Hangzhou Hikvision Digital Technology Co., Ltd. 2021 Half Year Report January to June 2021 July 24th 2021 Hikvision 2021 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 accounting work, and Zhan Junhua, the person in charge of accounting department (accounting supervisor) hereby declare and warrant that the financial statements in this half year report are authentic, accurate and complete. All directors of the Company have attended the board meeting to review this report. The half year proposal of profit distribution or 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 shares, or distribute shares from capital reserve during the current reporting period. Note: This document is a translated version of the Chinese version 2021 Half Year Report (“2021 年半年 度报告”), and the published announcements in the Chinese version shall prevail. The complete published Chinese 2021 Half Year Report may be obtained at www.cninfo.com.cn. 1 Hikvision 2021 Half Year Report Please read the full annual report and pay particular attention to the following risk factors: 1) Global COVID-19 epidemic risk: The global threat of COVID-19 epidemic has not yet been eliminated, and there are uncertainties in economic development. If the epidemic situation in the area where the Company's business is located intensifies, the adverse impact on the Company's business operations will increase accordingly. 2) Supply chain risks: COVID-19 epidemic and political conflicts have brought adverse impact on the global raw material supply system. The Company has been making efforts to enhance management for our supply chain and optimize inventory adjustments and controls. However, if systemic risks arise in the global supply chain, the Company’s operating capabilities may be affected. 3) Risk of technology upgrade: Technologies such as artificial intelligence (AI), big data, cloud computing, and edge computing are developing rapidly. The speed of technology diffusion is accelerating. If the Company is unable to closely track and adapt to the changes in cutting-edge technologies, or fails to quickly realize business innovation, the risk of uncertainty in the company's future development will increase. 4) Risk of internal management: The continual expansion of business scale, the continuous increase of new products and new businesses, and the continuous growth in total number of employees led to a significant rise of internal management complexity and higher requirements on the Company's management system. The Company’s sustainable development will face certain risks if the management level fails to proportionally address the Company’s business expansion. 5) Global business risks: The Company operates in more than 150 countries and regions around the world. As the potential risks of epidemic, debt issues, political conflicts, and exchange rate fluctuations in various countries around the world are difficult to eliminate, the Company’s overseas business operations may be adversely affected. 6) Legal and compliance risk: The world's multilateral trading system is facing adverse impacts. The laws and regulations of various regions that need to be complied with for business activities are very complicated. China and overseas countries have stricter data supervision and business compliance requirements. If the Company's legal compliance capbilities cannot keep up with the situation, it will bring adverse impacts on the Company's operations. 2 Hikvision 2021 Half Year Report 7) Risk of exchange rate fluctuation: The Company carries out operations in various countries and regions with different currencies, mainly settled in non-RMB currency (mainly in USD). Exchange rate fluctuations could have impact on foreign exchange exposures arising out of sales, procurement and financing, which could likely affect the profitability level of the Company. 8) Risk of cybersecurity: The Company has always attached great importance and taken active measures to enhance cybersecurity performance of our products and systems. However, in the context of Internet applications, there is still a possibility of deliberate attempts, including computer viruses, malicious software, hacker and others to intentionally attack our systems or products, causing cybersecurity issues. 9) Risk of intellectual property (IP) rights: The Company continues to maintain a relatively large scale of R&D investment, and produces considerable technical milestones. At the same time, the Company implements well-organized intellectual property right (IPR) protection measures. However, the risk of intellectual property disputes and the risk of intellectual property rights violations still exist. The above notices might not be all-inclusive of all other potential risks. Please pay attention to potential investment risks. 3 Hikvision 2021 Half Year Report CONTENTS Section I Important Notes, Contents and Definitions ...................................................................................... 1 Section II Corporate Profile & Key Financial Data......................................................................................... 7 Section III Management Discussion and Analysis ......................................................................................... 11 Section IV Corporate Governance .................................................................................................................. 29 Section V Environmental and Social Responsibility ...................................................................................... 33 Section VI Significant Events ........................................................................................................................... 34 Section VII Changes in Shares and Information about Shareholders ......................................................... 49 Section VIII Information of Preferred Shares ............................................................................................... 63 Section IX Bonds ............................................................................................................................................... 64 Section X Financial Report .............................................................................................................................. 65 Section XI Documents Available for Reference ........................................................................................... 207 Section XII Other Disclosure Information ................................................................................................... 208 4 Hikvision 2021 Half Year Report Definitions Term Definition Reporting Period From January 1st 2021 to June 30th 2021 Articles of Associations Articles of Associations for Hangzhou Hikvision Digital Technology Co., Ltd Hikvision, our Company, the Hangzhou Hikvision Digital Technology Co., Ltd Company CETC China Electronics Technology Group Ltd., the actual controller of the Company CETHIK CETHIK Group Co., Ltd. Controlling Shareholder of the Company Hangzhou Qianmo Jiaying Equity Investment Partnership (Limited Partnership) Qianmo Jiaying (formerly Hangzhou Hikvision Equity Investment Partnership (Limited Partnership)) EZVIZ, EZVIZ Network, Hangzhou EZVIZ Network Co., Ltd.(According to the context, also refers to the Smart Home corresponding business) HikRobot Hangzhou Hikrobot Technology Co., Ltd. (According to the context, also refers to the corresponding business) HikAuto Hangzhou HikAuto Technology Co., Ltd. (According to the context, also refers to the corresponding business) HikMicro Hangzhou Hikmicro Sensing Technology Co., Ltd. (According to the context, also refers to the corresponding business) HikSemi, Hikstorage Wuhan Hikstorage Technology Co., Ltd. (According to the context, also refers to the corresponding business) HikImaging Hangzhou Hikimaging Technology Co., Ltd. (According to the context, also refers to the corresponding business) HikFire Hangzhou Hikfire Technology Co., Ltd. (According to the context, also refers to the corresponding business) HikSecurityCheck, Hangzhou Rayin Technology Co,. Ltd. (According to the context, also refers to the HikRayin corresponding business) Hangzhou Innovation Located in Hangzhou, Zhejiang Province, the planned use is for R&D, office space Industry Park and supporting facilities. Chengdu Science and Located in Chengdu, Sichuan Province, the planned use is for R&D, office space Technology Park and supporting facilities. Chongqing Science and Located in Chongqing, the planned use is for production plants, warehouses and Technology Park supporting facilities. Xi’an Science and Located in Xi'an, Shaanxi Province, the planned use is for R&D, office space and Technology Park supporting facilities. Shijiazhuang Science and Located in Shijiazhuang City, Hebei Province, the planned use is R&D, office Technology Park space and supporting facilities. 5 Hikvision 2021 Half Year Report Term Definition Wuhan Science and Located in Wuhan, Hubei Province, the planned use is for R&D, office space and Technology Park supporting facilities. Wuhan Intelligence Industry Located in Wuhan, Hubei Province, the planned use is for production plants, Park warehouses and supporting facilities. Zhengzhou Science and Located in Zhengzhou, Henan Province, the planned use is R&D, office space and Technology Park supporting facilities, etc. EZVIZ smart home product industry park, located in Hangzhou, Zhejiang Province, EZVIZ Industry Park is planned to be used for R&D, office space and supporting facilities of Hangzhou EZVIZ Network Co., Ltd. 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 Innovative Business (《核心员工跟投创新业务管理办法》) (www.cninfo.com.cn). In this report, innovative business also refers to EZVIZ, HikRobot, HikAuto, HikMicro, HikStorage, HikImaging, HikFire, HikRayin and their related business or products. 6 Hikvision 2021 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 杭州海康威视数字技术股份有限公司 Abbr. of the Company name in Chinese (if any) 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 Zhou Xinyi No. 518 WuLianWang Street, Binjiang No. 518 WuLianWang Street, Binjiang Address District, Hangzhou District, Hangzhou Tel. 0571-88075998; 0571-89710492 0571-89710492 Fax 0571-89986895 0571-89986895 E-mail hikvision@hikvision.com hikvision@hikvision.com III. Other Relevant Information 1. Company’s contact information Whether there is any change in the Company’s registered address, office address, zip code, company website or company email address during the reporting period. □Applicable √Inapplicable There is no change in the Company’s registered address, office address, zip code, company website or company email address during the reporting period. Please refer to 2020 Annual Report for details. 2. Information disclosure and place of the report Whether there is alteration in information disclosure and place of the report during the current reporting period. √ Applicable □Inapplicable 7 Hikvision 2021 Half Year Report Newspaper designated by the Company for information disclosure Securities Times, China Securities Journal Website for release of the Half Year Report www.cninfo.com.cn Place where the Half Year Report is available for inspection Office of the Board of Directors of the Company 3. Other relevant information Whether other relevant information has changed during the current reporting period □ Applicable √ Not applicable IV. Key accounting data and Financial Indicators Whether the Company performed a retrospective adjustment or restatement of previous accounting data □Yes √No Unit: RMB First half year of 2021 First half year of 2020 YoY Change (%) Operating income (RMB) 33,902,098,368.10 24,271,159,243.76 39.68% Net profit attributable to shareholders of 6,481,424,653.39 4,623,972,830.87 40.17% the Company (RMB) Net profit attributable to shareholders of the Company excluding non-recurring 6,221,476,627.98 4,463,498,377.68 39.39% gains and losses (RMB) Net cash flows from operating activities 1,962,853,772.15 69,966,340.57 2,705.43% (RMB) Basic earnings per share (RMB/share) 0.695 0.493 40.97% Diluted earnings per share (RMB/share) 0.695 0.493 40.97% Weighted average ROE 11.62% 9.75% 1.87% Change(%) between On December 31st On June 30th 2021 December 31st 2020 and 2020 June 30th 2021 Total assets (RMB) 87,118,829,064.12 88,701,682,384.20 -1.78% Net assets attributable to shareholders of 52,905,875,478.79 53,794,311,162.05 -1.65% the Company (RMB) The total share capital of the Company as of the previous trading day of the annual report disclosure: The total share capital of the Company as of the previous trading day of the annual report disclosure 9,335,806,114 (share) Fully diluted earnings per share (RMB/share) calculated with the latest share capital 0.6943 8 Hikvision 2021 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. 3. Explanation of the differences in accounting data under domestic and overseas accounting standards □ Applicable √ Inapplicable 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 -1,805,042.17 impairment provision of assets) The government subsidies included in the current profits and losses (excluding the government subsidy closely related to regular course of business of the Company and 224,341,379.44 government subsidy based on standard quota or quantitative continuous application according to the state industrial policy.) Profits and losses attributed to change in fair value for held-for-trading financial assets, derivative financial assets, held-for-trading financial liabilities, and derivative financial liabilities; and investment income from disposal of held-for-trading financial assets, 45,938,231.46 derivative financial assets, held-for-trading financial liabilities, derivative financial liabilities and other debt investments, 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 28,546,193.64 Less: Impact of income tax 12,489,507.02 Impact of the minority interests (after tax) 24,583,229.94 Total 259,948,025.41 9 Hikvision 2021 Half Year Report Explain the reasons if the Company classifies an item as a non-recurring gain/loss according to the definition in the, or classifies any non-recurring gain/loss item mentioned in the aforementioned note as a recurrent gain/loss item □ Applicable √ Inapplicable In the reporting period, the Company did not classify an item as a non-recurring gain/loss according to the definition in the into a recurrent gain/loss item 10 Hikvision 2021 Half Year Report Section III Management Discussion and Analysis I. The principal business of the Company during the reporting period There was no significant change for the principal business of the Company during the current reporting period. Please refer to 2020 Annual Report for details. II. Core Competitiveness Analysis There was no significant change in the Company's core competitiveness during the current reporting period. For details, Please refer to 2020 Annual Report for details. III. Core business analysis Whether consistent with the Company’s core business disclosure during the current reporting period √ yes □ no In the first half year of 2021, some countries and regions continued to suffer periodical economic stagnation and recession as the outbreak of COVID-19 epidemic was not effectively controlled. At the same time, the U.S. government continued to put pressure on Chinese science-and-technology enterprises, which further affected global supply chains and market conditions. In the face of the conflicts and changes in the global environment, the Company has always taken technological innovation as the most important means for its survival and development, and has continued to promote its sound development. During the reporting period, the Company achieved a total operating income of RMB 33.90 billion, with year over year growth of 39.68%; the net profits attributable to shareholders of the listed company was RMB 6.48 billion, with year over year growth of 40.17%. The Company's overall gross profit margin for the first half year of 2021 was 46.30%. (1) Increase inputs in R&D and consolidate basic capabilities to embrace opportunities and challenges During the reporting period, the Company continued to adhere to technological innovation and maintained inputs in research and development (R&D). In the first half year of 2021, the Company invested RMB 3.88 billion 11 Hikvision 2021 Half Year Report in R&D, which accounted for 11.44% of the Company's operating income, representing a further increase of the R&D expense ratio. In terms of hardware, the Company continued to strengthen its dominant position in the field of video products, and actively implemented intellectualized upgrade of non-video products. In terms of software, the Company continued to build its supporting capacities for large system software so as to support the rapid development and iteration of industry applications. Hikvision continues to improve its technology system with IoT perception, artificial intelligence and big data as the core, and its comprehensive competitiveness is further enhanced. (2) Forge ahead with determination, innovative businesses is creating a new pattern During the reporting period, the spin-off of smart home business was steadily and orderly rolled out, and EZVIZ Network as a whole was changed to a limited liability company by shares and entered the stage of pre-listing counseling period. With solid accumulation of algorithm and strong hardware and software development capabilities, Hikrobot focused on mobile robot and machine vision business, and continued to help the development of global intelligent manufacturing. Other innovative businesses continued to develop rapidly and gradually openning up new opportunities. The innovative businesses as a whole accounted for 16.46% of the Company's revenue in the first half year of 2021 and is gradually becoming a new driving force for the Company's further development. (3) Conduct prudent operation and ensure supply chain security During the reporting period, the Company worked closely with its supplier partners and continued the high inventory strategy for raw materials, continuously promoting the replenishment and optimization of raw materials to cope with the uncertainty of overseas political and epidemic situations and to safeguard the supply chain. Meanwhile, the Company strengthened the fine management of supply chain, optimized delivery efficiency, and ensured stable delivery of products and solutions. (4) Improve operations and continue to promote the construction of a compliance system Hikvision has always adhered to the business philosophy of "professionalism, integrity and honesty". Facing external pressure, the Company has strengthened its cost control and optimization efforts and strived to improve its internal operation. Meanwhile, the Company continues to promote the construction of a global compliance system 12 Hikvision 2021 Half Year Report to further drive internationalization of the Company's governance system and control level, and to ensure a healthy and sustainable business development. Year-over-Year Changes in Key financial data Unit: RMB First half year of First half year of YoY (%) Note of Change 2021 2020 Market demand has grown steadily, and Operating Income 33,902,098,368.10 24,271,159,243.76 39.68% operating income has grown accordingly Increase in accordance with operating Operating costs 18,205,195,764.46 12,193,719,945.38 49.30% income growth Selling expenses 4,190,678,349.80 3,420,291,518.42 22.52% No significant change Administrative expenses 880,577,747.56 864,959,489.94 1.81% No significant change Affected by fluctuation in foreign Financial expenses -122,524,438.07 -227,972,206.73 46.25% exchange rate, increase in foreign currency exchange losses The evaluation and appraisal time period of key software company for the Company was inconsistent (the evaluation and appraisal time period of the previous Income Tax Expenses 427,530,365.26 952,552,145.97 -55.12% year was in the third quarter), led to inconsistent confirmation and recognition time period for income tax settlement and tax difference, resulting in fluctuations R&D investments 3,877,769,884.09 3,063,423,679.69 26.58% No significant change Net cash flows from Operating 1,962,853,772.15 69,966,340.57 2705.43% Increase in sales collection in this period Activities Net cash flows from Investment -1,093,875,260.68 -1,494,484,813.41 26.81% No significant change Activities Increase in net outflow of borrowings and Net cash flows from Financing -8,179,553,539.73 -3,478,066,296.84 -135.18% dividend payments during the current Activities reporting period Affected by the increase in financing Net increase in cash and cash -7,384,873,758.46 -4,892,161,050.91 -50.95% expenditures in the current reporting equivalents 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. 13 Hikvision 2021 Half Year Report Operating income structure Unit:RMB First half year of 2021 First half year of 2020 YoY Change Proportion to Proportion to (%) Amount Amount operating income operating income Total operating income 33,902,098,368.10 100.00% 24,271,159,243.76 100.00% 39.68% Classified by industry Video products and video 33,902,098,368.10 100.00% 24,271,159,243.76 100.00% 39.68% services Classified by product/business Products and Services 27,912,531,793.59 82.33% 21,460,287,527.81 88.42% 30.07% Constructions 411,198,176.84 1.21% 300,094,975.52 1.24% 37.02% Subtotal 28,323,729,970.43 83.54% 21,760,382,503.33 89.66% 30.16% 1,871,108,774.85 5.52% 1,179,170,706.81 4.86% 58.68% Smart home business Robotic business 1,220,189,435.48 3.60% 542,724,420.13 2.23% 124.83% Other innovative businesses 2,487,070,187.34 7.34% 788,881,613.49 3.25% 215.27% Note Subtotal 5,578,368,397.67 16.46% 2,510,776,740.43 10.34% 122.18% Classified by region 24,434,618,189.74 72.07% 16,728,998,825.16 68.93% 46.06% Domestic Overseas 9,467,480,178.36 27.93% 7,542,160,418.60 31.07% 25.53% Note: “Other innovative businesses” include products of the corresponding businesses of the innovative business subsidiary HikAuto, HikMicro, HikSemi, HikImaging, HikFire, Rayin and others. Same below. Composition of operating income of the three major business groups in ChinaNote Unit: 100mn First half year of 2021 First half year of 2020 YoY Change (%) PBG 77.17 59.68 29.31% EBG 72.19 59.14 22.07% SMBG 61.74 30.00 105.80% Total 211.10 148.82 41.85% Note: Some innovative business products rely on the sales of the three major business groups. The sales statistics of the business groups are divided by the sales responsible unit, but the sales statistics of the product / innovation business are divided by product forms. 14 Hikvision 2021 Half Year Report 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 33,902,098,368.10 18,205,195,764.46 46.30% 39.68% 49.30% -3.46% video services Classified by product/business Products and Services 27,912,531,793.59 14,658,060,589.78 47.49% 30.07% 40.72% -3.98% Constructions 411,198,176.84 291,842,825.70 29.03% 37.02% 24.06% 7.42% Subtotal 28,323,729,970.43 14,949,903,415.48 47.22% 30.16% 40.35% -3.83% Smart home business 1,871,108,774.85 1,172,850,667.99 37.32% 58.68% 58.16% 0.21% Robotic business 1,220,189,435.48 642,233,986.43 47.37% 124.83% 136.14% -2.52% Other innovative 2,487,070,187.34 1,440,207,694.56 42.09% 215.27% 172.60% 9.06% businesses Subtotal 5,578,368,397.67 3,255,292,348.98 41.64% 122.18% 111.13% 3.05% Classified by region 24,434,618,189.74 13,251,763,818.92 45.77% 46.06% 49.62% -1.28% Domestic Overseas 9,467,480,178.36 4,953,431,945.54 47.68% 25.53% 48.46% -8.08% When the statistical caliber of the Company's main business data is adjusted during the reporting period, the Company's main business data would be adjusted according to the end of the reporting period in the most recent period. □ Applicable √ Inapplicable Operating cost structure Classified by industry Unit: RMB First half year of 2021 First half year of 2020 Increase/ Industry Item Proportion to Proportion to decrease over Amount Amount operating cost operating cost previous year Video products and video Operating cost 18,205,195,764.46 100.00% 12,193,719,945.38 100.00% 49.30% services 15 Hikvision 2021 Half Year Report Classified by product/business Unit: RMB First half year of 2021 First half year of 2020 YoY Change Product/business Item Proportion to Proportion to Amount Amount (%) operating cost operating cost Products and Operating cost 14,658,060,589.78 80.52% 10,416,612,740.28 85.43% 40.72% Services Constructions Operating cost 291,842,825.70 1.60% 235,236,267.84 1.93% 24.06% Subtotal Operating cost 14,949,903,415.48 82.12% 10,651,849,008.12 87.36% 40.35% Smart home Operating cost 1,172,850,667.99 6.44% 741,575,630.80 6.08% 58.16% business Robotic business Operating cost 642,233,986.43 3.53% 271,967,778.00 2.23% 136.14% Other innovative Operating cost 1,440,207,694.56 7.91% 528,327,528.46 4.33% 172.60% businesses Subtotal Operating cost 3,255,292,348.98 17.88% 1,541,870,937.26 12.64% 111.13% Explanations on relevant data changed for more than 30% on a year-over-year base √Applicable □Inapplicable Affected by the COVID-19 epidemic in the first half year of 2020, the Company's performance had been significantly impacted. In 2021, the economy is recovering, and various business sectors are growing rapidly, while various innovative businesses have also maintained rapid growth. IV. Non-Core Business Analysis □Applicable √Inapplicable V. Analysis of assets and liabilities 1. Material changes of asset items Unit:RMB June 30th 2021 December 31st 2020 YoY Percentage Percentage Change Note of significant change Amount of total Amount of total (%) assets assets Cash dividend distributions lead Cash and bank balances 27,732,252,975.47 31.83% 35,459,729,108.27 39.98% -8.15% to a decrease in monetary funds Accounts receivable 23,802,312,768.61 27.32% 21,979,380,716.86 24.78% 2.54% No significant change Contract assets 184,239,074.35 0.21% 245,754,510.98 0.28% -0.07% No significant change 16 Hikvision 2021 Half Year Report June 30th 2021 December 31st 2020 YoY Percentage Percentage Change Note of significant change Amount of total Amount of total (%) assets assets Expansion of production and Inventories 15,094,505,445.05 17.33% 11,477,906,040.70 12.94% 4.39% sales scale led to increased procurement and stocking Long-term equity No significant change 861,206,603.12 0.99% 864,026,710.23 0.97% 0.02% investment Fixed assets 6,258,625,760.95 7.18% 5,876,007,536.60 6.62% 0.56% No significant change Increase in construction investments on Science and Construction in process 1,705,622,399.38 1.96% 1,425,235,193.72 1.61% 0.35% Technology Parks in various locations Impact of the implementation of Right-of-use assets 379,766,223.73 0.44% - - 0.44% the new lease standard in 2021 decrease in demands for Short-term borrowings 3,142,918,040.93 3.61% 3,999,246,634.59 4.51% -0.90% temporary capital turnover No significant change Contract liabilities 2,490,674,992.63 2.86% 2,161,166,671.26 2.44% 0.42% Long-term borrorwings 1,911,015,151.08 2.19% 1,961,167,761.30 2.21% -0.02% No significant change Impact of the implementation of Lease liabilities 199,494,520.78 0.23% - - 0.23% the new lease standard in 2021 2. Main overseas assets □ Applicable √ Inapplicable 17 Hikvision 2021 Half Year Report 3. Assets and liabilities measured at fair value √ Applicable □ Inapplicable Unit: RMB Provision Profit or loss Cumulative for decline Purchased from change in changes in fair in value Sales amount Item Opening balance fair value during value included in during the during the Closing balance during the the current equity current period period reporting period reporting period Financial assets Derivative 22,679,846.77 9,989,549.68 32,620,061.54 financial assets Other non-current 491,939,067.27 -23,277,319.84 468,661,747.43 financial assets Receivables for 1,959,601,195.25 1,120,170,492.09 financing Subtotal of 2,474,220,109.29 -13,287,770.16 1,621,452,301.06 financial assets Financial 7,405,771.15 3,738,240.76 3,651,541.77 Liabilities Whether there were any material changes on the measurement attributes of major assets of the Company during the reporting period: □ Yes √ No 4. Assets right restrictions as of the end of reporting period Unit: RMB Item Closing Book Value (RMB) Reasons for being restricted Cash and bank balance 92,288,855.62 Various cash deposits and other restricted funds Notes receivable 610,856,089.84 Endorsed to suppliers Right-of-use assets 34,568,644.07 Right-of-use assets resulted from sale and leaseback Long-term receivables 1,812,883,463.06 Pledge for long-term borrowings Total 2,550,597,052.59 VI. Analysis of Investments 1. Overview √Applicable □ Inapplicable 18 Hikvision 2021 Half Year Report Investment during the first half year of Investment during the first half year of YoY (%) 2021 (RMB) 2020 (RMB) 1,097,198,077.60 1,309,423,538.62 -16.21% 2. Significant equity investment during the current reporting period □Applicable √Inapplicable 19 Hikvision 2021 Half Year Report 3. Significant non-equity investment during the current reporting period √ Applicable □ Inapplicable Unit: RMB Reasons for not Investment Cumulative amount of reaching Fixed assets Invest Project during the investment by the end Source of Project planned Disclosure Date Project name investment or Disclosure Index (if applicable) method industry current reporting of the current reporting funds schedule progress (if applicable) not period period and expected benefits Video Announcement on Investment and Chengdu Science and Self- product and September 23rd Construction of Chengdu Science Technology Park YES 128,026,667.79 649,653,461.12 Self-fund 32.99% None built video 2017 and Technology Park Project in Project service Chengdu (No. 2017-033) Video Announcement on Investment and Chongqing Science Self- product and September 23rd Construction of Chongqing and Technology Park YES 144,149,199.63 393,959,450.42 Self-fund 100.00% None built video 2017 Science and Technology Park in Project-phase 2 service Chongqing (No. 2017-035) Video Announcement on Investment and Hangzhou Innovation Self- product and Specific September 23rd Construction of Hangzhou YES 24,816,079.94 362,637,782.43 35.34% None Industry Park built video Loan 2017 Innovation Industry Park Project service in Hangzhou (No. 2017-034) Video Announcement on Investment and Xi’an Science and Self- product and September 23rd Construction of Xi’an Science and Technology Park YES 115,889,658.76 128,568,833.69 Self-fund 5.64% None built video 2017 Technology Park in Xi’an (2017- Project service 031) 20 Hikvision 2021 Half Year Report Reasons for not Investment Cumulative amount of reaching Fixed assets Invest Project during the investment by the end Source of Project planned Disclosure Date Project name investment or Disclosure Index (if applicable) method industry current reporting of the current reporting funds schedule progress (if applicable) not period period and expected benefits Video None Announcement on Investment and Shijiazhuang Science Self- product and Self-fund March 22nd 201 Construction of Shijiazhuang and Technology Park YES 46,522,461.29 48,583,014.75 5.41% built video 8 Science and Technology Park in Project service Shijiazhuang (2018-016) Video None EZVIZ Industry Self- product and Self-fund YES 41,416,910.43 43,748,977.51 5.48% - - Park built video service Video None Zhengzhou Science Self- product and Self-fund and Technology YES 4,800,801.74 18,330,211.27 3.78% - - built video Park Project service Video None Announcement on Investment and Wuhan Intelligence Self- product and Self-fund September 23rd Construction of Wuhan YES - 4,339,622.64 0.15% Industry Park Project built video 2017 Intelligence Industry Park in service Wuhan (2017-036) Video None Announcement on Investment and Wuhan Science and Self- product and Self-fund September 23rd Construction of Wuhan Science Technology Park YES 2,043,915.61 4,414,462.50 0.34% built video 2017 and Technology Park Project in Project service Wuhan (2017-032) 21 Hikvision 2021 Half Year Report Reasons for not Investment Cumulative amount of reaching Fixed assets Invest Project during the investment by the end Source of Project planned Disclosure Date Project name investment or Disclosure Index (if applicable) method industry current reporting of the current reporting funds schedule progress (if applicable) not period period and expected benefits Total -- -- -- 507,665,695.19 1,654,235,816.33 -- -- Note: In accordance with the Company's Authorization Management System, EZVIZ Industry Park and Zhengzhou Science and Technology Park project were approved by the chairman of the board of directors. 4. Financial asset investment (1) Securities Investments □ Applicable √ Inapplicable There no such case in the reporting period. 22 Hikvision 2021 Half Year Report (2) Derivatives Investments √ Applicable □ Inapplicable Unit: 0,000 RMB Proportion of closing investment Actual Sold Initial amount to gain or Operation amount Whether Whether Type of investment Opening Purchased amount Impairment Closing the loss party of Termination during Related related derivatives amount of Initial date investment during the reporting provisions investment Company’s during derivatives date the party transaction investment derivatives amount period (if any) amount net assets the investment reporting investment at the end reporting period of the period reporting period foreign Commercial No No exchange 351,670.38 October 21st 2020 December 351,670.38 295,153.42 269,295.04 4.99% 7,044.03 bank contract 20th 2021 Total 351,670.38 -- -- 351,670.38 295,153.42 269,295.04 4.99% 7,044.03 Capital source of derivatives investment Company’s own fund Prosecution (if applicable) Nil Announcement date for approvals of derivatives investment from the board of December 25th 2019/April 17th 2021 directors (if any) Announcement date for approvals of derivatives investment from the general May 16th 2020 meeting of shareholders (if any) 23 Hikvision 2021 Half Year Report Risk analysis and control measures (including For details of the risk analysis and control measures, please refer to the Announcement on Conducting Foreign Exchange Hedging Transactions but not limited to, market risk, liquidity risk, in 2020 (NO. 2019-065) dated December 25th 2019 and the Announcement on Conducting Foreign Exchange Hedging Transactions in 2021 credit risk, operational risk, legal risk, etc.) of (NO. 2021-030) dated April 17th 2021 of the Company holding derivatives during the reporting period Change of market price or fair value of invested derivatives during the reporting The Company’s accounting of derivatives’ fair value is mainly about the outstanding contracts signed with banks for forward exchange period; specific methods, related assumptions settlement during the reporting period. Held-for-trading financial assets/liabilities are determined with difference between the quoted price and and parameter setting of the derivatives’ fair forward exchange price in outstanding forward exchange contracts at the end of the period. value analysis should be disclosed During the current reporting period, whether there was significant changes of accounting policies and accounting principles of the Nil Company’s derivatives comparing to the prior reporting period Specific opinions on the Company’s derivatives investments and risk control from Nil independent directors VII. Disposal of significant assets and equity 1. Disposal of significant assets: □ Applicable √ Inapplicable There is no disposal of significant assets for the Company during the current reporting period. 2. Sale of significant equity: □ Applicable √ Inapplicable 24 Hikvision 2021 Half Year Report VIII. Analysis of major subsidiaries and holding companies √Applicable □Inapplicable Information about major subsidiaries, and holding companies that contribute above 10% of the Company’s net profit Company Company Registered Principal business Total assets Net assets Net profit name type capital General projects: technical services, technology development, technical consultation, technical exchanges, technology transfer, technology promotion; digital video surveillance system manufacturing; digital video surveillance system sales; security equipment manufacturing; security equipment sales; computer software, hardware and peripheral equipment manufacturing; computers Wholesale of software, hardware and auxiliary equipment; Electronic components manufacturing; electronic components wholesale; Internet of Things equipment manufacturing; Internet of Things equipment sales; mobile terminal equipment Hangzhou manufacturing; mobile terminal equipment Hikvision 1,000 Subsidiary sales; communication equipment 39,935,834,510.78 4,542,786,482.29 42,871,317.85 Technology million manufacturing; communication equipment Co., Ltd. sales; Production of special labor protection products; sales of special labor protection products; manufacturing of refrigeration and air-conditioning equipment; sales of refrigeration and air-conditioning equipment; Manufacturing of electrical machinery and equipment; sales of electrical machinery and equipment; manufacturing of transformers, rectifiers and inductors; Research and development of power distribution switch control equipment; sales of power distribution switch control equipment; sales of batteries; sales of electronic products; Artificial intelligence hardware sales; software development; computer system services; 25 Hikvision 2021 Half Year Report security system monitoring services; information technology consulting services; information system integration services; information system operation and maintenance services; Big data services; Internet data services; data processing and storage support services; Internet of Things technical services; Internet of Things application services; marketing planning (except for projects that must be approved in accordance with the law, carry out business activities independently according to law with business license). Licensed items: import and export of goods; import and export of technology (items that are subject to approval in accordance with the law can only be carried out after approval by the relevant departments, and the specific business items are subject to the approval results). 26 Hikvision 2021 Half Year Report Information about obtaining and disposal of subsidiaries during the reporting period √ Applicable □ Inapplicable Equity acquisition and disposal Company name Impact on overall production results method during the reporting period Shanghe Smart City Technology Co., Ltd. Cash contribution Business development Chongqing EZVIZ Electronics Co., Ltd. Cash contribution Business development Hangzhou EZVIZ Technology Co., Ltd. Releasing the entrustment Reorganization agreement Hundure Technology (Shanghai) Co., Ltd. Liquidation & cancellation Reorganization IX. Structural entities controlled by the Company □ Applicable √ Inapplicable X. Risks of the Company and risk response solutions During the reporting period, there was no material change in the risk exposure of the Company. For details, please refer to Section I - Important Notes. The Company has been striving to identify various risk exposures, and actively adopting countermeasures to avoid and reduce risks: (1) Risk of global epidemic outbreak: The Company strengthened epidemic control and strove to protect the health of its employees at home and abroad. Meanwhile, the Company relied on its own technical reserves and product capabilities to help control the epidemic outbreak. The Company will keep on paying close attention to the impact of the outbreak and make active adjustments to cope with the outbreak. (2) Supply chain risk: The Company made its best efforts to make appropriate arrangements for supply chain, reasonably regulated and controlled its inventory, and formulated effective alternative solutions in a timely manner. In the meantime, the Company reinforced its R&D efforts in basic areas and enhanced the accumulation of underlying fundamental technologies. (3) Risk of technological upgrading: the Company maintained its investments in R&D, explored cutting- edge technologies in depth, and held the lead in core and key technologies; The Company has formed effective and market-oriented R&D through stable and reliable R&D management, kept its products and technologies constantly responsive to market demands and achieved sustainable development of its business. (4) Internal management risk: The Company continued to implement management reforms and learn from outstanding companies, learned successful management practices and continuously optimized its organizational capabilities. 27 Hikvision 2021 Half Year Report (5) Global business risk: The Company proactively studied and researched policies, trade laws, regulations and relevant substantial changes of various countries around the world, and developed countermeasures to reduce various potential trade compliance risks. (6) Legal compliance risk: The Company continued to strengthen the construction of compliance and risk control system, conducted immediate and full-cycle risk supervision and control of business, and improved its legal compliance capability. (7) Exchange rate fluctuation risk: The Company attached great importance to the control of exchange rate risk, and hedged and avoided exchange rate risk by various means while ensuring security and liquidity. For exchange rate risk exposure, the Company actively adopted financial hedging tools (e.g., hedging), not taking speculation as the purpose, and conducted risk management in a reasonable manner. (8) Network security risk: The Company has always attached great importance to and actively taken measures to improve the security performance of its products and systems, established the product security system by setting up a professional information security team, integrated product security requirements, security design, security development, security testing and other links into the product development process, ensured continuous improvement of product and system security and provided customers with more secure products and solutions in the Internet/IoT application environment. (9) Risk of intellectual property rights: The Company has set up a professional team for intellectual property rights which is responsible for the daily management and maintenance of intellectual property rights (e.g., trademarks and patents) and for combating infringement against the Company's intellectual property rights by various legal means (e.g., administrative investigation and court litigation). 28 Hikvision 2021 Half Year Report Section IV Corporate Governance I. Annual General Meeting and Extraordinary General Meetings convened during the Reporting Period 1. Annual General Meeting convened during the reporting period Proportion of Resolution of the Meeting Nature Convened Date Disclosure Date participating Meeting investors 9 proposals including the Proposal on Election of Non-Independent Directors of the Fifth The first Extraordinary Extraordinary Session of the Board of General Meeting of General Meeting 70.0131% March 5th 2021 March 6th 2021 Directors were reviewed Shareholders in 2021 of Shareholders and voted. For details, please refer to the Company's announcement: No. 2021-020. 20 proposals including the 2020 Annual Report and Summary were Annual General reviewed and voted. For 2020 Annual General Meeting 70.2837% May 14th 2021 May 15th 2021 Meeting details, please refer to the Company's announcement: No. 2021-039. 2. Extraordinary general meetings convened at the request of preferred shareholders with resumed voting rights: □ Applicable √ Inapplicable II. Changes of directors, supervisors and senior management personnel √Applicable □Inapplicable 29 Hikvision 2021 Half Year Report Name Position Types of change Data Reason Left the position after the Gong Hongjia Director March 5th 2021 General election expiry of his tenure Left the position after the March 5th 2021 General election Cheng Tianzong Independent Director expiry of his tenure Left the position after the March 5th 2021 General election Wang Zhidong Independent Director expiry of his tenure Appointment and March 5th 2021 General election Wang Qiuchao Director dismissal Wu Xiaobo Independent Director Elected March 5th 2021 General election Hu Ruimin Independent Director Elected March 5th 2021 General election Li Shuhua Independent Director Elected March 5th 2021 General election Guan Qingyou Independent Director Elected March 5th 2021 General election Chairman of the Left the position after the March 5th 2021 General election Chneg Huifang Supervisory Board expiry of his tenure Chairman of the Appointment and March 5th 2021 General election Hong Tianfeng Supervisory Board dismissal Appointment and March 5th 2021 General election Lu Jianzhong Supervisor dismissal Left the position after the General election Gong Hongjia Vice Chairman March 12th 2021 expiry of his tenure Senior deputy general Left the position after the March 12th 2021 General election Fu Baijun manager expiry of his tenure Senior deputy general Left the position after the March 12th 2021 General election Jiang Yufeng manager expiry of his tenure Senior deputy general March 12th 2021 General election Xu Peng Hired manager Senior deputy general March 12th 2021 General election Guo Xudong Hired manager III. Profit distribution and capitalizing of capital reserves for the current reporting period □ Applicable √ Inapplicable The Company did not plan to distribute cash dividends, send bonus shares, or convert capital reserve into share capital during the first half of 2021. 30 Hikvision 2021 Half Year Report IV. The implementation of an Equity Incentive Plan, Employee Stock Incentive Plan, or other incentive plans √Applicable □Inapplicable During the reporting period, the Company has completed the third vesting, repurchase and cancellation of the 2016 Restricted Share Incentive Sheme and the first vesting, repurchase and cancellation of the 2018 Restricted Share Incentive Sheme On December 25th 2020, the Proposal on Vesting Conditional Achievements for the Third Vesting Period of the 2016 Restricted Share Incentive Scheme, the Proposal on the Third Repurchase and Cancellation of the Granted but Unvested Restricted Shares under the Restricted Share Incentive Scheme of 2016, the Proposal on Vesting Conditional Achievements for the First Vesting Period of the 2018 Restricted Share Incentive Scheme, and the Proposal on the First Repurchase and Cancellation of Granted but Unvested Restricted Shares under the Restricted Share Incentive Scheme of 2018 were deliberated and adopted by the 20th Meeting of the fourth session of the Board of Directors and the 17th Meeting of the fourth session of the Board of Supervisors of the Company. According to the authorization of the 2nd Extraordinary General Meeting of 2016 and the 2nd Extraordinary General Meeting of 2018 of the Company, The Company handled the vesting of a total of 66,796,439 restricted shares for 5,937 incentive grantees. The restricted shares were listed for circulation on January 20th 2021; at the same time, 7,611,076 granted but unvested shares that did not meet the incentive conditions were repurchased and cancelled, and the repurchase and cancellation procedures were completed as of June 30th 2021. For details, please refer to the Indicative Announcement on Vesting, Listing and Circulation of Shares in the Third Vesting Period of the 2016 Restricted Share Incentive Scheme (Announcement No.: 2021-004), Indicative Announcement on Vesting, Listing and Circulation of Shares in the First Vesting Period of the 2018 Restricted Share Incentive Scheme (Announcement No. 2021-005), and Announcement on the Completion of the Third Repurchase and Cancellation of the Granted but Unvested Restricted Shares under the 2016 Restricted Share Incentive Scheme and the First Repurchase and Cancellation of the Granted but Unvested Restricted Shares under the 2018 Restricted Share Incentive Scheme (Announcement No.: 2021-042) issued by the Company on January 18th 2021 ad July 2nd 2021, respectively. As of the end of the current reporting period, the Company has a total of 68,762,683 granted but unvested shares, accounting for 0.74% of the Company's total share capital. The Company performs accounting treatments related to restricted share incentive plans in accordance with 31 Hikvision 2021 Half Year Report the requirements of Accounting Standards for Business Enterprises No. 11-Share Payments and other related accounting standards. The cost of the shares granted by the 2018 Restricted Share Incentive Scheme is amortized during the vesting period. During the reporting period, the amortization cost of the Company's 2018 Restricted Share Incentive Scheme had no significant impact on the Company's financial status and operating results. For details, please refer to Financial Statement Note (XI)-Share-based Payment. 32 Hikvision 2021 Half Year Report Section V Environmental and Social Responsibility I. Significant environmental issues Whether the Company or any of its subsidiarids should be categorized as a critical pollutant enterprises published by national environmental protection department □Yes √No. II. Social responsibilities During the reporting period, the Company has not yet carried out poverty alleviation and rural revitalization. 33 Hikvision 2021 Half Year Report Section VI Significant Events I. Complete and incomplete commitments of the Company and its actual controller, shareholders, related parties, acquirers, and other related parties for the commitments during the current reporting period. □Applicable √Inapplicable No such case during the current reporting period. II. The Company’s funds used by the controlling shareholder or its related parties for non-operating purposes. □ Applicable √ Inapplicable No such case duiring the current reporting period. III. Illegal provision of guarantees for external parties □ Applicable √ Inapplicable No such case in the current reporting period. IV. Engagement and disengagement of the CPA firm Has the half year report been audited? □ Yes √ No The Company's half year report has not been 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” for the prior reporting period □ Applicable √ Inapplicable 34 Hikvision 2021 Half Year Report VII. Bankruptcy and restructuring □ Applicable √ Inapplicable No such case during the reporting period. VIII. Material litigations Material litigation and arbitration □ Applicable √ Inapplicable The Company had no material litigation or arbitration during the current reporting period. Other litigation matters □ Applicable √Inapplicable IX. Punishments and rectifications □ Applicable √ Inapplicable No such case during the reporting period. X. Integrity of the Company and its controlling shareholders and actual controllers □ Applicable √ Inapplicable XI. Significant related-party transaction 1. Related-party transactions arising from routine daily operations √Applicable □Inapplicable 35 Hikvision 2021 Half Year Report Proportion Approved Whether Pricing Trading Type of Content of to the trading exceed principles for Amount Settlement Disclosure Disclosure Related party Relationship related related amount of quota the related party (0’000 method date reference transaction transaction similar (0’000 approved transactions RMB) transactions. RMB) quota Under the common Subsidiaries or control of the Payment on research institutes of Procurement 95,404.99 4.25% 150,000 No Company’s actual delivery CETC controller. The Company’s shareholder who holds Shanghai Fullhan more than 5% of the Payment on Micro Co., Ltd. and Procurement 43,502.85 1.94% 90,000 No Company’s shares, Gong delivery its subsidiaries Announcement on Hongjia is the director of Reference the forecast of the related party Procurement, market price; March 13th daily related- Maxio Technology Wu Weiqi, director of receiving Agreed on Payment on 2021 party transactions (Hangzhou) Co., Ltd. the Company, served as Procurement services 9,276.50 0.41% 20,000 No price delivery in 2021 (No. and its subsidiaries director of this company 2021-024) Wuhu Sensor Wu Weiqi, director of Technology Co., Payment on the Company, served as Procurement 5,364.45 0.24% 15,000 No Ltd.and its delivery director of this company subsidiaries Zhiguang Hailian Big Data Technology Co., An associated company Payment on Procurement - 0.00% 500 No Ltd. and its held by the company delivery subsidiaries 36 Hikvision 2021 Half Year Report Proportion Approved Whether Pricing Trading Type of Content of to the trading exceed principles for Amount Settlement Disclosure Disclosure Related party Relationship related related amount of quota the related party (0’000 method date reference transaction transaction similar (0’000 approved transactions RMB) transactions. RMB) quota A joint venture company Procurement held by the company; Zhejiang Haishi The Company’s senior Payment on Huayue Digital - 0.00% 500 No management is delivery Technology Co., Ltd. appointed as this company’s chairman Shenzhen Hikvision Procurement City Service A joint venture company Payment on 3.10 0.00% 500 No Operation Co., Ltd. held by the company delivery and its subsidiaries Under the common Subsidiaries or control of the Payment on research institutes of Sales 23,576.67 0.70% 70,000 No Company’s actual delivery CETC controller. Daishan Hailai Yunzhi A joint venture company Providing Payment on Announcement on Sales 1,685.88 0.05% 5,000 No Technology Co., Ltd. held by the company services, Reference delivery the forecast of Wuhu Sensor selling market price; March 13th daily related- Wu Weiqi, director of Technology Co., products, Agreed on Payment on 2021 party transactions the Company, served as Sales 46.55 0.00% 1,000 No Ltd.and its commercial price delivery in 2021 (No. director of this company subsidiaries goods 2021-024) A joint venture company Zhejiang Haishi held by the company; Payment on Huayue Digital Sales 757.13 0.02% 5,000 No The Company’s senior delivery Technology Co., Ltd. management is 37 Hikvision 2021 Half Year Report Proportion Approved Whether Pricing Trading Type of Content of to the trading exceed principles for Amount Settlement Disclosure Disclosure Related party Relationship related related amount of quota the related party (0’000 method date reference transaction transaction similar (0’000 approved transactions RMB) transactions. RMB) quota appointed as this company’s chairman Sanmenxia Xiaoyun An associated company Payment on Vision Technology Sales - 0.00% 1,000 No held by the company delivery Co., Ltd. Shenzhen Wanyu The Company’s senior Security Service management is Payment on Sales - 0.00% 500 No Technology Co., Ltd. appointed as directors of delivery and its subsidiaries this company Maxio Technology Wu Weiqi, director of Payment on (Hangzhou) Co., Ltd. the Company, served as Sales 10.84 0.00% 1,000 No delivery and its subsidiaries director of this company Qinghai Qingtang Big An associated company Payment on Sales 52.37 0.00% 1,000 No Data Co., Ltd. held by the company delivery Zhiguang Hailian Big An associated company Data Technology Co., held by the company Payment on Sales 2,307.94 0.07% 5,000 No Ltd. and its delivery subsidiaries Jiaxin Haishi JiaAn An associated company Payment on Zhicheng Technology Sales 809.85 0.02% 7,000 No held by the company delivery Co., Ltd. Xuzhou Kangbo A joint venture company Payment on Sales 1.17 0.00% 1,000 No Urban Operation held by the company delivery 38 Hikvision 2021 Half Year Report Proportion Approved Whether Pricing Trading Type of Content of to the trading exceed principles for Amount Settlement Disclosure Disclosure Related party Relationship related related amount of quota the related party (0’000 method date reference transaction transaction similar (0’000 approved transactions RMB) transactions. RMB) quota Management Service Co., Ltd. Guangxi Haishi A joint venture company Urban Operation held by the company Payment on Sales 34.74 0.00% 2,000 No Management Co., Ltd. delivery and its subsidiaries Zhejiang City Digital A joint venture company Payment on Sales 1,276.85 0.04% 6,000 No Technology Co., Ltd. held by the company delivery Shenzhen Hikvision A joint venture company City Service held by the company Payment on Sales 1,097.71 0.03% 6,000 No Operation Co., Ltd. delivery and its subsidiaries Yunnan Yinghai A joint venture company Payment on Parking Service Co., held by the company Sales - 0.00% 4,000 No delivery Ltd. Total 185,209.59 - 392,000 - - - - Details on significant sales return None Total amount of related transactions projected based on different categories, and the actual performance during the None current reporting period (if any) Reasons on significant difference between trading price and Not applicable market referencing price (if applicable) 39 Hikvision 2021 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 credit and debt transactions □ Applicable √Inapplicable No related-parties’ creditor’s rights or debts during the reporting period. 5. Deals with related-party financial companies and financial companies controlled by the Company √Applicable □Inapplicable Deposit business Maximum daily Clsoing Deposit interest Opening Balance Amout incurred Related Party Relationship deposit limit Balance(0,000 rate range (0,000 RMB) (0,000 RMB) (0,000 RMB) RMB) CETC Finance Under the Co., Ltd. common control of the Company's 1,089,594.87 2.00% 400,000.00 - 400,000.00 ultimate controller Credit or other financial services Total Amount Actual amout incurred Related Party Relationship Busiess Type (0,000 RMB) (0,000 RMB) CETC Finance Co., Ltd. Under the common control of the Company's ultimate Credit 300,000.00 - controller 6. Other significant related party transactions √Applicable □Inapplicable 40 Hikvision 2021 Half Year Report On April 18th 2019, the Proposal on Entering into the Entrusted Management Agreement and Related-Party Transaction with the Controlling Shareholder was deliberated and adopted by the 10th Meeting of the fourth session of the Board of Directors of the Company. On April 19th 2019, the Company entered into the Entrusted Management Agreement with CETHIK and Hangzhou EZVIZ Technology Co., Ltd. (hereinafter referred to as "EZVIZ Technology"), agreeing that CETHIK shall entrust EZVIZ Network to enforce the actual operation and management rights over its wholly-owned subsidiary EZVIZ Technology. On March 27th 2021, to further optimize the business process of EZVIZ Network, based on the actual production and operation needs of EZVIZ Network, and upon consensus of the three parties through amicable and full negotiation, EZVIZ Network signed the Termination Agreement of the Entrusted Management Agreement with CETHIK and EZVIZ Technology. EZVIZ Network will no longer exercise the actual operation and management rights over EZVIZ Technology or be responsible for the production, operation and management of EZVIZ Technology. Disclosure website for provisional reports on significant related-party transactions: Title of provisional repo/rts Disclosure date Disclosure website Announcement on the Signing of the " ntrusted Management Agreement" and Related Party Transactions with the Controlling Shareholders April 20th 2019 www.cninfo.com.cn (Announcement No. 2019-026) Announcement on the Signing of the " ntrusted Management Agreement" Termination Agreement and Related Party Transactions Progress March 30th 2021 www.cninfo.com.cn (Announcement No. 2021-025) XII. 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 41 Hikvision 2021 Half Year Report On December 3rd 2018, the Proposal on Carrying out Financial Leasing Related Party Transactions between the Holding Innovative Business Subsidiary and China Electronics Technology Leasing Co. Ltd. was approved at the 7th meeting of the 4th Board of Directors of the Company. In 2019, the Company's holding subsidiary Hangzhou HikMicro Sensing Technology Ltd. and China Electronics Technology Leasing Co. Ltd. signed the Financial Leasing Contract, where HIKMICRO used some of its own equipment to start leaseback business with China Electronics Technology Leasing Co. Ltd.; the financing amount was RMB 70 million, term of lease 48 months and annual lease rate 3.80%. 42 Hikvision 2021 Half Year Report 2. Significant guarantees √Applicable □ Inapplicable Unit: RMB’0000 Guarantees provided by the Company to its subsidiaries Disclosure date of announcement of Actual Guarantee Guarantee Actual Term of Fulfilled or Guaranteed party guaranteed Type of guarantee for a related the guarantee cap Cap occurrence date guarantee not amount party or not Hangzhou Hikvision Technology October 24th 2019.10.24- April 17th 2021 1,010,000.00 415,499.35 Joint guarantee No Yes Co., Ltd. 2019 2025.09.25 Urumqi HaiShi Xin’An Electronic April 17th 2021 March 29th Joint guarantee 2019.03.29- 40,000.00 26,307.14 No Yes Technology Co., Ltd. 2019 2028.06.20 Luo Pu HaiShi Ding Xin Electronic April 17th 2021 March 26th Joint guarantee 2019.03.26- 30,000.00 22,240.00 No Yes Technology Co., Ltd. 2019 2035.06.26 Pi Shan HaiShi Yong An Electronic April 17th 2021 March 26th Joint guarantee 2019.03.26- 30,000.00 21,978.00 No Yes Technology Co., Ltd. 2019 2040.06.26 Mo Yu HaiShi Electronic April 17th 2021 March 26th Joint guarantee 2019.03.26- 25,000.00 17,980.00 No Yes Technology Co., Ltd. 2019 2035.03.26 Hangzhou Hikvision System April 17th 2021 November 29th Joint guarantee 2019.11.29- 46,000.00 14,558.33 No Yes Technology Co., Ltd. 2019 2023.11.17 Yu Tian HaiShi Mei Tian Electronic April 17th 2021 March 26th Joint guarantee 2019.03.26- 30,000.00 9,560.00 No Yes Technology Co., Ltd. 2019 2034.03.26 April 17th 2021 September 15th Joint guarantee 2020.09.15- Hikvision Singapore Pte. Ltd. 78,900.00 6,354.75 No Yes 2020 2023.12.31 Chongqing Hikvision Technology April 17th 2021 March 23rd Joint guarantee 2020.03.23- 82,250.00 2,955.08 No Yes Co., Ltd. 2020 2022.3.22 Hangzhou Hikvision Electronics April 17th 2021 Joint guarantee 2021.03.06- 25,000.00 March 6th 2021 2,019.09 No Yes Co., Ltd. 2022.3.05 43 Hikvision 2021 Half Year Report 2018.05.10- Hikvision International Co., Ltd. April 17th 2021 33,000.00 May 10th 2018 1,957.13 Joint guarantee No Yes 2022.5.31 Wuhan Hikvision Technology Co., April 17th 2021 Not happened during the reporting period 20,000.00 Ltd. Shijiazhuang Hikvision Technology April 17th 2021 Not happened during the reporting period 20,000.00 Co., Ltd. Xi’an Hikvision Digital Technology April 17th 2021 Not happened during the reporting period 20,000.00 Co., Ltd. Chengdu Hikvision Digital April 17th 2021 Not happened during the reporting period 20,000.00 Technology Co., Ltd. Shanghe Smart City Technology Co., April 17th 2021 Not happened during the reporting period 20,000.00 Ltd. Zhenping Haikang Juxin Digital April 17th 2021 Not happened during the reporting period 18,000.00 Technology Co., Ltd. Hefei Hikvision Digital Technology April 17th 2021 Not happened during the reporting period 10,000.00 Co., Ltd. Nanchang Hikvision Digital April 17th 2021 Not happened during the reporting period 10,000.00 Technology Co., Ltd. Zhengzhou Hikvision Digital April 17th 2021 Not happened during the reporting period 10,000.00 Technology Co., Ltd. Nanjing Hikvision Digital April 17th 2021 Not happened during the reporting period 10,000.00 Technology Co., Ltd. Chongqing Hikvision System April 17th 2021 Not happened during the reporting period 10,000.00 Technology Co., Ltd. Prama Hikvision India Private April 17th 2021 Not happened during the reporting period 6,000.00 Limited 44 Hikvision 2021 Half Year Report Hikvision USA Inc. April 17th 2021 2,100.00 Not happened during the reporting period Hikvision Europe B.V. April 17th 2021 2,000.00 Not happened during the reporting period PT. Hikvision Technology Indonesia April 17th 2021 1,400.00 Not happened during the reporting period Hikvision Turkey Technology And April 17th 2021 Not happened during the reporting period 350.00 Security Systems Commerce JSC Total guarantee cap for subsidiaries approved during the reporting Total actual guarantee amount for 1,610,000.00 subsidiaries during the reporting 781,997.72 period(B1) period(B2) Total actual guarantee balance for Total approved guarantee cap for subsidiaries at the end of the reporting 1,610,000.00 subsidiaries at the end of the 541,408.87 period(B3) reporting period(B4) Guarantees provided by the Company’s subsidiary to another subsidiary Actual Actual Guarantee for a Disclosure date of announcement of Guarantee Term of Fulfilled or Guaranteed party occurrence guaranteed Type of guarantee related party or the guarantee cap Cap guarantee not date amount not Hangzhou Haikang Intelligent April 17th 2021 Not happened during the reporting period 50,000.00 Technology Co., Ltd. Hangzhou Hikmicro Intelligent April 17th 2021 Not happened during the reporting period 30,000.00 Technology Co., Ltd. Hangzhou Hikstorage Technology April 17th 2021 Not happened during the reporting period 10,000.00 Co., Ltd. Total actual guarantee amount for Total guarantee cap for subsidiaries approved during the reporting period 90,000.00 subsidiaries during the reporting - (C1) period (C2) Total actual guarantee balance for Total approved guarantee cap for subsidiaries at the end of the reporting 90,000.00 subsidiaries at the end of the - period(C3) reporting period(C4) 45 Hikvision 2021 Half Year Report The total amount of Company’s guarantees (that is, the total of the first three items) Total actual guarantee amount Total guarantee cap approved during the reporting period(A1+B1+C1) 1,700,000.00 during the reporting period 781,997.72 (A2+B2+C2) Total actual guarantee balance at Total approved guarantee cap at the end of reporting period(A3+B3+C3) 1,700,000.00 the end of the reporting period 541,408.87 (A4+B4+C4) Portion of the total actual guarantee (A4+B4+C4) amount in net assets of 10.23% the Company Of which: The balance of guarantee for shareholders, actual controllers and their 0 affiliates. (D) Amount of debt guarantees provided directly or indirectly for entities with a 508,916.69 liability-to-asset ratio over 70% (E) Total amount of guarantee exceeding 50% of net assets (F) 0 Total guarantee amount of the above-mentioned 3 kinds of guarantees 508,916.69 (D+E+F) 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. 46 Hikvision 2021 Half Year Report 3. Entrusted financial management □ Applicable √ Inapplicable No such case during the reporting period 4. Significant contracts for daily operations □ Applicable √ Inapplicable 5. Other significant contracts □ Applicable √ Inapplicable XIII. Other significant events √ Applicable □ Inapplicable On January 8th 2021, the Proposal on Adjustment of Domestic Listing Board for the Spin-off of the Company’s Subsidiary Hangzhou EZVIZ Network Co., Ltd., the Proposal on the Spin-off of the Subsidiary Hangzhou EZVIZ Network Co., Ltd. to be Listed on the Science and Technology Innovation Board and other related proposals were deliberated and adopted by the 21st Meeting of the fourth session of the Board of Directors and the 18th Meeting of the fourth session of the Board of Supervisors of the Company, agreeing the initial public offering of ordinary shares (A shares) in RMB of EZVIZ Network after the shareholding reform and listing of EZVIZ Network on the science and technology innovation board of Shanghai Stock Exchange. For details, please refer to the Proposal of Hangzhou Hikvision Digital Technology Co., Ltd. on the Spin-off of its Subsidiary Hangzhou EZVIZ Network Co., Ltd. to be Listed on the Science and Technology Innovation Board issued by the Company on January 9th 2021. XIV. Significant events of the Company’s subsidiaries √ Applicable □Inapplicable During the reporting period, the Company steadily promoted the spin-off of EZVIZ Network to be listed on the Science and Technology Innovation Board of Shanghai Stock Exchange. On January 8th 2021, the Proposal on 47 Hikvision 2021 Half Year Report the Spin-off of the Company’s Subsidiary Hangzhou EZVIZ Network Co., Ltd. to be Listed on the Science and Technology Innovation Board was deliberated and adopted by the 21st Meeting of the fourth session of the Board of Directors and the 18th Meeting of the fourth session of the Board of Supervisors of the Company. On June 23rd 2021, the Proposal on the Overall Restructuring of the the Company’s Holding Subsidiary Hangzhou EZVIZ Network Co., Ltd. as Limited Liability Company by Shares was deliberated and adopted by the 3rd Meeting of the Strategy Committee in 2021 of the fifth session of the Board of Directors of the Company. On June 24th 2021, EZVIZ Network as a whole was restructured and changed to a limited liability company by shares. On July 2nd 2021, Zhejiang Securities Regulatory Bureau of China Securities Regulatory Commission accepted the application filed by EZVIZ Network for initial public offering of A shares and pre-listing counseling for listing on the Science and Technology Innovation Board. 48 Hikvision 2021 Half Year Report Section VII 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 Bonus Shares Ratio New Shares Issued transferred Others Sub-total Shares Ratio share from capital reserve 1. Shares subject to conditional restriction(s) 1,248,025,260 13.36% -55,138,469 -55,138,469 1,192,886,791 12.78% 1)State holdings 2)Shares held by State-owned corporate 3) Other domestic shares 306,488,295 3.28% -76,220,858 -76,220,858 230,267,437 2.47% Including: held by domestic corporates held by domestic natural person 306,488,295 3.28% -76,220,858 -76,220,858 230,267,437 2.47% 4) Foreign shares 941,536,965 10.08% 21,082,389 21,082,389 962,619,354 10.31% 49 Hikvision 2021 Half Year Report Before the change Changes in the period (+, -) After the change Share Bonus Shares Ratio New Shares Issued transferred Others Sub-total Shares Ratio share from capital reserve Including:held by overseas corporates held by overseas natural person 941,536,965 10.08% 21,082,389 21,082,389 962,619,354 10.31% 2. Shares without restriction 8,095,391,930 86.64% 47,527,393 47,527,393 8,142,919,323 87.22% 1) RMB ordinary shares 8,095,391,930 86.64% 47,527,393 47,527,393 8,142,919,323 87.22% 2) Domestically listed foreign shares 3) Foreign shares listed overseas 4) Others 3. Total 9,343,417,190 100.00% -7,611,076 -7,611,076 9,335,806,114 100.00% Reason for the changes in share capital √Applicable □Inapplicable Partial Repurchase and Cancellation of the Restricted Share Plan On December 25th 2020, the Proposal on the Third Repurchase and Cancellation of the Granted but Unvested Restricted Shares under the Restricted Share Incentive Scheme of 2016 and the Proposal on the First Repurchase and Cancellation of Granted but Unvested Restricted Shares under the Restricted Share 50 Hikvision 2021 Half Year Report Incentive Scheme of 2018 were deliberated and adopted by the 20th Meeting of the fourth session of the Board of Directors and the 17th Meeting of the fourth session of the Board of Supervisors of the Company. According to the authorization of the 2nd Extraordinary General Meeting of 2016 and the 2nd Extraordinary General Meeting of 2018 of the Company, the Board of Directors agreed to repurchase and cancel some of the granted but unvested restricted share that did not meet the conditions for share incentive. On March 5th 2021, the Proposal on the Third Repurchase and Cancellation of Granted but Unvested Restricted Shares under the Restricted Share Incentive Scheme of 2016 and the Proposal on the First Repurchase and Cancellation of Granted but Unvested Restricted Shares under the Restricted Share Incentvie Scheme of 2018 were deliberated and adopted by the 1st Extraordinary General Meeting in 2021. On June 30th 2021, the Company has completed the repurchase and cancellation procedures for the above 7,611,076 restricted shares. The total share capital of the Company was reduced by 7,611,076 shares from 9,343,417,190 shares to 9,335,806,114 shares. Approval for changes in share capital √Applicable □Inapplicable On December 25th 2020, the Proposal on the Third Repurchase and Cancellation of Granted but Unvested Restricted Shares under the Restricted Share Incentive Scheme of 2016 and the Proposal on the First Repurchase and Cancellation of Granted but Unvested Restricted Shares under the Restricted Share Incentive Scheme of 2018 were deliberated and adopted by the 20th Meeting of the fourth session of the Board of Directors and the 17th Meeting of the fourth session of the Board of Supervisors of the Company. According to the authorization of the 2nd Extraordinary General Meeting of 2016 and the 2nd Extraordinary General Meeting of 2018 of the Company, the Board of Directors agreed to repurchase and cancel 7,611,076 shares of the granted but unvested restricted shares that did not meet the conditions for share incentive. On March 5th 2021, the Proposal on the Third Repurchase and Cancellation of Granted but Unvested Restricted Shares under the Restricted Share Incentive Scheme of 2016 and the Proposal on the First Repurchase and Cancellation of Granted but Unvested Restricted Shares under the Restricted Share Incentive Scheme of 2018 were deliberated and adopted by the 1st Extraordinary General Meeting in 2021. 51 Hikvision 2021 Half Year Report Transfer for changes in share capital √Applicable □Inapplicable On June 30th 2021, the third repurchase and cancellation under the Restricted Share Incentive Scheme of 2016 and the first repurchase and cancellation under the Restricted Share Incentive Scheme of 2018 were completed, and the total share capital of the Company was reduced by 7,611,076 shares from 9,343,417,190 shares to 9,335,806,114 shares. Information about the implementation of share repurchase □Applicable √Inapplicable The implementation progress of reducing and repurchasing shares by centralized bidding □Applicable √Inapplicable 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 52 Hikvision 2021 Half Year Report Unit: Share Opening restricted Increased in Vested in current Closing Date of Name of shareholder Note for restricted shares shares current period period restricted shares unlocking Gong Hongjia 762,461,110 200,043,704 962,504,814 Restricted shares for senior executives According to the relevant Restricted shares for senior executives + partial of the provisions of Hu Yangzhong 136,591,708 48,150 136,639,858 unlocked restricted shares turning into restricted shares for shares senior executives management for senior executives Grantees of restricted share January 20th 143,170,198 0 66,796,439 68,762,683 Equity Incentive Restricted Shares incentive plan (consolidated) 2021 Restricted shares for senior executives + partial of the Jiang Haiqing 7,718,761 36,900 7,755,661 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the Wu Weiqi 8,483,992 44,550 8,528,542 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the Jia Yonghua 3,303,858 32,850 3,336,708 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the Li Pan 3,184,688 32,850 3,217,538 unlocked restricted shares turning into restricted shares for senior executives According to the relevant Restricted shares for senior executives + partial of the provisions of Huang Fanghong 191,875 44,000 235,875 unlocked restricted shares turning into restricted shares for shares senior executives management for Restricted shares for senior executives + partial of the Fu Baijun 266,250 165,750 432,000 senior executives unlocked restricted shares turning into restricted shares for 53 Hikvision 2021 Half Year Report Opening restricted Increased in Vested in current Closing Date of Name of shareholder Note for restricted shares shares current period period restricted shares unlocking senior executives Restricted shares for senior executives + partial of the Jiang Yufeng 207,225 118,275 325,500 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the Xu Lirong 194,400 32,850 227,250 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the He Hongli 207,225 41,400 248,625 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the Pu Shiliang 77,105 84,820 161,925 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the Jin Yan 50,800 96,200 147,000 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the Bi Huijuan 36,750 94,200 130,950 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the Jin Duo 49,275 32,850 82,125 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives + partial of the Cai Changyang 49,275 32,850 82,125 unlocked restricted shares turning into restricted shares for 54 Hikvision 2021 Half Year Report Opening restricted Increased in Vested in current Closing Date of Name of shareholder Note for restricted shares shares current period period restricted shares unlocking senior executives Restricted shares for senior executives + partial of the Xu Ximing 0 29,550 29,550 unlocked restricted shares turning into restricted shares for senior executives Restricted shares for senior executives Wang Qiuchao 26,250 0 26,250 Restricted shares for senior executives Qu Liyang 11,812 0 11,812 Total 1,066,282,557 201,011,749 66,796,439 1,192,886,791 -- -- 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 second row. 2. The difference of 7,611,076 shares between ending balance of restricted shares of total incentive restricted shares (consolidated) for grantees and the calculated balance (opening balance + increased restricted shares - unlocked shares) was due to repurchasing and cancelling of 7,611,076 shares on June 30th 2021. 3. The three executives Jiang Haiqing, Jia Yonghua and Li Pan have left office on October 25th 2019. The original term of office expires on March 20th 2021, and the shares held by them are kept restricted in in accordance with the relevant regulations. 4. Gong Hongjia left the position as a director of the Company on March 5th 2021 as his term of office expires, and Fu Baijun and Jiang Yufeng left the position as senior executives of the Company on March 12th 2021 as their terms of office expires. The shares held by them were locked up in accordance with relevant regulations. II. Issuance and listing of securities □Applicable √Inapplicable 55 Hikvision 2021 Half Year Report III. Total number of shareholders and their shareholdings Unit: Share Total number of common shareholders at Total number of preferred shareholders with voting rights restored at the end of 219,924 0 the end of the reporting period the current reporting period (if any) Particulars about shares held by common shareholders with a shareholding percentage over 5% or the Top 10 of them Increase/ The number of Pledged or frozen Share- Total common shares The number of Nature of decrease during common shares Name of shareholder holding held at the end of the shares held without shareholder the reporting held with trading Status Amount percentage (%) reporting period trading restrictions period restrictions China Electronics State-owned Technology HIK 38.91% 3,632,897,256 0 0 3,632,897,256 Pledged 50,000,000 corporation Group Co., Ltd. Overseas Gong Hongjia 10.31% 962,504,814 -54,110,000 962,504,814 0 Pledged 202,100,000 individual Xinjiang Weixun Domestic Investment non-state- 4.83% 450,795,176 0 0 450,795,176 Pledged 17,810,000 Management owned Limited Partnership corporation Shanghai Gaoyi Asset Management Partnership (Limited Other 2.30% 215,000,000 -35,000,000 0 215,000,000 - - Partnership) - Gaoyi Adjacent Mountain 1 Yuanwang Fund Xinjiang Pukang Domestic Investment Limited non-state-owned 1.95% 182,510,174 0 0 182,510,174 Pledged 35,630,000 Partnership corporation The 52nd Research State-owned 1.94% 180,775,044 0 0 180,775,044 - - 56 Hikvision 2021 Half Year Report Institute at China corporation Electronics Technology Group Corporation Domestic Hu Yangzhong 1.66% 155,246,477 -26,940,000 136,639,858 18,606,619 - - Individual Hong Kong Securities Clearing Overseas 1.08% 100,546,982 -235,883,008 0 100,546,982 - - Company corporation Ltd.(HKSCC) Bank of China Co., Ltd. - Efunds Blue Chip Select Hybrid Other 0.96% 90,000,160 20,000,135 0 90,000,160 - - Securities Investment Fund Domestic Guo Minfang 0.72% 66,936,698 45,954,340 0 66,936,698 - - Individual 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 Co. Ltd.. Ms. Chen Chunmei, limited partner of Xinjiang Pukang Investment Limited Explanation on associated relationship or Partnership, is the spouse of Mr. Gong Hongjia, foreign individual shareholder of the Company. Hu Yangzhong, domestic individual, is holding concerted actions among the above- shares in both Xinjiang Weixun Investment Management Limited Partnership and Xinjiang Pukang Investment Limited Partnership. mentioned shareholders: 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 Type of shares Name of shareholder trading restrictions held at the period- Type Number end China Electronics Technology HIK Group Co., Ltd. 3,632,897,256 RMB common shares 3,632,897,256 Xinjiang Weixun Investment Management Limited Partnership 450,795,176 RMB common shares 450,795,176 57 Hikvision 2021 Half Year Report Shanghai Gaoyi Asset Management Partnership (Limited Partnership) - Gaoyi 215,000,000 RMB common shares 215,000,000 Adjacent Mountain 1 Yuanwang Fund Xinjiang Pukang Investment Limited Partnership 182,510,174 RMB common shares 182,510,174 The 52nd Research Institute at China Electronics Technology Group Co. Ltd. 180,775,044 RMB common shares 180,775,044 Hong Kong Securities Clearing Company Ltd.(HKSCC) 100,546,982 RMB common shares 100,546,982 Bank of China Co., Ltd. - Efunds Blue Chip Select Hybrid Securities Investment 90,000,160 RMB common shares 90,000,160 Fund Guo Minfang 66,936,698 RMB common shares 66,936,698 Central Huijin Investment Co., Ltd. 65,818,800 RMB common shares 65,818,800 CITIC Securities Company Limited 58,796,352 RMB common shares 58,796,352 Explanation on associated relationship China Electronics Technology HIK Group Co., Ltd. and The 52nd Research Institute at China Electronics Technology Group Co., Ltd. are all and concerted actions among top ten subject to control of China Electronics Technology Group Co. Ltd. Ms. Chen Chunmei, limited partner of Xinjiang Pukang Investment Limited common shareholders holding shares Partnership, is the spouse of Mr. Gong Hongjia, foreign individual shareholder of the Company. Hu Yangzhong, domestic individual, is holding without trading restrictions, and among shares in both Xinjiang Weixun Investment Management Limited Partnership and Xinjiang Pukang Investment Limited Partnership. top ten common shareholders and top ten Except for these, the Company does not know whether the other shareholders are related parties or whether they are acting-in-concert parties in common shareholders holding shares accordance with the Measures for Management of the Disclosure of the Shareholding Changes of Shareholders of the Listed Company. without trading restrictions Any of the Company’s top 10 common shareholders or top 10 non-restricted common shareholders conducted any agreed buy-back in the reporting period? □ Applicable √ Inapplicable No such case during the current reporting period. IV.Shareholding changes of directors, supervisors, senior management personnel √ Applicable □ Inapplicable 58 Hikvision 2021 Half Year Report Shares Shares Number of Number of Number of Shares held at increased decreased Shares held at restricted stocks restricted stocks restricted stocks the beginning of during the Tenure during the the end of the held at the granted in the held at the end Name Title the current current status current current reporting beginning of the current of the current reporting period reporting reporting period period (Shares) current reporting reporting period reporting period (shares) period (shares) period (shares) (shares) (shares) (shares) Chen Zongnian Chairman Incumbent 0 0 0 0 0 0 0 Qu Liyang Director Incumbent 15,750 0 0 15,750 0 0 0 Wang Qiuchao Director Incumbent 35,000 0 0 35,000 0 0 0 Director, Hu Yangzhong General Incumbent 182,186,477 0 26,940,000 155,246,477 48,150 0 0 Manager (CEO) Director, Standing Wu Weiqi Deputy Incumbent 11,371,389 0 2,740,300 8,631,089 44,550 0 0 General Manager Independent Wu Xiaobo Incumbent 0 0 0 0 0 0 0 Director Independent Hu Ruimin Incumbent 0 0 0 0 0 0 0 Director Independent Li Shuhua Incumbent 0 0 0 0 0 0 0 Director Independent Guan Qingyou Incumbent 0 0 0 0 0 0 0 Director Supervisor Hong Tianfeng Incumbent 0 0 0 0 0 0 0 Chairman Lu Jianzhong Supervisor Incumbent 0 0 0 0 0 0 0 Xu Lirong Supervisor Incumbent 303,000 0 0 303,000 32,850 0 0 59 Hikvision 2021 Half Year Report Shares Shares Number of Number of Number of Shares held at increased decreased Shares held at restricted stocks restricted stocks restricted stocks the beginning of during the Tenure during the the end of the held at the granted in the held at the end Name Title the current current status current current reporting beginning of the current of the current reporting period reporting reporting period period (Shares) current reporting reporting period reporting period (shares) period (shares) period (shares) (shares) (shares) (shares) Senior Deputy He Hongli General Incumbent 331,500 0 0 331,500 41,400 0 0 Manager Senior Deputy Cai Changyang General Incumbent 109,500 0 0 109,500 32,850 0 0 Manager Senior Deputy Xu Ximing General Incumbent 197,000 0 0 197,000 197,000 0 118,200 Manager Senior Deputy Bi Huijuan General Incumbent 273,000 0 0 273,000 168,000 0 73,800 Manager Senior Deputy Pu Shiliang General Incumbent 295,900 0 0 295,900 144,820 0 60,000 Manager Senior Deputy Jin Duo General Incumbent 109,500 0 0 109,500 32,850 0 0 Manager Senior Deputy General Jin Yan Manager, Incumbent 284,000 0 0 284,000 162,200 0 66,000 Person in charge of finance 60 Hikvision 2021 Half Year Report Shares Shares Number of Number of Number of Shares held at increased decreased Shares held at restricted stocks restricted stocks restricted stocks the beginning of during the Tenure during the the end of the held at the granted in the held at the end Name Title the current current status current current reporting beginning of the current of the current reporting period reporting reporting period period (Shares) current reporting reporting period reporting period (shares) period (shares) period (shares) (shares) (shares) (shares) Senior Deputy Huang General Incumbent 402,500 0 0 402,500 110,000 0 66,000 Fanghong Manager, Board Secretary Senior Deputy Chen Junke General Incumbent 0 0 0 0 0 0 0 Manager Senior Deputy Xu Peng General Incumbent 128,740 0 51,496 77,244 128,740 0 77,244 Manager Senior Deputy Guo Xudong General Incumbent 73,800 0 29,520 44,280 73,800 0 44,280 Manager Left the Gong Hongjia Vice Chairman 1,016,614,814 0 54,110,000 962,504,814 0 0 0 position Cheng Independent Left the 0 0 0 0 0 0 0 Tianzhong Director position Independent Left the Wang Zhidong 0 0 0 0 0 0 0 Director position Supervisor Left the Cheng Huifang 0 0 0 0 0 0 0 Chairman position 61 Hikvision 2021 Half Year Report Shares Shares Number of Number of Number of Shares held at increased decreased Shares held at restricted stocks restricted stocks restricted stocks the beginning of during the Tenure during the the end of the held at the granted in the held at the end Name Title the current current status current current reporting beginning of the current of the current reporting period reporting reporting period period (Shares) current reporting reporting period reporting period (shares) period (shares) period (shares) (shares) (shares) (shares) Senior Deputy Left the Fu Baijun General position 495,000 0 0 495,000 163,950 0 63,000 Manager Senior Deputy Left the Jiang Yufeng General position 325,500 0 0 325,500 36,900 0 0 Manager Total -- -- 1,213,552,370 0 83,871,316 1,129,681,054 1,418,060 0 568,524 Note: 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. V. Changes in controlling shareholders or actual controllers Change of the controlling shareholder during the reporting period □ Applicable √ Inapplicable The Company's controlling shareholder has not changed during the reporting period. Change of the actual controller during the reporting period □ Applicable √ Inapplicable No such change during the reporting period. 62 Hikvision 2021 Half Year Report Section VIII Information of Preferred Shares □ Applicable √ Inapplicable There is no preferred share existed for the Company during the current reporting period. 63 Hikvision 2021 Half Year Report Section IX Bonds □ Applicable √ Inapplicable 64 Hikvision 2021 Half Year Report Section X Financial Report I. Audit report Whether audit has been performed on the half year report □ Yes √ No The Company’s 2021 Half Year Report has not been audited 65 Hikvision 2021 Half Year Report Consolidated Balance Sheet Unit: RMB Item Notes On June 30th 2021 On December 31st 2020 Current Assets: Cash and bank balances (V)1 27,732,252,975.47 35,459,729,108.27 Held-for-trading financial (V)2 32,620,061.54 22,679,846.77 assets Notes receivable (V)3 1,125,257,592.27 1,303,252,705.19 Accounts receivable (V)4 23,802,312,768.61 21,979,380,716.86 Receivables for financing (V)5 1,120,170,492.09 1,959,601,195.25 Prepayments (V)6 388,106,182.29 296,334,689.86 Other receivables (V)7 802,820,545.50 519,143,350.82 Inventories (V)8 15,094,505,445.05 11,477,906,040.70 Contract assets (V)9 184,239,074.35 245,754,510.98 Non-current assets due within (V)10 1,150,804,899.71 1,001,208,813.83 one year Other current assets (V)11 856,896,820.26 497,914,506.64 Total Current Assets 72,289,986,857.14 74,762,905,485.17 Non-current Assets: Long-term receivables (V)12 1,914,155,006.05 2,105,570,004.53 Long-term equity investment (V)13 861,206,603.12 864,026,710.23 Other non-current financial (V)14 468,661,747.43 491,939,067.27 assets Fixed assets (V)15 6,258,625,760.95 5,876,007,536.60 Construction in progress (V)16 1,705,622,399.38 1,425,235,193.72 Right-of-use assets (V)17 379,766,223.73 Intangible assets (V)18 1,231,275,229.76 1,251,317,923.69 Goodwill (V)19 258,727,796.75 274,203,665.20 Long-term deferred expenses (V)20 99,951,903.09 108,584,686.85 Deferred tax assets (V)21 885,071,819.69 820,380,954.86 Other non-current assets (V)22 765,777,717.03 721,511,156.08 Total Non-current Assets 14,828,842,206.98 13,938,776,899.03 Total Assets 87,118,829,064.12 88,701,682,384.20 66 Hikvision 2021 Half Year Report Consolidated Balance Sheet-continued Unit: RMB th Item Notes On June 30 2021 On December 31st 2020 Current Liabilities: Short-term borrowings (V)23 3,142,918,040.93 3,999,246,634.59 Held-for-trading financial (V)24 3,651,541.77 7,405,771.15 liabilities Notes payable (V)25 1,209,714,255.88 1,036,920,229.85 Accounts payable (V)26 12,448,273,747.80 13,593,884,790.19 Contract liabilities (V)27 2,490,674,992.63 2,161,166,671.26 Payroll payable (V)28 2,825,271,298.77 2,877,786,430.71 Taxes payable (V)29 1,630,608,808.16 1,770,057,908.62 Other payables (V)30 2,047,386,116.59 1,525,053,355.95 Non-current liabilities due (V)31 3,520,220,816.79 3,507,680,339.78 within one year Other current liabilities (V)32 747,671,171.39 745,711,579.57 Total Current Liabilities 30,066,390,790.71 31,224,913,711.67 Non-current Liabilities: Long-term borrowings (V)33 1,911,015,151.08 1,961,167,761.30 Lease liabilities (V)34 199,494,520.78 Long-term payables (V)35 8,389,432.79 39,595,459.35 Provisions (V)36 159,098,659.69 151,443,871.02 Deferred income (V)37 190,729,918.28 190,878,987.69 Deferred tax liabilities (V)21 90,172,303.25 92,979,823.89 Other non-current liabilitie (V)38 511,594,361.52 560,959,368.74 Total non-current liabilities 3,070,494,347.39 2,997,025,271.99 Total liabilities 33,136,885,138.10 34,221,938,983.66 Owners’ Equity Share capital (V)39 9,335,806,114.00 9,343,417,190.00 Capital reserves (V)40 5,183,088,784.77 5,178,777,462.09 Less: Treasury shares (V)41 1,023,188,723.04 1,121,918,737.47 Other comprehensive income (V)42 (92,227,117.80) (84,993,926.94) Surplus reserves (V)43 4,672,505,348.00 4,672,505,348.00 Retained earnings (V)44 34,829,891,072.86 35,806,523,826.37 Total owners' equity attributable 52,905,875,478.79 53,794,311,162.05 to owner of the Company Minority equity 1,076,068,447.23 685,432,238.49 Total owners' equity 53,981,943,926.02 54,479,743,400.54 Total liabilities and owners' 87,118,829,064.12 88,701,682,384.20 equity The accompanying notes form part of the financial statements. The financial statements were signed by the following: Legal Representative: Chen Zongnian;Person in charge of the accounting work: Jin Yan; Person in Charge of the Accounting Department: Zhan Junhua 67 Hikvision 2021 Half Year Report Balance sheet of the parent company Unit: RMB th st Item Notes On June 30 2021 On December 31 2020 Current Assets: Cash and bank balances 22,705,834,693.65 23,476,606,330.08 Notes receivable 370,004,721.44 107,411,912.35 Accounts receivable (XV)1 23,907,902,986.24 24,193,392,179.36 Receivables for financing 21,579,977.87 12,216,215.65 Prepayments 72,051,251.61 62,946,087.75 Other receivables (XV)2 1,198,721,134.79 726,703,133.65 Inventories 325,074,405.29 204,216,250.73 Contract assets 3,563,131.57 3,311,250.08 Non-current assets due within 70,471,164.31 71,208,685.76 one year Other current assets 24,586,583.85 10,110,869.86 Total Current Assets 48,699,790,050.62 48,868,122,915.27 Non-current Assets: Long-term accounts receivable 35,746,795.12 47,762,348.01 Long-term equity investment (XV)3 6,920,188,651.76 6,727,373,453.97 Other non-current financial 465,777,527.43 489,054,847.27 assets Fixed assets 2,742,544,667.09 2,762,700,997.83 Construction in progress 401,652,840.56 388,903,828.81 Right-of-use assets 75,012,711.54 Intangible assets 150,740,259.56 158,917,438.86 Long-term deferred expenses 36,014,031.88 43,264,691.73 Deferred tax assets 127,239,937.72 110,066,596.99 Other non-current assets 14,073,185.02 2,740,576.47 Total Non-current Assets 10,968,990,607.68 10,730,784,779.94 Total Assets 59,668,780,658.30 59,598,907,695.21 68 Hikvision 2021 Half Year Report Balance sheet of the parent company - continued Unit: RMB th st Item Notes On June 30 2021 On December 31 2020 Current Liabilities: Short-term borrowings - 1,431,233,375.00 Accounts payable 373,452,615.01 540,664,512.60 Contract liabilities 305,078,391.27 240,629,015.92 Payroll payable 1,804,466,802.62 1,618,357,135.99 Taxes payable 1,458,059,455.50 1,539,095,196.97 Other payables 3,475,728,776.12 659,214,959.62 Non-current liabilities due 3,121,270,737.26 3,219,794,958.37 within one year Other current liabilities 554,919,670.37 589,167,743.26 Total Current Liabilities 11,092,976,448.15 9,838,156,897.73 Non-current Liabilities: Long-term borrowings - - Lease liabilities 35,664,046.98 Provisions 74,510,513.83 85,230,299.84 Deferred Income 103,943,615.85 122,455,935.44 Other non-current liabilities 511,594,361.52 560,959,368.74 Total non-current liabilities 725,712,538.18 768,645,604.02 Total liabilities 11,818,688,986.33 10,606,802,501.75 Owners’ Equity Share capital 9,335,806,114.00 9,343,417,190.00 Capital reserves 4,762,676,910.92 4,770,210,334.16 Less: Treasury shares 1,023,188,723.04 1,121,918,737.47 Surplus reserves 4,672,505,348.00 4,672,505,348.00 Retained earnings 30,102,292,022.09 31,327,891,058.77 Total owners' equity 47,850,091,671.97 48,992,105,193.46 Total liabilities and owners' 59,668,780,658.30 59,598,907,695.21 equity 69 Hikvision 2021 Half Year Report Consolidated Income Statement Unit: RMB Amount for the Amount for the prior Item Notes current period period I. Total operating income (V)45 33,902,098,368.10 24,271,159,243.76 Less:Total operating costs (V)45 18,205,195,764.46 12,193,719,945.38 Business taxes and surcharges (V)46 280,470,004.15 168,072,165.25 Selling expenses 4,190,678,349.80 3,420,291,518.42 Administrative expenses 880,577,747.56 864,959,489.94 Research and Development (R&D) 3,877,769,884.09 3,063,423,679.69 expenses Financial expenses (V)47 (122,524,438.07) (227,972,206.73) Including:Interest expenses 110,613,426.61 94,137,084.05 Interest income 411,998,029.35 306,973,066.18 Add: Other Income (V)48 1,076,047,292.02 994,778,394.15 Investment income (V)49 169,311,455.72 150,219,709.56 Including: Investment losses in associated enterprise and joint-venture (1,821,107.11) (8,942,717.69) enterprise Losses from changes in fair values (V)50 (9,549,529.40) (20,436,436.96) Credit impairment losses (V)51 (311,905,460.79) (152,772,469.77) Impairment losses of assets (V)52 (258,336,972.38) (165,394,158.33) Asset disposal income 3,760,896.87 21,554.99 II. Operating profit 7,259,258,738.15 5,595,081,245.45 Add: Non-operating income (V)53 42,002,720.90 31,721,207.08 Less: Non-operating expenses (V)54 18,855,336.72 7,378,765.56 III. Total profit 7,282,406,122.33 5,619,423,686.97 Less: Income tax expenses (V)55 427,530,365.26 952,552,145.97 IV. Net profit 6,854,875,757.07 4,666,871,541.00 4.1 Classification by continuous operation (a) Net profit on continuous operation 6,854,875,757.07 4,666,871,541.00 (b) Net loss on terminated operation - 4.2 Classification by attribution of ownership (a) Profit or loss attributable to minority 373,451,103.68 42,898,710.13 shareholders (b) Net profit attributable to owners of 6,481,424,653.39 4,623,972,830.87 parent company V. Other comprehensive income, net of income (V)42 (8,260,441.80) (26,796,178.37) tax Other comprehensive income attributable to owners (7,233,190.86) (24,482,915.47) of the Company, net of tax (I) Items that will not be reclassified subsequently - - to profit or loss (II) Other comprehensive income to be (7,233,190.86) (24,482,915.47) reclassified to profit or loss in subsequent periods 70 Hikvision 2021 Half Year Report Amount for the Amount for the prior Item Notes current period period 1. Exchange differences arising on conversion of financial statements denominated in foreign (7,233,190.86) (24,482,915.47) currencies Other comprehensive income attributable to (1,027,250.94) (2,313,262.90) minority interests, net of tax VI. Total comprehensive income 6,846,615,315.27 4,640,075,362.63 Total comprehensive income attributable to owners 6,474,191,462.53 4,599,489,915.40 of the parent company Total comprehensive income attributable to 372,423,852.74 40,585,447.23 minority shareholders VII. Earnings per share (I) Basic earnings per share (XVI)2 0.695 0.493 (II) Diluted earnings per share (XVI)2 0.695 0.493 71 Hikvision 2021 Half Year Report Income statement of the parent company Unit: RMB Amount for the Amount for the Item Notes current period prior period I. Total operating income (XV)4 12,917,726,385.73 11,584,268,085.23 Less: Total operating Cost (XV)4 2,509,299,575.74 2,922,006,997.48 Business taxes and surcharges 150,551,978.92 127,523,350.50 Selling expenses 1,783,224,294.68 1,378,570,165.20 Administrative expenses 314,616,473.56 382,045,872.60 Research and Development (R&D) expenses 2,720,506,560.34 2,190,386,100.23 Financial expenses (343,124,665.61) (200,603,140.91) Including : Interest expenses 10,397,669.93 13,789,744.18 Interest income 308,600,906.50 215,501,593.83 Add: Other income 814,486,093.98 797,244,362.60 Investment income (XV)5 111,957,469.10 192,706,003.20 Including: Investment losses in associated enterprise and joint-venture (3,799,685.50) (3,628,950.89) enterprise Losses from changes in fair values (23,277,319.84) (13,017,332.26) Credit impairment losses (40,842,757.19) (15,105,661.89) Gains (losses) on asset impairment (78,025.86) 1,095,084.66 Asset disposal income 3,833,547.49 2,863.84 II. Operating profit 6,648,731,175.78 5,747,264,060.28 Add: Non-operating income 3,802,072.88 8,749,908.65 Less: Non-operating expenses 9,890,999.61 1,267,522.90 III. Total profit 6,642,642,249.05 5,754,746,446.03 Less: Income tax expenses 410,183,878.83 812,649,281.30 IV. Net profit 6,232,458,370.22 4,942,097,164.73 V. Other comprehensive income, net of income tax - - VI. Total comprehensive income 6,232,458,370.22 4,942,097,164.73 72 Hikvision 2021 Half Year Report 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 36,645,553,356.23 27,244,048,844.95 Receipts of tax refunds 1,948,391,576.36 1,718,589,299.56 Other cash receipts relating to operating activities (V)56(1) 1,110,525,511.10 707,923,092.38 Sub-total of cash inflows from operating activities 39,704,470,443.69 29,670,561,236.89 Cash payments for goods purchased and services received 25,383,102,780.25 19,503,212,062.93 Cash paid to and on behalf of employees 6,909,644,086.23 5,587,456,744.73 Payments of various types of taxes 2,538,596,422.62 2,463,618,915.37 Other cash payments relating to operating activities (V)56(2) 2,910,273,382.44 2,046,307,173.29 Sub-total of cash outflows from operating activities 37,741,616,671.54 29,600,594,896.32 Net Cash flows from Operating Activities (V)57(1) 1,962,853,772.15 69,966,340.57 II. Cash flows from Investing Activities: Cash receipts from recovery of investments 3,831,776,958.90 967,045,868.90 Cash receipts from investment income 116,643,801.97 150,000,000.00 Net cash receipts from disposals of fixed assets, intangible assets and 6,017,061.25 2,855,619.32 other long-term assets Other cash receipts relating to investing activities (V)56(3) 6,182,818.55 14,990,732.87 Sub-total of cash inflows from investing activities 3,960,620,640.67 1,134,892,221.09 Cash payments to acquire or construct fixed assets, intangible assets 1,285,789,284.17 1,397,220,231.04 and other long-term assets Cash paid to acquire investments 3,761,350,647.76 1,232,156,803.46 Net cash paid for disposal of subsidiaries and other business units (VI)1(1) 7,355,969.42 - Sub-total of cash outflows from investing activities 5,054,495,901.35 2,629,377,034.50 Net cash flows from Investing Activities (1,093,875,260.68) (1,494,484,813.41) III. Cash flows from financing activities: Cash receipts from capital contributions 5,750,000.00 154,264,987.03 Including: cash receipts from capital contributions from minority 5,750,000.00 154,264,987.03 owners of subsidiaries Cash receipts from borrowings 1,439,276,251.61 3,445,980,000.00 Cash receipts from issuance of bonds and SCP - 999,500,000.00 Sub-total of cash inflows from financing activities 1,445,026,251.61 4,599,744,987.03 Cash repayments of borrowings 2,352,226,510.55 1,459,216,468.29 Cash payments for distribution of dividends or profits or settlement of 7,064,746,308.01 6,554,304,815.58 interest expenses Including : Dividends and profits paid by subsidiaries to minority 1,500,000.00 - shareholders Other cash payments relating to financing activities (V)56(4) 207,606,972.78 64,290,000.00 Sub-total of cash outflows from financing activities 9,624,579,791.34 8,077,811,283.87 Net cash flows from Financing Activities (8,179,553,539.73) (3,478,066,296.84) IV. Effect of foreign exchange rate changes on Cash and Cash (74,298,730.20) 10,423,718.77 Equivalents V. Net Decrease in Cash and Cash Equivalents (V)57(1) (7,384,873,758.46) (4,892,161,050.91) Add: Opening balance of Cash and Cash Equivalents (V)57(1) 35,024,837,878.31 26,515,668,008.40 VI. Closing Balance of Cash and Cash Equivalents (V)57(2) 27,639,964,119.85 21,623,506,957.49 73 Hikvision 2021 Half Year Report Cash Flow Statements of the parent 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 14,695,266,847.20 10,102,563,972.01 Receipts of tax refunds 737,640,128.60 751,843,296.77 Other cash receipts relating to operating activities 810,301,539.46 375,348,009.24 Sub-total of cash inflows from operating activities 16,243,208,515.26 11,229,755,278.02 Cash payments for goods acquired and services received 3,146,599,060.27 3,428,323,188.51 Cash payments to and on behalf of employees 3,533,262,244.48 3,021,694,357.17 Payments of various types of taxes 1,854,362,234.39 1,820,418,512.27 Other cash payments relating to operating activities 1,193,441,671.96 1,332,281,567.50 Sub-total of cash outflows from operating activities 9,727,665,211.10 9,602,717,625.45 Net Cash flows from Operating Activities 6,515,543,304.16 1,627,037,652.57 II. Cash flows from Investing Activities: Cash receipts from recovery of investments - 2,800,000.00 Cash receipts from investment income 120,143,801.97 150,000,000.00 Net cash receipts from disposals of fixed assets, intangible assets and 6,720,944.51 1,142,724.61 other long-term assets Other cash receipts relating to investing activities 7,834,524,088.17 1,698,134,887.49 Sub-total of cash inflows from investing activities 7,961,388,834.65 1,852,077,612.10 Cash payments to acquire or construct fixed assets, intangible assets and 189,587,482.90 294,745,004.28 other long-term assets Cash payments to acquire investments 205,000,000.00 725,748,730.00 Other cash payments relating to investing activities 8,126,886,684.35 - Sub-total of cash outflows from investing activities 8,521,474,167.25 1,020,493,734.28 Net Cash flows from Investing Activities (560,085,332.60) 831,583,877.82 III. Cash flows from Financing Activities Cash receipts from borrowings - 2,480,000,000.00 Cash receipts from issuance of bonds and SCP - 999,500,000.00 Other cash receipts relating to financing activities 9,731,292,792.85 - Sub-total of cash inflows from financing activities 9,731,292,792.85 3,479,500,000.00 Cash repayments of borrowings 1,430,000,000.00 1,000,000,000.00 Cash payments for distribution of dividends or profits or settlement of 6,966,343,191.95 6,455,560,277.48 interest expenses Other cash payments relating to financing activities 7,859,321,152.86 - Sub-total of cash outflows from financing activities 16,255,664,344.81 7,455,560,277.48 Net Cash flows from Financing Activities (6,524,371,551.96) (3,976,060,277.48) IV. Effect of foreign exchange rate changes on Cash and Cash Equivalents (7,549,854.62) 32,767,298.25 V. Net decrease in cash and cash equivalents (576,463,435.02) (1,484,671,448.84) Add: Opening balance of cash and cash equivalents 23,264,693,578.70 16,656,028,410.72 VI. Closing Balance of Cash and Cash Equivalents 22,688,230,143.68 15,171,356,961.88 74 Hikvision 2021 Half Year Report Consolidated Statement of Changes in Owners' Equity Unit: RMB Amount for the first half of 2021 Owner’s equity attributable to the parent company Items Other Minority Total owners' Less: Treasury Share capital Capital reserves comprehensive Surplus reserve Retained profits interests equity share income I. Closing balance of the prior year 9,343,417,190.00 5,178,777,462.09 1,121,918,737.47 (84,993,926.94) 4,672,505,348.00 35,806,523,826.37 685,432,238.49 54,479,743,400.54 II. Increase or decrease in the (7,611,076.00) 4,311,322.68 (98,730,014.43) (7,233,190.86) - (976,632,753.51) (497,799,474.52) current period 390,636,208.74 (I) Total comprehensive income - - - (7,233,190.86) - 6,481,424,653.39 6,846,615,315.27 372,423,852.74 (II) Owners’ contributions and (7,611,076.00) 4,311,322.68 (37,631,007.23) - - - 19,712,356.00 54,043,609.91 reduction in capital 1. Capital contribution from - - - - - - 5,750,000.00 5,750,000.00 shareholders 2. Share-based payment - 119,354,237.28 - - - - 14,754,392.73 134,108,630.01 recognized in owners’ equity 3. Others (7,611,076.00) (115,042,914.60) (37,631,007.23) - - - (792,036.73) (85,815,020.10) (III) Profit distribution - - (61,099,007.20) - - (7,458,057,406.90) (1,500,000.00) (7,398,458,399.70) 1. Transfer to surplus reserves - - - - - - - - 2. Distributions to - - (61,099,007.20) - - (7,458,057,406.90) (1,500,000.00) (7,398,458,399.70) shareholders 3. Others - - - - - - - - III. Closing balance of the current 9,335,806,114.00 5,183,088,784.77 1,023,188,723.04 (92,227,117.80) 4,672,505,348.00 34,829,891,072.86 1,076,068,447.23 53,981,943,926.02 period 75 Hikvision 2021 Half Year Report Consolidated Statement of Changes in Owners' Equity-continued Unit: RMB Amount for the first half of 2020 Owner’s equity attributable to the parent company Items Other Total owners' Less: Treasury Minority interests Share capital Capital reserves comprehensive Surplus reserve Retained profits equity share income I. Closing balance of the prior year 9,345,010,696.00 4,126,943,698.96 2,148,273,864.36 (53,541,146.99) 4,672,505,348.00 28,961,389,145.22 568,825,008.31 45,472,858,885.14 II. Increase or decrease in the current - 449,550,562.28 (101,334,592.80) (24,482,915.47) - (1,917,534,656.33) 164,628,787.73 (1,226,503,628.99) period (I) Total comprehensive income - - - (24,482,915.47) - 4,623,972,830.87 40,585,447.23 4,640,075,362.63 (II) Owners’ contributions and - 449,550,562.28 - - - - 121,593,340.50 571,143,902.78 reduction in capital 1. Capital contribution from - - - - - - 154,264,987.03 154,264,987.03 shareholders 2. Share-based payment - 460,632,426.68 - - - - 20,536,489.07 481,168,915.75 recognized in owners’ equity 3.The amount formed by the acquisition of minority - (33,016,354.85) - - - - (31,273,645.15) (64,290,000.00) shareholders' equity 4.The amount formed by transferring the shares of the - 2,380,508.81 - - - - (2,380,508.81) - subsidiary 5.The amount formed by the - 19,553,981.64 - - - - (19,553,981.64) - disposal of asset group (III) Profit distribution - - (101,334,592.80) - - (6,541,507,487.20) 2,450,000.00 (6,437,722,894.40) 1. Transfer to surplus reserves - - - - - - - - 2. Distributions to shareholders - - (101,334,592.80) - - (6,541,507,487.20) 2,450,000.00 (6,437,722,894.40) 3. Others - - - - - - - - III. Closing balance of the current 9,345,010,696.00 4,576,494,261.24 2,046,939,271.56 (78,024,062.46) 4,672,505,348.00 27,043,854,488.89 733,453,796.04 44,246,355,256.15 period At June 30th 2021 76 Hikvision 2021 Half Year Report Statement of Changes in Owners' Equity of the parent company Unit: RMB Amount for the first half of 2021 Item Share capital Capital reserves Less: Treasury share Surplus reserve Retained profits Total owners' equity I. Closing balance of the prior year 9,343,417,190.00 4,770,210,334.16 1,121,918,737.47 4,672,505,348.00 31,327,891,058.77 48,992,105,193.46 II. Increase or decrease in the current period (7,611,076.00) (7,533,423.24) (98,730,014.43) - (1,225,599,036.68) (1,142,013,521.49) (I) Total comprehensive income - - - - 6,232,458,370.22 6,232,458,370.22 (II) Owners’ contributions and reduction - - (7,611,076.00) (7,533,423.24) (37,631,007.23) 22,486,507.99 in capital 1. Capital contribution from - - - - - - shareholders 2. Share-based payment - - - 107,499,558.04 - 107,499,558.04 recognized in owners’ equity 3. Others (7,611,076.00) (115,032,981.28) (37,631,007.23) - - (85,013,050.05) (III) Profit distribution - - (61,099,007.20) - (7,458,057,406.90) (7,396,958,399.70) 1.Transfer to surplus reserve - - - - - - 2.Distributions to shareholders - - (61,099,007.20) - (7,458,057,406.90) (7,396,958,399.70) 3. Others - - - - - - III. Closing balance of the current period 9,335,806,114.00 4,762,676,910.92 1,023,188,723.04 4,672,505,348.00 30,102,292,022.09 47,850,091,671.97 77 Hikvision 2021 Half Year Report Statement of Changes in Owners' Equity of the parent company-continued Unit: RMB Amount for the first half of 2020 Item Share capital Capital reserves Less: Treasury share Surplus reserve Retained profits Total owners' equity I. Closing balance of the prior year 9,345,010,696.00 4,064,833,739.52 2,148,273,864.36 4,672,505,348.00 25,196,894,651.27 41,130,970,570.43 II. Increase or decrease in the current - 481,168,915.75 (101,334,592.80) - (1,599,410,322.47) (1,016,906,813.92) period (I) Total comprehensive income - - - - 4,942,097,164.73 4,942,097,164.73 (II) Owners’ contributions and - 481,168,915.75 - - - 481,168,915.75 reduction in capital 1. Capital contribution from - - - - - - shareholders 2. Share-based payment - 481,168,915.75 - - - 481,168,915.75 recognized in owners’ equity 3. Others - - - - - - (III) Profit distribution - - (101,334,592.80) - (6,541,507,487.20) (6,440,172,894.40) 1.Transfer to surplus reserve - - - - - - 2.Distributions to shareholders - - (101,334,592.80) - (6,541,507,487.20) (6,440,172,894.40) 3. Others - - - - - - III. Closing balance of the current period 9,345,010,696.00 4,546,002,655.27 2,046,939,271.56 4,672,505,348.00 23,597,484,328.80 40,114,063,756.51 78 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 I. Basic Information about the Company Hangzhou Hikvision Digital Technology Co., Ltd. (hereinafter referred to as "Company" or "the Company" or “Hikvision”), 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. On June 26th 2019, authorized by the Company’s first Extraordinary General Meeting in 2014, the Company completed procedures of repurchase and cancellation of some of the 509,625 restricted stocks that did not meet the incentive conditions, and the total share capital of the Company was adjusted to 9,347,956,306 shares. On September 3rd 2019, authorized by the Company’s second Extraordinary General Meeting in 2016, the Company completed procedures of repurchase and cancellation of some of the 2,945,610 restricted stocks that did not meet the incentive conditions, and the total share capital of the Company was adjusted to 9,345,010,696 shares. On December 17th 2020, authorized by the Company’s second Extraordinary General Meeting in 2016, the Company completed procedures of repurchase and cancellation of some of the 1,593,506 restricted stocks that did not meet the incentive conditions, and the total share capital of the Company was adjusted to 9,343,417,190 shares. On June 30th 2021, authorized by the Company’s second Extraordinary General Meeting in 2016 and the second Extraordinary General Meeting in 2018, the Company completed procedures of repurchase and cancellation of some of the 7,611,076 restricted stocks that did not meet the incentive conditions, and the total share capital of the Company was adjusted to 9,335,806,114 shares. For details of the share capital, please refer to Note (V), 39. As of June 30th 2021, the Company’s total registered capital is RMB 9,335,806,114, with total capital shares of 9,335,806,114 shares (face value RMB 1 per share), of which restricted A-shares were 1,192,886,791 shares, A-shares without restriction are 8,142,919,323 shares. The Company is involved in the sector of other electronic equipment manufacturing of the electronic industry. The main business activities of the Company are licensed business items as follows: Class II and Class III ray device production; Class II and Class III ray device sales; Radioisotope production (except for short-half-life radiopharmaceuticals for medical use); Class II, Class III, Class IV and Class V radioactive sources sales; all kinds of engineering and construction activities; goods import and export, and technology import and export( as for the items subject to the approval of laws, business activities can be carried out only after being approved by the relevant departments, and the specific operation items shall be in accordance with the approved norms.) General items: digital video surveillance system manufacturing; digital video surveillance system sales; security equipment manufacturing; security equipment sales; manufacturing of IoT equipment; sales of IoT equipment; manufacturing of intelligent unmanned aerial vehicles; sales of intelligent unmanned aerial vehicles; manufacturing of service consumption robots; manufacturing of industrial robots; manufacturing of robots for special operations; sales of intelligent robots; manufacturing of computer software and hardware and peripherals; wholesale of computer software and hardware and auxiliary equipment; manufacturing of communication equipment; sales of communication equipment; manufacturing of network equipment; sales of network equipment; manufacturing of display devices; sales of display devices; manufacturing of intelligent on-board equipment; sales of intelligent on-board equipment; manufacturing of auto parts and accessories; wholesale of auto parts and accessories; manufacturing of electric signal appliance and device; sales of electric signal appliance and device; manufacturing of mechanical and electrical equipment; sales of mechanical and electrical equipment; manufacturing of special labor protective supplies; sales of special labor protective supplies; sales of electronic products; sales of digital cultural and creative technology equipment; 79 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 technical services, technical development, technical consultation, technical exchange, technical transfer and technical promotion; software development; information system integration services; computer system services; research and development of IoT technologies; IoT technology services; IoT application services; big data services; data processing and storage support services; security system monitoring services; security technology defense system design and construction services; electronic and mechanical equipment maintenance (excluding special equipment); parking lot services; digital cultural and creative content application services; environmental protection monitoring; for-profit private training institution engaged in science and technology training (excluding discipline and language cultural education and training for primary and secondary school students). 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 5th session Board of Directors of the Company on July 23rd 2021. For consolidation scope of the financial statements of the current reporting period, please refer to Note (VII) “Interest in other entities”. For changes in consolidation scope of the financial statements during the current reporting period, 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 Information Disclosure and Presentation Rules for Companies Offering Securities to the Public No. 15- General Provisions on Financial Reporting (revised in 2014). Going concern The Group has evaluated its going concern for 12 months going forward starting from June 30th 2021, 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. 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. 80 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 When measuring non-financial assets at fair value, the assets shall be measured considering the ability of market participants to use the assets for optimal use to generate economic benefits, or to sell the assets to other market participants to use the assets for optimal use to generate economic benefits. For the financial assets measured with transaction price at the initial recognition, and the use of valuation techniques involving unobservable inputs in the subsequent fair value measurement, the valuation technique is corrected in the valuation process in order to make the initial recognition results confirmed by valuation techniques equal to the transaction price. 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. III. Significant accounting policies and accounting estimates 1. Statement for Compliance with Accounting Standards for Business Enterprises (ASBE) 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 2021; and the Company's and consolidated results of operations, the Company’s and consolidated changes in shareholders' equity, and the Company’s and consolidated cash flows for the first half of 2021. 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) 59. 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 81 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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 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 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. If a business combination not under the common control is realized step by step through multiple transactions, the cost of the combination is the sum of the consideration paid on the purchase date and the fair value of the equity of the purchasee already held before the purchase date on the purchase date. 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. 82 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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 flows 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. 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. 83 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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 is adjusted against retained earnings. In the case that the equity of the acquiree is obtained through multiple deals step by step to finally form the business combination not under the common control, the business combination shall be handled differently based on whether it is "package deal": where it is package deal, the Company accounts each deal as a deal to obtain the control. If the deal is not a "package deal", a deal where the control is obtained on the acquisition date will be subject to accounting. The acquiree's equity held before the acquisition date will be remeasured based on the fair value of the equity on the acquisition date and the difference between the fair value and book value will be included in the profit or loss in the current period. If the acquiree's equity held before the acquisition date involves any changes in the other comprehensive income or in any other owner's equity accounted by the equity method, such equity changes will be converted into the profit or loss in the current period on the acquisition date. 7. Joint arrangement classification and joint operation accounting Joint arrangements include joint operation and joint ventures. Such classification is defined based on the rights and obligations of the joint parties in the joint arrangement, taking into account the structure and legal form of such arrangement and also the contractual provisions. Joint operation refers to a joint arrangement where the joint venture is entitled to assets related to this arrangement and bear liabilities related to this arrangement. Joint ventures mean that joint venture parties are merely entitled to joint venture arrangements of net assets of such arrangements. The Groups investment in any joint venture is accounted by the equity method. See the details in Note (III) "15.3.2 Long- term equity investment accounted under the equity method". The Group confirms its assets held separately according to the arrangement of joint operation and those held jointly in proportion to the Group's share; confirms its liabilities held separately and those held jointly in proportion to the Group's share ; confirms its revenue from the sale of its share of the output arising from the joint operation; confirms its share of the revenue from the sale of the output by the joint operation; confirms the expenses incurred by the Group alone and the expenses incurred by the joint operation corresponding to the share of the Group therein. The assets, liabilities, revenues and expenses related to the joint operation are accounted and confirmed by the Group in accordance with the regulations applicable to specific assets, liabilities, revenues, and expenses. 8. 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 (Generally refers to due within three months from the purchase date), highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 9. Conversion of transactions and financial statements denominated in foreign currencies. 9.1 Transactions denominated in foreign currencies 84 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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. 9.2 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. The foreign currency cash flows and cash flows of overseas subsidiaries adopt the exchange rate similar to the spot rate at the date of cash flows 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. The closing balances of the prior year and the actual amount of the prior year are presented at the converted amounts of the prior 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 85 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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. 10. Financial Instruments The Group recognizes a financial asset or a financial liability when it becomes a party to a contract of financial instrument. For the purchase or sale of a financial asset in conventional manner, the asset to be received and the liability to be assumed will be recognized on the trading day, or the asset sold will be derecognized on the trading day. Financial assets and financial liabilities are measured by fair value upon initial recognition. For financial assets and financial liabilities at fair value through profit and loss, the relevant trading costs will be directly charged to profit and loss of the current period. For other types of financial assets and financial liabilities, the relevant trading costs will be booked into the initial recognition amount. Upon initial recognition of accounts receivable which have no material financing components or have not taken into consideration the financing components in contracts with a term not exceeding one year according to Accounting Standards for Business Enterprise No. 14 – Revenue (“Revenue Standard”), such initial amount is measured by the transaction price as defined under the Revenue Standard. Effective interest rate method refers to the method of calculating the amortized cost of financial asset or financial liability and apportioning interest income or interest expenses to each accounting period. Effective interest rate refers to the interest rate used for discounting the estimated future cash flows of a financial asset or a financial liability for an expected subsisting period into the balance of book value of the financial asset or the amortized cost of the financial liability. When determining the effective interest rate, the expected cash flows are estimated on the basis of considering all contractual terms of the financial asset or financial liability (such as early repayment, extended term, call option or other similar option) but without considering the expected credit loss. The amortized cost of a financial asset or a financial liability refers to the initial recognition amount of such financial asset or financial liability, less the repaid amount of principal, plus or minus the accrued amortized amount calculated by amortization of the difference between the initial recognition amount and the amount on maturity by using the effective interest rate method, and then deducts the accrued provision for losses (only applicable to financial assets). 10.1 Classification, Confirmation and Measurement of Financial Assets After initial recognition, the Group will adopt amortized cost, fair value through other comprehensive income, or fair value through profit and loss for subsequent measurement depending on different categories of financial assets. 86 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 The Group will classify a financial asset into a financial asset measured at amortized cost if the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding and the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows. Financial assets classified by the Group as financial asset measured by amortized cost include cash and cash equivalents, notes receivables and accounts receivable, other receivables (except for tax refund receivable) and long-term receivables. The Group will classify a financial asset into a financial asset measured by fair value through other comprehensive income if the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets. This category of financial assets mainly includes financial assets with a maturity of more than one year from the date of acquisition and which are presented under other debt investments, financial assets maturing within one year (inclusive) from the balance sheet date and which are presented under non-current assets maturing within one year, as well as the accounts receivable and notes receivable classified as fair value at the time of acquisition and their changes are included in other comprehensive income are listed in the receivables for financing, and for those have acquisition period within one year (including one year) are listed in other current assets. At the time of initial recognition, the Group may, on the basis of a single financial asset, irrevocably designate an investment in an equity instrument held for non-trading purpose recognized or without consideration in a business merger not under common control as a financial asset at fair value through other comprehensive income. This type of financial assets is presented as investment in other equity instruments. Financial assets which have satisfied one of the following conditions indicate that such financial assets are held for trading purpose by the Group: The purpose of acquiring the relevant financial asset is mainly for sale in recent period. At the time of initial recognition, the relevant financial asset is a part of an identifiable portfolio of financial instruments under collective management, and there is objective evidence showing a recent and actual existence of short- term profitable mode. The relevant financial assets are derivatives, excluding derivatives which satisfy the definition under financial guarantee contracts and derivatives which are designated as effective hedging instruments. Financial assets at fair value through profit and loss include financial assets which are classified as financial assets at fair value through profit and loss and financial assets designated at fair value through profit and loss: Financial assets which do not satisfy the conditions of being classified as financial assets measured at amortized cost or as financial assets at fair value through other comprehensive income, they will be classified as financial assets at fair value through profit and loss. At the time of initial recognition, in order to eliminate or substantially reduce mismatch in accounting, the Group may irrevocably designate a financial asset as a financial asset measured at fair value with changes through profit and loss. Financial assets at fair value through profit and loss will be presented as held-for-trading financial assets. If such financial assets have a maturity of more than one year from the balance sheet date (or without a fixed maturity) and which are expected to be held for more than one year, they will be presented under other non-current financial assets. 87 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 10.1.1 Financial assets measured at amortized cost Financial assets measured at amortized cost adopt the effective interest rate method for subsequent measurement according to amortized cost, the profit or loss when impairment occurs or upon derecognition will be accounted in profit and loss of the current period. The Group recognizes interest income by using effective interest rate method for financial assets measured at amortized cost. The Group determines interest income by multiplying the balance of book value of financial assets with the effective interest rate except under the following circumstances: For acquired or generated financial assets which incurred credit impairment already, their interest income will be determined by using the amortized cost of such financial asset calculated with the credit adjusted effective interest rate. For acquired or generated financial assets which have not incurred credit impairment but incur credit impairment in the subsequent period, the Group will determine their interest income by using the amortized cost of such financial assets multiplied with the effective interest rate in the subsequent period. If such financial asset ceases to have credit impairment due to improvement in credit risk in the subsequent period, then the Group should change to multiply the effective interest rate with the balance of book value of such financial asset instead to determine the interest income. 10.1.2 Financial asset at fair value through other comprehensive income The impairment loss or profit, or interest income calculated by using the effective interest rate method, relating to financial asset at fair value through other comprehensive income should be accounted in the profit and loss of the current period, and other changes in fair value of such financial assets will be accounted in other comprehensive income. The amount charged by such financial asset to the profit and loss of each period is deemed to be equal to the amount which has been measured by amortized cost and charged to the profit and loss of each period. Upon derecognition of such financial asset, the accumulated profit or loss previously charged to other comprehensive income will be reversed from other comprehensive income and charged to profit and loss of the current period. For non-trading equity instrument investment designated at fair value through other comprehensive income, its changes in fair value will be recognized in other comprehensive income. Upon derecognition of such financial asset, the accumulated profit or loss charged to other comprehensive income will be reversed from other comprehensive income and charged to retained earnings. During the period when such investment in equity instruments for non-trading purpose are held by the Group, the right to receive dividends by the Group has been established, and economic benefits related to dividends are likely to flow into the Group, and if the amount of dividends may be measured reliably, the dividend income is recognized and accounted in the profit and loss of the current period. 10.1.3 Financial asset at fair value through profit and loss For financial asset at fair value through profit and loss, subsequent measurement will be calculated at fair value, the profit or loss arising from changes in fair value and the dividend and interest income relating to such financial asset will be accounted in the profit and loss of the current period. 10.2 Impairment of Financial Assets For financial assets measured at amortized cost, financial assets that are classified as financial asset at fair value through other comprehensive income, contract assets, lease receivables, and financial guarantee contracts that do not meet the 88 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 conditions for termination of recognition due to the transfer of financial assets or continue to be involved in financial liabilities formed by the transferred financial assets, the Group will handle impairment on the basis of expected credit loss and recognize loss provision. The Group’s consideration of contract assets, notes receivable and accounts receivable that are generated by transactions regulated by revenue standards and do not contain significant financing components or that do not consider financing components in contracts that are not more than one year old, as well as those operating lease receivables formed from transactions that are defined by the Accounting Standards for Business Enterprises No. 21-Leasing, the loss reserve shall be measured based on the amount of the expected credit loss during the entire duration. For other financial instruments, other than acquired or generated financial assets which have incurred credit impairment already, the Group will assess on each balance sheet date the changes in credit risk of the relevant financial instruments since initial recognition. If the credit risk of such financial asset has significantly increased after initial recognition, the Group will calculate its loss provision based on the amount equivalent to the expected credit loss for the entire subsisting period. If the credit risk of such financial asset since initial recognition has not increased significantly, the Group will calculate its loss provision according to the expected credit loss amount of such financial asset for the next 12 months. The amount of increase or reversal in the provision for credit loss, apart from financial assets classified as financial asset at fair value through other comprehensive income, is accounted in the profit and loss of the current period. For financial asset classified as measured at fair value through other comprehensive income, the Group will recognize its credit loss provision in other comprehensive income and charged the impairment loss or gain to the profit and loss of the current period, and will not decrease the book value of such financial asset presented in the balance sheet. The Group has calculated the loss provision equivalent to the expected credit loss amount for the entire subsisting period of the financial instrument in the preceding accounting period, but at the balance sheet date of the current period, such financial instrument is no longer under the condition of significant increase in credit risk since initial recognition, the Group calculates the loss provision for such financial instrument on the balance sheet date of the current period according to an amount equivalent to the expected credit loss for the next 12 months, and the resulting loss provision reversal amount will be counted as impairment gain and booked into the profit and loss of the current period. 10.2.1 Significant increase in credit risk The Group uses available and reasonable forward-looking information with justification, by comparing the default risk of the financial instrument at the balance sheet date with the default risk on the initial recognition date, to confirm whether the credit risk of the financial instrument has significantly increased after initial recognition. When using the financial instrument impairment rules for loan commitment and financial guarantee contracts, the date when the Group becomes a party of an irrevocable commitment is deemed as the initial recognition date. The Group considers the following factors when assessing whether the credit risk has significantly increased: (1) Whether a significant change has been caused to the internal price indicator due to changes in credit risk. (2) Whether the external credit rating of financial instrument has actual or expected significant changes. (3) Whether the actual or expected internal credit rating of the debtor has been downgraded. (4) Whether adverse changes have occurred in the business, finance or economic conditions which are expected to cause significant changes in the capability of the debtor to perform debt repayment obligations. (5) Whether actual or expected significant changes have occurred in the operating results of the debtor. (6) Whether significant adverse changes have occurred in the supervision, economic or technical environment in which the debtor operates. (7) Whether significant changes have occurred in the value of security pledged for the debt or the quality of guarantee 89 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 or credit enhancement provided by third parties. Such changes are expected to reduce the debtor’s economic motivation of repayment according to contractual term or influence the probability of default. (8) Whether significant changes have occurred in the economic motivation which will lower the expectation of repayment by the borrower according to the contractual term. (9) Whether significant changes have occurred in the expected performance and repayment behavior of the debtor. Whether or not the credit risks increase significantly after the foregoing assessments, if any contractual payment for any financial instrument that overdue for over (including) 30 days, it indicates the credit risks of that financial instrument have increased significantly. On the balance sheet date, if the Group determines that the financial instrument only carries low credit risks, then it assumes that the credit risks of the financial instrument have not increased significantly since the initial recognition. If the risk of default on financial instruments is low, the borrower is highly able to perform its contractual cash flow obligations in the short term, and even if the economic situation and operating environment are adversely changed over a long period of time but not necessarily reducing the borrower’s performance of its contractual cash obligations, the financial instrument is considered as having a lower credit risk. 10.2.2 Financial assets which have incurred credit impairment already When one or more events which will have adverse effect on the expected future cash flows from the financial asset of the Group have occurred, such financial asset will become a financial asset which have incurred credit impairment already. The evidence of credit impairment occurred in a financial asset includes the following observable information: (1) Material financial difficulties have occurred in the issuer or debtor; (2) Breach of contract by the debtor, such as default or overdue for the payment of interest or repayment of principal; (3) Due to economic or contractual considerations relating to financial difficulties of the debtor, the creditor has granted concession to the debtor under no other circumstances; (4) The debtor is likely to go bankrupt or carry out other financial restructuring; (5) The financial difficulties of the issuer or debtor have caused the disappearance of the active market for the financial asset; (6) The purchase or generation of a financial asset at a large discount, such discount reflects the fact of occurrence of credit loss. 10.2.3 Confirmation of expected credit loss The Group’s accounts receivable, other receivables (except for tax refund receivables), contract assets, lease receivables and long-term receivables, that are individually significant and the debtor has serious financial difficulties, are determined on the basis of individual for its credit loss. For the remaining accounts receivable, other receivables (except for tax refund receivables), contract assets, lease receivables and long-term receivables, an impairment matrix is used to determine the credit losses of relevant financial instruments on a portfolio basis.The Group determines credit losses by assessing the probability of breach and loss given default based on the credit ratings on a portfolio basis of notes receivable and receivables. On the basis of common risk characteristics, the Group places financial instruments in different groups. The common credit risk characteristics adopted by the Group include: financial instrument type, credit risk rating, initial recognition date, remaining contract period, industry of debtor, geographic location of debtor, and etc. The Group confirms the expected credit loss of the relevant financial instrument according to the following method: In respect of a financial asset, the credit loss is the present value of the difference between the contractual cash 90 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 flow that the group should receive and the cash flow that it expects to receive. In respect of lease receivables, the credit loss is the present value of the difference between the contractual cash flow that the group should receive and the cash flow that it expects to receive. In respect of a financial guarantee contract (for specific accounting policies, please refer to Note (III), 10.4.1.2.1), the credit loss is the present value of the difference between Group’s expected payment amount for the compensation made to the contract holder due to the occurrence of credit loss and the amount expected to be received by the Group from such contract holder, debtor or any other parties. In respect of financial assets with credit impairment on the balance sheet date but they are not acquired or generated financial assets with credit impairment, the credit loss represents the difference between the balance of the book value of such financial asset and the present value of the estimated future cash flows discounted by the original effective interest rate. The factors reflected by the method used for calculating expected credit loss of financial instruments by the Group include: an unbiased weighted average amount determined by assessing a series of probable outcomes; time value of currency; reasonable and justifiable information relating to past events, prevailing conditions and forecast of future economic conditions obtained on the balance sheet date without incurring unnecessary additional cost or effort. 10.2.4 Write-off on financial asset When the Group ceases to have reasonable expectation on the possible collection of all or part of the contractual cash flows from the financial asset, the balance of book value of such financial asset will be written off directly. Such a write- off constitutes a de-recognition of the relevant financial asset. 10.3 Transfer of financial asset A financial asset that fulfills one of the following conditions will be de-recognized: (1) termination of contractual rights to receive cash flows from the financial asset; (2) upon transfer of such financial asset and transfer of substantially all the risks and rewards in respect of the ownership of such financial asset to the transferee; (3) upon transfer of such financial asset, though the Group has not transferred nor retained substantially all the risks and rewards in respect of the ownership of such financial asset, yet it has not retained the control over such financial asset. If the Group has not transferred nor retained substantially all the risks and rewards in respect of the ownership of such financial asset, and has retained the control over such financial asset, then such transferred financial asset will continue to be recognized, and the relevant liabilities will continue to be recognized, according to the level of the Group’s continuous involvement in such transferred financial asset. The relevant liabilities will be measured by the Group according to the following method: If the transferred financial asset is measured by amortized cost, the book value of the relevant liabilities is equivalent to the book value of the transferred asset of continuous involvement less the amortized cost of the rights retained by the Group (if the Group has retained the relevant rights due to transfer of the financial asset) and plus the amortized cost of the obligations undertaken by the Group (if the Group has undertaken the relevant obligations due to transfer of the financial asset), and the relevant liabilities are not designated as financial liabilities at fair value through profit and loss of the current period. If the transferred financial asset is measured by fair value, the book value of the relevant liabilities is equivalent to the book value of the transferred asset of continuous involvement less the fair value of the rights retained by the Group (if the Group has retained the relevant rights due to transfer of the financial asset) and plus the fair value of the obligations undertaken by the Group (if the Group has undertaken the relevant obligations due to transfer of the financial asset), and the fair value of the rights and obligations shall be measured at the fair value on a separate basis. 91 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 For full transfer, which satisfies the conditions of derecognition, of the financial assets, the difference between the sum of the book value of the transferred financial assets as at the date of derecognition and the consideration received from such transfer and the accumulated amount of change in fair value originally included in other comprehensive income, which corresponds to the amount in respect of derecognition, shall be recognized in the profit and loss for the current period. If the transfer of the financial assets by the Group is designated as investment in equity instrument held for non-trading purpose measured at fair value through other comprehensive income, the accumulated gains or losses previously included in other comprehensive income shall be transferred out from other comprehensive income and be included in retained earnings. For transfer in part, which satisfies the conditions of derecognition, of the financial assets, the book value of the entire financial assets before the transfer shall be shared between the derecognized portion and the continuous recognition portion at their respective relative fair value on the date of transfer, and the difference between the sum of the consideration received from derecognition and the accumulated amount of change in fair value originally included in other comprehensive income, which corresponds to the amount in respect of derecognition, and the book value of the derecognized portion as at the date of derecognition shall be included in the profit and loss of the current period. If the transfer of the financial assets by the Group is designated as investment in equity instrument for non-trading purpose measured at fair value through other comprehensive income, the accumulated gains or losses previously included in other comprehensive income shall be transferred out from other comprehensive income and be included in retained earnings. For full transfer, which does not satisfy the conditions of derecognition, of the financial assets, the Group will continue to recognize the entire financial assets transferred and the consideration received as a result of the asset transfer is recognized as a liability when received. 10.4 Classification, confirmation and measurement of financial liabilities and equity instruments Pursuant to the contractual terms of the issued financial instruments and the substantive economic condition as reflected, but not in legal terms only, combined with the definitions of financial liabilities and equity instruments, the Group has classified such financial instruments or the components thereof as financial liabilities or equity instruments upon initial recognition. 10.4.1 Classification, confirmation and measurement of financial liabilities Financial liabilities are classified into financial liabilities at fair value through profit and loss of the current period and other financial liabilities upon initial recognition. 10.4.1.1 Financial liabilities at fair value through profit and loss of the current period Financial liabilities at fair value through profit and loss of the current period comprise of financial liabilities held for trading purpose (including derivatives of financial liabilities) and financial liabilities designated as measured at fair value through profit and loss of the current period. Except for derivatives of financial liabilities, which are presented separately, financial liabilities at fair value through profit and loss of the current period are presented as financial liabilities held for trading. Financial liabilities that fulfill one of the following conditions suggest that the Group assumes such financial liabilities for trading purpose: Assumption of the relevant financial liabilities is mainly for the purpose of the recent repurchases. 92 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 The relevant financial liabilities, upon initial recognition, are part of a portfolio of identifiable financial instruments under centralized management, and available objective evidence shows the recent and actual existence of a short- term profit-making model. The relevant financial liabilities are derivatives, except derivatives which satisfy the definition of financial guarantee contract and derivatives designated as effective hedging instruments. Financial liabilities can be designated, upon initial recognition, by the Group as financial liabilities at fair value through profit and loss of the current period, provided that they have satisfied one of the following conditions: (1) such designation can eliminate or substantially reduce accounting mismatches; (2) managing and evaluating the performance of portfolios of financial liabilities, or portfolios of financial assets and financial liabilities, on fair value basis and reporting internally to key personnel of the Group on this basis in accordance with the risk management or investment strategies specified in formal written documents of the Group; (3) hybrid contracts, with embedded derivatives, have satisfied the conditions. Financial liabilities held for trading purpose use fair value for subsequent measurement, gains or losses arise from changes in fair value and the dividends or interest expenses relating to such financial liabilities are accounted in the profit and loss of the current period. For financial liabilities designated at fair value through profit and loss of the current period, changes in fair value of such financial liabilities caused by changes in the Group’s own credit risks shall be included in other comprehensive income, and other changes in fair value shall be included in the profit and loss of the current period. On derecognition of such financial liabilities, the accumulated amount of changes in fair value as a result of changes in our own credit risk included previously in other comprehensive income shall be transferred to retained earnings. Dividends or interest expenses relating to such financial liabilities shall be included in the profit and loss of the current period. If handling the effect of changes in credit risk of such financial liabilities according to the aforesaid method would cause or magnify the accounting mismatches in profit and loss, the Group will include all gains or losses of those financial liabilities (including the amount affected by changes in their own credit risk) in the profit and losses of the current period. 10.4.1.2 Other financial liabilities Excluding transfer of financial assets not complying with derecognition conditions, or financial liabilities as a result of continuous involvement in transferred financial assets, as well as the financial guarantee contracts, the other financial liabilities will be classified as financial liabilities measured at amortized cost, subsequent measurement will be based on amortized cost, gains or losses on derecognition or amortization will be accounted in the profit and loss of the current period. If the Group and the counterparty have revised or renegotiated the contract, this has not resulted in the derecognition of financial liabilities measured at amortized cost for subsequent measurement, but has caused changes in the contractual cash flows, then the Group should recalculate the book value of such financial liabilities, and the relevant gains or losses shall be accounted in the profit and loss of the current period. The recalculated book value of such financial liabilities will be determined by the Group by discounting the cash flows from the renegotiated or revised contract with the original effect interest rate of the financial liabilities. All costs or expenses incurred in the revision or renegotiation of the contract will be reflected in the adjusted book value of financial liabilities after such revision, and will be amortized during the remaining period of the revised financial liabilities. 10.4.1.2.1 Financial guarantee contract Financial guarantee contract refers to a contract that requests the issuer to provide a specific amount of compensation to the contract holder who suffers losses when a specific debtor fails to repay the debt on due date according to the initial or revised terms of the debt instrument. In respect of financial liabilities which are not designated at fair value through profit 93 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 and loss of the current period, or in respect of financial guarantee contract for financial liabilities arising from transfer of financial assets not complying with derecognition conditions or continuous involvement in the transferred financial assets, the measurement after initial recognition will be based on the amount of provision for losses, or the balance of initial recognized amount after deducting the accumulated amortized amount confirmed in accordance with the relevant provisions of the Revenue Standard, whichever the higher. 10.4.2 Derecognition of financial liabilities When the existing obligations of a financial liability have been wholly or partially discharged, such financial liability or such part of it will be derecognized. When the Group (as borrower) and the lender enter into an agreement to undertake new financial liabilities for replacing the original financial liabilities, if substantive difference exists in the contractual terms between the new financial liabilities and the original financial liabilities, the Group should derecognize the original financial liabilities while at the same time recognizes the new financial liabilities. When a financial liability is wholly or partially derecognized, the difference between the book value of the derecognized portion and the consideration paid (including non-cash asset transferred out or new financial liabilities undertaken) will be accounted in the profit and loss of the current period. 10.4.3 Equity instrument Equity instrument refers to a contract which can prove the ownership of remainder interest in assets after deducting all liabilities of the Group. The Group issues (including refinances), repurchases, sells or cancels equity instruments for treatment of changes in equity. The Group will not recognize changes in the fair value of equity instruments. Trading expenses relating to equity transactions will be deducted from equity. The Group’s distribution to holder of equity instrument is treated as profit distribution, the share dividends paid out will not affect the total equity of shareholders. 10.5 Derivatives and embedded derivatives Derivatives include foreign exchange forward contract and foreign exchange option contract, etc. Derivatives are measured at fair value initially on the date of signing the relevant contract and will be measured at fair value for subsequent measurement. For a hybrid contract constituted by an embedded derivative and a master contract, if the master contract is in respect of a financial asset, the Group will not split the embedded derivative from the hybrid contract, but will consider such hybrid contract as a whole unit to which the accounting standards and rules for classification of financial assets are applicable. If the master contract included in the hybrid contract is not in respect of a financial asset, and fulfills the following conditions at the same time, the Group will split the embedded derivative from the hybrid contract to be treated as a separate subsisting derivative. (1) The economic characteristics and risks of the embedded derivative are not closely connected to the economic characteristics and risks of the master contract. (2) A separate instrument containing the same terms as the embedded derivative fits the definition of a derivative. (3) The hybrid contract is not measured at fair value and changes in fair value are accounted through profit and loss of the current period. 94 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 If an embedded derivative is split from the hybrid contract, the accounting treatment adopted by the Group for the master contract within the hybrid contract will be in accordance with the applicable accounting standards and rules. If the Group is unable to measure the fair value of the embedded derivative reliably according to the terms and conditions of the embedded derivative, the fair value of such embedded derivative will be determined by the difference between the fair value of the hybrid contract and the fair value of the master contract. After adoption of the above method, if the fair value of such embedded derivative is still unable to be measured separately on the acquisition date or subsequent balance sheet date, the Group will designate the entire hybrid contract as a financial instrument measured at fair value through profit and loss of the current period. 10.6 Offsetting between financial assets and financial liabilities When the Group has legal right to offset the recognized financial assets and financial liabilities, and such legal right is enforceable currently, while at the same time the Group plans to perform netting settlement, or to liquidate the financial asset and repay the financial liability at the same time, the amount after offsetting between the financial asset and financial liability will be presented in the balance sheet. Save as said above, the financial asset and financial liability are presented separately in the balance sheet without offsetting each other. 11. Receivables for financing Among the notes receivable measured at fair value through other comprehensive income, the ones with a term of less than (including) one year since they are acquired will be listed as receivables for financing; the ones with a term of more than (including) one year since they are acquired will be listed as other debt investment. The relevant accounting policy is explained in Note (III), 10.1, 10.2 and 10.3. 12. Inventories 12.1 Categories of inventories The Group's inventory mainly includes finished products, products in process and raw materials held in daily activities. 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. 12.2 Valuation method of inventories upon delivery The actual cost of inventories upon delivery is calculated using the moving weighted average method. 12.3 Basis for determining net realizable value of inventories The inventory is measured according to cost and net realizable value, whichever is lower, on the date of balance sheet. When the net realizable value is lower than cost, withdraw inventory impairment 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. 95 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 For the low-price stocks in large quantity, provision for the inventory price drops will be made based on the categories of stocks; for the stocks that are related to the products manufactured and sold in the same region, that have identical or similar ultimate use or purpose and that are hard to separate from other items when being measured, they are consolidated for provision for the inventory price drops; for other stocks, the provision for the inventory price drops will be made based on the cost of a single stock item in excess of the net realizable value. After provision for inventory depreciation reserves is made, if the factors resulting in the write-down of inventory impairment have disappeared and causing the net realizable value higher than its book value, such inventory impairment provision are recovered and reversed, and the reversed amount recorded in profits and losses of the current period. 12.4 Inventory count system The perpetual inventory system is maintained for stock system. 12.5 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. 13. Contract Assets 13.1 Method and standard for determination of contract assets Contract assets refer to the Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer when that right is conditioned on something other than the passage of time. The Group’s unconditional (i.e., depending on the passage of time only) right to receive consideration from the customer is separately presented as receivables. 13.2 Methods for determining and accounting of expected credit loss of contract assets For details of methods for determining and accounting of expected credit loss of contract assets, please refer to Note (III)- 10.2 Impairment of financial instruments. 14. Assets held for sale Non-current assets and disposal groups are classified as held for sale category when the Group recovers the book value through a sale (including an exchange of non-monetary assets that has commercial substance) rather than continuing use. Non-current assets or disposal groups classified as held for sale are required to satisfy the following conditions at the same time: (1) the asset or disposal group is available for immediate sale in its present condition subject to terms that are usual and customary for sales of such asset or disposal group; (2) the sale is highly probable, i.e. the Group has made a resolution about a selling plan and obtained a confirmed purchase commitment and the sale is expected to be completed within one year. 96 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Non-current assets or disposal groups classified as held for sale are measured at the lower of the book value and the net amount of the fair value less the cost of disposal. Where the carrying amount is higher than the net amount of fair value less the cost of disposal, the carrying amount should be reduced to the net amount of fair value less the cost of disposal, and such reduction is recognized as impairment loss of assets and included in profit or loss for the period. In the meantime, provision for impairment of held-for-sale assets is made. When there is an increase in the net amount of fair value of non- current assets held for sale less the cost of disposal at the subsequent balance sheet date, the original deduction should be reversed from impairment loss of assets recognized after the classification as held for sale, and the reversed amount is included in profit or loss for the period. The impairment loss of assets recognized before the classification as held for sale is not reversed. Non-current assets or non-current assets within disposal groups classified as held for sale are not depreciated or amortized, and the interests and other costs of liabilities of disposal group classified as held for sale continue to be recognized. All or part of equity investments in an associate or joint venture are classified as held-for-sale assets. For the part that is classified as held for sale, it is no longer accounted through equity method since the date of the classification. 15. Long-term Equity Investment 15.1 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 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. 15.2 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. 97 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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. Long-term equity investment obtained by other means other than long-term equity investment formed by business combination shall be initially measured at cost. 15.3 Subsequent measurement and recognition of profit or loss 15.3.1 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. 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. 15.3.2 Long-term equity investment accounted for using the equity method Except for investments in associates and joint ventures that are wholly or partly classified as holding assets for sale, 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 Group 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 Group 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 Group, the adjustment shall be made for the financial statements of the invested unit in accordance with the accounting policies and accounting periods of the Group to recognize the 98 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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 Group determines the net loss of the invested unit that 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. 15.4 Disposal of long-term equity investments 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. 16. Fixed Assets 16.1 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. 16.2 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 99 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Special-purpose equipment 3-5 years 10 18.0-30.0 Means of transportation 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. 16.3 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. 17. 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. 18. 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 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. 19. Intangible Assets 100 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 19.1 Intangible Assets Valuation Method and Service Life Intangible assets include land use right, intellectual property (IP), application software, and franchise, 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 40 or 50 years - IP Right 10 Years - Application Software 5-10 years - Franchise Franchised operating period - After the construction of the relevant infrastructure, the Group has the right to collect fees from the service recipients within a certain period of operation, but if the amount of the fees is uncertain, the Group will use the fair value of the consideration receivable for construction services as the initial intangible assets confirmed. The amortization of the franchise is accrued on an average basis in installments using the straight-line method during its operating period. 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. For the impairment test of intangible assets, please refer to Note (III), 20. Long-term asset impairment. 19.2 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; (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. 101 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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. The costs of the intangible assets generated by internal development activities only include the total expenditure incurred from the time point when the capitalization conditions are available to the point when the intangible assets are used for their intended purposes; for the expenditure that already becomes an expenditure in the profit and loss statement before the capitalization conditions are available during development of the same intangible asset, no adjustment will be made. 20. 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, right-of-use assets 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 flows 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 as an impairment provision 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 can not be reversed in any subsequent period. 21. Long-term deferred expenses Long-term deferred expenses are the expenses that are already incurred but will be shared in the current reporting period and later periods with amortization term of more than one year, mainly for the expenses on betterment of leased fixed assets. Long-term deferred expenses are evenly amortized in installments in three years during the expected benefit period. 22. Contract liabilities 102 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Contract liabilities refer to the obligation of the Group to transfer goods or services to customers for consideration received or receivable from customers. Contract assets and contract liabilities under the same contract are presented in net terms. 23. Employee compensation 23.1 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. 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. 23.2 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. 23.3 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. 24. 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. 103 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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. 25. 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. 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. 25.1 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, 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. 25.2. 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- 104 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 vesting condition but the condition is not met during the vesting period, the Group treats it as a cancellation of the equity instruments granted. 26. Revenue 26.1Accounting policies applied in revenue recognition and measurement The revenue of the Group is mainly generated from business types as follows: (1) Revenue from sale of products Product sales revenue is the revenue from sales of video surveillance products, smart home products, robotics products and other products of the Group. (2) Project construction revenue Project construction revenue is the revenue from constructions related to intelligent security solution projects provided by the Group. (3) Cloud service and other service revenue Revenue from cloud services and other services refers to cloud services such as storage services, video services, and telephone services provided by the Group, maintenance services related to security projects, and other services, etc. When (or as) a performance obligation in a contract was satisfied, i.e., when (or as) the customer obtains control of relevant goods or services, the Group recognizes as revenue the amount of the transaction price that is allocated to that performance obligation. A performance obligation is the Group’s commitment to transfer to a customer a good or service (or a bundle of goods or services) that is distinct, in a contract with the customer. The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties and amounts that the Group expects to refund to the customer. Revenue is recognized over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met: (1) the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; (2) the Group’s performance creates or enhances an asset that the customer controls as the Group performs; or (3) the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. Otherwise, revenue is recognized at a point in time when the customer obtains control of the distinct good or service. The Group adopts the output method to determine the progress of performance, that is, the progress of contract performance is determined according to the value of the goods or services that have been transferred to the customer in the view of the customer. When the performance progress cannot be reasonably determined, and the costs incurred can be expected to be compensated, the Group recognizes revenue based on the amount of costs incurred until the performance progress can be reasonably determined. If the contract contains two or more performance obligations, the Group allocates the transaction price to each single performance obligation on the contract start date in accordance with the relative proportion of the individual selling price of the goods or services promised by each single performance obligation. However, if there is strong evidence that the contract discount or variable consideration is only related to one or more (but not all) performance obligations in the contract, the Group allocates the contract discount or variable consideration to the relevant one or more performances obligation. Individual selling price refers to the price at which the Group sells goods or services to customers separately. Where the individual selling price cannot be directly observed, the Group comprehensively considers all relevant 105 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 information that can be reasonably obtained, and uses the observable input value to the maximum to estimate the individual selling price. If there is variable consideration in the contract, the Group determines the best estimate of variable consideration based on the expected value or the most likely amount. The transaction price including variable consideration shall not exceed the amount that is likely to cause no significant reversal of accumulated recognized revenue when the relevant uncertainty is eliminated. At each balance sheet date, the Group re-estimates the amount of variable consideration that should be included in the transaction price. For sales with sales return terms attached, as the customer obtains ownership of related goods, the Group recognizes revenue in accordance with the consideration (excluding expected refund amounts due to sales returns) that the Group is expected to receive due to the transfer of goods or services to the customer, and recognizes expected liabilities in accordance with expected refund amounts due to sales returns. The remaining amount, subsequent to deduction of expected costs from collecting the goods (including the decrease in value of the returned goods), is recognized as an asset in accordance with the carrying amount during the expected transfer of returned goods after deducting the costs of the above net assets carried forward. For sales with quality assurance clauses, if the quality assurance provides a separate service beyond the assurance to the customer that the goods or services sold meet established standards, the quality assurance constitutes a single performance obligation. Otherwise, the Group conducts accounting for quality assurance responsibilities in accordance with the Accounting Standards for Business Enterprises No. 13-Contingencies. The additional purchase option of customers includes customer reward incentives. With respect to the additional purchase option with material rights provided to customers, the Group regards it as a single performance obligation, and recognizes relevant revenue upon obtaining the control over relevant goods or services by the customers who exercise the purchase option in future or upon lapse of such option. If a stand-alone selling price of the additional purchase option of customers is not directly observable, the Group shall consider all relevant information including the difference in discount obtained with and without the exercise of such option by customers and the possibility of exercising such option by customers during estimation. If there is a significant financing component in the contract, the Group determines the transaction price based on the amount payable in cash when the customer assumes control of the goods or services. The difference between the transaction price and the contract consideration is amortized using the effective interest rate method during the contract period. On the contract commencement date, the Group does not consider the significant financing components in the contract if the interval between the customer obtaining control of the goods or services and the price being paid by the customer is not more than one year. The Group judges whether the Group’s identity is the principal or agent when engaging in transactions based on whether it has control over the goods or services before transferring the goods or services to customers. If the Group is able to control the goods or services before transferring them to customers, the Group is the principal responsible person, and revenue is recognized based on the total amount of consideration received or receivable; otherwise, the Group is an agent and recognizes revenue based on the amount of commissions or fees which the Group is expected to be entitled to charge. The amount of commissions or fees is determined based on the total amount of consideration received or receivable net of the amount payable to other parties. When the Group collects amounts of sold goods or services in advance from the customer, the Group will firstly recognize the amounts as a liability and then transfer to revenue until satisfying relevant performance obligations. When the advances from customers is non-refundable and the customer may give up all or part of contract right, and the Group is expected to be entitled to obtain amounts associated with contract rights given up by the customer, the above amounts shall be proportionally recognized as revenue in accordance with the model of exercising contract rights by the customer; otherwise, the Group will transfer the relevant balance of the above liability to revenue only when the probability is extremely low 106 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 for the customer to satisfy remaining performance obligations. 27. Cost of contract 27.1 Cost of obtaining a contract Incremental costs incurred by the Group to obtain a contract (that is, costs that would not have occurred without a contract) and expected to be recovered are recognized as an asset, and amortized using the same basis as revenue recognition for the goods or services to which the asset relates, and included in current profit or loss. If the amortization period of the asset does not exceed one year, it is included in current profit or loss when it occurs. Other expenses incurred by the Group in order to obtain the contract shall be included in current profit or loss when incurred, unless it is clearly borne by the customer. 27.2 Cost of contract fulfillment The cost of the Group’s performance of a contract that does not fall within the scope of accounting standards other than the revenue standard and meets the following conditions is recognized as an asset: (1) The cost is directly related to a current or anticipated contract; (2) The cost increases the Group’s resources for fulfilling performance obligations in the future; (3) The cost is expected to be recovered. The aforesaid assets are amortized on the same basis as the recognition of income from goods or services related to the assets, and are included in the current profit or loss. The Group’s asset in relation to contract costs are mainly contract performance costs, and they are included in inventories based on their current nature. 27.3 Impairment of contract costs In determining impairment losses on assets related to contract costs, impairment losses are first determined for other assets recognized in accordance with other relevant ASBEs and related to the contract; then, for assets related to contract costs whose carrying value is higher than the difference between the following two items, the Group makes provision for impairment for the excess to be recognized as asset impairment losses: (1) the remaining amount of consideration that the Group expects to receive as a results of transfer of goods or services to which the asset relates; (2) the estimated costs to be incurred in connection with the transfer of relevant goods or services. After the provision for impairment for the asset related to contract costs is made, if the difference between the above two items is higher than the carrying amount of the asset due to changes in the factors of impairment in previous periods, the original provision for impairment of the asset is reversed and included in the current profit or loss, but the carrying amount of the asset after the reversal shall not exceed the carrying amount of the asset on the reversal date assuming no provision for impairment is made. 28. Types of governmental subsidies and accounting treatment methods Government subsidies refer to the monetary and non-monetary assets obtained by the Group from the government for free. Government subsidies are recognized when they can meet the conditions attached to the government subsidies and can be received. If a government subsidy is a monetary asset, it shall be measured at the amount received or receivable. 28.1 Judgment basis and Accountant treatment of government subsidy related to assets 107 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 The government subsidies for Chongqing Manufacture Base construction and etc. are used for constructions and forms long-term assets, and therefore are categorized as government subsidy related to assets. A government grant related to an asset is recognized as deferred income, and it should be evenly amortized to profit or loss over the useful life of the related asset. 28.2 Judgment basis and accountant treatment of government subsidy related to income The Group receives government subsidies including subsidies for Value-Added-Tax rebate (VAT rebate), subsidies for special projects, tax refunds, and Value-Added-Tax deductions, etc. which are used to compensate the group-related costs or losses, and therefore are categorized as government subsidy related to income. For a government grant related to income, if the subsidy is a compensation for related expenses or losses to be incurred in subsequent periods, it 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 subsidy, such as VAT Rebate, is a compensation for related expenses or losses already incurred, it 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; for those not related to the Group’s daily operations, shall be booked into non-operating income/expense. For the policy-backed preferential subsidized loan, if the Ministry of Finance will appropriate the subsidy amount to the lending bank, who will grant the loan to the Group at the policy-backed preferential interest rate, the actually received loan amount will be the entry value of the loan and the loan-related expenses will be calculated based on the loan principal and policy-backed preferential interest rate. 29. Deferred Tax Assets / Deferred Tax Liabilities The income tax expenses include current income tax and deferred income tax. 29.1. 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. 29.2 Deferred Tax Assets and Deferred 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. 108 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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. On the balance sheet date, the deferred income tax assets and deferred income tax liabilities are measured at the applicable tax rates in the period in which the related assets are recovered or the related liabilities are recovered in accordance with the tax laws. 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 deferred tax assets to be utilized. Such reduction in amount is reversed when it becomes probable that sufficient taxable profits will be available. 29.3 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. 30. Lease Lease refers to a contract that conveys the right to use an asset for a period of time in exchange for consideration. The Group assesses whether a contract is, or contains, a lease at the inception date. The Group does not re-assess whether 109 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 a contract contains a lease unless the terms and conditions of the contract are changed. 30.1 The Group as the lessee 30.1.1 Separating components of lease In case the contract contains one or more lease and non-lease components, the Group separates each lease component and non-lease component, and allocates the consideration to the lease and non-lease components based on the proportion of relative stand-alone prices of the components. 30.1.2 Right-of-use assets The Group recognizes the right-of-use assets for leases on the commencement date of the lease term, except for short-term lease and lease of low-value assets. The commencement date of the lease term refers to the date from which the lessor makes the leased assets available for use by the Group. Right-of-use assets are initially measured at cost. The cost includes: Initial measurement amount of lease liabilities; Amount of lease payment made at or before the commencement date of the lease, less any lease incentives received; Initial direct costs incurred by the Group; An estimate of any costs to be incurred by the Group in dismantling and removing the underlying asset, or restoring the site on which it is located, or restoring the leased assets to the conditions as agreed under the terms of the lease, excluding costs incurred to produce inventories. The Group calculates depreciation of the right-of-use assets in accordance with the relevant depreciation provisions of Accounting Standards for Business Enterprises No. 4 - Fixed Assets. The right-of-use asset is depreciated over the shorter of the lease term and the useful life of the right-of-use asset, unless there is a transfer of ownership or purchase option which is reasonably certain to be exercised at the end of the lease term. The Group determines whether the right-of-use assets are impaired and accounts for the identified impairment loss in accordance with the provisions of Accounting Standards for Business Enterprises No. 8 - Impairment of Assets. 30.1.3 Lease liabilities The Group initially measures the lease liability on the commencement date at an amount equal to the present value of the lease payments during the lease term that are not paid at that date, except short-term lease and lease of low-value assets. In calculating the present value of the lease payments, the Group adopts the interest rate implicit in the lease as the discount rate. The Group uses its incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined. Lease payments refer to the payments made by the Group to the lessor in connection with the right to use the leased asset during the lease term, including: Fixed payments, including in-substance fixed payments, less any lease incentives receivable; Variable lease payments that depend on an index or rate; The exercise price of a purchase option, if the Group is reasonably certain to exercise that option; Payments for terminating the lease, if the lease term reflects the lessee exercising the option to terminate the lease; Amounts expected to be payable by the Group under residual value guarantees. Variable lease payments based on an index or a rate are initially measured using the index or the rate at the commencement date. Variable lease payments that are not included in the measurement of lease liabilities are recognized in the current loss and profit or related asset costs when actually incurred. After the commencement date of the lease term, the Group calculates interest expense of lease liabilities in each period of lease term at fixed periodic rate and recognizes in the current loss and profit or relevant asset costs. 110 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 After the commencement date of the lease term, the Group remeasures the lease liability and adjusts the corresponding right-of-use assets under the following circumstances. If the carrying value of the right-of-use assets has been reduced to zero while the lease liability needs to be further reduced, the Group will recognize the difference into the current loss and profit: In case of any change of the lease term or any change in the valuation of the purchase option, the Group remeasures the lease liability at the present value calculated based on the modified lease payments and the revised discount rate; In the event of any change in the amount expected to be payable based on the residual value guaranteeS or any change of the index or proportion adopted to determine the lease payments, the Group remeasures the lease liability at the present value calculated based on the changed lease payments and the original discount rate. In the event of any modification in lease payments resulting from the change in floating interest rate, the present value is calculated using the revised discount rate. 30.1.4 Short-term lease and lease of low-value assets The Group has elected not to recognize the right-of-use assets and lease liabilities for short-term leases and leases of low- value assets in connection with building and construction, machinery equipment, transportation facilities, office equipment and other equipment. Short-term lease refers to lease with a term no more than 12 months from the commencement date of lease term and without purchase option. Lease of low-value assets refers to lease for single lease asset with low value when it is new. The Group recognizes lease payments under short-term leases and leases of low-value assets as the current loss and profit or the relevant asset costs on a straight-line basis over each period during the lease term. 30.1.5 Lease modification In case of lease modification, the Group makes accounting treatment of such lease change as a separate lease if all of the following conditions are met: such lease modification increases the scope of the lease by adding the right to use one or more lease assets; the increased consideration is commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to reflect the circumstances of the particular contract. Where accounting treatment is not made for lease modification as a separate lease, at the effective date of lease modification, the Group reallocates the contract consideration after the modification, redetermines the lease term, and remeasures the lease liability based on the present value calculated according to the modified lease payments and the revised discount rate. In the event that the lease scope is decreased or the lease term is shortened as a result of the lease modification, the Group reduces the carrying amount of the right-of-use assets, and recognizes the relevant gains or losses relating to the partial or full termination of the lease in the income statement; for the lease liabilities remeasured due to other lease modifications, the Group adjusts the carrying amount of the right-of-use assets accordingly. 30.2 The Group as the lessor 30.2.1 Separating components of lease In case the contract contains both lease and non-lease components, the Group allocates the contract consideration in accordance with the provisions of Accounting Standards for Business Enterprises No. 14 - Revenue on portion of transaction prices, based on the respective stand-alone prices of the lease component and the non-lease component. 30.2.2 Classification of lease Finance lease is a lease that substantially transfers all the risks and rewards of incidental to ownership of an underlying asset. Operating lease refers to the leases other than finance lease. 30.2.2.1 The Group records the operating lease business as the lessor The Group recognizes the lease payments from operating leases as rental income on a straight-line basis for all periods 111 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 over the lease term. The Group's initial direct costs incurred in connection with operating leases is capitalized as incurred, recognized in the income statement over the lease term on the same basis as the lease income. Variable lease payments acquired by the Group in connection with operating leases that are not included in the lease payments are recognized in the current loss and profit when they are actually incurred. 30.2.2.2 The Group records the finance lease business as the lessor On the commencement date of the lease term, the Group uses the net lease investment as the carrying value of the finance lease receivables and derecognizes the finance lease assets. Net lease investment is the sum of present value of unguaranteed residual value and lease payments receivable discounted at the interest rate implicit in lease on the commencement date of the lease term. Lease payments receivable, which refer to amounts receivable by the Group from the lessee for conveying the right to use the leased assets during the lease term, include: Fixed payment including in-substance fixed payments by the lessee, less any lease incentives payable; Variable lease payments that depend on an index or rate; The exercise price of a purchase option, if the lessee is reasonably certain to exercise that option; Payments for terminating the lease (if the lease term reflects the lessee exercising the option to terminate the lease; Residual value guarantees provided to the Group by the lessee, a party related to the lessee, or a third party unrelated to the lessor that is capable of discharging the obligations under the guarantee. The variable lease payments that are not included in the measurement of the net lease investment are included in the current loss and profit when actually incurred. The Group calculates and recognizes the interest income in each period of the lease term according to the fixed periodic interest rate. 30.2.3 Lease modification In case of a medication of the operating lease, the Group accounts for it as a new lease as of the effective date of the modification, any prepaid or accrued lease payments relating to the original lease are considered as payments for the new lease . In case of modification of finance lease, the Group accounts for the modification of a finance lease as a separate lease if all of the following conditions are met: The modification increases the scope of the lease by adding the right to use one or more lease assets; The consideration for the lease increases by an amount that is commensurate with the stand-alone price for the increase in scope, and any appropriate adjustments to that price to reflect the circumstances of the particular contract. If a modification of finance lease is not accounted for as a separate lease, the Group accounts for the changed lease under the following circumstances: If the modification becomes effective on the commencement date of the lease and the lease is classified as an operating lease, the Group accounts for it as a new lease from the effective date of the lease modification and measures as the net lease investment prior to the effective date of the lease modification as the carrying value of the leased asset. If the modification becomes effective on the commencement date of the lease and the lease is classified as a finance lease, the Group accounts for it in accordance with the provisions of Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments regarding the modification or renegotiation of contracts. 112 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 30.3 Sale and leaseback transaction 30.3.1 The Group as the seller-lessee The Group assesses and determines whether the transfer of the asset in sale and leaseback transaction qualifies as a sale in accordance with the provisions of Accounting Standards for Business Enterprises No. 14 - Revenue. If the transfer does not qualify as a sale, the Group continues to recognize the transferred asset and at the same time recognize a financial liability equal to the transfer proceeds and account for the financial liability in accordance with the provisions of Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments. If the transfer of the asset qualifies as a sale, the Group measures the right-of-use asset arising from the leaseback as the proportion of the previous carrying amount of the asset that relates to the right of use retained. The gain or loss recognised is limited to the proportion of the total gain or loss that relates to the rights transferred to the buyer-lessor. 30.3.2 The Group as the buyer-lessor If the transfer of the asset in a sale and leaseback transaction does not qualify as a sale, the Group does not recognize the transferred asset, but recognizes a financial asset equal to the transfer proceeds and account for the financial asset in accordance with the provisions of Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments. If the transfer of the asset qualifies as a sale, the Group accounts for the purchase of the asset in accordance with other applicable Accounting Standards for Business Enterprises and account for the lease of the asset. 31. 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. 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 provision for inventories Except for contract performance costs, inventories are measured at the lower of cost or net realizable value. For raw materials, the latest or future actual purchase price is used as the basis for determining the net realizable value; For products in progress, the actual selling price of the latest or future finished product minus the estimated costs and costs that will be incurred when similar products are completed in the current period, the estimated selling expenses and related taxes to be incurred, is used as the basis for determining the net realizable value; For finished products, the actual selling price of the latest or future finished product minus the estimated selling expenses and related taxes will be incurred, is used as the basis for determining the net realizable value. The Group will regularly conduct a comprehensive stocktaking to review the 113 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 impairment circumstances on defective, obsoleted or slow-moving 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 book value of defective, obsoleted or slow-moving inventories and inventory with long storage time and its corresponding net realizable value in order to determine whether to withdraw provisions on the defective, obsoleted or slow-moving 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 inventory. Impairment of accounts receivable Except for accounts receivable whose credit losses are determined on the basis of individual basis, the Group adopts an impairment matrix to determine its expected credit loss provision. Based on the historical loss rate, the Group determines the proportion of corresponding loss reserves for various types of accounts receivable with similar risk characteristics. The impairment matrix is determined based on the historical overdue ratio and default of the Group, taking into account reasonable and well-founded industry forward-looking information. As of June 30th 2021, the Group has reassessed the historically observable overdue ratio and considered changes in forward-looking information.The amount of the provision for expected credit losses will change as the estimation of the Group. The details on the provision for expected credit losses of the accounts receivable of the Group are given in Note (V). 4. 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 reporting 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. Accrued liabilities of product quality warranty Accrued liabilities of product quality assurance are costs and expenses incurred to meet the established standards of product quality assurance obligations to customers in accordance with the product contract; the Group made such an estimation 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. Deferred tax assets and deferred tax liabilities Deferred income tax assets and deferred income tax liabilities are measured at the applicable income tax rate during the period when the relevant asset is expected to be recovered or the relevant debt is expected to be paid off. The expected applicable income tax rate is determined according to the relevant current tax regulations and the actual situation of the Group. If the estimated income tax rate is different from the original estimate, the management of the Group will adjust it. 114 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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 might 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 flows of relevant asset group or asset group portfolio included the goodwill need to be calculated, the future cash flows 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. Fair value measurement and valuation process Held-for-trading financial assets, receivables for financing, and other non-current financial assets of the Group are measured at fair value in the financial statement. When valuating the fair value of these assets, the Group preferably uses obtainable and observable market data. If no observable data is available, the Group will organize an internal evaluation panel or hire qualified third-party valuers to conduct valuation. The Finance Department and evaluation panel of the Group will work closely with the hired valuers to determine appropriate valuation techniques and the input values of the valuation model. The valuation techniques and input values used for valuating the fair value of various assets are disclosed in Note (IX). 115 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 32. Significant alternation in accounting policy and accounting estimations 32.1 Significant changes in accounting policies Approval Changes in accounting policies and reasons Notes Procedures New Lease Standards From January 1st, 2021, the Group implements the Accounting Standard for Business Enterprises No. 21 - Leases revised by the Ministry of Finance in 2018 (hereinafter referred to as the "New Lease Standards" and the lease standards before the revision as the "Original Lease Standards"). The New Lease Standards have improved the definition of leases and added the identification, separation, combination and other contents of leases. The New Lease Standards have cancelled the classification of lessee’s operating leases and finance leases and required the recognition of right-of-use assets and lease liabilities and separate recognition of depreciation and interest expense for all leases (except short-term leases and leases of low-value assets) on the commencement date of the lease term; The subsequent measurement of lease by the lessee has been improved, the accounting treatment in the case of option re-assessment and lease modification has been added, and relevant disclosure requirements have been added. In addition, it also enriches the disclosure by the lessor. Please refer to Note (III) 30 for details of the revised accounting policies of the Group for recognition and measurement of leases as lessee and lessor. For contracts existing before the date of initial application, the Group chose not to reassess whether it is a lease or contains a lease on the date of initial execution. Such The Group as the lessee alternations in The Group adjusts the amount of retained earnings and the amount of relevant items in the accounting financial statements on the initial application date according to the cumulative impact of the policy were initial application of the New Lease Standards, in which the information of the comparable is approved None not be adjusted. by the Group at For operating lease other than low-value lease prior to the date of initial adoption, the Group board of electes to apply one or more of the following simplified approach depending on each lease: director general Any lease that will be completed within 12 months of the date of initial execution meeting. shall be treated as short-term lease; The same discount rate shall be used for leases with similar characteristics when measuring the lease liability; The measurement of right-of-use assets does not include initial direct costs; In case of any extension option or termination option, the Group may determine the lease term according to the actual exercise of the option before the first adoption date and other latest conditions; If a lease is modified occurs before the date of initial adoption, the Group will account for it according to the final arrangement of the lease modification. On the date of initial adoption, the Group makes the following adjustments as a result of the implementation of the New Lease Standards: For finance lease prior to the date of initial adoption, the Group will respectively measure the right-of-use asset and lease liability based on the original carrying values of the finance lease assets and finance lease payables on the date of initial adoption. For operating lease prior to the date of initial adoption, the Group shall measure the lease liability on the date of initial adoption based on the current value of the remaining lease payments discounted according to the lessee's incremental 116 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 borrowing rate on the date of initial adoption, and measure the right-of-use asset at an amount equal to the lease liability, with necessary adjustments to prepaid rent. The Group recognizes lease liabilities (including those due within one year) of RMB 386,475,961.59 and right-of-use assets of RMB 392,997,553.30 as of January 1st, 2021. For operating leases before the date of initial adoption, the Group shall use the present value discounted by the incremental borrowing rate on the first adoption day to measure the lease liabilities. The range of incremental borrowing rate is from 1.14% to 9.50%. Information on the difference between the Group's lease liability recognized as of January 1st, 2021 and the significant operating lease commitments disclosed in the financial statements of the fiscal year of 2020 is as follows: Unit: RMB Item January 1st 2021 I. Operating lease commitments as of December 31st 2020 408,812,072.84 Lease liabilities discounted at the incremental borrowing rate 377,897,839.67 on the date of initial adoption Less: Recognition of exemptions - short-term leases and 33,777,484.74 leases of low-value assets Lease liabilities recognized in connection with the original operating lease upon implementation of the new lease 344,120,354.93 standards Add: Finance lease payables as of December 31st 2020 42,355,606.66 Including: Non-current liabilities due within one year 19,302,613.39 II. Lease liabilities as of January 1st 2021 386,475,961.59 Including: Non-current liabilities due within one year 156,420,687.89 Lease liabilities 230,055,273.70 The components of the carrying value of right-of-use assets as of January 1st 2021 are as follows: Unit: RMB Item January 1st 2021 Right-of-use assets: Right-of-use assets recognized under operating leases prior to 344,120,354.93 the date of initial adoption Reclassified prepaid rent 3,546,860.62 Finance leased assets recognized as fixed assets under the 45,330,337.75 Original Lease Standards Total 392,997,553.30 On January 1st 2021, right-of-use assets are disclosed by category as follows: Unit: RMB Item January 1st 2021 Building and construction 333,243,923.96 Special-purpose equipment 45,330,337.75 Transportation vehicles 14,423,291.59 Total 392,997,553.30 117 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 The impact of the Group's adoption of the New Lease Standards as of January 1st 2021 is detailed in Note (III), 32.2. The Group as the lesssor The Group does not adjust leases as lessor in accordance with the convergence provisions and accounts for those leases in accordance with the New Lease Standards from the date of initial adoption. 32.2 The impact of the implementation of the New Lease Standards on the relevant items in the consolidated balance sheet at the beginning of the period is shown below: Unit: RMB Item Original Lease Standard Reclassified (Note) New Lease Standard Current Assets: Prepayments 296,334,689.86 (2,952,118.77) 293,382,571.09 Other receivables 519,143,350.82 (117,288.00) 519,026,062.82 Other current assets 497,914,506.64 (477,453.85) 497,437,052.79 Non-current Assets: Fixed assets 5,876,007,536.60 (45,330,337.75) 5,830,677,198.85 Right-of-use assets 392,997,553.30 392,997,553.30 Current Liabilities: Non-current liabilities due 3,507,680,339.78 137,118,074.50 3,644,798,414.28 within one year Non-current Liabilities: Long-term payables 39,595,459.35 (23,052,993.27) 16,542,466.08 Lease Liabilities 230,055,273.70 230,055,273.70 Note: Due to the implementation of the New Lease Standards, the Group reclassifies financial lease assets of RMB 45,330,337.75 previously included in fixed assets to right-of-use assets; Finance lease payments of RMB 42,355,606.66 originally included in long-term payables (including those due within one year) is reclassified into lease liabilities (including those due within one year); The Group reclassifies prepaid rents totaling RMB 3,546,860.62, which were previously included in prepayments, other receivables and other current assets to right-of-use assets; The Group recognizes right-of-use assets of RMB 344,120,354.93 and lease liabilities (including those due within one year) of RMB 344,120,354.93. The impact of the implementation of the new lease standards on the relevant items of the parent company's balance sheet at the beginning of the period is set out below: Unit: RMB Item Original Lease Standard Reclassified (Note) New Lease Standard Current Assets: Right-of-use assets 66,446,154.01 66,446,154.01 Current Liabilities: Non-current liabilities due 3,219,794,958.37 29,999,165.05 3,249,794,123.42 within one year Non-current Liabilities: Lease Liabilities 36,446,988.96 36,446,988.96 118 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Note: Due to the implementation of the new lease standards, the Company recognizes right-of-use assets of RMB 66,446,154.01 and lease liabilities (including those due within one year) of RMB 66,446,154.01. 119 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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 Company 6%, 9%, 13% and simple VAT and its domestic subsidiaries are ordinary Value-added Tax payers; the VAT collection rate of 5%, 3% payable is the balance of input tax after deducting the deductible output tax. (Note 3) 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 Letter of Reply on Publishing the List of Identified High-tech Enterprises of Zhejiang Province in 2020 (Guo Ke Huo Zi [2020] No. 251) issued by the Leading Group Office of National High-tech Enterprise Identification Management on December 29th 2020, the Company was identified as the high-tech enterprise with a valid term of 3 years, from 2020 to 2022. Therefore, the Company’s enterprise income tax rate is at a reduced rate of 15% for the current reporting period. (2020:15%) In accordance with the Notice on Printing and Distributing the List of Key Software Enterprises and IC Design Enterprises in the National Planning Layout for 2013-2014 (Fa Gai Gao Ke [2013] No. 2458), the Company was recognized as a national key software enterprise in 2013. According to the Notice on Issues Related to Enterprise Income Tax Preferential Policies for Software and Integrated Circuit Industry (Cai Shui [2016] No. 49), the Company was approved by the tax authorities in May 2021 to pay the 2020 annual corporate income tax at the rate of 10%. (2) 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 Technology Co., Ltd. and Chongqing Hikvision System Technology Co., Ltd., are qualified to enjoy the west development preferential tax policy from 2011 to 2020. According to the Announcement No. 23 (2020) of the Ministry of Finance, the State Administration of Taxation, and the National Development and Reform Commission, Announcement on Continuation of the Corporate Income Tax Policy for the Western Developmen, the preferential policies for the Western Development will be postponed to the end of 2030. Therefore, the current corporate income tax shall be calculated and paid on the basis of a reduced tax rate of 15% in the current reporting period. (2020:15%) (3) In accordance with the Replies on Publishing the List of First Batch of identified High-tech Enterprises of Zhejiang Province in 2018 (GuoKeHuoZi [2019] No. 70) issued by the leading group office of Zhejiang high-tech enterprise identification management work on February 20th 2019, the Company’s joint venture subsidiary, Hangzhou Fuyang Baotai Security Technology Service Co., Ltd. (Fuyang Baotai), was recognized as a high-tech enterprise and was valid for 3 years from 2018 to 2020. As of the approval date of this report, it is still in the 2021 high-tech enterprise qualification review and declaration stage. According to the Announcement of the State Administration of Taxation on Issues Concerning the Implementation of the High-tech Enterprise Income Tax Preferential Policy, the high-tech enterprise qualification will be re-identified within the year after the expiration of the qualification period. Before passing the recertification, the corporate income tax can be prepaid at the 15% tax rate temporarily, so the corporate income tax shall be calculated and paid on the basis of a reduced tax rate of 15% in the current reporting period. (2020:15%) 120 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 (4) In accordance with the Replies on Publishing identified High-tech Enterprises of Zhejiang Province in 2019 (GuoKeHuoZi [2020] No. 32) issued by the leading group office of Zhejiang high-tech enterprise identification management work on January 20th 2020, the Company’s wholly-owned subsidiary, Hangzhou Hikvision System Technology Co., Ltd. (Hangzhou System) and the Company’s joint venture subsidiary Hangzhou Kuangxin Technology Co., Ltd. (Hangzhou Kuangxin) , was recognized as a high-tech enterprise and was valid for 3 years from 2019 to 2021. Therefore, the enterprise income rate shall be calculated and paid on the basis of a reduced tax rate of 15% in the current reporting period. (2020:15%) (5) In accordance with the Notice on Publishing the List of Third Batch of Proposed Identified High-tech Enterprises of Shanghai in 2020 issued by Shanghai High-tech Enterprise Identification Office on November 20th 2020, the Company’s wholly-owned subsidiary, Shanghai Goldway Intelligent Transportation System Co., Ltd. (“Shanghai Goldway”) was identified as the high-tech enterprise with a valid term of 3 years, from 2020 to 2022. Therefore, its corporate income tax is at a reduced rate of 15% in the current reporting period. (2020:15%) (6) In accordance with the Letter of Reply on Publishing the List of Identified High-tech Enterprises of Zhejiang Province in 2020 (Guo Ke Huo Zi [2020] No. 251) issued by the Leading Group Office of National High-tech Enterprise Identification Management on December 29th 2020, the Company’s joint-venture subsidiary, Hangzhou Hikrobot Technology Co., Ltd. (“Hangzhou Robotic Technology”) were identified as the high-tech enterprises with a valid term of 3 years, from 2020 to 2022. Therefore, the enterprise income tax in the current reporting period is at a reduced rate of 15%. (2020:15%) (7) In accordance with the Letter of Reply on Publishing the List of Identified High-tech Enterprises of Zhejiang Province in 2020 (Guo Ke Huo Zi [2020] No. 32) issued by the Leading Group Office of National High-tech Enterprise Identification Management on January 20th 2020, the Company’s joint-venture subsidiary, Hangzhou Hikmicro Sensing Technology Co., Ltd. (“Hangzhou Hikmicro”) were identified as the high-tech enterprises with a valid term of 3 years, from 2019 to 2021. According to the Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission, and the Ministry of Industry and Information Technology Announcement No. 45 of 2020 Announcement on the Corporate Income Tax Policy for Promoting the High-quality Development of the Integrated Circuit Industry and Software Industry, the state encourages integrated circuit design, equipment, materials, packaging, testing companies and software companies will be exempted from corporate income tax for the first year to the second year from the profitable year, and levied half of the corporate income tax at a statutory tax rate of 25% from the third year to the fifth year. Hangzhou Hikmicro is a qualified integrated circuit design company and is expected to enter into a profitable year this year. (8) In accordance with the Announcement on Promoting the Income Tax Policies of High-quality Developed Enterprises in the Integrated Circuit Industry and the Software Industry (Announcement [2020] No. 45 jointly by the MOF, SAT, NDRC and MIIT), enterprises engaging in integrated circuit design, equipment, materials, packaging, testing and software encouraged by the state are entitled to exemption from enterprise income tax in the first and second years after start of profiting and pays enterprise income tax at half of the 25% statutory tax rate in the third to fifth years. The Company’s joint venture subsidiaries, Hangzhou EZVIZ Software Co., Ltd. (“EZVIZ Software”) and Hangzhou Microimage Software Co., Ltd. (“Microimage Software”), are qualified software companies and are entitled to exemption from enterprise income tax in the current reporting period (2020: tax-exempted). Note 2: In accordance with the requirements of the Notice on Software Product Value-added Tax Policy (Cai Shui [2011] No. 100) promulgated by the Ministry of Finance and the State Administration of Taxation, as for self-developed software products sales of the Company, Hangzhou System, the Company’s joint-venture subsidiaries such as Hangzhou HikRobotic Technology, Hangzhou HikAuto Software Co., Ltd. (“HikAuto”), Hangzhou EZVIZ Software, Wuhan Hik Storage Technology Co., Ltd., Hangzhou HikStorage Technology Ltd. (“HikStorage”), Hangzhou Hikimaging Technology Co., Ltd., Hangzhou Hikfire Technology C o., Ltd. (“Hikfire”), Hangzhou Rayin Technology Co., Ltd. (“Rayin”), Microimage Software and Hangzhou Kuangxin, 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 State Administration of Taxation reviews. 121 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Note 3: In accordance with the Announcement on Relevant Policies for Deepening the Value-Added Tax Reform (Joint Announcement [2019] No. 39) jointly issued by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs, from April 1st 2019 to December 31st 2021, taxpayers in the production and living services industry are allowed to deduct an additional 10% of the current deductible input tax to deduct the tax payable (“Additional Deduction Policy”), the Company’s joint venture subsidiaries, Henan Hua’An Bao Quan Intelligent Development Co., Ltd. (“Hua’an Baoquan Intelligent”), Henan Hua’an Security Services Co., Ltd. (“Hua’an Security Services”), and Henan Haikang Hua’An BaoQuan Electronics Co., Ltd. (“Hua’An BaoQuan Electronics”), engaging in information technology service industry, and their sales of information technology services accounted for more than 50% of its total sales, are complying with the provisions of the Additional Deduction Policy and were entitled to additional deduction preferential tax policy of input tax since April 1st 2019. Based on the Joint Announcement [2019] No. 39, since April 1st 2019, taxpayers are subject to VAT taxable sales or imported goods, the VAT rates had been adjusted from 16% and 10% to 13% and 9% respectively. The VAT rate for the services provided by the Company’s taxpayers is 6%, and part of taxable service income is applicable to the simple collection rate of 5% and 3%. 122 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 V. Notes to items in the consolidated financial statements 1. Cash and bank balances Closing Balance Opening Balance Item Foreign Exchange Exchange rate Foreign currency amount RMB amount currency rate for RMB amount for conversion amount conversion Cash: RMB - - 17,711.11 - - 17,959.62 EUR 28,897.50 7.6862 222,111.95 71,638.34 8.0250 574,897.70 INR 2,226,484.70 0.0869 193,481.52 2,504,019.19 0.0891 223,108.11 USD 37,184.53 6.4601 240,215.80 32,776.72 6.5249 213,864.82 GBP 6,338.38 8.9410 56,671.46 6,341.78 8.8903 56,380.33 Other - - 19,819.64 - - 18,836.93 currencies Bank balance: RMB - - 24,516,667,961.16 - - 27,789,108,210.05 USD 200,480,296.15 6.4601 1,295,122,761.15 941,351,972.89 6.5249 6,142,227,487.92 EUR 144,296,760.60 7.6862 1,109,093,761.32 52,026,066.91 8.0250 417,509,186.97 GBP 19,928,672.85 8.9410 178,182,263.98 11,204,897.40 8.8903 99,614,899.38 INR 1,120,810,944.76 0.0869 97,398,471.10 1,203,270,539.96 0.0891 107,211,405.11 RUB 621,594,434.80 0.0888 55,197,585.81 1,742,132,380.50 0.0877 152,785,009.77 BRL 61,024,191.76 1.3028 79,502,317.02 54,535,451.03 1.2551 68,447,444.59 CAD 7,868,875.11 5.2097 40,994,478.65 5,383,485.44 5.1161 27,542,449.88 JPY 594,440,839.55 0.0584 34,715,345.03 336,505,067.09 0.0632 21,267,120.24 AED 18,367,690.42 1.7580 32,290,399.76 36,263,518.29 1.7761 64,407,634.83 THB 124,548,137.22 0.2015 25,096,449.65 14,687,508.85 0.2328 3,419,252.06 HKD 28,052,675.20 0.8321 23,342,631.03 13,632,862.61 0.8416 11,473,417.17 AUD 3,576,171.25 4.8528 17,354,443.86 2,279,274.45 5.0163 11,433,524.41 ZAR 34,576,247.06 0.4501 15,562,768.80 14,765,683.20 0.4458 6,582,541.57 PLN 7,282,882.13 1.7009 12,387,454.21 12,359,893.85 1.7520 21,654,534.02 KRW 1,799,856,117.54 0.0057 10,259,179.87 855,655,685.00 0.0060 5,133,934.11 Other - - 37,517,328.32 - - 18,195,337.35 currencies Other currency funds: RMB - - 92,736,731.47 - - 463,887,119.07 USD 6,915,610.24 6.4601 44,675,533.72 3,101,420.39 6.5249 20,236,457.90 EUR 774,356.27 7.6862 5,951,857.16 465,821.33 8.0250 3,738,216.17 Other - - 7,453,240.92 - - 2,748,878.19 currencies Total 27,732,252,975.47 35,459,729,108.27 Including: deposited 766,732,314.21 782,389,029.81 in overseas banks 123 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Details of other currency funds: Closing Balance Opening Balance Exchange Foreign Exchange Foreign currency Item rate for RMB amount currency rate for RMB amount amount conversion amount conversion Capitals with limitations: Bank acceptance bill - - 443,250.07 - - 8,484.61 Deposits for letter of guarantee - - 50,699,985.96 - - 44,417,713.65 Deposits for letter of Credit in 274,141.18 1.3028 357,151.13 283,313.18 1.2551 355,586.37 BRL Tax Operation Margin for India 120,305.98 0.0869 10,454.59 120,305.95 0.0891 10,719.26 Deposits for letter of Credit in - - 21,540,000.00 - - - RMB Other security deposit - - 2,253,376.24 60,000.00 4.7050 282,300.00 Other capitals with limitations - - 16,984,637.63 - - 389,816,426.07 Subtotal 92,288,855.62 434,891,229.96 Capitals without limitations: Deposit in Alipay, Tenpay, etc. 23,865,469.36 - - 25,263,562.38 Other currency funds in USD 5,365,712.34 6.4601 34,663,038.29 4,662,441.59 6.5249 30,421,965.14 Other currency funds in ZAR - - - 23,875.03 0.0877 2,093.84 Other currency funds in EUR - - - 3,965.11 8.0250 31,820.01 Subtotal 58,528,507.65 55,719,441.37 Total 150,817,363.27 490,610,671.33 2. Held-for-trading financial assets Unit: RMB Item Closing Balance Opening Balance Financial assets measured at fair value through 32,620,061.54 22,679,846.77 current gain and loss Including: derivative financial assets 32,620,061.54 22,679,846.77 Total 32,620,061.54 22,679,846.77 3. Notes receivable 3.1 Categories of notes receivable Unit:RMB Category Closing Balance Opening Balance Bank acceptance bill 893,082,402.65 1,003,388,157.28 Commercial acceptance bill 232,175,189.62 299,864,547.91 Total 1,125,257,592.27 1,303,252,705.19 124 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 3.2 As of June 30th 2021, the pledged notes receivable by the Group is nil. 3.3 At the end of the current reporting period, notes receivable endorsed by the Group but not yet due at the balance sheet day Unit:RMB Derecognized amount as of June 30th Amount not derecognized as of June Category 2021 30th 2021 Bank acceptance bill Note (V)-30.3 - 610,856,089.84 Total - 610,856,089.84 Note: Transfer of financial assets As of June 30th 2021, the Group gave RMB 610,856,089.84 (2020: RMB 482,454,604.99) undued bank acceptance bills to suppliers for endorsement. Since the Group has not transferred almost all the risks and rewards of ownership of financial assets, the Group has not terminated its confirmation. For details, please refer to Note (V) 30.3. 3.4 As of June 30th 2021, the Group transferred the defaulted notes receivable into accounts receivable. Unit:RMB Category Amounts transferred into accounts receivable as of June 30th 2021 Commercial Acceptance Bill 29,886,894.42 Total 29,886,894.42 3.5 The Group believes, except for bills that are transferred to accounts receivable due to the failure of the drawer to perform the contract, The bank acceptance bills and commercial acceptance bills held by the Group do not have significant credit risks and will not cause major losses due to the counterparty’s default. Therefore, no loss provision is made. 4. Accounts receivable 4.1 Disclosure by aging Unit: RMB Closing Balance Item Accounts receivable Credit loss provision Proportion (%) Within credit period 13,908,017,211.24 67,892,012.25 0.49 Within 1 year after exceeding credit period 8,650,470,382.80 342,217,169.16 3.96 1-2 years after exceeding credit period 1,423,179,116.77 338,705,918.34 23.80 2-3 years after exceeding credit period 1,072,722,797.05 574,960,931.68 53.60 3-4 years after exceeding credit period 326,461,889.47 254,762,597.29 78.04 Over 4 years after exceeding credit period 227,463,105.31 227,463,105.31 100.00 Subtotal 25,608,314,502.64 1,806,001,734.03 7.05 125 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 4.2 Classified disclosure of credit loss provision by methods Unit: RMB Closing Balance Carrying amount Credit loss provision Book Value Category Proportion Proportion Amount Amount Amount (%) (%) Provision for credit loss on a single - - - - - basis Provision for credit loss by portfolios 25,608,314,502.64 100.00 1,806,001,734.03 7.05 23,802,312,768.61 Total 25,608,314,502.64 100.00 1,806,001,734.03 7.05 23,802,312,768.61 Beginning Balance Carrying amount Credit loss provision Book Value Category Proportion Proportion Amount Amount Amount (%) (%) Provision for credit loss on a single - - - - - basis Provision for credit loss by portfolios 23,491,775,903.07 100.00 1,512,395,186.21 6.44 21,979,380,716.86 Total 23,491,775,903.07 100.00 1,512,395,186.21 6.44 21,979,380,716.86 Provision for credit loss by portfolios for accouts receivable Unit: RMB Closing balance Customer Carrying amount Credit loss provision Proportion (%) Portfolio A 3,888,424,720.21 113,031,569.59 2.91 Portfolio B 16,073,854,190.90 1,526,870,959.69 9.50 Portfolio C 5,646,035,591.53 166,099,204.75 2.94 Total 25,608,314,502.64 1,806,001,734.03 7.05 Description of credit loss provision by portfolios for accouts receivable As part of the Group's credit risk management, the Group uses the ageing of accounts receivable to assess the expected credit losses of accounts receivable formed by domestic and overseas sales business, and divides the risk characteristics into portfolio A, portfolio B and portfolio C, according to the business area and object. These three portfolios involve a large number of customers with the same risk characteristics. Aging information is able to reflect the solvency of these three types of customers when the accounts receivable are due. 126 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 As of June 30th 2021 and January 1st 2021, the credit risk and expected credit losses of accounts receivable from portfolio A are as follows: Unit: RMB Closing balance Beginning balance Age Estimated Estimated Credit loss average loss Carrying value Credit loss provision Book value average loss Carrying value Book value provision rate (%) rate (%) Within credit period 0.02 2,920,681,186.29 719,059.43 2,919,962,126.86 0.02 2,971,260,488.09 604,959.50 2,970,655,528.59 Within 1 year after exceeding credit 1.32 803,386,839.63 10,638,186.66 792,748,652.97 2.02 640,220,646.55 12,955,798.75 627,264,847.80 period 1-2 years after exceeding credit period 36.05 79,565,557.66 28,679,492.96 50,886,064.70 51.50 82,533,903.30 42,503,136.38 40,030,766.92 2-3 years after exceeding credit period 83.46 71,304,021.35 59,507,715.26 11,796,306.09 90.10 40,717,280.97 36,686,603.66 4,030,677.31 3-4 years after exceeding credit period 100.00 12,431,662.09 12,431,662.09 - 100.00 5,809,507.07 5,809,507.07 - Over 4 years after exceeding credit period 100.00 1,055,453.19 1,055,453.19 - 100.00 830,934.85 830,934.85 - Total 2.91 3,888,424,720.21 113,031,569.59 3,775,393,150.62 2.66 3,741,372,760.83 99,390,940.21 3,641,981,820.62 As of June 30th 2021 and January 1st 2021, the credit risk and expected credit losses of accounts receivable from portfolio B are as follows: Unit: RMB Closing balance Beginning balance Age Estimated Estimated Credit loss average loss Carrying value Credit loss provision Book value average loss Carrying value Book value provision rate (%) rate (%) Within credit period 1.03 6,077,420,279.44 62,861,159.97 6,014,559,119.47 0.76 6,294,425,956.16 48,017,503.05 6,246,408,453.11 Within 1 year after exceeding credit 4.12 7,273,471,475.34 299,403,299.11 6,974,068,176.23 3.77 5,727,639,925.20 216,155,232.48 5,511,484,692.72 period 1-2 years after exceeding credit period 20.16 1,253,426,402.15 252,735,318.10 1,000,691,084.05 20.69 1,426,493,413.08 295,122,043.56 1,131,371,369.52 2-3 years after exceeding credit period 49.33 959,076,761.29 473,111,202.01 485,965,559.28 57.51 665,262,321.85 382,616,768.44 282,645,553.41 3-4 years after exceeding credit period 76.24 301,757,205.55 230,057,913.37 71,699,292.18 83.09 238,233,041.29 197,947,096.87 40,285,944.42 Over 4 years after exceeding credit period 100.00 208,702,067.13 208,702,067.13 - 100.00 146,749,340.78 146,749,340.78 - Total 9.50 16,073,854,190.90 1,526,870,959.69 14,546,983,231.21 8.87 14,498,803,998.36 1,286,607,985.18 13,212,196,013.18 127 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 As of June 30th 2021 and January 1st 2021, the credit risk and expected credit losses of accounts receivable from portfolio C are as follows: Unit: RMB Closing balance Beginning balance Age Estimated Estimated Credit loss average loss Carrying value Credit loss provision Book value average loss Carrying value Book value provision rate (%) rate (%) Within credit period 0.09 4,909,915,745.51 4,311,792.85 4,905,603,952.66 0.20 4,736,831,208.62 9,676,562.96 4,727,154,645.66 Within 1 year after exceeding credit 5.61 573,612,067.83 32,175,683.39 541,436,384.44 6.84 391,071,518.27 26,753,464.86 364,318,053.41 period 1-2 years after exceeding credit period 63.52 90,187,156.96 57,291,107.28 32,896,049.68 51.18 69,085,009.97 35,354,825.98 33,730,183.99 2-3 years after exceeding credit period 100.00 42,342,014.41 42,342,014.41 - 100.00 28,016,950.72 28,016,950.72 - 3-4 years after exceeding credit period 100.00 12,273,021.83 12,273,021.83 - 100.00 11,470,715.01 11,470,715.01 - Over 4 years after exceeding credit period 100.00 17,705,584.99 17,705,584.99 - 100.00 15,123,741.29 15,123,741.29 - Total 2.94 5,646,035,591.53 166,099,204.75 5,479,936,386.78 2.41 5,251,599,143.88 126,396,260.82 5,125,202,883.06 4.3 Credit loss provision Provision, re-collection, or reverse of the credit loss provision in the current reporting period Unit: RMB Credit loss provision Total Balance on January 1st 2021 1,512,395,186.21 Provision/(reverse) during the current reporting period 302,443,301.79 Derecognition of financial assets (including direct write-downs) and transfer out (7,437,696.81) Difference arised from foreign currency statement translation (1,399,057.16) Balance on June 30th 2021 1,806,001,734.03 128 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Actual write-off of accounts receivable during current reporting period: In the current reporting period, the amount of actual accounts receivable write-off is RMB 8,321,415.61, and RMB 883,718.80 is recollected after writing-off. 4.4 Top five debtors based on corresponding closing balance of accounts receivable Unit: RMB Proportion (%) of the total balance of accounts Name of the Relationship with the Book value balance of accounts Closing balance for credit loss receivable at Party Company receivable provision the end of the current reporting period CETC’s subsidiary Related Party 385,903,069.21 124,699,227.90 1.51 company A (Note) Third Party A Third party 307,412,691.27 3,079,948.14 1.20 Third Party B Third party 246,281,362.97 487,108.46 0.96 Third Party C Third party 144,073,830.98 276,671.42 0.56 Third Party D Third party 96,859,002.40 3,934,633.09 0.38 Total 1,180,529,956.83 132,477,589.01 4.61 Note: A subsidiary of CETC is a subsidiary of China Electronics Technology Group Co., Ltd., the Company's ultimate controller. 4.5 As of June 30th 2021, there is no termination of accounts receivable booking due to transfer of a financial asset. 4.6 As of June 30th 2021, the Group has no assets/liabilities booked due to transferred accounts receivable that the Group still continue to be involved in. 5. Receivables for financing 5.1 Receivables for financing by catagories Unit: RMB Item Closing Balance Opening Balance Bank acceptance bill 1,120,170,492.09 1,959,601,195.25 Total- 1,120,170,492.09 1,959,601,195.25 5.2 At the end of the current reporting period, the Group had no pledged financing of receivables. 5.3 At the end of the reporting period, receivables for financing endorsed or discounted by the Group that have not yet expired on the balance sheet date. Unit: RMB Derecognized amount as of June 30th Amount not derecognized as of June 30th Item 2021 (note) 2021 Bank acceptance bill 1,742,762,080.69 - Total- 1,742,762,080.69 - 5.4 The Group believes that the acceptance bank's credit rating of the bank acceptance bill held is high, and there is no significant credit risk, so no loss provision is made. 129 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 6. Prepayments 6.1 Prepayments by aging analysis Unit: RMB Closing Balance Opening Balance Aging Carrying amount Proportion (%) Carrying amount Proportion (%) Within 1 year 299,556,093.13 77.18 261,740,350.78 89.22 1-2 years 67,210,259.92 17.32 20,302,314.17 6.92 2-3 years 10,779,307.27 2.78 9,021,070.25 3.07 Over 3 years 10,560,521.97 2.72 2,318,835.89 0.79 Total 388,106,182.29 100.00 293,382,571.09 100.00 6.2 Closing balances of top five prepayments parties As of June 30th 2021, the Group’s top five balances of prepayments amounted to RMB 110,158,922.03, accounting for 28.38% of total closing balance of prepayments. 130 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 7. Other receivables 7.1 Other receivables by aging Unit: RMB Closing Balance Item Other receivables Bad debt provision Proportion (%) Within contract period 699,964,008.04 2,551,178.13 0.36 Within 1 year 78,649,546.76 2,361,636.27 3.00 1-2 years 9,467,840.34 1,985,358.99 20.97 2-3 years 27,274,454.15 11,133,432.18 40.82 3-4 years 17,810,085.16 12,356,524.48 69.38 Over 4 years 11,290,239.81 11,247,498.71 99.62 Subtotal 844,456,174.26 41,635,628.76 4.93 7.2 Other receivables by nature of the payment Unit: RMB Item Closing Balance Opening Balance Temporary payments for receivables 628,024,719.34 294,409,377.31 Guarantee deposits 189,605,664.05 173,447,240.76 Investment intention fund 1,000,000.00 1,000,000.00 Tax rebates 310,191.78 67,714,444.77 Others 25,515,599.09 33,758,132.77 Total 844,456,174.26 570,329,195.61 131 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 7.3 Provision for credit loss Unit: RMB Amount of changes in the current reporting period Difference resulted from foreign currency Category Opening balance statements Closing balance Provision or reverse Recollect Resell or write off Conversion Other receivables 51,303,132.79 (9,417,803.41) - - (249,700.62) 41,635,628.76 Total 51,303,132.79 (9,417,803.41) - - (249,700.62) 41,635,628.76 Changes in credit loss provisions for other receivables Unit: RMB Stage 1 Stage 2 Stage 3 bed debts allowance Expected credit loss for the entire Expected credit loss for the entire Expected credit losses in the Total duration (credit impairment has not duration (credit impairment has next 12 months incurred) occurred) Balance on January 1st 2021 3,092,760.15 9,818,044.78 38,392,327.86 51,303,132.79 The book balance of other receivables on January 1st 2021 in the current reporting period --Transfer into stage 2 (3,092,760.15) 3,092,760.15 - - -- Transfer into stage 3 (9,818,044.78) 9,818,044.78 - --provision/(reverse) in the current reporting period 2,800,878.75 1,254,235.11 (13,472,917.27) (9,417,803.41) -- Derecognition of financial assets (including direct - - - - write-down) and transfer out Other changes (249,700.62) - - (249,700.62) Balance on June 30th 2021 2,551,178.13 4,346,995.26 34,737,455.37 41,635,628.76 7.4 The actual write-off of other receivables during the current reporting period is nil. 132 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 7.5 Top five debtors based on corresponding closing balance of other receivables Unit: RMB Relationship with the Proportion of total Closing balance for credit loss Entities Company Nature Closing balance Aging closing balance for other provision receivables (%) Temporary Third party E Third party payments for 7,018,264.26 With in the contract period 0.83 76,499.08 receivables Third party F Third party Guarantee deposits 6,927,179.05 Within 1 year 0.82 288,863.37 Temporary Third party G Third party payments for 5,513,580.00 With in the contract period 0.65 60,098.02 receivables Third party H Third party Guarantee deposits 3,738,423.66 With in the contract period 0.44 40,748.82 Third party I Third party Guarantee deposits 3,500,000.00 With in the contract period 0.41 38,150.00 Total 26,697,446.97 3.15 504,359.29 7.6 As of June 30th 2021, the Group does not have other receivables related to government subsidies. 7.7 As of June 30th 2021, there is no termination of other receivables booking due to transfer of a financial asset. 7.8 As of June 30th 2021, the Group has no assets/liabilities booked due to any transferred other receivable that the Group continues to be involved in. 133 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 8. Inventories 8.1 Categories of inventories Unit: RMB Closing Balance Opening Balance Provision for decline in Provision for decline in value of inventories/ value of inventories/ Category Carrying amount Impairment provision Book value Carrying amount Impairment provision Book value for contract performance for contract cost performance cost Raw materials 6,915,560,569.62 194,526,225.36 6,721,034,344.26 5,307,099,264.63 96,173,520.97 5,210,925,743.66 Work-in-progress 638,385,039.92 - 638,385,039.92 364,831,525.62 - 364,831,525.62 Finished goods 7,629,308,362.10 654,681,758.24 6,974,626,603.86 5,863,464,370.61 516,926,580.56 5,346,537,790.05 Contract performance cost 760,459,457.01 - 760,459,457.01 555,610,981.37 - 555,610,981.37 Total 15,943,713,428.65 849,207,983.60 15,094,505,445.05 12,091,006,142.23 613,100,101.53 11,477,906,040.70 8.2 Provision for decline in value of inventories Unit: RMB Decrease in the current reporting period Effect on conversion of Increase in the current financial statements Category Opening balance Closing Balance reporting period Reversals Write-off denominated in foreign currencies Raw materials 96,173,520.97 98,613,564.09 - 260,859.70 - 194,526,225.36 Finished goods 516,926,580.56 153,987,401.28 - 13,864,740.86 (2,367,482.74) 654,681,758.24 Subtotal 613,100,101.53 252,600,965.37 - 14,125,600.56 (2,367,482.74) 849,207,983.60 The write-offs of provision for inventories in the current reporting period are due to use or sale of inventories. For contract performance cost recognized as an asset, the Company recognizes it into current profit or loss on the same basis as the revenue from goods relating to such asset, and is recognized at the point of time when the goods are delivered to and accepted by the counterparty; there was an amount of RMB 237,433,009.27 recognized during the current reporting period. 134 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 9. Contract assets 9.1 Details of contract assets: Unit: RMB Closing Balance Opening Balance Provisions Provisions Items Carrying amount for Book value Carrying amount for Book value impairment impairment Constructions 120,801,235.95 6,843,535.66 113,957,700.29 179,392,556.16 1,363,383.44 178,029,172.72 Maintainence 71,055,883.20 774,509.14 70,281,374.06 68,243,992.61 518,654.35 67,725,338.26 services Total 191,857,119.15 7,618,044.80 184,239,074.35 247,636,548.77 1,882,037.79 245,754,510.98 9.2 The classification and disclosure of the method of provision for impairment of contract assets during the current reporting period: Unit: RMB Closing Balance Carrying amount Provisions for impairment Book value Items Proportion Provision Amount Amount Amount (%) proportion (%) Provision for impairment on a - - - - - single item Provision for impairment by 191,857,119.15 100.00 7,618,044.80 3.97 184,239,074.35 portfolio Total 191,857,119.15 100.00 7,618,044.80 3.97 184,239,074.35 Provision, re-collection, or reverse in the current reporting period: Unit: RMB Expected credit loss during the Expected credit loss during Credit loss provision whole duration (No credit the whole duration (Credit Total impairment occurred) impairment occurred) Balance on January 1st 2021 1,882,037.79 - 1,882,037.79 Provision during the current reporting 5,736,007.01 - 5,736,007.01 period Balance on June 30th 2021 7,618,044.80 - 7,618,044.80 Impairment provision for the current reporting period amounted to RMB 5,736,007.01, with no reversal, write-off or recovery of impairment provision during the current repoting period. Contract assets arise from the Group’s construction works business as well as maintenance services relating to security projects. The Group provides construction works and maintenance services based on contracts with customers, and recognizes revenue based on the performance progress during the term of the contracts. The Group’s customers make milestone payments for the construction works and maintenance services of the Group as provided in the contracts. For the portion where the Group has obtained an unconditional right to the payment, it will be recognized as accounts receivable, while the remaining portion will be recognized as contract assets; where the contract price received or receivable by the Group exceeds the performance obligation completed to date, the excess portion will be recognized as contract liabilities. The Group presents contract assets and contract liabilities under the same contract on a net basis. 10. Non-current assets due within one year Unit: RMB Item Closing Balance Opening Balance Long-term receivables due within one year (Note (V) 12) 1,150,804,899.71 1,001,208,813.83 Total 1,150,804,899.71 1,001,208,813.83 135 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 11. Other current assets Unit: RMB Item Closing balance Opening balance Deductible VAT input 705,088,455.51 391,898,131.26 Prepaid corporate income tax 45,361,243.85 41,520,799.46 Prepaid tariff 32,329,062.36 22,446,422.69 Others 74,118,058.54 41,571,699.38 Total 856,896,820.26 497,437,052.79 136 Hikvision 2021 Half Year Report Notes to Financial Statements ar For the reporting period from January 1st 2021 to June 30th 2021 12. Long-term receivables 12.1 Details of long-term receivables Unit: RMB Closing balance Opening balance Item Provision for Provision for credit Range of discount rate Carrying amount Book value Carrying amount Book value credit loss loss Financial leases receivables 331,157,010.38 29,130,391.03 302,026,619.35 332,860,621.51 21,387,061.50 311,473,560.01 0.13%-10.52% Including: Unrealized income from 16,009,607.90 - 16,009,607.90 20,751,939.07 - 20,751,939.07 - financing Installments for selling goods 2,869,171,328.65 106,238,042.24 2,762,933,286.41 2,890,406,667.71 95,101,409.36 2,795,305,258.35 3.85%-5.62% Including: Unrealized income from 689,702,955.21 - 689,702,955.21 738,142,438.88 - 738,142,438.88 - financing Less: Non-current assets due within one 1,265,079,116.45 114,274,216.74 1,150,804,899.71 1,092,345,496.98 91,136,683.15 1,001,208,813.83 - year (Note (V) 10) Total 1,935,249,222.58 21,094,216.53 1,914,155,006.05 2,130,921,792.24 25,351,787.71 2,105,570,004.53 - 12.2 Credit loss provision As part of the Group's credit risk management, the Group uses the aging of long-term receivables to assess the expected credit losses of long-term receivables formed by financial leasing and installment collection business. The customers involved in financial leasing and installment collection business are mainly government department and state-owned enterprises. There a large number of customers and have the same risk characteristics. The aging information is able to reflect the repayment capability of these customers when the long-term receivables are due. 137 Hikvision 2021 Half Year Report Notes to Financial Statements ar For the reporting period from January 1st 2021 to June 30th 2021 As of June 30th 2021, the credit risk and expected credit losses of long-term receivables of these customers are as follows: Unit: RMB Closing balance Age Amounts Credit loss provision Estimated average loss rate (%) Within credit period 2,526,073,126.75 27,410,017.06 1.09 Within 1 year after exceeding credit period 404,148,057.87 16,852,965.89 4.17 1-2 years after exceeding credit period 172,046,784.54 33,876,050.25 19.69 2-3 years after exceeding credit period 54,999,223.73 22,450,683.12 40.82 3-4 years after exceeding credit period 27,470,743.58 19,188,314.39 69.85 Over 4 years after exceeding credit period 15,590,402.56 15,590,402.56 100.00 Total 3,200,328,339.03 135,368,433.27 4.23 The changes in the Group's long-term receivables' expected credit loss provision for the current reporting period are as follows: Unit: RMB Stage 1 Stage 2 Stage 3 Expected credit losses Expected credit losses Credit loss provision Expected credit for the entire duration for the entire duration Total losses in the next 12 months (No credit impairment (Credit impairment has occurred) occurred) Balance on January 1st 2021 31,592,759.56 43,368,646.94 41,527,064.36 116,488,470.86 On January 1st 2021, the book balance of long-term accounts receivable in the current reporting period Transfer into stage 2 (31,592,759.56) 31,592,759.56 - - Transfer into stage 3 - (15,702,335.71) 15,702,335.71 - Provision/(reverse) during the current reporting period 27,410,017.06 (8,530,054.65) - 18,879,962.41 Balance on June 30th 2021 27,410,017.06 50,729,016.14 57,229,400.07 135,368,433.27 12.3 As of June 30th 2021, there is no termination of long-term receivables booking due to transfer of a financial asset. 12.4 As of June 30th 2021, the Group has no assets/liabilities booked due to any transferred long-term receivable that the Group continue to be involved in. 138 Hikvision 2021 Half Year Report Notes to Financial Statements ar For the reporting period from January 1st 2021 to June 30th 2021 13. Long-term equity investment Unit: RMB Increase/Decrease in the current reporting 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 1. Joint venture companies Hangzhou Haikang Intelligent Industrial 612,479,371.62 - - (12,551,789.97) - - - - - 599,927,581.65 - Equity Investment Fund Partnership (L.P.) Daishan Hailai Yunzhi 15,253,091.76 - - 641,313.41 - - (999,000.00) - - 14,895,405.17 - Technology Co., Ltd. Zhejiang City Digital 11,864,018.37 - - (159,024.43) - - - - - 11,704,993.94 - Technology Co., Ltd. Zhejiang Haishi Huayue Digital Technology Co., 9,985,577.32 - - 828,972.15 - - - - - 10,814,549.47 - Ltd. Shenzhen Hikvision Urban Service Operation 6,029,569.69 - - (2,392,706.11) - - - - - 3,636,863.58 - Co., Ltd. Guangxi Haishi Urban Operation Management 5,296,695.36 - - (2,055,245.77) - - - - - 3,241,449.59 - Co., Ltd. Yunnan Yinghai Parking 4,841,060.76 - - 8,854.38 - - - - - 4,849,915.14 - Service Co., Ltd. Xuzhou Kangbo Urban Operation Management 4,631,286.58 - - (459,987.17) - - - - - 4,171,299.41 - Service Co., Ltd. Subtotal 670,380,671.46 - - (16,139,613.51) - - (999,000.00) - - 653,242,057.95 - 139 Hikvision 2021 Half Year Report Notes to Financial Statements ar For the reporting period from January 1st 2021 to June 30th 2021 Increase/Decrease in the current reporting 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 2. Associated Companies Wuhu Sensor 58,491,264.42 - - 5,507,128.76 - - - - - 63,998,393.18 - Technology Co., Ltd. Maxio Technology 91,955,638.61 - - 11,326,714.57 - - - - - 103,282,353.18 - (Hangzhou) Co., Ltd. Zhiguang Hailian Big Data Technology Co., 21,253,058.87 - - (540,524.81) - - - - - 20,712,534.06 - Ltd. Sanmenxia Xiaoyun Vision Technology Co., 3,671,496.93 - - (934,201.11) - - - - - 2,737,295.82 - Ltd. Jiaxin Haishi JiaAn Zhicheng Technology 8,479,131.27 - - (1,061,192.51) - - - - - 7,417,938.76 - Co., Ltd. Qinghai Qingtang Big 9,795,448.67 - - 20,581.50 - - - - - 9,816,030.17 - Data Co., Ltd. Subtotal 193,646,038.77 - - 14,318,506.40 - - - - - 207,964,545.17 - Total 864,026,710.23 - - (1,821,107.11) - - (999,000.00) - - 861,206,603.12 - 140 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 14. Other non-current financial assets Unit: RMB Investment Additional recovery Changes in fair investment Invested Entity (Note Opening during the value during the Shareholding % during the Closing balance 1) balance current current current reporting reporting period reporting period period CETC Finance Co., 3.83% 423,435,737.20 - - (14,474,296.26) 408,961,440.94 Ltd. (Note 2) Hangzhou Confirmware 9.52% 31,092,032.62 - - (6,623,948.55) 24,468,084.07 Technology Co., Ltd. Zhejiang Tuxun Technology Co.,Ltd. 8.13% 32,222,764.45 - - (2,179,075.03) 30,043,689.42 (Zhejiang Tuxun) Zhengzhou Guokong Smart City 7.00% 700,000.00 - - - 700,000.00 Technology Co., Ltd. Guangxi Jilian Haibao Technical Service Co., 5.10% 2,884,220.00 - - - 2,884,220.00 Ltd. Shenzhen Wanyu Security Service 5.00% 1,000,000.00 - - - 1,000,000.00 Technology Co., Ltd. Nanwang Information Industry Group Co., 0.25% 604,313.00 - - - 604,313.00 Ltd. Total 491,939,067.27 - - (23,277,319.84) 468,661,747.43 Note 1: it refers to the Group’s equity investments of private companies. The Group has no control, joint control or significant influence over the invested company. Note 2: It is an enterprise controlled by CETC, the ultimate controlling party of the Group. During the current reporting period, the Company received a cash dividend of RMB 115,644,801.97 from China Electronic Technology Finance Co., Ltd. (2020: RMB 150,000,000.00) and recognized it as current profit and loss. Please refer to Note (V), 49 for details. 15. Fixed Assets 15.1 Details of fixed assets Unit: RMB General- Building and Special-purpose Transportation Items purpose Total construction equipment vehicles equipment I. Total original carrying amount 1. Opening balance 5,100,087,402.39 942,058,072.93 2,045,680,662.52 96,077,396.86 8,183,903,534.70 2. Increase in the current 571,684,990.60 150,526,825.40 74,323,636.44 3,179,247.08 799,714,699.52 reporting period 1) purchase 19,647,303.10 148,863,146.75 56,386,090.80 3,179,247.08 228,075,787.73 2) transferred from 552,037,687.50 1,663,678.65 17,937,545.64 - 571,638,911.79 construction in progress 3.Decrease in the current 4,004,642.66 6,382,897.79 37,144,204.94 2,933,276.26 50,465,021.65 reporting period 1) disposal or write-off 4,004,642.66 6,382,897.79 37,144,204.94 2,933,276.26 50,465,021.65 4. Effect on conversion of financial statements (704,992.96) (2,644,292.66) (1,231,524.73) (60,110.60) (4,640,920.95) denominated in foreign currencies 5.Closing Balance 5,667,062,757.37 1,083,557,707.88 2,081,628,569.29 96,263,257.08 8,928,512,291.62 141 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 General- Building and Special-purpose Transportation Items purpose Total construction equipment vehicles equipment II. Accumulated depreciation 1. Opening balance 992,312,042.71 368,166,922.57 937,726,505.61 55,020,864.96 2,353,226,335.85 2. Increase in the current 118,417,107.80 82,987,945.72 153,088,959.47 5,823,963.60 360,317,976.59 reporting period (1) accrual 118,417,107.80 82,987,945.72 153,088,959.47 5,823,963.60 360,317,976.59 3.Decrease in the current reporting 2,221,567.66 5,291,282.67 31,514,132.13 2,567,655.46 41,594,637.92 period (1) disposal or write- 2,221,567.66 5,291,282.67 31,514,132.13 2,567,655.46 41,594,637.92 off 4. Effect on conversion of financial statements (135,423.02) (1,476,565.78) (406,015.55) (45,139.50) (2,063,143.85) denominated in foreign currencies 5.Closing balance 1,108,372,159.83 444,387,019.84 1,058,895,317.40 58,232,033.60 2,669,886,530.67 III. Provision for decline in value 1.Opening balance - - - - - 2.Increase in the current - - - - - reporting period 3. Decrease in the current - - - - - reporting period 4.Closing balance - - - - - IV. Total book value Closing balance on book value 4,558,690,597.54 639,170,688.04 1,022,733,251.89 38,031,223.48 6,258,625,760.95 Opening balance on book value 4,107,775,359.68 573,891,150.36 1,107,954,156.91 41,056,531.90 5,830,677,198.85 15.2 As of June 30th 2021, the Group did not have any significant idle fixed assets. 15.3 As of June 30th 2021, the Group had not rent out any fixed asset through operating leasing 15.4 Fixed assets of which certificates of title have not been granted as of June 30th 2021. Unit: RMB Item Carrying amount Reason for certificates of title not granted In the process of obtaining the real estate Office building for branches 16,054,560.00 certificates In the process of obtaining the real estate Fuzhou High-tech Zone Innovation Park 104,644,180.00 certificates after transferred to fixed assets Total 120,698,740.00 142 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 16. Construction in progress 16.1 Details of construction in progress Unit: RMB Closing balance Opening balance Item Carrying amount Provision Book value Carrying amount Provision Book value Chengdu Science and Technology Park Project 649,653,461.12 - 649,653,461.12 521,626,793.33 - 521,626,793.33 Hangzhou Innovation Industry Park 362,637,782.43 - 362,637,782.43 337,821,702.49 - 337,821,702.49 Xi’an Science and Technology Park Project 128,568,833.69 - 128,568,833.69 12,679,174.93 - 12,679,174.93 Shijiazhuang Science and Technology Park 48,583,014.75 48,583,014.75 2,060,553.46 2,060,553.46 Project Chongqing Science and Technology Park Phase - - - 249,810,250.79 - 249,810,250.79 II Project Others 516,179,307.39 - 516,179,307.39 301,236,718.72 - 301,236,718.72 Total 1,705,622,399.38 - 1,705,622,399.38 1,425,235,193.72 - 1,425,235,193.72 16.2 Changes in significant construction in progress during the current reporting period Unit: RMB Including: Transferred Effect on capitalized Amount Accumulated Capitalization to fixed conversion interest and Increase in invested as capitalized rate for Budget assets of financial Other Construction profit/loss Opening the current Closing proportion interest and interest in the Source of Item (RMB during the statements Reductions in Progress on exchange 0,000) balance reporting current denominated (Note 1) balance of budget (%) profit/loss on for the current funds period amount exchange reporting reporting in foreign current (%) (Note 2) period (%) period currencies reporting period Chengdu Science and Self- 196,900.00 521,626,793.33 128,026,667.79 - - - 649,653,461.12 32.99% 32.99% - - - Technology financing Park Project Hangzhou Special Innovation 102,600.00 337,821,702.49 24,816,079.94 - - - 362,637,782.43 35.34% 35.34% 5,113,014.05 (48,573,001.14) 0.85% loan Industry Park 143 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Including: Effect on capitalized Amount Transferred to conversion Accumulated interest and Capitalization invested Increase in fixed assets of financial Other capitalized profit/loss rate for Budget as a Construction Opening the current during the statements Reductions Closing interest and on interest in the Source of Item (RMB proportion in Progress 0,000) balance reporting current denominated (Note 1) balance of budget (%) profit/loss on exchange current funds period reporting in foreign exchange for the reporting amount period currencies (Note 2) current period (%) (%) reporting period Xi’an Science and Self- 227,800.00 12,679,174.93 115,889,658.76 - - - 128,568,833.69 5.64% 5.64% - - - Technology financing Park project Shijiazhuang Science and 89,800.00 2,060,553.46 46,522,461.29 - - - 48,583,014.75 5.41% 5.41% - - - Self- Technology financing Park Project EZVIZ 79,800.00 2,332,067.08 41,416,910.43 - - - 43,748,977.51 5.48% 5.48% - - - Self- Industry financing Park Zhengzhou Science and 48,500.00 13,529,409.53 4,800,801.74 - - - 18,330,211.27 3.78% 3.78% - - - Self- Technology financing Park Project Chongqing Science and Self- Technology 40,000.00 249,810,250.79 144,149,199.63 393,959,450.42 - - - 100.00% 100.00% - - - financing Park project- phase 2 Self- Others - 285,375,242.11 349,370,657.32 177,679,461.37 (1,080,606.45) 1,885,713.00 454,100,118.61 - - - - - financing Total 785,400.00 1,425,235,193.72 854,992,436.90 571,638,911.79 (1,080,606.45) 1,885,713.00 1,705,622,399.38 - - 5,113,014.05 (48,573,001.14) Note 1: Other reductions during the the current reporting period were the completed decoration project that transferred to the long-term deferred expenses. Note 2: 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 2021, the Group did not have any sign of impairment of projects under construction; therefore, no provision for impairment loss was booked. 144 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 17. Right-of-use assets Unit:RMB Houses and Transportation Items General Equipment Dedicated Equipment Total Buildings Facility I. Total original carrying amount 1. Opening balance 333,243,923.96 - 92,164,518.65 14,423,291.59 439,831,734.20 2. Increased 68,151,993.38 - - 3,282,584.49 71,434,577.87 (1)New Lease 68,151,993.38 - - 3,282,584.49 71,434,577.87 3. Decreased 2,329,019.32 - - - 2,329,019.32 (1) The lease contract expires or terminates 2,329,019.32 - - - 2,329,019.32 early 4. Effect on conversion of financial statements (3,903,177.22) - - (638,394.71) (4,541,571.93) denominated in foreign currencies 5. Ending balance 395,163,720.80 - 92,164,518.65 17,067,481.37 504,395,720.82 II. Accumulated depreciation 1. Opening balance - - 46,834,180.90 - 46,834,180.90 2. Increased 64,816,040.75 - 10,761,693.68 3,032,484.93 78,610,219.36 (1) Provisons 64,816,040.75 - 10,761,693.68 3,032,484.93 78,610,219.36 3. Decreased 397,017.82 - - - 397,017.82 (1) The lease contract expires or terminates 397,017.82 - - - 397,017.82 early 4. Effect on conversion of financial statements (354,812.23) - - (63,073.12) (417,885.35) denominated in foreign currencies 5. Ending balance 64,064,210.70 - 57,595,874.58 2,969,411.81 124,629,497.09 III. Provision for decline in value 1. Opening balance - - - - - 2. Increased - - - - - 3. Decreased - - - - - 4. Ending balance - - - - - IV. Total book value 1. Closing balance on book 331,099,510.10 - 34,568,644.07 14,098,069.56 379,766,223.73 value 2. Opening balance on book 333,243,923.96 - 45,330,337.75 14,423,291.59 392,997,553.30 value In the current reporting period, the short-term lease and low-value asset lease expenses that the Group included in the current profit and loss with simplified processing were RMB 57,316,442.89. In the current reporting period, the Group's total cash outflow related to leases was RMB 142,279,358.39. 145 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 18. Intangible assets 18.1 Details of Intangible assets Unit: RMB Intellectual property Item Land use right Application Software Franchise Total right I. Total original carrying amount 1. Opening balance 1,224,893,932.49 70,044,034.88 298,812,867.42 13,091,615.51 1,606,842,450.30 2. Increased 1,049,256.40 - 13,400,485.18 679,111.39 15,128,852.97 (1) Purchase 1,049,256.40 - 13,400,485.18 679,111.39 15,128,852.97 3. Decreased - - 885,704.45 - 885,704.45 (1)Disposal or write-off - - 885,704.45 - 885,704.45 4. Effect on conversion of financial statements - 1,832.65 (1,163,339.57) 1,345.85 (1,160,161.07) denominated in foreign currencies 5. Closing balance 1,225,943,188.89 70,045,867.53 310,164,308.58 13,772,072.75 1,619,925,437.75 II. Total accumulated amortization 1.Opening balance 76,612,562.29 60,718,480.10 217,067,323.75 1,126,160.47 355,524,526.61 2. Increased 13,374,944.47 2,212,337.53 18,566,322.13 906,062.01 35,059,666.14 (1)Accrual 13,374,944.47 2,212,337.53 18,566,322.13 906,062.01 35,059,666.14 3. Decreased - - 788,876.70 - 788,876.70 (1)Disposal or write-off - - 788,876.70 - 788,876.70 4. Effect on conversion of financial statements - (3,733.05) (1,141,518.77) 143.76 (1,145,108.06) denominated in foreign currencies 5. Closing balance 89,987,506.76 62,927,084.58 233,703,250.41 2,032,366.24 388,650,207.99 III. Provision for decline in value 1. Opening balance - - - - - 2. Increased - - - - - 3. Decreased - - - - - 4. Closing balance - - - - - IV. Total book value 1. Closing balance on book 1,135,955,682.13 7,118,782.95 76,461,058.17 11,739,706.51 1,231,275,229.76 value 2. Opening balance on book 1,148,281,370.20 9,325,554.78 81,745,543.67 11,965,455.04 1,251,317,923.69 value 18.2 At the end of the current reporting period, the intangible assets of the Group that have not completed the title certificate are as follows: Unit: RMB Item Carrying value Reasons for not getting the title certificate Land use right of Nanchang Science and Technology 103,874,856.90 The land certificate is still in process Park Total 103,874,856.90 146 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 19. Goodwill 19.1 Goodwill book value Unit: RMB Increased Decreased Effect on conversion of Business combination financial The name of the investee or the matter Opening not involving Liquidation & statements Closing balance that forming a goodwill balance enterprises under cancellation denominated in common control foreign currencies Secure Holdings Limited (SHL) 130,320,174.19 - - (1,294,233.98) 129,025,940.21 HuaAn Baoquan Intelligence and its 61,322,871.63 - - - 61,322,871.63 subsidiaries Hangzhou Kuangxin Technology Co., 59,060,454.06 - - - 59,060,454.06 Ltd. Hundure Technology (Shanghai) Co., 13,774,405.88 - 13,774,405.88 - - Ltd. BK EESTI AKTSIASELTS 4,826,266.94 - - (203,755.67) 4,622,511.27 SIA “BK Latvia” 4,819,569.44 - - (203,472.92) 4,616,096.52 ZAO Hikvision 67,349.64 - - - 67,349.64 Hangzhou Haikang Zhicheng Investment and Development Co., 12,573.42 - - - 12,573.42 Ltd. Total 274,203,665.20 - 13,774,405.88 (1,701,462.57) 258,727,796.75 20. Long-term deferred expenses Unit: RMB Difference of Invested unit Opening Balance Increased Amortized foreign currency Closing balance translation Improvement expenditure for 108,584,686.85 18,066,543.34 26,104,715.70 (594,611.40) 99,951,903.09 leased fixed asset Total 108,584,686.85 18,066,543.34 26,104,715.70 (594,611.40) 99,951,903.09 21. Deferred tax assets/deferred tax liabilities 21.1 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 619,743,698.69 165,036,649.43 439,119,363.43 118,145,320.66 losses of assets Provision for credit loss 1,826,388,333.68 375,744,721.05 1,539,163,635.55 317,826,951.61 Payroll payables 340,995,206.97 67,364,166.74 340,995,206.97 67,364,166.74 Share-based payment 481,007,150.91 76,607,409.18 395,569,612.03 63,817,274.43 Provisions 116,834,580.56 17,346,673.52 125,721,860.51 20,746,514.91 Expenditure without invoice 165,341,805.58 34,963,772.08 343,485,705.59 79,499,747.08 Unrealized profit from inter- 1,362,398,463.76 204,683,716.45 1,332,036,632.93 203,654,079.47 group transactions Changes in the fair value of derivative financial 3,342,073.74 835,518.44 4,862,446.50 1,215,611.63 instruments Deferred income 142,894,727.35 22,580,305.74 175,339,879.57 28,307,816.27 Total 5,058,946,041.24 965,162,932.63 4,696,294,343.08 900,577,482.80 147 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 21.2 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 Difference in accelerated depreciation/amortization 823,144,399.91 153,669,507.40 794,946,638.24 155,500,598.94 of assets Changes in the fair value of derivative financial 28,126,415.53 7,031,603.88 18,487,400.00 4,621,850.00 instruments Changes in fair value of other non-current financial 63,748,699.43 9,562,304.91 87,026,019.27 13,053,902.89 assets Total 915,019,514.87 170,263,416.19 900,460,057.51 173,176,351.83 21.3 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 Offset amount at the Deferred tax assets or Item Offset amount at the end liabilities at the net beginning of the liabilities at the net of the reporting period amount after offset reporting period amount after offset Deferred tax assets 80,091,112.94 885,071,819.69 80,196,527.94 820,380,954.86 Deferred tax liabilities 80,091,112.94 90,172,303.25 80,196,527.94 92,979,823.89 22. Other non-current assets Unit: RMB Item Closing balance Opening balance Contract assets 522,238,731.65 600,392,481.02 Prepayments for equipment 146,685,635.87 26,838,623.06 Prepayments for acquisition of land 79,938,875.22 79,046,571.00 Prepayments for infrastructure 16,914,474.29 15,233,481.00 Total 765,777,717.03 721,511,156.08 23. Short-term borrowings 23.1 Categories of short-term borrowings Unit: RMB Item Closing balance Opening balance Fiduciary loan 3,142,918,040.93 3,999,246,634.59 Total 3,142,918,040.93 3,999,246,634.59 23.2 As of June 30th 2021, the Group did not have any overdue short-term loans that were failed to repay. 24. Held-for-trading financial liabilities Unit: RMB Item Closing balance Opening balance Financial liabilities measured at fair value through 3,651,541.77 7,405,771.15 current profits and losses Including: derivative financial liabilities 3,651,541.77 7,405,771.15 total 3,651,541.77 7,405,771.15 148 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 25. Notes payable Unit: RMB Item Closing balance Opening balance Bank acceptance Bill 1,209,714,255.88 1,036,920,229.85 Total 1,209,714,255.88 1,036,920,229.85 As of June 30th 2021, the Group did not have any unpaid matured notes payable. 26. Accounts payable 26.1 List of accounts payable Unit: RMB Item Closing balance Opening balance Payments for goods 12,304,461,476.16 13,461,766,461.74 Payables on equipment 143,812,271.64 132,118,328.45 Total 12,448,273,747.80 13,593,884,790.19 26.2 As of June 30th 2021, the Group did not have any significant accounts payable with aging above one year. 27. Contract liabilities 27.1 List of contract liabilities Unit: RMB Item Closing balance Opening balance Advanced receipts from sales of products 1,883,864,456.98 1,605,290,145.88 Advanced receipts for construction settlement payment 356,004,365.61 401,866,195.59 Advanced receipts from services 250,806,170.04 154,010,329.79 Total 2,490,674,992.63 2,161,166,671.26 27.2 Qualitative and Quantitative Analysis on the Above Contract Liabilities: Advanced receipts for product sales include prepayments for goods by customers and sales rebates provided to distributors. Product sales revenue of the Group is recognized when the control of such product is transferred to the customers. During the transaction, prepayments for goods by customers are recognized as a contract liability till the goods are shipped or delivered to the customers. Sales rebates to distributors of the Group may be accumulated when they purchase products from the Group, and are deductible for payments for goods to be purchased in the future. Such sales rebates enable distributors to enjoy discounts in their future purchase of goods, which are not available to the same type of customers. Therefore, the commitment to offer such discounts to distributors on their future purchase prices is a separate performance obligation. Such commitment is recognized as a contract liability based on the transaction price allocated on the basis of the fair value of rebates when the sales transaction takes place, and is recognized as revenue when distributors use the sales rebates for deduction of purchase prices. The Group provides construction works and maintenance services based on the construction works and maintenance service contracts with customers, and recognizes revenue based on the performance progress during the term of the contracts. The Group’s customers make milestone payments for the construction works and maintenance services of the Group as provided in the contracts. For the portion where the Group has obtained an unconditional right to the payment, it will be recognized as accounts receivable, while the remaining portion will be recognized as contract assets; where the contract price received or receivable by the Group exceeds the performance obligation completed to date, the excess portion will be recognized as contract liabilities. The Group presents contract assets and contract liabilities under the same contract on a net basis. The Group provides cloud services including storage service, video service, and telephone service to its customers. Such services are performance obligations to be satisfied during a period of time, and revenue is recognized based on the performance progress over the period in which such services are rendered. As customers have prepaid for cloud services at the time of purchase, at the time of transaction, the Group recognizes as a contract liability for the payments that would be received for cloud services, and recognizes revenue based on the performance progress over the period in which such 149 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 services are rendered. 28. Payroll payable 28.1 Details of payroll payable Unit: RMB Increase in the Decrease in the Item Opening balance current reporting current reporting Closing balance period period 1.Short-term remuneration 2,858,597,482.49 6,449,497,859.69 6,545,612,764.54 2,762,482,577.64 2. Termination benefits – defined 19,188,948.22 407,631,094.60 364,031,321.69 62,788,721.13 contribution scheme Total 2,877,786,430.71 6,857,128,954.29 6,909,644,086.23 2,825,271,298.77 28.2 List of Short-term remuneration Unit: RMB Increase in the current Decrease in the current Item Opening balance Closing balance reporting period reporting period 1.Wages or salaries, bonuses, allowances and 2,671,062,392.28 5,813,722,297.06 5,897,873,744.93 2,586,910,944.41 subsidies 2.Staff welfare 14,300.82 90,298,417.48 90,298,251.48 14,466.82 3.Social insurance 11,227,541.93 244,066,969.48 223,057,781.09 32,236,730.32 contributions Including: 10,852,343.07 233,971,668.95 214,082,443.10 30,741,568.92 Medical insurance Injury insurance 330,255.63 6,971,949.60 6,246,317.09 1,055,888.14 Maternity insurance 44,943.23 3,123,350.93 2,729,020.90 439,273.26 4.Housing funds 146,194.01 257,834,706.10 257,881,712.21 99,187.90 5.Labor union and 176,147,053.45 43,575,469.57 76,501,274.83 143,221,248.19 education fund Subtotal 2,858,597,482.49 6,449,497,859.69 6,545,612,764.54 2,762,482,577.64 28.3 Defined Contribution Plan Unit: RMB Increase in the Decrease in the Item Opening balance Closing balance current period current period 1.Basic pension insurance 18,665,404.09 394,163,208.63 352,020,520.81 60,808,091.91 2.Unemployment insurance 523,544.13 13,467,885.97 12,010,800.88 1,980,629.22 Subtotal 19,188,948.22 407,631,094.60 364,031,321.69 62,788,721.13 The Group participates in pension insurance and unemployment insurance plans established by government agencies in accordance with regulations. According to these plans, the Group pays monthly fees to these plans in proportion to the payment base. The Group has no other material obligation for the payment of pension benefits beyond the contributions described above, and corresponding expenses were booked into current profits and losses or corresponding assets. 29. Taxes payable Unit: RMB Item Closing balance Opening balance Enterprise income tax 1,001,851,547.52 1,403,744,369.98 Value-added tax 365,711,957.54 294,728,811.39 City construction and maintenance tax 24,629,195.29 17,924,699.09 Education surcharges 17,349,795.66 7,547,297.38 Local education surcharges 11,854,439.47 5,437,435.12 Others 209,211,872.68 40,675,295.66 150 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Item Closing balance Opening balance Total 1,630,608,808.16 1,770,057,908.62 30. Other payables 30.1 Categories Unit: RMB Item Closing balance Opening balance Dividend payable 651,635,862.26 205,898,523.84 Other payables 1,395,750,254.33 1,319,154,832.11 Total 2,047,386,116.59 1,525,053,355.95 30.2 Dividends payable Unit: RMB Item Closing balance Opening balance Dividends of incentive restricted shares 144,401,634.30 205,898,523.84 Dividends of non-restricted shares 507,234,227.96 - Total 651,635,862.26 205,898,523.84 30.3 Other payables (1) List of other payables according to the nature of the payment Unit: RMB Item Closing balance Opening balance Unexpired commercial acceptance bills that were endorsed (Note 610,856,089.84 482,454,604.99 (V)-3) Guarantee and deposit fees 385,198,228.33 298,869,865.03 Collection and payment on behalf 201,771,898.24 157,485,875.39 Accrued expenses 130,492,655.46 337,678,697.37 Other expense payable 67,431,382.46 42,665,789.33 Total 1,395,750,254.33 1,319,154,832.11 (2) As of June 30th 2021, the Group did not have any significant other payables aging over one year. 31. Non-current liabilities due within one year Unit:RMB Item Closing balance Opening balance Long-term borrowings due within one year (Note (V) 33) 3,342,160,117.94 3,486,243,087.91 Lease liabilities due within one year (Note (V), 34) 174,958,269.90 156,420,687.89 Long-term payables due within one year (Note (V) 35) 3,102,428.95 2,134,638.48 Total 3,520,220,816.79 3,644,798,414.28 32. Other current liabilities Unit: RMB Item Closing balance Opening balance Subscription payment of restricted shares 511,594,361.52 560,959,368.73 Output VAT to be transferred 236,076,809.87 184,752,210.84 Total 747,671,171.39 745,711,579.57 151 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 33. Long-term borrowings Unit: RMB Item Closing balance Opening balance Pledged loan (Note 1) 1,498,890,006.05 1,556,927,316.08 Fiduciary loan (Note 2) 3,564,285,262.97 3,700,483,533.13 Other borrowing (Note 3) 190,000,000.00 190,000,000.00 Less:Long-term loans due within one year (Note (V) 31) 3,342,160,117.94 3,486,243,087.91 Total 1,911,015,151.08 1,961,167,761.30 Note 1: As of June 30th 2021, RMB 263,071,428.56 of the pledged loan was obtained by the Group with all the rights and benefits pledged under the Urumqi High-tech Zone (New Urban Area) Safe City & Surveillance system for Social Comprehensive Management -- PPP Project Agreement; the maturity date is June 20th 2028, the annual interest rate is 4.31%. RMB 179,800,000.00 of the pledged loan was obtained by the Group with all the rights and benefits pledged under the MoYu Security Protection and Prevention Control System-- PPP Project Agreement; the maturity date is March 26th 2035, the annual interest rate of the loan is 4.345% RMB 219,780,000.00 of the pledged loan was obtained by the Group with all the rights and benefits pledged under the PiShan Security Protection and Prevention Control System-- PPP Project Agreement; the maturity date is March 26th 2040, among them, the annual interest rate of RMB 169,600,000.00 of the loan is 4.345%, the annual interest rate of RMB 50,180,000.00 of the loan is 4.245%. RMB 224,800,000.00 of the pledged loan was obtained by the Group with all the rights and benefits pledged under the LuoPu Security Protection and Prevention Control System-- PPP Project Agreement; the maturity date is March 26th 2035, among them, the annual interest rate of RMB 137,600,000.00 of the loan is 4.345%, the annual interest rate of RMB 87,200,000.00 of the loan is 4.245%. RMB 95,600,000.00 of the pledged loan was obtained by the Group with all the rights and benefits pledged under the YuTian Safe City-- PPP Project Agreement; the maturity date is March 26th 2034, the annual interest rate is 4.245%. RMB 514,000,000.00 of the pledged loan was obtained by the Group with all the rights and benefits pledged under the Xi'an Public Security Video Surveillance Construction Network Application Construction--Public-Private Partnership (PPP) Project Agreement; the maturity date is November 5th 2031, the annual interest rate of the loan is 4.345%. Note 2: As of June 30th 2021, the credit loan with a book value of RMB 3,074,480,000.00 was 400 million euros in credit loans, which was mainly used for the investment and construction of the Company's Hangzhou Innovation Industrial Park project and Xi'an Science and Technology Park project, the maturity date is December 14th 2021, and the interest rate is 0.85%. The book value of the credit loan is RMB 479,970,000.00, which is mainly used for the acquisition of the thermal imaging division asset group in the year of 2020 by Hangzhou HikMicro Sensing Technology Co., Ltd., a subsidiary of the Group, and the maturity dates are September 28th 2022 and September 27th 2023, respectively.and the annual interest rate is 3.20%. Note 3: During 2016, the Group entered into an agreement with CDB Development Fund Ltd. (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 reporting 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 2021, CDBDF has aggregately invested RMB 190 million (December 31st 2020: RMB 190 million). 152 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 34. Lease liabilities Unit: RMB Item Closing balance Opening balance Lease liabilities 374,452,790.68 386,475,961.59 Less :Lease liabilities due within one year (Note (V), 31) 174,958,269.90 156,420,687.89 Total 199,494,520.78 230,055,273.70 35. Long-term payables Unit: RMB Item Closing balance Opening balance Purchase goods in installments 11,491,861.74 10,677,104.56 Borrowing - 8,000,000.00 Less: Long-term payables due within one year (Note 3,102,428.95 2,134,638.48 (V), 31) Total 8,389,432.79 16,542,466.08 36. Provisions Unit: RMB Item Closing balance Opening balance Product quality warranty 159,098,659.69 151,443,871.02 Total 159,098,659.69 151,443,871.02 37. Deferred income Unit: RMB Increase in current Decrease in current Item Opening balance Closing balance Details reporting period reporting period Government Subsidies 190,878,987.69 69,654,000.00 69,803,069.41 190,729,918.28 Note Total 190,878,987.69 69,654,000.00 69,803,069.41 190,729,918.28 As of June 30th 2021, the deferred income related to government subsidies: Unit: RMB Increase in Amounts booked into Related to Opening Other Liability Items current reporting other income during the Closing Balance assets/related to Balance changes period current reporting period incomes Chongqing Manufacture Park 76,835,135.44 - 34,907,015.44 - 41,928,120.00 Related to assets construction Other special 32,815,600.80 11,340,500.00 5,455,672.03 - 38,700,428.77 Related to assets subsidies Other special 81,228,251.45 58,313,500.00 29,440,381.94 - 110,101,369.51 Related to incomes subsidies Subtotal 190,878,987.69 69,654,000.00 69,803,069.41 - 190,729,918.28 Note 1: Refer to government subsidies received by the Group for projects such as Chongqing Manufacture Park construction and other projects; Actual expenses occurred in the current reporting period for special subsidies related to incomes were recognized in other income; and relevant assets for Chongqing Manufacture Park construction and other special subsidies related to assets were amortized averagely in other income within the assets’ useful lives. 153 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 38. Other non-current liabilities Unit: RMB Item Closing balance Opening balance Subscription for restricted stocks 511,594,361.52 560,959,368.74 Total 511,594,361.52 560,959,368.74 39. Share capital Unit: RMB Changes for the current reporting period Opening balance New issue of Transfer from Closing balance Bonus issue Others (Note) Subtotal shares Capital Reserve 2021.06.30 Total 9,343,417,190.00 - - -- (7,611,076.00) (7,611,076.00) 9,335,806,114.00 shares Note: On December17th 2020, in accordance with the authorization of the Company’s 2021 first extraordinary general meeting and the resolutions of the 20th meeting of the fourth board of directors and the revised articles of association, the Company repurchased and cancelled the granted 7,611,076.00 restricted RMB treasury shares that have not been unlocked, reducing the share capital by RMB 7,611,076.00 and the capital reserve by RMB 115,032,981.28. The Company had completed the repurchase cancellation registration on June 30th 2021. 40. Capital reserves Unit: RMB Increase in the Decrease in the current reporting current reporting Item Opening balance Closing balance period period (Note 1) (Note 2) 2021.06.30 Share premium 4,747,808,907.38 - 120,076,361.59 4,627,732,545.79 Other capital reserves 430,968,554.71 124,387,684.27 - 555,356,238.98 Total 5,178,777,462.09 124,387,684.27 120,076,361.59 5,183,088,784.77 Note 1: The increase of RMB 124,387,684.27 in other capital reserves in the current fiscal year was calculated with equity- settled share-based payments which were included in the capital reserve. Please refer to Note (XI) for details. Note 2: The decrease of RMB 115,032,981.28 in share capital premium during the current reporting period was due to the Company’s repurchase of 7,611,076 granted but unlocked RMB treasury shares by cash, please refer to Note (V) 39; The decrease of RMB 5,033,446.99 in share capital premium during the current reporting period was due to share distributions by equity settlements to minority shareholders; The decrease of RMB 9,933.32 in share capital premium was due to the disposal of subsidiary during the current reporting period. For details, please refer to Note (VII) 1(1) Note 4. 41. Treasury shares Unit: RMB Increase in the Decrease in the Item Opening Balance current reporting current reporting Closing balance period period (Note 1) 2021.06.30 Restricted shares incentive scheme 1,121,918,737.47 - 98,730,014.43 1,023,188,723.04 Total 1,121,918,737.47 - 98,730,014.43 1,023,188,723.04 Note 1: During the current reporting period, the decreased amounts of treasury shares includes a decrease of RMB 37,631,007.23 due to the repurchase and cancellation of restricted shares of 2016 and 2018 Restricted Share Incentive Scheme; a decrease of RMB 61,099,007.20 in treasury shares was due to provision of cash dividend allocated to restricted shares. . 154 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 42. Other comprehensive income Unit: RMB Amounts occurred in the current reporting period The before- Less: transfer income-tax to current Less: Attributable to Attributable to Opening amount period P/L Item income the parent minority Closing balance balance incurred during from previous tax company (after shareholders the current other expense tax) (after tax) reporting comprehensive period income 2021.06.30 Other incomes that may be reclassified (84,993,926.94) (8,260,441.80) - - (7,233,190.86) (1,027,250.94) (92,227,117.80) subsequently to profit or loss Included: Effect on conversion of financial (84,993,926.94) (8,260,441.80) - - (7,233,190.86) (1,027,250.94) (92,227,117.80) statements denominated in foreign currencies Other comprehensive (84,993,926.94) (8,260,441.80) - - (7,233,190.86) (1,027,250.94) (92,227,117.80) income 43. Surplus reserves Unit: RMB Increase in the current Decrease in the current Item Opening balance Closing balance reporting period reporting period 2021.06.30 Statutory surplus reserves (Note) 4,672,505,348.00 - - 4,672,505,348.00 Total 4,672,505,348.00 - - 4,672,505,348.00 44. Retained earnings Unit: RMB Item First half year of 2021 First half year of 2020 Retained Earnings at the close of the prior reporting period 35,806,523,826.37 28,961,389,145.22 Add: Net profit attributable to the parent company for the 6,481,424,653.39 4,623,972,830.87 current reporting period Subtract: Statutory surplus reserves - - Dividends payable on common shares (Note) 7,458,057,406.90 6,541,507,487.20 Retained earnings at the end of the current reporting period 34,829,891,072.86 27,043,854,488.89 Note:According to the resolution of 2020 Annual General Meeting dated on May 14th 2021, based upon the total capital share of the Company on the equity distribution date, for each 10 ordinary shares, the Company distributed cash dividends of RMB 8 (tax inclusive), the rest of retained earnings were all carried forward for future distributions. 45. Operating income/operating cost 45.1 Operating income and operating cost Unit: RMB First half year of 2021 First half year of 2020 Item Revenue Cost Revenue Cost Operating income 33,662,102,661.75 18,023,388,922.41 24,068,056,071.82 12,100,735,573.06 Other operating income 239,995,706.35 181,806,842.05 203,103,171.94 92,984,372.32 Total 33,902,098,368.10 18,205,195,764.46 24,271,159,243.76 12,193,719,945.38 155 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 45.2 Operating business (by business type) Unit: RMB First half year of 2021 Item Revenue Cost Product sales 32,693,068,598.93 17,565,104,081.49 Construction contract 411,198,176.84 291,842,825.70 Provide services 557,835,885.98 166,442,015.22 Total 33,662,102,661.75 18,023,388,922.41 45.3 Operating business (by the time of revenue recognition) Unit: RMB First half year of 2021 Item Revenue Cost Recognized at some point 32,693,068,598.93 17,565,104,081.49 Recognition took place within a 969,034,062.82 458,284,840.92 certain period of time Total 33,662,102,661.75 18,023,388,922.41 45.4 Operating business (By product or business type) Unit: RMB First half year of 2021 Item Revenue Cost Products and Services 27,672,536,087.24 14,476,253,747.73 Constructions 411,198,176.84 291,842,825.70 Subtotal 28,083,734,264.08 14,768,096,573.43 Smart home business 1,871,108,774.85 1,172,850,667.99 Robotic business 1,220,189,435.48 642,233,986.43 Other innovative businesses 2,487,070,187.34 1,440,207,694.56 Subtotal 5,578,368,397.67 3,255,292,348.98 Total 33,662,102,661.75 18,023,388,922.41 Descriptions of Performance obligations: The Group sells video surveillance products, smart home products, robotic products, and other products and related accessories. For sales of goods to customers, the Group recognizes revenue when the control of the goods is transferred, i.e. when the goods are delivered to the location designated by other party, or delivered to the carrier designated by other party, or delivered to the other party for acceptance. Since the delivery of the goods to the customer represents the right to unconditionally receive the contract consideration, and the maturity of the payment only depends on the passage of time, the Group recognizes a receivable when the goods are delivered to the customer. When the customer prepays for the goods, the Group recognizes the transaction amount received as a contract liability, and recognizes revenue until the goods are delivered to the customer. For projects constructed for customers, since the customers could control the assets under construction during the performance of the Group, the Group recognizes revenue according to the performance progress by treating them as the obligations within certain period, except that the performance progress cannot be reasonably determined. The Group applies the output method to determine the performance progress, which is based on the value to the customers of the goods or services that have been transferred to them. Where the performance progress cannot be reasonably determined, and the costs incurred by the Group are expected to be compensated, the revenue shall be recognized according to the amount of the costs already incurred until the performance progress can be reasonably determined. The customers of the Group pay the Group for the construction works by milestone payments in accordance with the contract. For the portion where the Group has obtained an unconditional right to the payment, it will be recognized as accounts receivable, while the remaining portion will be recognized as contract assets; where the contract price received or receivable by the Group 156 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 exceeds the performance obligation completed to date, the excess portion will be recognized as contract liabilities. The Group presents contract assets and contract liabilities under the same contract on a net basis. The Group provides customers with operation and maintenance services. Since customers obtain and consume the economic benefits generated by the performance of the Group at the same time when the Group performs its obligations, the Group recognizes revenue according to the performance progress by treating them as the obligations within certain period. The customers of the Group pay the Group for the maintenance services by milestone payments in accordance with the contract. For the portion where the Group has obtained an unconditional right to the payment, it will be recognized as accounts receivable, while the remaining portion will be recognized as contract assets; where the contract price received or receivable by the Group exceeds the performance obligation completed to date, the excess portion will be recognized as contract liabilities. The Group presents contract assets and contract liabilities under the same contract on a net basis. The Group provides cloud services including storage service, video service, and telephone service to its customers. Such services are performance obligations to be satisfied during a period of time, and revenue is recognized based on the performance progress over the period in which such services are rendered. As customers have prepaid for cloud services at the time of purchase, the Group recognizes the payments for cloud services received at the time of transaction as a contract liability, and recognizes revenue based on the performance progress over the period in which such services are rendered. Sales rebates to distributors of the Group may be accumulated when they purchase products from the Group, and are deductible for payments for goods to be purchased in the future. Such sales rebates enable distributors to enjoy discounts in their future purchase of goods, which are not available to the same type of customers. Therefore, the commitment to offer such discounts to distributors on their future purchase prices is a separate performance obligation. Such commitment is recognized as a contract liability based on the transaction price allocated on the basis of the fair value of rebates when the sales transaction takes place, and is recognized as revenue when distributors use the sales rebates for deduction of purchase prices. The Group provides quality assurance for the sold video surveillance products, smart home products, robotic products and other products and related accessories, as well as the assets constructed. The quality assurance related to the products sold by the Group cannot be purchased separately, and is a guarantee to customers that the products sold meet the established standards, therefore, the Group conducts accounting treatment in accordance with the Accounting Standards for Business Enterprises No. 13 - Contingencies, please refer to Note (III), 24 and Note (V), 36 for details. For sales to end consumers through the online trading platform, a 7-day or 30-day right of return is provided accordingly. At the time of revenue recognition, a return payable is recognized for the goods expected to be returned according to the amount expected to be returned due to the sales return; in addition, a return cost receivable is recognized according to the balance of the book value of the goods expected to be returned at the time of transfer net of the estimated cost of recovering the goods, and carrying over costs according to net amount of book value of the transferred goods at the time of transfer net of the cost of the aforementioned assets. The Group estimates the number of returns at the portfolio level with its accumulated historical experience and adopting the expected value method. In view of the stable return rate in previous years, it is most unlikely that there will be a significant reversal for the accumulated recognized revenue. Descriptions of allocation to the remaining performance obligations: As of June 30th 2021, all the remaining performance obligations are part of the contracts with original expected contract term not exceeding one year. The Group expects to recognize all of them as revenue within the next year. 157 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 46. Business Taxes and Surcharges Unit: RMB Items First half year of 2021 First half year of 2020 City construction and maintenance tax 134,355,040.58 79,448,007.54 Education surcharges 58,455,669.70 34,694,864.30 Local education surcharges 38,968,756.10 23,124,847.79 Real estate tax 24,311,814.02 8,518,237.11 Stamp duty 21,686,242.96 11,993,613.72 Tax on use of land 2,495,394.98 1,810,901.96 Vehicle and vessel tax 97,409.94 93,490.92 Others 99,675.87 8,388,201.91 Total 280,470,004.15 168,072,165.25 47. Financial Expenses Unit: RMB Items First half year of 2021 First half year of 2020 Interest expenses 113,369,214.89 117,407,704.24 Less:Interest income 411,998,029.35 306,973,066.18 Interest expense on lease liabilities 7,517,245.71 - Foreign exchange losses 99,472,543.57 2,749,318.63 Less﹕Capitalized specific loan interests and foreign (48,573,001.14) 50,688,176.68 exchange differences on specific loan Others 20,541,585.97 9,532,013.26 Total (122,524,438.07) (227,972,206.73) 48. Other income Unit: RMB Items First half year of 2021 First half year of 2020 VAT Rebates 852,085,468.02 784,320,169.82 Special subsidies 212,725,665.41 180,572,947.23 Tax relief 11,236,158.59 29,885,277.10 Total 1,076,047,292.02 994,778,394.15 49. Investment income Unit: RMB Items First half year of 2021 First half year of 2020 Long-term equity investment losses based on equity method (1,821,107.11) (8,942,717.69) Investment losses from disposal of subsidiaries and other business (14,952,528.43) - units Investment income from other non-current financial assets during the 115,644,801.97 150,000,000.00 holding period Investment income from disposal of held-for-trading financial assets 70,440,289.29 9,162,427.25 Total 169,311,455.72 150,219,709.56 50. Losses from changes in fair values Unit: RMB Sources of losses from changes in fair values First half year of 2021 First half year of 2020 Held-for-trading financial assets 9,989,549.68 849,343.33 Including: gains on the changes in fair value of derivative financial instruments 9,989,549.68 849,343.33 Losses from changes in fair value of other non-current financial assets (23,277,319.84) (13,017,332.26) Held-for-trading financial liabilities 3,738,240.76 (8,268,448.03) Including: gains (losses) on the changes in fair value of derivative financial instruments 3,738,240.76 (8,268,448.03) Total (9,549,529.40) (20,436,436.96) 158 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 51. Credit impairment loss Unit: RMB Items First half year of 2021 First half year of 2020 Credit impairment losses of accounts receivable (302,443,301.79) (124,133,185.36) Credit impairment reverses (losses) of other receivables 9,417,803.41 (10,010,654.15) Credit impairment losses of long-term receivables (18,879,962.41) (18,628,630.26) Total (311,905,460.79) (152,772,469.77) 52. Impairment losses of assets Unit: RMB Items First half year of 2021 First half year of 2020 Losses on inventory devaluation (252,600,965.37) (165,394,158.33) Contract assets impairment loss (5,736,007.01) - Total (258,336,972.38) (165,394,158.33) 53. Non-operating income Unit: RMB The amount booked into current Items First half year of 2021 First half year of 2020 period non-recurring profits and looses Fines and confiscations 37,237,863.29 21,590,256.57 37,237,863.29 Special subsidies 699,538.62 5,094,743.17 699,538.62 Others 4,065,318.99 5,036,207.34 4,065,318.99 Total 42,002,720.90 31,721,207.08 42,002,720.90 54. Non-operating expenses Unit: RMB The amount booked into current period Items First half year of 2021 First half year of 2020 non-recurring profits and looses Local water conservancy construction 532,409.04 572,889.30 - fund Others 18,322,927.68 6,805,876.26 18,322,927.68 Total 18,855,336.72 7,378,765.56 18,322,927.68 55. Income tax expenses Unit: RMB Items First half year of 2021 First half year of 2020 Income tax for the current reporting period 1,069,559,057.65 1,081,938,656.65 Deferred income tax expenses (67,498,385.47) (129,343,124.91) Differences in filing and payment of income tax in previous (574,530,306.92) (43,385.77) reporting years Total 427,530,365.26 952,552,145.97 159 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 56. Notes to consolidated cash flow statement items 56.1 Other cash receipts relating to operating activities Unit: RMB Items First half year of 2021 First half year of 2020 Interest income 411,998,029.35 306,973,066.18 Government subsidies 213,276,134.62 211,985,670.32 Others 485,251,347.13 188,964,355.88 Total 1,110,525,511.10 707,923,092.38 56.2 Other cash payments relating to operating activities Unit: RMB Item First half year of 2021 First half year of 2020 Advertising and Selling services 639,292,692.68 557,200,285.44 Office expenses and business expenses 451,237,280.55 370,845,812.71 Shipping and transportation expense 361,571,642.21 322,420,666.54 R&D expense 488,010,595.94 457,282,381.38 Travelling expense 177,869,752.82 141,639,591.57 Rental expense 47,709,562.38 101,520,803.75 Others 744,581,855.86 95,397,631.90 Total 2,910,273,382.44 2,046,307,173.29 56.3 Other cash receipts relating to investing activities Unit: RMB Item First half year of 2021 First half year of 2020 Receipts of financing lease payments 6,182,818.55 14,990,732.87 Total 6,182,818.55 14,990,732.87 56.4 Other cash payments relating to financing activities Unit: RMB Item First half year of 2021 First half year of 2020 The consideration paid for the acquisition of minority - 64,290,000.00 shareholders' equity Repurchase of restricted shares 122,644,057.28 - Repayment of lease liabilities 84,962,915.50 - Total 207,606,972.78 64,290,000.00 57. Supplementary information about cash flow statement 57.1 Supplementary information about cash flow statement Unit: RMB Supplementary information First half year of 2021 First half year of 2020 1. Reconciliation of net profit to cash flows from operating activities: Net profit 6,854,875,757.07 4,666,871,541.00 Add: Impairment of assets 258,336,972.38 165,394,158.33 Provision for credit losses 311,905,460.79 152,772,469.77 Fixed assets depreciation 360,317,976.59 367,971,970.82 Amortization of intangible assets 35,059,666.14 77,059,953.77 160 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Supplementary information First half year of 2021 First half year of 2020 Right-of-use assets depreciation 78,610,219.36 - Long-term deferred expenses amortization 26,104,715.70 19,788,072.87 Gains on disposal of fixed assets, intangible assets and other (3,760,896.87) (21,554.99) long-term assets Obsolescence losses of fixed assets, intangible assets and other 5,565,939.04 1,112,772.90 long-term assets Losses from changes in fair value 9,549,529.40 20,436,436.96 Financial expenses 144,968,551.48 64,849,445.01 Investment income (169,311,455.72) (150,219,709.56) Share-based payment based on equity settlement 134,108,630.01 481,168,915.75 Decrease of restricted funds 342,602,374.34 89,281,783.26 Increase in deferred income tax assets (64,690,864.83) (172,723,276.65) Increase (decrease) in deferred income tax liabilities (2,807,520.64) 43,380,151.74 Increase in inventories (3,866,832,886.98) (107,946,257.22) Increase in operating receivables (1,752,934,304.33) (355,309,356.48) Decrease in operating payables (738,665,021.37) (5,320,219,156.63) Increase (decrease) in deferred income (149,069.41) 26,317,979.92 Net cash flows from operating activities 1,962,853,772.15 69,966,340.57 2. Significant investing and financing activities not involving cash receipts and payments: 3. Net changes in cash and cash equivalents: Closing balance of cash 27,639,964,119.85 21,623,506,957.49 Less: Opening balance of cash 35,024,837,878.31 26,515,668,008.40 Add: Closing balance of cash equivalents - - Less: Opening balance of cash equivalents - - Net decrease in cash and cash equivalents (7,384,873,758.46) (4,892,161,050.91) 57.2 Constituents of cash and cash equivalents Unit: RMB Item Closing balance Opening balance Cash 27,639,964,119.85 35,024,837,878.31 Including: Cash on hand 750,011.48 1,105,047.51 Bank deposit for payment at any time 27,580,685,600.72 34,968,013,389.43 Other monetary capital for payment at any time 58,528,507.65 55,719,441.37 Cash equivalents - - Closing balance of cash and cash equivalents 27,639,964,119.85 35,024,837,878.31 Among the total balance of RMB 150,817,363.27 of the other monetary fund(s) at the end of the reporting period (December 31st 2020: RMB 490,610,671.33), RMB 92,288,855.62 are various guarantee deposits and other restricted funds, etc. (December 31st 2020: RMB 434,891,229.96), not cash and cash equivalents. 161 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 58. Assets with restriction in ownership or use rights Unit: RMB Book value at the end of the current Item Cause of restriction reporting period Monetary fund(s) 92,288,855.62 Various guarantee deposits and other restricted funds Notes receivable 610,856,089.84 Endorsed to suppliers Right-of-use assets 34,568,644.07 Sale and leaseback leased right-of-use assets Long-term receivables 1,812,883,463.06 Pledged for long-term borrowings Total 2,550,597,052.59 59. Monetary items of foreign currencies 59.1 foreign currencies Unit: RMB Balance in foreign currency at Exchange rate for Balance of RMB converted at Items the end of the reporting period conversion the end of the reporting period Monetary funds Including: USD 195,279,784.69 6.4601 1,261,526,937.09 EUR 134,796,197.72 7.6862 1,036,070,534.91 GBP 12,974,201.91 8.9410 116,002,339.32 JPY 563,961,856.34 0.0584 32,935,372.41 AED 18,367,690.42 1.7580 32,290,399.76 RUB 307,737,703.83 0.0888 27,327,108.10 HKD 27,233,714.97 0.8321 22,661,174.23 AUD 2,343,767.65 4.8528 11,373,835.67 PLN 6,125,795.54 1.7009 10,419,365.63 KRW 1,508,183,198.25 0.0057 8,596,644.23 SGD 1,448,679.42 4.8027 6,957,572.65 NZD 469,170.73 4.5153 2,118,446.58 ZAR 8,571.36 0.4501 3,857.97 TRY 358.98 0.7397 265.54 INR 1,701.73 0.0869 147.88 Accounts receivable Including: EUR 217,143,356.67 7.6862 1,669,007,268.00 USD 108,385,139.92 6.4601 700,178,842.37 HKD 37,214,645.30 0.8321 30,966,306.35 Short-term borrowings Including: EUR 8,217,927.84 7.6862 63,164,637.00 GBP 2,009,398.78 8.9410 17,966,034.49 Accounts payable Including: USD 253,958,760.31 6.4601 1,640,598,987.48 HKD 754,452,712.22 0.8321 627,780,101.84 EUR 2,039,154.77 7.6862 15,673,351.39 Long-term borrowings due within one year 162 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Balance in foreign currency at Exchange rate for Balance of RMB converted at Items the end of the reporting period conversion the end of the reporting period Including: EUR 402,397,777.78 7.6862 3,092,909,799.57 59.2 Details of Overseas Operational Entities Main overseas Recording Name of overseas subsidiaries operational Basis of selection Currency office Hongkong HDT International Ltd. HKD Selection based on local economic environment China Hikvision Europe BV Netherlands USD 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 Hongkong Hikvision International Co., Limited USD Selection based on local economic environment China 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 Turkey TRY Selection based on local economic environment Systems 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 Hikvision Mexico S.A.de C.V. Mexico MXN Selection based on local economic environment Hikvision Panama Commercial S.A. Panama USD Selection based on local economic environment Hikvision Pakistan (SMC-Private) Limited Pakistan PKR Selection based on local economic environment Hikvision Peru Closed Stock Company Peru PEN Selection based on local economic environment Hikvision Central America S.A. Panama USD Selection based on local economic environment 163 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Main overseas Recording Name of overseas subsidiaries operational Basis of selection Currency office Hikvision Technology Egypt JSC Egypt EGP Selection based on local economic environment PT. Hikvision Technology Indonesia Indonesia IDR Selection based on local economic environment Hikvision Technologies S.R.L., Romania RON Selection based on local economic environment Hikvision IOT (Thailand) Co.,Ltd. Thiland THB Selection based on local economic environment Hikvision West Africa Limited Nigeria NGN Selection based on local economic environment EZVIZ International Limited Honkong China HKD Selection based on local economic environment Hikvision Azerbaijan Limited Liability Azerbaijan AZN Selection based on local economic environment Hikvision Japan K.K. Japan JPY Selection based on local economic environment Hikvision Argentina S.R.L. Argentina ARS Selection based on local economic environment HIKVISION Morocco LLC Morocco MAD Selection based on local economic environment Hikvision Technology Israel Ltd Israel ILS Selection based on local economic environment EZVIZ Europe B.V. Netherlands EUR Selection based on local economic environment BK Grup UAB Lithuania EUR Selection based on local economic environment BK EESTI AKTSIASELTS Estonia EUR Selection based on local economic environment SIA "BK Latvia" Latvia EUR Selection based on local economic environment 60 Government Subsidies 60.1 Categories Unit: RMB Amount booked in Category Amount Financial Report Items current profit and loss VAT Rebate 852,085,468.02 Other Income 852,085,468.02 Special subsidies 404,155,122.31 Deferred income / Other income/ Non- Including: other special subsidies 327,319,986.87 178,518,188.59 operating income Chongqing Manufacture Park construction 76,835,135.44 Deferred income / Other income 34,907,015.44 subsidies Tax Reduction 11,236,158.59 Other income/ Non-operating income 11,236,158.59 Total 1,267,476,748.92 1,076,746,830.64 60.2 There was no refund of government subsidies during the current reporting period. 164 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 VI. Changes in consolidation scope 1. Disposal of a subsidiary 1.1 Loss of control of a subsidiary due to a single disposal of investment in the subsidiary Unit: RMB The difference between the The fair disposal price and Percentage Book value The method and The basis value of the disposal of of Re-measure the main assumptions Equity for the Equity investment remaining remaining gains or losses for determining Name of the disposal Point of loss determining remaining disposal corresponding to equity on equity on arising from the the fair value of subsidiary of control the point of equity on ratio(%) method the consolidated the date of the date of remaining equity at the remaining loss of the date of financial statement loss of loss of fair value equity on the date control loss of level of the control control of loss of control control subsidiary’s net asset share Hangzhou Releasing EZVIZ the Technology Transfer of 60.00 entrusted 2021/3/27 1,178,122.55 0.00 - - - - Co., Ltd. control management (EZVIZ agreement Technology) In March 2021, Hangzhou EZVIZ Network Co., Ltd. (EZVIZ Network), a subsidiary of the Company, and China Electronics Technology HIK Group Co., Ltd. (CETHIK), and Hangzhou EZVIZ Technology Co., Ltd. (EZVIZ Technology) signed the Entrusted Management Agreement Termination Agreement, all parties agreed that the Entrusted Management Agreement will be terminated on March 27th 2021. After the termination of the Entrusted Management Agreement, the Group no longer controls the business of EZVIZ Technology, so the business of EZVIZ Technology is no longer be included in the consolidation scope of the consolidated financial statements. Please refer to Note (VII), 1, (1) Note 4 for details. 165 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 EZVIZ Network's losses on disposal of EZVIZ Technology: Unit: RMB Amount Consideration received for disposal of the subsidiary (Note 1) 8,000,000.00 Less: net assets disposed 9,963,537.59 Net losses of the disposal (1,963,537.59) Cash and cash equivalents received from disposal of the subsidiary - Less: cash and cash equivalents held by the subsidiary 7,355,969.42 Net cash received from disposal of the subsidiary (7,355,969.42) Note 1: EZVIZ Networks uses debt clearance as the consideration for disposal, and the corresponding book value of long-term payables cleared is RMB 8,000,000. 2. Changes of consolidation scope due to other causes The subsidiaries newly established and incorporated in the consolidation scope during the current reporting period as follows: Ratio of Company Name Time of establishment Registered capital Amount of contribution of the Group contribution (%) Shanghe Smart City Technology Co., Ltd. ("Shanghe Smart April 2021 RMB 44.0571 mn RMB 41.8542 mn 95 City") (Note 1) Chongqing EZVIZ Electronics Co., Ltd. ("Chongqing June 2021 RMB 100 mn RMB 60.00 mn 60 EZVIZ) (Note 2) Note 1: At the end of the current reporting period, Shanghe Smart City’s paid-in capital was RMB 5,000,000.00, of which RMB 4,750,000.00 was paid up by the Group and RMB 250,000.00 was contributed by the minority shareholder, Shanghe Urban-Rural Integration Construction Co., Ltd. Note 2: At the end of the current period, Chongqing EZVIZ has not yet completed the paid-in capital, so there is no paid-in capital. The subsidiaries cancelled in the current reporting period and no longer included in the scope of consolidation are as follows: Company Name Date of equity disposition Proportion of shareholding (%) Hundure Technology (Shanghai) Co., Ltd. April 2021 100 166 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 VII. Interest in other entities 1. Equity in subsidiaries (1) Composition of the corporate group Location of Shareholding ratio (%) Acquisition Name Place of registration Nature of business operation Direct Indirect Method System integration, Technology 100.00 - Hangzhou Hikvision System Technology Co., Ltd. Hangzhou Hangzhou, Zhejiang Establishment development Hangzhou Hikvision Technology Co., Ltd. Hangzhou Hangzhou, Zhejiang manufacture 100.00 - Establishment Hangzhou Hikvision Security Equipment Leasing Services Co., 100.00 - Hangzhou Hangzhou, Zhejiang Finance lease Establishment Ltd. Chongqing Hikvision System Technology Co., Ltd. Chongqing Chongqing System integration 100.00 - Establishment Hikvision USA, Inc. USA Los Angeles Sales 100.00 - Establishment Hong Kong HDT International Ltd. Hong Kong China Sales 95.00 5.00 Establishment China Business combination Prama Hikvision Indian Private Limited India Mumbai Sales 58.00 - not involving enterprises under common control Hikvision Europe B.V. 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 Technology Co., Ltd. Chongqing Chongqing Manufacture 100.00 - Establishment Hangzhou Fuyang Hik Baotai Security Technology Services Co., 51.00 Hangzhou Hangzhou, Zhejiang Construction - Establishment Ltd. (Note 1) Hikvision South Africa (Pty) Co., 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 Segurana Brazil Brazil Sales 95.00 5.00 Establishment Ltda. Hikvision Australia PTY Co., Ltd. Australia Australia Sales 100.00 - Establishment Hong Kong Hong Kong Hikvision International Co., Limited Sales 100.00 - Establishment China China Hikvision France SAS France France Sales - 100.00 Establishment Hikvision Spain,S.L. Spain Spain Sales - 100.00 Establishment Shanghai Goldway Intelligent Transportation System Co., Ltd. Shanghai Shanghai Manufacture 100.00 - Business combination not involving enterprises 167 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Location of Shareholding ratio (%) Acquisition Name Place of registration Nature of business operation Direct Indirect Method under common control Business combination ZAO Hikvision Russia St. Peterburg Sales - 100.00 not involving enterprises under common control Business combination Henan Hua’an Baoquan Intelligent Zhengzhou Zhengzhou Henan Construction 93.86 - not involving enterprises Development Co., Ltd. under common control Business combination Henan Hua’an Security Services Co., Ltd. Zhengzhou Zhengzhou Henan Services - 84.47 not involving enterprises under common control Business combination Hundure Technology (Shanghai) Co., Ltd. (Note 2) Shanghai Shanghai Manufacture 100.00 - not involving enterprises under common control Hikvision UK Limited UK UK Sales - 100.00 Establishment Hikvision Poland Spolka Z Ograniczona Odpowiedzialnoscia Poland Poland Sales - 100.00 Establishment Hangzhou 71.30 - Hangzhou Hikvision Electronics Co., Ltd.(Note 3) Hangzhou Manufacture Establishment Zhejiang Cooperative Hikvision Europe U.A. Netherlands Netherlands Sales 99.00 1.00 Establishment Hikvision Canada Inc. Canada Canada Sales 100.00 - Establishment Hikvision LLC Moscow Moscow Sales 100.00 - Establishment Hikvision Korea Limited Korea Korea Sales 100.00 - Establishment Hangzhou 60.00 Hangzhou EZVIZ Network Co., Ltd. (Note 5) Hangzhou Technology development - Establishment Zhejiang EZVIZ Inc. USA Los Angeles Sales - 60.00 Establishment Business combination Hangzhou - Hangzhou Haikang Zhicheng Investment Development Ltd Hangzhou System integration 80.00 not involving enterprises Zhejiang under common control Hangzhou Hangzhou Hikrobot Technology Co., Ltd. Hangzhou Technology development 60.00 - Establishment Zhejiang Hangzhou 60.00 Hangzhou HikAuto Technology Co., Ltd. Hangzhou Technology development - Establishment Zhejiang Hangzhou 70.00 Hangzhou Hikvision Communication Technology Co., Ltd. Hangzhou Technology development - Establishment Zhejiang Hangzhou 60.00 Hangzhou Hikmicro Sensing Technology Co., Ltd. Hangzhou Technology development - Establishment Zhejiang Hikvision Turkey Technology And Security Systems Commerce Turkey Istanbul Sales 100.00 - Establishment Corporation 168 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Location of Shareholding ratio (%) Acquisition Name Place of registration Nature of business operation Direct Indirect Method Hikvision Colombia SAS Columbia Santa Fe Bogota Sales 100.00 - Establishment Hikvision Kazakhstan limited liability partnership Kazakhstan Astana Sales 100.00 - Establishment Business combination Secure Holding Limited British Sheffield Manufacture - 100.00 not involving enterprises under common control Business combination Pyronix Limited British Sheffield Manufacture - 100.00 not involving enterprises under common control Business combination Microwave Solutions Limited British Sheffield Manufacture - 100.00 not involving enterprises under common control Hikvision Hungary Limited Hungary Hungary Sales - 100.00 Establishment Hikvision New Zealand Limited New Zealand Auckland Sales - 100.00 Establishment Urumqi HaiShi Xin’An Electronic Technology Co., Ltd. Urumqi Urumqi, Xinjiang Construction - 90.00 Establishment Business combination Hangzhou Ximu Intelligent Technology Co., Ltd. Hangzhou Hangzhou, Zhejiang Manufacture - 60.00 involving enterprises under common control LLC Hikvision Tashkent Uzbekistan Tashkent Sales 100.00 - Establishment Hikvision Kenya (Pty) Ltd Kenya Kenya Sales - 100.00 Establishment Hangzhou HikAuto Software Co., Ltd. Hangzhou Hangzhou, Zhejiang Technology Development - 60.00 Establishment Hangzhou Hikrobot Intelligent Technology Co., Ltd. Hangzhou Hangzhou, Zhejiang Technology Development - 60.00 Establishment Wuhan Wuhan HikStorage Technology Co., Ltd. Wuhan Technology development 60.00 - Establishment Hubei Chengdu - Chengdu Hikvision Digital Technology Co., Ltd. Chengdu Technology development 100.00 Establishment Sichuan Hetian 85.00 MoYuHaiShi Electronic Technology Co., Ltd. Hetian Construction - Establishment Xinjiang Hangzhou 60.00 Hangzhou EZVIZ Software Co., Ltd. Hangzhou Technology development - Establishment Zhejiang Hetian 90.00 PiShan HaiShi YongAn Electronic Technology Co., Ltd. Hetian System integration - Establishment Xinjiang 169 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Location of Shareholding ratio (%) Acquisition Name Place of registration Nature of business operation Direct Indirect Method Zhengzhou Henan Haikang Hua’an BaoQuan Electronics Co., Ltd. Zhengzhou Construction 93.86 - Establishment Henan 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 Hikvision Xi’an Xueliang Construction Project Management Xi’an Xi’an Shanxi Construction - 99.00 Establishment Co., Ltd. Hetian Luo Pu District HaiShi Ding Xin Electronic Technology Co., Ltd. Hetian System integration - 90.00 Establishment Xinjiang Hetian Yu Tian HaiShi Mei Tian Electronic Technology Co., Ltd. Hetian System integration - 98.00 Establishment Xinjiang Xi’An Hikvision Digital Technology Co., Ltd. Xi’An Xi’an Shanxi Technology development 100.00 - Establishment Wuhan Hikvision Technology Co., Ltd. Wuhan Wuhan Hubei Technology development 100.00 - Establishment Wuhan Hikvision Science and Technology Co., Ltd. Wuhan Wuhan Hubei Sales 100.00 - Establishment Wuhan Hiksafety Technology Co., Ltd. Wuhan Wuhan Hubei Sales - 60.00 Establishment Hangzhou Hikimaging Technology Co., Ltd. Hangzhou Hangzhou, Zhejiang Technology development 60.00 - Establishment Hikvision Mexico S.A.de C.V. Mexico Mexico Sales - 100.00 Establishment Guizhou Hikvision Transportation Big Data Co., Ltd. Guiyang Guiyang, Guizhou Technology development 55.00 - Establishment Xinjiang CET Yihai Information Technology Co., Ltd. Urumqi Urumqi, Xinjiang System integration 60.00 - Establishment Hikvision Panama Commercial S.A Panama Panama Sales - 100.00 Establishment Hikvision Pakistan (SMC-Private) Limited Pakistan Pakistan Sales - 100.00 Establishment Hikvision Peru Closed Stock Company Peru Peru Sales 95.00 5.00 Establishment Hikvision Technology Israel Co., Ltd. Israel Israel Sales - 100.00 Establishment Nanjing Hikvision Digital Technology Co., Ltd. Nanjing Nanjing, Jiangsu Sales 100.00 - Establishment Shijiazhuang Shijiazhuang Hikvision Technology Co., Ltd. Shijiazhuang Technology development 100.00 - Establishment Hebei Zhengzhou Zhengzhou Hikvision Digital Technology Co., Ltd. Zhengzhou Sales 100.00 - Establishment Henan Hikvision Central America S.A. Panama Panama Sales - 100.00 Establishment Hikvision West Africa Limited Nigeria Nigeria Sales 94.00 6.00 Establishment Hikvision Technology Egypt JSC Egypt Egypt Sales - 100.00 Establishment 170 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Location of Shareholding ratio (%) Acquisition Name Place of registration Nature of business operation Direct Indirect Method Hangzhou Business merger under the Hangzhou EZVIZ Technology Co., Ltd. (Note 4) Hangzhou Sales - 60.00 Zhejiang common control Business merger not Hangzhou Hangzhou Kuangxin Technology Co., Ltd. Hangzhou Technology development 80.00 - involving enterprises under Zhejiang the common control Hikvision Digital Technology (Shanghai) Co., Ltd. Shanghai Shanghai Technology development, sales 100.00 - Establishment Nanchang Establishment Nanchang Hikvision Digital Technology Co., Ltd. Nanchang Technology development 100.00 - Jiangxi Jiangshan Establishment Zhejiang Hiksafety Technology Co., Ltd. Jiangshan Technology development - 60.00 Zhejiang Zhenping Establishment Zhenping County Haikang Juxin Digital Technology Co., Ltd. Zhenping System integration - 90.00 Henan Hefei Establishment Hefei Hikvision Digital Technology Co., Ltd. Hefei Technology development 100.00 - Anhui Tianjin Hikvision Information Technology Co., Ltd. Tianjin Tianjin Technology development 100.00 - Establishment Fuzhou Establishment Fuzhou Hikvision Digital Technology Co., Ltd. Fuzhou System integration 100.00 - Fujian Xuancheng Anhui Hikvision Urban Operation Service Co., Ltd. Xuancheng System integration - 100.00 Establishment Anhui Ningbo Establishment Ningbo Haikang Parking System Operation Co., Ltd. Ningbo Technology development 70.00 - Zhejiang Guangzhou Establishment Guangzhou Hikvision Technology Co., Ltd. Guangzhou Technology development 100.00 - Guangdong Hangzhou Establishment Hangzhou Hikfire Technology Co., Ltd. Hangzhou Technology development 60.00 - Zhejiang PT. Hikvision Technology Indonesia Indonesia Indonesia Sales - 100.00 Establishment Hongkong EZVIZ International Limited Hongkong Sales - 60.00 Establishment China Hikvision Technologies S.R.L., Romania Romania Sales - 100.00 Establishment Hikvision Azerbaijan Limited Liability Azerbaijan Azerbaijan Sales - 100.00 Establishment Hikvision IOT (Thailand) CO.,LTD. Thailand Thailand Sales - 100.00 Establishment Hikvision Japan K.K. Japan Japan Sales - 100.00 Establishment Hikvision Argentina S.R.L. Argentina Argentina Sales 95.00 5.00 Establishment Hangzhou Hangzhou HikStorage Technology Co., Ltd. Hangzhou Technology development - 60.00 Establishment Zhejiang 171 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Location of Shareholding ratio (%) Acquisition Name Place of registration Nature of business operation Direct Indirect Method Hangzhou Establishment Hangzhou Rayin Technology Co., Ltd. Hangzhou Technology development 60.00 - Zhejiang Kunming Establishment Kunming Hikvision Digital Technology Co., Ltd. Kunming Sales 100.00 - Yunnan Hangzhou Establishment Hangzhou Microimage Software Co., Ltd. Hangzhou Technology development - 60.00 Zhejiang Hangzhou Establishment Hangzhou Microimage Intelligent Technology Co., Ltd. Hangzhou Technology development - 60.00 Zhejiang Jinan Establishment Jinan Hikvision Digital Technology Co., Ltd. Jinan Sales 100.00 - Shandong Hikvision Morocco LLC Morocco Morocco Sales - 100.00 Establishment EZVIZ Europe B.V. Netherland Netherland Sales - 60.00 Establishment Business merger not BK Grup UAB Lithuania Lithuania Sales - 100.00 involving enterprises under the common control Business merger not BK EESTI AKTSIASELTS Estonia Estonia Sales - 100.00 involving enterprises under the common control Business merger not SIA “BK Latvia” Latvia Latvia Sales - 100.00 involving enterprises under the common control Shanghe Smart City Technology Co., Ltd. Ji’nan Ji’nan System integration - 95.00 Establishment Chongqing EZVIZ Electronics Co., Ltd. Chongqing Chongqing Manufacture - 60.00 Establishment Note 1: Fuyang Baotai is a subsidiary controlled by Hangzhou System, who holds 51% equity interests. According to the Articles of Association of the Company, Hangzhou System has a 50% dividend payout ratio in the said company (Fuyang Baotai). Note 2: Hundure Technology (Shanghai) Co., Ltd. has been cancelled by the Industry and Commerce in 2021. Note 3: The remaining 28.70% equity interests of Hangzhou Hikvision Electronics Co., Ltd. is held by China Development Bank Fund. Please refer to Note (V) 33 for details. Note 4: In April 2019, EZVIZ Network (a holding subsidiary of the Company) signed a entrusted management agreement with CETHIK and EZVIZ Technology. According to the agreement, CETHIK entrusted EZVIZ Network to exercise the actual operation and management rights of EZVIZ Technology and be fully responsible for the production, operation and management of EZVIZ Technology. EZVIZ Network shall not charge CETHIK a fixed fee for the entrusted management but shall be entitled to 100% of the distributable profit generated by EZVIZ Technology before and after the entrusted management; meanwhile, EZVIZ Network shall pay a capital possession fee to CETHIK based on the paid-in capital amount of 172 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 EZVIZ Technology and at a rate 1% above the interest rate for loans over five years announced by the People's Bank Of China. EZVIZ Network has the right to unilaterally decide to extend or early terminate the entrusted management relationship. Upon termination of the entrusted management, EZVIZ Network can only handle the matter in one of the following two ways (EZVIZ Network has the right to decide on the choice of these two ways): (I) EZVIZ Technology shall be liquidated, and CETHIK shall only be entitled to recover the actual capital contribution and the unpaid capital possession fee payable; (II) The equity of EZVIZ Technology shall be transferred from CETHIK to EZVIZ Network or any third party designated by EZVIZ Network, and the equity acquisition price shall be equal to the actual capital contribution and the unpaid capital possession fee payable. As a result, EZVIZ Network has achieved the control of EZVIZ Technology. As CETHIK is the controlling shareholder of both the Company and EZVIZ Technology, therefore, this entrusted management of EZVIZ Technology constitutes a business combination under the common control. In 2021, EZVIZ Network intends to terminate the entrusted management of EZVIZ Technology. In March 2021, EZVIZ Network signed the Termination Agreement of the Entrusted Management Agreement with HIKCET and EZVIZ Technology, agreeing that the Entrusted Management Agreement shall be terminated on March 27th 2021. After the termination of the Entrusted Management Agreement, EZVIZ Network will no longer exercise the actual operation and management rights over EZVIZ Technology, be responsible for the production, operation and management of EZVIZ Technology and enjoy other rights over EZVIZ Technology as agreed in the Entrusted Management Agreement. The Group ceased to control EZVIZ Technology with effect from March 27, 2021 and therefore ceased to include the operations of EZVIZ Technology in the scope of consolidation of the consolidated financial statements. Note 5: On June 23rd 2021, the Proposal on the Overall Restructuring of the the Company’s Holding Subsidiary Hangzhou EZVIZ Network Co., Ltd. as Limited Liability Company by Shares was deliberated and adopted by the 3rd Meeting of the Strategy Committee in 2021 of the fifth session of the Board of Directors of the Company. On June 24th 2021, EZVIZ Network as a whole was restructured and changed to a limited liability company by shares, and its name was changed to Hangzhou EZVIZ Networks Co., Ltd. 2. Equity in joint ventures or associates (1) Aggregated financial information of insignificant joint-ventures and associates Unit:RMB Closing balance / Amount for the first half of 2021 Opening balance / Amount for the first half of 2020 Associates: The aggregate carrying amount of investments in associates 207,964,545.17 193,646,038.77 The aggregate amount of the following items calculated based on the Company’s equity share percentage of the associates - Net income (loss) 14,318,506.40 (11,409,841.26) - Other comprehensive income - - --Total comprehensive income (loss) 14,318,506.40 (11,409,841.26) Joint Ventures: Total investment book value 653,242,057.95 670,380,671.46 The sum of the following items calculated according to the shareholding ratio 173 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Closing balance / Amount for the first half of 2021 Opening balance / Amount for the first half of 2020 - Net income (16,139,613.51) 2,467,123.57 - Other comprehensive income - - - Total comprehensive income (loss) (16,139,613.51) 2,467,123.57 The Group uses the equity method to account for the aforementioned associates and joint ventures. 174 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 VIII. Risks associated with financial instrument The Group's principal financial instruments include cash and bank balances, notes receivable, accounts receivable, receivables for financing, other receivables (except for tax refund receivable), other non-current financial assets, long- term receivables, borrowings, notes payable, accounts payable, other payables, part of the other current liabilities, lease liabilities, 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. 1. Classification of financial instruments Unit: RMB Ending balance of the current Ending balance of the prior year Items reporting period (on December 31st 2020) Financial assets: Measured at fair value through current profit and loss Held –for-trading financial assets 32,620,061.54 22,679,846.77 Other non-current financial assets 468,661,747.43 491,939,067.27 Measured at fair value through other comprehensive income Receivables for financing 1,120,170,492.09 1,959,601,195.25 Measured at amortized cost Cash and bank balances 27,732,252,975.47 35,459,729,108.27 Notes receivable 1,125,257,592.27 1,303,252,705.19 Accounts receivable 23,802,312,768.61 21,979,380,716.86 Other receivables (except for tax refund receivable) 802,510,353.72 451,428,906.05 Long-term receivables 1,914,155,006.05 2,105,570,004.53 Financial liabilities Measured at fair value through current profit and loss Held-for-trading financial liabilities 3,651,541.77 7,405,771.15 Measured at amortized cost Short-term borrowings 3,142,918,040.93 3,999,246,634.59 Notes payable 1,209,714,255.88 1,036,920,229.85 Accounts payable 12,448,273,747.80 13,593,884,790.19 Other payables 2,047,386,116.59 1,525,053,355.95 Non-current liabilities due within one year 3,520,220,816.79 3,507,680,339.78 Other current liabilities 511,594,361.52 560,959,368.73 Long-term borrowings 1,911,015,151.08 1,961,167,761.30 Lease liabilities 199,494,520.78 - Long-term payables 8,389,432.79 39,595,459.35 Other non-current liabilities 511,594,361.52 560,959,368.74 The Group 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. 175 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 2. 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. 2.1 Market risks 2.1.1 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, EUR, HKD and etc. The Group’s subsidiaries in the mainland of China whose procurement, sales and financing are denominated in RMB, USD, EUR, and HKD. 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 2021, except for monetary items of foreign currencies set out in Note (V) 59, 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, EUR and HKD (which has been converted into RMB) as follows may generate significant impact on the operating results of the Group. Unit: RMB Assets Liabilities Currencies Closing balance Opening balance Closing balance Opening balance USD 1,961,705,779.46 7,122,984,916.85 1,640,598,987.48 1,886,490,280.88 EUR 2,705,077,802.91 1,480,297,345.67 3,171,747,787.96 3,284,414,031.21 HKD 53,627,480.58 14,808,404.16 627,780,101.84 134,884,213.28 The Group has been paying close attention to the effect of fluctuation in exchange rate on the foreign exchange risks of the Group, and has purchased various financial derivative instruments, such as forward foreign exchange contracts and foreign exchange options and etc., 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 176 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 First half year of 2021 First half year of 2020 Change in foreign exchange rates Effect on shareholders’ Effect on Effect on profit Effect on profit equity shareholders’ equity 5% appreciation of USD against functional 16,055,339.60 16,055,339.60 360,638,240.99 360,638,240.99 currency 5% depreciation of USD against functional (16,055,339.60) (16,055,339.60) (360,638,240.99) (360,638,240.99) currency 5% appreciation of EUR against functional (23,333,499.25) (23,333,499.25) (119,861,226.89) (119,861,226.89) currency 5% depreciation of EUR against functional 23,333,499.25 23,333,499.25 119,861,226.89 119,861,226.89 currency 5% appreciation of HKD against functional (28,707,631.06) (28,707,631.06) (1,402,595.54) (1,402,595.54) currency 5% depreciation of HKD against functional 28,707,631.06 28,707,631.06 1,402,595.54 1,402,595.54 currency 2.1.2. Interest rate risk The risk of changes in cash flow of financial instruments due to changes in interest rates exposed to the Group are primarily related to bank borrowings bearing floating interest rate and bank deposits bearing floating interest rate. At the end of the current reporting period, the amount of borrowings of the Group bearing floating interest rate is not significant, and the risk of changes in cash flow of financial instruments due to changes in interest rates is expected to be insignificant. The Group expects that the risk exposure of cash flow generated from bank deposits bearing floating interest rate is insignificant. The Group determines the relative proportion of fixed interest rate contracts and floating interest rate contracts based on the prevailing market environment. The Group’s interest-bearing debts bearing floating interest rates were mainly RMB- denominated PPP pledged long-term borrowing contracts with an amount of RMB 1,498,890,006.05 (Note (V), 33) (December 31st 2020: RMB-denominated PPP pledged long-term borrowings with an amount of RMB 1,556,927,316.08 (Note (V), 33)). The headquarter finance department of the Group continuously monitors the level of interest rate of the Group. Rising interest rates will increase the cost of newly incurred interest-bearing debts and the Group’s interest expenses on outstanding interest-bearing debts with floating interest rates, and have a significant adverse impact on the financial performance of the Group. The management team would make adjustments on a timely basis based on the latest market conditions, including arrangements for interest rate swaps to reduce interest rate risk. The Group did not have any interest rate swap arrangement in the year of 2021 or 2020. 2.1.3. Other price risks The Group’s price risk mainly arises from investments in held-for-trading equity instruments and derivative financial instruments. Held-for-trading equity instrument investments are all investments in unlisted held-for-trading equity instruments. The Group is exposed to price risk due to the holding of financial assets measured at fair value. The fair value of certain financial instruments is determined by the general pricing model based on discounted future cash flow method or other valuation techniques, while the valuation techniques are based on certain valuation assumptions. Therefore, the valuation results are highly sensitive to valuation assumptions. However, at the end of the current reporting period, the amount of investment in held-for-trading equity instruments and derivative financial instruments is not significant, and the risk exposure due to changes in price of financial instruments as a result of change in valuation assumptions is low, accordingly, no sensitivity analysis is conducted. 2.2 Credit Risk As of June 30th 2021, the largest credit risk exposure that may result in financial losses of the Group is mainly due to the loss of the Group’s financial assets arising from the failure of the counterparty to perform its obligations, including: cash and bank balance (Note (V). 1), notes receivable (Note (V). 3), accounts receivable (Note (V). 4), receivables for financing 177 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 (Note (V). 5), other receivables (Note (V). 7), non-current assets due within one year (Note (V). 10), long-term receivables (Note (V). 12), etc., and derivative financial assets that are not included in the scope of impairment assessment and are measured at fair value through current profit or loss (Note (V). 2). As of the balance sheet date, the book value of the Group’s financial assets represents its maximum credit risk exposure. In order to reduce credit risk, the Group has formed a team to determine the credit limit, conduct credit approval, and implement other monitoring procedures to ensure that necessary measures are taken to recover over-due debt. In addition, the Group reviews the recovery of financial assets on each balance sheet date to ensure that sufficient credit loss provisions are made for relevant financial assets. Therefore, the management of the Group believes that the credit risk exposure of the Group has been reduced significantly. The credit risk on cash and bank balances of the Group is low as they are deposited with banks with high credit ratings. For accounts receivable, contract assets and long-term receivables, the Group has put in place relevant policies to control credit risk exposure. The Group assesses credit quality of customers and sets corresponding credit period based on the customer’s financial status, the possibility of obtaining guarantees from third parties, credit history and other factors such as current market conditions. The Group will regularly monitor the credit history of its customers. For customers with poor credit history, the Group takes various measures, such as written payment reminders, shorten or cancel the credit period, to ensure that the overall credit risk of the Group is maintained in a controllable range. For accounts receivable and contract assets, the Group uses a simplified method, that is, to measure the loss provision based on the amount equivalent to the expected credit loss for the entire duration. For details of the relevant expected credit loss measurement, see (Note (V). 4 & Note (V)-9). For long-term receivables, the Group calculates the expected credit losses based on the expected credit loss rate in the next 12 months or the entire duration based on the default risk exposure. For details of the related expected credit loss measurement, see (Note (V). 12). The Group’s notes receivable and receivables for financing are mainly bank acceptance notes and commercial acceptance notes with high credit ratings of the counterparties, which the Group does not consider to be subject to significant credit risk and will not incur any material loss due to default by the counterparties. For other receivables (except for tax refund receivable), the Group regularly monitors the debtor’s credit history. For debtors with poor credit history, the Group takes various measures such as written payment reminders to ensure that the Group’s overall credit risk is maintained in a controllable range. For other receivables (except for tax refund receivable), the Group calculates the expected credit loss based on the expected credit loss ratio in the next 12 months or the entire duration based on the default risk exposure. For details of the relevant expected credit loss measurement, see (Note (V). 7). The Group’s risk exposure is distributed among multiple contractors and multiple customers, so the Group has no significant credit concentration risk. 2.3. 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 Group 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 2021 Within one year 1-5 years More than five years Total Non-derivative financial liabilities Short-term borrowings 3,194,236,819.88 - - 3,194,236,819.88 Notes payable 1,209,714,255.88 - - 1,209,714,255.88 178 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 June 30th 2021 Within one year 1-5 years More than five years Total Accounts payable 12,448,273,747.80 - - 12,448,273,747.80 Other payables 2,047,386,116.59 - - 2,047,386,116.59 Other current liabilities 511,594,361.52 - - 511,594,361.52 Other non-current liabilities - 511,594,361.52 - 511,594,361.52 Long-term borrowings (including 3,428,730,462.73 1,142,161,021.50 1,191,123,170.53 5,762,014,654.76 those due within one year) Lease liabilities (including those 187,422,302.07 209,661,103.48 - 397,083,405.55 due within one year) Long-term payables (including 10,129,742.13 3,178,350.15 - 13,308,092.28 those due within one year) Derivative financial instruments Forward foreign exchange contracts- settled in the gross amount - Cash inflow 1,571,859,381.19 - - 1,571,859,381.19 - Cash outflow 1,546,891,010.77 - - 1,546,891,010.77 - Net cash outflow (24,968,370.42) - - (24,968,370.42) IX. Fair value disclosure 1. The financial assets and financial liabilities measured at fair value at the end of the reporting period Unit:RMB Closing fair value Items Level 1 Level 2 Level 3 Total I. Continuous fair value measurement - 1,149,139,011.86 468,661,747.43 1,617,800,759.29 (I) Financial assets measured at fair value through profit and loss 1. Held-for-trading Financial Assets - 32,620,061.54 - 32,620,061.54 -- Derivative financial assets - 32,620,061.54 - 32,620,061.54 2. Other non-current financial assets - - 468,661,747.43 468,661,747.43 (II) Receivables for financing - 1,120,170,492.09 - 1,120,170,492.09 Total assets measured continuously at fair value - 1,152,790,553.63 468,661,747.43 1,621,452,301.06 (III) Financial liabilities measured at fair value through profit and loss 1. Held-for-trading Financial Liabilities - 3,651,541.77 - 3,651,541.77 - Derivative financial liabilities - 3,651,541.77 - 3,651,541.77 Total liabilities measured continuously at fair value - 3,651,541.77 - 3,651,541.77 2. Information on the estimation technique and important parameters adopted as for continuous Level 2 fair value measurement items Unit: RMB Fair value at Estimation technique Inputs June 30th 2021 Forward exchange rate Forward Foreign Exchange 32,620,061.54 Discounted cash flow approach Discounted rate that reflects the credit risk of Contracts (Assets) counterparty Forward exchange rate Forward Foreign Exchange (3,651,541.77) Discounted cash flow approach Discounted rate that reflects the credit risk of Contracts (Liabilities) counterparty Discounted rate that reflects the credit risk of Receivables for financing 1,120,170,492.09 Discounted cash flow approach counterparty 179 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 3. The third level of fair value measurement item, the valuation techniques and important parameters used Unit: RMB Fair value at Items Valuation techniques Inputs June 30th 2021 Other non-current financial Comparable public companies’ PB (price/book assets-- Investment in equity Market approach 468,661,747.43 value) ratio within the same industry instruments of private /Income approach companies /Future cash flows, Discount rate 4. The third level of fair value measurement item, adjustment information between the opening and closing book value Unit: RMB Other non-current financial assets Amount Book value on January 1st 2021 491,939,067.27 Increase in the current reporting period - Decrease in the current reporting period - Changes in fair value booked into profit and loss during the current reporting (23,277,319.84) period Book value on June 30th 2021 468,661,747.43 The total amount included in profit or loss in the first half of 2021 includes unrealized losses of RMB 23,277,319.84 (June 30th 2020: RMB 13,017,332.26) related to financial assets measured at fair value at the end of the current reporting period, and such gains or losses are included in the gains or losses from changes in fair value; The realized gains of financial assets measured at fair value at the end of the current reporting period which were included in investment income was RMB 115,644,801.97 (June 30th 2020: RMB 150,000,000.00). 5. 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 6. Fair values of financial assets and financial liabilities that not measured at fair value The Group’s management team believes that financial assets and financial liabilities measured at amortized cost mainly include monetary fund, notes receivable, accounts receivable, other receivables (other than tax refund receivables), non- current assets due within one year, long-term receivables, short-term borrowings, notes payable, accounts payable, other payables, other current liabilities (other than Output VAT To-be-Transferred), non-current liabilities due within one year, long-term borrowings, lease liabilities, long-term payables and other non-current liabilities, etc., carrying value of which approximates to its fair value. X. Related party relationships and 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 38.91 38.91 Zhejiang investment (CETHIK) The ultimate controlling party of the Company is China Electronics Technology Group Co., Ltd. ("CETE"). 2. Information on the subsidiaries of the Company For details of the subsidiaries of the Company, see Note (VII). 180 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 3. Information on the joint ventures and associated companies of the Company For details of the associates and joint ventures of the Company, see Note (V) 13. Other joint ventures and associates that had related party transactions with the Group in the current reporting period, or in the prior periods and formed balances are as follows: Name of the associates or joint ventures Relationship with the Company Wuhu Sensor-Tech Intelligent Technology Co., Ltd. (Wuhu SensorTech) and its Associated company subsidiaries Maxio Technology (Hangzhou) Co., Ltd. and its subsidiaries (Maxio Technology) and Associated company its subsidiaries Zhiguang Hailian Big Data Technology Co., Ltd. (Zhiguang Hailian) and its subsidiaries Associated company Jiaxin Haishi JiaAn Zhicheng Technology Co., Ltd. (Haishi JiaAn) Associated company Qinghai Qingtang Big Data Co., Ltd. (Qingtang Big Data) Associated company Sanmenxia Xiaoyun Vision Technology Co., Ltd. (Xiaoyun Vision Technology) Associated company Daishan Hailai Yunzhi Technology Co., Ltd. (Daishan Hailai) Joint venture Guangxi Haishi City Operation Management Co., Ltd. (hereinafter referred to as Joint venture Guangxi Haishi) and its subsidiaries Shenzhen Hikvision City Service Operation Co., Ltd. (hereinafter referred to as Joint venture Shenzhen City Service) and its subsidiaries Xuzhou Kangbo City Operation Management Service Co., Ltd. (Xuzhou Kangbo) Joint venture Yunnan Yinghai Parking Service Co., Ltd. (Yunnan Yinghai) Joint venture Zhejiang City Digital Technology Co., Ltd. (Zhejiang City Digital Technology) Joint venture Zhejiang Haishi Huayue Digital Technology Co., Ltd. (Haishi Huayue) Joint venture 4. Information on other related parties Name Relationship Major shareholder of the company that holds more than 5% of Gong Hongjia the share of the Company Shanghai Fullhan Microelectronics Co., Ltd. (Shanghai Fullhan Micro) Gong Hongjia or his relative(s) serve(s) as the director(s) and its subsidiaries Shenzhen Wanyu Security Service Technology Co., Ltd. (Shenzhen The Group’s senior management serve(s) as director(s) of this Wanyu Security Service) and its subsidiaries company Confirmware Technology(Hangzhou) Co., Ltd. (Hangzhou The Group’s senior management serve(s) as director(s) of this Confirmware) company (Note 1) Under common control of the ultimate controlling party of the Subsidiaries of CETE (Note 2) Company Note 1: Due to the departure of the senior management of the Group in 2019, the prior year was one year after he/she left the position, therefore, Hangzhou Confirmware was still recognized as a related party of the Group in the prior year, and it was not recognized as a related party of the Group 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 occurred in the first Amount occurred in the first half Related party Transaction type half of 2021 of 2020 Purchase of materials and Subsidiaries of CETE 954,049,928.17 323,746,490.02 receiving of services Shanghai Fullhan Micro and its Purchase of materials and 435,028,505.73 118,628,840.93 subsidiaries receiving of services 181 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Amount occurred in the first Amount occurred in the first half Related party Transaction type half of 2021 of 2020 Purchase of materials and Maxio Technology and its subsidiaries 92,764,981.98 19,810,600.40 receiving of services Purchase of materials and Wuhu SensorTech 53,644,520.05 14,756,006.59 receiving of services Shenzhen City Service and its Purchase of materials and 31,026.60 - subsidiaries receiving of services Purchase of materials and Zhiguang Hailian and its subsidiaries - 135,782.26 receiving of services Total 1,535,518,962.53 477,077,720.20 Sales of commodities / rendering of services: Unit: RMB Amount occurred in the Amount occurred in the first Related party Transaction content first half of 2021 half of 2020 Sales of products and Subsidiaries of CETE 235,766,661.73 101,516,082.64 rendering of services Sales of products and Zhiguang Hailian and its subsidiaries 23,079,409.79 7,162,512.65 rendering of services Sales of products and Daishan Hailai 16,858,777.71 10,415,978.76 rendering of services Sales of products and Zhejiang City Digital Technology 12,768,503.75 - rendering of services Sales of products and Shenzhen City Service and its subsidiaries 10,977,086.27 - rendering of services Sales of products and Haishi JiaAn 8,098,509.33 7,210,092.95 rendering of services Sales of products and Haishi Huayue 7,571,255.78 654,410.58 rendering of services Sales of products and Qingtang Big Data 523,744.57 3,008.85 rendering of services Sales of products and Wuhu Sensor Tech and its subsidiaries 465,469.78 788,831.51 rendering of services Sales of products and Guangxi Haishi and its subsidiaries 347,360.64 - rendering of services Sales of products and Maxio Technology and its subsidiaries 108,371.68 106,463.72 rendering of services Sales of products and Xuzhou Kangbo 11,672.59 684,022.41 rendering of services Sales of products and Hangzhou Confirmware Not applicable 297,876.12 rendering of services Sales of products and Xiaoyun Vision Technology - 518,530.99 rendering of services Sales of products and Wanyu Security and its subsidiaries - 198,230.06 rendering of services Total 316,576,823.62 129,556,041.24 Statement of capital deposits: Unit: RMB Balance at the Amount occurred Content of related Amount occurred in end of the Related Party in the first half of Opening Balance party transaction the first half of 2021 current reporting 2020 period Subsidiaries of CETE Deposit into fixed - 4,000,000,000.00 - 4,000,000,000.00 (Note) deposits Total - 4,000,000,000.00 - 4,000,000,000.00 182 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Note: the fixed deposits that the Group deposited into China Electronic Technology Finance Co., Ltd. The above transactions are executed at market prices. (2) Guaranteed by the related party As required by the project owner, China Electronics Technology Group Co., Ltd. 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 the Group’s subsidiary Chongqing Hikvision System Technology Ltd. (Chongqing System) Meanwhile, the Company, Hikvision, provides a counter guarantee to China Electronics Technology Group Co., Ltd. (3) Other related party transactions Financial Leasing Pursuant to resolution of the Company’s 7th meeting of the fourth session of the Board of Directors held on December 3rd 2018, the Group’s subsidiary Hangzhou Hikmicro signed a financial leasing contract with a subordinate company of CETC, HikMicro will carry out sale and leaseback business of part of its self-owned equipment with the CETC’s subordinate company. The new financing amount in 2019 was RMB 70 million, with lease term of 48 months, and the annual lease rate is 3.8%. Entrusted management of the interest expenditure of borrowed funds On April 19th 2019, CETHIK signed an entrusted management agreement with the holding subsidiary of the Company, Hangzhou EZVIZ Network Ltd. (“EZVIZ Network”) to entrust EZVIZ Network to exercise the actual operating management right over Hangzhou EZVIZ Technology Ltd. (“EZVIZ Technology”), and be fully responsible for the production, operation and management of EZVIZ Technology, and EZVIZ Network shall not charge fixed entrusted management fees from CETHIK while EZVIZ Network is entitled to the 100% distributable profits generated by EZVIZ Technology prior to or after the entrusted management. At the same time, EZVIZ Network shall make a payment to CETHIK as occupying fund fees at the basis of paid-in capital of EZVIZ Technology of RMB 8,000,000.00 and at an interest rate up by 1% for loans over five years in the Central Bank. In 2021, EZVIZ Network intends to terminate the entrusted management of EZVIZ Technology. In March 2021, EZVIZ Network signed the Termination Agreement of the Entrusted Management Agreement with CETHK and EZVIZ Technology, agreeing that the Entrusted Management Agreement shall be terminated on March 27th 2021. After the termination of the Entrusted Management Agreement, EZVIZ Network will no longer exercise the actual operation and management rights over EZVIZ Technology, or be responsible for the production, operation and management of EZVIZ Technology, or enjoy other rights over EZVIZ Technology as agreed in the Entrusted Management Agreement. The Group ceased to control EZVIZ Technology since March 27th 2021 and therefore ceased to include the operations of EZVIZ Technology in the scope of consolidation of the consolidated financial statements. The interest expenses on the above-mentioned capital possession incurred in the current reporting period amounts to RMB 131,659.87. 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 Credit loss provision Carrying balance Credit loss provision Accounts Subsidiaries of CETE 807,312,606.88 282,285,697.99 694,163,118.90 108,859,842.53 receivable Accounts Haishi JiaAn 38,934,270.11 2,379,088.95 29,762,113.04 975,776.51 receivable Accounts Daishan Hailai 26,482,758.72 1,104,331.04 16,387,257.40 194,920.07 receivable Accounts Zhiguang Hailian and its 19,309,417.97 805,360.02 9,436,662.00 111,434.71 receivable subsidiaries Accounts Zhejiang City Digital 15,838,908.55 660,482.49 12,427,421.59 561,604.39 receivable Technology 183 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Closing balance Opening balance Item Related Party Carrying balance Credit loss provision Carrying balance Credit loss provision Accounts Xiaoyun Vision 9,437,647.51 2,332,836.52 10,929,211.22 412,855.37 receivable Technology Accounts Haishi Huayue 7,892,207.73 329,105.06 2,112,591.44 42,509.22 receivable Accounts Shenzhen City Service and 3,617,345.50 150,843.31 - - receivable its subsidiaries Accounts Qingtang Big Data 981,086.50 40,911.31 660,000.00 29,832.00 receivable Accounts Wuhu Sensor Tech and its 821,865.40 9,564.48 823,165.40 37,207.08 receivable subsidiaries Accounts Maxio Technology and its 25,553.08 1,065.56 45,667.50 538.88 receivable subsidiaries Accounts Xuzhou Kangbo - - 786,702.90 35,558.97 receivable Accounts Hangzhou Confirmware Not applicable Not applicable 83,150.00 981.17 receivable Total 930,653,667.95 290,099,286.73 777,617,061.39 111,263,060.90 Unit: RMB Closing balance Opening balance Item Related Party Carrying balance Credit loss provision Carrying balance Credit loss provision Notes Subsidiaries of CETE 59,647,280.05 - 78,876,284.35 - receivable (Note 1) Notes Zhiguang Hailian and its 5,300,000.00 - 1,120,000.00 - receivable subsidiaries (Note 2) Notes Zhejiang City Digital 3,744,385.00 - - - receivable Technology Notes Haishi JiaAn 700,000.00 - 9,147,466.00 - receivable Total 69,391,665.05 - 89,143,750.35 - Note 1: Among them, the RMB 4,728,475.25 (2020: RMB 4,000,000.00) notes receivable are the acceptance bills of which the drawer is the related party, and the former endorsers are unrelated third parties. Note 2: Among them, the RMB 5,300,000.00 (2020: nil) notes receivable are the acceptance bills of which the drawer is the related party, and the former endorsers are unrelated third parties. Unit: RMB Closing balance Opening balance Item Related Party Carrying balance Credit loss provision Carrying balance Credit loss provision Other Subsidiaries of CETE 407,459.00 12,987.04 132,459.00 1,563.02 receivables Other Shenzhen City Service 140,000.00 1,526.00 140,000.00 1,652.00 receivables and its subsidiaries Other Wuhu Sensor Tech and 55,150.31 620.02 - - receivables its subsidiaries Other Haishi Huayue - - 279,452.11 3,297.53 receivables Total 602,609.31 15,133.06 551,911.11 6,512.55 184 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Unit: RMB Closing balance Opening balance Item Related Party Carrying balance Credit loss provision Carrying balance Credit loss provision Long-term receivables Subsidiaries of CETE 72,400,514.95 2,957,165.61 73,512,305.64 2,015,923.07 (including those due within one year) Long-term receivables Yunnan Yinghai 21,682,324.62 243,674.77 21,444,096.16 253,040.33 (including those due within one year) Long-term Shenzhen City receivables Service and its 6,596,792.86 90,764.07 - - (including those due subsidiaries within one year) Long-term receivables Xuzhou Kangbo 1,541,554.20 16,901.90 1,581,135.63 29,277.25 (including those due within one year) Long-term Xiaoyun Vision 2,295.00 25.02 2,295.00 103.73 receivables Technology Total 102,223,481.63 3,308,531.37 96,539,832.43 2,298,344.38 Unit: RMB Item Related Party Closing balance Opening balance Carrying balance Credit loss provision Carrying balance Credit loss provision Prepayments Subsidiaries of CETE 9,445,570.82 - 4,339,675.60 - Wuhu Sensor Tech and Prepayments 677,070.05 - - - its subsidiaries Total 10,122,640.87 - 4,339,675.60 - (2) Payables to related parties Unit: RMB Item Related Party Closing balance Opening balance Accounts payable Subsidiaries of CETE 429,754,644.57 360,026,227.41 Shanghai Fullhan Micro and its Accounts payable 325,836,826.73 117,676,674.67 subsidiaries Maxio Technology and its Accounts payable 21,596,194.44 545,124.36 subsidiaries Accounts payable Wuhu Sensor Tech and its 2,526,478.80 6,286,164.42 subsidiaries Total 779,714,144.54 484,534,190.86 Unit: RMB Item Related Party Closing balance Opening balance Shanghai Fullhan Micro and its Notes Payable 25,421,749.08 3,648,820.00 subsidiaries Notes Payable Subsidiaries of CETE 6,421,083.48 17,301,547.82 Total 31,842,832.56 20,950,367.82 Unit: RMB Item Related Party Closing balance Opening balance Contract liabilities Subsidiaries of CETE 4,668,876.96 10,507,934.92 Maxio Technology and its Contract liabilities 872,640.00 - subsidiaries Contract liabilities Xuzhou kangbo 438,321.27 201,887.56 Contract liabilities Zhiguang Hailian and its 8,168.00 57,630.00 185 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Item Related Party Closing balance Opening balance subsidiaries Contract liabilities Daishan Hailai - 688.00 Total 5,988,006.23 10,768,140.48 Unit: RMB Item Related Party Closing balance Opening balance Other payables Subsidiaries of CETE 53,983,406.39 47,056,334.07 Other payables Shanghai Fullhan Micro and its 200,000.00 100,000.00 subsidiaries Wuhu Sensor Tech and its Other payables 52,040.00 - subsidiaries Other payables Zhejiang City Digital 10,000.00 - Technology Zhiguang Hailian and its Other payables 2,000.00 - subsidiaries Total 54,247,446.39 47,156,334.07 Unit: RMB Item Related Party Closing balance Opening balance Long-term payables (including Subsidiaries of CETE - 8,000,000.00 those due within one year) Total - 8,000,000.00 Unit: RMB Item Related Party Closing balance Opening balance Lease liabilities (including those Subsidiaries of CETE 32,031,556.07 41,213,376.81 due within one year) Total 32,031,556.07 41,213,376.81 XI. Share-based payments 1. Overview of share-based payments Restrictive Share Incentive Sheme 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 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. 186 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 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 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 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. As of December 31st 2020, all restricted shares awarded in 2016 have been closed. On December 20th 2018, authorized by the 2nd extraordinary general meeting of 2018 and reviewed by the board of directors, the Company granted 121,195,458 restricted shares to grantees at a grant price of RMB 16.98 per share (“2018 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 are not 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. The Company has completed the equity registration work in January 2019. The 2018 share incentive performance evaluation indicators were revised at the 2019 annual general meeting convened on May 15th 2020 by approval of the Proposal on Revision to the Company’s Performance Evaluation Indicators for the 2018 Restricted Share Incentive Scheme. The historical comparison value of the compounded operating income growth rate and the benchmark companies’ comparison value over the same period will be used as alternative evaluation indicators, that is, if either of the two indicators were satisfied, the Company’s performance evaluation indicator for the current unlocking period is considered to be satisfied. The particulars of the revision are set out as follows: the performance evaluation indicators set out in the Company’s 2018 Restricted Share Incentive Scheme (Revision to the Draft) that “the compounded operating income growth rate at the year before the time of unlocking is no less than 20% and no less than 75th percentiles level of growth rate of the benchmark companies at the same period as compared to those at the year before the time of grant” was revised to be that “the compounded operating income growth rate at the year before the time of unlocking is no less than 20% or no less than 75th percentiles level of growth rate of benchmark companies at the same period as compared to those at the year before the time of grant”. Unit: share 2016 Share Incentive Scheme First half year of 2021 2020 Total of equity instruments outstanding at the beginning of the reporting - 21,974,740 period Total of equity instruments granted during the current reporting period - - Total of equity instruments vested during the current reporting period - 21,204,645 Total of equity instruments forfeited during the current reporting period - 770,095 (Note) Total of equity instruments outstanding at the end of the reporting period - - 187 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 2016 Share Incentive Scheme First half year of 2021 2020 The exercise price (ex-rights) of the outstanding Share-based payments of the Company at the end of the reporting period and the remaining - - period of the contract Note: On December 25th 2020, pursuant to the revised Articles of Association and resolution of the 20th geneal meeting of 4th session of the Board, and approved by the second extraordinary general meeting of 2018, the Company repurchased and cancelled 770,095 granted and unvested restricted RMB treasury shares in cash. The Company has completed the registration procedures of equity changes as of June 30th 2021. Unit: share 2018 Share Incentive Scheme First half year of 2021 2020 Total of equity instruments outstanding at the beginning of the 68,762,683 121,195,458 reporting period Total of equity instruments granted (share dividend) during the current - - reporting period Total of equity instruments vested during the current reporting period - 45,591,794 Total of equity instruments forfeited during the current reporting - 6,840,981 period Total of equity instruments outstanding at the end of the reporting 68,762,683 68,762,683 period The exercise price (ex-rights) of the outstanding Share-based payments of the Company at the end of the reporting period and the remaining RMB 16.98/share & 30 months RMB 16.98/share & 36 months period of the contract Note: On December 25th 2020, authorized by the Company's second extraordinary shareholders' meeting in 2018 and according to the resolutions and the revised Articles of Association of the 20th meeting of the fourth board of directors, the Company repurchased and cancelled the granted and unvested 6,840,981 restricted RMB treasury shares in cash. The Company has completed the registration procedures of equity changes as of June 30th 2021. Share Incentive Scheme of Staff Co-Investment in Innovative Businesses On October 22nd 2015, Hikvision considered and approved Management Measures for Core Staff Co-Investment in Innovative Businesses (Draft) (hereafter referred to as “Management Measures”) at the 2nd extraordinary general meeting. On March 7th 2016, representative congress of labor union of Hikvision passed Implementation Provisions for Management Measures for Core Staff Investment in Innovative Businesses (hereafter referred to as “Provisions”), to initiate and implement the incentive mechanism of staff co-investment (hereafter referred to as “Staff Co-Investment Plan”) in innovative business subsidiaries. Staff who participate in the Staff Co-Investment Plan (hereafter referred to as “Co- Investment Staff”) signed an Entrusted Investment Agreement with the labor union committee of Hikvision (hereafter referred to as “Hikvision Labor Union”), to entrust Hikvision Labor Union to make investments. Hikvision Labor Union, as a principal, shall cooperate with a trust company, which shall be a limited partner (LP) of a partnership enterprise, to establish a trust plan, and to invest trust funds into innovative business subsidiaries. (Investment form described above is referred to as “Co-Investment Platform”). Staff Investment Plan is classified as plan A and plan B according to applicable grantees. Grantees of plan A are comprised of medium-and-senior level management personnel and core competent staff from Hikvision, its wholly-owned subsidiaries, and innovative business subsidiaries, and are able to invest in all innovative businesses. Grantees of plan B are comprised of core and full-time staff from innovative business subsidiaries, and could participate in investment on innovative business subsidiaries where they serve. The Co-Investment Platform will increase capitals annually, the corresponding increased equity of which will be distributed to core staff who meets investment conditions pursuant to particular rules. The lock-up period shall be five years after equity of Co-Investment Platform is held by the staff, which will be unlocked in one-off manner when due. Within the lock-up period, if the labor relationship between the grantees and the Company or its subsidiaries is released or terminated, equity of Co-Investment Platform held by the grantees shall be refunded and settled by the labor union at an agreed price pursuant to the Provisions. To adapt to the new changes brought by the proposed spin-off of a subsidiary, EZVIZ Network for its listing, from 188 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Hikvision, Co-Investment Staff and Hikvision Labor Union executed the Supplemental Agreement to the Entrusted Investment Agreement (hereafter referred to as “Supplemental Agreement”) in December 2020. On December 25th 2020, Hikvision convened the 20th meeting of the 4th session of the Board to consider and approve the Proposal on Revision to Management Measures for Core Staff Co-Investment in Innovative Businesses. The new version of Management Measures for Core Staff Co-Investment in Innovative Businesses (hereafter referred to as “Management Measures (New Version)”) has added the authentic right for equity shares of co-investment plan held by staff and equity shares of innovative business subsidiaries indirectly held by them, specified the processing measures of investment equity shares held by staff after they lose the qualification or are cancelled to be qualified for co-investment, and added the systems of management committee, and etc. On December 31st 2020, co-investment plan execution and management committee approved the Implementation Provisions for Management Measures for Core Staff Co-Investment in Innovative Businesses (hereafter referred to as “Provisions (New Version)”). Pursuant to the Management Measures (New Version) and Provisions (New Version), the Lock-up Period in respect of plan A’s equity shares with the authentic right shall last for a period of a full-five years during which the staff has served for the Company or its subsidiaries; the Lock-up Period in respect of plan B’s equity with the authentic right shall last for a period of a full-five years during which the staff has served for the corresponding innovative business subsidiary or its subsidiaries. The Co-Investment Platform grants Co-Investment Staff additional equity annually. The Group determines whether share- based payment shall be constituted based on the fair value of equity instruments newly obtained by the Group’s staff in Co-Investment Platform on each granting date. During the current reporting period, the Group recognized share-based payment of RMB 34,331,085.41 in aggregate based on the fair value of services obtained by the Group. 2. Information of the share-based payment through equity settlements Restrictive Share Incentive Sheme Unit: RMB 2016 Share Incentive Scheme 2018 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 vesting 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 equity settlement and further included in the 345,213,163.42 952,525,929.29 capital reserve Total amount of the expenses recognized according to share-based payment through equity settlement in the - 99,777,544.60 current reporting period Share Incentive Scheme of Staff Co-Investment in Innovative Businesses Unit:RMB Share Incentive Scheme of Staff Co-Investment in Innovative Businesses Evaluated and determined based on income method at the Method of determining the fair value of equity instruments at the grant date grant date Recognition basis of the number of the equity instruments qualified for Estimated and determined based on the performance result vesting conditions of each vesting period Accumulative amount of share-based payment through equity settlement and 141,218,467.27 further included in the capital reserve Total amount of the expenses recognized according to share-based payment 34,331,085.41 through equity settlement in the current reporting period Among total amount of the expenses recognized according to share-based payment through equity settlement during the current reporting period, amount of RMB 9,720,945.74 was due to share distributions to minority shareholders; As of June 189 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 30th 2021, accumulative amount of share-based payment through equity settlement of RMB 45,355,945.94 was included in the equity of minority shareholders. 3. There is no share-based payment through cash settlements 4. There is no termination of share-based payment or modification or termination of equity incentive plan for co- investment in innovative businesses during the current reporting period. 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 9,363,845 9,573,577 - Commitment on external investments 42,400 42,400 Total 9,406,245 9,615,977 (2) As of June 30th 2021, the Group has no other significant commitments need to be disclosed. 2. Contingencies The Group has no significant contingencies to be disclosed. XIII. Events after the balance sheet date 1. Significant unadjusted events As of the date of completion of this report, the Company has no events after the balance sheet date that need to be disclosed. XIV. Other significant events 1. 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 geographical area & non-current assets by geographical location Unit: RMB Item First half year of 2021 First half year of 2020 External revenue generated in domestic area 24,434,618,189.74 16,728,998,825.16 External revenue generated in overseas area 9,467,480,178.36 7,542,160,418.60 Total 33,902,098,368.10 24,271,159,243.76 Unit: RMB Item (Note) On June 30th 2021 On January 1st 2021 Non-current assets in domestic area 10,030,658,958.45 9,366,029,699.84 Non-current assets in overseas area 669,088,072.24 683,828,015.60 190 Hikvision 2021Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Total 10,699,747,030.69 10,049,857,715.44 Note: the non-current assets above did not include other non-current financial assets, long-term receivables, long-term equity investment, and deferred tax assets. 191 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 XV. Notes to major items of financial statements of the parent company 1. Accounts receivable 1.1 Disclosure by age Unit: RMB Closing Balance Aging Accounts receivable Credit loss provision Proportion (%) Within credit period 10,044,845,328.59 12,667,712.11 0.13 Within 1 year after exceeding credit period 13,440,134,969.21 80,836,756.57 0.60 1-2 years after exceeding credit period 476,157,367.58 93,789,656.21 19.70 2-3 years after exceeding credit period 193,983,415.33 79,184,030.14 40.82 3-4 years after exceeding credit period 63,882,997.89 44,622,937.33 69.85 Over 4 years after exceeding credit period 98,478,012.10 98,478,012.10 100.00 Subtotal 24,317,482,090.70 409,579,104.46 1.68 1.2 Classification and disclosure of by credit loss provision methods Unit: RMB Closing balance Opening balance Carrying balance Credit loss provision Book value Carrying balance Credit loss provision Book value Category Percentage Percentage Percentage Percentage Amount Amount Amount Amount Amount Amount (%) (%) (%) (%) Provision for credit loss on a - - - - - - - - - - single basis Provision for credit loss by 24,317,482,090.70 100.00 409,579,104.46 1.68 23,907,902,986.24 24,550,291,739.99 100.00 356,899,560.63 1.45 24,193,392,179.36 portfolios Total 24,317,482,090.70 100.00 409,579,104.46 1.68 23,907,902,986.24 24,550,291,739.99 100.00 356,899,560.63 1.45 24,193,392,179.36 192 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Accounts receivable provision for credit loss by portfolios Unit: RMB Closing balance Customer Carrying balance Credit loss provision Proportion (%) Subsidiaries’ customers 20,381,978,651.77 - - Portfolio A 2,853,418.50 269,130.60 9.43 Portfolio B 3,932,446,443.30 409,106,396.73 10.40 Portfolio C 203,577.13 203,577.13 100.00 Total 24,317,482,090.70 409,579,104.46 1.68 Description of accounts receivable for credit loss provision by portfolios As part of the Company's credit risk management, the Company uses the ageing of accounts receivable to assess the expected credit losses of accounts receivable formed by domestic and overseas sales businesses, and the risk characteristics are divided according to different business area and target into portfolio A, portfolio B and portfolio C. For the accounts receivable generated by the Group’s related parties, because the payment time is arranged by the Group according to the cash flow of the companies in the Group, the Company believes that the credit risk is low and no provision for credit loss is required. The aging information can reflect the solvency of these three types of customers when the accounts receivable are due. 1.3 Credit loss provision The provision for credit loss in the current reporting period is RMB 52,679,543.83. The actual write-off of accounts receivable for the current reporting period is nil. 193 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 1.4 Top five debtors based on corresponding closing balance of accounts receivable Unit: RMB Proportion (%) of the total balance of accounts receivable Name of the Party Relationship with the Company Book value balance of accounts receivable Closing balance for credit loss provision at the end of the current reporting period Subsidiary A Subsidiary 20,310,799,871.11 - 83.52 CETC’s subsidiary Related party 107,188,293.34 12,278,929.18 0.44 company A Third party J Third party 94,685,424.77 3,616,529.85 0.39 Third party C Third party 81,027,333.17 2,474,020.60 0.33 Third party K Third party 60,110,711.53 2,506,616.67 0.25 Total 20,653,811,633.92 20,876,096.30 84.93 1.5 As of June 30th 2021, there is no termination of accounts receivable booking due to transfer of a financial asset. 1.6 As of June 30th 2021, the Company has no assets/liabilities booked due to transferred accounts receivable that the Company still continue to be involved in. 2. Other receivables 2.1 By categories Unit:RMB Category Closing balance Opening Balance Dividends receivable 22,910,404.14 22,910,404.14 Other receivables 1,175,810,730.65 703,792,729.51 Total 1,198,721,134.79 726,703,133.65 2.2 Dividends receivable Unit:RMB Investees Closing balance Opening Balance Subsidiaries of CETE 22,910,404.14 22,910,404.14 Total 22,910,404.14 22,910,404.14 194 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 2.3 other receivables (1) Other receivables by aging Unit: RMB Closing Balance Item Other receivables Credit loss provision Proportion (%) Within contract period 1,155,646,315.54 1,161,268.09 0.10 Within 1 year 16,083,095.83 670,698.87 4.17 1-2 years 1,179,608.56 228,661.66 19.38 2-3 years 4,459,430.84 1,820,339.67 40.82 3-4 years 7,285,860.94 5,005,353.87 68.70 Over 4 years 3,965,059.03 3,922,317.93 98.92 Subtotal 1,188,619,370.74 12,808,640.09 1.08 (2) Other receivables by nature of the payment Unit: RMB Nature Closing balance Opening balance Payments by related parties within the Group 746,108,383.58 454,474,087.76 Temporary payments for receivables 378,394,848.41 219,103,746.42 Guarantee deposit 58,923,847.65 47,835,041.47 Others 5,192,291.10 3,797,396.93 Total 1,188,619,370.74 725,210,272.58 2.3 Provision for credit losses The amount of credit loss provision reversed in the current period was RMB 8,608,902.98. 2.4 The actual write-off of other receivables in the current reporting period was nil. 195 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 2.5 Top 5 debtors of other receivables in terms of closing balance Unit:RMB Relationship with the Company Percentage to total other Closing balance for credit The name of entity Nature Closing balance Aging receivables (%) loss provision Within contract Subsidiary B Subsidiary Internal Payment 317,627,502.35 26.72 - period Within contract Subsidiary C Subsidiary Internal Payment 78,815,021.00 6.63 - period Within contract Subsidiary D Subsidiary Internal Payment 50,142,126.67 4.22 - period Within contract Subsidiary E Subsidiary Internal Payment 45,372,931.99 3.82 - period Within contract Subsidiary F Subsidiary Internal Payment 44,491,239.07 3.74 - period Total 536,448,821.08 45.13 - 2.6 At the end of the current reporting period, the Company had no other receivables involving government subsidies. 2.7 At the end of the current reporting period, there were no other receivables derecognized due to the transfer of financial assets. 2.8 At the end of the current reporting period, there were no assets or liabilities formed by continuing involvement in transferred other receivables 196 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 3. Long-term equity investment Unit: RMB Closing Balance Opening Balance Item Carrying Balance Provisions Book Value Carrying Balance Provisions Book Value Investment in subsidiaries 6,110,445,091.30 - 6,110,445,091.30 5,912,831,208.01 - 5,912,831,208.01 Inestments in associated enterprises and 809,743,560.46 - 809,743,560.46 814,542,245.96 - 814,542,245.96 joint ventures Total 6,920,188,651.76 - 6,920,188,651.76 6,727,373,453.97 - 6,727,373,453.97 3.1 Investment in subsidiaries Unit:RMB Write-off of Blance of Increase during Decrease during impairment impairment loss the current Name of investee Opening balance the current Closing balance provision during the provision at the end reporting reporting period current reporting of the current period period reporting period Hangzhou Hikvision System Technology Co., Ltd. 848,272,492.62 8,641,258.60 - 856,913,751.22 - - Hangzhou Hikvision Security Equipment Leasing Services Co., 200,000,000.00 - - 200,000,000.00 - - Ltd. Shanghai Goldway Intelligent Transportation System Co., Ltd. 23,000,000.00 - - 23,000,000.00 - - Chongqing Hikvision System Technology Co., Ltd. 700,000,000.00 - - 700,000,000.00 - - Hundure Technology (Shanghai) Co., Ltd. 37,247,790.28 - 37,247,790.28 - - - Hangzhou EZVIZ Network Co., Ltd. 61,742,747.98 1,262,275.86 - 63,005,023.84 - - Hangzhou Haikang Zhicheng Investment and Development Co., 24,000,000.00 - - 24,000,000.00 - - 197 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Write-off of Blance of Increase during Decrease during impairment impairment loss the current Name of investee Opening balance the current Closing balance provision during the provision at the end reporting reporting period current reporting of the current period period reporting period Ltd. Hangzhou Hikrobot Technology Co., Ltd. 138,957,632.99 2,264,319.14 - 141,221,952.13 - - Hangzhou HikAuto Technology Co., Ltd. 186,488,555.60 525,422.22 - 187,013,977.82 - - Hangzhou Hikvision Communication Technology Co., Ltd. 7,000,000.00 - - 7,000,000.00 - - Hangzhou Hikmicro Sensing Technology Co., Ltd. 182,201,437.54 256,834.42 - 182,458,271.96 - - HDT International Ltd. 87,786.14 - - 87,786.14 - - Prama Hikvision Indian Private Limited 1,585,696.80 - - 1,585,696.80 - - Hikvision International Co., Limited 79,423.52 - - 79,423.52 - - Hikvision Australia Pty Ltd. 2,866,850.00 - - 2,866,850.00 - - Hikvision Singapore Pte. Ltd. 1,900,590.00 - - 1,900,590.00 - - Hikvision South Africa (Pty) Ltd. 1,578,650.00 - - 1,578,650.00 - - Hikvision Dubai FZE 1,870,351.40 - - 1,870,351.40 - - Hikvision Brazil Participacoes Ltda. 4,579,750.50 - - 4,579,750.50 - - Hikvision Limited Liability Company 647,249.19 - - 647,249.19 - - Coperatief Hikvision Europe U.A. 65,485.53 - - 65,485.53 - - Hikvision Korea Limited 1,535,850.00 - - 1,535,850.00 - - Hikvision Colombia SAS 1,337,440.00 - - 1,337,440.00 - - 198 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Write-off of Blance of Increase during Decrease during impairment impairment loss the current Name of investee Opening balance the current Closing balance provision during the provision at the end reporting reporting period current reporting of the current period period reporting period Hikvision Kazakhstan limited liability partnership 4,758.69 - - 4,758.69 - - Hikvision Turkey Technology And Security Systems Commerce 1,148,115.83 - - 1,148,115.83 - - Corporation Chongqing Hikvision Technology Co., Ltd. 102,318,598.74 270,503.22 - 102,589,101.96 - - Hikvision USA, Inc. 1,546,160.00 - - 1,546,160.00 - - Hikvision Canada, Inc. 994,442.54 - - 994,442.54 - - Henan Hua’An Bao Quan Intelligent Development Co., Ltd. 98,334,200.00 - - 98,334,200.00 - - Henan Haikang Hua’An Bao Quan Electronics Co., Ltd. 33,940,800.00 - - 33,940,800.00 - - Hangzhou Hikvision Technology Co., Ltd. 1,066,917,232.70 4,809,775.59 - 1,071,727,008.29 - - Hangzhou Hikvision Electronics Co., Ltd. 411,410,425.15 1,463,492.82 - 412,873,917.97 - - Wuhan HikStorage Technology Co., Ltd. 60,869,464.15 - - 60,869,464.15 - - Chengdu Hikvision Digital Technology Co., Ltd. 540,086,104.32 96,562.79 - 540,182,667.11 - - Hangzhou HikAuto Software Co., Ltd. 14,536,174.60 1,364,269.52 - 15,900,444.12 - - Hangzhou Haikang Intelligent Technology Co., Ltd. 8,689,143.96 1,061,396.50 - 9,750,540.46 - - Hangzhou EZVIZ Software Co., Ltd. 35,084,155.82 3,326,480.96 - 38,410,636.78 - - LLC Hikvision Tashkent 833,014.00 - - 833,014.00 - - Xi’An Hikvision Digital Technology Co., Ltd. 85,000,000.00 115,000,000.00 - 200,000,000.00 - - 199 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Write-off of Blance of Increase during Decrease during impairment impairment loss the current Name of investee Opening balance the current Closing balance provision during the provision at the end reporting reporting period current reporting of the current period period reporting period Wuhan Hikvision Technology Co., Ltd. 12,600,000.00 - - 12,600,000.00 - - Wuhan Hikvision Science and Technology Co., Ltd. 150,250,000.00 - - 150,250,000.00 - - Hangzhou Hikimaging Technology Co., Ltd. 50,948,433.82 343,984.00 - 51,292,417.82 - - Guizhou Haikang Transportation Big Data Co., Ltd. 22,000,000.00 - - 22,000,000.00 - - Xinjiang CET Yihai Information Technology Co., Ltd. 24,000,000.00 - - 24,000,000.00 - - Nanjing Hikvision Digital Technology Co., Ltd. 80,000,000.00 - - 80,000,000.00 - - Hangzhou Kuangxin Technology Co., Ltd. 112,000,000.00 - - 112,000,000.00 - - Zhengzhou Hikvision Digital Technology Co., Ltd. 65,000,000.00 15,000,000.00 - 80,000,000.00 - - Nanchang Hikvision Digital Technology Co., Ltd. 80,000,000.00 - - 80,000,000.00 - - Hikvision Digital Technology (Shanghai) Co., Ltd. 80,000,000.00 - - 80,000,000.00 - - Hefei Hikvision Digital Technology Co., Ltd. 35,000,000.00 - - 35,000,000.00 - - Tianjin Hikvision Information Technology Co., Ltd. 50,348,846.40 311,770.88 - 50,660,617.28 - - Ningbo Hikvision Parking System Operation Co., Ltd. 35,000,000.00 - - 35,000,000.00 - - Hikvision Peru Closed Stock Company 1,598,042.50 - - 1,598,042.50 - - Hangzhou HikStorage Technology Co., Ltd. 2,843,875.79 433,223.10 - 3,277,098.89 - - Shijiazhuang Hikvision Technology Co., Ltd. 45,000,000.00 5,404,525.03 - 50,404,525.03 - - Zhejiang Haikang Fire Protection and Control Co., Ltd. 84,004.82 36,218.00 - 120,222.82 - - 200 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Write-off of Blance of Increase during Decrease during impairment impairment loss the current Name of investee Opening balance the current Closing balance provision during the provision at the end reporting reporting period current reporting of the current period period reporting period Hikvision Argentina S.R.L 1,793,559.15 - - 1,793,559.15 - - Fuzhou Hikvision Digital Technology Co., Ltd. 50,814,676.49 242,991.50 - 51,057,667.99 - - Hangzhou Hikfire Technology Co., Ltd. 61,871,362.21 534,041.46 - 62,405,403.67 - - Hangzhou Rayin Technology Co., Ltd. 60,702,536.80 212,153.88 - 60,914,690.68 - - Hangzhou Microimage Software Co., Ltd. 2,090,633.38 930,785.30 - 3,021,418.68 - - Kunming Hikvision Digital Technology Co., Ltd. 126,666.06 50,107,696.34 - 50,234,362.40 - - Jinan Hikvision Digital Technology Co., Ltd. - 20,929,479.32 - 20,929,479.32 - - Hanghou Hikmicro Intelligent Technology Co., Ltd. - 32,213.12 - 32,213.12 - - Total 5,912,831,208.01 234,861,673.57 37,247,790.28 6,110,445,091.30 - - 201 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 3.2 Investments in associated enterprises and joint ventures Unit:RMB Increase/Decrease during the current reporting period Blance of impairment loss Investment Declared Other provision Name of Opening income (losses) cash Provision Closing Additional Reduced comprehensive at the end investee balance recognized dividends or for Others Balance Investments Investments income of the under the profit impairment adjustment current equity method distribution reporting period 1.Joint Ventures Haikang Intelligent 612,479,371.62 - - (12,551,789.97) - - - - 599,927,581.65 - Fund Daishan 15,253,091.76 - - 641,313.41 - (999,000.00) - - 14,895,405.17 - Hailai Haishi 9,985,577.32 - - 828,972.15 - - - - 10,814,549.47 - Huayue Xuzhou 4,631,286.58 - - (459,987.17) - - - - 4,171,299.41 - Kangbo Shenzhen 6,029,569.69 - - (2,392,706.11) - - - - 3,636,863.58 - City Service Yunnan 4,841,060.76 - - 8,854.38 - - - - 4,849,915.14 - Yinghai 202 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Increase/Decrease during the current reporting period Blance of impairment loss Investment Declared Other provision Name of Opening income (losses) cash Provision Closing Additional Reduced comprehensive at the end investee balance recognized dividends or for Others Balance Investments Investments income of the under the profit impairment adjustment current equity method distribution reporting period Zhejiang City Digital 11,864,018.37 - - (159,024.43) - - - - 11,704,993.94 - Technology Guangxi 5,296,695.36 - - (2,055,245.77) - - - - 3,241,449.59 - Haishi Subtotal 670,380,671.46 - - (16,139,613.51) - (999,000.00) - - 653,242,057.95 - 2.Associated Enterprises Wuhu Sensor 58,491,264.42 - - 5,507,128.76 - - - - 63,998,393.18 - Tech Maxio 54,621,802.54 - - 7,352,742.56 - - - - 61,974,545.10 - Technology Zhiguang 21,253,058.87 - - (540,524.81) - - - - 20,712,534.06 - Hailian Qingtang Big 9,795,448.67 - - 20,581.50 - - - - 9,816,030.17 - Data 203 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 Increase/Decrease during the current reporting period Blance of impairment loss Investment Declared Other provision Name of Opening income (losses) cash Provision Closing Additional Reduced comprehensive at the end investee balance recognized dividends or for Others Balance Investments Investments income of the under the profit impairment adjustment current equity method distribution reporting period Subtotal 144,161,574.50 - - 12,339,928.01 - - - - 156,501,502.51 - Total 814,542,245.96 - - (3,799,685.50) - (999,000.00) - - 809,743,560.46 - 3.3 As of June 30th 2021, there were no restrictions on the capability of transferring fund to the Company from investees in which the Company held long-term equity investment. 204 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 4. Operating income and operating cost Unit:RMB First half year of 2021 First half year of 2020 Item Income Cost Income Cost Operating income 11,407,122,363.03 2,425,620,927.40 10,618,881,901.13 2,861,919,283.95 Other operating 1,510,604,022.70 83,678,648.34 965,386,184.10 60,087,713.53 income Total 12,917,726,385.73 2,509,299,575.74 11,584,268,085.23 2,922,006,997.48 5. Investment income Unit:RMB Item First half year of 2021 First half year of 2020 Long-term equity investment income (losses) calculated by cost 3,500,000.00 (2,550,000.00) method Long-term equity investment losses measured by equity method (3,799,685.50) (3,628,950.89) Investment losses from disposal of asset group (3,387,647.37) - Investment income of other non-current financial assets during 115,644,801.97 150,000,000.00 the holding period Proceeds from the disposal of asset groups - 48,884,954.09 Total 111,957,469.10 192,706,003.20 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 (1,805,042.17) / The government subsidies included in the current profits and losses (excluding the government subsidy closely related to regular course of business of the Company and government 224,341,379.44 / subsidy based on standard quota or quantitative continuous enjoyment according to the state industrial policy) In addition to the Company's normal business related to the effective hedging business, gains and losses on changes in fair value arising from holding derivative financial assets, derivative 45,938,231.46 / financial liabilities, other non-current financial assets, and investment gains from the disposal of the above-mentioned financial assets/financial liabilities and receivables financing Other non-operating income and expense except the items 28,546,193.64 / mentioned above Impact of income tax (12,489,507.02) / The impact of minority equity (24,583,229.94) / Total 259,948,025.41 / 205 Hikvision 2021 Half Year Report Notes to Financial Statements For the reporting period from January 1st 2021 to June 30th 2021 2. Return on net assets and earnings per share The return on net assets and earnings per share have been prepared by Hangzhou Hikvision Digital Technology Co., Ltd. in accordance with the Information Disclosure and Presentation Rules for Companies Making Public Offering of Securities No. 9 – Calculation and Disclosure of Return on Net Assets and Earnings per Share (Revised in 2010) issued by China Securities Regulatory Commission. Unit:RMB Weighted Earnings per share Profit for the reporting period average return on Basic earnings per Diluted earnings per net assets (%) share share Net profit attributable to ordinary shareholders of the 0.695 0.695 11.62% Company Net profit excluding non-recurring items of profit or loss 11.15% 0.667 0.667 attributable to ordinary shareholders of the Company 206 Hikvision 2021 Half Year Report 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. 207 Hikvision 2021 Half Year Report Section XII Other Disclosure Information I. Other major social security issues Whether there is any other major social security issues for the listed compay and its subsidiaries □Yes √No □Not applicable Whether the company was administratively punished during the reporting period □Yes √No □Not applicable II. Reception of activities including research, communication and interviews during the report period √ Applicable □ Inapplicable The main content of the Time of Location of Type of reception Index of basic situation of Method of reception Reception object discussion and the reception reception object the research information provided CNINF, Investor December 22nd Headquarters Site Research and 106 investors including The Company's Institutional Relations Activity Record: 2020 to January meeting room of telephone China Asset Management- operating conditions investors From December 22rd 2020 11th 2021 the Company communication Zhang Fan, etc. and future prospects to January 11th 2021 The Company's CNINF, Investor January 12th Headquarters Site Research and 138 investors including Institutional operating conditions Relations Activity Record: 2021 to January meeting room of telephone Huachuang Securities- investors and future prospects From January 12th 2021 29th 2021 the Company communication Meng Can, etc. to January 29th 2021 CNINF, Investor February 1st Headquarters Site Research and 56 investors including The Company's Institutional Relations Activity Record: 2021 to March meeting room of telephone Haitong self-operated - operating conditions investors From February 1st 2021 2nd 2021 the Company communication Wang Jing, etc. and future prospects to March 2nd 2021 The Company's CNINF, Investor March 3rd 2021 Headquarters Site Research and 145 investors including Institutional operating conditions Relations Activity Record: to March 17th meeting room of telephone Orient Securities-Kuai investors and future prospects From March 3rd 2021 to 2021 the Company communication Jian, etc. March 17th 2021 Institutional The Company's Headquarters CNINF, Investor Performance result investors and 928 investors including E operating conditions in April 17th 2021 meeting room of Relations Activity Record: conference call individual Fund-Ni Chunyao etc. 2020 and the first the Company April 17th 2021 investors quarter of 2021 Headquarters Site Research and Institutional The Company's CNINF, Investor April 18th 2021 220 investors including meeting room of telephone investors operating conditions Relations Activity Record: to April 30th Ping An Fund-Zhu the Company communication and future prospects From April 18th 2021 to 2021 Chunyu etc. April 30th 2021 May 10th 2021 Headquarters Site Research and Institutional 95 investors including The Company's CNINF, Investor to May 21st meeting room of telephone investors Boshi Fund-Chen operating conditions Relations Activity Record: 208 Hikvision 2021 Half Year Report The main content of the Time of Location of Type of reception Index of basic situation of Method of reception Reception object discussion and the reception reception object the research information provided 2021 the Company communication Pengyang etc. and future prospects From May 10th 2021 to May 21st 2021 Headquarters Site Research and Institutional 79 investors including The Company's Investor Relations Activity th May 24 2021 meeting room of telephone investors Dongzheng Asset operating conditions Record: From May 24th June 11th 2021 the Company communication Management-Zhang and future prospects 2021 June 11th 2021 Mingyu etc. Headquarters Institutional 39 investors including The Company's June 15th 2021 Site Research and Investor Relations Activity meeting room of investors Shen Wan Hongyuan operating conditions to June 25th telephone Record: From June 15th the Company Asset Management-Qin and future prospects 2021 communication 2021 to June 25th 2021 Qing etc. III. Capital exchanges between the listed company and its controlling shareholders and their related parties □Applicable √Inapplicable Hangzhou Hikvision Digital Technology Co., Ltd. Chairman: Chen Zongnian July 24th 2021 209