Whether the Company has publicly issued corporate bonds on stock exchange place, which has not terminated or terminated but fail to collect the full payment before the half year report authorized disclosure date. □Yes √No 54 Hikvision 2018 Half Year Report Section X Financial Report I. Audit report Whether audit has been performed on this interim financial report □ Yes √ No The Company’s 2018 Half Year Report has not been audited 55 Hikvision 2018 Half Year Report At June 30th 2018 Consolidated Balance Sheet Unit: RMB Item Notes Closing balance Opening balance Current Assets: Cash and bank balances (V)1 13,751,564,452.20 16,468,430,702.64 Financial assets at fair value through (V)2 20,549,980.77 4,100,657.54 profit or loss Notes receivable (V)3 3,101,869,002.40 3,636,961,616.03 Accounts receivable (V)4 16,949,626,312.71 14,705,210,072.81 Prepayments (V)5 403,145,778.12 527,576,857.11 Other receivables (V)6 497,608,220.95 583,681,240.81 Inventories (V)7 5,507,182,528.93 4,940,332,311.65 Non-current assets due within one (V)8 76,858,384.20 66,566,230.12 year Other current assets (V)9 1,423,012,974.05 3,720,449,532.88 Total Current Assets 41,731,417,634.33 44,653,309,221.59 Non-current Assets: Available-for-sale financial assets (V)10 287,466,813.00 287,466,813.00 Long-term receivables (V)11 35,767,446.98 23,375,680.61 Long-term equity investment (V)12 160,012,824.27 130,474,733.58 Fixed assets (V)13 4,075,143,444.28 3,024,025,496.31 Construction in progress (V)14 705,731,687.16 1,436,319,118.30 Intangible assets (V)15 799,821,748.10 429,160,982.63 Goodwill (V)16 246,430,417.72 248,964,102.97 Deferred tax assets (V)17 530,967,055.23 479,070,649.49 Other non-current assets (V)18 1,446,952,545.78 858,796,668.13 Total Non-current Assets 8,288,293,982.52 6,917,654,245.02 Total Assets 50,019,711,616.85 51,570,963,466.61 56 Hikvision 2018 Half Year Report At June 30th 2018 Consolidated Balance Sheet - continued Unit: RMB Item Notes Closing balance Opening balance Current Liabilities: Short-term borrowings (V)19 3,396,803,881.03 97,114,655.91 Financial liabilities at fair value (V)20 38,501,338.00 15,946,836.46 through profit or loss Notes payable (V)21 705,958,442.30 845,397,427.92 Accounts payable (V)22 7,187,885,155.12 10,039,943,012.26 Receipts in advance (V)23 614,236,976.75 570,573,208.60 Payroll payable (V)24 1,007,572,155.38 1,391,291,256.90 Taxes payable (V)25 1,210,905,739.93 1,453,515,065.77 Dividends payable (V)26 119,917,640.92 94,857,139.16 Other payables (V)27 510,992,530.58 401,861,078.67 Non-current liabilities due within (V)28 3,878,341,679.64 1,546,407,270.89 one year Other current liabilities (V)29 681,816,656.89 744,583,627.22 Total Current Liabilities 19,352,932,196.54 17,201,490,579.76 Non-current Liabilities: Long-term borrowings (V)30 190,000,000.00 490,000,000.00 Bonds payable (V)31 - 3,120,920,000.00 Long-term payables - 2,437,038.62 Provisions (V)32 74,480,717.05 63,068,638.49 Deferred income (V)33 169,512,193.09 88,925,771.65 Total non-current liabilities 433,992,910.14 3,765,351,448.76 Total liabilities 19,786,925,106.68 20,966,842,028.52 Owners’ Equity Share capital (V)34 9,227,270,473.00 9,228,865,114.00 Capital reserves (V)35 1,892,809,407.02 1,819,397,715.63 Less: Treasury shares (V)36 681,816,656.89 744,583,627.22 Other comprehensive income (V)37 (40,576,485.06) (27,677,939.35) Surplus reserves (V)38 3,483,742,918.53 3,483,742,918.53 Retained earnings (V)39 16,132,088,991.99 16,598,328,692.63 Total owners' equity attributable to 30,013,518,648.59 30,358,072,874.22 owner of the Company Minority equity 219,267,861.58 246,048,563.87 Total owners' equity 30,232,786,510.17 30,604,121,438.09 Total liabilities and owners' equity 50,019,711,616.85 51,570,963,466.61 The accompanying notes form part of the financial statements. The financial statements were signed by the following: Legal Representative: Chen Zongnian;Chief Accountant: Jin Yan; Person in Charge of the Accounting Organization: Jin Yan 57 Hikvision 2018 Half Year Report At June 30th 2018 Balance sheet of the company Unit: RMB Item Notes Closing balance Opening balance Current Assets: Cash and bank balances 9,694,940,970.31 12,304,090,713.99 Notes receivable 251,101,382.47 345,651,612.11 Accounts receivable (XV)1 15,663,394,617.18 12,505,683,317.78 Prepayments 133,934,671.56 94,545,948.67 Dividend receivables - 2,550,000.00 Other receivables (XV)2 1,165,132,399.12 709,592,493.72 Inventories 234,137,909.23 376,776,045.69 Other current assets 830,510,301.75 3,296,055,941.42 Total Current Assets 27,973,152,251.62 29,634,946,073.38 Non-current Assets: Available-for-sale financial assets 287,456,813.00 287,456,813.00 Long-term equity investment (XV)3 4,011,159,655.61 3,367,076,734.95 Fixed assets 2,821,509,143.37 1,757,777,870.77 Construction in progress 4,621,033.41 914,859,063.00 Intangible assets 208,298,568.98 154,604,755.69 Deferred tax assets 246,528,548.37 200,147,031.89 Other non-current assets 25,356,628.70 16,925,712.83 Total Non-current Assets 7,604,930,391.44 6,698,847,982.13 Total Assets 35,578,082,643.06 36,333,794,055.51 58 Hikvision 2018 Half Year Report At June 30th 2018 Balance sheet of the company - continued Unit: RMB Item Notes Closing balance Opening balance Current Liabilities: Short term borrowings 200,000,000.00 - Accounts payable 291,588,438.91 286,629,255.35 Receipts in advance 226,851,111.88 216,747,866.68 Payroll payable 743,898,680.09 946,587,240.01 Taxes payable 1,099,163,024.15 1,219,102,007.88 Dividends payable 117,467,640.92 92,407,139.16 Other payables 1,166,942,276.23 708,051,044.04 Non-current liabilities due within 3,073,584,089.06 33,614,018.51 one year Other current liabilities 681,816,656.89 744,583,627.22 Total Current Liabilities 7,601,311,918.13 4,247,722,198.85 Non-current Liabilities: Bonds payable - 3,120,920,000.00 Provisions 48,871,158.60 43,024,784.70 Deferred Income 125,668,163.01 62,903,600.00 Total non-current liabilities 174,539,321.61 3,226,848,384.70 Total liabilities 7,775,851,239.74 7,474,570,583.55 Owners’ Equity Share capital 9,227,270,473.00 9,228,865,114.00 Capital reserves 1,818,293,026.68 1,742,755,331.51 Less: Treasury shares 681,816,656.89 744,583,627.22 Surplus reserves 3,483,742,918.53 3,483,742,918.53 Retained earnings 13,954,741,642.00 15,148,443,735.14 Total owners' equity 27,802,231,403.32 28,859,223,471.96 Total liabilities and owners' equity 35,578,082,643.06 36,333,794,055.51 59 Hikvision 2018 Half Year Report For the reporting period from January 1st 2018 to June 30th 2018 Consolidated Income Statement Unit: RMB Amount for the current Amount for the prior Item Notes period period I. Total operating income (V)40 20,875,758,224.63 16,447,539,736.52 Less:Total operating costs (V)40 11,586,298,826.07 9,420,695,024.84 Business taxes and surcharges (V)41 177,890,618.60 174,232,595.70 Selling expenses 2,649,393,264.42 1,726,924,956.22 Administrative expenses 2,503,531,051.09 1,761,709,877.13 Financial expenses (V)42 (158,521,317.81) 65,500,627.65 Impairment losses of assets (V)43 325,897,698.19 251,738,374.96 Add: Gains (losses) from changes in fair values (V)44 (6,102,548.02) 38,552,490.41 Investment income (V)45 78,267,116.16 49,652,189.10 Including: Investment gains (losses) in associated 2,538,090.69 (3,877,702.05) enterprise and joint-venture enterprise Asset disposal income (loss) 3,763,578.84 2,226,974.55 Other Income (V)46 837,626,393.59 677,411,292.41 II. Operating profit 4,704,822,624.64 3,814,581,226.49 Add: Non-operating income (V)47 73,150,373.86 31,717,593.78 Less: Non-operating expenses (V)48 4,584,127.20 1,708,777.17 III. Total profit 4,773,388,871.30 3,844,590,043.10 Less: Income tax expenses (V)49 665,802,758.48 568,658,390.85 IV. Net profit 4,107,586,112.82 3,275,931,652.25 4.1 Classification by continuous operation (a) Net profit on continuous operation 4,107,586,112.82 3,275,931,652.25 (b) Net loss on terminated operation - - 4.2 Classification by attribution of ownership (a) Profit or loss attributable to minority (39,809,423.04) (15,614,404.45) shareholders (b) Net profit attributable to owners of parent 4,147,395,535.86 3,291,546,056.70 company V. Other comprehensive income, net of income tax (14,284,828.74) 29,434,317.10 Other comprehensive income attributable to owners of (12,898,545.71) 28,590,931.77 the Company, net of tax (I) Items that will not be reclassified subsequently - - to profit or loss (II) Other comprehensive income to be (12,898,545.71) 28,590,931.77 reclassified to profit or loss in subsequent periods 1. Exchange differences arising on conversion of financial statements denominated in foreign (12,898,545.71) 28,590,931.77 currencies Other comprehensive income attributable to minority (1,386,283.03) 843,385.33 interests, net of tax VI. Total comprehensive income 4,093,301,284.08 3,305,365,969.35 Total comprehensive income attributable to owners of 4,134,496,990.15 3,320,136,988.47 the parent company Total comprehensive income attributable to minority (41,195,706.07) (14,771,019.12) shareholders 60 Hikvision 2018 Half Year Report Amount for the current Amount for the prior Item Notes period period VII. Earnings per share (I) Basic earnings per share (XVI)2 0.449 0.357 (II) Diluted earnings per share (XVI)2 0.449 0.357 61 Hikvision 2018 Half Year Report For the reporting period from January 1st 2018 to June 30th 2018 Income statement of the Company Unit: RMB Amount for the Amount for the prior Item Notes current period period I. Total operating income (XV)4 9,137,644,216.56 7,509,542,127.38 Less: Operating Cost (XV)4 2,610,963,590.76 2,351,188,963.05 Business taxes and surcharges 122,576,976.71 104,526,475.97 Selling expenses 1,238,887,252.96 806,289,156.71 Administrative expenses 1,803,898,110.43 1,317,996,842.01 Financial expense (8,819,870.56) (104,308,868.68) Impairment losses of assets 280,443,036.30 156,626,616.68 Add: Gains (losses) from changes in fair values - 53,740,407.58 Investment income (XV)5 68,579,010.57 33,096,969.42 Including: Investment gain (loss) in associated enterprise 1,630,985.74 (1,409,148.78) and joint-venture enterprise Asset disposal income (loss) 3,744,349.94 2,324,953.32 Other income 766,533,199.09 645,332,167.80 II. Operating profit 3,928,551,679.56 3,611,717,439.76 Add: Non-operating income 40,362,676.29 17,749,870.12 Less: Non-operating expenses 856,317.26 1,000,039.72 III. Total profit 3,968,058,038.59 3,628,467,270.16 Less: Income tax expenses 548,124,895.23 527,608,856.72 IV. Net profit 3,419,933,143.36 3,100,858,413.44 V. Other comprehensive income, net of income tax VI. Total comprehensive income 3,419,933,143.36 3,100,858,413.44 62 Hikvision 2018 Half Year Report For the reporting period from January 1st 2018 to June 30th 2018 Consolidated Cash Flow Statement Unit: RMB Amount for the Amount for the Item Notes current period prior period I. Cash flows from operating activities: Cash received from sale of goods or rendering of services 22,109,383,677.92 16,056,237,726.30 Receipts of tax refunds 1,773,794,015.21 1,334,775,928.53 Other cash receipts relating to operating activities (V)50(1) 450,666,762.39 191,162,610.48 Sub-total of cash inflows from operating activities 24,333,844,455.52 17,582,176,265.31 Cash payments for goods purchased and services received 17,665,339,796.23 13,831,392,836.70 Cash paid to and on behalf of employees 3,584,062,421.13 2,562,794,533.81 Payments of various types of taxes 2,477,876,007.17 1,899,822,855.27 Other cash payments relating to operating activities (V)50(2) 2,227,759,588.99 1,230,966,841.95 Sub-total of cash outflows from operating activities 25,955,037,813.52 19,524,977,067.73 Net Cash Flow from Operating Activities (V)51(1) (1,621,193,358.00) (1,942,800,802.42) II. Cash Flows from Investing Activities: Cash receipts from recovery of investments 3,590,000,000.00 5,173,000,000.00 Cash receipts from investment income 75,731,655.76 53,398,372.17 Net cash receipts from disposals of fixed assets, intangible assets and 6,667,459.97 11,061,674.71 other long-term assets Other cash receipts relating to investing activities (V)50(3) 1,190,562.94 13,100,745.41 Sub-total of cash inflows from investing activities 3,673,589,678.67 5,250,560,792.29 Cash payments to acquire or construct fixed assets, intangible assets and 1,573,966,251.59 510,640,894.91 other long-term assets Cash paid to acquire investments 1,100,000,000.00 1,453,000,000.00 Net cash payments for acquisitions of subsidiaries and other business 13,500,000.00 98,000,000.00 units Sub-total of cash outflows from investing activities 2,687,466,251.59 2,061,640,894.91 Net Cash Flow from Investment Activities 986,123,427.08 3,188,919,897.38 III. Cash flows from financing activities: Cash receipts from capital contributions 12,289,000.00 - Including: cash receipts from capital contributions from minority 12,289,000.00 - owners of subsidiaries Cash receipts from borrowings 3,982,689,336.94 4,938,568,095.06 Other cash receipts relating to financing activities - 1,061,515,931.39 Sub-total of cash inflows from financing activities 3,994,978,336.94 6,000,084,026.45 Cash repayments of borrowings 1,726,234,534.31 2,723,867,188.71 Cash payments for distribution of dividends or profits or settlement of 4,687,814,879.75 3,755,681,574.80 interest expenses Other cash payments relating to financing activities 6,555,746.33 1,630,518,738.29 Sub-total of cash outflows from financing activities 6,420,605,160.39 8,110,067,501.80 Net Cash Flow from Financing Activities (2,425,626,823.45) (2,109,983,475.35) IV. Effect of foreign exchange rate changes on Cash and Cash Equivalents (1,968,297.26) (132,118,698.33) V. Net Increase (Decrease) in Cash and Cash Equivalents (V)51(1) (3,062,665,051.63) (995,983,078.72) Add: Opening balance of Cash and Cash Equivalents (V)51(1) 16,029,185,269.17 13,522,337,697.28 VI. Closing Balance of Cash and Cash Equivalents (V)51(2) 12,966,520,217.54 12,526,354,618.56 63 Hikvision 2018 Half Year Report For the reporting period from January 1st 2018 to June 30th 2018 Cash Flow Statements of the Company Unit: RMB Amount for the Amount for the Item Notes current period prior period I. Cash Flows from Operating Activities:: Cash receipts from the sale of goods and the rendering of services 7,318,348,837.09 6,476,622,168.11 Receipts of tax refunds 766,533,199.09 645,332,167.80 Other cash receipts relating to operating activities 305,846,876.05 163,967,938.23 Sub-total of cash inflows from operating activities 8,390,728,912.23 7,285,922,274.14 Cash payments for goods acquired and services received 3,109,703,886.15 1,741,766,982.54 Cash payments to and on behalf of employees 1,929,734,291.07 1,390,775,272.77 Payments of all types of taxes 1,772,764,658.71 1,541,060,047.84 Other cash payments relating to operating activities 1,359,620,072.28 914,241,265.56 Sub-total of cash outflows from operating activities 8,171,822,908.21 5,587,843,568.71 Net Cash Flow from Operating Activities (XV)8(1) 218,906,004.02 1,698,078,705.43 II. Cash Flows from Investing Activities: Cash receipts from recovery of investments 3,550,000,000.00 5,170,000,000.00 Cash receipts from investment income 76,942,053.30 44,435,846.99 Net cash receipts from disposals of fixed assets, intangible assets and other 8,508,255.52 7,443,183.85 long-term assets Net cash receipts from disposals of subsidiaries and other business units 5,971.53 70,271.21 Other cash receipts relating to investing activities 454,032,282.20 732,237,447.02 Sub-total of cash inflows from investing activities 4,089,488,562.55 5,954,186,749.07 Cash payments to acquire or construct fixed assets, intangible assets and 411,154,554.19 228,633,880.72 other long-term assets Cash payments to acquire investments 1,100,000,000.00 1,450,000,000.00 Net cash payments for acquisitions of subsidiaries and other business units 630,150,000.00 973,000,000.00 Other cash payments relating to investing activities 515,046,698.74 862,202,465.11 Sub-total of cash outflows from investing activities 2,656,351,252.93 3,513,836,345.83 Net Cash Flow from Investment Activities 1,433,137,309.62 2,440,350,403.24 III. Cash Flows from Financing Activities Cash receipts from borrowings 700,000,000.00 300,000,000.00 Other cash receipts relating to financing activities - 41,000.00 Sub-total of cash inflows from financing activities 700,000,000.00 300,041,000.00 Cash repayments of borrowings 500,000,000.00 300,000,000.00 Cash payments for distribution of dividends or profits or settlement of 4,643,329,229.19 3,708,086,118.95 interest expenses Other cash payments relating to financing activities 6,555,746.33 15,151,512.29 Sub-total of cash outflows from financing activities 5,149,884,975.52 4,023,237,631.24 Net Cash Flow from Financing Activities (4,449,884,975.52) (3,723,196,631.24) IV. Effect of foreign exchange rate changes on Cash and Cash Equivalents (4,714,994.16) (42,974,366.35) V. Net increase in cash and cash equivalents (XV)8(1) (2,802,556,656.04) 372,258,111.08 Add: Beginning balance of cash and cash equivalents (XV)8(1) 12,304,082,533.11 10,245,969,003.13 VI. Closing Balance of Cash and Cash Equivalents (XV)8(2) 9,501,525,877.07 10,618,227,114.21 64 Hikvision 2018 Half Year Report For the reporting period from January 1st 2018 to June 30th 2018 Consolidated Statement of Changes in Owners' Equity Unit: RMB Amount for the 2018 first half year Owner’s Equity Attributable to owners of the Company Item Other Minority Total owners' Less: Treasury Share capital Capital reserves comprehensive Surplus reserve Retained profits interests equity share income I. Opening balance of the 9,228,865,114.00 1,819,397,715.63 744,583,627.22 (27,677,939.35) 3,483,742,918.53 16,598,328,692.63 246,048,563.87 30,604,121,438.09 current period III. Increase or decrease in (1,594,641.00) 73,411,691.39 (62,766,970.33) (12,898,545.71) - (466,239,700.64) (26,780,702.29) (371,334,927.92) the current period (I) Total comprehensive - - - (12,898,545.71) - 4,147,395,535.86 (41,195,706.07) 4,093,301,284.08 income (II) Owners’ contributions and (1,594,641.00) 73,411,691.39 (6,555,746.33) - - - 14,415,003.78 92,787,800.50 reduction in capital 1. Capital contribution from - - - - - - 12,289,000.00 shareholders 12,289,000.00 2. Share-based payment recognized in owners’ - 78,372,796.72 - - - - 2,126,003.78 80,498,800.50 equity 3. Others (1,594,641.00) (4,961,105.33) (6,555,746.33) - - - - - (III) Profit distribution - - (56,211,224.00) - - (4,613,635,236.50) - (4,557,424,012.50) 1. Transfer to surplus - - - - - - - - reserve 2. Distributions to - - (56,211,224.00) - - (4,613,635,236.50) - (4,557,424,012.50) shareholders 3. Others - - - - - - - - IV. Closing balance of the 9,227,270,473.00 1,892,809,407.02 681,816,656.89 (40,576,485.06) 3,483,742,918.53 16,132,088,991.99 219,267,861.58 30,232,786,510.17 current period 65 Hikvision 2018 Half Year Report For the reporting period from January 1st 2018 to June 30th 2018 Consolidated Statement of Changes in Owners' Equity-continued Unit: RMB Amount for 2017 first half year Owner’s Equity Attributable to owners of the Company Item Other Minority Total owners' Less: Treasury Share capital Capital reserves comprehensive Surplus reserve Retained profits interests equity share income I. Closing balance of the 6,102,706,885.00 1,045,440,853.66 300,177,750.17 (41,230,777.21) 2,615,437,822.15 14,866,457,856.65 198,039,035.07 24,486,673,925.15 preceding period Add: Business merger under - 4,800,000.00 - - - (9,679,463.77) (3,252,975.85) (8,132,439.62) common control II. Opening balance of the 6,102,706,885.00 1,050,240,853.66 300,177,750.17 (41,230,777.21) 2,615,437,822.15 14,856,778,392.88 194,786,059.22 24,478,541,485.53 current period (restated) III. Increase or decrease in 3,126,158,229.00 672,036,630.63 553,329,577.38 28,590,931.77 - (3,513,325,417.50) (1,836,709.93) (241,705,913.41) the current period (I) Total comprehensive - - - 28,590,931.77 - 3,291,546,056.70 (14,771,019.12) 3,305,365,969.35 income (II) Owners’ contributions and 49,869,858.00 677,420,939.82 645,736,716.54 - - - 10,000,000.00 91,554,081.28 reduction in capital 1. Capital contribution from 52,326,858.00 608,561,358.54 660,888,216.54 - - - 10,000,000.00 10,000,000.00 shareholders 2. Share-based payment recognized in owners’ - 97,854,081.28 - - - - - 97,854,081.28 equity 3. Others (2,457,000.00) (28,994,500.00) (15,151,500.00) - - - - (16,300,000.00) (III) Profit distribution 3,076,288,371.00 - (92,407,139.16) - - (6,804,871,474.20) (2,450,000.00) (3,638,625,964.04) 1. Transfer to surplus - - - - - - - - reserve 2. Distributions to - - (92,407,139.16) - - (3,728,583,103.20) (2,450,000.00) (3,638,625,964.04) shareholders 3. Others 3,076,288,371.00 - - - - (3,076,288,371.00) - - (IV) Others - (5,384,309.19) - - - - 5,384,309.19 - IV. Closing balance of the 9,228,865,114.00 1,722,277,484.29 853,507,327.55 (12,639,845.44) 2,615,437,822.15 11,343,452,975.38 192,949,349.29 24,236,835,572.12 current period (restated) 66 Hikvision 2018 Half Year Report For the reporting period from January 1st 2018 to June 30th 2018 Statement of Changes in Owners' Equity of the Company Unit: RMB Amount for 2018 first half year Item Share capital Capital reserves Less: Treasury share Surplus reserve Retained profits Total owners' equity I. Opening balance of the current period 9,228,865,114.00 1,742,755,331.51 744,583,627.22 3,483,742,918.53 15,148,443,735.14 28,859,223,471.96 II. Increase or decrease in the current period (1,594,641.00) 75,537,695.17 (62,766,970.33) - (1,193,702,093.14) (1,056,992,068.64) (I) Total comprehensive income - - - - 3,419,933,143.36 3,419,933,143.36 (II) Owners’ contributions and reduction in capital (1,594,641.00) 75,537,695.17 (6,555,746.33) - - 80,498,800.50 1. Capital contribution from shareholders - - - - - - 2. Share-based payment recognized in owners’ equity - 80,498,800.50 - - - 80,498,800.50 3. Others (1,594,641.00) (4,961,105.33) (6,555,746.33) - - - (III) Profit distribution - - (56,211,224.00) - (4,613,635,236.50) (4,557,424,012.50) 1.Transfer to surplus reserve - - - - - - 2. Distributions to shareholders - - (56,211,224.00) - (4,613,635,236.50) (4,557,424,012.50) 3. Others - - - - - - III. Closing balance of the current period 9,227,270,473.00 1,818,293,026.68 681,816,656.89 3,483,742,918.53 13,954,741,642.00 27,802,231,403.32 Amount for 2017 first half year Item Share capital Capital reserves Less: Treasury share Surplus reserve Retained profits Total owners' equity I. Opening balance of the current period 6,102,706,885.00 955,687,875.52 300,177,750.17 2,615,437,822.15 14,138,569,341.95 23,512,224,174.45 II. Increase or decrease in the current period 3,126,158,229.00 693,720,939.82 553,329,577.38 - (3,704,013,060.76) (437,463,469.32) (I) Total comprehensive income - - - - 3,100,858,413.44 3,100,858,413.44 (II) Owners’ contributions and reduction in capital 49,869,858.00 693,720,939.82 645,736,716.54 - - 97,854,081.28 1. Capital contribution from shareholders 52,326,858.00 608,561,358.54 660,888,216.54 - - - 2. Share-based payment recognized in owners’ equity - 97,854,081.28 - - - 97,854,081.28 3. Others (2,457,000.00) (12,694,500.00) (15,151,500.00) - - - (III) Profit distribution 3,076,288,371.00 - (92,407,139.16) - (6,804,871,474.20) (3,636,175,964.04) 1.Transfer to surplus reserve - - - - - - 2. Distributions to shareholders - - (92,407,139.16) - (3,728,583,103.20) (3,636,175,964.04) 3. Others 3,076,288,371.00 - - - (3,076,288,371.00) - III. Closing balance of the current period 9,228,865,114.00 1,649,408,815.34 853,507,327.55 2,615,437,822.15 10,434,556,281.19 23,074,760,705.13 67 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 I. Basic Information about the Company Hangzhou Hikvision Digital Technology Co., Ltd. (hereinafter referred to as "Company" or "the Company"), is a Sino-foreign equity joint venture company, formerly known as "Hangzhou Hikvision Digital Technology Ltd", established on November 30th 2001 in Hangzhou upon the approval letter of Hangzhou High-tech No. 604 [2001] issued by Hangzhou High-tech Industrial Development Zone Management Committee. On June 25th 2008, with approval of document No. 598 [2008] issued by the MOFCOM (The Ministry of Commerce of the People's Republic of China), the company was renamed as “Hangzhou Hikvision Digital Technology Co., Ltd.”, headquartered in Hangzhou, and obtained the business license of enterprise No.91330000733796106P. On May 28th 2010, the Company was listed on the Shenzhen Stock Exchange. As of March 30th 2018, authorized by the first Extraordinary General Meeting in 2014, the Company completed the repurchase and cancellation of 1,594,641 granted restricted shares, of which the incentive conditions were no longer fulfilled, and the total share capital of the Company was adjusted to 9,227,270,473 shares. For details of share capital, please refer to Note (V) 34. . As of June 30th 2018, the Company’s total registered capital is RMB 9,227,270,473, with total capital shares of 9,227,270,473 shares (face value RMB 1per share), of which restricted A-shares were 1,320,205,106 shares, A-shares without restriction are 7,907,065,367 shares. The Company is engaged in other electronic equipment manufacturing business under electronics industry. Business scope of the Company includes development and production of electronic products (including explosion-proof electrical products, tele-communication equipment and its ancillary equipment, multimedia equipment), aircraft, robot, intelligent equipment, auto parts and accessories, and electrical signal equipment for vehicle; sales of self-manufactured products; technical service, electronic technology consulting service, training service (excluding class training), electronic equipment installation, electronic engineering, and design, construction and maintenance of intelligent systems. For details about business scope of the Company and its subsidiaries, please refer to Note (VII) 1. The Company’s and consolidated financial reports were approved for issuance by the 3rd meeting of the fourth session Board of Directors of the Company on July 20th 2018. For consolidation scope of the financial statements, please refer to Note (VII) “Interest in other entities”. For changes in consolidation scope of the financial statements, please refer to “changes in the consolidation scope” in Note (VI). II. Basis of preparation of financial statements Basis of preparation of financial statements The Company and its subsidiaries (hereinafter referred to as "the Group") have adopted the Accounting Standards for Business Enterprises ("ASBE") and relevant provisions issued by the Ministry of Finance ("MoF"). In addition, the Group has disclosed relevant financial information in accordance with 68 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Information Disclosure and Presentation Rules for Companies Offering Securities to the Public No. 15- General Provisions on Financial Reporting (revised in 2014). Bookkeeping base and valuation principles The Group measures the accounting elements in accordance with the accrual accounting basis. Except certain financial instruments are measured by fair value, these financial statements are prepared in accordance with the measurements basis of historical costs. If the asset decreases in value, the provision for impairment of assets should be made according to relevant regulations. According to the historical cost measurement, the assets shall be measured as per the amount of cash or cash equivalent paid at the time of purchase, or the fair value of consideration paid for the purchase of such assets. The liabilities shall be measured in accordance with the amount of funds or assets actually received when undertaking current obligations, or the contract amount when undertaking the current obligations, or the amount of cash or cash equivalents required for paying back the debts in daily activities. The fair value is a price received by the market participants from selling asset or transferring liability during orderly transaction at the measurement date. No matter the fair value is observable or estimated by using valuation technique, the measured and disclosed fair value in the financial statement shall be determined on this basis. Based on the observable extent of the input value of the fair value, and the importance of such input value to the fair value measurement, the fair value measurement is divided into three levels: Level 1: The input value is the unadjusted offer of the same assets or liabilities on active market acquired on measurement date; Level 2: The input value is the input value of relevant assets or liabilities observable directly or indirectly in addition to level 1 input value; Level 3: The input value is the non-observable input value of relevant assets or liabilities. Going concern The Group has evaluated its going concern for 12 months going forward starting from June 30th 2018, and there is no factor that may cast significant doubt on the entity's ability to continue as a going concern. Therefore, the financial statements have been prepared on a going concern basis. III. Significant accounting policies and accounting estimates 1. Statement for Compliance with Accounting Standards for Business Enterprises (ASBE) 69 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 The financial statements of the Company have been prepared in accordance with ASBE, and present truly and completely, the Company's and consolidated financial position as of June 30th 2018, and the Company's and consolidated results of operations and cash flows for 2018 first half year. 2. Accounting Period The Group has adopted the calendar year as its accounting year from January 1st to December 31st each year. 3. Business Cycle The business cycle refers to the period from purchase of assets used for processing to realization of cash or cash equivalents. The Group business cycle is usually 12 months. 4. Functional currency Renminbi (“RMB”) is the currency in the primary economic environments in which the Company and its domestic subsidiaries are operated. The Company and its domestic subsidiaries take RMB as their functional currency. Overseas subsidiaries of the Company determine their functional currency on the basis of the primary economic environment in which it operates. For functional currency of overseas subsidiaries of the Company, see Note (V) 53. The Group adopts RMB to prepare its financial statements. 5. The accounting treatment of business combinations involving enterprises under common control and business combinations not involving enterprises under common control Business combinations are classified into business combinations involving enterprises under common control and business combinations not involving enterprises under common control. 5.1 Business combinations involving enterprises under common control A business combination involving enterprises under common control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or parties both before and after the combination, and that control is not transitory. Assets and liabilities obtained shall be measured at their respective carrying amounts as recorded by the combining entities at the date of the combination. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination (the aggregate face value of shares issued as consideration) is adjusted to the share premium in capital reserve. If the share premium is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings. Costs that are directly attributable to the combination are charged to profit or loss in the period in which they are incurred. 5.2 Business combinations not involving enterprises under common control and goodwill 70 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 A business combination not involving enterprises under common control is a business combination in which all of the combining enterprises are not ultimately controlled by the same party or parties before and after the combination. The cost of combination is the aggregate of the fair values, at the acquisition date, of the assets given, liabilities incurred or assumed, and equity securities issued by the acquirer in exchange for control of the acquiree. The intermediary expenses incurred by the acquirer in respect of auditing, legal services, valuation and consultancy services, etc. and other associated administrative expenses attributable to the business combination are recognized in profit or loss when they are incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities, acquired by the acquirer in a business combination, that meet the recognition criteria shall be measured at fair value at the acquisition date. Where the cost of combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is treated as an asset and recognized as goodwill, which is measured at cost on initial recognition. Where the cost of combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the acquirer firstly reassesses the measurement of the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities and measurement of the cost of combination. If after that reassessment, the cost of combination is still less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the acquirer recognizes the remaining difference immediately into profit or loss for the current period. Goodwill arising on a business combination is measured at cost less accumulated impairment losses, and is presented separately in the consolidated financial statements. 6. Preparation method of consolidated financial statements 6.1 Preparation method of consolidated financial statements The scope of consolidated financial statements shall be confirmed based on the control. Control right means that an investor may control an investee; the investor may participate in relevant activities of the investee to obtain variable rewards and also be able to use the control rights for the investee to influence its amount of returns. The Group will re-evaluate, if the change of the relevant facts and circumstances leading to the change of the relevant elements involved in the above definition of control. The merger of subsidiary starts from the Group obtaining the control power of the subsidiary, and terminates when the Group loses the control power of the subsidiary. As for subsidiaries disposed by the Group, operating results and cash flow prior to the disposal date (the date of losing control right) have been properly included in the consolidated profit statement and consolidated cash flow statement. 71 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 For a subsidiary acquired through a business combination not involving enterprises under common control, the operating results and cash flows from the acquisition date (the date when control is obtained) are included in the consolidated income statement and consolidated statement of cash flows. No matter when the business combination occurs in the reporting period, subsidiaries acquired through a business combination involving enterprises under common control are included in the Group's scope of consolidation as if they had been included in the scope of consolidation from the date when they first came under the common control of the ultimate controlling party. Their operating results and cash flows from the beginning of the earliest reporting period are included in the consolidated income statement and consolidated statement of cash flows, as appropriate. The significant accounting policies and accounting periods adopted by the subsidiaries are determined based on the uniform accounting policies and accounting periods set out by the Company. All significant intra-group balances and transactions are eliminated on consolidation. The portion of subsidiaries' equity that is not attributable to the Company is treated as minority interests and presented as "minority equity" in the consolidated balance sheet. The portion of net profits or losses of subsidiaries for the period attributable to minority interests is presented as "minority interests" in the consolidated income statement below the "net profit" line item. When the amount of loss for the period attributable to the minority shareholders of a subsidiary exceeds the minority shareholders' portion of the opening balance of owners' equity of the subsidiary, the excess amount are still allocated against minority interests. Acquisition of minority interests or disposal of interest in a subsidiary that does not result in the loss of control over the subsidiary is accounted for as equity transactions. The carrying amounts of the total owners' equity attributable to owner of the Company and minority equity are adjusted to reflect the changes in their relative interests in the subsidiary. The difference between the amount by which the minority interests are adjusted and the fair value of the consideration paid or received is adjusted to capital reserve under owners' equity. If the capital reserve is not sufficient to absorb the difference, the excess are adjusted against retained earnings. 7. Recognition criteria of cash and cash equivalents Cash comprises cash on hand and deposits that can be readily withdrawn on demand. Cash equivalents are the Group's short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 8. Conversion of transactions and financial statements denominated in foreign currencies. 8.1 Transactions denominated in foreign currencies 72 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 A foreign currency transaction is recorded, on initial recognition, by applying an exchange rate that approximates the actual spot exchange rate on the date of transaction; The exchange rate that approximates the actual spot exchange rate on the date of transaction is calculated according to the middle price of market exchange rate at the beginning of the month in which the transaction happened. At the balance sheet date, foreign currency monetary items are translated into [RMB] using the spot exchange rates at the balance sheet date. Exchange differences arising from the differences between the spot exchange rates prevailing at the balance sheet date and those on initial recognition or at the previous balance sheet date are recognized in profit or loss for the period, except for exchange differences related to a specific-purpose borrowing denominated in foreign currency that qualify for capitalization are capitalized as part of the cost of the qualifying asset during the capitalization period. When the consolidated financial statements include foreign operation(s), if there is foreign currency monetary item constituting a net investment in a foreign operation, exchange difference arising from changes in exchange rates are recognized as "exchange differences arising on conversion of financial statements denominated in foreign currencies " in other comprehensive income, and in profit and loss for the period upon disposal of the foreign operation. Foreign currency non-monetary items measured at historical cost are converted to the amounts in functional currency at the spot exchange rates on the dates of the transactions. Foreign currency non-monetary items measured at fair value are re-converted at the spot exchange rate on the date the fair value is determined. Difference between the re-converted functional currency amount and the original functional currency amount is treated as changes in fair value (including changes of exchange rate) and is recognized in profit and loss or as other comprehensive income. 8.2 Conversion of financial statements denominated in foreign currencies For the purpose of preparing the consolidated financial statements, financial statements of a foreign operation are converted from the foreign currency into RMB using the following method: assets and liabilities on the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date; shareholders' equity items are converted at the spot exchange rates at the dates on which such items arose; all items in the income statement as well as items reflecting the distribution of profits are translated at exchange rates that approximate the actual spot exchange rates on the dates of the transactions; The difference between the converted assets and the aggregate of liabilities and shareholders' equity items is recognized into other comprehensive income and shareholders’ equity. Cash flows arising from a transaction in foreign currency and the cash flows of a foreign subsidiary are converted at an exchange rate which approximates the spot exchange rate on the date of the cash flows. The effect of exchange rate changes on cash and cash equivalents is regarded as a reconciling item and presented separately in the cash flow statement as "effect of exchange rate changes on cash and cash equivalents". The foreign currency cash flow and cash flow of overseas subsidiaries adopt the exchange rate similar to the spot rate at the date of cash flow for conversion. The affected amount of cash and cash equivalents due to the change of exchange rate, as an adjustment item, shall be separately listed as "the impact of cash and cash equivalents due to the change of exchange rate" in the cash flow statement. 73 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 The opening balances and the comparative figures of previous year are presented at the converted amounts in the previous year's financial statements. On disposal of the Group's entire interest in a foreign operation, or upon a loss of control over a foreign operation due to disposal of certain interest in it or other reasons, the Group transfers the accumulated exchange differences arising on conversion of financial statements of this foreign operation attributable to the owners' equity of the Company and presented under shareholders' equity, to profit or loss in the period in which the disposal occurs. In case of a disposal or other reason that does not result in the Group losing control over a foreign operation, but only a decrease in proportion of overseas business interests, the proportionate share of accumulated exchange differences arising on conversion of financial statements are re-attributed to minority interests and are not recognized in profit and loss under current period. For partial disposals of equity interests in foreign operations which are associates or joint ventures, the proportionate shares of the accumulated exchange differences arising on conversion of financial statements of foreign operations is reclassified to profit or loss under current period. 9. Financial Instruments Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. For financial assets and financial liabilities at fair value through profit or loss, transaction costs are immediately recognized in profit or loss. For other financial assets and financial liabilities, transaction costs are included in their initial recognized amounts. 9.1 Effective Interest Method The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability (or a group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period, using the effective interest rate. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of the financial asset or financial liability, or a shorter period if appropriate, to the current net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial asset or financial liability (without considering future credit losses), and also considers all fees paid or received between the parties to the contract giving rise to the financial asset and financial liability that are an integral part of the effective interest rate, transaction costs, and premiums or discounts, etc. 9.2 Classification, Confirmation and Measurement of the Financial Assets On initial recognition, the Group’s financial assets are classified into one of the four categories, including financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables, 74 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 and available-for-sale financial assets. All purchases or sales of financial assets through regular methods are recognized and derecognized on a trade date basis. 9.2.1 Financial Assets at Fair Value through Profit or Loss ("FVTPL") Financial assets at FVTPL include financial assets held for trading and those designated as financial assets at fair value through profit or loss. A financial asset is classified as held for trading if one of the following conditions is satisfied: (1) It has been acquired principally for the purpose of selling in the near term; or (2) On initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and there is objective evidence that the Group has a recent actual pattern of short-term profit-taking; or (3) It is a derivative that is not designated and effective as a hedging instrument, or a financial guarantee contract, or a derivative that is linked to and must be settled by delivery of an unquoted equity instrument (without a quoted price in an active market) whose fair value cannot be reliably measured. Financial assets at FVTPL are subsequently measured at fair value. Any gains or losses arising from changes in the fair value and any dividend or interest income earned on the financial assets are recognized in profit or loss. 9.2.2 Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Group's management has the positive intention and ability to hold to maturity. Held-to-maturity investments are subsequently measured at amortized cost using the effective interest method. Gain or loss arising from derecognition, impairment or amortization is recognized in profit or loss. 9.2.3 Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets classified as loans and receivables by the Group include notes receivable, accounts receivable, other receivables, other current assets, long-term receivables, and etc. Loans and receivables are subsequently measured at amortized cost using the effective interest method. Gain or loss arising from derecognition, impairment or amortization is recognized in profit or loss. 9.2.4 Available-for-sale Financial Assets 75 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Available-for-sale financial assets include non-derivative financial assets that are designated on initial recognition as available for sale, and financial assets that are not classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments. Available-for-sale financial assets are subsequently measured at fair value, and gains or losses arising from changes in the fair value are recognized as other comprehensive income, except that impairment losses and exchange differences related to amortized cost of monetary financial assets denominated in foreign currencies are recognized in profit or loss, until the financial assets are derecognized, at which time the gains or losses are released and recognized in profit or loss. Interests obtained and the dividends declared by the investee during the period in which the available-for-sale financial assets are held, are recognized in investment gains. For investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, and derivative financial assets that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost. 9.3 Impairment of financial assets The Group assesses at each balance sheet date the carrying amounts of financial assets other than those at fair value through profit or loss. If there is objective evidence that a financial asset is impaired, the Group determines the amount of any impairment loss. Objective evidence that a financial asset is impaired is evidence that, arising from one or more events that occurred after the initial recognition of the asset, the estimated future cash flows of the financial asset, which can be reliably measured, have been affected. Objective evidence that a financial asset is impaired includes the following observable events: (1) Significant financial difficulty of the issuer or obligor; (2) A breach of contract by the borrower, such as a default or delinquency in interest or principal payments; (3) The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting a concession to the borrower; (4) It becoming probable that the borrower will enter bankruptcy or other financial reorganizations; (5) The disappearance of an active market for that financial asset because of financial difficulties of the issuer; (6) Upon an overall assessment of a group of financial assets, observable data indicates that there is a measurable decrease in the estimated future cash flows from the group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group. Such observable data includes: - Adverse changes in the payment status of borrower in the group of assets; - Economic conditions in the country or region of the borrower which may lead to a failure to pay the group of assets; (7) Significant adverse changes in the technological, market, economic or legal environment in which the issuer operates, indicating that the cost of the investment in the equity instrument may not be recovered by the investor; (8) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost; (9) Other objective evidence indicating there is an impairment of a financial asset. 76 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 - Impairment of financial assets measured at amortized cost If financial assets carried at amortized cost are impaired, the carrying amounts of the financial assets are reduced to the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The amount of reduction is recognized as an impairment loss in profit or loss. If, subsequent to the recognition of an impairment loss on financial assets carried at amortized cost, there is objective evidence of a recovery in value of the financial assets which can be related objectively to an event occurring after the impairment is recognized, the previously recognized impairment loss is reversed. However, the reversal is made to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. For a financial asset that is individually significant, the Group assesses the asset individually for impairment. For a financial asset that is not individually significant, the Group assesses the asset individually for impairment or includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset (whether significant or not), it includes the asset in a group of financial assets with similar credit risk characteristics and collectively reassesses them for impairment. Assets for which an impairment loss is individually recognized are not included in a collective assessment of impairment. - Impairment of available-for-sale financial assets When an available-for-sale financial asset is impaired, the cumulative loss arising from decline in fair value previously recognized directly in other comprehensive income is reclassified from other comprehensive income to profit or loss. The amount of the cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost (net of any principal repayment and amortization) and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss. If, subsequent to the recognition of an impairment loss on available-for-sale financial assets, there is objective evidence of a recovery in value of the financial assets which can be related objectively to an event occurring after the impairment is recognized, the previously recognized impairment loss is reversed. The amount of reversal of impairment loss on available-for-sale equity instruments is recognized as other comprehensive income, while the amount of reversal of impairment loss on available-for-sale debt instruments is recognized in profit or loss. - Impairment of financial assets measured at cost If an impairment loss has been incurred on an investment in unquoted equity instrument (without a quoted price in an active market) whose fair value cannot be reliably measured, or on a derivative financial asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the carrying amount of the financial asset is reduced to the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The amount of reduction is recognized as an impairment loss in profit or loss. The impairment loss on such financial asset is not reversed once it is recognized. 9.4 Transfer of Financial Assets 77 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 The Group derecognizes a financial asset if one of the following conditions is satisfied: (1) the contractual rights to the cash flows from the financial asset expire; or (2) the financial asset has been transferred and substantially all the risks and rewards of ownership of the financial asset is transferred to the transferee; or (3) although the financial asset has been transferred, the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset but has not retained control of the financial asset. If the Group neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, and it retains control of the financial asset, it recognizes the financial asset to the extent of its continuing involvement in the transferred financial asset and recognizes an associated liability. The extent of the Group’s continuing involvement in the transferred asset is the extent to which it is exposed to changes in the value of the transferred asset. For a transfer of a financial asset in its entirety that satisfies the recognition criteria, the difference between (1) the carrying amount of the financial asset transferred; and (2) the sum of the consideration received from the transfer and any cumulative gain or loss that has been recognized in other comprehensive income, is recognized in profit or loss. If a part of the transferred financial asset qualifies for derecognition, the carrying amount of the transferred financial asset is allocated between the part that continues to be recognized and the part that is derecognized, based on the respective fair values of those parts. The difference between (1) the carrying amount allocated to the part derecognized; and (2) the sum of the consideration received for the part derecognized and any cumulative gain or loss allocated to the part derecognized which has been previously recognized in other comprehensive income, is recognized in profit or loss. 9.5 Classification, recognition and measurement of financial liabilities Debt and equity instruments issued by the Group are classified into financial liabilities or equity on the basis of the substance of the contractual arrangements with the relevant reflected economic essence (not only in the form of law) and definitions of financial liability and equity instrument. On initial recognition, financial liabilities are classified into financial liabilities at fair value through profit or loss and other financial liabilities. 9.5.1 Financial liabilities at fair value through profit or loss (FVTPL) Financial liabilities at FVTPL consist of financial liabilities held for trading and those designated as at FVTPL. A financial liability is classified as held for trading if one of the following conditions is satisfied: (1) undertake the purpose of financial liability, it has been acquired principally for the purpose of repurchasing in the near term; or (2) On initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and there is objective evidence that the Group has a recent actual pattern of short-term profit-taking; or (3) It is a derivative, except for a derivative that is a designated and effective hedging instrument, or a financial guarantee contract, or a derivative that is linked to and must be settled by delivery of an unquoted equity instrument (without a quoted price in an active market) whose fair value cannot be reliably measured. A financial liability may be designated as at FVTPL upon initial recognition only when one of the following conditions is satisfied: (1) Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise result from measuring liabilities or recognizing the 78 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 gains or losses on them on different bases; or (2) The financial liability forms part of a group of financial liabilities or a group of financial assets and financial liabilities, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is reported to key management personnel on that basis.; or (3) qualified hybrid tool with inclusion of embedded derivatives. Financial liabilities at FVTPL are subsequently measured at fair value. Any gains or losses arising from changes in the fair value or any dividend or interest expenses related to the financial liabilities are recognized in profit or loss. 9.5.2 Other financial liabilities For a derivative liability that is linked to and must be settled by delivery of an unquoted equity instrument (without a quoted price in an active market) whose fair value cannot be reliably measured, it is subsequently measured at cost. Other financial liabilities, except for financial guarantee contracts, are subsequently measured at amortized cost using the effective interest method, with gain or loss arising from derecognition or amortization recognized in profit or loss. 9.5.3. Financial Guarantee Contracts A financial guarantee contract is a contract by which the guarantor and the lender agree that the guarantor would settle the debts or bear obligations in accordance with terms of the contract in case the borrower fails to settle the debts. Financial guarantee contracts that are not designated as financial liabilities at fair value through profit or loss, are initially measured at their fair values less the directly attributable transaction costs. Subsequent to initial recognition, they are measured at the higher of: (i) the amount determined in accordance with Accounting Standard for Business Enterprises No. 13 – Contingencies; and (ii) the amount initially recognized less cumulative amortization recognized in accordance with the principles set out in Accounting Standard for Business Enterprises No. 14 – Revenue. 9.6 Derecognition of Financial Liabilities The Group derecognizes a financial liability (or part of it) when the underlying present obligation (or part of it) is discharged. An agreement between the Group (an existing borrower) and an existing lender to replace the original financial liability with a new financial liability with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. When the Group derecognizes a financial liability or a part of it, it recognizes the difference between the carrying amount of the financial liability (or part of the financial liability) derecognized and the consideration paid (including any non-cash assets transferred or new financial liabilities assumed) in profit or loss. 9.7 Derivative Instruments and Embedded Derivative Instruments 79 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Derivative financial instruments include forward exchange contracts, currency swaps, interest rate swaps and foreign exchange options, etc. Derivatives are initially measured at fair value at the date when the derivative contracts are entered into and are subsequently re-measured at fair value. The resulting gain or loss is recognized in profit or loss. An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is not designated as a financial asset or financial liability at fair value through profit or loss, and treated as a standalone derivative if 1) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; and 2) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. If the Group is unable to measure the embedded derivative separately either at acquisition or at a subsequent balance sheet date, it designates the entire hybrid instrument as a financial asset or financial liability at fair value through profit or loss. 9.8 Offsetting financial assets and financial liabilities Where the Group has a legal right that is currently enforceable to set off the recognized financial assets and financial liabilities, and intends either to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously, a financial asset and a financial liability shall be offset and the net amount is presented in the balance sheet. Except for the above circumstances, financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset. 9.9 Equity instrument An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. That the group issues (including refinancing), repurchases, sells or cancels equity instruments is taken as the treatment of changes in equities. The group does not confirm the changes of fair value of equity instruments. Transaction fees relevant to the equity transaction shall be deducted from the equity. The Group considers the allocation of the equity holder as the allocation of profits; issued share dividends do not influence the total equity of the shareholders. 10. Receivables 10.1 Receivables that are individually significant and for which bad debt provision is individually assessed A receivable that exceeds RMB 4 million (inclusive) and accounting Basis or monetary criteria for determining an for more than 10% of the receivables book balance is deemed as an individually significant receivable individually significant receivable by the Group. 80 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 For receivables that are individually significant, the Group assesses the receivables individually for impairment. For account receivables Method of determining provision for and other receivables that is not impaired individually, the Group receivables that are individually significant and includes the receivables in a group of financial assets with similar for which bad debt provision is individually credit risk characteristics and collectively assesses them for assessed impairment. Account receivables and other receivables for which an impairment loss is individually recognized are not included in a collective assessment of impairment. 10.2 Receivables for which bad debt provision is collectively assessed on a portfolio basis Method of recognizing bad debt provisions for receivables based upon collective assessment on a portfolio basis. Accounts receivables with insignificant single amount and significant single amount but no Aging analysis single test impairment Portfolios that aging analysis is used for bad debt provision: Provision as a proportion of Provision as a proportion of other Aging (over credit period) accounts receivable (%) receivables (%) Within 1 year (inclusive, the same below) 5 5 1-2 years 10 10 2-3 years 30 30 3-4 years 50 50 4-5 years 80 80 More than 5 years 100 100 10.3 Accounts receivable that are not individually significant but for which bad debt provision is individually assessed: There are significant differences between the present value of Reasons for making individual bad debt future cash flow of the receivables and the present value of provision future cash flow of the receivables portfolio based on aging analysis as credit risk feature. Through individual impairment test, determine the bad debts Bad debt provision methods provisions according to the difference of the amount that the present value of future cash flows lower than carrying value. 11. Inventories 11.1 Categories of inventories The Group's inventories mainly include finished goods or commodities held for sale in the daily activities, 81 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 completed outstanding assets formed in the construction contract, products in the production process, materials and supplies used in the production process or in the process of proving labor service. Inventories are initially measured at cost. Cost of inventories comprises all costs of purchase, costs of conversion and other expenditures incurred in bringing the inventories to their present location and condition. 11.2 Valuation method of inventories upon delivery The actual cost of inventories upon delivery is calculated using the mobile weighted average method. 11.3 Basis for determining net realizable value of inventories The inventory is according to cost and net realizable value low metering on the date of balance sheet. When the net realizable value is lower than cost, withdraw inventory falling price reserves. The net realizable value refers to the amount derived by deducting the potential cost, estimated selling expense and relative taxes to the completion date from the estimated sales price of inventory in daily activities. When determining net realizable value of inventories, take the obtained conclusive evidence as basis and consider the purposes of holding inventories and influence of events after the balance sheet date. Provision for decline in value of inventories is made based on the excess of cost of inventory over its net realizable value on an item-by-item basis. After provision for inventory depreciation reserves is made, if the factors resulting in the write-down of inventory impairment have disappeared and causing the net realizable value higher than its book value, such inventory impairment provision are recovered and reversed, and the reversed amount recorded in profits and losses of the current period. 11.4 Inventory count system The perpetual inventory system is maintained for stock system. 11.5 Amortization method for low cost and short-lived consumable items and packaging materials Packaging materials and low cost and short-lived consumable items are amortized using the immediate write-off method. 12. Long-term Equity Investment 12.1 Basis for determining joint control and significant influence over investee Control is the power to govern an entity through participating in relevant activities of the investee; the investor is able to obtain variable benefits from its activities, and at same time, to use the control rights on 82 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 the investee to influence the amount of returns. Joint control means that joint control for certain arrangement in accordance with relevant agreements; activities relevant to the arrangement cannot be decided until obtaining the unanimous consent of parties sharing control right. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. When determining whether an investing enterprise is able to exercise control or significant influence over an investee, the effect of potential voting rights of the investee, such as current convertible debts, current executable warrants, etc., held by the investing enterprises or other parties shall be considered. 12.2 Determination of initial investment cost For a long-term equity investment acquired through a business combination involving enterprises under common control, the shares of merged party's book value of owners' equity in the final controlling party consolidated financial statements obtained on the merger date shall be considered as the initial investment cost of long-term equity investment. The differences between the initial investment cost of long-term equity investment and the paid cash, the transferred non-cash assets and the book value of the assumed debts are adjusted against the capital surplus; if the capital surplus is not sufficient to be offset, the remaining balance is adjusted against retained earnings. In the case of issued equity securities treated as consolidation consideration, share of book value of owner's equity of merged party in the final controlling party consolidated financial statements is regarded as initial investment cost of long-term equity investments on the date of consolidation; capital reserve shall be adjusted in accordance with taking total nominal value of issued share as capital share, the difference between the initial investment cost of long-term equity investments and total book value of issued shares; In case the capital reserve is not enough for writing down, the retained earnings shall be adjusted. For a long-term equity investment acquired through business combination not involving enterprises under common control, and the merging cost confirmed on the purchased date are regarded as the initial investment cost. The intermediate expenses made by the combining party or purchaser for audit, legal service, assessment and other management related expenses during the business merger should be included into the current profit and loss as it happens. Conduct initial measurement according the cost for other equity investment other than the long-term equity investment formed in business merger. In case that the investor may post a significant impact on the investee or execute joint control but not constitute the control right, long-term equity investment cost is the sum of fair value of original-held equity investment plus newly-added investment cost in accordance with No. 22 Accounting Standards for Business Enterprises----Recognition and Measure of the Financial Instruments. 12.3 Subsequent measurement and recognition of profit or loss 12.3.1 Long-term equity investment accounted for using the cost method Long-term equity investments in subsidiaries are accounted for using the cost method in the Company's financial statements. A subsidiary is an investee that is controlled by the Group. 83 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 The long-term equity investment accounted by the cost method shall be measured at its initial investment cost. If there are additional investments or disinvestments, the long-term equity investment cost shall be adjusted. Income from the investment in the current period shall be recognized in accordance with the cash dividends or profits declared and issued by the investee. 12.3.2 Long-term equity investment accounted for using the equity method The Group accounts for investment in associates and joint ventures using the equity method. An associate is an entity over which the Group has significant influence and a joint venture is an entity over which the Group can only exercise joint control along with other investors on the investee’s net assets. Under the equity method, where the initial investment cost of a long-term equity investment exceeds the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, no adjustment is made to the initial investment cost. Where the initial investment cost is less than the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the difference is recognized in profit or loss for the period, and the cost of the long-term equity investment is adjusted accordingly. Under the equity method, the Group recognizes its share of the net profit or loss and other comprehensive income of the investee for the period as investment income or loss and comprehensive income for the period, meanwhile, the book value of the long-term equity investment shall be adjusted; The Company shall accordingly reduce the book value of the long-term equity investment in terms of the part that shall be enjoyed according to the profit or cash dividends declared by the invested unit to be distributed; For other changes in the owners' equity of the invested unit other than net profits and losses, other comprehensive incomes and the profit distribution, the book value of long-term equity investment shall be adjusted and be included into the capital reserves. The Company shall, on the ground of the fair value of all identifiable assets of the invested entity when it obtains the investment, recognize the attributable share of the net profits and losses of the invested entity after it adjusts the net profits of the invested entity. If the accounting policies and accounting periods adopted by the invested unit are different from those adopted by the Company, the adjustment shall be made for the financial statements of the invested unit in accordance with the accounting policies and accounting periods of the Company to recognize the investment income and other comprehensive incomes. For the transaction incurred between the group and associated enterprises and joint ventures, invested or sold assets don't constitute a business, the part that doesn't achieve internal transaction profit or loss or belongs to the group calculated according to the enjoyed ratio will be offset, and the profit or loss on investment will be confirmed on this basis. But for the unrealized loss arising from the internal transaction between the group and the invested unit, if such transaction loss is defined as the impairment loss of the transferred asset, they cannot be offset. When the Company determines the net loss of the invested unit which shall be shared, it is necessary to write-down the book value of the long-term equity investment and other long-term equities substantially constituting the net investment of the invested unit to zero as a limit. Besides, if the group is obliged to bear extra loss for the invested unit, it shall be necessary to determine provisions and record them to current investment loss in compliance with obligations expected to be assumed. If the invested unit realizes any net profits later, the group shall, after the amount of its attributable share of profits offsets its attributable share of the un-confirmed losses, resume recognizing its attributable share of profits. 12.4 Disposal of long-term equity investments 84 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 On disposal of a long term equity investment, the difference between the proceeds actually received and the carrying amount is recognized in profit or loss for the period. 13. Fixed Assets 13.1 Recognition criteria for fixed assets Fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and have useful lives of more than one accounting year. A fixed asset is recognized only when it is probable that economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. Fixed assets are initially measured at cost. Subsequent expenditures incurred for the fixed asset are included in the cost of the fixed asset and if it is probable that economic benefits associated with the asset will flow to the Group and the subsequent expenditures can be measured reliably. Meanwhile the carrying amount of the replaced part is derecognized. Other subsequent expenditures are recognized in profit or loss in the period in which they are incurred. 13.2 Depreciation of each category of fixed assets A fixed asset is depreciated over its useful life using the straight-line method since the month subsequent to the one in which it is ready for intended use. The useful life, estimated net residual value rate and annual depreciation rate of each category of fixed assets are as follows: Class Depreciation period (years) Residual value rate (%) Annual depreciation rate (%) Buildings and Constructions 20 years 10 4.5 General-purpose equipment 3-5 years 10 18.0-30.0 Special-purpose equipment 3-5 years 10 18.0-30.0 Transportation vehicles 5 years 10 18.0 Estimated net residual value of a fixed asset is the estimated amount that the Group would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. 13.3 Identification basis and valuation methods for fixed assets acquired under finance leases On the commencement date of the lease term, record the lower of the fair value of the leasing asset or the present value of the minimum lease payments on the lease commencement date as the entry book value of the leased asset, and book the amount of the minimum lease payments as the entry book value of long-term account payable, and recognize the difference between the entry value of the leased asset and 85 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 that of the long-term account payables as unrecognized financing expenses. In addition, the initial direct costs directly attributable to the leased item incurred during the process of negotiating the lease and signing the leasing agreement shall be included into the value of the leased assets. The Group adopts a depreciation policy for a fixed asset held under a finance lease which is consistent with that for its owned fixed asset. If there is reasonable certainty that the Group will obtain ownership of the leased asset at the end of the lease term, the leased asset is depreciated over its useful life. If there is no reasonable certainty that the Group will obtain ownership of the leased asset at the end of the lease term, the leased asset is depreciated over the shorter of the lease term and its useful life. 13.4 Other explanations If a fixed asset is upon disposal or no future economic benefits are expected to be generated from its use or disposal, the fixed asset is derecognized. When a fixed asset is sold, transferred, retired or damaged, the amount of any proceeds on disposal of the asset net of the carrying amount and related taxes is recognized in profit or loss for the period. The Group reviews the useful life and estimated net residual value of a fixed asset and the depreciation method applied at least once at each financial year-end, and account for any change as a change in an accounting estimate. 14. Construction in Process Construction in progress is measured at its actual costs. The actual costs include various construction expenditures during the construction period, borrowing costs capitalized before it is ready for intended use and other relevant costs. Construction in progress is not depreciated. Construction in progress is transferred to a fixed asset when it is ready for intended use. For those that could reach to the expected serviceable condition, but haven't gone through final settlement of the accounts for the completed projects, they will be converted to fixed assets according to the estimated value first, and the provisional estimate value of the original fixed assets will be adjusted according to the actual costs after final settlement of the construction accounts. 15. Borrowing Costs Borrowing costs directly attributable to the acquisition & construction or production of assets eligible for capitalization shall be capitalized when assets expenditure, borrowing costs and necessary construction or production for bringing assets to expected conditions for use or marketing have taken place; when construction or production of assets ready for capitalization reach to expected conditions for use or marketing, capitalization shall be ceased. Other borrowing expenses are recognized as expenses in the current period. Where funds are borrowed under a specific-purpose borrowing, the amount of interest to be capitalized is the actual interest expense incurred on that borrowing for the period less any bank interest earned from depositing the borrowed funds before being used on the asset or any investment income on the temporary 86 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 investment of those funds. Where funds are borrowed under general-purpose borrowings, the Group determines the amount of interest to be capitalized on such borrowings by applying a capitalization rate to the weighted average of the excess of cumulative expenditures on the asset over the amounts of specific-purpose borrowings. The capitalization rate is the weighted average of the interest rates applicable to the general-purpose borrowings. During the capitalization period, exchange differences related to a specific-purpose borrowing denominated in foreign currency are all capitalized. Exchange differences in connection with general-purpose borrowings are recognized in profit or loss in the period in which they are incurred. 16. Intangible Assets 16.1 Intangible Assets Intangible assets include land use right, intellectual property (IP) and application software, etc. An intangible asset is measured initially at cost. When an intangible asset with a finite useful life is available for use, its original cost is amortized over its estimated useful life using the straight-line method. The useful life and predicted net residual value of various intangible assets are shown as follows: Class Service life (year) Salvage value rate (%) Land use right 50 years - IP Right 10 Years - Application Software 5-10 years - For an intangible asset with a finite useful life, the Group reviews the useful life and amortization method at the end of the period, and makes adjustments when necessary. 16.2 Internal Research and Development Expenditure Expenditure during the research phase is recognized as an expense in the period in which it is incurred. Expenditure during the development phase that meets all of the following conditions at the same time is recognized as intangible asset. Expenditure during development phase that does not meet the following conditions is recognized in profit or loss for the period. (1) It is technically feasible to complete the intangible asset so that it will be available for use or sale; (2) The Group has the intention to complete the intangible asset and use or sell it; (3) The Group can demonstrate the ways in which the intangible asset will generate economic benefits, including the evidence of 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; 87 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (4) The availability of adequate technical, financial and other resources to complete the development and the ability to use or sell the intangible asset; and (5) The expenditure attributable to the intangible asset during its development phase can be reliably measured. If the expenditures cannot be distinguished between the research phase and development phase, the Group recognizes all of them in profit or loss for the period. 17. Long-term Assets Impairment The Group assesses at each balance sheet date whether there is any indication that the long-term equity investment, fixed assets, construction in process and intangible assets with a finite useful life may be impaired. If there is any indication that such assets may be impaired, recoverable amounts are estimated for such assets. Intangible assets with indefinite useful life and intangible assets not yet available for use are tested for impairment annually, irrespective of whether there is any indication that the assets may be impaired. Recoverable amount is estimated on individual basis. If it is not practical to estimate the recoverable amount of an individual asset, the recoverable amount of the asset group to which the asset belongs will be estimated. The recoverable amount is determined by the higher of 1) net amount of fair value of the asset or asset group deducted by the disposal expenses; or 2) the present value of the expected future cash flow of the asset or asset group. If the recoverable amount of an asset or an asset group is less than its carrying amount, the deficit is accounted for as an impairment loss and is recognized in profit or loss for the period. Goodwill impairment test shall be conducted at the end of each year at least. Goodwill impairment test shall be conducted in accordance with the concerned asset group or asset portfolio. That is to allocate the book value of goodwill to the asset group or asset portfolio that is expected to benefit from the synergies of the combination in a reasonable way from the date of purchasing. When recoverable amount of apportion-included asset group or asset portfolio of goodwill is less than book value of goodwill, impairment loss shall be recognized. Firstly, amount of impairment loss shall be apportioned to the book value of goodwill of the said asset group or asset portfolio, and then book value of other assets, except for goodwill, in asset group or asset portfolio shall be abated in proportion. Once the impairment loss of such assets is recognized, it is not be reversed in any subsequent period. 18. Employee compensation 18.1 Accountant Arrangement Method of Short-term Remuneration During accounting period when the Group's employees provide services, actual short-term remuneration shall be recognized as the liabilities and current profit and loss or relevant asset cost. The Group’s employee benefits and welfare are included into current profit and loss or relevant asset cost according to actual amount occurred during the period. If the employee benefits and welfare is non-monetary, it shall be measured according to its fair value. 88 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 During the accounting period that the employees service the Group, the Group pays social insurance premiums such as medical insurance premium, industrial injury insurance premium, maternity insurance premium and housing accumulation fund for its employees, as well as labor union expenditure and employee education expenses calculated and withdrawn according to the regulations, corresponding employee remuneration amount shall be calculated and determined in accordance with specified calculation and withdrawal basis and proportion to recognize corresponding liabilities and included into the current profit and loss or relevant asset cost. 18.2 Accountant Arrangement Method of Post-employment Benefits All post-employment benefits shall be considered as the defined contribution plan. In the accounting period when the employee serves for the Group, the deposited amount calculated based on defined contribution plan shall be recognized as liabilities and included in the current profit and loss or relevant asset cost. 18.3 Accountant Arrangement Method of the Termination Benefits Where the Group provides termination benefits, the employee remuneration liabilities caused by such termination benefits will be determined as the following date, whichever is earlier, and will be included in the current profit and loss: 1) When the Group cannot unilaterally withdraw the termination benefits provided due to labor relation cancellation plan or employee lay-off suggestion; or 2)when the Group determines costs or expenses in relation with the restructuring of the paid termination benefits. 19. Provisions Provisions are recognized when the Group has a present obligation related to a contingency such as products quality assurance, etc. And it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be measured reliably. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account factors pertaining to a contingency such as the risks, uncertainties and time value of money. Where the effect of the time value of money is material, the amount of the provision is determined by discounting the related future cash outflows. 20. Share-based Payment Share-based payment refers to a transaction in which the Group grants the equity instruments or undertakes the equity-instrument-based liabilities in return for services from employees. The Group's share-based payment is an equity-settled share-based payment. 89 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 A share-based payment is a transaction which the Group grants equity instruments, or incurs liabilities for amounts that are determined based on the price of equity instruments, in return for services rendered by employees. The Group's share-based payments are equity-settled share-based payments. 20.1 Equity-settled share-based payments Grants to employees are equity-settled share-based payments. Equity-settled share-based payments in exchange for services rendered by employees are measured at the fair value of the equity instruments granted to employees at the grant date. Such amount is recognized as related costs or expenses on a straight-line basis over the vesting period/if the equity instruments could be vested immediately, based on the best estimate of the number of equity instruments expected to vest, with a corresponding increase in capital reserve. At each balance sheet date during the vesting period, the Group makes the best estimate according to the subsequent latest information of change in the number of employees who are granted with options that may vest, etc. and revises the number of equity instruments expected to vest. The effect of the above estimate is recognized as related costs or expenses, with a corresponding adjustment to capital reserve.] When receiving the restricted share subscription fund paid by grantees of the equity incentive plan, then the Group shall confirm the share capital and capital reserve (capital share premium) according to the obtained subscription fund, meanwhile, fully confirm the liability and treasury stock in terms of repurchase obligations incurred because the Company's incentive grantees fail to meet vesting condition specified in relevant equity incentive plan. 20.2. Accounting treatment related to implementation, modification and termination of share-based payment arrangement In case the Group modifies a share-based payment arrangement, if the modification increases the fair value of the equity instruments granted, the Group will include the incremental fair value of the equity instruments granted in the measurement of the amount recognized for services received. If the modification increases the number of the equity instruments granted, the Group will include the fair value of additional equity instruments granted in the measurement of the amount recognized for services received. The increase in the fair value of the equity instruments granted is the difference between fair value of the equity instruments before and after the modification on the date of the modification. If the Group modifies the terms or conditions of the share-based payment arrangement in a manner that reduces the total fair value of the share-based payment arrangement, or is not otherwise beneficial to the employee, the Group will continue to account for the services received as if that modification had not occurred, other than a cancellation of some or all the equity instruments granted. If cancellation of the equity instruments granted occurs during the vesting period, the Group will account for the cancellation of the equity instruments granted as an acceleration of vesting, and recognize immediately the amount that otherwise would have been recognized over the remainder of the vesting period in profit or loss for the period, with a corresponding recognition in capital reserve. When the employee or counterparty can choose whether to meet the non-vesting condition but the condition is not met during the vesting period, the Group treats it as a cancellation of the equity instruments granted. 90 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 21. Revenue 21.1 Revenue from sale of goods Revenue from sale of goods is recognized when (1) the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; (2) the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (3) the amount of revenue can be measured reliably; (4) it is probable that the associated economic benefits will flow to the Group; and (5) the associated costs incurred or to be incurred can be measured reliably. 21.2 Revenue from rendering of services Revenue from rendering of services is recognized when (1) the amount of revenue can be measured reliably; (2) it is probable that the associated economic benefits will flow to the enterprise; (3) the stage of completion of the transaction can be determined reliably; and (4) the associated costs incurred or to be incurred can be measured reliably. Revenue from rendering of services is recognized using the percentage of completion method at the balance sheet date. The stage of completion of a transaction for rendering for services is determined based on the proportion that costs incurred to date bear to the estimated total costs of the transaction. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue is recognized only to the extent of the costs incurred that will be recoverable, and the costs incurred are recognized as expenses for the period. When it is not probable that the costs incurred will be recovered, revenue is not recognized. 21.3 Construction Contract Where the outcome of a construction contract can be estimated reliably, contract revenue and costs are recognized using the percentage of completion method at the balance sheet date. The stage of completion of a contract is determined using the proportion that completed contract work bears to the estimated total contract work. Where the outcome of a construction contract cannot be estimated reliably, (1) if contract costs are expected to be recoverable, contract revenue is recognized to the extent of contract costs that are expected to be recoverable; and contract costs are recognized as expenses in the period in which they are incurred; (2) if contract costs are not expected to be recoverable, they are recognized as expenses immediately when incurred and contract revenue is not recognized. When the uncertainties that prevented the outcome of the construction contract from being estimated reliably no longer exist, revenue and expenses associated with the construction contract are recognized using the percentage of completion method. If the estimated total contract costs exceed total contract revenue, the expected loss is recognized immediately as an expense for the period. 91 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 The cumulative costs incurred and cumulative gross profits (or losses) recognized for contracts in progress and the progress billings are offset and the net amount is presented in the balance sheet. Where the aggregate of cumulative costs incurred and cumulative gross profits (or losses) recognized exceed the progress billings for contracts in progress, the surplus is shown as inventory. Where the progress billings for contracts in progress exceed the aggregate of cumulative costs incurred and cumulative gross profits (or losses) recognized, the surplus is shown as receipts in advance. For participation in public infrastructure construction using the Build-Operate-Transfer (BOT) model, the Group recognizes revenue and expenses associated with the construction services rendered during the construction period in accordance with Accounting Standard for Business Enterprises No.15 – Construction Contracts. When the construction of the public infrastructure is completed, the Group recognizes revenue and expenses associated with subsequent operations and services in accordance with Accounting Standard for Business Enterprises No. 14 – Revenue. 22. Governmental Subsidy 22.1 Judgment basis and Accountant treatment of government subsidy related to assets The government subsidies for Chongqing manufacture base construction is used for constructions and forms long-term assets in other ways, and therefore are categorized as government subsidy related to assets. A government grant related to an asset is recognized as deferred income or writing down book value of related assets. For government grants recognized as deferred income, it should be evenly amortized to profit or loss over the useful life of the related asset. 22.2 Judgment basis and accountant treatment of government subsidy related to income The Group receives government subsidies including subsidies for core electronic devices, high-end universal chip and basic software product projects, Value-Added-Tax rebate (VAT rebate), subsidies for special projects, and tax refunds, etc., which are not used for constructions and forms long-term assets in other ways, and therefore are categorized as government subsidy related to income. For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred in subsequent periods, the grant is recognized as deferred income, and recognized in profit or loss over the periods in which the related costs or losses are recognized. If the grant is a compensation for related expenses or losses already incurred, the grant is recognized immediately in profit or loss for the period. For government subsidies related to the Group’s daily operations shall be booked into other income or offsetting related expenses; for those not related to the Group’s daily operations, shall be booked into non-operating income/expense. 92 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 23. Deferred Income Tax Assets / Deferred Income Tax Liabilities The income tax expenses include current income tax and deferred income tax. 23.1. Current Income Tax At the balance sheet date, current income tax liabilities (or assets) for the current and prior periods are measured at the amount expected to be paid (or recovered) according to the requirements of tax laws. 23.2 Deferred Income Tax Assets and Deferred Income Tax Liabilities For temporary differences between the carrying amounts of certain assets or liabilities and their tax base, or between the nil carrying amount of those items that are not recognized as assets or liabilities and their tax base that can be determined according to tax laws, deferred tax assets and liabilities are recognized through the balance sheet liability method. Deferred tax is generally recognized for all temporary differences. Deferred tax assets for deductible temporary differences are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilized. However, for temporary differences associated with the initial recognition of goodwill and the initial recognition of an asset or liability arising from a transaction (not a business combination) that affects neither the accounting profit nor taxable profits (or deductible losses) at the time of transaction, no deferred tax asset or liability is recognized. For deductible losses and tax credits that can be carried forward, deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the deductible losses and tax credits can be utilized. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Current and deferred tax expenses or income are recognized in profit or loss for the period, except when they arise from transactions or events that are directly recognized in other comprehensive income or in shareholders' equity, in which case they are recognized in other comprehensive income or in shareholders' equity; and when they arise from business combinations, in which case they adjust the carrying amount of goodwill. At the balance sheet date, the carrying amount of deferred tax assets is reviewed and reduced if it is no longer probable that sufficient taxable profits will be available in the future to allow the benefit of 93 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 deferred tax assets to be utilized. Such reduction in amount is reversed when it becomes probable that sufficient taxable profits will be available. 23.3 Offset of Income Tax When the Group has a legal right to settle on a net basis and intends either to settle on a net basis or to realize the assets and settle the liabilities simultaneously, current tax assets and current tax liabilities are offset and presented on a net basis. When the Group has a legal right to settle current tax assets and liabilities on a net basis, and deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax assets and liabilities on a net basis or to realize the assets and liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be reversed, deferred tax assets and deferred tax liabilities are offset and presented on a net basis. 24. Lease Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 24.1 Accounting treatment of operating Lease 24.1.1 The Group as lessee under operating leases Operating lease payments are recognized on a straight-line basis over the term of the relevant lease, and are either included in the cost of related asset or charged to profit or loss for the period. Initial direct costs incurred are charged to profit or loss for the period. Contingent rents are charged to profit or loss in the period in which they are actually incurred. 24.1.2 The Group as lessor under operating leases Rental income from operating leases is recognized in profit or loss on a straight-line basis over the term of the relevant lease. Initial direct costs with more than an insignificant amount are capitalized when incurred, and are recognized in profit or loss on the same basis as rental income over the lease term. Other initial direct costs with an insignificant amount are charged to profit or loss in the period in which they are incurred. Contingent rents are charged to profit or loss in the period in which they actually arise. 24.2. Accounting treatment of the finance lease 24.2.1 The Group as lessee under finance leases 94 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 For relevant accounting treatment, refer to Note (III) 13.3 Identification basis, valuation and depreciation method of finance lease of fixed assets. Unrecognized finance charges are recognized as finance charge for the period using the effective interest method over the lease term. Contingent rents are credited to profit or loss in the period in which they are actually incurred. The net amount of minimum lease payments less unrecognized finance charges is separated into long-term liabilities and the portion of long-term liabilities due within one year for presentation. 24.2.2 The Group as lessor under finance leases At the commencement of the lease term, the aggregate of the minimum lease receivable at the inception of the lease and the initial direct costs is recognized as a finance lease receivable, and the unguaranteed residual value is recorded at the same time. The difference between the aggregate of the minimum lease receivable, the initial direct costs and the unguaranteed residual value, and the aggregate of their present values is recognized as unearned finance income. Unearned finance income is recognized as finance income for the period using the effective interest method over the lease term. Contingent rents are credited to profit or loss in the period in which they are actually incurred. The net amount of financial lease receivables less unearned finance income is separated into long-term debts receivable and the portion of long-term debts receivable due within one year for presentation. 25. Repurchase of Own Equity Instruments When repurchasing this Company shares, the treatment of treasury stock shall be implemented according to actually-paid amount, and the future reference shall be registered at the same time. If the repurchased shares are cancelled, then the difference between the total par value of the cancelled shares determined by the cancelled number of shares and face value of the cancelled shares, and the consideration amount paid by the actual repurchase shall offset the capital reserve. If the capital reserve is insufficient, then the retained earnings shall be offset. The consideration and transaction costs paid to repurchase own equity instruments are deducted from shareholders' equity. No gain or loss is recognized in profit or loss in such repurchase. 26. Important judgments while applying accounting policy, and key assumptions and uncertainty factors applied for accounting estimate During the process of using accounting policy described in note (III), due to the uncertainty in operation activities, the group should judge, estimate and assume the book value of the report items which may not be metered reliably. These judgments, estimates and assumptions are based on the historical experience of the Group's management and other related factors. Differences may exist between the actual results and the Group’s estimate. 95 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 The Group regularly reviews the above judgments, assumptions and estimations on the basis of continuous operation. If the changes of accounting estimate only influence current period, the influence amount will be affirmed during the changing period; if it influences the current period and subsequent periods, the influence amount will be recognized in the current period and future period. - Key assumptions and uncertainties used in accounting estimate On balance sheet date, key assumptions and uncertainties for performing accounting estimates on book value of assets and liabilities in subsequent future periods are: Impairment of the fixed assets At the balance sheet date, the Group will review whether fixed assets have signs that impairment is likely to occur. When the signs indicate that the carrying amount cannot be repurchased, then the impairment test shall be implemented. The impairment occurred when the book value of asset or asset group is higher than the recoverable amount, which is the net amount of fair value minus the disposal expenses or the present value of expected future cash flow (whichever is higher). The net amount of fair value minus disposal expenses is determined by deducting the incremental cost which directly belongs to the assets disposal referring to the price of sales agreement of similar assets in fair transaction or the observable market price. When predicting present value of future cash flows, management team must estimate the predicted future cash flows of the said asset or asset portfolio, and shall select proper discount rate to confirm the present value of future cash flows. Based on the above procedure, the Group's management team deems that it is not necessary to withdraw provision of fixed assets impairment. Useful life and predicted net residual value of fixed asset The Group's estimation of fixed assets useful life is based on the historical experience of actual usable term of fixed assets with similar properties and functions, the estimation of predicted net residual value is the amount obtained currently by the Group from the assets after deducting the anticipated disposal expense based on the anticipated status assuming the conditions that fixed assets' predicted useful life expires and fixed assets are at the end of useful life. The Group shall conduct the review on the predicted service life and predicted net residual value of fixed assets at least annually. For the current period, the Group's management did not see signs either indicating a shortened or extended useful life of the Group’s fixed asset or indicating a change in predicted net residual value. Impairment of accounts receivables When there is a clear evidence to make the accounts receivables collection in doubt, then the Group will calculate and withdraw the impairment provision to the accounts receivables. Because the Group's management needs to judge the historic conditions of receivable collection, aging, debtor's financial condition and overall economic environment when considering the impairment provision, there are uncertainties related to the calculation of impairment provision. Although there is no reason to believe that the estimation applied when calculating the impairment provision of accounts receivables will have 96 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 significant changes in the future, the book value and impairment loss of accounts receivables will change when the future actual result is different from the anticipated and original estimations. Accrued liabilities of product quality warranty Accrued liabilities of product quality assurance are an estimation made by the Group according to the predicted repair and replacement cost of relevant products. The estimation considers the product claim rate trend, historic defect rate, industry practice and other major estimations. The management deems that the current estimation on accrued liabilities of product quality warranty is reasonable, however, the Group will continue to review the conditions of product repairs, and will conduct adjustment if any sign indicating the need to make adjustments on accounting estimates. Impairment provision for inventories Inventories are measured at the lower of cost and net realizable value. The Group will regularly conduct a comprehensive stocktaking to review the impairment circumstances on outmoded and dull inventory if any; in addition, the Group's management will regularly review the impairment circumstance of inventory with long storage time according to the inventory aging list. The review procedure includes the comparison between carrying value of outmoded, dull inventory and inventory with long storage time and its corresponding net realizable value in order to determine whether to withdraw provisions on the outmoded, dull inventory and inventory with long storage time. Based on the above procedure, the Group's management deems that the full provision amounts have been withdrawn for the outmoded, dull inventory and inventory with long storage time Assets from deferred income tax The realization of deferred income tax assets mainly depends on the actual future profits and the effective tax rate of temporary difference in the future applicable years. If the actual profit in the future is less than the estimation, or actual tax rate is lower than the estimation, then the confirmed deferred income tax assets will be reversed and confirmed in the income statement during the corresponding period. If the actual profit in the future is more than the estimation, or actual tax rate is higher than the estimation, then the corresponding deferred income tax assets will be adjusted and confirmed in the income statement during the corresponding period. Goodwill impairment When performing impairment test on goodwill, the predicted present value of future cash flow of relevant asset group or asset group portfolio included the goodwill need to be calculated, the future cash flow of relevant asset group or asset group portfolio need to be estimated, and the proper pretax rate that fairly reflects the current market time value of money and specific asset risk need to be determined. When the future actual result is different from the original estimation, the goodwill impairment loss will alter. 97 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 IV. Taxes 1. Major categories of taxes and tax rates Category of tax Basis of tax computation Tax rate Enterprise income tax Taxable income 25% (Note 1) For the taxable product sales revenue or taxable labor revenue, the 6%, 10%, 11%, 16%, Company and its domestic subsidiaries are ordinary Value-added Tax 17% and simple VAT payers; the VAT payable is the balance of input tax after deducting collection rate of 3% the deductible output tax. (Note 2) City maintenance and Actual payable turnover tax 7% construction tax Education surcharges Actual payable turnover tax 3% Local education Actual payable turnover tax 2% surcharges Note 1: Except that this Company and subsidiaries in China are applicable to the following tax preference, this Company's other subsidiaries in China are applicable to 25% of enterprise income tax rate, the overseas subsidiaries are applicable to corresponding local tax rate. (1) In accordance with the Replies on Publishing the List of First Batch of identified High-tech Enterprises of Zhejiang Province in 2017 (GuoKeHuoZi [2017] No. 201) issued by the leading group office of Zhejiang high-tech enterprise identification management work on December 15th 2017, the Company was identified as the high-tech enterprise with a valid term of 3 years, from 2017 to 2019. Therefore, the Company’s enterprise income tax rate is 15% for the current period. (2) In accordance with the Letter of Reply on Publishing the Registration of First Batch of High-tech Enterprises of Zhejiang Province in 2016 (GuoKeHuoZi [2016] No. 149) issued by leading group office of Zhejiang high-tech enterprise identification management work on December 9th 2016, the wholly-owned subsidiary, Hangzhou Hikvision System Technology Co., Ltd. (Hangzhou System Technology) was identified as the high-tech enterprise with a valid term of 3 years, from 2016 to 2018, the enterprise income tax in the current period shall be calculated and paid according to tax rate of 15%. (3) According to the Notice on Publishing the List of Second Batch of proposed identified High-tech Enterprises of Shanghai in 2017 issued by Shanghai high-tech enterprise identification office, the Company’s wholly-owned subsidiary, Shanghai Goldway Intelligent Traffic System Co., Ltd. (Shanghai Goldway) was identified as the high-tech enterprise with a valid term of 3 years, from 2017 to 2019, the enterprise income tax in the current period shall be calculated and paid according to tax rate of 15%. (4) In accordance with the Replies on Publishing the List of First Batch of identified High-tech Enterprises of Zhejiang Province in 2017 (GuoKeHuoZi [2017] No. 201) issued by the leading group office of Zhejiang high-tech enterprise identification management work on December 15th 2017, the Company’s joint-venture subsidiary, Hangzhou HIK Robotic Technology Co., Ltd. (Hangzhou Robotic Technology) was identified as the high-tech enterprises with a valid term of 3 years, from 98 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 2017 to 2019. Therefore, the enterprise income tax in the current period shall be calculated and paid according to tax rate of 15%. (5) In accordance with Finance and Taxation [2011] No. 58 Document of Ministry of Finance, State Administration of Taxation (SAT) and General Administration of Customs, the wholly-owned subsidiaries, Chongqing Hikvision Science and Technology Co., Ltd. and Chongqing Hikvision System Technology Co., Ltd., are qualified to enjoy the west development preferential tax policy from 2011 to 2020, therefore, the enterprise income rate shall be calculated and paid on the basis of 15% in the current period. Note 2: In accordance with Notice on Adjustment of VAT Rates (Finance and Taxation [2018] No. 32) issued by Ministry of Finance, State Administration of Taxation (SAT), starting from May 1st 2018, the Group’s original applicable VAT tax rate of 17% and 11% will be adjusted to 16% and 10% respectively. In accordance with the Notice on Software Product Value-added Tax Policy (Finance and Taxation [2011] No. 100) of Ministry of Finance and State Administration of Taxation (SAT), as for the self-developed software product sales of the Company and the Company’s wholly-owned subsidiaries such as Shanghai Goldway, Hangzhou System, Beijing Brainaire Storage Technology Ltd., as well as the Company’s joint-venture subsidiaries such as Wuhan HIK Storage Technology Ltd. (Wuhan Storage), Hangzhou Ezviz Software Ltd. (EZVIZ Software), Hangzhou HIK Automotive Software Ltd. (Automotive Software), Hangzhou HIK Huiying Technology Ltd. (Huiying), and Hangzhou Robotic Technology, and Hangzhou HIK Automotive Technology Ltd. (Hangzhou Auto Technology), the VAT shall be calculated and paid with tax rate of 17% at first, then the portion with actual tax bearing excess 3% shall be refunded after SAT reviews. 99 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 V. Notes to items in the consolidated financial statements 1. Cash and bank balances Closing Balance Opening Balance Foreign currency Exchange rate for Foreign currency Exchange rate for Item RMB amount RMB amount amount conversion amount conversion Cash: - RMB - - 132,488.51 - - 130,403.91 USD 17,702.47 6.6166 117,130.15 35,098.97 6.5342 229,343.66 MYR 854,551.69 1.6373 1,399,157.48 - - - RUB 13,767.65 0.1054 1,451.11 - - - THB 16,579.38 0.1998 3,312.56 - - - EUR 7,948.72 7.6515 60,819.62 15,918.33 7.8023 124,199.58 GBP 8,065.01 8.6551 69,803.46 7,396.17 8.7792 64,932.46 ZAR 20,323.05 0.4803 9,761.16 19,530.51 0.5277 10,306.25 INR 1,436,162.90 0.0965 138,589.72 1,222,954.96 0.1019 124,619.11 RUB - - - 22,805.81 0.1135 2,588.46 AED 5,470.35 1.8016 9,855.57 35,070.03 1.7790 62,389.59 HKD 1,420.58 0.8431 1,197.69 3,072.66 0.8359 2,568.44 BRL 8,697.27 1.7066 14,842.76 9,297.27 1.9641 18,260.77 Bank balance: RMB - - - - 10,082,944,463.42 8,524,502,012.74 USD 535,319,361.02 6.6166 822,098,082.75 6.5342 5,371,753,292.29 3,541,994,084.12 EUR 67,544,323.76 7.6515 516,815,393.26 36,681,727.64 7.8023 286,201,843.60 GBP 1,597,832.11 8.6551 13,829,396.69 1,171,110.92 8.7792 10,281,416.98 JPY 408.00 0.0599 24.44 408.00 0.0579 23.62 ZAR 23,122,670.04 0.4803 11,105,818.42 11,105,021.55 0.5277 5,860,119.88 INR 2,900,713,040.93 0.0965 279,918,808.45 1,604,304,664.42 0.1019 163,478,645.31 RUB 362,364,868.98 0.1054 38,193,257.19 431,796,810.54 0.1135 49,008,937.99 HKD 294,924.40 0.8431 248,650.76 147,865.08 0.8359 123,600.42 AUD 1,314,229.44 4.8633 6,391,492.04 1,110,556.92 5.0928 5,655,844.28 AED 2,088,142.98 1.8016 3,762,069.34 5,099,038.05 1.7790 9,071,188.69 BRL 5,848,144.51 1.7066 9,980,443.42 4,579,468.83 1.9641 8,994,534.73 SGD 16,698.28 4.8386 80,796.30 35,788.26 4.8831 174,757.65 PLN 607,659.55 1.7658 1,073,005.23 338,408.19 1.8680 632,146.48 KRW 665,160,083.01 0.0059 3,926,439.97 461,310,471.00 0.0061 2,818,145.67 CAD 57,526.58 4.9947 287,328.01 824,149.98 5.2009 4,286,321.63 KZT 25,428,875.77 0.0194 493,320.19 43,256,830.49 0.0195 843,508.19 COP 0.0023 913,785.63 150,707,765.53 0.0022 328,799.13 404,867,359.33 TRY 52,535.88 1.4412 75,714.71 46,834.84 1.7291 80,982.11 THB - - - 4,267,411.59 0.1998 852,750.61 HUF 37,667,794.76 0.0234 882,183.52 57,206,835.37 0.0250 1,430,205.20 NZD 87,280.78 4.4704 390,180.00 106,049.60 4.6327 491,295.98 CZK 565,451.50 0.2971 167,995.64 1,701,256.64 0.3057 520,074.15 KES 17,943,623.28 0.0653 1,171,718.60 23,771,784.15 0.0630 1,497,622.40 UZS 562,859,157.97 0.0008 469,255.68 260,975,830.78 0.0008 208,597.98 100 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Closing Balance Opening Balance Foreign currency Exchange rate for Foreign currency Exchange rate for Item RMB amount RMB amount amount conversion amount conversion Other currency funds: RMB - - 532,645,223.26 - - 459,284,934.33 USD 39,146,315.92 6.6166 259,015,513.90 7,768.39 6.5342 50,760.21 EUR 136,091.14 7.6515 1,041,301.35 100,775.09 7.8023 786,277.48 GBP 26,669.77 8.6551 230,829.55 - - - Total 13,751,564,452.20 16,468,430,702.64 including: deposited in 739,065,334.45 788,391,050.26 overseas banks Details of other currency funds: Closing Balance Opening Balance Exchange Exchange Foreign currency Foreign currency Item rate for RMB amount rate for RMB amount amount amount conversion conversion Capitals with limitations: Bank acceptance bill - - 50,481,853.17 - - 204,607,890.97 Deposits pledged for long-term - - 35,000,000.00 - - 35,000,000.00 borrowing Deposits pledged for long-term 39,143,170.54 6.6166 258,994,702.19 - - - USD borrowing Deposits for letter of guarantee - - 21,235,365.77 - - 20,379,624.20 Deposits for letter of guarantee in 62,483.26 7.6515 478,090.66 - - - EUR Deposits for letter of Credit - - 46,800,000.00 - - - Deposits for letter of Credit in EUR - - - 74,056.26 7.8023 577,809.16 Other security deposit - - 503,422.87 - - 502,664.40 Deposits for letter of Credit in USD - - - 5,133.72 6.5342 33,544.74 Other capitals with limitations - - 371,550,800.00 - - 178,143,900.00 Subtotal 785,044,234.66 439,245,433.47 Capitals without limitations: Deposit in Alipay, Tenpay, etc. - - 7,073,781.45 - - 20,650,854.76 Other currency funds in EUR 73,607.88 7.6515 563,210.69 26,718.83 7.8023 208,468.32 Other currency funds in USD 3,145.38 6.6166 20,811.71 2,634.67 6.5342 17,215.47 Other currency funds in GBP 26,669.77 8.6551 230,829.55 - - - Subtotal 7,888,633.40 20,876,538.55 Total 792,932,868.06 460,121,972.02 101 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 2. Financial assets valued at fair value through profit and loss Unit: RMB Item Closing Balance Opening Balance Held-for-trading financial assets 20,549,980.77 4,100,657.54 including: derivative financial assets 20,549,980.77 4,100,657.54 Total 20,549,980.77 4,100,657.54 Derivative financial assets includes forwards, foreign exchange option contract and foreign exchange swap contracts, not designated as a hedging instrument, gains or losses due to changes in fair value is directly included in the current period profits and losses. 3. Notes receivable (1)Categories of notes receivable Unit:RMB Category Closing Balance Opening Balance Bank acceptance bill 2,849,049,699.51 3,513,890,558.68 Commercial acceptance bill 252,819,302.89 123,071,057.35 Total 3,101,869,002.40 3,636,961,616.03 (2) Notes receivable pledged by the Group at the closing of the reporting period Unit:RMB th Category Pledged amount by June 30 2018 Bank acceptance bill 50,360,052.08 Commercial acceptance bill - Total 50,360,052.08 (3) Notes receivable discounted or endorsed by the Group at the closing of the reporting period Unit:RMB Category Derecognized amount (Note) Not Derecognized amount Bank acceptance bill 382,873,760.11 - Commercial acceptance bill - - Total 382,873,760.11 - Note:Because the main risks related to such bank acceptance bill, such as interest rate risk, has been transferred to bank or others, therefore, those discounted and endorsed bank acceptance bills have been derecognized by the Group. (4) As of June 30th 2018, there is no such case the Group has to transfer the defaulted note receivable into account receivable. 102 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 4. Accounts Receivable (1) Disclosure of accounts receivable by categories Unit: RMB Closing Balance Beginning Balance Carrying amount Bad debt provision Carrying Value Carrying amount Bad debt provision Carrying Value Category Proportion Proportion Proportion Proportion Amount Amount Amount Amount Amount Amount (%) (%) (%) (%) Accounts receivable that are individually significant and for which - - - - - - - - - - bad debt provision has been assessed individually Accounts receivable with provision accrued collectively on a portfolio 18,274,373,362.27 100.00 1,324,747,049.56 7.25 16,949,626,312.71 15,839,958,044.79 100.00 1,134,747,971.98 7.16 14,705,210,072.81 basis for credit risk Accounts receivable that are not individually significant and for which - - - - - - - - - - bad debt provision has been assessed individually Total 18,274,373,362.27 100.00 1,324,747,049.56 7.25 16,949,626,312.71 15,839,958,044.79 100.00 1,134,747,971.98 7.16 14,705,210,072.81 Note: The Group categorizes a single account receivable in an amount above RMB 4 million and representing more than 10% of the total accounts receivable closing balance as accounts receivable that is individually significant. The aging analysis of bad debt provision of accounts receivable in portfolio basis Unit: RMB Closing Balance Aging Carrying amount Bad debt provision Proportion (%) Within 1 year 16,371,219,310.27 818,560,965.51 5.00 1-2 years 1,057,304,940.78 105,730,494.08 10.00 2-3 years 490,630,908.09 147,189,272.43 30.00 3-4 years 163,361,528.21 81,680,764.11 50.00 4-5 years 101,355,607.43 81,084,485.94 80.00 Over 5 years 90,501,067.49 90,501,067.49 100.00 Subtotal 18,274,373,362.27 1,324,747,049.56 7.25 103 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (2) Provision, re-collection, or reverse of the bad debt allowance in current reporting period In the current reporting period, the Company recorded a bad debt allowance of RMB 203,029,687.92; recollected bad debt RMB 77,136.00, reduced bad debt allowance balance for RMB 817,505.10 due to conversion of financial reports prepared in foreign currency. (3) Actual write-off of account receivable during current reporting period In the current reporting period, the amount of accounts receivable write-off is RMB 12,290,241.24. (4) Top five debtors based on corresponding closing balance of account receivables Unit: RMB Name of the Relationship with the Book balance of accounts Closing balance for bad debt Proportion Party Company receivable provision (%) Related party A Related Party 608,025,206.51 30,778,298.66 3.33 Company A Third party 461,542,521.39 23,061,755.21 2.53 Company B Third party 125,371,495.37 6,268,574.77 0.69 Company C Third party 111,786,543.37 5,589,327.17 0.61 Company D Third party 94,965,065.79 5,596,834.68 0.52 Total 1,401,690,832.43 71,294,790.49 7.67 (5) As of June 30th 2018, there is no termination of accounts receivable booking due to transfer of a financial asset. (6) As of June 30th 2018, the Group has no assets/liabilities booked due to transferred accounts receivable that the Group still keep recourse or retain part of the corresponding rights or interests. 5. Prepayments (1) Aging analysis of prepayments is as follows Unit: RMB Closing Balance Opening Balance Aging Carrying amount Proportion (%) Carrying amount Proportion (%) Within 1 year 361,712,125.74 89.72 481,603,579.15 91.29 1-2 years 35,341,335.99 8.77 38,258,814.47 7.25 2-3 years 5,730,111.18 1.42 7,480,653.49 1.42 Over 3 years 362,205.21 0.09 233,810.00 0.04 Total 403,145,778.12 100.00 527,576,857.11 100.00 (2) Closing balances of top five prepayments parties As of June 30th 2018, the Group’s top five balances of prepayments amounted to RMB 148,933,362.87, accounting for 36.94% of total closing balance of prepayments. 104 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 6. Other receivables (1) Disclosure of other receivables by categories Unit: RMB Closing Balance Opening Balance Carrying Carrying Carrying amount Bad debt provision Carrying amount Bad debt provision Category Value Value Proportion Proportion Proportion Proportion Amount Amount Amount Amount Amount Amount (%) (%) (%) (%) Other receivables that are individually significant and for which - - - - - - - - - - bad debt provision has been assessed individually Other receivables with provision accrued collectively on a 556,888,974.42 100.00 59,280,753.47 10.64 497,608,220.95 641,690,488.45 100.00 58,009,247.64 9.04 583,681,240.81 portfolio basis for credit risk Other receivables that are not individually significant and for - - - - - - - - - - which bad debt provision has been assessed individually Total 556,888,974.42 100.00 59,280,753.47 10.64 497,608,220.95 641,690,488.45 100.00 58,009,247.64 9.04 583,681,240.81 Note: The group categorizes other receivables above RMB 4 million and accounts for more than 10% of the total other receivables closing balance as other receivable that is individually significant. The aging analysis of bad debt provision of other receivables in portfolio basis Unit: RMB Closing Balance Aging Carrying amount Bad debt provision Proportion (%) Within 1 year 362,306,414.55 18,115,320.72 5.00 1-2 years 121,413,486.17 12,141,348.62 10.00 2-3 years 46,810,267.62 14,043,080.29 30.00 3-4 years 20,949,930.82 10,474,965.41 50.00 4-5 years 4,514,184.16 3,611,347.33 80.00 Over 5 years 894,691.10 894,691.10 100.00 Total 556,888,974.42 59,280,753.47 10.64 105 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (2) Provision, re-collection, or reverse of the bad debt allowance in current reporting period During the reporting period, the Company recorded a bad debt allowance of RMB 1,137,997.56; increased bad debt allowance of RMB 133,508.27 due to conversion of financial statements prepared in foreign currency; there is no such case as recollected or reversed bad debt allowance. (3) Actual write-off of other receivables during current reporting period In current reporting period, the actual write-off of other receivables is nil. (4) Nature of other receivables Unit: RMB Nature of other receivables Closing balance Opening balance Other receivables for interim payments 368,617,119.73 365,413,004.37 Guarantee deposits 159,896,659.66 199,237,401.53 Tax rebates for export 2,143,027.65 28,195,951.27 Acquisition of asset group 9,354,103.98 19,053,271.93 Investment intention fund - 13,500,000.00 Others 16,878,063.40 16,290,859.35 Total 556,888,974.42 641,690,488.45 (5) Top five debtors based on corresponding closing balance of other receivables Unit: RMB Entities Nature Carrying amount Aging Proportion of total (%) Bad debt Provision Hangzhou customs of the People's Republic of China. Guarantee deposits 9,456,803.04 Within 1 year 1.70 472,840.15 The company E Acquisition of asset group 9,354,103.98 1-2 years 1.68 935,410.40 People's Court Guarantee deposits 6,858,813.80 Within 1 year 1.23 342,940.69 The company F Guarantee deposits 6,438,709.55 Within 1 year 1.16 321,935.48 The company G Guarantee deposits 4,163,208.70 Within 1 year 0.75 208,160.44 Total 36,271,639.07 6.52 2,281,287.16 (6) As of June 30th 2018, the Group does not have other receivables related to government subsidies. (7) As of June 30th 2018, there is no termination of other receivables booking due to transfer of a financial asset. (8) As of June 30th 2018, the Group has no assets/liabilities booked due to any transferred other receivable that the Group still keep recourse or retain part of the corresponding rights or interests. 106 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 7. Inventories (1) Categories of inventories Unit: RMB Closing Balance Opening Balance Category Provision for decline in value Provision for decline in Carrying amount Carrying value Carrying amount Carrying value of inventories value of inventories Raw materials 1,510,230,536.00 4,869,424.13 1,505,361,111.87 1,279,086,935.83 4,092,497.08 1,274,994,438.75 Work-in-progress 320,388,789.39 - 320,388,789.39 196,583,804.97 - 196,583,804.97 Finished goods 3,936,652,726.16 303,322,097.84 3,633,330,628.32 3,598,361,044.81 190,211,526.56 3,408,149,518.25 Completed but unsettled assets formed by 48,101,999.35 - 48,101,999.35 60,604,549.68 - 60,604,549.68 construction contracts Total 5,815,374,050.90 308,191,521.97 5,507,182,528.93 5,134,636,335.29 194,304,023.64 4,940,332,311.65 (2) Provision for decline in value of inventories Unit: RMB Decrease in the current period Effect of foreign currency Category Opening balance Increase in the current period Closing Balance Reversals write-offs exchange difference Raw materials 4,092,497.08 850,372.18 - 73,445.13 - 4,869,424.13 Finished goods 190,211,526.56 120,879,640.53 - 8,259,398.64 490,329.39 303,322,097.84 Subtotal 194,304,023.64 121,730,012.71 - 8,332,843.77 490,329.39 308,191,521.97 Net realizable value of inventory is calculated based on estimated selling price less all estimated cost of completion and costs necessary to make the sale for inventories. The reversals or write-offs of provision for inventories in the current period are due to use or sale of inventories. (3) Completed but unsettled assets formed by construction contracts at the end of June 30th 2018. Unit: RMB Item Amount Accumulated occurred costs of construction 3,133,252,674.58 Accumulated booked gross profit margin 146,863,887.38 Less: estimated losses - Settled amounts 2,169,124,845.38 Completed but unsettled assets formed by construction contracts 1,110,991,716.58 Including: other non-current assets (Note (V) 18) 1,062,889,717.23 Inventories 48,101,999.35 107 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 8. Non-current assets due within one year Unit: RMB Item Closing Balance Opening Balance Long-term receivables due within one year (Note (V) 11) 76,858,384.20 66,566,230.12 Total 76,858,384.20 66,566,230.12 9. Other current assets Unit: RMB Item Closing balance Opening balance Principal-guaranteed bank finance products (Note) 900,000,000.00 3,390,000,000.00 Deductible VAT input 453,906,410.87 286,332,435.43 Prepaid income tax 44,302,660.75 42,645,678.02 Prepaid tariff 19,527,904.79 - Others 5,275,997.64 1,471,419.43 Total 1,423,012,974.05 3,720,449,532.88 Note:Those are bank entrusted financial products bought by the Group, which are all principal-guaranteed, with a termination period less than one year. Therefore, the management team agreed that there won’t be significant differences between the estimated interests and risks of those bank entrusted financial products and the book value of those products. 10. Available-for-sale financial assets (1) Available-for-sale financial assets Unit: RMB Closing Balance Opening Balance Item Carrying amount Provision for decline in value Carrying Value Carrying amount Provision for decline in value Carrying Value Available-for-sale equity instruments 287,466,813.00 - 287,466,813.00 287,466,813.00 - 287,466,813.00 Cost method 287,466,813.00 - 287,466,813.00 287,466,813.00 - 287,466,813.00 Total 287,466,813.00 - 287,466,813.00 287,466,813.00 - 287,466,813.00 108 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (2) Closing balance of available-for-sale financial assets using cost method Unit: RMB Carrying Balance Provision for decline in value Proportion of Cash dividend in the The invested entity (Note 1) Opening shareholding in the current reporting Opening balance Increase Decrease Closing balance Increase Decrease Closing balance invested entity (%) period balance Zhejiang Tuxun Technology Co., Ltd. (浙江图 32,430,800.00 - 32,430,800.00 - - - - 8.1318 - 讯科技股份有限公司) Hangzhou Confirmware Technology Co., Ltd. 26,629,200.00 - - 26,629,200.00 - - - - 9.5238 - (康奋威科技(杭州)有限公司) Nanwang Group Ltd. (南望信息产业集团有 604,313.00 - - 604,313.00 - - - - 0.2518 - 限公司) Hangzhou Hikvision Equity Investment Partnership (Limited Partnership) (杭州海康 10,000.00 - - 10,000.00 - - - - 0.0017 - 威视股权投资合伙企业(有限合伙)) CETC Finance Ltd. (Note2) (中国电子科技 227,792,500.00 - - 227,792,500.00 - - - - 3.8300 12,256,000.00 财务有限公司) Total 287,466,813.00 - 287,466,813.00 - - - - - 12,256,000.00 Note1: The Group’s equity investments listed are all non-listed companies; and the Group has no control, joint control or significant influence on the invested entities. Note2: CETC Finance Co., Ltd is one of the companies held under CETC, which is the Company’s ultimate controlling shareholder. 11. Long-term receivables (1) Details of long-term receivables Unit: RMB Closing balance Opening balance Item Provision for decline Provision for decline in Range of discount rate Carrying amount Carrying value Carrying amount Carrying value in value value Financial leases receivables 91,135,768.30 - 91,135,768.30 89,941,910.73 - 89,941,910.73 0.54% - 6.05% Including: Unrealized income from 1,473,965.14 - 1,473,965.14 2,516,655.49 - 2,516,655.49 - financing Long-term receivables for project 21,490,062.88 - 21,490,062.88 - - - - Including: Unrealized income from financing 2,772,208.48 - 2,772,208.48 - - - - Less: Financial leases receivables due within one year (Note (V) 8) 76,858,384.20 - 76,858,384.20 66,566,230.12 - 66,566,230.12 - Total 35,767,446.98 - 35,767,446.98 23,375,680.61 - 23,375,680.61 - (2) As of June 30th 2018,there is no termination of long-term receivables booking due to transfer of a financial asset. (3) As of June 30th 2018, the Group has no assets/liabilities booked due to any transferred long-term receivable that the Group still keep recourse or retain part of the corresponding rights or interests. 109 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 12. Long-term equity investment Unit: RMB Decrease/Increase in the current period Closing balance Opening Adjustment: Declaration of Closing The invested entity Investment Profit (Loss) Other for Balance Additional Investment Other cash dividends Impairment Balance recognized under the Changes others impairment Investments reduction comprehensive or profit provision provision equity Method in equity income distribution Associated Companies Wuhu Sensor 38,207,959.74 - - (605,746.30) - - - - - 37,602,213.44 - Technology Ltd. Maxio Technology 92,266,773.84 27,000,000.00 - 3,143,836.99 - - - - - 122,410,610.83 - (Hangzhou) Ltd. Total 130,474,733.58 27,000,000.00 - 2,538,090.69 - - - - - 160,012,824.27 - Note: According to the Equity Capital Increase Agreements signed between the Company and Maxio Technology and its shareholders, the Company increased capital investment of RMB 27 million on Maxio Technology, and increased capital has been paid in June 2018. After this capital increment, the Group together is holding 47.64% equity of Maxio Technology. The board of Maxio Technology consists of three directors, one of whom is appointed by the Group to exert a significant influence on the Maxio Technology. 110 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 13. Fixed Assets (1) Details of fixed assets Unit: RMB Building and General-purpose Special-purpose Transportation Items Total construction equipment equipment vehicles Total original carrying amount 1. Opening balance 2,635,572,180.62 232,106,450.97 927,755,822.62 62,377,196.97 3,857,811,651.18 2. Increase in the period 1,067,341,191.19 117,324,130.17 55,154,871.87 11,318,473.06 1,251,138,666.29 1) purchase 1,212,842.79 117,149,000.75 54,291,811.11 11,318,473.06 183,972,127.71 2) transferred from 1,066,128,348.40 175,129.42 863,060.76 - 1,067,166,538.58 construction in progress 3.Decrease in the period 6,131,002.53 3,070,909.12 993,652.80 3,249,727.02 13,445,291.47 1) disposal or write-off 6,131,002.53 3,070,909.12 993,652.80 3,249,727.02 13,445,291.47 4. Effect of foreign currency (98,323.28) (1,483,344.56) (233,770.70) (149,346.33) (1,964,784.87) exchange difference 5.Closing Balance 3,696,684,046.00 344,876,327.46 981,683,270.99 70,296,596.68 5,093,540,241.13 Accumulated depreciation 1. Opening balance 388,100,028.52 84,717,617.61 320,033,092.54 40,935,416.20 833,786,154.87 2. Increase in the period 78,415,711.77 27,919,628.72 86,634,800.68 3,221,788.22 196,191,929.39 (1) provided 78,415,711.77 27,919,628.72 86,634,800.68 3,221,788.22 196,191,929.39 3.Decrease in the period 2,172,525.16 4,905,984.78 289,612.93 2,945,024.45 10,313,147.32 (1) disposal or write-off 2,172,525.16 4,905,984.78 289,612.93 2,945,024.45 10,313,147.32 4. Effect of foreign currency exchange (122,731.35) (830,137.59) (240,974.71) (74,296.44) (1,268,140.09) difference 5.Closing balance 464,220,483.78 106,901,123.96 406,137,305.58 41,137,883.53 1,018,396,796.85 Provision for decline in value 1.Opening balance - - - - - 2.Increase in the period - - - - - 3. Decrease in the period - - - - - 4.Closing balance - - - - - Total carrying value 1. Closing balance 3,232,463,562.22 237,975,203.50 575,545,965.41 29,158,713.15 4,075,143,444.28 2. Opening balance 2,247,472,152.10 147,388,833.36 607,722,730.08 21,441,780.77 3,024,025,496.31 (2) As of June 30th 2018, the Group did not have any significant idle fixed assets. (3) As of June 30th 2018, the Group had not leased any fixed asset through financial leasing. (4) As of June 30th 2018, the Group had not rent out any fixed asset through operating leasing (5) Fixed assets of which certificates of title have not been granted as of June 30th 2018. Unit: RMB Item Carrying amount Reason for certificates of title not granted Office building for branches 34,309,673.46 In the process of obtaining the real estate certificates Internet Security Industry Base 1,038,453,318.96 In the process of obtaining the real estate certificates Tonglu Security Industrial Base-the factory and In the process of obtaining the real estate certificates after 604,239,043.58 dormitory transferred from construction in process to fixed assets Total 1,677,002,036.00 111 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 14. Construction in progress (1) Details of construction in progress Unit: RMB Closing balance Opening balance Item Carrying amount Provision Carrying value Carrying amount Provision Carrying value Security industrial base (Tonglu) -Phase 2 370,833,169.98 - 370,833,169.98 300,688,913.96 - 300,688,913.96 Internet Security Industry Base - - - 914,014,265.08 - 914,014,265.08 Chongqing Manufacture Base 171,027,046.32 171,027,046.32 89,393,611.81 89,393,611.81 Public Security Monitoring Site Project 125,083,638.33 - 125,083,638.33 105,039,082.92 - 105,039,082.92 Others 38,787,832.53 38,787,832.53 27,183,244.53 - 27,183,244.53 Total 705,731,687.16 - 705,731,687.16 1,436,319,118.30 - 1,436,319,118.30 (2) Changes in significant construction in progress Unit: RMB Including: Accumulated Effect of foreign Amount capitalized Transferred to capitalized Capitalization currency invested as a Construction interest and Budget Increase in the fixed assets interest and rate for interest Source of Item Opening balance exchange Closing balance proportion of in Progress profit/loss on (RMB 0,000) period during the current profit/loss on in the current funds difference budget (%) exchange for period exchange period (%) amount (%) the current (Note 1) period Internet Security 105,786.91 914,014,265.08 143,854,825.81 1,057,869,090.89 - - 100% 100% 230,188,228.59 23,416,716.68 1.25% Bond Industry Base Security industrial (Tonglu) 53,379.68 300,688,913.96 70,144,256.02 - - 370,833,169.98 69% 69% (90,040,971.72) (90,040,971.72) 1.25% Bond base-Phase 2 Chongqing Self- 25,500.00 89,393,611.81 81,633,434.51 - - 171,027,046.32 67% 67% - - - Manufacture Base financing Self- Others 132,222,327.45 40,673,861.72 9,297,447.69 272,729.38 163,871,470.86 - - - - - financing Total 184,666.59 1,436,319,118.30 336,306,378.06 1,067,166,538.58 272,729.38 705,731,687.16 - - 140,147,256.87 (66,624,255.04) - Note 1:This amount is calculated by interest expense for specific foreign currency borrowings, less interest income for unused borrowing fund and profit/loss on exchange rate difference. As of June 30th 2018, the Group did not have any sign of impairment of projects under construction; therefore, no provision for impairment loss was booked. 112 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 15. Intangible assets (1) Details of Intangible assets Unit: RMB Intellectual property Item Land use right Application Software Total right Total original carrying amount 1.Opening balance 324,362,066.44 39,269,042.11 182,640,105.31 546,271,213.86 2. Increased 360,882,783.89 - 37,489,212.46 398,371,996.35 (1) Purchase 360,882,783.89 - 37,489,212.46 398,371,996.35 3.Decreased - - - - (1)Disposal or write-off - - - - 4.Effect of foreign currency - (14,263.40) (619,786.92) (634,050.32) exchange difference 5.Closing balance 685,244,850.33 39,254,778.71 219,509,530.85 944,009,159.89 Total accumulated amortization 1.Opening balance 18,571,240.39 12,058,812.00 86,480,178.84 117,110,231.23 2.Increased 9,723,302.43 3,358,550.22 14,490,391.27 27,572,243.92 (1)Provided 9,723,302.43 3,358,550.22 14,490,391.27 27,572,243.92 3.Decreased (2)Disposal or write-off 4.Effect of foreign currency (12,108.51) (482,954.85) (495,063.36) exchange difference 5. Closing balance 28,294,542.82 15,405,253.71 100,487,615.26 144,187,411.79 Provision for decline in value 1.Opening balance - - - - 2.Increased - - - - 3. Decreased - - - - 4.Closing balance - - - - Total carrying value Closing carrying value 656,950,307.51 23,849,525.00 119,021,915.59 799,821,748.10 Opening carrying value 305,790,826.05 27,210,230.11 96,159,926.47 429,160,982.63 16. Goodwill (1) Goodwill book value Unit: RMB Increased Decreased Effect of foreign Opening Business combination not currency Closing The invested entity balance involving enterprises under Disposal exchange balance common control difference ZAO Hikvision 67,349.64 - - - 67,349.64 Beijing Brainaire Storage Technology 42,695,573.44 - - - 42,695,573.44 Ltd. (北京邦诺存储科技有限公司) Henan HuaAn Intelligence Development Ltd. (河南华安保全智能 61,322,871.63 - - - 61,322,871.63 发展有限公司) and its subsidiaries Hundure Technology (Shanghai) 13,774,405.88 - - - 13,774,405.88 Ltd.( 汉军智能系统(上海)有限公司) Hangzhou Haikang Zhicheng Investment and Development Ltd. (杭 12,573.42 - - - 12,573.42 州海康智城投资发展有限公司) Secure Holdings Limited (SHL) 131,091,328.96 - - (2,533,685.25) 128,557,643.71 Total 248,964,102.97 - - (2,533,685.25) 246,430,417.72 113 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (2) Provision of impairment in goodwill The key assumptions used in the Group’s annual impairment test performed for goodwill at the end of the reporting period: The recoverable amounts of the relevant assets have been determined on the discounted present value of the future cash flow projections. The cash flow projections are based on 2018-2022 Financial Budgets approved by management covering a 5-year period, with discount rates of 18% to 20%. The sets of cash flows beyond the 5-year period are projected without growth. This growth rates are based on the relevant industry growth forecasts and do not exceed the average long-term growth rate for the relevant industry. Expected cash inflows/outflows, considering budgeted net sales, cost of revenue and operating expenses, have been determined by management based on past performance and expectations for the future market development. There was no case recognized that the recoverable amount of the goodwill is less than the carrying value of the goodwill, therefore, no provision for impairment loss was booked during the current period. 17. Deferred tax assets/deferred tax liabilities (1) Deferred tax assets that are not presented on net off basis Unit: RMB Closing balance Opening balance Item Deductible temporary Deductible temporary Deferred tax assets Deferred tax assets differences differences Provision for impairment 1,490,664,815.07 302,124,254.34 1,162,036,595.26 252,830,021.37 losses of assets Payroll payables 253,384,576.51 38,007,686.48 253,384,576.51 38,007,686.48 Share-based compensation 283,919,601.52 43,330,181.30 208,856,209.85 32,070,672.55 Provisions 48,871,158.60 7,330,673.79 43,024,784.70 6,453,717.71 Unrealized profit from 905,602,799.99 135,840,420.01 978,313,377.64 146,747,006.65 inter-group transactions Changes in the fair value of derivative financial 37,885,338.00 9,471,334.50 15,946,836.46 3,986,709.12 instruments Total 3,020,328,289.69 536,104,550.42 2,661,562,380.42 480,095,813.88 (2) Deferred tax liabilities that are not presented on net off basis Unit: RMB Closing balance Opening balance Item Taxable temporary Taxable temporary Deferred tax liabilities Deferred tax liabilities differences differences Changes in the fair value of derivative financial 20,549,980.77 5,137,495.19 4,100,657.54 1,025,164.39 instruments Total 20,549,980.77 5,137,495.19 4,100,657.54 1,025,164.39 (3) Deferred tax assets or deferred tax liabilities that are presented at the net amount after offset Unit: RMB Closing balance Opening balance Deferred tax assets or Deferred tax assets or Item Offset amount liabilities at the net Offset amount liabilities at the net amount after offset amount after offset Deferred tax assets 5,137,495.19 530,967,055.23 1,025,164.39 479,070,649.49 Deferred tax liabilities 5,137,495.19 - 1,025,164.39 - 114 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 18. Other non-current assets Unit: RMB Item Closing balance Opening balance Completed but unsettled assets formed by construction 1,062,889,717.23 488,178,801.99 contracts (Note (V) 7) Prepayments for acquisition of land 185,680,000.05 314,410,044.45 Prepayments for purchase of equipment 134,309,321.97 52,356,860.27 Prepayments for infrastructure 50,767,824.03 3,850,961.42 Prepayments for project deposit 13,305,682.50 - Total 1,446,952,545.78 858,796,668.13 19. Short-term borrowings (1) Categories of short-term loans Unit: RMB Item Closing balance Opening balance Fiduciary loan 83,845,381.13 10,492,107.52 Guaranteed loans 2,753,963,797.71 74,622,548.39 Pledged loans 558,994,702.19 12,000,000.00 Total 3,396,803,881.03 97,114,655.91 (2) As of June 30th 2018, the Group did not have any overdue short-term loans that were failed to repay. 20. Financial liabilities booked at fair value, and differences in fair value booked through profit or loss in the current period Unit: RMB Item Closing balance Opening balance Held-for-trading financial liabilities 38,501,338.00 15,946,836.46 Including: derivative financial liabilities 38,501,338.00 15,946,836.46 total 38,501,338.00 15,946,836.46 Derivative financial liabilities include foreign exchange structured options, forward foreign exchange contracts and foreign exchange swap contracts, not designated as a hedging instrument, gains or losses due to changes in fair value is directly included in the current period profits and losses. 21. Notes payable Unit: RMB Item Closing balance Opening balance Bank acceptance Bill 705,958,442.30 845,397,427.92 Total 705,958,442.30 845,397,427.92 As of June 30th 2018, the Group did not have any unpaid matured notes payable. 22. Accounts payable 115 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (1) List of accounts payable Unit: RMB Item Closing balance Opening balance Loans 7,094,668,924.28 9,948,393,218.09 Payables on equipment 93,216,230.84 91,549,794.17 Total 7,187,885,155.12 10,039,943,012.26 As of June 30th 2018, the Group did not have any significant accounts payable with aging above one year. 23. Receipts in advance (1) List of receipts in advance Unit: RMB Item Closing balance Opening balance Advanced receipts from sales of goods 375,781,816.67 417,208,664.56 Advanced receipts from construction 238,455,160.08 153,364,544.04 contracts Total 614,236,976.75 570,573,208.60 (2) As of June 30th 2018, the Group did not have any significant receipts in advance with aging above one year 24. Payroll payable (1) Details of payroll payable Unit: RMB Increase in the Decrease in the Item Opening balance Closing balance current period current period 1.Short-term remuneration 1,387,542,162.19 3,006,366,358.92 3,391,780,039.63 1,002,128,481.48 2. Termination benefits – defined 3,749,094.71 193,976,960.69 192,282,381.50 5,443,673.90 contribution scheme Total 1,391,291,256.90 3,200,343,319.61 3,584,062,421.13 1,007,572,155.38 (2) List of Short-term remuneration Unit: RMB Increase in the Decrease in the Item Opening balance Closing balance current period current period 1.Wages or salaries, bonuses, allowances 1,317,396,875.01 2,649,676,954.75 3,049,346,034.74 917,727,795.02 and subsidies 2.Staff welfare 5,090,949.83 59,897,504.02 57,466,268.71 7,522,185.14 3.Social insurance contributions 3,010,470.90 129,813,113.99 130,066,233.11 2,757,351.78 Including: medical insurance 2,966,831.43 113,906,382.70 114,313,367.49 2,559,846.64 injury insurance 9,592.94 4,645,011.86 4,598,305.42 56,299.38 maternity insurance 34,046.53 11,261,719.43 11,154,560.20 141,205.76 4.Housing funds 109,455.82 122,052,303.91 121,985,358.23 176,401.50 5.Labor union and education fund 61,934,410.63 44,926,482.25 32,916,144.84 73,944,748.04 subtotal 1,387,542,162.19 3,006,366,358.92 3,391,780,039.63 1,002,128,481.48 116 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (3) Defined contribution scheme (Note) Unit: RMB Increase in the Decrease in the Item Opening balance Closing balance current period current period Basic pension insurance 3,530,623.96 187,145,947.05 185,383,693.01 5,292,878.00 Unemployment insurance 218,470.75 6,831,013.64 6,898,688.49 150,795.90 Subtotal 3,749,094.71 193,976,960.69 192,282,381.50 5,443,673.90 Note: During the reporting periods, the employees of the Company are the members of state-managed retirement benefit plan, and unemployment insurance plan, operated by the respective governments of these jurisdictions. The Group is required to contribute specified percentage out of payroll costs to the retirement benefit schemes and unemployment insurance schemes to fund the benefits. The Group has no other material obligation for the payment of pension benefits beyond the contributions described above, and corresponding expenses are booked into profits and losses of related assets during the current period. 25. Taxes payable Unit: RMB Item Closing balance Opening balance Enterprise income tax 929,904,350.95 1,099,786,533.85 Value-added tax 151,994,941.81 281,447,062.92 City construction and maintenance tax 18,422,011.59 19,789,046.85 Education surcharges 7,927,264.03 8,501,502.81 Local education surcharges 5,307,068.96 5,666,165.96 Others 97,350,102.59 38,324,753.38 Total 1,210,905,739.93 1,453,515,065.77 26. Dividends payable Unit: RMB Item Closing balance Opening balance Dividends of restricted shares (Share Incentive Scheme) 117,467,640.92 92,407,139.16 Dividends of ordinary shares 2,450,000.00 2,450,000.00 Total 119,917,640.92 94,857,139.16 27. Other payables (1) List of other payables according to the nature of the payment Unit: RMB Item Closing balance Opening balance Guarantee and deposit fees 155,812,879.61 145,730,079.74 Collection and payment on behalf 105,867,575.53 87,921,755.93 Accrued expenses 229,370,017.82 149,359,652.21 Others 19,942,057.62 18,849,590.79 Total 510,992,530.58 401,861,078.67 Note: As of June 30th 2018, the Group does not have any significant other payables aging over one year. 117 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 28. Non-current liabilities due within one year Unit:RMB Item Closing balance Opening balance Long-term borrowings due within one year (Note (V) 30) 800,883,116.82 1,512,793,252.38 Bonds Payable due within one year (Note (V) 31) 3,073,584,089.06 33,614,018.51 Long-term payables due within one year 3,874,473.76 - Total 3,878,341,679.64 1,546,407,270.89 29. Other current liabilities Unit: RMB Item Closing balance Opening balance Subscription payment of restricted shares 681,816,656.89 744,583,627.22 Total 681,816,656.89 744,583,627.22 30. Long-term borrowings Unit: RMB Item Closing balance Opening balance Pledged loan (Note 1) 300,000,000.00 310,473,667.00 Guaranteed loans 500,000,000.00 1,500,000,000.00 Fiduciary loan 883,116.82 2,319,585.38 Other borrowing (Note 2) 190,000,000.00 190,000,000.00 Less:Long-term loans due within one year (Note (V) 30) 800,883,116.82 1,512,793,252.38 Total 190,000,000.00 490,000,000.00 As of June 30th 2018, the GBP loans, with carrying value of RMB 453,183.55, carry annual interest rate of 2.5% (December 31st 2017: 2.40% to 2.50%);The INR loans, with carrying value of RMB 429,933.27, carry annual interest rate ranging from 8.65% to 10.20% (December 31st 2017: nil); the RMB loan, with carrying value RMB 990,000,000.00, carry annual interest rate ranging from 1.20% to 3.05% (December 31st 2017: 2.65% to 5.00%). Note 1: As of June 30th 2018, the Group’s RMB 300,000,000.00 pledged loan was pledged by VAT Rebate Account under the Company’s wholly-owned subsidiary, Hangzhou HIK Science and Technology Co., Ltd., the balance of VAT Rebate Account is not less than RMB 5,000,000.00 according to the contract, maturity date is November 14th 2018, annual interest rate is 2.65%. Besides, the Company bore joint liability guarantee for the loan. Note 2: During 2016, the Group entered into an agreement with CDB Development Fund(国开发展基金, as "CDBDF") to jointly inject capital into Hikvision Electronics Co., Ltd. ("Hangzhou Electronics"), a subsidiary of the Group. Pursuant to the capital injection agreement, CDBDF would not participate in senior management personnel such as directors, and it would either take part in decision-making or make significant influence on Hangzhou Electronics. The Group shall pay a 1.2% annualized return to CDBDF through dividends or interest payments, and the Group is required to redeem the CDBDF's equity investment in the current period by installments each year from 2021 to 2024. Therefore, the capital injection by CDBDF is treated as a long-term loan. As of June 30th 2018, CDBDF has aggregately invested RMB 190 million (December 31st 2017: RMB 190 million). 118 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 31. Bonds payable (1) Bonds payable Unit: RMB Item Closing balance Opening balance Euro Bond (Note) - 3,120,920,000.00 Total - 3,120,920,000.00 (2) Change in bond payable balance Unit: RMB Effects of Opening balance Interests expenses Repayments in the Less: Amount due changes in Closing Item Face value Issue Date Maturity Issuance Opening balance due within one accrued based on the current reporting within one year Foreign balance year principal amount period (Note (V) 28) exchange Irish Euro February 18t Euro 400,000,000.00 h 3 years 2,903,120,000.00 3,120,920,000.00 33,614,018.51 (61,058,929.45) 19,218,000.00 39,109,000.00 3,073,584,089.06 - Bond 2016 (Note) Total Euro 400,000,000.00 2,903,120,000.00 3,120,920,000.00 33,614,018.51 (61,058,929.45) 19,218,000.00 39,109,000.00 3,073,584,089.06 - Note: On February 3rd, 2016, the Company publically issued the bond with nominal value amounting to Euro 400 million ("Euro Bond"); and the bond was settled, listed and traded on the Irish Stock Exchange on February 18th, 2016. The Euro Bond has a maturity term for 3 years, maturity date is February 18th, 2019, the issuance price of the bond is 99.959% of the principal value, and coupon rate is 1.25%, with interest payment date of February 18th per annum, and one-time principal repayment on maturity date. The Euro Bond is mainly used for constructions of the Company's Security Industry Base (Tonglu), the Internet Security Industry Base, and other projects. 119 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 32. Provisions Unit: RMB Item Closing balance Opening balance Product warranty 74,480,717.05 63,068,638.49 Total 74,480,717.05 63,068,638.49 33. Deferred income Unit: RMB Increase in current Decrease in current Item Opening balance Closing balance Details Period period Cloud storage service income 26,022,171.65 55,361,354.76 37,539,496.33 43,844,030.08 Note 1 Government Subsidies 62,903,600.00 81,274,800.00 18,510,236.99 125,668,163.01 Note 2 Total 88,925,771.65 136,636,154.76 56,049,733.32 169,512,193.09 As of June 30th 2018, the deferred income related to government subsidies: Unit: RMB Related to Increase in current Amounts booked Other Liability Items Opening Balance Closing Balance assets/related to Period into other income changes incomes Projects of core electronic devices, high-end Related to 38,714,300.00 81,274,800.00 18,510,236.99 - 101,478,863.01 universal chips and basic incomes software products Chongqing Manufacturing Base 24,189,300.00 - - - 24,189,300.00 Related to assets construction Subtotal 62,903,600.00 81,274,800.00 18,510,236.99 - 125,668,163.01 Note 1: This is revenue related to cloud storage service, video service, and telephone service that the Group provides to its customers; and the Group recognized the revenue accordingly during the period the service is actually provided. Note 2: Refer to government subsidies received by the Group for projects of core electronic devices, high-end universal chip and basic software products, and for Chongqing Manufacturing Base construction; Actual expenses occurred in the current year for projects of core electronic devices, high-end universal chips and basic software products were recognized in non-operating income; and relevant assets for Chongqing Manufacturing Base construction were amortized averagely into current profits or losses within the assets’ useful lives. 34. Share capital Unit: RMB Changes for the current period Opening balance Closing balance New issue of Transfer from Capital Bonus issue Others (Note 1) Subtotal shares (Note 1) Reserve 2018.06.30 Total 9,228,865,114.00 - - - (1,594,641.00) (1,594,641.00) 9,227,270,473.00 shares Note 1:On December 15th 2017, pursuant to the Articles of Association of the Company revised by the resolution of 26th General Meeting of 3rd session Board of Directors authorized by the first Extraordinary General Meeting in 2014, the Company repurchased and cancelled 1,594,641 granted but restricted RMB treasury shares by cash, and the total share capital of the Company decreased by RMB 1,594,641.00, capital reserve decreased by RMB 4,961,105.33. The registration procedures were completed on March 30th 2018. 120 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 35. Capital reserves Unit: RMB Increase in the current Decrease in the Item Opening balance period current period Closing balance (Note 1) (note 2) 2018.06.30 Share premium 1,594,317,396.71 - 7,087,109.11 1,587,230,287.60 Other capital reserves 225,080,318.92 80,498,800.50 - 305,579,119.42 Total 1,819,397,715.63 80,498,800.50 7,087,109.11 1,892,809,407.02 Note 1: The increase of RMB 80,498,800.50 in other capital reserves is due to recognition of equity investment payments into capital reserve; please refer to Note (XI). Note 2:The decrease of RMB 4,961,105.33 in share premium was due to the Company’s repurchase of 1,594,641 granted but restricted RMB treasury shares by cash, please refer to Note (V) 34-Note 1; The decrease of RMB 2,126,003.78 in share premium was due to share distributions by equity settlements to minority shareholders. 36. Treasury shares Unit: RMB Increase in the Decrease in the Item Opening Balance Closing balance current year current year (Note 1) 2018.06.30 Restricted shares incentive scheme 744,583,627.22 - 62,766,970.33 681,816,656.89 Total 744,583,627.22 - 62,766,970.33 681,816,656.89 Note 1: The decrease of RMB 6,555,746.33 in treasury shares was due to the repurchase and cancellation of 1,594,641 restricted RMB ordinary shares of 2014 Restricted Share Incentive Scheme; and a decrease of RMB 56,211,224.00 in treasury shares was due to provision of cash dividend allocated to restricted shareholders. 37. Other comprehensive income Unit: RMB Change for the period Less: transfer to current period Attributable to Less: Attributable Item Opening balance Before tax P/L from income the owner of the to minority Closing balance balance previous other tax Company (after interest expense (after tax) comprehensive tax) income 2018.06.30 Other incomes that may be reclassified (27,677,939.35) (14,284,828.74) - - (12,898,545.71) (1,386,283.03) (40,576,485.06) subsequently to profit or loss Included: Effect on conversion of financial statements denominated in (27,677,939.35) (14,284,828.74) - - (12,898,545.71) (1,386,283.03) (40,576,485.06) foreign currencies Other comprehensive income (27,677,939.35) (14,284,828.74) - - (12,898,545.71) (1,386,283.03) (40,576,485.06) 38. Surplus reserves Unit: RMB Increase in the current Decrease in the current Item Surplus reserve Closing balance period period 2018.06.30 Statutory surplus reserve 3,483,742,918.53 - - 3,483,742,918.53 Total 3,483,742,918.53 - - 3,483,742,918.53 121 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 39. Retained earnings Unit: RMB Item 2018 First Half Year 2017 First Half Year Retained Earnings at the close of previous reporting period before 16,598,328,692.63 14,866,457,856.65 adjustment Business merger involving enterprises under common control - (9,679,463.77) Adjusted retained earnings at the beginning of the period 16,598,328,692.63 14,856,778,392.88 Add: Net profit attributable to owners of the Company for the current 4,147,395,535.86 3,291,546,056.70 period Less: Dividends on ordinary shares payable (Note) 4,613,635,236.50 3,728,583,103.20 Bonus shares (Note) - 3,076,288,371.00 Retained earnings at the end of the period 16,132,088,991.99 11,343,452,975.38 Note:According to the resolution of 2017 annual General Meeting dated on May 11th 2018, based upon the total capital share of the Company on the equity distribution date, for each 10 ordinary shares, the company proposed distributing cash dividends of RMB 5 (tax inclusive), the rest of retained earnings were all carried forward for future distributions. 40. Operating income/operating cost Unit: RMB 2018 First Half Year 2017 First Half Year Item Revenue Cost Revenue Cost Operating income 20,666,389,810.48 11,489,340,600.25 16,190,840,525.65 9,290,852,501.98 Other operating income 209,368,414.15 96,958,225.82 256,699,210.87 129,842,522.86 Total 20,875,758,224.63 11,586,298,826.07 16,447,539,736.52 9,420,695,024.84 41. Business Taxes and Surcharges Unit: RMB Items 2018 First Half Year 2017 First Half Year Business tax - 1,889,150.09 City construction and maintenance tax 88,734,456.82 81,381,228.77 Education surcharges 38,163,736.90 36,835,581.00 Local education surcharges 25,421,753.02 28,681,113.91 Real estate tax 11,677,622.92 15,144,057.60 Tax on use of land 2,797,148.26 1,104,700.47 Stamp duty 9,553,973.80 8,924,393.79 Vehicle and vessel tax 155,796.31 272,370.07 Others 1,386,130.57 - Total 177,890,618.60 174,232,595.70 42. Financial Expenses Unit: RMB Items 2018 First Half Year 2017 First Half Year Interest expenses 81,772,282.07 81,683,226.19 Less:Interest income 217,425,369.68 159,445,016.70 Effect on changes in foreign exchange (105,663,396.52) 346,869,555.21 Less﹕Foreign exchange differences on specific loan and (66,624,255.04) 212,883,858.92 the capitalized specific loan interests Others 16,170,911.28 9,276,721.87 Total (158,521,317.81) 65,500,627.65 122 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 43. Impairment losses of assets Unit: RMB Items 2018 First Half Year 2017 First Half Year Bad debt provision 204,167,685.48 212,178,792.88 Inventory provision 121,730,012.71 39,559,582.08 Total 325,897,698.19 251,738,374.96 44. Profits (losses) from changes in fair values Unit: RMB Sources of gains/losses from changes in fair values 2018 First Half Year 2017 First Half Year Financial assets at fair value through profits and losses 16,449,323.23 (12,543,365.42) Including: Profits (losses) on the changes in fair value of 16,449,323.23 (12,543,365.42) derivative financial instruments Financial liabilities at fair value through profits and losses (22,551,871.25) 51,095,855.83 Including: Profits (losses) on the changes in fair value of (22,551,871.25) 51,095,855.83 derivative financial instruments Total (6,102,548.02) 38,552,490.41 45. Investment income (1) Details of investment income Unit: RMB Item 2018 First Half Year 2017 First Half Year Long-term equity investment gains (losses) based on equity 2,538,090.69 (3,877,702.05) method Investment income (losses) on disposal of financial assets at fair (2,018,145.43) 22,296,650.52 value through profits and losses Investment incomes for available-for-sale financial assets during 12,256,000.00 8,505,842.42 the holding period Investment income redeemed on matured financial products 65,491,170.90 22,727,398.21 Total 78,267,116.16 49,652,189.10 46. Other income Unit: RMB The amount booked into current period Item 2018 First Half Year 2017 First Half Year non- recurring profits and looses VAT Refund 816,616,027.70 677,411,292.41 - Special subsidies 21,010,365.89 - 21,010,365.89 Total 837,626,393.59 677,411,292.41 21,010,365.89 47. Non-operating income Unit: RMB Item The amount booked into current period 2018 First Half Year 2017 First Half Year non- recurring profits and looses Special subsidies 11,134,607.89 12,859,922.90 11,134,607.89 Tax refunds 258,553.39 1,270,311.77 258,553.39 Fines and confiscations 46,529,147.77 10,498,710.41 46,529,147.77 Others 15,228,064.81 7,088,648.70 15,228,064.81 Total 73,150,373.86 31,717,593.78 73,150,373.86 123 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 48. Non-operating expenses Unit: RMB Amount recorded into the current period Item 2018 First Half Year 2017 First Half Year non-recurring profits (losses)t Local water conservancy construction 436,280.16 544,266.79 - fund Others 4,147,847.04 1,164,510.38 4,147,847.04 Total 4,584,127.20 1,708,777.17 4,147,847.04 49. Income tax expenses (1) Details of Income tax expenses Unit: RMB Item 2018 First Half Year 2017 First Half Year Current income tax 717,290,286.21 627,672,617.73 Deferred income tax (51,487,527.73) (59,014,226.88) Total 665,802,758.48 568,658,390.85 50. Notes to consolidated cash flow statement (1) Other cash receipts relating to operating activities Unit: RMB Item 2018 First Half Year 2017 First Half Year Interest income 217,425,369.68 159,445,016.70 Government subsidies2 95,168,090.18 14,130,234.67 Others 138,073,302.53 17,587,359.11 Total 450,666,762.39 191,162,610.48 (2) Other cash payments relating to operating activities Unit: RMB Item 2018 First Half Year 2017 First Half Year Office expenses and business expenses 321,731,198.63 201,114,049.99 Advertising and Selling services 513,332,986.75 350,742,415.17 R&D expense 437,739,763.84 232,735,332.67 Shipping and transportation expense 296,718,288.88 220,925,130.08 Travelling expense 174,690,476.79 110,284,099.64 Deposits to restricted monetary funds 345,798,801.19 - Rental expense 74,995,187.54 57,015,437.63 Others 62,752,885.37 58,150,376.77 Total 2,227,759,588.99 1,230,966,841.95 2 Please refer to Note (V) 46 for details about government subsidy, which is closely related to daily operations of the Company. 124 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (3) Other cash receipts relating to investing activities Unit: RMB Item 2018 First Half Year 2017 First Half Year Receipts of financing leases 1,190,562.94 13,100,745.41 Total 1,190,562.94 13,100,745.41 51. Supplementary information about cash flow statement (1) Supplementary information about cash flow statement Unit: RMB Supplementary information 2018 First Half Year 2017 First Half Year 1. Reconciliation of net profit to cash flow from operating activities: Net profit 4,107,586,112.82 3,275,931,652.25 Add: Impairment of assets 325,897,698.19 251,738,374.96 Fixed assets depreciation 196,191,929.39 162,308,009.16 Amortization of intangible assets 27,572,243.92 21,115,783.51 Losses (gains) on disposal of fixed assets, intangible assets and (3,763,578.84) (2,226,974.55) other long-term assets Retirement losses on fixed assets, intangible assets and other 415,906.30 - long-term assets Losses (gains) from changes in fair value 6,102,548.02 (38,552,490.41) Financial expenses 40,310,003.53 215,668,922.48 Investment income (78,267,116.16) (49,652,189.10) Share-based payment based on equity 80,498,800.50 97,854,081.28 Changes in other monetary fund (345,798,801.19) Decrease (Increase) in deferred income tax assets (51,896,405.74) (59,014,226.88) Decrease (Increase) in inventories (689,070,559.38) (1,145,432,144.84) Decrease (Increase) in operating receivables (1,903,396,501.38) (2,803,131,577.53) Increase(Decrease) in operating payables (3,414,162,059.42) (1,875,392,178.82) Increase (decrease) in deferred income 80,586,421.44 5,984,156.07 Net cash flow from operating activities (1,621,193,358.00) (1,942,800,802.42) 2. Significant investing and financing activities not involving cash receipts and payments: 3. Net changes in cash and cash equivalents: Ending balance of cash 12,966,520,217.54 12,526,354,618.56 Less: Opening balance of cash 16,029,185,269.17 13,522,337,697.28 Add: Ending balance of cash equivalents Less: Opening balance of cash equivalents Net increase (decrease) in cash and cash equivalents (3,062,665,051.63) (995,983,078.72) 125 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (2) Constituents of cash and cash equivalents Unit: RMB Item Closing balance Opening balance Cash 12,966,520,217.54 16,029,185,269.17 Including: Cash on hand 1,958,409.79 769,612.23 Bank deposit for payment at any time 12,956,673,174.35 16,007,539,118.39 Other monetary capital for payment at any time 7,888,633.40 20,876,538.55 Cash equivalents - - Ending balance of cash and cash equivalents 12,966,520,217.54 16,029,185,269.17 Among the total balance of RMB 792,932,868.06 of the other monetary fund(s) at the end of the period (December 31st 2017: RMB 460,121,972.02), RMB 785,044,234.66 are various guarantee deposits (December 31st 2017: RMB 439,245,433.47), not cash and cash equivalents. 52. Assets with restriction in ownership or use rights Unit: RMB Carrying Value at the end of the Item Cause of restriction period Various guarantee deposits, and deposits pledged for Monetary fund(s) 785,044,234.66 obtaining long-term borrowing Notes receivable 50,360,052.08 Pledged for issuing bank acceptance bill Total 835,404,286.74 53. Monetary items of foreign currencies (1) foreign currencies Balance in foreign currency at Exchange rate for Balance of RMB converted at Item the end of period conversion the end of period Monetary funds Including: USD 561,354,371.02 6.6166 3,714,257,331.26 EUR 58,009,465.22 7.6515 443,859,423.12 GBP 75,661.66 8.6551 654,859.25 JPY 408.00 0.0599 24.44 Accounts receivable Including: USD 417,959,350.57 6.6166 2,765,469,838.98 EUR 12,040,259.30 7.6515 92,126,044.03 Short-term borrowing Including: GBP 9,999,995.36 8.6551 86,550,959.80 Accounts Payable Including: USD 160,653,071.33 6.6166 1,062,977,111.76 Non-current liabilities due within one year Including: EUR 406,808,219.18 7.6515 3,112,693,089.06 126 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (2) Details of Overseas Operational Entities Main overseas Recording Name of overseas subsidiaries operational Basis of selection Currency office HDT International Ltd. Hongkong HKD Selection based on local economic environment Hikvision Europe BV Netherlands EUR Selection based on local economic environment Prama Hikvision Indian Private Limited India INR Selection based on local economic environment Hikvision Uk Limited UK GBP Selection based on local economic environment Hikvision Italy (S.R.L.) Italy EUR Selection based on local economic environment Hikvision International Co., Limited Hongkong HKD Selection based on local economic environment Hikvision Australia PTY Ltd. Australia AUD Selection based on local economic environment Hikvision Spain, S.L. Spain EUR Selection based on local economic environment Hikvision France SAS France EUR Selection based on local economic environment Hikvision Singapore Pte. Ltd Singapore SGD Selection based on local economic environment Hikvision South Africa (Pty) Ltd. South Africa ZAR Selection based on local economic environment Hikvision FZE Dubai USD Selection based on local economic environment Hikvision Poland Spolka Z ograniczona Poland PLN Selection based on local economic environment Odpowiedzialnoscia. Hikivision do Brasil Comercio de Equipamentos de Brazil BRL Selection based on local economic environment Segurana Ltda. Hikvision LLC Russia RUB Selection based on local economic environment Ezviz Inc. USA USD Selection based on local economic environment Cooperative Hikvision Europe U.A. Netherlands USD Selection based on local economic environment Hikvision Korea Limited Korea KRW Selection based on local economic environment Hikvision Colombia SAS Columbia COP Selection based on local economic environment Hikvision Kazakhstan limited liability partnership Kazakhstan KZT Selection based on local economic environment Pyronix Ltd UK GBP Selection based on local economic environment Microwave Solutions Limited UK GBP Selection based on local economic environment Secure Holdings limited UK GBP Selection based on local economic environment Hikvision Turkey Technology And Security Systems Turkey TRY Selection based on local economic environment Commerce Corporation ZAO Hikvision Russia RUB Selection based on local economic environment Hikvision Hungary Limited Hungary HUF Selection based on local economic environment Hikvision New Zealand Limited New Zealand NZD Selection based on local economic environment Hikvision Czech s.r.o. Czech CZK Selection based on local economic environment Hikvision Deutschland GmbH Germany EUR Selection based on local economic environment Hikvision Kenya (Pty) Ltd Kenya KES Selection based on local economic environment LLC Hikvision Tashkent Uzbekistan UZS Selection based on local economic environment Hikvision (Malaysia) SDN. BHD Malaysia MYR Selection based on local economic environment Hikvision USA,Inc. USA USD Selection based on local economic environment Hikvision Canada INC. Canada CAD Selection based on local economic environment 127 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 54. Others Unit: RMB Accumulated Accumulated Related to assets/ Subsidies Financial Report Items amount in 2018 amount in 2017 related to incomes first half year first half year VAT Rebate Income Other Income 816,616,027.70 677,411,292.41 Special Subsidies Including: Other Special Subsidies Income Other Income/Non-operating Income 13,634,736.79 12,859,922.90 Subsidies for core electronic devices, Other Income 18,510,236.99 - high-end universal chip and basic Income software product projects Deferred Income 81,274,800.00 - Tax Refund Income Other Income/Non-operating Income 258,553.39 1,270,311.77 Total 930,294,354.87 691,541,527.08 Including: subsidies booked into 849,019,554.87 691,541,527.08 current profit/loss 128 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 VI. Changes in consolidation scope 1. Changes of consolidation scope due to other causes (1) The subsidiaries newly established and incorporated in the consolidation scope during the current period as follows: Amount of Time of Ratio of Company Name Registered capital contribution of the establishment contribution (%) Company Xi’An Hikvision Digital Technology Ltd. (Note 1) January 2018 RMB 200 million RMB 200 million 100 Wuhan Hikvision Science and Technology Ltd. (Note 2) January 2018 RMB 200 million RMB 200 million 100 Wuhan Hikvision Technology Ltd. (Note 3) January 2018 RMB 200 million RMB 200 million 100 Xi’An Hikvision System Technology Ltd. February 2018 RMB 216.16 million RMB 213.99 million 99 Hangzhou HIK Huiying Technology Ltd. (Note 4) March 2018 RMB 80 million RMB 48 million 60 Yu Tian Hai Shi Mei Tian Electronic Technology Ltd. March 2018 RMB 73.65 million RMB 72.18 million 98 (Note 5) Luo Pu District Hai Shi Ding Xin Electronic Technology Ltd. April 2018 RMB 71.33 million RMB 64.20 million 90 (Note 6) Note 1: At the end of the reporting period, the actual paid-up capital of Xi’An Hikvision Digital Technology Ltd. was RMB 33,000,000.00, entirely contributed by the Group. Note 2: At the end of the reporting period, the actual paid-up capital of Wuhan Hikvision Science and Technology Ltd. was RMB 55,150,000.00, entirely contributed by the Group. Note 3: At the end of the reporting period, Wuhan Hikvision Technology Ltd. has not completed capital contribution yet; therefore, its actual paid-up capital was nil. Note 4: At the end of the reporting period, the actual paid-up capital of Hangzhou HIK Huiying Technology Ltd. was RMB 25,000,000.00, of which RMB 15,000,000.00 that resulted in 60% equity holding percentage was contributed by the Group. Note 5: At the end of the reporting period, the actual paid-up capital of Yu Tian Hai Shi Mei Tian Electronic Technology Ltd. was RMB 72,181,700.00, entirely contributed by the Group. Note 6: At the end of the reporting period, the actual paid-up capital of Luo Pu District Hai Shi Ding Xin Electronic Technology Ltd. was RMB 64,197,000.00, entirely contributed by the Group. (2) Cancellation of the Company’s Subsidiary during the current period: Company Name Date of equity disposition Proportion of shareholding (%) Beijing Hikvision Security and Protection Technology Service Ltd. January 2018 100 129 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 VII. Interest in other entities 1. Equity in subsidiaries (1) Composition of corporate group Shareholding ratio Location of Place of Acquisition Name Nature of business (%) operation registration Method Direct Indirect Hangzhou, System integration, 100.00 - Hangzhou Hikvision System Technology Ltd. Hangzhou Establishment Zhejiang Technology development Hangzhou, 100.00 - Hangzhou Hikvision Science and Technology Ltd. Hangzhou manufacture Establishment Zhejiang Hangzhou Hikvision Security Equipment Leasing Hangzhou, 100.00 - Hangzhou Finance lease Establishment Services Ltd. Zhejiang Chongqing Hikvision System Technology Ltd. Chongqing Chongqing System integration 100.00 - Establishment Hikvision USA, Inc. USA Los Angeles Sales 100.00 - Establishment HDT International Ltd. Hong Kong Hong Kong Sales 95.00 5.00 Establishment Business combination not involving Prama Hikvision Indian Private Limited India Mumbai Sales 58.00 - enterprises under common control Hikvision Europe BV Europe Amsterdam Sales - 100.00 Establishment Hikvision FZE Dubai Dubai Sales 100.00 - Establishment Hikvision Singapore Pte. Ltd Singapore Singapore Sales 100.00 - Establishment Chongqing Hikvision Science and Technology Ltd. Chongqing Chongqing Manufacture 100.00 - Establishment Beijing Hikvision Security and Protection - - Beijing Beijing Services Establishment Technology Service Ltd. (Note 4) Hangzhou Fuyang Hik Baotai Security Technology Hangzhou, - 51.00 Hangzhou Construction Establishment Services Ltd. (Note 1) Zhejiang Hikvision South Africa (Pty) Ltd. South Africa South Africa Sales 100.00 - Establishment Hikvision Italy S.R.L. Italy Milan Sales - 100.00 Establishment Hikvision do Brasil Comercio de Equipamentos de Brazil Brazil Sales 95.00 5.00 Establishment Seguran Ltda. Hikvision Australia PTY Ltd. Australia Australia Sales 100.00 - Establishment Hikvision International Co., Limited Hong Kong Hong Kong Sales 100.00 - Establishment Hikvision France SAS France France Sales - 100.00 Establishment Hikvision Spain,S.L. Spain Spain Sales - 100.00 Establishment Business combination 100.00 - not involving Shanghai Goldway Intelligent Traffic System Ltd. Shanghai Shanghai Manufacture enterprises under common control Business combination not involving ZAO Hikvision Russia St. Peterburg Sales - 100.00 enterprises under common control Business combination 100.00 - not involving Beijing Brainaire Storage Technology Ltd. Beijing Beijing Manufacture enterprises under common control Business combination Henan Hua’an Intelligence 51.00 - not involving Zhengzhou Zhengzhou Construction Development Ltd. enterprises under common control Business combination not involving Henan Hua’an Security Services Ltd. (Note 2) Zhengzhou Zhengzhou Services - 45.90 enterprises under common control Business combination 100.00 - not involving Hundure Technology (Shanghai) Ltd. Shanghai Shanghai Manufacture enterprises under common control Hikvision Uk Limited UK UK Sales - 100.00 Establishment Hikvision Poland Spolka Z Ograniczona Establishment Poland Poland Sales - 100.00 Odpowiedzialnoscia Hangzhou Hikvision Electronics Ltd.(Note 3) Hangzhou Hangzhou Manufacture 71.30 - Establishment Cooperative Hikvision Europe U.A. Netherlands Netherlands Sales 99.00 1.00 Establishment Hikvision Canada Inc. Canada Canada Sales 100.00 - Establishment Hikvision LLC Moscow Moscow Sales 100.00 - Establishment 130 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Shareholding ratio Location of Place of Acquisition Name Nature of business (%) operation registration Method Direct Indirect Hikvision Korea Limited Korea Korea Sales 100.00 - Establishment Technology 60.00 - Establishment Hangzhou EZVIZ Network Ltd. Hangzhou Hangzhou development Ezviz Inc. USA Los Angeles Sales - 60.00 Establishment Business combination Hangzhou Haikang Zhicheng Investment - not involving Hangzhou Hangzhou System integration 80.00 Development Ltd enterprises under common control Technology - Establishment Hangzhou Hikvision Robtics Technology Ltd. Hangzhou Hangzhou 60.00 development Investment 100.00 - Establishment Hangzhou Hikvision Investment Management Ltd. Hangzhou Hangzhou Management Technology 60.00 - Establishment Hangzhou Hik Automotive Technology Ltd. Hangzhou Hangzhou development Hangzhou Hikvision Communication Technology Technology 70.00 - Establishment Hangzhou Hangzhou Ltd. development Hangzhou Hikvision Weiying Sensory Technology Technology 60.00 - Establishment Hangzhou Hangzhou Ltd. development Hikvision Turkey Technology And Security Systems - Establishment Turkey Istanbul Sales 100.00 Commerce Corporation Hikvision Colombia SAS Columbia Santa Fe Bogota Sales 100.00 - Establishment Hikvision Kazakhstan limited liability partnership Kazakhstan Astana Sales 100.00 - Establishment Manufacture - Business combination 100.00 not involving Secure Holding Limited British Sheffield enterprises under common control Manufacture - Business combination 100.00 not involving Pyronix Limited British Sheffield enterprises under common control Manufacture - Business combination 100.00 not involving Microwave Solutions Limited British Sheffield enterprises under common control Technology - 60.00 Establishment Wuhan HIK Storage Software Ltd. Wuhan Wuhan, Hubei development Technology - Establishment Chengdu Hikvision Digital Technology Ltd. Chengdu Chengdu 100.00 development MoYuHaiShi Electronic Technology Ltd. Hetian Moyu Construction - 85.00 Establishment Technology - 60.00 Establishment Hangzhou EZVIZ Software Ltd. Hangzhou Hangzhou development PiShanHaiShi YongAn Electronic Technology Ltd. Hetian Pishan System integration - 90.00 Establishment Henan Haikang Hua’anBaoQuan Electronics Ltd. Zhengzhou Zhengzhou Construction 51.00 - Establishment Hikvision Czech s.r.o. Czech Czech Sales - 100.00 Establishment Hikvision (Malaysia) SDN. BHD Malaysia Malaysia Sales - 100.00 Establishment Hikvision Deutschland GmbH Germany Germany Sales - 100.00 Establishment Xi’An Hikvision Digital Technology Ltd. Xi’An Xi’An Technology development 100 - Establishment Wuhan Hikvision Science and Technology Ltd. Wuhan Wuhan Technology development 100 - Establishment Wuhan Hikvision Technology Ltd. Wuhan Wuhan Technology development 100 - Establishment Xi’An Hikvision System Technology Ltd. Xi’An Xi’An Construction - 99 Establishment Hangzhou Huiying Technology Ltd. Hangzhou Hangzhou Technology development 60 - Establishment Yu Tian Hai Shi Mei Tian Electronic Technology Establishment Hetian Xinjiang Hetian System integration 98 Ltd. Luo Pu District Hai Shi Ding Xin Electronic - Establishment Hetian Xinjiang Hetian System integration 90 Technology Ltd. Note 1: Hangzhou Fuyang HIK Baotai Security Technology Services Ltd. is a subsidiary controlled by Hangzhou Hikvision System Ltd. who holds 51% equity interests. According to the Articles of Association of the Company, Hangzhou Hikvision Systems Ltd. has a 50% dividend payout ratio in the said company (Fuyang Baotai). Note 2: Henan Hua’an Security Services Ltd. is a subsidiary controlled and invested by Henan Hua’an Intelligence Development Ltd. Note 3: The remaining 28.70% equity interests of Hangzhou Hikvision Electronics Ltd.is held by China Development Bank Fund. Please refer to Note (V) 30 for details. 131 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Note 4: Beijing Hikvision Security and Protection Technology Service Ltd. was cancelled in 2018. 2. Equity in joint ventures or associates (1) Aggregated financial information of insignificant joint-ventures or associates Unit:RMB Closing balance / Amount for Opening balance / Amount for 2018 first half year 2017 first half year Associates: The aggregate carrying amount of investments in associates 160,000,000.00 133,000,000.00 The aggregate amount of the following items calculated based on the Company’s equity share percentage of the associates --Net profit (loss) and total comprehensive income (loss) 2,538,090.69 (3,877,702.05) VIII. Risks associated with financial instrument The Group's principal financial instruments include cash and bank balances, equity investments, notes receivable, accounts receivable, other receivables, long-term receivables, borrowings, accounts payable, interest payable, other payables, other current assets, note payables, dividends payable, bonds payable, long-term payables, derivative financial instruments, etc. Details of these financial instruments are set out in Note (V). Below are the risks associated with such financial instruments and the risk management policies adopted by the Group to mitigate such risks. The management of the Group manages and monitors such risk exposures to ensure such risks are contained within a prescribed scope. The Company adopts sensitivity analysis techniques to analyze the possible effects of rational and probable changes in risk variables to profit or loss for the period or to the interests of shareholders. Since risk variables seldom change on a stand-alone basis, while the correlation between variables may have significant influence to the ultimate amount of change effected by the change in a single risk variable, the analysis below is based on the assumption that the changes in each variable occurred separately. 1. Objectives and policies of risk management The Group engages in risk management with the aim of achieving an appropriate balance between risk and return, where the negative effects of risks against the Group’s operating results are minimized, in order to maximize the benefits of shareholders and other stakeholders. Based on such objective in risk management, the underlying strategy of the Group’s risk management is to ascertain and analyze all types of risks exposures of the Group, establish appropriate risk tolerance thresholds, carry out risk management procedures and perform risk monitoring on all kinds of risks in a timely and reliable manner, thus containing risk exposures within a prescribed scope. 1.1 Market risks 1.1.1. Foreign exchange risks Foreign exchange risks refer to the risk that losses will occur because of changes in foreign exchange rates. The Company is primarily exposed to risks relating to the currencies such as USD and EUR. The Group’s subsidiaries in the 132 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 mainland of China whose procurement, sales and financing are denominated in RMB, USD and EUR, other principal activities are settled in RMB. The Group’s subsidiaries in Hong Kong and outside China are principally engaged in procurement, sales, financing and other major business activities in local currencies such as USD, EUR, GBP, RUB, and etc. As of June 30th 2018, except for monetary items of foreign currencies set out in Note (V) 53, the Group mainly adopted the functional currency of each of its subsidiary to present the balance of its assets and liabilities. The foreign exchange risks arising from assets and liabilities denominated in USD and EUR (which has been converted into RMB) as follows may affect the operating results of the Group. Unit: RMB Assets Liabilities Currencies Closing balance Opening balance Closing balance Opening balance USD 6,479,727,170.24 6,919,071,811.35 1,062,977,111.76 1,336,240,339.97 EUR 535,985,467.15 288,885,022.47 3,112,693,089.06 3,154,534,018.51 The Company has been paying close attention to the effect of fluctuation in exchange rate on the foreign exchange risks of the Group and has purchased forward foreign exchange contracts to mitigate the foreign exchange risk exposure. Sensitivity analysis on exchange rate risk With other variables unchanged, the exchange rate might float within a reasonable range, and has the following before-tax effect on profit or loss and shareholders’ equity for the current period: Unit: RMB 2018 First Half Year 2017 First Half Year Change in foreign exchange rates Effect on shareholders’ Effect on shareholders’ Effect on profit Effect on profit equity equity 5% appreciation of USD against functional currency 270,837,502.92 270,837,502.92 290,061,335.95 290,061,335.95 5% depreciation of USD against functional currency (270,837,502.92) (270,837,502.92) (290,061,335.95) (290,061,335.95) 5% appreciation of EUR against functional currency (128,835,381.10) (128,835,381.10) (150,443,155.03) (150,443,155.03) 5% depreciation of EUR against functional currency 128,835,381.10 128,835,381.10 150,443,155.03 150,443,155.03 1.1.2. Interest rate risk-risk related to changes in cash flow . The Group's risk related to changes in the cash flow of financial instruments due to changes in interest rates is mainly related to floating interest rate bank borrowings. The Group's policy is to maintain the floating rate of these borrowings to eliminate the risk of changes in the fair value of interest rates. Interest rate risk sensitivity analysis Interest rate risk sensitivity analysis is based on the following assumption: 133 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Change in market interest rates affect interest income or expenses of financial instruments with variable interest rate; For financial instruments measured at fair value with fixed interest rates, changes in market interest rates only affect their interest income or expenses Based on the above assumptions, under the condition that other variables remain unchanged, the pretax impact of reasonable changes in interest rates on current profits and losses and shareholders' equity is as follows: Unit: RMB 2018 First Half Year 2017 First Half Year Change in interest rates Effect on profit Effect on shareholders’ Effect on profit Effect on shareholders’ equity equity Loan interest rate increase by 50 basis points (26,662,904.00) (26,662,904.00) (199,227,031.43) (199,227,031.43) Loan interest rate decrease by 50 basis points 26,662,904.00 26,662,904.00 199,227,031.43 199,227,031.43 1.2 Credit risk As of June 30th 2018, the biggest credit risk exposure that may cause financial loss suffered by the Group was mainly due to the other party’s inability to fulfill obligations that caused the loss on the Group’s financial assets, which include: The book value of a confirmed financial asset in the consolidated balance sheet : for those financial instruments that are measured by fair value, the book value reflects its risk exposure rather than its biggest risk exposure, the biggest risk exposure will change as the future fair value changes. In order to minimize credit risk, the Group has established a team responsible for formulating credit limit, credit approval and implementing other monitoring procedures to ensure necessary follow-up measures are carried out to recover the overdue debts. In addition, the Group reviews the recovery of each individual receivable at each balance sheet date to ensure that sufficient provision for bad debts is made for uncollectible funds. As such, the management of the Group believes that the Group’s exposure to credit risk has been significantly lowered. The Group only deposits cash and cash equivalents into banks with relatively high level of credit rating; as such the risk of cash and cash equivalents is low. The Group has adopted necessary policies to ensure that all the sales customers have good credit records. Since the Group’s risk exposure exists in several parties to the contract and certain customers, the Group has no other significant concentration of credit risk. 134 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 1.3. Liquidity risk The Group maintains and monitors a level of cash and cash equivalents deemed adequate by the management to meet the operation needs of the Group and to reduce the effect of cash flow movements when managing liquidity risk. The management of the Company monitors the usage of bank borrowings, and ensures compliance with borrowing agreements. According to the term to maturity of non-discounted and remaining contract obligations, the financial liabilities held by the Group are analyzed as below: Unit:RMB June 30th 2018 Within one year 1-5 years More than five years Total Non-derivative financial liabilities Short-term borrowings 3,753,258,380.27 - - 3,753,258,380.27 Notes payables 705,958,442.30 705,958,442.30 Accounts payables 7,187,885,155.12 7,187,885,155.12 Other payables 630,910,171.50 - - 630,910,171.50 Other current liabilities 681,816,656.89 - - 681,816,656.89 Bonds payable 3,098,110,815.09 - - 3,098,110,815.09 Long-term borrowings 811,682,362.19 102,170,594.10 98,885,808.22 1,012,738,764.51 Long-term payables 3,874,473.76 - 3,874,473.76 Derivative financial liabilities Foreign exchange structured options - settled in the gross amount - Cash inflow - - - - - Cash outflow 616,000.00 - - 616,000.00 - Net cash outflow 616,000.00 - - 616,000.00 Forward foreign exchange contracts- settled in the gross amount - Cash inflow 951,271,001.00 - - 951,271,001.00 - Cash outflow 980,530,249.00 - - 980,530,249.00 - Net cash outflow 29,259,248.00 - - 29,259,248.00 Foreign exchange swap contracts- settled in the gross amount - Cash inflow 596,980,910.00 - - 596,980,910.00 - Cash outflow 605,607,000.00 - - 605,607,000.00 - Net cash outflow 8,626,090.00 - - 8,626,090.00 135 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 IX. Fair value disclosure 1. The financial assets and financial liabilities measured at fair value at the balance sheet date: Unit:RMB Closing fair value Items Level 1 Level 2 Level 3 Total I. Continuous fair value measurement - (17,951,357.23) - (17,951,357.23) (I) Financial assets at fair value through profit and loss 1. Tradable Financial Assets - 20,549,980.77 - 20,549,980.77 -- Derivative financial assets - 20,549,980.77 - 20,549,980.77 Total assets measured continuously at fair value - 20,549,980.77 - 20,549,980.77 (II) Tradable Financial Liabilities - Derivative financial liabilities - 38,501,338.00 - 38,501,338.00 Total liabilities measured continuously at fair value - 38,501,338.00 - 38,501,338.00 2. Information on the estimation technique and important parameters adopted as for continuous Level 2 fair value measurement items Fair value at June 30th Estimation technique Inputs 2018 Discounted cash flow Forward exchange rate Forward Foreign Exchange 16,303,880.33 approach Discounted rate that reflects the credit risk of Contracts (Assets) counterparties Discounted cash flow Forward exchange rate Foreign Exchange Swap 2,020,000.00 approach Discounted rate that reflects the credit risk of Contracts (Assets) counterparties Discounted cash flow Forward interest rate Foreign Exchange Structured 2,226,100.44 approach Discounted rate that reflects the credit risk of Options (Assets) counterparties Discounted cash flow Forward interest rate Foreign Exchange Structured (616,000.00) approach Discounted rate that reflects the credit risk of Options (Liabilities) counterparties Discounted cash flow Forward exchange rate Forward Foreign Exchange (29,259,248.00) approach Discounted rate that reflects the credit risk of Contracts (Liabilities) counterparties Discounted cash flow Forward exchange rate Foreign Exchange Swap (8,626,090.00) approach Discounted rate that reflects the credit risk of Contracts (Liabilities) counterparties 3. Items measured at continuous fair value. There were no transfers between levels for the current reporting period. There was no estimation technique change for the current reporting period 4. Fair values of financial assets and financial liabilities that not measured at fair value The Group’s management believes that the carrying amounts of financial assets and financial liabilities stated in current assets and current liabilities in financial statements approximate to their respective fair values. The financial liabilities which are not subsequently measured at fair values by the Group include long-term borrowings, bonds payable and long-term payables, and the differences between their carrying amounts and their respective fair values are insignificant. 136 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 X. Related parties and related-party transactions 1. Information on parent company of the Company Percentage of voting Shareholding ratio of Place of Nature of rights of parent Name Registered capital parent company in the registration business company to the Company (%) Company (%) China Electronics Technology Hangzhou, Industrial HIK Group Co., Ltd. RMB 660 million 39.60% 39.60% Zhejiang investment (CETHIK) The ultimate controlling party of the Company is China Electronics Technology Group Corporation ("CETE"). 2. Information on the subsidiaries of the Company For details of the subsidiaries of the Company, see Note (VII). 3. Information on the joint ventures and associated companies of the Company For details of the associated companies of the Company, see Note (V) 12. 4. Information on other related parties Name Relationship Gong Hongjia Director of the company, holds 13.60% of the share of the Company Shanghai Fullhan Microelectronics Co., Ltd. (Shanghai Fullhan Gong Hongjia or his relative(s) serve(s) as the director(s) Micro) Zhejiang Tuxun Technology Co.,Ltd. (Zhejiang Tuxun) the Company’s senior management serve(s) as director(s) Confirmware Technology(Hangzhou) Co., Ltd. (Hangzhou Confirmware)the Company’s senior management serve(s) as director(s) Beijing Woqi Co., Ltd.(Beijing Woqi) Gong Hongjia or his relative(s) serve(s) as the director(s) (Note 1) Wuhu Sensor Technology Co., Ltd. (Wuhu SensorTech) Associated company of the Group Maxio Technology (Hangzhou) Ltd. and its subsidiaries (Maxio Associated company of the Group Technology and its subsidiaries) Under common control of the ultimate controlling party of the Subsidiaries of CETE (Note 2) Company Minority shareholders of Henan Hua’an BaoQuan Intelligence Minority shareholders who carry out significant influence on Development Co., Ltd. (Minority shareholders of Hua’an BaoQuan) subsidiaries Note 1: Mr Gong Hongjia left Beijing Woqi as senior management personnel on November, 2016. 2017 is the subsequent one year after Gong left his post, therefore, Beijing Woqi is still regarded as the Group's related party in 2017, and it was no longer regarded as the Group’s related party in the current reporting period. Note 2: Subsidiaries of CETC, excluding Hikvision and its subsidiaries. 5. Related party transactions (1) Related party transactions regarding sales and purchases of goods, provision of services and receiving services Purchase of commodities / receiving of services: Unit: RMB Amount for 2018 first half Amount for 2017 first half Related party Transaction type year year Purchase of materials and Subsidiaries of CETE 153,495,293.67 94,447,392.66 receiving of services Purchase of materials and Shanghai Fullhan Micro 120,432,833.93 72,069,293.64 receiving of services Purchase of materials and Wuhu SensorTech 19,486,211.82 4,489,736.27 receiving of services 137 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Amount for 2018 first half Amount for 2017 first half Related party Transaction type year year Purchase of materials and Maxio Technology and its subsidiaries 44,208,712.51 32,900,000.00 receiving of services Beijing Woqi Purchase of materials - 2,058,082.38 Total 337,623,051.93 205,964,504.95 Sales of commodities / rendering of services: Unit: RMB Amount for 2018 first half Amount for 2017 first half Related party Transaction content year year Sales of products and Subsidiaries of CETE 237,165,349.46 190,588,282.71 rendering of services Sales of products and Zhejiang Tuxun 964,627.62 419,664.11 rendering of services Sales of products and Wuhu Sensor Tech 36,416.97 - rendering of services Sales of products and Hangzhou Confirmware 524,591.79 - rendering of services Sales of products and Maxio Technology and its subsidiaries 39,051.29 - rendering of services Total 238,730,037.13 191,007,946.82 Statement of capital deposits: Unit: RMB Balance at the Amount occurred Content of related Amount occurred in Related Party end of the current during 2017 first Opening Balance party transaction 2018 first half year period half year Deposit into fixed Subsidiaries of CETE (Note) - 1,000,000,000.00 200,000,000.00 1,000,000,000.00 deposits Deposit (withdraw) Subsidiaries of CETE (Note) (500,000,000.00) - - 500,000,000.00 into call deposits Total (500,000,000.00) 1,000,000,000.00 200,000,000.00 1,500,000,000.00 Note: the fixed deposit and the deposit at notice that the Group deposited into China Electronic Technology Finance Co., Ltd. during the current period. The above transactions are executed at market prices. (2) Guaranteed by the related party As required by the project owner, China Electronics Technology Group Corporation has provided a joint guarantee to responsibility and duties of construction projects of “Safe Chongqing, Emergency Control System Digital Construction Project”, including 41 districts and counties, signed by Chongqing Hikvision System Technology Co., Ltd. (Chongqing System) Meanwhile, the Company provides a counter guarantee to China Electronics Technology Group Corporation. 6. Receivables from related parties and payables to related parties (1) Receivables from related parties Unit: RMB Closing balance Opening balance Item Related Party Carrying balance Bad debt provision Carrying balance Bad debt provision Accounts receivable Subsidiaries of CETE 845,734,141.61 45,578,628.12 764,292,224.05 39,661,148.57 Accounts receivable Zhejiang Tuxun 596,950.00 29,847.50 833,986.98 41,699.35 Accounts receivable Hangzhou Confirmware 197,519.99 12,256.00 21,219.99 1,197.00 Total 846,528,611.60 45,620,731.62 765,147,431.02 39,704,044.92 138 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Closing balance Opening balance Item Related Party Carrying balance Bad debt provision Carrying balance Bad debt provision Maxio Technology and its Other Receivables - - 13,500,000.00 675,000.00 subsidiaries Total - - 13,500,000.00 675,000.00 Prepayments Subsidiaries of CETE 4,748,018.13 272,400.91 - - Maxio Technology and its Prepayments 4,968,016.26 510,713.16 5,201,444.41 - subsidiaries Total 9,716,034.39 783,114.07 5,201,444.41 - (2) Payables to related parties Unit: RMB Item Related Party Closing balance Opening balance Accounts payable Subsidiaries of CETE 131,176,782.34 160,186,487.11 Accounts payable Shanghai Fullhan Micro 74,822,640.40 103,732,194.30 Accounts payable Wuhu Sensor Tech 3,940,973.13 14,496,160.00 Accounts payable Beijing Woqi - 1,301,025.64 Accounts payable Maxio Technology and its subsidiaries - 117,563.33 Total 209,940,395.87 279,833,430.38 Minority Shareholders of Hua’an Dividends payable 2,450,000.00 2,450,000.00 BaoQuan Total 2,450,000.00 2,450,000.00 Receipts in advance Subsidiaries of CETE 1,881,385.19 1,647,988.21 Total 1,881,385.19 1,647,988.21 Other payables Subsidiaries of CETE 26,152,622.17 73,881,697.00 Other payables Beijing Woqi - 150,000.00 Other payables Shanghai Fullhan Micro 100,000.00 100,000.00 Total 26,252,622.17 74,131,697.00 XI. Share-based payments 1. Overview of share-based payments According to the “Approval of the Implementation of the Restrictive Share Incentive Scheme of Hangzhou Hikvision Digital Technology Co., Ltd. (关于杭州海康威视数字技术股份有限公司实施限制性股票激励计 划的批复)” (Guo Zi Fen Pei [2012] No. 426) issued by the State-owned Assets Supervision and Administration Commission of the State Council and the “Opinion the Restrictive Share Incentive Scheme of Hangzhou Hikvision Digital Technology Co., Ltd. (关于杭州海康威视数字技术股份有限公司限制性股票激励计划的 意见)” (Shang Shi Bu Han [2012] No. 353) issued by China Securities Regulatory Commission, the Company convened the ninth meeting of the second session of the Board of Directors on July 25th 2012 and the first extraordinary general meeting for 2012 on August 13th 2012, whereat the Proposal Relating to the Restrictive Share Scheme (Amendments to the Draft) of the Company and Highlights was reviewed and passed. The purpose of the Share Incentive Scheme is to: further improve the Company’s governance structure to establish a good and balanced value allocation system; establish a profit-sharing and restriction mechanism among shareholders, the Company and its employees, so as to provide shareholders with sustainable return; fully mobilize the positivity of core employees to support the Company in realizing its strategies and long-term sustainable development; attract and retain core employees to ensure the Company’s long-term development. The Scheme shall be effective for a term of 10 years commencing from the date of approval by general meeting of the Company, during which the Company may grant restricted shares to grantees under the Scheme. In 139 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 principle, each grant should be at an interval of two years. After the expiry of the Scheme, no restricted shares could be granted to grantees under the Scheme. However, all the provisions of the Scheme remain valid to the restricted shares granted under the Scheme. The total number of subject Shares related to the Restricted Shares granted under the Scheme (excluding lapsed restricted shares) and the total number of subject Shares related to other effective share incentive schemes of the Company (if any) in aggregate shall not exceed 10% of the total issued share capital of the Company. Unless approval is obtained at the general meeting by way of special resolution, the total number of Restricted Shares granted or to be granted to any Participant under this Scheme or other effective share incentive schemes of the Company (if any) in aggregate shall not exceed 1% of the total issued share capital of the Company. The grant price for restricted shares, being the purchase price by staff, shall be determined by the Board of Directors. The grant price shall not be lower than 50% of the following price, whichever is the highest: (I) The closing price of the subject shares of the Company for one trading day prior to publication of the summary Share Incentive Scheme draft; (II) The average closing price of the subject shares of the Company for 30 trading days prior to publication of the summary Share Incentive Scheme draft; (III) The average price of the subject shares of the Company for 20 trading days prior to publication of the summary Share Incentive Scheme draft; or (IV) The unit nominal value of the subject shares of the Company. Each batch of restricted shares shall not be unlocked unless fulfilling, each time, by the Company its unlock performance criteria (including net asset yield and operating income growth rate), and by grantees’ individual performance criteria simultaneously. Where, during any year of the unlocking period, any one or more unlock criteria for the Company or individuals is or are not fulfilled, such portion of subject shares shall be cancelled, and no grantees shall be entitled to make another application for unlocking those subject shares in the future years. The cancelled restricted shares will be repurchased by the Company based on the grant price. On August 23rd 2012, after consideration and approval by the general meeting, the Company granted 8,611,611 restricted shares to grantees at a grant price of RMB 10.65 per share (“2012 Share Incentive Scheme”). The Lock-up Period of the Subject Shares shall last for a period of 24 months commencing on the grant date, during which the Subject Shares granted to grantees under the scheme shall be subject to lock-up and shall not be transferable. The Unlocking Period shall be the 24 to 60 months following the grant of restricted shares (including Lock-up Period), during which grantees may, subject to unlocking conditions stipulated by the scheme being satisfied, apply for unlocking in 3 tranches: the first unlocking period shall be the 24 to 36 months following the grant date and the number of shares to be unlocked shall be 1/3 of the aggregate number of the Subject Shares granted; the second unlocking period shall be the 36 to 48 months following the grant date and the number of shares to be unlocked shall be 1/3 of the aggregate number of the Subject Shares granted; the third unlocking period shall be the 48 to 60 months following the grant date and the number of shares to be unlocked shall be 1/3 of the aggregate number of the Subject Shares granted. As of December 31st 2016, the 2012 restricted incentive shares scheme had been completed. On October 24th 2014, after consideration and approval by the general meeting, the Company granted 52,910,082 restricted shares to grantees at a grant price of RMB 9.25 per share (“2014 Share Incentive Scheme”). The Lock-up Period of the Subject Shares shall last for a period of 24 months commencing on the grant date, during which the Subject Shares granted to grantees under the scheme shall be subject to lock-up and shall not be transferable. The Unlocking Period shall be the 24 to 60 months following the grant of restricted shares (including Lock-up Period), during which grantees may, subject to unlocking conditions stipulated by the scheme being satisfied, apply for unlocking in 3 tranches: the first unlocking period shall be the 24 to 36 months following the grant date and the number of shares to be unlocked shall be 40% of the aggregate number of the Subject Shares granted; the second unlocking period shall be the 36 to 48 months following the grant date and the number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted; the third unlocking period shall be the 48 to 60 months following the grant date and the number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted. On December 23rd 2016, after consideration and approval by the general meeting, the Company granted 52,326,858 restricted shares to grantees at a grant price of RMB 12.63 per share (“2016 Share Incentive Scheme”). The Lock-up Period of the Subject Shares shall last for a period of 24 months commencing on the grant date, during which the Subject Shares granted to grantees under the scheme shall be subject to lock-up and 140 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 shall not be transferable. The Unlocking Period shall be the 24 to 60 months following the grant of restricted shares (including Lock-up Period), during which grantees may, subject to unlocking conditions stipulated by the scheme being satisfied, apply for unlocking in 3 tranches: the first unlocking period shall be the 24 to 36 months following the grant date and the number of shares to be unlocked shall be 40% of the aggregate number of the Subject Shares granted; the second unlocking period shall be the 36 to 48 months following the grant date and the number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted; the third unlocking period shall be the 48 to 60 months following the grant date and the number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted. Unit: share 2014 Share Incentive Scheme 2018 first half year 2017 first half year Total of equity instruments outstanding at the beginning of the reporting 33,932,161 46,220,473 period Total of equity instruments granted during the current reporting period - 23,110,236 Total of equity instruments vested during the current reporting period - - Total of equity instruments forfeited during the current reporting period - - (Note) Total of equity instruments outstanding at the end of the reporting 33,932,161 69,330,709 period The exercise price (ex-rights) of the outstanding Share-based payments RMB 4.11 per share and 28 RMB 4.11 per share and 16 of the Company at the end of the reporting period and the remaining months months period of the contract Note: on December 15th 2017, pursuant to the revised articles of association and resolutions of the 26th general meeting of 3rd session board, and approved by the 2nd extraordinary general meeting of 2016, the Company repurchased and cancelled 1,594,641 granted and unvested restricted RMB treasury shares in cash settlement. The company completed the business change registration procedure on March 30th 2018. Unit: share 2016 Share Incentive Scheme 2018 first half year 2017 first half year Total of equity instruments outstanding at the beginning of the 78,490,287 52,326,858 reporting period Total of equity instruments granted (share dividend) during the current - 26,163,429 reporting period Total of equity instruments vested during the current reporting period - - Total of equity instruments forfeited during the current reporting - - period Total of equity instruments outstanding at the end of the reporting 78,490,287 78,490,287 period The exercise price (ex-rights) of the outstanding Share-based payments RMB 8.42 per share and 54 RMB 8.42 per share and 48 of the Company at the end of the reporting period and the remaining months months period of the contract 2. Information of the share-based payment through equity settlements Unit: RMB 2014 Share Incentive Scheme 2016 Share Incentive Scheme Determined based on stock price at the Determined based on stock price at the Method of determine the fair value of equity grant date and the costs of restricted grant date and the costs of restricted instruments at the grant date shares during Lock-up Period shares during Lock-up Period Recognition basis of the number of the equity Determined based on the results Determined based on the results instruments qualified for vesting estimation of each vesting period estimation of each release period Reasons of the significant difference between the estimates of the current reporting period with that of None None the prior year Accumulative amount of share-based payment through 353,750,750.86 208,270,171.50 equity settlement and further included in the capital 141 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 2014 Share Incentive Scheme 2016 Share Incentive Scheme reserve Total amount of the expenses recognized according to share-based payment through equity settlement in the 11,075,410.00 69,423,390.50 current reporting period 3. There is no share-based payment through cash settlements XII. Commitments and contingencies 1. Significant commitments (1) Capital commitments Unit: RMB’000 Closing balance Opening balance Contracted but not yet recognized in financial statements - Commitment on construction of long-term assets 11,467,694 11,641,286 Total 11,467,694 11,641,286 (2) Operating lease commitments As of the balance sheet date, the Group had the following external commitments in respect of non-cancellable operating leases: Unit: RMB’000 Closing balance Opening balance Minimum lease payments under non-cancellable operating leases: First year subsequent to the balance sheet date 68,520 93,006 Second year subsequent to the balance sheet date 53,625 49,061 Third year subsequent to the balance sheet date 40,811 33,185 Subsequent years 40,197 72,516 Total 203,153 247,768 (3) As of June 30th 2018, the Group has no other commitments need to be disclosed. 2. Contingencies The Group has no significant contingencies to be disclosed. XIII. Events after the balance sheet date The Group did not have any significant unadjusted events after the balance sheet date. XIV. Other significant events 1. Management Measures for Core Staff’s Co-Investment in Innovative Business According to Management Measures for Core Staff’s Investment in Innovative Business (Draft) approved by The fifth meeting of the third board and the second provisional shareholders' meeting in 2015, core employees can invest at the innovation business of Company via Hangzhou Hikvision Equity Investment Partnership (Limited Partnership). The Group will assess the fair values of the investee companies before employees make investments at the fair values. Hangzhou Hikvision Equity Investment Partnership (Limited Partnership) was established in the year, 99.9983% of which is hold by core employees. Hangzhou Hikvision Equity Investment Partnership (Limited Partnership) holds 40% of the Company’s subsidiaries Hangzhou EZVIZ, Hangzhou Robotic Technology Ltd., Hangzhou HIK Automotive Technology Ltd., Hangzhou HIK Weiying Sensory 142 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Technology Ltd., Wuhan HIK Storage Technology Ltd., and Hangzhou HIK Weiying Technology Ltd. respectively. 2. Segment information 1.1 Report segment determining and accounting policy According to the Group's internal organization structure, management requirements and internal report principles, the Group has only one operating segment, which is the research and development, production and sales of video products and video services. 1.2 Segment financial reporting External revenue by product or business segments Unit: RMB Item Amount for 2018 first half year Operating income Operating cost Front-end equipment 10,285,314,406.66 5,171,808,124.76 Back-end equipment 2,994,583,467.04 1,618,843,751.15 Video Surveillance Products Central control equipment 2,798,476,654.30 1,314,431,389.49 Constructions 1,077,104,977.68 921,303,977.95 Others 2,404,445,208.43 1,766,913,713.92 Innovative Business Products Smart home business 725,865,396.10 462,125,654.34 Other innovative businesses 380,599,700.27 233,913,988.64 Total 20,666,389,810.48 11,489,340,600.25 Unit: RMB Item Amount for 2017 first half year Operating income Operating cost Front-end equipment 8,471,727,239.99 4,330,837,875.51 Back-end equipment 2,581,996,973.35 1,318,164,201.90 Video Surveillance Products Central control equipment 1,893,438,540.55 1,035,848,060.56 Constructions 428,858,036.85 387,677,860.96 Others 2,200,994,312.68 1,805,372,126.76 Innovative Business Products Smart home business 459,861,958.09 309,998,385.02 Other innovative businesses 153,963,464.14 102,953,991.27 Total 16,190,840,525.65 9,290,852,501.98 External revenue by geographical area and non-current assets by geographical location Unit: RMB Item 2018 First Half Year 2017 First Half Year External revenue generated in domestic area 14,580,485,895.05 11,478,885,424.15 External revenue generated in overseas area 6,295,272,329.58 4,968,654,312.37 Total 20,875,758,224.63 16,447,539,736.52 Unit: RMB Item (Note) Closing balance Opening balance Non-current assets in domestic area 6,820,901,389.32 5,676,079,020.66 Non-current assets in overseas area 453,178,453.72 321,187,347.68 Total 7,274,079,843.04 5,997,266,368.34 Note: the non-current assets above did not include available-for-sale financial assets, long-term receivables, long-term equity investment, and deferred tax assets. 143 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 XV. Notes to major items of financial statements of the parent company 1. Accounts receivable (1) Accounts receivable disclosed by categories: Unit: RMB Closing balance Opening balance Carrying balance Bad debt provision Carrying value Carrying balance Bad debt provision Carrying value Category Percentage Percentage Percentage Percentage Amount Amount Amount Amount (%) (%) (%) (%) Accounts receivable that are individually significant and for - - - - - - - - - - which bad debt provision has been assessed individually Accounts receivable with provision accrued collectively on 16,698,783,842.40 100.00 1,035,389,225.22 6.20 15,663,394,617.18 13,338,459,657.76 100.00 832,776,339.98 6.24 12,505,683,317.78 a portfolio basis for credit risk. Accounts receivable that are not individually significant and for - - - - - - - - - - which bad debt provision has been assessed individually Total 16,698,783,842.40 100.00 1,035,389,225.22 6.20 15,663,394,617.18 13,338,459,657.76 100.00 832,776,339.98 6.24 12,505,683,317.78 The Group categorizes accounts receivable in an amount above RMB 4 million and representing more than 10% of the total accounts receivable closing balance as account receivable that is individually significant. 144 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Accounts receivable with bad debt provision provided by aging analysis on portfolio basis: Unit: RMB Closing balance Aging Amount Bad debt provision Percentage (%) Within 1 year 16,069,249,743.42 803,462,487.17 5.00 1–2 years 277,805,054.32 27,780,505.43 10.00 2–3 years 151,511,982.69 45,453,594.81 30.00 3–4 years 62,030,080.67 31,015,040.34 50.00 4–5 years 52,546,919.15 42,037,535.32 80.00 Over 5 years 85,640,062.15 85,640,062.15 100.00 Total 16,698,783,842.40 1,035,389,225.22 6.20 (2) Bad debt provision provided, recovered or reversed during the reporting period The amount of bad debt provision in the current reporting period was RMB 208,635,697.31, and the recollected bad debt was RMB 40,000.00. (3) Accounts receivable actually written off in the current reporting period. The accounts receivable actually written off in the current reporting period was RMB 6,062,812.07. (4) The top five debtors of accounts receivables in terms of closing balance. Unit: RMB Proportion of ending balance Relationship with Ending balance of bad debt Company name Carrying balance of accounts receivables in the Company provision total (%) Subsidiary A Subsidiary 13,782,049,522.78 689,322,429.43 82.53 Company H Third party 84,279,739.18 11,920,386.95 0.50 Company I Third party 65,065,274.32 3,253,263.72 0.39 Subsidiary J Third party 43,414,156.85 2,462,620.91 0.26 Company K Third party 37,838,650.94 2,431,623.11 0.23 Total 14,012,647,344.07 709,390,324.12 83.91 (5) At the end of the reporting period, there is no account receivable derecognized due to the transfer of financial assets. (6) At the end of the reporting period, there is no asset or liability formed by continuing involvement in derecognized accounts receivables. 145 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 2. Other receivables (1) Other receivables disclosed by categories Unit:RMB Closing balance Opening balance Category Carrying amount Bad debt provision Carrying amount Bad debt provision Percentage Percentage Carrying value Percentage Percentage Carrying value Amount Amount Amount Amount (%) (%) (%) (%) Other receivables that are individually significant and for - - - - - - - - - - which bad debt provision has been assessed individually Other receivables with provision accrued collectively on a portfolio 1,247,477,978.22 100.00 82,345,579.10 6.60 1,165,132,399.12 764,252,803.59 100.00 54,660,309.87 7.15 709,592,493.72 basis for credit risk Other receivables that are not individually significant and for - - - - - - - - - - which bad debt provision has been assessed individually Total 1,247,477,978.22 100.00 82,345,579.10 6.60 1,165,132,399.12 764,252,803.59 100.00 54,660,309.87 7.15 709,592,493.72 The Group categorizes other receivable in an amount above RMB 4 million and representing more than 10% of the total other receivables closing balance as other receivable that is individually significant. 146 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Other receivables with bad debt provision provided by aging analysis on portfolio basis: Unit:RMB Closing balance Aging Percentage of appropriation Carrying amount Bad debt provision (%) Within 1 year 1,124,557,401.64 56,227,870.08 5.00 1–2 years 76,201,477.40 7,620,147.74 10.00 2–3 years 30,256,936.00 9,077,080.80 30.00 3–4 years 12,841,994.28 6,420,997.14 50.00 4–5 years 3,103,427.80 2,482,742.24 80.00 Over 5 years 516,741.10 516,741.10 100.00 Total 1,247,477,978.22 82,345,579.10 6.60 (2) Bad debt provision provided, recovered or reversed during the reporting period The amount of bad debt provision in the current reporting period was RMB 27,685,269.23, and the recovered or reversed bad debt provision was nil. (3) The write-off of other receivables for the current reporting period. The write-off of other receivables in the current reporting period was nil. (4) Other receivables by nature Unit:RMB Nature Closing balance Opening balance Temporary borrowing 940,768,953.33 425,722,254.59 Temporary receivables 244,484,837.48 240,668,412.28 Guarantee deposit 56,979,223.15 82,796,114.04 Investment deposit - 13,500,000.00 Others 5,244,964.26 1,566,022.68 Total 1,247,477,978.22 764,252,803.59 (5) Top 5 debtors of other receivables in terms of closing balance Unit:RMB Percentage to total The name of entity Nature Closing balance Aging Bad debt provision other receivables (%) Subsidiary B Temporary borrowing 353,454,672.99 Within 1 year 28.33 17,672,733.65 Subsidiary C Temporary borrowing 264,811,606.22 Within 1 year 21.23 13,240,580.31 Subsidiary D Temporary borrowing 228,294,984.03 Within 1 year 18.30 11,414,749.20 Subsidiary E Temporary borrowing 36,134,324.03 Within 1 year 2.90 1,806,716.20 Subsidiary F Temporary borrowing 23,636,017.77 Within 1 year 1.89 1,181,800.89 147 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Percentage to total The name of entity Nature Closing balance Aging Bad debt provision other receivables (%) Total 906,331,605.04 72.65 45,316,580.25 (6) At the end of the reporting period, there were no other receivables derecognized due to the transfer of financial assets. (7) At the end of the reporting period, there were no assets or liabilities formed by continuing involvement in derecognized other receivables 148 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 3. Long-term equity investment Details of long-term equity investment: Unit:RMB Increase/Decrease during the current reporting period Provision for Provision for Accounting Opening impairment losses Name of investee Investment Income Increase due to Closing balance impairment method balance Additional Decrease for the current recognized based granting share losses investment investment reporting period on equity method options Hangzhou Hikvision System Technology Ltd. Cost method 719,263,965.23 - - - 14,050,202.50 733,314,167.73 - - Hangzhou Hikvision Security Equipment Cost method 200,000,000.00 - - - - 200,000,000.00 - - Leasing Services Ltd. Shanghai Goldway Intelligent Traffic System Cost method 23,000,000.00 - - - - 23,000,000.00 - - Ltd. Chongqing Hikvision System Technology Ltd. Cost method 200,000,000.00 500,000,000.00 - - - 700,000,000.00 - - Hundure Technology (Shanghai) Ltd. Cost method 37,247,790.28 - - - - 37,247,790.28 - - Hangzhou EZVIZ Network Ltd. Cost method 6,040,138.16 - - - 300,768.72 6,340,906.88 - - Hangzhou Haikang Zhicheng Investment and Cost method 24,000,000.00 - - - - 24,000,000.00 - - Development Ltd. Hangzhou Hik Robotic Technology Ltd. Cost method 54,825,970.00 - - - 1,341,850.44 56,167,820.44 - - Hangzhou Hikvision Investment Management Cost method 100,000.00 - - - - 100,000.00 - - Ltd. Hangzhou Hik Automotive Technology Ltd. Cost method 92,346,510.60 - - - 233,503.76 92,580,014.36 - - Hangzhou Hik Automotive Software Ltd. Cost method - - - - 939,056.54 939,056.54 - - Tianjin Hikvision System Technology Ltd. Cost method 10,000,000.00 - - - - 10,000,000.00 - - Hangzhou Hikvision Communication Cost method 7,000,000.00 - - - - 7,000,000.00 - - 149 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Increase/Decrease during the current reporting period Provision for Provision for Accounting Opening impairment losses Name of investee Investment Income Increase due to Closing balance impairment method balance Additional Decrease for the current recognized based granting share losses investment investment reporting period on equity method options Technology Ltd. Hangzhou Hik Weiying Sensory Technology Cost method 60,000,000.00 - - - - 60,000,000.00 - - Ltd. Wuhan Hik Storage Technology Ltd. Cost method 60,000,000.00 - - - - 60,000,000.00 - - Hangzhou Hik Intelligent Technology Ltd. Cost method - - - - 277,949.06 277,949.06 - - Chengdu Hikvision Digital Technology Ltd. Cost method 80,000,000.00 - - - - 80,000,000.00 - - HDT International Ltd. Cost method 87,786.14 - - - - 87,786.14 - - Prama Hikvision Indian Private Limited Cost method 1,585,696.80 - - - - 1,585,696.80 - - Hikvision International Co.,Limited Cost method 79,423.52 - - - - 79,423.52 - - Hikvision Australia PTY Ltd. Cost method 2,866,850.00 - - - - 2,866,850.00 - - Hikvision Singapore Pte. Ltd. Cost method 1,900,590.00 - - - - 1,900,590.00 - - Hikvision South Africa (Pty) Ltd. Cost method 1,578,650.00 - - - - 1,578,650.00 - - Hikvision FZE Cost method 1,870,351.40 - - - - 1,870,351.40 - - Hikvision do Brasil Comercio de Cost method 4,579,750.50 - - - - 4,579,750.50 - - Equipamentos de Segurana Ltda. Hikvision LLC Cost method 647,249.19 - - - - 647,249.19 - - Cooperative Hikvision Europe U.A. Cost method 65,485.53 - - - - 65,485.53 - - Hikvision Korea Limited Cost method 1,535,850.00 - - - - 1,535,850.00 - - Hikvision Colombia SAS Cost method 1,337,440.00 - - - - 1,337,440.00 - - 150 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Increase/Decrease during the current reporting period Provision for Provision for Accounting Opening impairment losses Name of investee Investment Income Increase due to Closing balance impairment method balance Additional Decrease for the current recognized based granting share losses investment investment reporting period on equity method options LLC Hikvision Tashkent Cost method 4,758.69 - - - - 4,758.69 - - Hikvision Turkey Technology And Security Cost method 1,148,115.83 - - - - 1,148,115.83 - - Systems Commerce Corporation Chongqing Hikvision Science and Technology Cost method 100,000,000.00 - - - - 100,000,000.00 - - Ltd. Hikvision USA, Inc. Cost method 1,546,160.00 - - - - 1,546,160.00 - - Hikvision Canada Inc. Cost method 994,442.54 - - - - 994,442.54 - - Henan Hua’An Bao Quan Intelligent Cost method 67,475,000.00 - - - - 67,475,000.00 - - Development Ltd. Beijing Hikvision Security and Protection Cost method 10,000,000.00 - 10,000,000.00 - - - - - Technology Service Ltd. Henan Hik Hua’An Bao Quan Electronics Ltd. Cost method 510,000.00 - - - - 510,000.00 - - Hangzhou Hikvision Science and Technology Cost method 1,015,206,036.40 - - - 2,936,722.96 1,018,142,759.36 - - Ltd. Hangzhou Hikvision Electronics Ltd. Cost method 397,745,645.00 - - - - 397,745,645.00 - - Beijing Brainaire Storage Technology Ltd. Cost method 95,878,126.85 - - - - 95,878,126.85 - - Xi’An Hikvision Digital Technology Ltd. Cost method - 33,000,000.00 - - - 33,000,000.00 - - Hangzhou EZVIZ Software Ltd. Cost method - - - - 2,221,880.94 2,221,880.94 - - Wuhan Hikvision Science and Technology Cost method - 55,150,000.00 - - - 55,150,000.00 - - Ltd. 151 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Increase/Decrease during the current reporting period Provision for Provision for Accounting Opening impairment losses Name of investee Investment Income Increase due to Closing balance impairment method balance Additional Decrease for the current recognized based granting share losses investment investment reporting period on equity method options Hangzhou Huiying Technology Ltd. Cost method - 15,000,000.00 - - - 15,000,000.00 - - Equity Wuhu Sensor Technology Ltd. 38,207,959.74 - - (605,746.30) -- 37,602,213.44 - - method Equity Maxio Technology (Hangzhou) Ltd. 46,400,992.55 27,000,000.00 - 2,236,732.04 75,637,724.59 - - method Total 3,367,076,734.95 630,150,000.00 10,000,000.00 1,630,985.74 22,301,934.92 4,011,159,655.61 - - As of June 30th 2018, there were no restrictions on the capability of transferring fund to the Company from investees in which the Company held long-term equity investment. 152 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 4. Operating income and operating cost Unit:RMB 2018 First Half Year 2017 First Half Year Item Income Cost Income Cost Operating income 8,256,611,162.57 2,472,684,680.13 6,798,573,690.37 2,251,271,391.25 Other operating 881,033,053.99 138,278,910.63 710,968,437.01 99,917,571.80 income Total 9,137,644,216.56 2,610,963,590.76 7,509,542,127.38 2,351,188,963.05 5. Investment income (1) Details of investment income Unit:RMB Item 2018 First Half Year 2017 First Half Year Long-term equity investment income measured by cost method - (7,379,719.62) Long-term equity investment income measured by equity method 1,630,985.74 (1,409,148.78) Investment loss on disposal of long-term equity investment (9,994,028.47) - Investment gains (losses) for available-for-sale financial assets 12,256,000.00 8,505,842.42 during the holding period Gain (loss) on disposal of financial assets at fair value through - 4,064,470.64 current profit and loss Investment income from redemption of bank finance products 64,686,053.30 29,315,524.76 upon expiry Total 68,579,010.57 33,096,969.42 6. Related party transactions (1) Sales and purchase of goods, provision of services and receiving services Purchase of goods/receiving of services: Unit:RMB Amount for 2018 first half Amount for 2017 first half Related party Transaction type year year Purchase of materials and Subsidiaries of Hikvision (Note) 2,918,246,037.89 2,793,186,245.21 receiving of services Purchase of materials and Subsidiaries of CETE 244,100.92 37,490.97 receiving of services Maxio Technology and its Purchase of materials and 44,208,712.51 23,584,904.76 subsidiaries receiving of services Total 2,962,698,851.32 2,816,808,640.94 Note: Subsidiaries of Hikvision are subsidiaries of the Company. See Note (VII) for details. 153 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Sales of goods/rendering of services: Unit:RMB Amount for 2018 first half Amount for 2017 first half Related party Transaction type year year Sales of products and Subsidiaries of Hikvision 6,365,104,835.26 4,996,070,218.10 rendering of services Sales of products and Subsidiaries of CETE 27,754,100.86 10,109,281.20 rendering of services Sales of products and Zhejiang Tuxun - 419,664.11 rendering of services Total 6,392,858,936.12 5,006,599,163.41 Statement of capital deposits: Unit: RMB Content of related Amount occurred in Balance at the end Amount occurred Related Party Opening Balance party transaction the current year of the year during last year Subsidiaries of CETE Deposit into fixed - 1,000,000,000.00 200,000,000.00 1,000,000,000.00 (Note) deposits Subsidiaries of CETE Deposit into call (500,000,000.00) - - 500,000,000.00 (Note) deposits Total (500,000,000.00) 1,000,000,000.00 200,000,000.00 1,500,000,000.00 Note: the Company has deposited fixed deposits and call deposits into China Electronic Technology Finance Ltd. during the current reporting period. Those transactions above were executed at market prices or at the prices agreed by both parties. (2) Guarantees with related parties During 2018 first half year, the Company has provided guarantees for its 17 wholly-owned and majority-owned subsidiaries in an amount not exceeding an equivalent of RMB 22.45 billion (2017 first half year:equivalent of RMB 14.05 billion), including the joint liability guarantee for the payment obligations on purchase from suppliers in an amount not exceeding an equivalent of RMB 2.5 billion (2017 first half year: equivalent of RMB 1.2 billion), and the joint liability guarantee for the general credit limit applied from commercial banks and other financial institutions or other financing methods through agreed methods in an amount not exceeding an equivalent of RMB 19.95 billion (2017 first half year: equivalent of RMB 12.85 billion). See Note (X) 5 for details in relation to the guarantee provided for Safety Chongqing Project by the Company. 154 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 7. Receivables from related parties and payables to related parties (1) Receivables from related parties Unit:RMB Closing balance Opening balance Item Related party Carrying balance Bad debt provision Carrying balance Provision Accounts Subsidiaries of 13,796,384,041.54 690,039,155.37 10,839,522,465.63 542,196,076.58 receivable Hikvision Accounts Subsidiaries of CETE 38,632,794.97 2,548,567.73 24,170,969.21 1,526,150.68 receivable Total 13,835,016,836.51 692,587,723.10 10,863,693,434.84 543,722,227.26 Subsidiaries of Other receivables 941,945,934.48 47,097,296.72 425,722,254.59 21,286,112.72 Hikvision Maxio Technology Other receivables - - 13,500,000.00 675,000.00 and its subsidiaries Total 941,945,934.48 47,097,296.72 439,222,254.59 21,961,112.72 Subsidiaries of Prepayments 12,810,572.77 - 3,349,033.66 - Hikvision Prepayments Subsidiaries of CETE 121,105.90 - - - Total 12,931,678.67 - 3,349,033.66 - Dividend Subsidiaries of - - 2,550,000.00 - receivables Hikvision Total - - 2,550,000.00 - (2) payables to related parties Unit:RMB Item Related party Closing balance Opening balance Accounts payable Subsidiaries of Hikvision 43,633,182.34 54,312,472.11 Accounts payable Subsidiaries of CETE 131,595.72 1,314.27 Total 43,764,778.06 54,313,786.38 Receipts in advance Subsidiaries of Hikvision 7,065,855.56 1,228,879.80 Receipts in advance Subsidiaries of CETE 50,609.41 47,751.41 Total 7,116,464.97 1,276,631.21 Other payables Subsidiaries of Hikvision 1,064,627,656.46 610,605,005.68 Other payables Subsidiaries of CETE 150,000.00 150,000.00 Other payables Shanghai Fullhan Micro 100,000.00 100,000.00 155 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Item Related party Closing balance Opening balance Total 1,064,877,656.46 610,855,005.68 8. Supplementary information to the cash flow statement (1) Supplementary information to the cash flow statement Unit:RMB Supplementary information 2018 First Half Year 2017 First Half Year 1. Reconciliation of net profit to cash flows from operating activities: Net profit 3,419,933,143.36 3,100,858,413.44 Add: Assets impairment 280,443,036.30 156,626,616.68 Depreciation of fixed assets 104,727,970.04 71,073,919.61 Amortization of intangible assets 19,161,104.18 11,122,295.66 Losses (gains) on disposal of fixed assets, intangible (3,744,349.94) (2,324,953.32) assets and other long-term assets Retirement losses on fixed assets, intangible assets and 259,406.67 - other long-term assets Losses (gains) from change in fair value (53,740,407.58) Financial expenses 183,179,929.97 41,298,277.77 Investment income (68,579,010.57) (33,096,969.42) Share-based payment through equity settlement 58,196,865.58 71,212,805.16 Change in other monetary funds (193,406,912.36) - Decrease (Increase) in deferred income tax assets (46,381,516.48) (16,661,233.80) Decrease (increase) of inventories 98,516,066.70 (105,490,368.20) Decrease (Increase) in operating receivables (3,451,566,482.37) (2,247,984,881.97) Increase (Decrease) in operating payables (244,597,810.07) 705,185,191.40 Increase (Decrease) in deferred income 62,764,563.01 - Net cash flow from operating activities 218,906,004.02 1,698,078,705.43 2. Major investing and financing activities not involving cash receipt and payment: 3. Net change in cash and cash equivalents: Closing balance of cash 9,501,525,877.07 10,618,227,114.21 Less: Opening balance of cash 12,304,082,533.11 10,245,969,003.13 Add: Closing balance of cash equivalents Less: Opening balance of cash equivalents Net increase in cash and cash equivalents (2,802,556,656.04) 372,258,111.08 156 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 (2) Composition of cash and cash equivalents Unit:RMB Item Closing balance Opening balance I. Cash 9,501,525,877.07 12,304,082,533.11 Including: Cash on hand 258,669.21 378,292.56 Bank deposit for payment at any time 9,501,060,628.84 12,303,704,240.55 Other monetary funds for payment at any time 206,579.02 - II. Cash equivalents - - III. Closing balance of cash and cash equivalents 9,501,525,877.07 12,304,082,533.11 On June 30th 2018, the Company’s closing balance of other monetary funds was RMB 193,621,672.26 (December 31st 2017: RMB 8,180.88), of which RMB 193,415,093.24 were various guarantee deposits (December 31st 2017: RMB 8,180.88), not cash or cash equivalents. XVI. Supplementary information 1. Details of current non-recurring gains and losses Unit:RMB Description Item Amount Profit or loss from disposal of non-current assets 3,763,578.84 / The government subsidies included in the current profits and losses (excluding the government subsidy3 closely related to regular course of business of the Company and 32,403,527.17 / government subsidy based on standard quota or quantitative continuous enjoyment according to the state industrial policy) Held- for-trading financial assets, profits and losses from change in fair value of held-for-trading financial liabilities, and investment income from disposal of held-for-trading 69,626,477.45 / financial assets and liabilities and available-for-sale financial assets excluding the effective hedging business related to the regular business operation of the Company Other non-operating income and expense except the items 57,609,365.54 / mentioned above Impact of income tax (24,177,242.28) / The impact of minority equity (1,101,132.11) / Total 138,124,574.61 / 2. Return on net assets and earnings per share The return on net assets and earnings per share have been prepared by Hangzhou Hikvision Digital Technology Co., Ltd. in accordance with the Information Disclosure and Presentation Rules for Companies Making Public Offering of Securities No. 9 – Calculation and Disclosure of Return on Net Assets and Earnings per Share (Revised in 2010) issued by China Securities Regulatory Commission. Unit:RMB 3 Please refer to Note (V) 46 for details about government subsidy, which is closely related to daily operations of the Company. 157 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Weighted average Earnings per share Profit for the reporting period return on net Diluted earnings per assets (%) Basic earnings per share share Net profit attributable to ordinary shareholders of the 13.08% 0.449 0.449 Company Net profit excluding non-recurring items of profit or loss 12.65% 0.434 0.434 attributable to ordinary shareholders of the Company 158 Hikvision 2018 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2018 to June 30th 2018 Section XI Documents Available for Reference 1. The financial report was signed by the Company's legal representative. 2. The financial report was signed and sealed by the person in charge of the Company, the person in charge of accounting work and person in charge of accounting organization. 3. Original copy of all the Company's documents and announcements were published on the newspapers designated by CSRC within the reporting period. The above documents are completely placed at the Company's board of directors’ office. Hangzhou Hikvision Digital Technology Co., Ltd. Chairman: Chen Zongnian July 21st 2018 Note: This document is a translated version of the Chinese version 2018 Half Year Report (“2018 年半年 度报告”), and the published announcements in the Chinese version shall prevail. The complete published Chinese 2018 Half Year Report may be obtained at www.cninfo.com.cn. 159