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海康威视:2018年年度报告(英文版) 下载公告
公告日期:2019-04-25

Hangzhou Hikvision Digital Technology Co., Ltd.

2018 Annual Report

April 20

th

2019

To shareholders

Dear Shareholders,

In 2018, Hikvision realized total revenue of RMB 49.84 billion, with a year-over-year growthrate of 18.93 percent; and net profit attributable to the parent company of RMB 11.35 billion, anincrease of 20.64 percent year-over-year. The Company maintained solid growth.

Our business faced more challenges in 2018 than in any previous years. The Company wasmore cautious and conservative on sales strategy than any previous year and put more emphasis onshort-term risk management. However, the Company remains upbeat about growth in the domesticand overseas markets in the years ahead. We actively explored business development opportunitiesin both domestic and foreign markets, and continued to increase investment in product research anddevelopment (R&D) and marketing.

In 2018, the Company stepped up the development of its AI Cloud software platform andfacilitated the adoption of AI Cloud. In the era of AI, artificial intelligence is everywhere. We seeopportunities arising from demand for perceptual AI, and recognize the difficulties in meeting thefragmented demand for perceptual AI applications. The Company offers an AI open developmentplatform to its clients, allowing them to participate in AI applications with fragmented demands,and protecting their data at the same time. The gradual adoption of AI Cloud will help the Companypromote the development of intelligent Internet of Things (IoT), as well as help it advance theintegration of IoT with information networks and development of the Company’s big data business.

To better meet clients’ needs and enhance operating efficiency, the Company has restructuredits traditional security segments into public business group (PBG), enterprise business group (EBG),and small and medium enterprise business group (SMBG). The Company will adopt differentbusiness strategies for its various business groups and offer a variety of products and systemsolutions. Meanwhile, the development of our innovative businesses is in line with ourexpectations.

The external environment remains uncertain to some extent in 2019. However, regardless ofhow the external environment evolves, the Company will continue to make R&D investments to

ensure the competence of its products and system solutions, ramp up investments in customerservices to enhance customer satisfaction, optimize internal operations management to improveoperating efficiency, push forward with its globalization strategy, and step up investments in theinternational markets. We remain confident about our future.

The Company will address unconventional business challenges thoughtfully, while continuallyimproving and growing. With an open, transparent and sincere attitude, we are ready to respond touncertainties stemming from various challenges. We firmly believe that we can go further only byconstantly improving ourselves.

In closing, we would like to express our heartfelt gratitude to all shareholders for trusting,understanding and supporting the Company’s operation and management team.

See far, go further!

Board of Hangzhou Hikvision Digital Technology Co., Ltd.

April 2019

Section I Important Notes, Contents and Definitions

The Board of Directors, Board of Supervisors, directors, supervisors and senior managementof 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 forthe truthfulness, accuracy and completeness of its contents and free of any false records, misleadingstatements 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 theaccounting work, and Zhan Junhua, the person in charge of accounting department (accountingsupervisor) hereby declare and warrant that the financial statements in this report are authentic,accurate and complete.

The Company’s chairman Chen Zongnian, and director Gong Hongjia, Qu Liyang, HuYangzhong, Wu Weiqi, independent director Lu Jianzhong, Wang Zhidong attended the boardmeeting to review this report in person. Independent director Cheng Tianzong and Hong Tianfengwere unable to attend the board meeting in person due to personal reasons, and authorizedindependent director Wang Zhidong and Lu Jianzhong to attend and exercise the voting right ontheir behalf respectively.

The profit distribution proposal passed upon deliberation at the meeting of the Board ofDirectors is set out as follows: Based on the Company’s current total share capital of 9,348,465,931shares, the Company proposed to distribute cash dividend of RMB 6 (tax inclusive) per each 10shares to all shareholders, bonus share and share distribution from capital reserve is nil.

Note:

This document is a translated version of the Chinese version 2018 Annual Report (“2018年年度报告”), and the published announcements in the Chinese version shall prevail. The completepublished Chinese 2018 Annual Report may be obtained at www.cninfo.com.cn.

Please read the annual report and pay particular attention to the following risk factors:

1) Risk of technology upgrade: Technologies such as artificial intelligence, big data, cloud computing, and

edge computing are developing rapidly, and technology diffusion is faster. If the Company cannot follow thechanges in the cutting-edge technologies, or fail to realize the business innovation rapidly, the risks of futuredevelopment uncertainties will increase.

2) Domestic macro-economy fluctuation risk: The Company's domestic business is closely related to the

investment needs of the government, enterprises and institutions. The Company adjusts its business strategyin response to the changing domestic demands. If the domestic macro-economy continues to decline, theindustry demand will shrink. The Company's development will face great pressure; and difficulties and risksin business operation will increase.

3) Trade protectionism risks in developed countries: The trend of unilateralism and trade protection in some

of the countries is obviously rising. If the trend of reverse globalization is aggravated, it will affect theCompany's business expansion and brand upgrading in overseas developed markets.4) Risk of global market expansion: The Company’s business covers more than 150 countries and regions

worldwide. If various situations such as foreign exchange rate fluctuation, debt problem, declining purchasingpower, or political conflict occur in the country where our business is carried out, there might be adverseimpact on the Company’s business development.5) Risk of internal management: The continual expansion of business scale, the continuous increase of new

products and new businesses, the sustained growth in total number of employees and the significant rise ofinternal management complexity have posed challenges to the Company’s management work and raisedhigher requirements on the Company's management team. The Company’s sustainable development will facecertain risks if the management level fails to match up with the Company’s business expansion.

6) Legal compliance risk: The world's multilateral trading system is facing an impact. The local laws and

regulations that business activities need to comply with are more complicated. The regulation of dataworldwide is becoming stricter, and the compliance review of business is becoming more important. If theCompany's legal compliance ability cannot keep up with the situation, it will bring risks to the Company'soperations.

7) Risk of cybersecurity: The Company has always attached importance and taken active measures to enhance

cybersecurity performance of our products and systems, However, with any Internet-connected device, thereis still a possibility of deliberate attempts,including computer viruses, malicious software, hacker and similardisruptions to damage our systems or products, causing the cybersecurity issues.

8) Risk of exchange rate fluctuation: The Company carries out operations in various countries and regions

with different currencies. The risk of exchange rate mainly comes from foreign exchange exposures arisingout of sales, purchase and financing that not settled in RMB (mainly in USD) as well as the exchange ratefluctuations, which may probably affect the profitability level of the Company.9) Risk of intellectual property (IP) rights: The Company continues to maintain the relative large scale of

R&D investment, and produces considerable technical achievements, and at the same time, implementswell-organized intellectual property right (IPR) protection measures. However, the risk of intellectualproperty 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 the potentialinvestment risks

CONTENTS

To shareholders ...... 1

Section I Important Notes, Contents and Definitions ...... 3

Section II Corporate Profile & Key Financial Data ...... 9

Section III Corporate Business Summary ...... 14

Section IV Operation Discussion and Analysis ...... 58

Section V Significant Events ...... 81

Section VI Changes in Shares and Information about Shareholders ...... 103

Section VII Information of Preferred Shares ...... 114

Section VIII Information about Directors, Supervisors, Senior Management ...... 115

Section IX Corporate Governance ...... 136

Section X Corporate Bonds ...... 148

Section XI Financial Report ...... 149

Section XII Documents Available for Reference ...... 274

Definitions

TermDefinition
Reporting PeriodFrom January 1st 2018 to December 31st 2018
Articles of AssociationsArticles of Associations for Hangzhou Hikvision Digital Technology Co., Ltd
Hikvision, our Company, the CompanyHangzhou Hikvision Digital Technology Co., Ltd
CETHIKCETHIK Group Co., Ltd. Controlling Shareholder of the Company
Innovative Co-investment PartnershipHangzhou Hikvision Equity Investment Partnership (Limited Partnership)
EZVIZ, EZVIZ Network Inc.Hangzhou EZVIZ Network Ltd. (According to the context, also refers to the corresponding business)
Hikvision RoboticsHangzhou Hikvision Robtics Technology Ltd. (According to the context, also refers to the corresponding business)
Hikvision Automotive Technology, Hikvision Automotive ElectronicsHangzhou Hikvision Automotive Electronics Ltd. (According to the context, also refers to the corresponding business)
Hikvision WeiyingHangzhou Hikvision Weiying Sensor Technology Ltd. (According to the context, also refers to the corresponding business)
Hikvision Storage; Hikvision Smart StorageWuhan HIK Storage Technology Ltd. (According to the context, also refers to the corresponding business)
Hikvision HuiyingHangzhou HIK Huiying Technology Ltd. (According to the context, also refers to the corresponding business)
Security Industrial Base (Tonglu)Located in Tonglu economic development area, Hangzhou, Zhejiang province, purposes for production factories, warehousing logistics center. Initially disclosed in Announcement about the Company’s Investment in Tonglu to Set up Wholly Owned Subsidiary and New Hikvision Security Industry Base (Tonglu) Project(《关于在桐庐投资设立全资子公司及新建海康威视安防产业基地(桐庐)项目的公告》) (NO. 2014-044).
Internet Security Industry BaseLocated in Binjiang district, Hangzhou, Zhejiang province, purposes for the office building. Initially disclosed in Announcement about the Company’s New Construction of Internet Security Industry Base Project (《关于新建海康威视互联网安防产业基地项目的公告》)(NO. 2014-035).
Chongqing Manufacture BaseLocated in Chongqing, purposes for manufacturing facility, initially disclosed in Announcement about Resolution of the 20th Meeting of the 3rd Session Board(No:2016-068)
Innovative BusinessA long investment cycle, business prospects uncertain, has the high risk and uncertainty, in need for direct or indirect investment in exploration, in order for the Company to timely enter into new areas of business. Initially disclosed in Announcement about Management Measures for Core Staff Investment in Innovative Business (《核心员工跟投创新业务管理办法》) (www.cninfo.com.cn). In this report, innovative business also refers to EZVIZ, Hikvision Robtics, Hikvision
Automotive Electronics, Hikvision Weiying, Hikvision Storage, Hikvision Huiying and their related business or products.
Euro BondThe Company publicly issued the bond with nominal value amounting to Euro 400 million; and the bond was settled, listed and traded on the Irish Stock Exchange on February 18th 2016. For details, please refer to Announcement about Issuing Foreign Currency Bond (《关于境外发行外币债券的进展公告》) (NO. 2016-004)

Section II Corporate Profile & Key Financial Data

I. Corporate Information

Stock abbreviationHIKVISIONStock code002415
Stock exchange where the shares of the Company are listedShenzhen Stock Exchange
Name of the Company in Chinese (if any)杭州海康威视数字技术股份有限公司
Abbr. of the Company name in Chinese海康威视
Name of the Company in English (if any)HANGZHOU HIKVISION DIGITAL TECHNOLOGY CO., LTD
Abbr. of the Company name in English (if any)HIKVISION
Legal representativeChen Zongnian
Registered addressNo. 555 Qianmo Road, Binjiang District, Hangzhou
Postal code of Registered address310051
Business addressNo. 518 WuLianWang Street, Binjiang District, Hangzhou
Postal code of Business address310051
Company websitewww.hikvision.com
E-mailmarket@hikvision.com; ir@hikvision.com

II. Contacts and contact information

Board SecretarySecurities Affairs Representative
NameHuang Fanghong
AddressNo. 518 WuLianWang Street, Binjiang District, Hangzhou
Tel.0571-88075998; 0571-89710492
Fax0571-89986895
E-mailhikvision@hikvision.com

III. Information disclosure and place of the report

Newspaper designated by the Company for information disclosureSecurities Times, Shanghai Securities Journal
Website specified by CSRC for release of the Annual Reportwww.cninfo.com.cn
Place where the Annual Report is available for inspectionOffice of the Board of Directors of the Company

IV. Company Registration and Alteration

Organization code91330000733796106P
Changes in principle business activities since the Company was listed (if any)During the reporting period, the Company operating range newly added fire control products. After the change, the Company's business scope is: research and development (R&D) and production of electronic products (including explosion-proof electrical products, communication equipment and related ancillary equipment, multimedia equipment), fire control products, aircrafts, robots, intelligent equipment, auto parts and accessories, automotive electrical signal equipment; Sales of self-produced products; provide technical services, electronic technology consulting service, training service (excluding the organizational training), electronic equipment installation; electrical engineering, design, construction and maintenance of intelligent system projects. (except country prohibited and restricted items, relating to the specific mandatory license certificate) (subject to ratification in accordance with the project, approved by the relevant departments to operate)
Changes of controlling shareholders of the Company (if any)No change during the reporting period

V. Other Relevant Information

Accounting firm engaged by the Company

Name of the accounting firmDeloitte Touche Tohmatsu Certified Public Accountants LLP
Business address of the accounting firm30F Bund Center 222 Yan An Road East Shanghai
Name of accountants for writing signatureMou Zhenfei, Zhang Shushu

Sponsor institution engaged by the Company to continuously perform its supervisory function during theReporting Period□ Applicable √ InapplicableFinancial advisor engaged by the Company to perform the duties of continuous supervision during the reportingperiod□ Applicable √ Inapplicable

VI. Key accounting data and Financial IndicatorsWhether the Company performed a retroactive adjustment or restatement of previous accounting data□Yes √No

Unit: RMB

20182017YoY Change (%)2016
Operating income (RMB)49,837,132,481.6141,905,476,572.0718.93%31,934,544,088.82
Net profits attributable to shareholders of the Company (RMB)11,352,869,241.329,410,855,084.8220.64%7,423,683,960.91
Net profits attributable to shareholders of the Company excluding non-recurring gains and losses (RMB)10,983,228,170.609,177,116,964.0619.68%7,270,742,762.47
Net cash flows from operating activities (RMB)9,114,013,286.067,373,160,250.6823.61%6,216,364,642.05
Basic earnings per share (RMB/share)1.2401.03020.39%0.818
Diluted earnings per share (RMB/share)1.2341.02420.51%0.817
Weighted average ROE33.99%34.96%-0.97%34.58%
At December 31st 2018At December 31st 2017YoY Change (%)At December 31st 2016
Total assets (RMB)63,484,352,233.4251,570,963,466.6123.10%41,348,428,750.40
Net assets attributable to shareholders of the Company (RMB)37,590,154,638.4630,358,072,874.2223.82%24,285,707,211.82

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 (share)9,348,465,931
Fully diluted earnings per share (RMB/share) calculated with the latest share capital1.214

Whether there is a corporate bond:

□ Yes √ NoWhether the Company has continuous losses in the last two years□ Yes √ No □ Not applicable

VII. 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 InternationalFinancial 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 InternationalFinancial 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 OverseasAccounting 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 OverseasAccounting 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

VIII. Key Quarterly Financial Indicators

Unit:RMB

Whether there is significant difference between the above individual or aggregate financial indicators and that ofwhat disclosed in the quarterly report, half-year report□ Yes √ No

1st Quarter2nd Quarter3rd Quarter4th Quarter
Operating income9,364,828,201.0011,510,930,023.6312,926,932,976.4816,034,441,280.50
Net profit attributable to shareholders of the Company1,815,964,569.772,331,430,966.093,248,407,615.143,957,066,090.32
Net profit attributable to shareholders of the Company excluding non-recurring gains and losses1,808,323,790.712,200,947,170.543,142,725,705.563,831,231,503.79
Net cash flows from operating activities-3,856,064,680.532,234,871,322.534,267,464,655.506,467,741,988.56

IX. Items and Amounts of Non-recurring Gains and Losses

√ Applicable □ Inapplicable

Unit:RMB

Item201820172016
Profit or loss from disposal of non-current assets (including the write-off for the impairment provision of assets)4,975,825.831,585,222.50-736,149.02
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 subsidy based on standard quota or quantitative continuous application according to the state industrial policy.)319,304,315.50184,557,043.27171,321,088.31
Net gains and losses from beginning of the reporting period to the merge date for the subsidiary merged involving enterprises under common control--42,070.903,949,938.20
Profits and losses attributed to change in fair value for held-for-trading financial assets and held-for-trading financial liabilities, and investment income from disposal of held-for-trading financial assets, held-for-trading financial liabilities and available-for-sale financial assets, excluding the effective hedging business related to the regular business operation of the Company.62,153,461.8286,740,196.23321,708.86
Other non-operating income and expenditures except the items mentioned above94,651,413.7830,044,820.5218,276,871.37
Less: Impact of income tax84,510,487.8550,405,620.4436,000,258.26
The impact of the minority interests (after tax)26,933,458.3618,741,470.424,192,001.02
Total369,641,070.72233,738,120.76152,941,198.44

Explain the reasons if the Company classifies an item as a non-recurring gain/loss according to the definition in the<Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to thePublic—Non-recurring Gains and Losses>, or classifies any non-recurring gain/loss item mentioned in theaforementioned note as a recurrent gain/loss item□ Applicable √ InapplicableIn the reporting period, the Company did not classify an item as a non-recurring gain/loss according to the definition inthe <Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to thePublic—Non-recurring Gains and Losses> into a recurrent gain/loss item

Section III Corporate Business Summary

I. The principal business of the Company during the reporting period

1. Main Business and industry position

Hikvision is a provider of video-centered intelligent IoT (Internet of Things) solution and big data services.Global research firm IHS Markit has ranked Hikvision as global No. 1 in the video surveillance industry for sevenconsecutive years, with 22.6 percent

of the global video surveillance market share. In the "A&S Security 50" listpublished by A&S Security Automation, Hikvision has been ranked No.1 in the world for three consecutive years.

In 2016, Hikvision integrated deep learning algorithm into products, and launched a full range of deeplearning and intelligent product families that integrate intelligent analysis capabilities throughout the entireprocess from information gathering to storage application. In 2017, Hikvision led the intelligent application trendbased on the fusion of cloud and edge computing architectures, innovatively launching the three-tier AI Cloudarchitecture of edge node, edge domain and cloud center, and vigorously promoting the development andapplication of AI (artificial intelligence) in the IoT field. In 2018, based on the fusion of cloud and edgecomputing architectures, Hikvision deepened and integrated the AI Cloud product line with "Two Pools, OneLibrary and Four Platforms"

and proposed the AI Cloud data architecture with the fusion of IoT and InformationNetworks. During the implementation of the business, the Company focused on solving the scenario-based andfragmented AI application and the difficulties in the implementation of user needs, unified the softwarearchitecture internally and promoted the open integration strategy externally, and changed and restructured theinternal organizational structure to match the business changes. Hikvision has laid a solid foundation for thearrival of the intelligent era.2. Technology Accumulation and Innovation

2.1 Technical Architecture Overview

The interconnection of all things is the cradle of the concept of the Internet of Things, which depicts a

Based on the global video surveillance market report published by IHS Markit in June 2018, with the 2017 data as the statistical basis.

Refers to “Computing Resource Pool, Data Resource Pool, Algorithm Warehouse, Data Resource Platform, Intelligent ApplicationPlatform, Resource Scheduling Platform, Operation and Service Platform.

broader scene for human beings after the Internet era. However, how to make objects see, listen, read and writelike humans? How to make objects respond intellectually? And how to make the interconnection between thingsintegrate into human beings’ production and living environment to truly form a meridian system? The applicationof deep learning drives the combination of artificial intelligence and the perceptual information of objects such asvideo, audio and text, and gives objects intelligence, making it possible for the objects to respond intellectually.When intelligent objects are interconnected into a network, the intelligent Internet of Things is created. At present,the scale and scope of intelligent IoT is expanding, no longer limited to homes, production lines, buildings, etc.The intelligent IoT is a new infrastructure of the intelligence era.

From the perspective of computing, computing architecture with the fusion of cloud and edge is required inthe intelligent era. The fusion of cloud and edge computing is a computing architecture that conforms tointelligent IoT applications and is the allocation method of computing resources that Hikvision adopts andadvocates. On one hand, even if cloud computing power is strong enough, some data only needs to be locallyprocessed and applied, and does not need to be transmitted to the cloud for processing. On the other hand, thescale of the intelligent IoT is so large that it is unrealistic for all data to be transmitted to the cloud for processing,and the growth of bandwidth will not be able to keep up with the growth of IoT data. For example, for video cloud,a current topic in the industry, there is basically no video processed in the cloud, but mainly structured data

, smallvideos and images that are processed by edge computing.

Hikvision's AI Cloud computing architecture can be summarized as "the fusion of cloud and edgecomputing" and consists of edge nodes, edge domains and cloud centers. Edge nodes and edge domains arelocated in the intelligent IoT and make full use of edge computing capabilities; and cloud centers are located inthe intelligent IoT or information networks to form cross-network cloud computing capabilities. Edge nodes focuson collection of multi-dimensional perception data and front-end intelligent applications; edge domains focus onaggregation of perception data and intelligent applications; and cloud centers focus on cross-network data fusionand macro comprehensive applications.

Structured data: Data that is logically expressed and implemented by a two-dimensional table structure, strictly following the dataformat and length specifications, and is mainly stored and managed through a database.

From the perspective of data, the data in the intelligent IoT cannot be well used by the information systemand by users until it is organized according to the models required by the information network and fused in theinformation network. The intelligent IoT is closely fused with various information networks such as the Internetand industry information networks to truly realize a full interaction with humans. The connection betweenintelligent objects and information systems is the fusion of IoT and information Networks, which will open thedata channel between the intelligent IoT and information networks; it is also the meridian system of data in theintelligent era. The fusion of IoT and information networks is the data architecture suitable for applications underintelligent IoT and information network and the data organization form that Hikvision AI Cloud complies withand advocates.

Hikvision AI Cloud's data architecture can be summarized as “the fusion of IoT and information networks",which supports resource governance, data governance, data fusion, data services, and data applications across theintelligent IoT and information networks. The main capabilities of AI Cloud Data Fusion Platform can besummarized as horizontal cross-network fusion, vertical cross-layer convergence, dual-network three-typeapplications, and data security protection.

Horizontal cross-network fusion: First, regarding data source governance, it is necessary to solve thequality problem of intelligent IoT data source. Second, for intelligent analysis, it is necessary to use artificialintelligence to transform IoT data into easy-to-understand data such as people, places, things and objects in theinformation network. Third, on IoT data services, it is necessary to send the data to information networks forfusion with other data while supporting intelligent applications of IoT. Finally, in respect to converged datagovernance, it is necessary to organize the data according to the theme library

, topic library

, tag library orrelationship library, and then provides converged data services to support the development of information networkdata applications.

Vertical cross-layer convergence: Hikvision provides data platform cascading function to support theupward on-demand data convergence in both the intelligent IoT and information networks.

Dual-network three-type applications: In the intelligent IoT and information networks, three types ofapplications may be developed based on the intelligent application platform: single-scene applications,cross-scene applications, and comprehensive applications.

Theme Library: a business subject - oriented database.

Topic Library: a database addressing a certain professional application.

Data security protection: In the AI Cloud Data Fusion Platform, Hikvision focuses on data protection fromfour angles: data collection, transmission and storage, data services, and data applications. Data security isprotected at four levels: development and testing, delivery and implementation, data governance, and operationand maintenance.

The number of IoT devices worldwide will exceed 20 billion by the year 2020

. The intelligent IoT will becharacterized by larger number of terminals, more diverse terminal types, more powerful terminal performance,more complex network architecture, more extensive data content, and more diverse business applications.Therefore, it is necessary to strengthen data security protection and privacy protection at multiple levels such asterminal, network, data, platform services, and applications.2.2 AI Cloud Software and Hardware Platforms

2.2.1 AI Cloud Software Products

Hikvision firmly believes that the AI Cloud architecture is a reasonable solution to the fusion and applicationof intelligent IoT and information network. In 2018, Hikvision fully released software products of "two pools, onelibrary and four platforms" based on the AI Cloud architecture by implementing the "cloud-edge fusion"computing architecture, and continuously deepened the implementation of the "IoT-information network fusion"data architecture in practice, and further integrated the "two pools, one library and four platforms" into an “AICloud Data Fusion Platform", continuously consolidating the layout in AI, big data and application areas andleading the market through technological innovation and product innovation.

https://www.gartner.com/en/newsroom/press-releases/2017-02-07-gartner-says-8-billion-connected-things-will-be-in-use-in-2017-

up-31-percent-from-2016

Through the resource management and scheduling platform, Hikvision realized the unified management ofvarious resources such as IoT perception, computing storage, intelligent algorithm and software service. Inaddition, by introducing the standardization of algorithm library, the pooling of computing storage resources andother management tools, Hikvision provides unified access, centralized management, flexible scheduling, andother functions for heterogeneous computing storage resources and algorithm resources, providing more flexiblechoices for users and intensifying users’ investments. The software in the algorithm library supports unifiedmanagement scheduling of different types of intelligent algorithms from different vendors. It not only realizes theunified management scheduling of Hikvision's own algorithms for human face, human body and vehicle, etc., butalso completes the algorithm docking with the ecological partners, which have been implemented in a number ofprojects.

Through the data resource platform, Hikvision provides the capabilities of data convergence, data storage,data fusion, data computation, data sharing and data universal applications, supporting the fusion betweenbusiness data in the information system and IoT perception data. By providing rich toolkits such as dataaggregation, data governance, multi-dimensional data modeling, data sharing and opening, and universal fusionapplications, the data resource platform provides users with a one-stop solution to various problems such as thelack of data specifications, low data quality, difficult data convergence and management, insufficient data mining,and high data management costs, helping users to quickly realize the delivery of data platforms and supporting

data fusion and application.

Hikvision takes advantage of the intelligent application platform to provide agile development, integration,and operational support for applications. The application developers can quickly develop, seamlessly integrate andrapidly deploy applications that fulfill specific business demands by following a unified integration specificationfor technical architecture, and leveraging the development interfaces such as device access, intelligent resolution,platform services, and universal applications provided by the intelligent application platform.

Through the operation and maintenance service platform, Hikvision realized various functions includingrapid fault identification, response tracking, service evaluation, and statistical assessment of IoT resources and ITresources, and solved the problem of unified operation and maintenance management of equipment with multipletypes, large quantity and scattered distribution, which effectively improves the efficiency of fault handling andensures the operational stability of the video surveillance system.

2.2.2 AI Cloud Hardware Products

In 2018, centering around the AI Cloud architecture, the Company continued to deepen and improve thelayout of hardware products in respects of edge nodes, edge domains and cloud centers.

Hikvision continued to break through in imaging, fill-in light, video-structuring and intelligence technologiesin front-end products, from Darkfighter to DarkfighterX, from white fill-in light to hybrid fill-in light, frommonocular structure to multi-cular structure, and from single intelligence to fully structured hybrid intelligence.Driven by the business demand, we layered products and intelligence; based on application scenarios, we fullyupgrade our products through deeply understanding users’ needs. A rich family of future-oriented AI products wasgradually formed, including light intelligence, ubiquitous intelligence, full structuring, intelligent DarkfighterX

,and hybrid intelligence

series of products.

Intelligent DarkfighterX series cameras adopt dual light fusion + hybrid fill-in light technology, and enable capturinghigh-definition color feature images at night without light pollution, and are able to capture features in more distant and complexscenes through the adaptive image algorithm for feature capture.

Hybrid intelligence series cameras adopt advanced structural design, hardware architecture and high-performance intelligent chipand can perform target detection, active sensing and feature capture of people, vehicles and events in the monitoring scene; realizedscene integration, device integration, installation integration and business integration, and enabled efficient capture of moredimensional and more efficient data while fulfilling the coverage of the monitoring scene.

In 2018, Hikvision's back-end products continued to develop in the areas of AI intelligence, big data andfused storage. Focusing on customer demands, Hikvision greatly improved the accuracy, performance and fusedapplication level of AI for the back-end intelligent products, and continued to lead the intelligent videosurveillance market.

The central intelligent analysis products are oriented to industry markets such as safe city and smarttransportation. Hikvision put forward the concept of full analysis of video intelligence, full compatibility ofcomputing resources, and full openness of engines and data in order to form an abundant and open series ofcentral intelligent products and ecosystem, and has achieved good market performance. In terms of big data,

Hikvision implemented fused storage and associated applications of multi-dimensional data, and fused securitydata with business data, laying a foundation for data governance business. The Company innovatively introduceda server for data model comparison to convert module data into fully structured information data, enabling unifiedmanagement of data in a true sense.

In 2018, Hikvision continued to expand the central display business field, and achieved interactive access toinformation, intelligent display of information, and comprehensive presentation of big data through diversifieddisplay approaches such as seamless splicing, transparency, curved surface, touch control, holographic display.For example, Hikvision's small-pitch LED products, which are based on "Zhenshi" image processing technology,realized ultra-high contrast and ultra-high-definition seamless splicing display and were widely used in placessuch as monitoring centers and command centers. In terms of display control products, Hikvision enabled theclassic products such as decoders, splicing controllers and video comprehensive platforms based on thetechnologies of video and audio processing, multimedia data integration, ultra-high definition, AI, and clusteringand scattering control, diversifying the applications of monitoring centers and command centers, and maintainedthe leading position in the industry.

In 2018, based on solid technology accumulation in the fields of image capture and AI algorithm, Hikvisionimproved the "DeepinGo" (明眸) series of close-range facial recognition products. In numerous edge-nodeapplications such as access control, attendance checking, consumption, visitors management, elevator control,personnel access, etc., the new products have greatly expand the application scenarios of facial recognitiontechnology with rapid response speed, a more friendly human-equipment interaction, and support for largervolume face comparison and live detection. The “DeepinGo” series products not only upgrade the traditional "onecard" access control system to the "one face" system, but also effectively improve the security, convenience andaccuracy of the system.

In 2018, Hikvision continued to promote the implementation of its AI Cloud products and solutions forintelligent transportation. Based on customer demand, Hikvision integrated videos with multi-dimensionalperception technologies, and created a fused domain product package which consists of intelligent traffic camerasand intelligent road terminals. To practice the core value of “improve traffic order, alleviate traffic jams, preventtraffic accidents, enhance traffic safety, and facilitate transportation”, Hikvision innovated its traffic applicationsto help further develop the market. The “Environment-Friendly Access Control System”, equipped with snapcameras, made a technological breakthrough and solved the problem of white-light sharp flash, a light pollutionproblem troubling the industry for more than ten years, and was recognized with many awards. In respect to thecomprehensive governance of road traffic, Hikvision’s innovative applications, including “high beam inspectionfor vehicles”, “jaywalker”, “pedestrians first”, “snap camera system for horning”, and “inspection of vehiclesemitting black smoke”, played a role in building safe cities. As for static traffic, Hikvision launched cutting-edgeradar products utilizing the technology of multi-dimensional perception: trigger-based radar and smash-proofradar, which simplifies the construction and maintenance by discarding induction coils and solves parkingproblems for users, thus facilitating traffic.

In 2018, Hikvision launched the development of smart fire control products. Relying on the Company'svideo and AI technology, combined with multi-dimensional perception, narrow-band transmission and other IoTtechnologies, the front-end sensors are able to collect key fire control data and upload it to the platform in real

time for data analysis and remote monitoring. Through the integration of security and fire control businesses, welaunched an integrated solution for security and fire control, which is widely applicable to urban key units, ninesmall places

, schools, hospitals, banks, enterprise campuses and government buildings to enhance the level of firecontrol information construction in various industries and promote smart fire control constructions.2.3 AI Open Platform

Based on the scenario-based and fragmented characteristics of intelligent application, we believe that openintegration is the development trend of the video industry and will become a new business format in the era ofintelligence. In order to achieve open integration, Hikvision established a complete open system.

The demand for AI in the real economy is very strong and the application of AI has emerged in largenumbers in a scenario-based and fragmented manner. AI applications require many conditions such as data,algorithm, computing power, products and application systems; therefore, it is difficult to implement theapplications in the real economy. In order to build an open and shared AI industry ecological environment andhelp the implementation of AI, Hikvision launched the AI open platform to provide complete services fromdemand mining to application release and to help industries to upgrade.

The AI open platform has two purposes. The first purpose is to help customers with zero algorithm basis todevelop their industry's intelligent algorithms; the open platform incorporates a number of cutting-edgetechnologies and has three major characteristics:

1) It utilizes virtual data engine

, transfer learning

, incremental learning

, and other technologies, and can

Nine small places refer to small schools or kindergartens, small hospitals, small stores, small restaurants, small hotels, smallrecreational bars and clubs, small Internet bars, small beauty salons or bathhouses, and small production and processing enterprises.

Virtual data engine: generates image data through 3D modeling, ray tracing, adversarial learning and other approaches; its visualeffects are close to those of on-site collection.

quickly generate AI algorithms that meet scenario-based demands, based on a small amount of data;2) Algorithm training, compilation, optimization and deployment are all automatically implemented, and the

platform provides one-stop services to customers with zero algorithm basis. The platform can be combined

with Hikvision's application systems to solve the "last mile" problem of AI visual perception applications,

and implement continued collection of data and loop iterative optimization of algorithm model under

production environment; and3) Based on Hikvision's hardware foundation, the platform can easily build intelligent products with powerful

sensing capabilities.

The second purpose is to help AI practitioners to have their own intelligent hardware products and solutions.The large-scale implementation of AI technology in China's real economy requires a large number of AIpractitioners to carry out continuous mass innovation with mass wisdom. However, AI practitioners often lack thesuitable products to carry their algorithms in the current time. For this reason, Hikvision has opened a full range offront-end and back- end AI hardware products to help AI practitioners realize their AI functions and solutions.

Our open systems for equipment include:

Transfer learning is a learning method for robots, enabling a robot to apply the knowledge and techniques learned from formertasks to new tasks.

Incremental learning refers to learning new knowledge by a learning system from new samples, storing most of the knowledge ithas learned and overcoming catastrophic losses of memory. The system does not have to visit original data, and is able to enhance itsperformance on an overall data set merely by learning new data.

1) Hikvision equipment operating system, which provides various basic capabilities of the equipmentincluding image processing, coding and decoding, storage and transmission;

2) Integrated development kit, which opens the equipment's AI computing resources based on the containertechnology, enabling users to integrate their own algorithms on the product; and

3) A variety of supporting services provided in the cloud, including the compiling environment, testingenvironment, app stores, and authorization tools.

In 2018, Hikvision successfully applied the AI open platform to intelligence upgrade in multiple areas. Inpharmaceutical enterprises, the platform helped the standardized review of production behavior of employees andreduced safety hazards in production. In food production enterprises, it enabled “Transparent Kitchen” andguaranteed safe production and standardized storage of food. In the field of natural resources, it empowers“weather identification” and promotes intelligent meteorological observation.

In addition, due to the very fragmented business scenario, a series of problems from customers, delivery andR&D have emerged during the process of software development, delivery and maintenance, including productintegration and unification, version upgrade, and repetitive development. Hikvision has comprehensivelyupgraded its software engineering capabilities and practices and reconstructed the original software R&D modelby establishing a Unified Software Technology Architecture. The software R&D has changed the developmentmodel from "driven by market demand" to "driven by both market demand and technology planning", in order tofinally realize the sustainable and rapid introduction of high-quality software products to meet the rapidly growingdemand of the software market, providing support for the Company's strategic planning.

Based on years of accumulation in the front-end field, Hikvision also introduced an evaluation system ofscientific deployment of front-end video surveillance products, which links business applications with front-endconstructions, defines a variety of equipment capability models and scenario evaluation models, enables theevaluation of the reasonableness of the front-end construction plans and the actual construction results offront-end products, and outputs evaluation reports and optimization suggestions to guide the scientific deploymentof the front-end points.3. Transformation and restructuring of business architecture

Since 2009, the Company has launched solutions that carry a vertical industrial layout covering sevenindustries, including public security, transportation, law enforcement, finance, education and healthcare, energy,and building, and 40 sub-industries to drive the rapid development of its business and lead the security industryinto a solution-oriented era. To better adapt to customers’ demands and improve internal operational efficiency,the Company initiated the transformation and restructuring of its business architecture in 2018. Throughreorganizing and integrating the resources, the Company divided its domestic business into three business groupsof PBG (Public Business Group), EBG (Enterprise Business Group) and SMBG (Small and Medium EnterpriseBusiness Group) to more specifically target different types of markets and customers and more effectively

coordinate internal resources.

The PBG (Public Business Group) business team, which was established based on the traditional threebusiness departments of public security, transportation and law enforcement, primarily specializes in urbangovernance and urban services, adapts to the block module of the administrative regions, and conforms to theoverall operational needs of urban governance and urban services; the EBG (Enterprise Business Group) businessteam, which was established based on the traditional four business departments of traditional finance, energy,building, and education and healthcare, mainly serves the traditional large-scale enterprise market, adapts to thestrip model of the group enterprises and meets the vertical operation management needs of group enterprises; theSMBG (Small and Medium Enterprise Business Group) business team, which was established based on thetraditional channel distribution management team, mainly focuses on the small and medium-sized enterprisemarket services, striving to create an industry ecosystem and platform that integrates product distribution,installation and operation and maintenance services, as well as SaaS sharing.

3.1 Public Business Group (PGB): Data-driven urban governance3.1.1 Principal business

Digital government construction is a vital move to implement the Internet power strategy, the digital Chinastrategy and the smart society strategy. Hikvision PBG relies on the urban big data platform to promote urbandigitalization and intelligent transformation, and facilitate sustainable urban development. Centering on digitalgovernment, digital economy and digital society, Hikvision PBG establishes data sharing, exploits data value,focuses on urban governance, and creates a new era of AI Cloud Internet of Things (IoT).

Data-driven urban governance uses data for analysis, decision-making, management and innovation. Takingurban governance as an example, things as small as well covers and street lamps and as big as bridges and tunnels,and other matters ranging from the flow and stop of vehicles, gathering and dispersal of people to market statesand public opinions, could all be analyzed and summarized through informational means such as IoT perceptiontechnology and big data analysis. Through the search and analysis of various types of data such as traffic data,tourism data, daily life consumption data, government data, medical data and leisure data, we can find all kinds ofhidden problems and events, provide timely warning and reminder, carry out linked handling of events, promotecoordinated management of multiple governance entities, and improve the level of refined urban governance.

With AI Cloud as the core technology framework, Hikvision PBG sets up a unified intelligent perceptionnetwork for cities to achieve the complete perception collection of city states, features and events, builds twin

digital cities coexisting with physical cities, establishes a unified urban big data platform, and takes advantage ofthis platform to carry out the sharing, development and governance of urban data, empowering the intelligentapplications of various industries and fields of the cities, upgrading the integrated government service system, andenhancing the sense of well-being and security of the masses.

3.1.2 Core technology: AI Cloud “Hikvision Red Digital Forest” platform

“Hikvision Red Digital Forest”, the urban IoT intelligent cloud platform of Hikvision PBG under the AICloud architecture, is the brain center for implementing AI Cloud. Compared with the previous video networkingsharing platforms, the “Hikvision Red Digital Forest” platform not only has a stronger access capabilities forvideo and IoT resources, but also has the capability for fusion, correlation and deep mining of IoT data andbusiness data, the capabilities for unified management and scheduling and self-training of multiple AI algorithms,as well as the capabilities for the pooling of computing storage resource and flexible computing, which enables itto carry IoT basic application, smart applications and big data applications across multiple industries and providestrong support for the implementation of industry solutions such as smart policing, smart transportation, smartsecurity supervision, smart city management, and smart government.

Cloud-edge fusion, intelligent “perception”: The “perception” capability refers to the capability to extracttargets such as people, cars and objects, and their attributes such as the license plates, vehicle models and colors ofcars from the video images. The efficient collaboration between cloud computing and edge computing greatly

enhances the system’s intelligent “perception” capabilities. Based on the demands from intelligent applicationscenarios, the corresponding AI algorithms, computing power, data and services can be scheduled on demand;with part of the data processed on the edge node side and part of the data processed on the platform side, the twosides cooperatively work together to achieve optimal system performance. At the same time, the platform, with AIalgorithm training capability, can train a new AI algorithm based upon the data accumulated on it; and the new AIalgorithm can be loaded into edge devices to meet the new intelligent application demands.

Data fusion, deep “cognition”: The “cognition” capability means to discover the essence behind the databased on multidimensional big data mining analysis. From the perspective of application demands, the big data“cognition” capability of a system can be built by integrating IoT data, business data and Internet data. Based onapplication demands, data could be converged on demand, various basic libraries, theme libraries, and topiclibraries can be constructed, and algorithm models such as regional collision, regularity analysis, frequencyanalysis, integral warning, and relational graphs can be extracted and summarized. In this way, lager amount andbetter quality data will be gradually accumulated, the data will support more and more in-depth applications.

Comprehensive opening, empowering various industries: we have fully opened the data from all kinds ofbasic libraries, theme libraries and topic libraries, and the interfaces such as IoT basic services, intelligent analysisservices, big data fused analysis services, algorithm library services, AI training services, and intelligentapplication services. We also supported integration with third-party platforms to achieve the complementarity ofcapabilities and to support industry ecosystems.

3.1.3 Industry application scenarios

Hikvision PBG’s solutions cover all aspects of public services. The solutions in four aspects, namely publicsecurity, traffic and travel, ecological protection, and people’s livelihood services, are taken as examples torepresent how intelligence and data can drive intelligent urban governance.

Solutions for public security

Hikvision PBG provides solutions for public security, aiming to further improve the three-dimensional socialsecurity prevention and control system, strengthen the technological prevention capabilities of public security,enhance the level of grassroots services, advance the construction of a safer China, and establish a socialgovernance model based on collaboration, co-construction, and sharing.

Following the core design concept of “multi-dimensional perception, sharing and co-construction,

network-wide intelligence, and smart governance”, the Company deployed a multi-dimensional perception systemin different regions and scenarios, and constructed an organically integrated comprehensive three-dimensionalfront-end perception system, in order to achieve all-round, all-weather multi-dimensional information perceptionand collection. The video information data is deeply integrated with technologies such as artificial intelligence andbig data to realize dynamic information perception, accurate data analysis and business intelligent assistance,which lays a solid foundation for scientific decision-making and command, efficiently combating crimes, preciserisk prevention and control, and innovative social governance. Through constructing a public security video imageinformation exchange resource pool with consistent technical standards and uniform requirements, implementingeffective hierarchical integration of various video image resources, and facilitating point locationcomplementation, network interconnection and platform interoperability, the networking integration of videoimage resources in public areas is maximized. The Company established cross-regional, cross-departmental andcross-level video image information exchange, integrated the sharing and scheduling mechanisms, and providedvisualized government management supporting services for public security, transportation, railway, urbanmanagement, fire control, environment protection, forestry, safety supervision, finance, food and medicine, andother departments under the premise of ensured safety and controllability.Solutions guaranteeing “traffic and travel”

Hikvision PBG furnishes “traffic and travel” solutions for scenarios such as urban traffic management,transportation hubs, public transportation, traffic network, and cargo transportation, utilizing artificial intelligenceand big data technology to make “traffic and travel” safer, more convenient and more efficient.

In the field of urban traffic management, AI + IoT perception technology could help optimize the signalsystem of urban roads and alleviate urban traffic congestion; in the field of public transportation, intelligentidentification technology could actively detect the abnormal behaviors of drivers and passengers of buses, taxis,freight vehicles, and dangerous goods vehicles, and issue timely warning to ensure the safety of public travel. Thebig data + Internet technology could be utilized to optimize the connection and scheduling of various traffic tools,optimize traffic network, and enhance traffic efficiency; for example, big data analysis could help bus companiesoptimize bus routes and optimize taxi distribution, so that the traffic and travel become more efficient andconvenient.Industry solutions for safeguarding “Clear Water, Blue Sky and Green Mountains”

Hikvision PBG offers a series of industry solutions for safeguarding “Clear Water, Blue Sky and Green

Mountains” to achieve the comprehensive protection of air, water and ecology.

Through AI visual perception technology, together with IoT technology, it is possible to detect excessiveemission of industrial waste gas, open-air straw burning, smoky vehicles on the road, as well as dust onconstruction sites and roads in a timely manner, reducing air pollution and protecting the natural outdoorenvironment for the public to enjoy. The implementation of pollution source monitoring and Chief Mechanism forRivers

ensures that unlawful emission and emission leakage from enterprises, abnormal sewage discharge intothe rivers and lakes, floating garbage on the river, and pollution risk in water sources can be discovered quickly,reducing industrial and domestic sewage pollution and guaranteeing the safety of drinking water.

The application of high-altitude observation, unmanned aerial vehicles (UAV) and other technical meanscould help find out ecological destruction behaviors in time within the red-line area of ecological protectionincluding overgrazing, dam building, road repairing, mining, and soil breaking. Besides, the application ofecological environment big data exerts a positive role in pushing forward the overall protection and systemrestoration of mountains, rivers, forests, farmlands, lakes, and grasslands, and safeguarding “Clear Water, BlueSky and Green Mountains.”Industry solutions for improving people’s livelihood services

Hikvision PBG launches livelihood service solutions that enhance the convenience and precision servicecapabilities of government centers through the application of face recognition and IoT technology. For instance,by performing video identification of people who have made a reservation and automatically arranging the orderfor them, the handling process can be shortened; by equipping face authentication devices in the number-takingand handling process, business handling will become more efficient and convenient; by monitoring the conditionof common facilities that serve the masses and delivering the information in time, the public can be better served.

Through the application of video networking and AI visual perception technology, the internal managementlevel of government centers is enhanced. For instance, the behavior of window service personnel can beintelligently analyzed in order to improve window service quality; the above technology can also conductnon-inductive attendance for internal staff, and carry out intelligent reporting of unusual events such as fights andquarrels in public areas. Based on big data analysis, face and business big data, targeted return visits could beachieved, which could help find problems easily and avoid repeated visits.

Chief Mechanism for Rivers: Principals of party and government departments at all levels act as “river chiefs” to be responsiblefor organizing and leading the management and protection of the corresponding rivers and lakes.

3.2 Enterprise Business Group (EGB): Visual perception assists enterprises in reducing costs andimproving efficiency

3.2.1 Principal business

Digitalization has exerted a great impact on all walks of life and has become a key factor in thetransformation of enterprises. Based on its understanding and insight into the business, Hikvision’s EBG launchesproducts and solutions centered on video networking and AI visual perception technology for enterprise users. Inprocess of digital transformation, we are building a bridge between the physical world and the digital world,propelling the Internet of Everything, and empowering industry users to realize intelligent industrial upgradeswith AIOT as the core.

The digital architecture of an enterprise can be divided into four layers: infrastructure, business applications,management tools, and decision-making support. As the traditional principal business of EBG, the securitybusiness focuses on the infrastructure of enterprises. In 2018, Hikvision EBG continued to enhance its insight andunderstanding of industry business, extended its business around the business applications and the managementtools of enterprises, and helped enterprise users achieve business means innovation and improve managementefficiency, which significantly improved the business value recognition by users. Using visual perception as themost effective digital means, Hikvision EBG plays an important role in the digital transformation of all walks oflife.3.2.2 Core technology: The AI Open Platform acts as the engine. The Integrated Application Platform andthe Cloud Visualized Management Platform act as two driving wheels

In the business scenarios for various sub-industries, Hikvision’s EBG takes the AI Open Platform as theinnovation engine and the Integrated Application Platform and the Cloud Visualized Management Platform as twodriving wheels, to provide users with solutions and products based on visual perception capabilities. It takesadvantage of the AI Open Platform to explore and fulfill the visual perception demands based on personalizedscenarios, utilizes the Integrated Application Platform and the Cloud Visualized Management Platform to build avideo grid system and satisfy video networking demands based on privatized deployments and Internet applicationscenarios, jointly builds an industrial ecosystem with industry users and partners, and serves digitaltransformation.

A one-stop algorithm customized service platform: AI Open Platform

The AI Open Platform is Hikvision’s one-stop algorithm customized service platform for industry users andecological partners to meet the demands of scenario-based visual perception applications in various industries.The AI Open Platform, which has a scenario-based AI development capability, can quickly generate an AIapplication that meets the users’ demands based on a small amount of data. After the application is online for use,the new data is superimposed and accumulated for incremental training, and the optimization algorithm iscontinuously iterated. Hikvision EBG relies on the AI Open Platform to enable industry users to rapidlyimplement applications based on AI visual perception, providing impetus for intelligent upgrade of the industries.

A privatized management platform: Integrated Application Platform

As a privatized management platform of Hikvision EBG for enterprise video networking applications, theIntegrated Application Platform relies on Hikvision’s unified software technology architecture and provides videonetworking business software management tools (such as smart scenic area management platform, pharmaceuticalenterprise behavior supervision platform, and smart construction site management platform etc.) for differentindustry application scenarios, based on its core capabilities such as IoT device access and video networkingservices. By applying componentized development technology, the Integrated Application Platform buildsindustry application architecture based on business understanding, accumulates businesses with common value,responds quickly to users’ demands, practically pushes forward the optimization of business processes and theinnovation of business methods, achieves cost reduction and efficiency enhancement, and improves customersatisfaction.

The Integrated Application Platform of Hikvision EBG, which is based on visual perception AI capability,runs in a localized deployment mode and can adapt to application scenarios of large, medium and small-sizedenterprises. It offers professional enterprise applications, rich application interfaces and high quality services,working together with partners to empower corporate customers and help them reduce costs, enhance efficiencyand deliver better services.

An enterprise-level public cloud platform: Cloud Visualized Management Platform

The Cloud Visualized Management Platform, relying on equipment access of EZVIZ Cloud, equipmentmanagement, stream media, AI model management and other IoT PaaS services, is a public cloud applicationservice portal based on the industrial scenario intelligence that provides SaaS cloud services to chain business,community, general education and other sub-industries, and propels enterprises to evolve from manual operationto partially intelligent operation, and then to fully intelligent operation. Meanwhile, by continuously strengtheningits basic capabilities and leveraging API openness, the Cloud Visualized Management Platform builds anecosystem and forms ecosystem cloud service capabilities.

The Cloud Visualized Management Platform offers enterprise-level SaaS services to sub-industries anddedicates to help enterprises enhance the visualization, standardization and intelligent management capabilities.Currently, it has covered the typical industry scenarios including chain retail, community, general education,logistics, etc.

In the chain retail industry, the Cloud Visualized Management Platform enables managers to complete sitemanagement more efficiently through remote video inspection, and enables operators to make better marketingdecisions by collecting and analyzing the structured data in multiple aspects such as customer flow, human face,human body, etc. In the community scenario, the Cloud Visualized Management Platform helps propertymanagement companies achieve efficient and unified management of residents, visitors, employees and vehicles,and provides residents with safe, convenient and high quality life service experience. In general-education schools,

the Cloud Visualized Management Platform delivers a whole set of campus security solutions to middle andprimary schools as well as kindergartens, establishes intelligent campuses with the help of facial attendance andelectronic class board, and provides networking supervision system for education management departments at alllevels so as to realize the networking of multi-dimensional data including video, alarm and students' attendance. Inthe logistics industry, the Cloud Visualized Management Platform supplies video networking, vehicle networkingand security check networking services for scenarios such as logistics parks and delivery lockers, and keepsupgrading centered on people, vehicle, goods, warehouse and safety to facilitate the refined operations of logisticsenterprises. And in the field of alarm operation, the Cloud Visualized Management Platform supports theacquisition and processing as well as storage and analysis of mass data such as alarm signals, real-timeinformation and video streaming media, and assists alarm operators in rapidly possessing large cross-regionalalarm operational coordination capability, command and dispatch capability as well as emergency disposal servicecapability.

In addition, the Cloud Visualized Management Platform, as a public cloud application service portal on thebasis of sub-scenario-based fragmentized intelligence, relies on the AI Open Platform of the Company to carry outand implement the corporate strategy of “video + AI”. With public cloud structure, the Cloud VisualizedManagement Platform furnishes users with business application value as well as outstanding value in lightweightdeployment, convenient implementation and ongoing optimization and upgrading.

3.2.3 Industry application scenarios

Hikvision EBG’s business covers nearly 20 sub-industries. From the perspective of business integration, thebusiness can be summarized into four main lines: business world, social energy, better lives and wealth growth.

Industry solutions serving the “business world”

Hikvision EBG offers business area solutions for manufacturing, logistics and retail, with an aim of helpingbusiness operators achieve cost reduction and efficiency enhancement and lightening management anxiety.

Large video networking makes employees’ work centralized and intensive, while AI visual perceptiontechnology allows machine-replacing-people and results in a reduction in the number of indirect staff and acompression in the working hours of direct staff, which improves efficiency. For instance, remote video storeinspection can replace the traditional offline store inspection of retail enterprises; the AI visual perceptiontechnology can be applied to analyze the waiting time of workers in the production process, optimize the timedistribution of workers in different types of production teams, and reduce the indirect waiting time of directpersonnel.

The digitalization of behavioral standards and management practices can improve staff efficiency, and thedigitization of business processes, business scenarios and production facilities can bring about processoptimization and intelligent improvement of asset application efficiency. For instance, precise insight aboutconsumers can be realized through an analysis of distribution of passenger flow and customer group of retailstores; the “two-ticket and three-system mechanism”

of the electric power industry can be implemented,accident prevention capability of electric power enterprises can be enhanced, and human-factor accident andserious misoperation accident can be prevented with the help of techniques like face recognition; the digitizationof electric power production facilities can be realized through intelligent reading technology for meters and theinspection efficiency can be improved thanks to the intelligent reading technology for meters.

Safety production assurance solutions, anti-theft solutions, as well as integrated security and fire protectionsolutions help reduce safety concerns. In the field of manufacturing, these solutions cover the factory area and theworkshop. For instance, best practices for production line workers at pharmaceutical enterprises can be

Two tickets: work ticket and operation ticket; three systems: shift system, tour inspection system, and equipment periodic testingand rotation system.

standardized by intelligent behavioral analysis to ensure the safety of pharmaceutical production; in the field oflogistics and transportation, these solutions cover the whole logistic park area to realized visualized tracking of thewhole process of goods movements and visualized dispatch of the platform resources.

Industry solutions serving “social energy”

Hikvision EBG provides a range of industry solutions for “social energy”, covering primary energyacquisition such as grain growing, oil extraction and coal mining, secondary energy processing such as oil refiningand power generation, as well as energy use at gas stations and in the power transmission and distribution.

Safe production solutions are ideal for outdoor areas and harsh environments, and reduce safety risks ofpersonnel operations, environmental changes and equipment production through AI visual perception technology.For example, intelligent, reliable and effective remote control means are available for unattended stations toreduce personnel costs and help build ubiquitous IoT through video visualized inspection. Intelligent analysis andalarm can be used to minimize dangerous behaviors such as people intruding into dangerous zones and irregularoperation, by means of AI visual perception technology; and technical support can be provided for the fusion ofIoT and information networks through linkage with an enterprise information system.

The traceability supervision solutions ensure grain production and food production, realize visualization oftraceability, and assist process supervision and automatic identification. For instance, real-time detection can becarried out for various indicators of the grain planting environment via dynamic environment detection, to realizereal-time supervision of food production environment; all-time intelligent detection can be conducted for ensuringthat staffs wearing the uniforms, and supervising the kitchen environment of various catering units in theapplication zones by AI visual perception technology, and problems like multiple supervision departments andwide scope of supervision could be solved though linkage with regulatory information platform, to build

transparent kitchens.

Industrial IoT solutions based on visual perception are helpful for energy enterprises to cut cost, improvequality, speed up processes and improve capital investment. For example, in the metallurgical industry, intelligentobservation and analysis of short-circuit heating of cathode plate in copper electrolytic cell by thermal imagingcamera effectively settles the problems of time-consuming, labor-intensive and inefficiency of traditional manualmeter reading, water sprinkling and manual detection method, whereby manual inspection cost of each workshopcan be reduced by RMB 400,000 per year.

Industry solutions serving a “better life”

Hikvision EBG provides smart solutions for the healthcare, education and tourism industries.

In the field of higher education, the video cloud technology can be used to provide a cloud platform forteaching resources and online classroom solutions to achieve quality education resource sharing, and promote faireducation. The classroom behavior analysis can enable quantitative evaluation on the classroom teaching effect,providing data support for making major decisions such as students’ learning state, occupational guidance,teachers’ further study directions, improvement of teaching facilities, etc. The AI visual perception technologycould be applied for building a campus identity verification system taking biological characteristics (human face)as the core, which is widely applied in dormitory management, cafeteria consumption, book borrowing andacademic conference, and data association has been established for teaching, educational administration, logistics,safety guard and other information systems, providing a feasible idea for realizing big data intelligent applicationin campus.

In the field of intelligent tourism, the AI visual perception technology can comprehensively perceive thescenic resources, tourists’ behaviors and passenger flow trajectory, and represent group portraits of visitors,whereby reasonably matching resources and enhancing customer service experience; in the meantime, based on

video cloud technology, live broadcasting scenic spots becomes possible and allows tourists to enjoy and sharescenic spots.

In the field of intelligent healthcare, the video AI recognition technology realizes the identification ofreference personnel, while video networking and AI visual perception technology makes the remote supervisionof medical insurance consumption possible, which facilitates medical digitalization and ensures the fairness ofmedical resources.Industry solutions contributing to “wealth growth”

Hikvision EBG carries out a series of industry solutions dedicated to achieving “wealth growth” for variousindustries covering real estate asset construction, property management services and financial institution wealthmanagement, helping industry users achieve wealth growth.

The large video networking and AI visual perception technology is applied for personnel management andsafety control on construction sites during the construction process. To solve the chaos of construction site staffmanagement, a real-name attendance management scheme for workers is used with functions such as attendancestatistics and job category statistics, combining with real-name attendance system and real-name enterprisemanagement system to supervise wage payments of rural migrant workers and prevent the labor force fromdefaulting on wages for migrant workers. To settle the matter of difficulties in management of site accidents, avisualization solution for site safety production is used: by taking advantage of high-altitude panoramic videomonitoring system and intelligent safety helmet equipment, the details of site operation and the situation of safetyhelmet wearing of personnel are clear at a glance.

Hikvision EBG empowers leading real estate developers and property management companies through theapplication of technological means, so as to enhance brand effect and property management capabilities and

improve owner’s experience. For instance, by means of consumption structure analysis and dynamic passengerflow analysis, business planning and precise marketing of commercial properties can be strengthened; by applyingparking robots, a new model of human-free parking lots can be created.

Based on standardized service requirements of financial institutions, combined with application scenariossuch as counter, e-banking, and self-service devices, Hikvision EBG provides various face recognition-basedidentity verification methods to realize effective control of operational risks. The AI visual perception technologyis applied for customer classification and behavioral information analysis so as to provide differentiated marketingservices and enhance customer experience.3.3 Small & Medium Business Group (SMBG): adapting to the transformation trend, contributing tochannel upgrade, and creating a service ecosystem

As the most active business group, small and medium businesses represent strong developmental vitality andgrowth potential. The SMB market is a promising market, and the business is driven by real demands from smallbusinesses and small units, which are less affected by changes in macroeconomic policies. At present, suchdemands have been continuously growing and are gradually upgrading toward visual operation management.

For the SMB market, Hikvision formed the SMBG business team based on the channel distributionmanagement team, aiming to serve small and medium-sized enterprises. The Company sets up SMBG businessteam to closely follow the demands of SMB users and distribution customers, efficiently and flexibly provideproducts and services based on market insights, and strive to establish an eco-industrial platform for productdistribution, service crowdsourcing, and SaaS sharing.

China’s SMB security market is massive, being not only a device product market, but also an engineeringmarket, where product price premium brought by the service is an important “moat” of this market. In themeantime, the SMB market is a very representative long-tail market with personalized and scattered users’demands. Despite of the small individual demand, the cumulative effect of scale is significant given the enormousoverall quantity and the extremely wide range. In this market, the information cannot be easily delivered, the costof brand replacement is low, and there are a large number of simple service demands without unified industrystandard. Hikvision SMBG strives to achieve diversified and differentiated business development by changingmarketing methods, broadening product types, deepening scenario-based demands, and innovating channel model.

Based on AI intelligence and big data, Hikvision SMBG established a comprehensive service platformintegrating cloud business transactions, security services and SaaS applications, and created a new ecosystem ofsecurity Internet; with the help of e-commerce, 400 hotline, official website and other sources of traffic, HikvisionSMBG deepens access to multiple channels including security, IT and industrial equipment, and obtainsinformation about both online and offline traffic; Hikvision SMBG builds nationwide logistics and warehousing toimprove logistics turnover efficiency; it optimizes the means of controlling capital stocks, refines channelcustomer management, and strengthens systematic risk management; it creates a group of efficient, fast, integratedservice providers with standardized delivery capabilities, standardizes the service standards of the industry,expands the scale of services, enhances service revenue, builds the core competitive advantages of HikvisionSMBG, and continues to realize the value and create value centered on customers.

Taking advantage of its accumulation of products, channels and services, Hikvision SMBG hascomprehensively launched five major initiatives: “diversification of products, scale of online business,digitalization of business, standardization of services, and efficiency of operations”, continues to build a newdistribution management system and model, and creates a good user ecology to consolidate the foundation for thelong-term development of the Company’s SMBG business.

4. Innovative Businesses

During the reporting period, the video technology-based new businesses such as EZVIZ Network, HikvisionRobotics, Hikvision Automotive Electronics, Hikvision Smart Storage, Hikvision Weiying, and HikvisionHuiying maintained healthy and steady growth, contributing to the Company's long-term sustainable development.4.1 Innovative Business -- EZVIZ Network

Focusing on smart home business, the EZVIZ Network business continued to grow at a high rate in 2018,with revenues exceeding RMB 1.6 billion for the full year.EZVIZ naturally evolved from intelligent items and kits to a full house intelligent system

In 2018, EZVIZ launched various new products such as "all wireless Internet battery camera C3A", "gardenlight camera LC1", all wireless video intercom "battery doorbell camera DB2", "Internet fingerprint passwordlock LT21S", "smart wall switch P1" for intelligent control of the whole house, "smart curtain MC1", and "childaccompanying robot -- YingBao", and extended the existing IPC product line and smart lock, smart door viewer,smart visual doorbell and other smart home product lines, forming a full house smart home system with videotechnology as the core.

EZVIZ improved the intelligence of home-like scenes (business scenes, etc.) and continued to launch newproducts and optimize services. Under the premise of continuously optimizing the original products and services,EZVIZ launched a new hemispherical product with customizable voices -- "Little Conch" C4W, which allowsusers to record different voices such as welcome, reminders and alarms through EZVIZ APP, enriched businessscenario applications. In addition, EZVIZ cloud storage service is growing rapidly, and EZVIZ also exploredAI-based call reminder and other businesses and received positive response from users.EZVIZ Cloud platform is further opening up, and AI empowers sub-industry applications

EZVIZ Cloud has been striving to build the most comprehensive security protection and actively improvesecurity compliance through professional qualification certification. In 2018, EZVIZ Cloud obtained theinternational certification of cloud security (CSA-STAR

), once again recognized by the international cloudcomputing service market, which marked that EZVIZ Cloud is in line with international standards and will

CSA-STAR: Security Trust Assurance and Risk certification organized by Cloud Security Alliance (CSA), is an enhanced versionof information safety management system ISO/IEC27001, and provides a comprehensive safety evaluation for cloud computingservices combing Cloud Control Matrix and maturity evaluation module as well as complying with relevant requirements of laws,regulations and standards.

provide high-quality, high-level cloud services to overseas customers.

After six years of growth, EZVIZ Cloud has become a global video cloud service platform, providing basicvideo cloud services to global customers and users in North America, South America, Asia Pacific, Europe,Russia, and the United Kingdom. There are currently 27 service areas covering five continents and nearly 150countries.

It links and aggregates a large number of intelligent terminals and serves customers and end consumers in avariety of industries worldwide by providing acquisition, transmission, storage and deep analysis capabilities forvideo and audio-based IoT data. To date, the EZVIZ Cloud platform has a magnitude of 40 million deviceaccesses and 30 million users, providing stable and continuous video-based comprehensive services for usersacross the world.

Based on the basic capabilities of EZVIZ's hardware + cloud, AI + open interface, EZVIZ Cloud Platformprovides open device access, open basic services, open value-added services, and packages a number of SaaScommon components around application scenarios (for example, identification components, headcount changedetection components, frequency detection components, dynamic face retrieval components which can be used forapplications such as VIP management, off-the-post detection, repeating customer analysis, personnel trajectoryanalysis, as well as cloud live broadcasting components of industrial live broadcasting such as scenic and roadcondition live, preschool parents live, and Clean and Healthy Kitchen live through applying surveillance); itallows developers to quickly and easily develop their own business SaaS based on the basic capabilities of EZVIZSaaS components, and to serve their customers by taking advantage of AI capabilities. As of the end of 2018,more than 30,000 partners have joined EZVIZ Cloud, docking more than 5,000 active applications. An open andshared video cloud ecosystem has been initially established.

4.2 Innovative Business -- Hikvision Robotics

Hikvision Robotics focuses on the field of automation and specializes in intelligent manufacturing, andcontinues to explore, invest and rapidly develop in mobile robots, machine vision and industrial-level UAVs(unmanned aerial vehicles), empowering the development of the national manufacturing industry.

In the area of mobile robots, Hikvision Robotics focuses on internal logistics and the core technology ofrobots, provides customers with reliable AGV

products and solutions, and continuously builds intelligentinternal logistics solutions for factories, which have been widely used in 3C, automotive manufacturing, newenergy, medical, tobacco and other industries. Hikvision Robotics’ main product, Qianmo Robot, released its thirdgeneration in 2018, which supports a variety of vision and laser positioning and navigation methods. Theperformance and quality of the third generation has been greatly improved to meet the application requirements ina variety of complex scenarios. Hikvision Robotics also launched new products such as automatic forklifts andhybrid robots

, continuously enriching the product series of mobile robots to provide industry customers with awider range of product selection.

In the area of machine vision, Hikvision Robotics focuses on industrial visual sensing applications andspecializes in the underlying algorithm software and hardware technology, to provide customers with excellentmachine vision products and algorithm platforms, which have been widely used in various fields of industrialautomation such as 3C, electronic semiconductor and logistics, realizing positioning and guidance, measurement,defect detection, code reading, OCR recognition and other applications. In 2018, Hikvision Robotics released 31

AGV:Automated Guided Vehicle

Hybrid robot: robot integrated functions of both mobile robot and general industrial robot (such as mechanical arm).

megapixels, 43 megapixels and 50 megapixels ultra-high resolution industrial cameras to actively deploy andpreempt the high-end industrial camera market. At the same time, it released 8.9 megapixels, 12 megapixels, 20megapixels, etc. intelligent code reading camera products to help the rapid upgrade of logistics automation. Inaddition, Hikvision Robotics also released series products such as smart sensors, high-precision 3D profilers, andlenses, which could meet the demands of most vision applications, to provide industry customers with one-stopvisual product procurement services.

Relying on Hikvision's technology accumulations in the fields of image sensing, AI, big data analysis, etc.,Hikvision Robotics' industrial-level UAVs, with video image processing as the core, based on security andfocused on the industries, are widely used in various scenarios such as fire rescue, emergency command, trafficmanagement, facility inspection, and event support and protection. In 2018, Hikvision Robotics successivelyreleased Falcon IV series UAVs, UAV monitoring and management platforms, automatic tracking antennas, fixedand handheld defense systems, and other new products, providing industry users with complete solutions fromproduct to system.

4.3 Innovative Business--Hikvision Automotive Electronics

Hikvision Automotive Electronics business is committed to the R&D, manufacturing, sales and services ofAdvanced Driving Assistant System (ADAS) and the related sensors, applying Hikvision’s technical reserves in

image processing, video analysis, AI intelligence, video storage and other fields to the automobile industry. Sinceits establishment, Hikvision Automotive Electronics has completed the upgrading of its quality system and theconstruction of a new automated production line in accordance with the IATF16949 Standard

.

Self-developed Fully Automated Production Lines and Core EquipmentHikvision Automotive Electronics business covers OEMs and related operators of passenger cars andcommercial vehicles, and the company has production lines for vehicle mounted cameras, driving recorders, 360°panoramic viewing systems, streaming rearview mirrors, multimedia intelligent rearview mirrors, ADAS

, radars,and etc. As of 2018, Hikvision Automotive Electronics has passed the audit and the verification of 20 OEMs andbecome their qualified supplier, basically covering domestic mainstream independent brands and some of the jointventure brands; the company has also implemented more than 200 fixed-point projects, of which more than 100have been put into mass production. At the same time, relying on Hikvision's branches in more than 200 citiesacross China, Hikvision Automotive Electronics has realized transaction coverage of more than 500 channelpartners.

IATF16949 Standard: a system standard developed by International Automotive Task Force (IATF) in relation to the R&D,manufacturing, quality control of automobiles.

ADAS:the abbreviation of Advanced Driving Assistant System, an active safety technology, by taking advantage of varioussensors installed in a vehicle, is able to collect environmental data inside and outside of the vehicle immediately to recognize, detectand trace the static and dynamic objects, so as to alert the driver of potential dangers as soon as possible, draw the driver's attentionand improve safety.

Product Family of Hikvision Automotive ElectronicsHikvision Automotive Electronics unveiled the first-generation ADAS in 2017. The system, with thefunctions of front vehicle collision warning, lane departure warning and driving behavior analysis based on videoanalysis, has been widely used in domestic passenger vehicles and dangerous goods transportation vehicles. Inprovinces that have introduced the local technical standards such as Jiangsu, Shanxi and Zhejiang, HikvisionAutomotive Electronics is among the first batch of enterprises that passed the testing and certification. Whileintroducing the ADAS, Hikvision Automotive Electronics also provides multi-sensor fusion solutions with video,millimeter wave radar and ultrasonic radar for autonomous driving.

4.4 Innovative Business—Hikvision Smart Storage

In 2018, Hikvision Smart Storage introduced the V210 series dedicated solid state disk (SSD) for videosurveillance, which supports the latest 64-layer 3D TLC NAND Flash

, and supports up to 4TB of maximumcapacity. All capacities are equipped with power-down protection

to meet the cost-effective, high-capacity andpower-down protection demands in automotive and rail industries. The 4TB mass production complements the

NAND Flash: Nand-flash memory is a type of flash memory, which has a non-linear internal macro-cell mode, providing cheapand effective solution for large-capacity solid state memory implementations. TLC: Triple-Level Cell, which is 3 bit per cell, 1memory storage unit can store 3 bit data.

Power-down protection: abnormal power-off will increase the chance of a SSD failure. By providing a power-down protectionmechanism, the SSDs can be ensured of data integrity in the event of abnormal power failure.

gap in the domestic large-capacity SSD mass production products, which has driven the expansion of externalindustrial markets of automotive and railroad and enhanced the brand awareness of the industry. At the same time,Hikvision Smart Storage participated in the formulation of GA/T 1357-2018 Public Safety Video SurveillanceHard Disk Classification and Test Method, which promoted standardized development of video surveillance SSD.Hikvision Smart Storage also made significant breakthroughs in enterprise-class SSD, and released D200 seriesenterprise-class SSD, which is the first mass-produced domestically-controlled enterprise-class SATA SSDsolution. Its performance and performance stability exceed the common read-intensive enterprise-class SSDs. Inthe area of industrial-grade SSDs, Hikvision Smart Storage released the S210M and S210N, small-sized andultra-small-sized SSDs, with full capacity support from 64GB to 2TB, meeting the needs of miniaturization andlarge-capacity development of SSDs, and providing stable performance and system support for the systems.

Product Family of Hikvision Smart StorageHikvision Smart Storage provides H1, L1, H10 series video surveillance memory cards, and constantlyintroduces new products. Based on the industry application characteristics of video surveillance, Hikvision SmartStorage launched P1, L2, P10 series video surveillance memory card products, covering various industries such aspublic security, transportation, finance and education, applicable to various application environments; at the sametime, these new products have passed the relevant certification of the Ministry of Public Security, protectingcustomers’ data security.

For the personal family scenes, Hikvision Smart Storage launched the “Personal Private Cloud” H100 in2017, which solved the problem of security and sharing convenience of personal data and at the same timeenabled intelligent management of photos and videos through AI technology. For office scenes in small and microcorporates, Hikvision Smart Storage launched the "Hikvision Enterprise Private Network Disk" H304 in 2018,

which provided a series of programs that make office work simple and efficient, such as online documents,collaborative sharing, mobile office, organizational structure management, etc. In terms of idle drives due toupgrading under personal scenes, Hikvision Smart Storage released the "single-disk" H90, allowing the idle harddrive to instantly change into network disk.

In 2018, Hikvision Weiying, Hikvision Huiying and other innovative businesses have developed rapidly,opening up new space for the Company's long-term development.

II. Significant changes in main assets

1. Major Changes in Main Assets

Major assetsExplanation on Major Changes
Equity AssetsIncreased by 8.69%,mainly due to investments on Zhiguang Hailian Big Data Technology Ltd. and SanMenXiaYun Vision Technology Ltd., and additional investments on Maxio Technology (Hangzhou) Ltd.
Fixed AssetsIncreased by 68.07%, mainly due to transfer of the completed Internet Video Industry Base, Security Industry Base (Tonglu) project-phase 2, and Chongqing Manufacturing Base from construction in process to fixed assets during the current reporting period.
Intangible AssetsIncreased by 102.70%, mainly due to newly added land use rights of Chengdu Science and Technology Base, Wuhan Science and Technology Base, and Hangzhou Innovation Industry Base.
Construction in ProgressDecreased by 71.03%, mainly due to transfer of the completed Internet Video Industry Base, Security Industry Base (Tonglu) project-phase 2, and Chongqing Manufacturing Base from construction in process to fixed assets during the current reporting period.

2. Major Overseas Assets

□ Applicable √ Inapplicable

III. Core Competitiveness

Whether it is the video surveillance industry, the security industry, or the intelligent IoT industry, the users’scenario-based demands are very scattered, indicating a market with demand fragmentation. Centering around itsgoal of better meeting the needs of a fragmented market, Hikvision has been concentrated on technologyaccumulation, product development, program design, marketing and service system construction, as well assupply chain delivery capabilities since its inception. The Company focuses on hiring the right people and buildsits global comprehensive competitive advantages through continuous accumulation.

1. Focusing on video technology and satisfying users’ fragmented demands with scenario-based products

and solutionsVideo technology is a very comprehensive technology, which involves optics, sensors, microelectronictechnology, imaging technology, video compression technology, video storage technology, video transmissiontechnology, low illumination and wide dynamic technology, video display technology, as well as traditionalpattern recognition technology, deep learning technology that is extremely popular at present, and many otherrelated technologies. These technologies are rapidly developing and deepening. Regardless of how the marketchanges, the Company will continue to invest in video technology and other related technologies, endlesslydevelop these technologies, and apply these technologies to products or systems to better meet users’ demands.

Based on these video technologies, the Company develops video products and solutions. Givenscenario-based video applications and the fragmented users’ demands, the Company needs to provide theappropriate products or solutions for different scenarios and often needs to customize them accordingly. In orderto meet fragmented demands more efficiently, the Company has been continuously improving its R&D system,optimizing and developing its technology platform, product platform and system platform to maintain itscompetitiveness. For example, the accumulation of big data technology and the construction of big data platformin the past few years have empowered the Company with big data capabilities.

2. Maintaining a high level of R&D investments and proactive planning business development

The continued high level of R&D investment is the core driving force for Hikvision’s competitiveness.During the reporting period, the Company invested RMB 4.48 billion in R&D. Unlike companies that are onlyengaged in one area of the industrial chain, Hikvision provides not only algorithms and products, includinghardware products like cameras, access control for channels, structured servers, etc., but also application systems,being a company that covers the entire industrial chain from technology and products to systems. The Companyhas a three-in-one hierarchical R&D system consisting of the technology platform, the product platform and thesolution platform. The three platforms are different in functions yet cooperate with each other. The continuousdevelopment of technologies, products and solutions enables the Company to respond to and fulfill ongoingcustomers’ demands. The Company anticipated the significance of artificial intelligence and has deployed itsbusiness in advance in terms of algorithms, software and hardware. As a result, Hikvision already possessesrelatively complete and mature artificial intelligence technologies, products and systems at present. The Company

is confidently working to seize the opportunity once again in the current wave of artificial intelligence.

Hikvision has established an R&D system, which is headquartered in Hangzhou and covers various locationsincluding Beijing, Shanghai, Wuhan, Montreal in Canada, and London in Britain. In addition, it is planning tomake R&D investments in various regions including Xi’an, Chengdu, Chongqing and Shijiazhuang, hiring localprofessionals to lay a good foundation for the Company’s sustainable development.

3. Improving manufacturing flexibility and continuously enhancing product delivery capability

Due to the fragmented market demand, there is a wide variety of products and a wide range of models, andorders are characterized by small sizes and multiple batches, which poses a challenge to the delivery of the supplychain and necessitated the development of a flexible production capacity. The Company’s efforts to develop aflexible production capacity can be summarized in three aspects: first, combining independent production withoutsourced production to balance delivery capacity and production efficiency; second, strengthening theconstruction of the internal operation coordination mechanism and the IT system, with production plans leadingmarketing, product development and production, maintaining collaboration with suppliers, ensuring efficient andaccurate material demand forecasting and management, and implementing flexible and effective programcoordination and production scheduling, which is crucial for the Company’s supply chain to respond to thechanging demands, optimize costs, and increase efficiency; third, promoting the construction of intelligentfactories and improving the level of manufacturing equipment, which on the one hand enhances the productionefficiency of the factory, and on the other hand improves the technological level and ensures the consistency ofproduct quality.

Currently, Hikvision has three main manufacturing bases in Hangzhou, Tonglu and Chongqing, and it hasalso launched production expansion plans for Tonglu, Wuhan and Chongqing to ensure steady and healthybusiness growth. At present, the Company applies the intelligent Qianmo AGV and machine vision cameras at theTonglu production base to fully implement the automation of warehousing and in-plant logistics. We will continueimplementing the intelligent factory construction to strengthen the intelligence level of the supply chain systemwith the support of a comprehensive information system, IoT technology and automation technology. Based onthe Tonglu Production Base template, we’ll build more agile, flexible and scaled intelligent factories.4. Continuously optimizing marketing and service networks and building organizational capabilities that match the

Company’s businesses

To better fulfill the fragmented demands of users and reduce the intermediate links of informationtransmission, the Company reinforces the construction of its marketing and service networks. Hikvision’smarketing service network continues to expand to allocate resources globally. The Company has 32provincial-level business centers/primary branches, and has established 44 overseas sales branches, forming amarketing network covering more than 100 countries and regions around the world, with the self-owned brandproducts being sold to more than 150 countries and regions.

In the domestic market, to better serve customers, Hikvision promotes the transformation of local branches toprovincial business centers, allocates more resources to business centers to better cater to customer needs; and theprovincial business centers act as the front desk for the Company to get closer to users and the market and torespond to customer needs. For the purpose of better adapting to the demands of customers, Hikvisionrevolutionized and reorganized the traditional security business in 2018 and established the Public Business Group(PBG), the Enterprise Business Group (EBG) and the Small & Medium Business Group (SMBG), adoptingdifferent business strategies and offering different products and solutions.

In the meantime, Hikvision continues to establish distribution channels in major countries and regions aroundthe world. By optimizing the distributor team, it continuously consolidates and expands the outreach of itsbusiness, providing product delivery and after-sales support for various users in various industries of variouscountries and regions. Through continuous improvement of products and technical service standards, theCompany provides a comprehensive certification training system for its partners to continuously enhance theprofessional capabilities of its partners so as to serve customers together.

Through continuous adjustment of the business structure, Hikvision will continue to build an optimizedorganizational capability that is more compatible with the market.

5. Strengthening human resource construction to support the company’s sustainable development

The competition among enterprises is ultimately the competition for talent, the most important source ofcompetitiveness in enterprises. The Company adheres to the “talent-focused, growing together” employmentconcept, and has set up a dual career development path consisting of management sequence and professionalsequence, established a professional qualification evaluation system and a talent assessment system, andimplemented a multi-level training mechanism, to continuously invest resources for the cultivation of core talentsand back-up talents for the Company. Through a variety of activities such as “Face-to-Face with Executives”,

“Dialogue with Managers”, “Humanities Lecture Hall”, and “Reading Club”, the Company creates a fair, openand positive organizational atmosphere and helps employees gain a sense of accomplishment and belonging.

In addition to providing employees with competitive compensation in the industry, the Company hasimplemented a restricted share incentive scheme for the fourth time in 2018, awarding more than 6,000 employees,covering the core talent team of executives and business backbones from various levels, thereby maintaining thestability and motivation of the Company’s core talents.6. Continuing to build the quality system, safety system and compliance system to escort the Company’sdevelopment

Hikvision continues to invest resources to strengthen and optimize the quality management system, R&Dmanagement system for product safety, and compliance system to empower its business development. TheCompany strictly complies with the applicable laws, regulations and relevant provisions of different countries andregions where the operation is conducted, fosters an open and transparent atmosphere, welcomes the supervisionof all parties, and constantly optimizes itself.

Section IV Operation Discussion and Analysis

I. Overview

In 2018, the domestic economy underwent a rapid decline and the impact of overseas non-market factorssoared, resulting in continuously rising uncertainty risks. Affected by the economic and political environment,with a clear downward trend of market demand, the Company faced greater business challenges than ever before.On the other hand, the application of AI technology accelerated the development of IoT, visual perceptiontechnology brought opportunities for the digital transformation of traditional industries, and the fusion ofintelligent IoT and information network generated tremendous space for data governance, data fusion, dataservices and data applications, which has once again lifted the bottleneck of the industry development. Hikvisioncontinued to maintain a solid growth through its own operations and efforts.

Facing a complicated domestic and overseas environment, the Company adhered to a growth strategy that isoriented by customer demands, driven by technological innovations, and laid equal emphasis on both efficiencyand risk management. During the reporting period, the Company achieved total operating income of RMB 49.84billion, an increase of 18.93% on a year-over-year basis; and net profit attributable to shareholders of the listedcompany of RMB 11.35 billion, an increase of 20.64% on a year-over-year basis. The Company’s overall grossprofit margin was 44.85% in 2018, improving by 0.85% compared to the prior year.

II. Core business analysis

1. Overview(1) Continuing to maintain R&D investment and speeding up the implementation of intelligentapplications of technologies, products and solutions

In 2018, the Company’s R&D investment reached RMB 4.48 billion, accounting for 8.99% of its total salesvolume. The Company maintained a relatively large scale R&D investment, with the number of R&D andtechnical service personnel in excess of 16,000.

While continuing to invest in the technology and products related to the traditional security business, theCompany accelerated a series of R&D investment in AI Cloud. Following the AI Cloud computing architecture ofcloud-edge fusion, the Company proposed a data architecture of IoT-Information network fusion and

comprehensively released a series of platforms, such as “two pools, one library and four platforms”, AI openplatform, and video surveillance construction evaluation system, constantly consolidating the business layout inAI intelligence, big data, and application and building the business architecture system through technologicalinnovation.

In 2018, Hikvision’s products and solutions were widely applied in the public service market, the enterprisemarket, and the consumer market, including intelligent products represented by “Full Structuring”, “HybridIntelligence”, Darkfighter series of intelligent cameras, intelligent traffic products, full-analysis intelligent servers,“DeepinGo” series close-range face recognition intelligent access control products;and its solutions facing thepublic service industry represented by public security projects, solutions guaranteeing “traffic and travel”,solutions for safeguarding “clear water, blue sky and green mountains”; and solutions for improving people’slivelihood services; as well as its solutions facing the enterprise industry represented by solutions serving the“business world”, “social energy”, “better life”, and “wealth growth”.(2) Transforming and reorganizing business organizations to further reach the market and users

For the domestic market, the Company advanced the construction of provincial-level business centers,upgraded provincial-level branches to business centers, and set up secondary branches in key cities, moving sales,R&D and technical support resources forward and relocating market front-line and decision-making centerforward to stay closer to and better serve customers. The Company re-planned its business groups to PBG, EBGand SMBG according to the different characteristics of the three types of markets, effectively coordinatinginternal resources and forming market coverage according to customer differences.

For the overseas markets, the Company set up five new subsidiaries in Mexico, Panama, Pakistan, Peru andIsrael, one new branch in the Philippines, one new office in Ho Chi Minh City, summed up to 44 overseasbranches and more than 100 authorized repair centers in total in 2018, further improved its overseas sales andservice network. The Company continued to consolidate its overseas channels, focused on breaking through theproject market, maintained investment inputs for the overseas market, enhanced brand influence of the Companyto better serve local customers. In 2018, the Company achieved major project breakthroughs in India and othercountries, and made some progress in the project markets of many countries and regions.(3) Making targeted adjustments to business strategy and being cautious in dealing with economic

fluctuationsIn response to the pressure of industry-wide capital contraction brought about by deleveraging campaign in

domestic China, the Company adopted a destocking strategy in the domestic channel market since the secondquarter of 2018 to help distributors reduce inventory, optimize asset structure and improve the ability to addresscapital risks. Meanwhile, it cooperated with the Company’s warehouse management (HiveBox Project

) in majorcities across the country to speed up the operating turnover of our channel partners.

In the second half of 2018, facing the risks brought by the continuous downturn of the domestic economy,the Company paid more attention to the quality of revenue.(4) Continuing to promote the development of innovative business

In 2018, EZVIZ business continued to be profitable, and the Hikvision Robot business started to generateprofits as well. Hikvision Automotive Electronics, Hikvision Storage and other innovative businesses have allinvested heavily to propel the target market. Employees were committed to the business development with thespirit of hard work and entrepreneurship. The Company's employee team and the innovative business team have apositive and productive working relationship; likewise the Company's business and the innovative businessescomplement each other and are synergistic.(5) Improving supply chain management and deploying overseas production bases

In 2018, the Company promoted intelligent manufacturing in its production base, improving manufacturingflexibility and production efficiency. It also impelled the construction of the supply chain IT system, enhanced thelevel of process operation, and reinforced the control and management of the production process.

During the reporting period, the Tonglu Production Base-Phase 2 and the Chongqing Production Base werecompleted and delivered, and the factory in India, the Company’s first production base in the overseas market,was constructed, forming overseas manufacturing capabilities to more effectively ensure the products supply inthe overseas market.(6) Furthering management change and improving management capabilities

In 2018, the Company continued to promote various management change projects and upgraded capabilitiesin all aspects. From focusing on scale growth, we are laying emphasis on both scale growth and efficiencyimprovement now. At the same time, we continue to develop and cultivate promising employees to activateorganizational vitality.

Hive Box Plan: establish warehouses in major cities across the country, centralize warehouse management, and respond quickly todistributors’ orders to improve overall delivery efficiency.

2. Operating incomes and operating costs1) Operating income structure

Unit:RMB

20182017YoY Change (%)
AmountProportion to operating incomeAmountProportion to operating income
Total operating income49,837,132,481.61100.00%41,905,476,572.07100.00%18.93%
Classified by industry
Video products and video services49,837,132,481.61100.00%41,905,476,572.07100.00%18.93%
Classified by product
Front-end equipment24,083,382,887.0148.32%21,090,230,299.4950.33%14.19%
Back-end equipment6,779,290,973.7613.60%6,151,038,063.7014.68%10.21%
Central control equipment7,323,448,788.5114.69%5,073,899,931.9512.11%44.34%
Constructions2,285,061,427.634.59%2,540,799,165.586.06%-10.07%
Others6,668,689,372.1213.39%5,394,298,987.2512.87%23.62%
Subtotal47,139,873,449.0394.59%40,250,266,447.9796.05%17.12%
Smart home business1,636,697,390.223.28%1,090,629,830.132.60%50.07%
Other innovative businesses1,060,561,642.362.13%564,580,293.971.35%87.85%
Subtotal2,697,259,032.585.41%1,655,210,124.103.95%62.96%
Classified by region
Domestic35,646,435,049.9371.53%29,661,186,316.3270.78%20.18%
Overseas14,190,697,431.6828.47%12,244,290,255.7529.22%15.90%

Note: In the category classified by product, “Smart home business” under innovative businesses was listed separately; “Otherinnovative businesses” includes corresponding business products of innovative business subsidiaries - HikvisionRobotics, and Hikvision Automotive Electronics, Hikvision Weiying, Hikvision Storage, Hikvision Huiying, andSimilar hereinafter.

Unit: RMB

2018
Q1Q2Q3Q4
Operating income9,364,828,201.0011,510,930,023.6312,926,932,976.4816,034,441,280.50
Net profits attributable to shareholders of the listed company1,815,964,569.772,331,430,966.093,248,407,615.143,957,066,090.32
2017
Q1Q2Q3Q4
Operating income7,043,724,101.739,403,815,634.7911,282,202,421.6614,175,734,413.89
Net profits attributable to shareholders of the listed company1,480,780,632.011,810,765,424.692,861,268,129.823,258,040,898.30

2) Industries, products or regions accounting for more than 10% of the Company’s operating income or

operating profit√ Applicable □ Inapplicable

Unit: RMB

Operating incomeOperating costGross marginYoY Change (%) of operating incomeYoY Change (%) of operating costYoY Change (%) of gross margin
Classified by industry
Video products and video services49,837,132,481.6127,483,469,555.2444.85%18.93%17.11%0.85%
Classified by product
Front-end equipment24,083,382,887.0112,054,070,919.0349.95%14.19%16.41%-0.95%
Back-end equipment6,779,290,973.763,603,440,284.9846.85%10.21%13.88%-1.71%
Central control equipment7,323,448,788.513,380,634,705.1653.84%44.34%45.68%-0.42%
Constructions2,285,061,427.632,008,019,572.0512.12%-10.07%-11.95%1.88%
Others6,668,689,372.124,850,627,883.9527.26%23.62%12.97%6.85%
Subtotal47,139,873,449.0325,896,793,365.1745.06%17.12%15.54%0.75%
Smart home business1,636,697,390.22997,681,210.6239.04%50.07%40.91%3.96%
Other innovative businesses1,060,561,642.36588,994,979.4544.46%87.85%70.50%5.65%
Subtotal2,697,259,032.581,586,676,190.0741.17%62.96%50.61%4.82%
Classified by region
Domestic35,646,435,049.9319,658,459,789.7944.85%20.18%14.32%2.83%
Overseas14,190,697,431.687,825,009,765.4544.86%15.90%24.79%-3.93%

Adjusted statistics of principal business are based on the caliber at the end of the reporting period of last year, if thestatistics caliber of principal business has been changed during the reporting period□ Applicable √ Inapplicable

3) If revenue from physical products sales greater than revenue from providing services

√ Yes □ No

IndustryItemUnit20182017YoY Change (%)
Video products and video servicesSales volumePer unit126,356,78898,345,86028.48%
Output volumePer unit128,068,306100,205,02527.81%

Explanation on why the related data varied by more than 30% on a YOY basis□Applicable √Inapplicable

4) Fulfillment of signed significant sales contracts by the reporting period

□ Applicable √ Inapplicable

5) Operating cost structure

Classified by industry

Unit: RMB

IndustryItem20182017Increase/ decrease over previous year
AmountProportion to operating costAmountProportion to operating cost
Video products and video servicesOperating cost27,483,469,555.24100.00%23,467,310,590.76100.00%17.11%

Classified by products

Unit: RMB

ProductItem20182017Increase/ decrease over previous year
AmountProportion to operating costAmountProportion to operating cost
Front-end equipmentOperating cost12,054,070,919.0343.86%10,354,906,543.3044.12%16.41%
Back-end equipmentOperating cost3,603,440,284.9813.11%3,164,186,804.3513.48%13.88%
Central control equipmentOperating cost3,380,634,705.1612.30%2,320,570,446.439.89%45.68%
ConstructionsOperating cost2,008,019,572.057.31%2,280,617,025.829.72%-11.95%
OthersOperating cost4,850,627,883.9517.65%4,293,560,908.6318.30%12.97%
SubtotalOperating cost25,896,793,365.1794.23%22,413,841,728.5395.51%15.54%
Smart home businessOperating cost997,681,210.623.63%708,022,298.253.02%40.91%
Other innovative businessesOperating cost588,994,979.452.14%345,446,563.981.47%70.50%
SubtotalOperating cost1,586,676,190.075.77%1,053,468,862.234.49%50.61%

6) Any change in consolidation scope during the reporting period

√Yes □ No

During the reporting period, the Company has newly set up eleven wholly-owned subsidiaries and six holdingsubsidiaries, and cancelled one company, which have caused the changes in consolidation scope. For more details,please refer to note (VI) “Changes in consolidation scope” of the financial statement.7) Significant change or adjustment of the Company’s business, products or services during the reportingperiod:

□ Applicable √ Inapplicable

8) Major customers and suppliers:

Sales to major customers of the Company

Sales to top five customers (RMB)1,907,664,504.44
Total sales to top five customers as a percentage of the total sales for the year (%)3.83%
Total sales to the related parties in top five customers as a percentage of the total sales of the year (%)0.47%

Information on top five customers

No.Name of CustomerSales Amount (RMB)Percentage of total sales for the year
1First855,032,885.621.72%
2Second328,807,648.020.66%
3Third257,177,044.920.52%
4Fourth (related party)235,831,258.920.47%
5Fifth230,815,666.960.46%
Total--1,907,664,504.443.83%

Other information of major customers

√Applicable □ Inapplicable

The Company’s fourth customer regarding sales amount is a related party: branch research institute and subsidiaryof CETC (under the common control of CETC, consolidated as required)

Major suppliers of the Company

Total purchases from top five suppliers (RMB)6,869,030,217.74
Total purchases from top five suppliers as a percentage of the total purchases for the year22.88%
Total purchases from the related parties in the top five suppliers as a percentage of the total purchases for the year0.00%

Information on top five suppliers of the Company

No.Supplier NamePurchase Amount (RMB)Percentage of total purchase for the year
1First3,415,111,828.0711.38%
2Second1,237,317,431.124.12%
3Third769,661,849.332.56%
4Fourth731,451,005.502.44%
5Fifth715,488,103.722.38%
Total--6,869,030,217.7422.88%

Other information on major suppliers□ Applicable √ Inapplicable

3. Expenses

Unit: RMB

20182017Increase/decrease over previous yearNote of significant change
Sales expenses5,892,500,406.524,430,220,065.1333.01%Improve sales network, increase personnel contribution
Administrative expenses1,376,013,682.791,011,214,457.2936.08%Increase in personnel and low-value consumables used in new office buildings
Financial expenses-424,257,896.76265,411,287.66-259.85%Increase in foreign exchange gains during the reporting period
R&D expenses4,482,780,693.413,194,223,108.1640.34%Continue to increase R&D investments

4. R&D Investment

√Applicable □Inapplicable

Benefited from the professional intellectual property management system, in 2018, the Company has newlyadded 850 patents (including 116 patents for invention, 270 utility models and 464 product design patents), andnewly added 112 software copyrights. As of the end of 2018, the Company had accumulatively owned 2809patents (including 513 invention patents, 741 utility models and 1555 product design patents), and owned 881software copyrights.

During the reporting period, the Company invested RMB 4.48 billion in R&D, which accounted for 8.99% ofthe operating income. Owing to the continuous relatively high level R&D investment and continuous innovation,the Company is able to keep and enhance its technology leading position and rapidly transform technicaladvantage to product superiority, so as to continually promote the growth of the Company’s performance.

R&D investment of the Company

20182017Change Percentage
Number of Engineers (ppl)16,01013,08522.35%
Engineers as percentage of Total headcount46.55%49.70%-3.15%
Amount of R&D expenses (RMB)4,482,780,693.413,194,223,108.1640.34%
R&D investment as a percentage of operating income8.99%7.62%1.37%
Capitalized R&D expenses (RMB)0.000.000.00
Capitalized R&D expenses as a percentage of R&D expenses0.00%0.00%0.00%

Reason of significant change of total R&D expenses as a percentage of operating income as compared to last year

□ Applicable √ Inapplicable

Reason and explanation of its reasonableness of significant change of the capitalized R&D expenses

□ Applicable √ Inapplicable

5. Cash flow

Unit: RMB

Item20182017Increase/decrease over previous year
Subtotal of cash inflows from operating activities57,331,971,581.3645,403,833,925.4626.27%
Subtotal of cash outflows from operating activities48,217,958,295.3038,030,673,674.7826.79%
Net cash flows from operating activities9,114,013,286.067,373,160,250.6823.61%
Subtotal of cash inflows from investing activities10,894,117,243.9710,418,044,681.024.57%
Subtotal of cash outflows from investing activities9,443,396,961.9211,626,742,349.71-18.78%
Net cash flows from investing activities1,450,720,282.05-1,208,697,668.69-220.02%
Subtotal of cash inflows from financing activities12,493,552,609.393,642,688,936.06242.98%
Subtotal of cash outflows from financing activities13,298,915,018.827,044,435,588.9388.79%
Net cash flows from financing activities-805,362,409.43-3,401,746,652.8776.33%
Net increase in cash and cash equivalents9,994,553,723.022,506,847,571.89298.69%

Explanation of why the related data varied significantly on a YoY basis

√ Applicable □ Inapplicable

The fluctuation of net cash flows from operating activities is mainly due to the increase in sales collection;the fluctuation of net cash flows from investing activities is mainly due to the increase in the net recovery amountof principal-guaranteed financial products; the fluctuation of net cash flows from financing activities is mainlydue to equity incentive subscription funds received in the current period.

Explanation of reasons leading to the material difference between cash flow from operating activities during thereporting period and net profit for the year

□ Applicable √ Inapplicable

III. Non-Core Business Analysis

□Applicable √Inapplicable

IV. Analysis of assets and liabilities

1. Material changes of asset items

Unit:RMB

December 31st 2018December 31st 2017YoY Change (%)Note of significant change
AmountPercentage of total assetsAmountPercentage of total assets
Cash and bank balances26,552,402,711.2341.83%16,468,430,702.6431.93%9.90%Increase in sales collection
Accounts receivable and notes receivable19,188,886,471.1030.23%18,342,171,688.8435.57%-5.34%No significant change
Inventory5,725,104,153.419.02%4,940,332,311.659.58%-0.56%Inventory increases as sales increase
Long-term equity investment163,301,844.560.26%130,474,733.580.25%0.01%Mainly due to investments in associates
Fixed assets5,082,415,160.108.01%3,024,025,496.315.86%2.15%The transfer of Internet Security Vedio Industry Base, Security Industry Base (Tonglu) Project-phase 2, and Chongqing Manufacturing Base into fixed assets after completion during the current reporting period.
Construction in process416,092,413.420.66%1,436,319,118.302.79%-2.13%
Short-term loans3,465,655,688.295.46%97,114,655.910.19%5.27%Increased Short-term borrowing used for temporary capital turnover
Long-term loans440,000,000.000.69%490,000,000.000.95%-0.26%No significant change

2. Assets and liabilities measured at fair value

√ Applicable □ Inapplicable

Unit: RMB

ItemOpening balanceProfit or loss from change in fair value during the periodDifference on translation of financial statements dominated in foreign currencyProvision for decline in value during the current periodPurchase during the periodSales during the periodClosing balance
Financial assets
Derivative financial assets4,100,657.54-2,249,271.028,664.071,860,050.59
Subtotal of financial assets4,100,657.54-2,249,271.028,664.071,860,050.59
Financial Liabilities15,946,836.4615,656,203.19-365.16290,998.43

Whether there were any material changes on the measurement attributes of major assets of the Company duringthe reporting period:

□ Yes √ No

3. Assets right restrictions as of the end of reporting period

Unit: RMB

ItemClosing Book Value (RMB)Reasons for being restricted
Monetary fund528,663,719.04Various cash deposits and other restricted funds
Notes receivable412,061,782.74Pledge for issuance of bank acceptance
Total940,725,501.78

V. Analysis of Investments

1. Overview

√Applicable □ Inapplicable

Investment during 2018 (RMB)Investment during 2017 (RMB)Fluctuation (%)
2,070,774,031.121,804,851,313.8614.73%

2. Significant equity investment during the reporting period

□Applicable √Inapplicable

3. Significant non-equity investment during the reporting period

√ Applicable □ Inapplicable

Unit: RMB

Project nameInvest methodFixed assets investment or notProject industryInvestment during the current reporting periodCumulative amount of investment by the end of reporting periodSource of fundsProject schedule
Internet Security Industry BaseSelf-builtYESVideo product and video service171,166,453.221,085,180,718.30Bond100%
Security Industrial Base (Tonglu)-phase 2Self-builtYESVideo product and video service341,337,980.27642,026,894.23Self-fund100%
Chongqing Manufacture BaseSelf-builtYESVideo product and video service187,895,561.81277,289,173.62Self-fund100%
Hangzhou Innovation Industry BaseSelf-builtYESVideo product and video service50,840,516.8350,840,516.83Self-fund4.96%
Chengdu Science and Technology Base ProjectSelf-builtYESVideo product and video service6,577,446.746,577,446.74Self-fund0.49%
Chongqing Science and Technology Base Project-phase 2Self-builtYESVideo product and video service2,257,412.052,257,412.05Self-fund0.30%
Xi’an Science and Technology Base ProjectSelf-builtYESVideo product and video service1,664,067.681,664,067.68Self-fund0.15%
Wuhan Science and Technology Base ProjectSelf-builtYESVideo product and video service1,641,509.431,641,509.43Self-fund0.06%
Wuhan Intelligence Industry Base ProjectSelf-builtYESVideo product and video service934,836.51934,836.51Self-fund0.04%
Project nameInvest methodFixed assets investment or notProject industryInvestment during the current reporting periodCumulative amount of investment by the end of reporting periodSource of fundsProject schedule
Total------764,315,784.542,068,412,575.39----

4. Financial assets measured at fair values

√ Applicable □ Inapplicable

Unit: RMB

CategoryInitial investment costCurrent profits or losses on the changes in fair valueAccumulated fair value changes included in equityPurchase during the reporting periodAmount sold during the reporting periodCumulative investment incomeClosing balanceSource of funds
Derivative instruments1,400,293,692.2313,406,932.170.007,860,873,273.42-40,669,470.741,013,306,062.25Company's own funds
Total1,400,293,692.2313,406,932.170.007,860,873,273.42-40,669,470.741,013,306,062.25--

5. Use of raised funds□ Applicable √ InapplicableDuring the reporting period, there was no use of raised fund

VI. Disposal of significant assets and equity

1. Disposal of significant assets:

□ Applicable √ InapplicableDuring the reporting period, there was no disposal of significant assets2. Sale of significant equity:

□ Applicable √ Inapplicable

VII. Analysis of major subsidiaries and investees

√ Applicable □ Inapplicable

Information about major subsidiaries, and investees that contribute above 10% of the Company’s Net Profit

Unit:RMB

Company nameCompany typePrincipal businessRegistered capitalTotal assetsNet assetsOperating revenueOperating profitNet profit
Hangzhou Hikvision System Technology. Co., Ltd.SubsidiaryManufacturing: video surveillance system; Technology development and service: computer system integration, electronic product, communication product; service: the installation of electric security engineering, the design, construction and maintenance of intelligent system; selling its self-produced products, import and export its own products and technology.600 million4,039,319,343.681,484,001,942.463,670,112,122.85302,469,418.63316,692,239.46
Hangzhou Hikvision Science and Technology Co. Ltd.SubsidiaryManufacturing: security electronic product, intelligent hardware electronic products, explosion-proof electric products., IC card and IC card RW device, mobile phone, cordless phone, handheld wireless police terminal, hand held mobile police terminal; technology development, technology consulting, results transferring: computer software, electronic product, communication product, digital security product; wholesale: security electronic product and its auxiliary equipment, intelligent hardware electronic product, explosion-proof electrics, security electronic product and its auxiliary equipment, intelligent hardware electronic product, explosion-proof electrics, IC card and IC card RW device, mobile phone, cordless phone, handheld wireless police terminal, hand held mobile police terminal;;import and export business1000 million26,761,014,281.272,680,178,976.2746,198,675,003.99889,705,199.85683,540,040.65

Information about obtaining and disposal of subsidiaries during the reporting period√ Applicable □ Inapplicable

Company nameEquity acquisition and disposal method during the reporting periodImpact on overall production results
Xi’An Hikvision Digital Technology Ltd.Cash contributionBusiness development
Hangzhou HIK Huiying Technology Ltd.Cash contributionBusiness development
Xinjiang CET Yihai Information Technology Ltd.Cash contributionBusiness development
Xinjiang CET Yihai Information Technology Ltd.Cash contributionBusiness development
Luo Pu District Hai Shi Ding Xin Electronic Technology Ltd.Cash contributionBusiness development
Yu Tian Hai Shi Mei Tian Electronic Technology Ltd.Cash contributionBusiness development
Hikvision Xi’an Xueliang Construction Project Management Ltd.Cash contributionBusiness development
Wuhan Hikvision Science and Technology Ltd.Cash contributionBusiness development
Wuhan Hikvision Technology Ltd.Cash contributionBusiness development
Wuhan Hikvision Fire Control Technology Ltd.Cash contributionBusiness development
Hainan Hikvision System Technology Ltd.Cash contributionBusiness development
Nanjing Hikvision Digital Technology Ltd.Cash contributionBusiness development
Hikvision Panama Commercial S.A.Cash contributionExpand overseas sales channels
Hikvision Mexico S.A.de C.V.Cash contributionExpand overseas sales channels
Hikvision Pakistan (SMC-Private) LimitedCash contributionExpand overseas sales channels
Hikvision Peru Closed Stock CompanyCash contributionExpand overseas sales channels
Hikvision Technology Israel Ltd.Cash contributionExpand overseas sales channels
Beijing Hikvision Security and Protection Technology Service Ltd.Liquidation and CancellationAdjustments of organizational framework

VIII. Structural entities controlled by the Company

□ Applicable √ Inapplicable

IX. Outlook for the Future Development of the Company

1. Industry developing trends(1) Continual growth in traditional comprehensive security needs

Security is highly valued, and therefore continuously enhancing the security and protection capability is aninevitable requirement for development. The security demands of governments, enterprises and families invarious countries will continue to increase; therefore, the demands for traditional comprehensive securitybusiness will maintain a solid growth.(2) Rapidly emerging demand for intelligent applications, AI will be ubiquitous

AI empowers objects with intelligence and facilitates the swift development of IoT. A large number ofsub-industries will introduce AI, and AI will be everywhere. Ubiquitous intelligence has brought theCompany clear opportunities. However, the fragmented demands of intelligent applications will be theconstraint. If an efficient and low-cost solution could be found to address the intelligent needs of thesub-industries, the industry will flourish.(3) Greater challenges arising from increased non-market interference factors in overseas markets

The competitive and cooperation relationship between different countries directly or indirectly affects theCompany’s business environment in the country and region. Along with increased non-market interferencefactors in overseas markets, the uncertainty risks will continue to rise.2. Development Strategy of the Company

Hikvision is a provider of Intelligent IoT solutions and big data services with video as its core competence.The Company adheres to the business philosophy of "professionalism, honesty, and integrity”, is dedicated to corecorporate value of “clients’ success, value-oriented, integrity and down-to-earth, pursuit of excellence”. TheCompany provides high-quality products and services for global customers and creates greater values forcustomers worldwide through continuous innovation.

With the corporate mission of “exploring innovative ways to better perceive and understand the world,empowering vision for decision-makers and practitioners and work together to enhance safety and advancesustainable development of the world”, the Company is committed to empower vision for the security and growthof the world.3. Key Operation Priorities in 2019(1) Continue to carry out refined marketing in the existing market to ensure stable and efficient revenue generation;develop the market of AI-perceptual intelligent business to fulfill more fragmented demands for intelligence; anddevelop big data business under the cloud-edge fusion and IoT-information network fusion architectures.(2) Continue to promote innovative businesses and strive to make the innovation businesses bigger and stronger.(3) Continue to enhance the Company’s R&D capabilities in technology, products and systems to better fulfillcustomers’ demands.(4) Maintain the driving force of both products and solutions, and focus on improving the marketing capabilitiesof solutions.(5) Continuously pay attention to the development of organizational capabilities and improve per capitaeffectiveness.

X. Reception of activities including research, communication and interviews during the report period

√ Applicable □ Inapplicable

(1) Reception of research activities during the reporting period.

Time of receptionMethod of receptionType of reception objectBasic situation of the research
From January 1st 2018 to February 2nd 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From January 1st 2018 to February 2nd 2018
From February 5th 2018 to March 2nd 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From February 5th 2018 to March 2nd 2018
From March 5th 2018 to March 16th 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From March 5th 2018 to March 16th 2018
April 23rd 2018Annual performance result Conference CallInstitutional and individual investorsCNINFO, Investor Relations Activity Record: April 23rd 2018
May 11th 2018Investor Reception DayInstitutional and individual investorsCNINFO, Investor Relations Activity Record: May 11th 2018
From May 14th 2018 to May 25th 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From May 14th 2018 to May 25th 2018
From May 28th 2018 to June 8th 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From May 28th 2018 to June 8th 2018
From June 11th 2018 to June 22nd 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From June 11th 2018 to June 22nd 2018
July 23rd 2018Performance result-Conference CallInstitutional and individual investorsCNINFO, Investor Relations Activity Record: July 23rd 2018
From July 24th 2018 to August 10th 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From July 24th 2018 to August 10th 2018
Time of receptionMethod of receptionType of reception objectBasic situation of the research
From August 13th 2018 to August 31st 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From August 13th 2018 to August 31st 2018
From September 3rd 2018 to September 14th 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From September 3rd 2018 to September 14th 2018
October 22nd 2018Performance result-Conference CallInstitutional and individual investorsCNINFO, Investor Relations Activity Record: October 22nd 2018
From October23rd 2018 to November 2nd 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From October23rd 2018 to November 2nd 2018
From November 5th 2018 to November 16th 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From November 5th 2018 to November 16th 2018
From November 19th 2018 to December 4th 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From November 19th 2018 to December 4th 2018
From December 5th 2018 to December 17th 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From December 5th 2018 to December 17th 2018
From December 18th 2018 to December 29th 2018Site Research and telephone communicationInstitutional investorsCNINFO, Investor Relations Activity Record: From December 18th 2018 to December 29th 2018

(2) Participation of conferences for investor relationship activities during the reporting period.

Time of conferenceLocationConference NameType of reception objectMethod of reception
January 2018ShanghaiEver-Bright Securities 2018 Investment ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
January 2018Las VegasNomura@CES 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
January 2018BeijingMorgan Stanley China TMT ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
Time of conferenceLocationConference NameType of reception objectMethod of reception
January 2018Beijing16th Annual DBAccess China ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
January 2018New YorkBank of America Merrill Lynch 2018 A-share ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
January 2018New York-BostonUS NDR- via Bank of America Merrill LynchAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
January 2018Hong KongCICC TMT Forum 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
March 2018TaibeiBank of America Merrill Lynch APAC TMT Conference 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
April 2018HangzhouHaitong Securities 2018 Spring Corporate ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018Los AngelesJefferies Technology conference 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018NYC-SFOUS NDR- via JefferiesAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018BeijingJP Morgan Global China SummitAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018ShenzhenCICC Industrial Internet ForumAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018Hong KongBNP 2018 TMT ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018Hong KongMacquarie Greater China Conference 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018ShenzhenHSBC 5th Annual China ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018Hangzhou23rd CLSA China ForumAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018HongkongGoldman Sachs TechNet Conference 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018BeijingMorgan Stanley 4th Annual China SummitAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
May 2018ChengduEssence Securities 2018 Mid-Year Investment ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
June 2018BeijingHuatai Securities Mid-Year ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
Time of conferenceLocationConference NameType of reception objectMethod of reception
June 2018London-Paris- Geneva-ZurichEurope NDR-via CLSAAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
September 2018LondonCICC Forum (UK) 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
September 2018Stockholm -LondonEurope NDR-via CICCAll kinds of investorsOne-on-One Meetings
September 2018ShenzhenUBS China A-Share Conference 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
September 2018TaibeiCredit Suisse 19th Annual Asian Technology ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
September 2018Hongkong25th CLSA Investors' ForumAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
November 2018Shenzhen9th Credit Suisse China Investment ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
November 2018Hong KongJefferies 8th Annual Greater China ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
November 2018BeijingBank of America Merrill Lynch China ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
November 2018Shenzhen13th CITI China Investment Conference 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
November 2018ShenzhenCITIC Securities 2018 Annual ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
November 2018Hong KongJ.P. Morgan Global TMT Conference 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
November 2018ShenzhenShenWanHongYuan Securities 2019 Capital Market ForumAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
November 2018SingaporeMorgan Stanley 17th Annual Asia Pacific SummitAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
December 2018ShanghaiMerchants Securities 2018 Investment ConferenceAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
December 2018TokyoNomura Investment Forum 2018All kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.
December 2018ChengduGF Securities 2018 Winter Listed Company Non-disclosure Investment ForumAll kinds of investorsOne-on-One, One-on-multi, small group Meetings, and etc.

(3) Investor relations activity statistics during the current year

Number of daily research received (Site and telephone conference, times)395
Number of institutional investors received (ppl)3373
Number of individual investors received (ppl)80
Number of investor relations conference participated38

Section V Significant Events

I. Profit distribution of ordinary shares and capitalization of capital reserves

Profit distribution policy of ordinary shares in the reporting period, especially the formulation, implementationand adjustment of cash dividend policy

□ Applicable √ Inapplicable

Profit distribution policy (proposal) and capitalizing of capital reserves policy (proposal) in last three years(including the current reporting period)

(1) Profit distribution for the year 2016:Based on the total share capital of 6,152,576,743 shares on the

actual date of record when implementing the 2016 profit distribution proposal, the Companydistributed cash dividend of RMB 6 (tax inclusive) and 5 bonus shares (tax inclusive) per each 10shares to all shareholders; share distribution from capital reserve is nil.(2) Profit distribution for the year 2017: Based on the Company’s total share capital of 9,227,270,473

shares, the Company proposed to distribute cash dividend of RMB 5 (tax inclusive) per each 10shares to all shareholders, bonus share and share distribution from capital reserve is nil.(3) Profit distribution proposal for the year 2018:Based on the Company’s current total share capital of

9,348,465,931 shares, the Company proposed to distribute cash dividend of RMB 6 (tax inclusive)per each 10 shares to all shareholders, bonus share and share distribution from capital reserve is nil.Cash dividend of ordinary shares in last 3 years (including the current reporting period)

Unit: RMB

YearCash dividends (including tax)Net profit attributable to shareholders of listed Company in consolidated statementsRatio of net profit attributable to shareholder of Company in consolidated financial statements (%)Amount of cash dividends in other methodsRatio of cash dividends in other methods
20185,609,079,558.6011,352,869,241.3249.41%0.000.00%
20174,613,635,236.509,410,855,084.8249.02%0.000.00%
20163,691,546,045.807,423,683,960.9149.74%0.000.00%

During the reporting period, the company was profitable and the distributable profits to ordinary shareholders ofthe parent company was positive, but the Company did not propose a cash dividend distribution plan of ordinaryshares.

□ Applicable √ Inapplicable

II. Profit distribution and capitalizing of capital Reserves proposal for the current reportingperiod

Bonus issue per 10 shares (share)0
Cash dividend per 10 shares (RMB) (tax inclusive)6.00
Additional shares converted from capital reserves for 10 shares (share)0
Total capital shares as the basis for the distribution proposal (share)9,348,465,931
Total cash dividend (RMB) (tax inclusive)5,609,079,558.60
Distributable profits (RMB)19,327,533,457.91
Percentage of cash dividends in the total distributed profit (%)29.02%
Cash dividend policy:
The Company is in the development stage and has a substantial plan of cash expenditure. In the current profit distribution, cash dividends shall account for at least 20%.
Details about the plan for profit distribution and capitalizing capital reserves into share capital
As audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, in 2018, the parent company of the Company realized net profit of RMB 9,769,694,399.19,after deducting the statutory surplus reserve of RMB 976,969,439.92, which was provided at 10% of the net profits, adding the undistributed profit of the parent company at the beginning of the year of RMB 15,148,443,735.14, deducting the cash dividends of RMB 4,613,635,236.50 in 2017, as of December 31st 2018, the profits attributable to shareholders of the parent company amounted to RMB 19,327,533,457.91. As of December 31st 2018, the profits attributable to shareholders in the consolidated statement were RMB 22,360,593,257.53 (consolidated). To sum up, according to the principle of “whichever is lower”, the profits attributable to shareholders this year was RMB 19,327,533,457.91. Based on the Company’s total share capital of 9,348,465,931 shares, the Company proposed to distribute cash dividend of RMB 6 (tax inclusive) per each 10 shares to all shareholders, bonus share and share distribution from capital reserve is nil. The above scheme will distribute a total cash dividend of RMB 5,609,079,558.60, and the remaining undistributed profits will be transferred to the next year.

III. Performance of commitments

1. Complete and incomplete commitments of the Company and its actual controller, shareholders, related

parties, acquirers, and other related parties for the commitments by the end of the reporting period.

√ Applicable □ Inapplicable

CommitmentsGiver of commitmentsDetails of commitmentsDate of commitmentsTerm of commitmentsPerformance
Commitments in offering documents or shareholding alterationsCETHIK Group Co., Ltd.1. Commitments in non-competition within the industry: In the period as controlling shareholders of the Hikvision, CETHIK and its controlling subsidiaries (excluding Hikvision and its subsidiaries, the same below) will not be engaged in such business that is competitive to Hikvision and its subsidiaries directly or indirectly. 2. Commitments in decrease and regulation of transactions with related party: Zhejiang Haikang Group Co., Ltd (hereinafter referred to as Haikang Group or actual controller) as the controlling shareholders of Hangzhou Hikvision Digital Technology Co., Ltd (hereinafter referred to as "Hikvision" or "Listed Company") are commited as below for the transactions with Hikvsion: (1) Haikang Group will not make use of the controlling power to offer more favorable conditions to Hikvision than those to any independent third party in any fair market transactions in the cooperation with Hikvision. (2) Haikang Group will not make use of the controlling power to obtain the prior right to complete the transaction with Hikvision. (3) Haikang Group will not deal with Hikvsion in not fair terms comparing to the market prices to prejudice the Company’s interests. For unavoidable related transactions, the Company will observe the principles of justice and fairness to deterimine prices according to the market on the basis of equality, voluntarily. The Company will obey the Articles of Association and other regulatory documents related to the avoiding ofOctober 29th 2013Long-termStrict performance
CommitmentsGiver of commitmentsDetails of commitmentsDate of commitmentsTerm of commitmentsPerformance
issues about related transactions. The related transactions will go through approval procedures in accordance with related rules and complete legal procedures, fulfilling the information disclosure obligations in respect to the related transactions 3. Commitment to the maintenance of the independence of the listed Company 3.1 Commitment to Personnel Independence of the listed Company (1) Commitment that our general manager, deputy general manager, chief financial officer, secretary of the board and other members of senior management shall not assume any positions other than directors and supervisors or get any remuneration in CETHIK and/or any of its controlled entities; (2) Commitment in keeping the management of labor, human resources and issues related to remuneration of the listed Company independent from that of CETHIK; 3.2 Commitment to the independence of the asset of the listed Company (1) Commitment to independent and complete asset of the listed Company (2) Commitment free of unlawful use of cash and asset of the listed Company by the controlling shareholders 3.3 Commitment to financial independence of the listed Company (1) Commitment to an independent finance department with a team and accounting system; (2) Commitment to a regulated, independent accounting system and financial management system of the branches and subsidiaries (3) Commitment to maintaining accounts with banks independently of and not sharing any bank account with our controlling shareholders (4) Commitment that the financial staff shall not assume any positions in CETHIK (5) Commitment to paying taxes independently according to the law; (6) Commitment to implementing financial decisions independently 3.4 The Company has set up an
CommitmentsGiver of commitmentsDetails of commitmentsDate of commitmentsTerm of commitmentsPerformance
independent organizational structure which maintains its independent operations which is independent from that of CETHIK. 3.5 Commitment to business Independence of the listed Company (1) The Company has the asset, personnel, aptitude and management capability for independent and complete business operation. The Company has the ability to operate independently in the market. (2) Commitment in independence in both business and operations 4. Regarding plans for the development and relevant commitment for the listed Company, Haikang Group has committed as below for the subsequent development of Hikvsion according to the Securities Acts and relevant laws and rules, 4.1 Currently the Company has no plan to change or make significant adjustments for principal business in the next 12 months; 4.2 Currently the Company has no plan to sell, merge or operate with another Company for the assets and business of the listed Company or its subsidiaries in the next 12 months. 4.3 Currently the Company has no plan to alter the Board of the Directors and senior management and no agreement with other shareholders about the appointment and removal of the directors or senior management. The team of Board of Directors and senior management will remain unchanged for the foreseeable future. 4.4 Currently the Company has no plan to make significant changes to the Articles of Association for the listed Company. 4.5 Currently the Company has no plan
CommitmentsGiver of commitmentsDetails of commitmentsDate of commitmentsTerm of commitmentsPerformance
to make significant changes to the existing employee recruitment for the listed Company. 4.6 Currently the Company has no plan to make significant changes for the dividend distribution plan for the listed Company. 4.7 Currently the Company has no plan to make significant changes for business and organizational structure for the listed Company.
Commitments in Initial Public Offering or re-financingHangzhou Weixun Investment Management Limited Partnership(later renamed as Xinjiang Weixun Investment Management Limited Partnership)During Hu Yangzhong, Wu Weiqi, JiangHaiqing, Zhou Zhiping, Xu Lirong, Cai Dingguo, He Hongli, Zheng Yibo, Hu Dan,、Jiang Yufeng, Liu Xiang, Wang Ruihong, Chen Junke’s tenure of the Company’s board of directors, supervisors and senior management personnel, the annual transfer of Hikvision’s total shares should not exceed 25% of total number of shares held under Weixun; within 6 months after abovementioned personnel’s dimission, should not transfer Hikvision’s shares held under Weixun.May 17th 2010Long termStrict performance
Hangzhou Pukang Investment Limited Partnership(later renamed as Xinjiang Pukang Investment Limited Partnership)During Hu Yangzhong, Wu Weiqi, Gong Hongjia’s tenure of the Company’s board of directors, supervisors and senior management personne, the annual transfer of Hikvision’s total shares should not exceed 25% of total number of shares held under Pukang; whithin 6 months after abovementioned personnel’s dimission, should not transfer Hikvision’s shares held under Pukang.May 17th 2010Long termStrict performance
The Company's directors, supervisors and executive: HuYangzhong,Wu Weiqi, Jiang Haiqing, ZhouDuring their tenure of the Company’s board of directors, supervisors and senior management personnel, the annual shares transfer should not exceedMay 17th 2010Long termStrict performance
CommitmentsGiver of commitmentsDetails of commitmentsDate of commitmentsTerm of commitmentsPerformance
Zhiping,Xu Lirong, Cai Dingguo, He Hongli, Zheng Yibo, Hu Dan, Jiang Yufeng, Liu Xiang, Wang Ruihong, Chen Junke25% of total number of shares held under Weixun; whthin 6 months after their dimission, they should not transfer their shares held under Weixun.
Directors, executive officers of the Company: Hu Yangzhong, Wu WeiqiDuring their tenure of the Company’s board of directors, supervisors and senior management personnel, the annual shares transfer should not exceed 25% of total number of shares held under Pukang; whthin 6 months after their dimission, they should not transfer their shares held under Pukang.May 17th 2010Long termStrict performance
The Company’s director Gong Hongjia’s spouse, Chen ChunmeiDuring Gong Hongjia’s tenure of the Company’s board of directors, supervisors and senior management personnel, Chen’s annual shares transfer should not exceed 25% of total number of shares held under Pukang; whthin 6 months after the dimission of Gong Hongjia,Chen should not transfer her shares held under Pukang.May 17th 2010Long-termStrict performance
China Electronics Technology Group Corporation(later renamed as China Electronics Technology Group Co., Ltd.)To avoid any loss of the Company and other shareholders arising from any competing business, China Electronics Technology Group Corporation, the actual controller of the Company, issued Letters of non-competition on 18 September, 2008.September 18th 2008Long termStrict performance
Gong Hongjia; Hangzhou Weixun Investment Management Limited Partnership(later renamed as Xinjiang Weixun Investment Management Limited Partnership); Hangzhou Pukang Investment Limited Partnership(later renamed as Xinjiang Pukang Investment Limited Partnership);ZheJiang Orient Holdings Co., Ltd.To avoid any loss of the Company and other shareholders arising from any competing business, Gong Hongjia, Hangzhou WeiXun Investment Management Limited Partnership, ZheJiang Orient Holdings Co., Ltd and Hangzhou KangPu Investment Management Limited Partnership, the promoters of the Company, issued Commitment Letters of non-competition in the same industry on 10 July, 2008.July 10th 2008Long termStrict performance
CommitmentsGiver of commitmentsDetails of commitmentsDate of commitmentsTerm of commitmentsPerformance
Other commitments to the company's minority shareholdersCETC Investment Holdin Co.,Ltd (CETCIH).; The 52nd Research Institute at China Electronics Technology Group Corporation; China Electronics Technology Group Co., Ltd.During the effective period of the implementation of CETCIH’s plan to increase the holding of Hikvision (within 6 months from October 23rd 2018) and the statutory period, CETCIH will not reduce its shareholdings of HikvisionOctober 23rd 2018Within 6 months from October 23rd 2018Strict performance
Whether the commitments is fulfilled in timeYes

2. Where any profit forecast was made for any of the Company’s assets or projects and the currentreporting period is still within the forecast period, the Company shall explain whether the performance ofthe asset or project reaches the profit forecast and why:

□ Applicable √ Inapplicable

IV. The Company’s funds used by the controlling shareholder or its related parties fornon-operating purposes.

□ Applicable √ Inapplicable

No such case in the reporting period.

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 thecurrent reporting period

□ Applicable √ Inapplicable

VI. For changes in accounting policies, accounting estimates and accounting methods as comparedto the financial report for the prior year

√ Applicable □Inapplicable

1. Changes in accounting policies

The Notice on Amending the 2018 Annual Financial Statements of General Enterprises was issued by theMinistry of Finance on June 15

th

2018 (Accounting Council (2018) No. 15, hereinafter referred to as FinancialAccounting No. 15 Document). The Financial Accounting No. 15 Document revised the presentation items on the

balance sheet and the income statement, and added new items such as “receivable notes and accounts receivable”,“payable notes and accounts payable” and “research and development expenses”; revised contents of line itemssuch as "other receivables", "fixed assets", "construction in progress", "other payables" and "long-term payables"and "management expenses"; reduced line items such as "receivable notes", “accounts receivable”, “dividendsreceivable”, “interests receivable”, “fixed assets clearance”, “engineering materials”, “payable notes”, “accountspayable”, “interest payable”, “dividends payable” and the "special payables"; Under the “Financial Expenses”item, the “Including: Interest Expenses” and “Interest Income” lines were added to report, and the presentationposition of some items in the income statement were adjusted.

The Company started to execute the foregoing accounting standards and policies according to the timerequired by the Ministry of Finance, and changed the relevant accounting policies.

2. Influence of the changes in accounting policies on the Company

Such changes in accounting policies were reasonably conducted by the Company according to therequirements of relevant documents issued by the Ministry of Finance, and were in compliance with theAccounting Standards for Business Enterprises and related provisions. Such changes only involved thepresentation and adjustment of items in the financial statements, had no influence on the Company’s total assets,net assets, operating income or net profit, and caused no damage to interests of the Company and shareholders.

VII. Explanation for retrospective restatement of major accounting errors during the reportingperiod

□ Applicable √ Inapplicable

No such case in the reporting period.

VIII. Explanation for changes in scope of the consolidated financial statements as compared to thefinancial report for the prior year

√ Applicable □ Inapplicable

During the reporting period, the Company has newly set up eleven wholly-owned subsidiaries and sixholding subsidiaries, and cancelled one company, which have caused the change in consolidation scope. For moredetails, please refer to note (VI) “Changes in consolidation scope” of the financial statement.

IX. Engagement and disengagement of the CPA firm

CPA firm engaged at present

Name of the domestic CPA firmDeloitte Touche Tohmatsu Certified Public Accountants LLP
Remuneration for the domestic CPA firm (RMB’0000)305
Consecutive years of the audit service provided by the domestic CPA firm3
Name of the certified public accountants from the domestic CPA firmMou Zhengfei has provided audit service for 3 consecutive years; Zhang Shushu has provided audit service for 2 consecutive year.

Whether the CPA firm was changed in the current period□ Yes √ NoEngagement of internal control audit CPA firm, financial advisor or sponsor□ Applicable √Not applicable

X. Listing suspension and termination after disclosure of this annual report

□ Applicable √ Inapplicable

XI. Bankruptcy and restructuring

□ Applicable √ InapplicableNo such case during the reporting period.

XII. Material litigation and arbitration□ Applicable √ Inapplicable

No such case during the reporting period.

XIII. Punishments and rectifications

□ Applicable √ InapplicableNo such case during the reporting period.

XIV. Integrity of the Company and its controlling shareholders and actual controllers

□ Applicable √ Inapplicable

XV. The implementation of an Equity Incentive Plan, Employee Stock Incentive Plan, or otherincentive plans

√Applicable □Inapplicable

1) During the reporting period, the Company completed the second time unlocking, repurchasing and

cancelling shares for 2014 Restricted Share Incentive Scheme.On December 15

th

2017, Resolution for the fulfillment of the unlocking conditions of the Second unlock periodfor the 2014 Restricted Share Incentive Schemes and the Resolution for the Second repurchase and cancelation ofthe locked shares that already granted for 2014 Restricted Share Incentive Schemes were approved by the 26

th

meeting of the third Board. Authorized by the first extraordinary general meeting for 2014,a total of 33,803,907restricted shares of 1068 grantees were vested and circulated on January 8

th

2018. Meanwhile, 1,594,641 restrictedshares held by a portion of grantees not fulfilling the incentive conditions were repurchased and cancelled. OnMarch 27

th

2018, repurchase and cancelation process of the restricted shares was complete. Thereafter, there are1072 grantees left for 2014 Restricted Share Incentive Schemes, granted and locked shares leftover are 33,932,161shares.

For details, please refer to in the Indicative Notice of Listing the Unlocked Shares during the SecondUnlocking Period of 2014 Restricted Share Incentive Schemes (No. 2018-002) and the Notice of the Completion ofSecond Repurchase and Cancelation of Locked Shares that Already Granted for 2014 Restricted Share IncentiveScheme (No. 2018-017) issued on January 5

th

2018 and March 29

th

2018 respectively.

By the end of the reporting period, 33,932,161 awarded shares remains un-locked for 2014 Restricted ShareIncentive Scheme; 78,490,287 awarded shares remains un-locked for 2016 Restricted Share Incentive Scheme;and the total number of unblocked restricted shares are 112,422,448 shares, accounting for 1.22% of theCompany's total share capital at the end of the reporting period.

The Company followed the Accounting Standard for Business Enterprises No. 11 – Share-based Paymentand other accounting standards in relation to accounting treatment for Restricted Share Incentive Schemes. Costsin relation to the shares granted under 2014 and 2016 Restricted Share Incentive Schemes are amortized over thewaiting period for vesting.

During the reporting period, costs amortized in relation to the 2014 and 2016 Restricted Share Incentive

Schemes of the Company have no material impact on the financial position and operating results of the Company.For details, please refer to Note (XI) - Share-based Payments.

XVI. Significant related-party transaction

1. Related-party transactions arising from routine operation

√ Applicable □ Inapplicable

Related partyRelationshipType of related transactionContent of related transactionValuationTrading Amount (0’000 RMB)Proportion to the amount of similar transactions.Approved trading quota (0’000 RMB)Whether above approved quotaSettlement methodDisclosure dateDisclosure reference
Subsidiaries or research institutes of CETCUnder the common control of the Company’s actual controller.ProcurementPurchase materials, receiving servicesReference market price; Agreed on price30,0541.00%50,000NoPayment on deliveryApril 21st 2018Announcement on projections on 2018 related transactions (No:2018-024)
Shanghai Fullhan MicroThe Company’s director, Gong Hongjia is the director of the related partyProcurementPurchase materials, receiving servicesReference market price; Agreed on price26,8000.89%40,000NoPayment on delivery
Wuhu Sensor TechnologyA joint venture affiliated business held by the CompanyProcurementPurchase materials, receiving servicesReference market price; Agreed on price4,5610.15%4,000NoPayment on delivery
MaxioA joint ventureProcurementPurchaseReference5,2130.17%8,000NoPayment on
Related partyRelationshipType of related transactionContent of related transactionValuationTrading Amount (0’000 RMB)Proportion to the amount of similar transactions.Approved trading quota (0’000 RMB)Whether above approved quotaSettlement methodDisclosure dateDisclosure reference
Technology and its subsidiariesaffiliated business held by the Companymaterials, receiving servicesmarket price; Agreed on pricedelivery
Subsidiaries or research institutes of CETCUnder the common control of the Company’s actual controller.SalesProviding services, selling products, commercial goodsReference market price; Agreed on price50,1211.01%120,000NoPayment on delivery
Zhejiang TuxunZheng Yibo, the Company's senior executive, served as a director in Zhejiang Tuxun. Zheng Yibo left his post from the Company in March 2018; since it is less than 12 months after Zheng’s departure, Zhejiang Tuxun remained a related party of theSalesProviding services, selling products, commercial goodsReference market price; Agreed on price1370.00%500NoPayment on delivery
Related partyRelationshipType of related transactionContent of related transactionValuationTrading Amount (0’000 RMB)Proportion to the amount of similar transactions.Approved trading quota (0’000 RMB)Whether above approved quotaSettlement methodDisclosure dateDisclosure reference
Company.
Wuhu Sensor TechnologyA joint venture affiliated business held by the CompanySalesProviding services, selling products, commercial goodsReference market price; Agreed on price2930.01%500NoPayment on delivery
Hangzhou ComfirmwareThe Company’s senior executive, Jia Yonghua, is the director of the related partySalesProviding services, selling products, commercial goodsReference market price; Agreed on price780.00%100NoPayment on delivery
Maxio Technology and its subsidiariesA joint venture affiliated business held by the CompanySalesProviding services, selling products, commercial goodsReference market price; Agreed on price40.00%100NoPayment on delivery
Zhiguang Hailian Big Data Technology Ltd.A joint venture affiliated business held by the CompanySalesProviding services, selling products, commercial goodsReference market price; Agreed on price1260.00%0Payment on delivery----
Total--117,387--223,200--------
Details on significant sales returnNone
Total amount of related transactions projected based on different categories, actual performance during the current reporting period (if any)1) The part of the actual related party transaction amount with Wuhu Sensor Tech that exceeds the projected amount has been approved by the chairman of the board according to the Company's Related Transaction Management System. 2) The amount of related party transactions with Zhiguang Hailian has not been reviewed, and has been approved by the chairman of the board according to the Company's Related Transaction Management System.
Reasons on significant difference between trading price and market referencing price (if applicable)Not applicable

2. Related-party transactions regarding purchase and disposal of assets or equity

□Applicable √Inapplicable

No such case in the reporting period.3. Significant related-party transactions arising from joint investments on external parties

□Applicable √Inapplicable

No such case in the reporting period.4. Related-parties’ creditor's rights and debts

□ Applicable √Inapplicable

No related-parties’ creditor’s rights or debts during the reporting period.5. Other significant related party transactions

√Applicable □Inapplicable

Pursuant to the Proposal on Capital Increase and Related Transactions to Hangzhou HIK AutomotiveTechnology Ltd. and Hangzhou HIK Robotics Technology Ltd. approved by the 5

th

meeting of the 4

th

session of theBoard of Directors held on August 27

th

2018, the Company and Hangzhou Hikvision Equity InvestmentPartnership (hereinafter refers to Innovative Co-investment Partnership) jointly increased the capital ofHikvision’s innovative business subsidiaries: 1) Hikvision and the Innovative Co-investment Partnership jointlyincreased the capital of Hikvision Automotive Electronics with a cash payment of RMB 48 million and a cashpayment of RMB 32 million, respectively, with a total capital increase of RMB 80 million. 2) Hikvision and theInnovative Co-investment Partnership jointly increased the capital of Hikvision Robotics with a cash payment ofRMB 30 million and cash of RMB 20 million respectively, with a total capital increase of RMB 50 million. Theamount of this related transaction totaled RMB 78 million. In addition, reviewed and proved by the secondmeeting of Strategy Committee of the 3

rd

Board of Directors in 2018 (March 9

th

2018), Hikvision and theInnovative Co-investment Partnership jointly established Hangzhou HIK Huiying Technology Ltd. (Hikvision'sinvested RMB 48 million), for 12 consecutive months, the cumulative amount of related transactions betweenHikvision and the Innovative Co-investment Partnership was RMB 126 million, accounting for 0.42% of the latestaudited net assets of the Company. As of the end of the reporting period, the Company and the InnovativeCo-investment Partnership have completed the establishment and registration of changes related to thesubsidiaries of the innovative businesses.

Disclosure website for provisional reports on significant related transactions:

Title of provisional reportsDisclosure dateDisclosure website
Proposal on Capital Increase and Related Transactions to Hangzhou HIK Automotive Technology Ltd. and Hangzhou HIK Robotics Technology Ltd.August 28th 2018www.cninfo.com.cn

XVII. Significant contracts and their execution

1. Trusteeship, contracting and leasing

(1) Trusteeship

□ Applicable √ Inapplicable

No such case in the reporting period.

(2) Contracting

□ Applicable √ Inapplicable

No such case in the reporting period.

(3) Leasing

□ Applicable √ Inapplicable

No significant leasing during the reporting period.

2. Significant guarantees

√Applicable □ Inapplicable

(1) Details of guarantees

Unit: RMB’0000

Guarantees provided by the Company for subsidiaries
Guaranteed partyDisclosure date of announcement of the guarantee capGuarantee CapActual occurrence dateActual guaranteed amountType of guaranteeTerm of guaranteeDue or notGuarantee for a related party or not
Hangzhou Hikvision Science and Technology Ltd.May 12th 2018670,000December 6th 2016358,291.00Joint guarantee2016.12.06-2020.12.31NoYes
Hangzhou Hikvision System Technology LtdMay 12th 201880,000October 10th 20176,764.32Joint guarantee2017.10.10-2020.12.31NoYes
HIKVISION INTERNATIONAL CO., LTD.May 12th 2018350,000December 27th 201734,559.38Joint guarantee2017.12.27-2019.04.5NoYes
Hangzhou Hikvision Electronics Ltd.May 12th 2018370,000October 19th 20185,297.92Joint guarantee2018.10.19-2019.10.19NoYes
Hangzhou Haikang Zhicheng Investment and Development Ltd.May 12th 201810,000July 30th 20181,200Joint guarantee2018.07.30-2019.07.19NoYes
Chongqing Hikvision Science and Technologies Ltd.May 12th 2018110,000Not happened during the reporting period
Chongqing Hikvision System Technology Ltd.May 12th 201850,000Not happened during the reporting period
Chengdu Hikvision Digital Technology Ltd.May 12th 201880,000Not happened during the reporting period
Urumchi HaiShi Xin’An Electronic Technology Ltd.May 12th 201850,000Not happened during the reporting period
Mo Yu Hai Shi Electronic Technology Ltd.May 12th 201830,000Not happened during the reporting period
Pi Shan Hai Shi Yong An Electronic Technology Ltd.May 12th 201835,000Not happened during the reporting period
Luo Pu Hai Shi Ding Xin Electronic Science and Technology Ltd.May 12th 201830,000Not happened during the reporting period
Yu Tian Hai Shi Mei Tian Electronic Technology Ltd.May 12th 201830,000Not happened during the reporting period
Wuhan Hikvision Technology Ltd.May 12th 2018120,000Not happened during the reporting period
Wuhan Hikvision Science and Technology Ltd.May 12th 2018120,000Not happened during the reporting period
Hikvision Xi’an Xueliang Construction Project Management Ltd.May 12th 201860,000Not happened during the reporting period
Guarantees provided by the Company for subsidiaries
Guaranteed partyDisclosure date of announcement of the guarantee capGuarantee CapActual occurrence dateActual guaranteed amountType of guaranteeTerm of guaranteeDue or notGuarantee for a related party or not
Xi’An Hikvision Digital Technology Ltd.May 12th 201850,000Not happened during the reporting period
Total guarantee cap for subsidiaries approved during the reporting period(B1)2,245,000.00Total actual guarantee amount for subsidiaries during the reporting period(B2)533,369.81
Total approved guarantee cap for subsidiaries at the end of the reporting period(B3)2,245,000.00Total actual guarantee balance for subsidiaries at the end of the reporting period(B4)406,112.62
Total guarantee amount provided by the Company (total of the above-mentioned kinds of guarantees) (During the reporting period, there was no such case as guarantee provided for external parties, or guarantees between subsidiaries, therefore, there is only item B, item A or C is nil)
Total guarantee cap approved during the reporting period (A1+B1+C1)2,245,000.00Total actual guarantee amount during the reporting period (A2+B2+C2)533,369.81
Total approved guarantee cap at the end of reporting period (A3+B3+C3)2,245,000.00Total actual guarantee balance at the end of the reporting period (A4+B4+C4)406,112.62
Portion of the total actual guarantee amount (A4+B4+C4) in net assets of the Company10.80%
Of which
The balance of guarantee for shareholders, actual controllers and their affiliates. (D)0
Amount of debt guarantees provided directly or indirectly for entities with a liability-to-asset ratio over 70% (E)392,850.38
Total amount of guarantee exceeding 50% of net assets (F)0
Total guarantee amount of the above-mentioned 3 kinds of guarantees (D+E+F)392,850.38

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 ofprojects of “Safe Chongqing, Emergency Control System Digital Construction Project”, including 41 districts/counties construction projects, signed byChongqing Hikvision System Technology Co., Ltd. Meanwhile, the Company provides a counter guarantee to CETC’s joint responsibilities above.

(2) Illegal provision of guarantees for external parties

□ Applicable √ Inapplicable

No such case in the reporting period.3. Entrusting others to execute any cash asset management

(1) Entrusted finances

√Applicable □ Inapplicable

Entrusted finance during the reporting period

Unit: 0,000 RMB

TypeCapital SourceActual AmountUndue BalanceAmount overdue
Bank Financial ProductsSelf-fund110,00000
Total110,00000

Details about entrusted finances that are individually significant or low security level, with low liquidity, and high riskwithout principal guaranteed.

□ Applicable √ Inapplicable

Entrusted finances that projected to be impossible to recover principal, or involving in situations that could possiblylead to decline in value

□ Applicable √ Inapplicable

(2) Entrusted loans

□ Applicable √ Inapplicable

No such case in the reporting period.4. Other significant contracts

□ Applicable √ Inapplicable

No such case in the reporting period.

XVIII. Social responsibility

1.Fulfillment of social responsibilitiesWhile seeking for economic benefits and protecting shareholders’ interests, Hikvision proactively fulfilledcorporate social responsibilities by treating suppliers, customers and consumers in good faith, caring employees’remuneration benefits, professional development and other legal rights, and actively engaging in environment

protection and affairs for public welfare, in order to make contribution to the sustainable development of society,economy and environment.For details, please refer to the Company’s 2018 Annual Social Responsibility Report disclosed on CNINFO(www.cninfo.com.cn)2. Fulfillment of the social responsibility of targeted poverty alleviation

The Company did not conduct any targeted poverty alleviation during the reporting period and had no futurearrangement for targeted poverty alleviation.3. Environmental protection

The Company is not a critical pollutant enterprises published by national environmental protectiondepartment

XIX. Other significant events

□ Applicable √ Inapplicable

XX. Significant events of the Company’s subsidiaries

□ Applicable √ Inapplicable

Section VI Changes in Shares and Information about Shareholders

I. Changes in Share Capital

1. Table of changes in share capital

Unit: Share

Before the changeChanges in the period (+, -)After the change
SharesRatioNew Shares IssuedBonus shareShare transferred from capital reserveOthersSub-totalSharesRatio
1. Shares subject to conditional restriction(s)1,971,217,85021.36%-658,144,845-658,144,8451,313,073,00514.23%
1)State holdings00
2)Shares held by State-owned corporate00
3) Other domestic shares852,337,5509.24%-578,124,870-578,124,870274,212,6802.97%
Including: held by domestic corporates582,492,6556.32%-582,492,655-582,492,655
held by domestic natural person269,844,8952.92%4,367,7854,367,785274,212,6802.97%
4) Foreign shares1,118,880,30012.12%-80,019,975-80,019,9751,038,860,32511.26%
Including:held by overseas corporates00
held by overseas natural person1,118,880,30012.12%-80,019,975-80,019,9751,038,860,32511.26%
2. Shares without restriction7,257,647,26478.64%656,550,204656,550,2047,914,197,46885.77%
1) RMB ordinary shares7,257,647,26478.64%656,550,204656,550,2047,914,197,46885.77%
2) Domestically listed foreign shares00
3) Foreign shares listed overseas00
4) Others00
3. Total9,228,865,114100.00%-1,594,641-1,594,6419,227,270,473100.00%

Reason for the changes in share capital√ Applicable □ Inapplicable(1) The second time repurchasing and cancelling shares for 2014 Restricted Share Incentive Scheme:

On December 15

th

2017, Resolution for the Second repurchase and cancelation of the locked shares that alreadygranted for 2014 Restricted Share Incentive Schemes were approved by the 26

th

meeting of the third Board.Authorized by the first extraordinary general meeting for 2014, a total of 1,594,641 restricted shares held by aportion of grantees not fulfilling the incentive conditions were repurchased and cancelled. On March 27

th

2018,repurchase and cancelation process of the restricted shares was complete. The Company’s total share capitaldecreased from 9,228,865,114 shares to 9,227,270,473 shares by 1,594,641 shares.

Approval for changes in share capital

√ Applicable □ Inapplicable

(1) The second time repurchasing and cancelling shares for 2014 Restricted Share Incentive Scheme:

On December 15

th

2017, Resolution for the Second repurchase and cancelation of the locked shares that alreadygranted for 2014 Restricted Share Incentive Schemes were approved by the 26

th

meeting of the third Board.Authorized by the first extraordinary general meeting for 2014, the board of directors agreed to repurchase andcancel 1,594,641 restricted shares held by a portion of grantees not fulfilling the incentive conditions.

Transfer for changes in share capital

√ Applicable □ Inapplicable

(1) The second time repurchasing and cancelling shares for 2014 Restricted Share Incentive Scheme:

On March 27

th

2018, the process of the second time repurchasing and cancelling shares for 2014 Restricted ShareIncentive Scheme was complete. The Company’s total share capital decreased from 9,228,865,114 shares to9,227,270,473 shares by 1,594,641 shares.

Other contents that the Company considers necessary or required by the securities regulatory authorities todisclose

□ Applicable √ Inapplicable

2. Changes in restricted shares√ Applicable □ Inapplicable

Unit: Share

Name of shareholderOpening restricted sharesVested in current periodIncreased in current periodClosing restricted sharesNote for restricted sharesDate of unlocking
Gong Hongjia1,118,812,50080,019,97501,038,792,525Executives locked sharesAccording to the relevant provisions of executives shares management
Xinjiang Weixun Investment Management Limited Partnership438,232,500438,232,50000Institution restricted share before IPOMarch 19th 2018
Xinjiang Pukang Investment Limited Partnership144,260,155144,260,15500Institution restricted share before IPOMarch 19th 2018
Grantees of restricted share incentive plan (consolidated)147,820,99633,803,9070112,422,448Restricted incentive equity sharesJanuary 8th 2018
Hu Yangzhong91,793,982044,597,626136,391,608Executives locked shares+ partial of the unlocked restricted shares turning into executives locked sharesAccording to the relevant provisions of executives shares management
Wu Weiqi8,260,566041,1768,301,742Executives locked shares+ partial of the unlocked restricted shares turning into executives locked shares
Jiang Haiqing8,255,911096,7508,352,661Executives locked shares+ partial of the unlocked restricted shares turning into executives locked shares
Jia Yonghua4,118,807047,6264,166,433Executives locked shares
Li Pan4,042,9260122,6254,165,551Executives locked shares
Huang Fanghong70,875074,250145,125Executives locked shares+ partial of the unlocked restricted shares turning into executives locked shares
Jiang Yufeng30,375030,00060,375Executives locked shares+ partial of the unlocked restricted shares turning into executives locked shares
He Hongli29,025023,55052,575Executives locked shares+ partial of the unlocked restricted shares turning into executives locked shares
Name of shareholderOpening restricted sharesVested in current periodIncreased in current periodClosing restricted sharesNote for restricted sharesDate of unlocking
Fu Baijun29,0250106,425135,450Executives locked shares+ partial of the unlocked restricted shares turning into executives locked shares
Xu Lirong29,025030,67559,700Executives locked shares+ partial of the unlocked restricted shares turning into executives locked shares
Wang Qiuchao15,0000015,000Executives locked shares
Qu Liyang0011,81211,812As taking the Company’s Director position, partial of the shares held were turning into executives locked shares.
Zhou Zhiping5,355,4325,355,43200Shares locked up within six months after leaving his postSeptember 20th 2018
Zheng Yibo30,37530,37500Shares locked up within six months after leaving his postSeptember 20th 2018
Cai Dingguo30,37530,375Shares locked up within six months after leaving his postSeptember 20th 2018
Total1,971,217,850701,732,71945,182,5151,313,073,005----

Note:

1. Executives who are grantees under incentive restricted shares scheme, his/her holding incentive restricted shares are countedwithin the total incentive restricted shares (consolidated statistics) on the fourth row.2. The difference of 1,594,641 shares between ending balance of restricted shares of total incentive restricted shares (consolidatedstatistics) for grantees and the calculated balance (opening balance - unlocked shares + increased restricted shares) was due torepurchasing and cancelling of 1,594,641 shares on March 27

th

2018.

II. Issuance and listing of securities

1. Securities (exclude preferred share) issued during the reporting period

□Applicable √Inapplicable

2. Explanation on changes in share capital & the structure of shareholders, the structure of assets andliabilities

√ Applicable □ Inapplicable

During the reporting period, the Company completed the second repurchasing and cancelling shares for 2014

Restricted Share Incentive Scheme, the total capital shares were decreased by 1,594,641 shares from9,228,865,114 shares to 9,227,270,473 shares; the structure of shareholder structure, assets and liabilities of theCompany did not change significantly after the above mentioned items.3. Existent shares held by internal staff of the Company

□ Applicable √ Inapplicable

III. Particulars about the shareholders and actual controller1. Total number of shareholders and their shareholdings

Unit: Share

Total number of common shareholders at the end of the reporting period194,110The total number of common shareholders at the end of the previous month before the disclosure of the annual report186,407
Particulars about shares held by shareholders with a shareholding percentage over 5% or the Top 10 of them
Name of shareholderNature of shareholderShare- holding percentage (%)Total shares held at the end of the reporting periodIncrease/ decrease during the reporting periodThe number of common shares held with trading restrictionsThe number of shares held without trading restrictionsPledged or frozen
StatusAmount
China Electronics Technology HIK Group Co., Ltd.State-owned corporation39.60%3,653,674,956--3,653,674,956Pledged50,000,000
Gong HongjiaOverseas individual13.60%1,255,056,700-130,000,0001,038,792,525216,264,175Pledged367,488,300
Hong Kong Securities Clearing Company Ltd.(HKSCC)Overseas corporation8.81%812,892,497-88,317,950-812,892,497--
Xinjiang Weixun Investment Management Limited PartnershipDomestic non-state- owned corporation4.89%450,795,176-78,925,700-450,795,176Pledged237,869,999
Xinjiang Pukang Investment Limited PartnershipDomestic non-state- owned corporation1.98%182,510,174-9,836,700-182,510,174Pledged72,570,000
Hu YangzhongDomestic Individual1.97%182,186,47759,400,000136,639,85845,546,619Pledged90,979,999
The 52nd Research Institute atState-owned1.96%180,775,044--180,775,044--
China Electronics Technology Group Corporationcorporation
CITIC Securities Company LimitedDomestic non-state- owned corporation0.88%81,513,660-74,468,969-81,513,660--
UBS AGOverseas corporation0.72%66,858,188-42,065,262-66,858,188--
Central Huijin Investment Ltd.State-owned corporation0.71%65,818,800--65,818,800---
Explanation on associated relationship or concerted actions among the above-mentioned shareholders: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 Partnership, is the spouse of Mr. Gong Hongjia, foreign individual shareholder of the Company. Hu Yangzhong, domestic individual, is holding shares in both Xinjiang Weixun Investment Management Limited Partnership and Xinjiang Pukang Investment Limited Partnership. Except for these, the Company does not know whether the other shareholders are related parties or whether they are acting-in-concert parties in accordance with the Measures for Management of the Disclosure of the Shareholding Changes of Shareholders of the Listed Company.
Particulars about shares held by the Top 10 common shareholders holding shares that are not subject to trading restriction(s)
Name of shareholderNumber of common shares without trading restrictions held at the period-endType of shares
TypeNumber
China Electronics Technology HIK Group Co., Ltd.3,653,674,956RMB ordinary shares3,653,674,956
Hong Kong Securities Clearing Company Ltd.(HKSCC)812,892,497RMB ordinary shares812,892,497
Xinjiang Weixun Investment Management Limited Partnership450,795,176450,795,176
Particulars about shares held by the Top 10 common shareholders holding shares that are not subject to trading restriction(s)
Name of shareholderNumber of common shares without trading restrictions held at the period-endType of shares
TypeNumber
Gong Hongjia216,264,175RMB ordinary shares216,264,175
Xinjiang Pukang Investment Limited Partnership182,510,174RMB ordinary shares182,510,174
The 52nd Research Institute at China Electronics Technology Group Co. Ltd.180,775,044RMB ordinary shares180,775,044
CITIC Securities Company Limited81,513,660RMB ordinary shares81,513,660
UBS AG66,858,188RMB ordinary shares66,858,188
Central Huijin Investment Ltd.65,818,800RMB ordinary shares65,818,800
Hu Yangzhong45,546,619RMB ordinary shares45,546,619
Explanation on associated relationship and concerted actions among top ten common shareholders without trading restrictions, and among top ten common shareholders and top ten common shareholders without trading restrictionsChina 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 Partnership, is the spouse of Mr. Gong Hongjia, foreign individual shareholder of the Company. Hu Yangzhong, domestic individual, is holding shares in both Xinjiang Weixun Investment Management Limited Partnership and Xinjiang Pukang Investment Limited Partnership. Except for these, the Company does not know whether the other shareholders are related parties or whether they are acting-in-concert parties in accordance with the Measures for Management of the Disclosure of the Shareholding Changes of Shareholders of the Listed Company.

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

2. Particulars about controlling shareholder of the Company

Nature of the controlling shareholder: Central State-ownedType of the actual controller: Corporation

Name of controlling shareholderLegal RepresentativeDate of establishmentOrganization codeBusiness scope
China Electronics Technology HIK Group Co., Ltd.Chen ZongnianNovember 29th, 20029133000014306073XDIndustrial investment; R&D of environmental protection products, network products, intelligent products and electronic products; technology transfer, technical services, manufacturing and sales; business consulting services, rental services of self-owned real estate; import and export businesses.
Shares held by the controlling shareholder in other listed companies through controlling or holding during the reporting periodIndirect control of domestic listed company Phoenix Optical Co. Ltd.,

Change of the controlling shareholder during the reporting period

□ Applicable √ InapplicableThe Company's controlling shareholder has not changed during the reporting period.

3. Particulars about the Company’s actual controller & concerted partiesNature of the actual controller: Central state-owned assets management agencyType of the actual controller: Corporation

Name of the actual controllerLegal RepresentativeDate of establishmentOrganization codeBusiness scope
China Electronics Technology Group Ltd.Xiong QunliFebruary 25th 200291110000710929498GThe Company is responsible for the development and manufacturing of military electronic equipment and systems integration, electronic equipment for weapon platform, military software and electronic basic products; and the construction of national defense electronic information infrastructure and safeguard conditions; construction of national major electronic information system; the research, development, production and sales of civil electronic information software, materials, components, equipment and system integration and related common technology; self-operated and agent import and export business of various commodities and technologies (except for goods and technologies that are restricted or restricted by the state-limited company); operating feed processing and
Name of the actual controllerLegal RepresentativeDate of establishmentOrganization codeBusiness scope
"three comes one supplement" business; operating counter trade and entrepot trade; Industrial investment; asset management; engaged in e-commerce information services; organization of enterprises in the industry to go abroad, participate in exhibitions.
Shares held by the actual controlling shareholder in other listed companies through controlling or holding during the reporting periodChina Electronics Technology Group Ltd is the actual controller of eight domestic listed companies including An’hui Sun Create Electronic Co., Ltd, Shanghai East China Computer Co., Ltd, Chengdu Westone Information Industry Co., Ltd., GCI Science & Technology Co., Ltd., Tai’ji Computer Corporation Limited, GLARUN Technology Co., Ltd. , Phoenix Optics Co., Ltd., and CETC Microwave Communication (Shanghai) Co., Ltd., and etc.

Change of the actual controller during the reporting period

□ Applicable √ Inapplicable

The ownership and controlling relationship between the actual controller of the Company and the Company isdetailed as follows:

The actual controller controls the Company via trust or other ways of asset management

□ Applicable √ Inapplicable

4. Particulars about other corporate shareholders with shareholding proportion over 10%

□ Applicable √ Inapplicable

5. Particulars on shareholding decrease restrictions for the controlling shareholders, actual controller,restructurer or other committing parties

□ Applicable √ Inapplicable

Section VII Information of Preferred Shares

□ Applicable √ InapplicableNo existed preferred shares for the Company during the reporting period.

Section VIII Information about Directors, Supervisors, Senior Management

I. Shareholding changes of directors, supervisors, senior management personnel

√Applicable □ Inapplicable

NameTitleTenure statusGenderAgeCommencement of term of officeTermination of term of officeShares held at the beginning of the Period (Shares)Shares increased during the Period (shares)Shares decreased during the Period (Shares)Shares held at the end of the Period (Shares)
Chen ZongnianChairmanIncumbentMale54June 19th 20080000
Gong HongjiaVice ChairmanIncumbentMale54June 19th 20081,385,056,7000130,000,0001,255,056,700
Qu LiyangDirectorIncumbentMale55March 7th 201815,7500015,750
Hu YangzhongDirector, General Manager (CEO)IncumbentMale54December 28th 2001122,786,47759,400,0000182,186,477
Wu WeiqiDirector, Standing Deputy General ManagerIncumbentMale55March 1st 200311,371,3890011,371,389
Cheng TianzongIndependent DirectorIncumbentMale67March 6th 20150000
Lu JianzhongIndependent DirectorIncumbentMale65March 6th 20150000
NameTitleTenure statusGenderAgeCommencement of term of officeTermination of term of officeShares held at the beginning of the Period (Shares)Shares increased during the Period (shares)Shares decreased during the Period (Shares)Shares held at the end of the Period (Shares)
Wang ZhidongIndependent DirectorIncumbentMale52March 6th 20150000
Hong TianfengIndependent DirectorIncumbentMale53December 22nd 20160000
Cheng HuifangSupervisor ChairmanIncumbentFemale66March 6th 20150000
Wang QiuchaoSupervisorIncumbentMale68March 6th 201520,0000020,000
Xu LirongSupervisor; person in charge of internal auditIncumbentMale56March 21st 2018303,00000303,000
Jiang HaiqingSenior Deputy General ManagerIncumbentMale50March 1st 200311,310,88280,000011,390,882
Jia YonghuaSenior Deputy General ManagerIncumbentMale42July 22nd 20155,601,244100,00005,701,244
Li PanSenior Deputy General ManagerIncumbentMale41July 22nd 20155,500,068200,00005,700,068
He HongliSenior Deputy General ManagerIncumbentFemale46December 18th 2005331,50000331,500
Fu BaijunSenior Deputy General ManagerIncumbentMale47January 20th 2009390,00000390,000
NameTitleTenure statusGenderAgeCommencement of term of officeTermination of term of officeShares held at the beginning of the Period (Shares)Shares increased during the Period (shares)Shares decreased during the Period (Shares)Shares held at the end of the Period (Shares)
Cai ChangyangSenior Deputy General ManagerIncumbentMale48April 8th 2016109,50000109,500
Xu XimingSenior Deputy General ManagerIncumbentMale46October 11th 20160000
Bi HuijuanSenior Deputy General ManagerIncumbentFemale48October 11th 2016150,00000150,000
Jiang YufengSenior Deputy General ManagerIncumbentMale48December 18th 2005325,50000325,500
Pu ShiliangSenior Deputy General ManagerIncumbentMale42March 21st 2018293,90000293,900
Jin DuoSenior Deputy General ManagerIncumbentMale54March 10th 2015109,50000109,500
Jin YanSenior Deputy General Manager, Person in charge of financeIncumbentFemale40July 22nd 2015174,00000174,000
Huang FanghongSenior Deputy General Manager, Board SecretaryIncumbentFemale37April 8th 2016292,50000292,500
Chen JunkeSenior Deputy General ManagerIncumbentMale48March 21st 20180000
NameTitleTenure statusGenderAgeCommencement of term of officeTermination of term of officeShares held at the beginning of the Period (Shares)Shares increased during the Period (shares)Shares decreased during the Period (Shares)Shares held at the end of the Period (Shares)
Liu XiangDirectorLeft the postMale47May 24th 2014March 7th 20180000
Chen JunkeSupervisorLeft the postMale48June 19th 2008March 21st 20180000
Zheng YiboDeputy General ManagerLeft the postMale57June 30th 2004March 21st 2018168,900060,750108,150
Cai DingguoDeputy General ManagerLeft the postMale52December 18th 2005March 21st 2018312,00000312,000
Zhou ZhipingDeputy General ManagerLeft the postMale54December 18th 2005March 21st 20187,404,87699,10007,503,976
Xu LirongDeputy General ManagerLeft the postMale56March 1st 2007March 21st 2018303,00000303,000
Total----1,552,027,68659,879,100130,060,7501,481,846,036

Note:

(1) Number shares held at the beginning of the period, shares increased during the period, shares decreased during the period for directors, supervisors, and senior management personnel aboveare all shares directly held by them accordingly, including restricted shares.(2) During the reporting period, the number shares held at the beginning of the period, shares increased during the period, shares decreased during the period for newly appointed directors,supervisors, and senior management personnel is the data after their appointment.(3) Xu Lirong left the Company as a deputy general manager and was appointed as the employee supervisor. The number of the Company’s shares held by him was only counted once in thetotal number of shares held at the beginning and the end of the reporting period.

II. Changes of directors, supervisors and senior management personnel

√Applicable □Inapplicable

NamePositionTypeDateReasons
Qu LiyangDirectorAppointment and dismissalMarch 7th 2018The general election of the board of directors
Liu XiangDirectorLeave the post when terms were upMarch 7th 2018Termination on term of office
Xu LirongEmployee SupervisorAppointment and dismissalMarch 21st 2018The general election of the workers and staff congress
Chen JunkeEmployee SupervisorLeave the post when terms were upMarch 21st 2018Termination on term of office
Pu ShiliangSenior management personnelAppointment and dismissalMarch 21st 2018Appointment
Chen JunkeSenior management personnelAppointment and dismissalMarch 21st 2018Appointment
Zheng YiboSenior management personnelLeave the post when terms were upMarch 21st 2018Termination on term of office
Cai DingguoSenior management personnelLeave the post when terms were upMarch 21st 2018Termination on term of office
Zhou ZhipingSenior management personnelLeave the post when terms were upMarch 21st 2018Termination on term of office
Xu LirongSenior management personnelLeave the post when terms were upMarch 21st 2018Termination on term of office

III. Positions and Incumbency

1. DirectorsMr Chen Zongnian (陈宗年): Born in 1965, Chen holds a PhD of business administration and has served asdeputy general manager Shenzhen Gao Ke Run Electronics, director and general manager of Zhejiang HaikangInformation Technology Co., Ltd. and Zhejiang Haikang Group Co., Ltd. He also served as an assistant of thehead, deputy head, and the head of 52

nd

Research Institute at China Electronics Technology Group Corporation(52

nd

Research Institute). Chen currently serves as the chairman of China Electronics Technology HIK Group Co.,Ltd. (CETHIK) and chairman of the Company.

Mr. Gong Hongjia (龚虹嘉): Born in 1965, Hong Kong permanent resident. Gong holds a bachelor degree ofengineering, technology entrepreneur, and angel investor. He has established and invested over 10 enterprisesincluding TECSUN Co. Ltd., AsiaInfo Dekang, Funian Technology, and Woqi Data, and etc. He took part in theestablishment of the Company in November 2001 and served as a director and vice chairman of the Company.Gong currently serves as a vice chairman of the Company.

Mr. Qu Liyang (屈力扬): Born in 1964, bachelor degree of engineering, researcher-level senior engineer. Heserved as the director, deputy director, party secretary and deputy director of the 52

nd

Research Institute, andchairman of the board of supervisors of CETHIK. He is currently the deputy director of the Reform andDevelopment Committee of CETC’s Strategy Committee, and serves as a director of the Company.

Mr. Hu Yangzhong (胡扬忠): Born in 1965, master degree of engineering, senior research engineer. He servedas an engineer of the 52

nd

Research Institute from June 1989 to December 2001. He has been appointed as adirector of the Company and general manager of the company since December 2001. Hu currently serves as adirector and the general manager of the Company.

Mr. Wu Weiqi (邬伟琪): Born in 1964, bachelor degree of engineering, senior engineer. Wu held variouspositions at the 52

nd

Research Institute, including technician, engineer associate, engineer and senior engineer,from July 1986 to December 2001. Since November 2001, He has been appointed as a deputy general manager, astanding deputy general manager, and a director of Hikvision. Wu currently serves as a director and standingdeputy general manager of the Company.

Mr. Cheng Tianzong (程天纵): Born in 1952, Taiwanese, master degree in business administration. Chengserved as president and a director of Hewlett-Packard Development Company, L.P. (China) from 1992 to 1997;served as the president of the Asia Pacific of Texas Instruments Incorporated (德州仪器) from 1997 to 2007;served as a vice-president of Hon Hai Corporation (鸿海集团) from July 2007 to 2012, and the chief executiveofficer of FIH Mobile Limited, a subsidiary of Hon Hai Corporation (鸿海集团), a company listed on the HongKong Stock Exchange in 2011. He retired in June 2012 and devoted himself to China Maker Campaign (中国创客运动) to help and guide those start-up companies in September 2013. Cheng currently serves as an independentdirector of the Company.

Mr. Lu Jianzhong (陆建忠): Born in 1954, holds bachelor degree in economics and CPA certificate. Lu servedas a lecturer and an associate professor of finance and accounting department at Shanghai Maritime University (上

海海事大学) from September 1986 to September 1997; he was a CPA and a partner of the auditing department ofPricewaterhouseCoopers, from October 1997 to June 2012; he was a chartered accountant of Shanghai De’anCertified Public Accountants LLP (上海德安会计师事务所) from July 2012 to July 2013; he was a charteredaccountant of the Shanghai branch of PKF Daxin Certified Public Accountants LLP (大信会计师事务所上海分所), from August 2013 to July 2014;He was a partner and a chartered accountant and a partner of ZhongxinghuaCertificated Public Accountants LLP (中兴华会计师事务所) from August 2014 to January 2016. Lu currentlyserves as a chartered accountant of Dahua Certificated Public Accountants LLP (大华会计师事务所),MPAcc/Maud Enterprise Mentor of Antai College of Economics & Management,Shanghai Jiao Tong University(上海交通大学安泰管理学院), and an independent director of Hikvision.

Mr. Wang Zhidong (王志东): Born in 1967, Hong Kong permanent resident, bachelor degree of science. Heserved as a deputy general manager and chief engineer of Beijing Suntendy Electronic Technology ResearchInstitute (北京新天地电子信息技术研究所) from April 1992 to August 1993; He served as a general manager ofRichwin Information Technology Co., Ltd. (四通利方信息技术有限公司), and served as chief executive officerand a director of SINA Corporation (新浪网) from December 1993 to June 2001; He served as chairman and chiefexecutive officer of Beijing Dianji Technology, Ltd. (北京点击科技有限公司) from December 2001 to July 2013.Mr. Wang currently serves as chairman and chief executive officer of Beijing Yilianyisheng Techonology Co.Ltd.(北京易连忆生科技有限公司), and an independent director of the Company.

Mr. Hong Tianfeng (洪天峰): Born in 1966, master degree in engineering. Hong was an engineer in NanjingUniversity of Posts and Telecommunication (南京邮电大学) from July 1990 to June 1993; He served as anexecutive deputy general manager, chief executive of Operation and Delivery, chairman of investment decisioncommittee, and vice chairman of Huawei Technologies Co., Ltd. (华为技术有限公司) from July 1993 toSeptember 2011;Hong currently serves as a managing partner of Suzhou Fangguang Venture InvestmentManagement (Limited Partnership)(苏州方广创业投资管理合伙企业(有限合伙)), an executive director ofShanghai Fangguang Venture Investment Management Co., Ltd. (上海方广创业投资管理有限公司), and anindependent director of the Company.

2. Supervisors

Ms. Cheng Huifang (程惠芳): Born in 1953, PhD in international finance. She was a member of the 8

th

and 9

th

Zhejiang CPPCC (浙江省政协). Cheng currenly serve as dean of the Global Development Research Institute ofZhejiang Businesses under Zhejiang University of Technology (浙江工业大学全球浙商发展研究院), presidentof Zhejiang Yangtze River Delta of the Institute of Innovation Management (浙江长三角创新管理研究院),president of the Zhejiang Financial Engineering Society (浙江省金融工程学会), and a supervisor of theCompany.

Mr. Wang Qiuchao (王秋潮): Born in 1951, a professional lawyer with bachelor degree in history and masterdegree in law. Wang served as chairman of the Zhejiang Lawyers Association (浙江省律师协会) andvice-president of the Zhejiang Law Society (浙江省法学会). Wang currently serves as arbitrator of the ChinaInternational Economic and Trade Arbitration Commission (中国国际经济贸易仲裁委员会, “CIETAC”) , anarbitrator of Shanghai International Arbitration Center (上海国际仲裁中心) and South China InternationalEconomic and Trade Arbitration Commission (华南国际仲裁中心), and a supervisor of the Company.

Mr. Xu Lirong (徐礼荣): Born in 1963, master degree of engineering, senior engineer. In January 2002, hejoined Hikvision and served as manager of development division under the R&D center, secretary of the board ofdirectors and deputy general manager of the Company. He is currently the employee representative supervisor andthe person in charge of internal audit of the Company.

3. Senior management personnel

Mr. Hu Yangzhong (胡扬忠): Please refer to his profile in preceding part of the report.

Mr Wu Weiqi (邬伟琪): Please refer to his profile in preceding part of the report.

Mr. Jiang Haiqing (蒋海清): Born in 1969, bachelor degree in engineering, a senior engineer. He joined theCompany in November 2001 and served as an assistant of the general manager and a deputy general manager. Mr.Jiang currently serves as a senior deputy general manager of the Company.

Mr. Jia Yonghua (贾永华): born in 1977, bachelor degree in engineering, a senior engineer. He joined Hikvisionin January 2002 and held various positions at the Company, including director of Image Process and AnalysisDivision under the R&D Center, director of Strategy and Marketing Division, a deputy general manager of theSupply Chain Management Center, and a deputy general manager of the Company. Mr. Jia currently serves as asenior deputy general manager of the Company.

Mr. Li Pan (礼攀): born in 1978, master degree in engineering, and is a senior engineer. He served as an engineerof the 52

nd

Research Institute from August 2000 to December 2001. He joined Hikvision in December 2001 andheld various positions at the Company, including engineer, product manager, R&D manager, the general managerof the Transportation Division, the general manager of Hangzhou Branch, a deputy general manager of theCompany. Mr. Li currently serves as a senior deputy general manager of the Company.

Ms. He Hongli (何虹丽): Born in 1973, master degree in business administration. She joined Hikvision inDecember 2001 and served as an assistant to the general manager and a deputy general manager. Ms. He currentlyserves as a senior deputy general manager of the Company.

Mr. Fu Baijun (傅柏军): Born in 1972, bachelor degree in economics, Chinese Certificated Public Accountant,professor-level senior accountant. He served as an accountant of the accounting division of the 52

nd

ResearchInstitute and a deputy general manager of Zhejiang Haikang Information Co. Ltd. (浙江海康信息技术股份有限公司) from July 1996 to December 2008. He joined Hikvision in January 2009, and served as a deputy generalmanager and the person in charge of finance and accounting department, and a deputy general maanger. Mr. Fucurrently serves as a senior deputy general manager of the Company.

Mr. Cai Changyang (蔡昶阳): born in 1971, bachelor degree in engineering. He joined Hikvision in 2004, andheld various positions of the Company, including general manager of Beijing branch, director for government andenterprise corporation department, director of investment department, director of strategy and marketingdepartment, and a deputy general manager of the Company. Mr. Cai currently serves as senior deputy general

manager of the Company.

Mr. Xu Ximing (徐习明): born in 1973, bachelor degree in engineering. From July 1996 to September 2016, heheld various positions in IBM, including engineer, department manager, director,partner of consulting service,senior partner of consulting service, and a vice president. He joined Hikvision in September 2016, and served as adeputy general manager of the Company. Mr. Xu currently serves as a senior deputy general manager of theCompany.

Ms. Bi Huijuan (毕会娟): born in 1971, PhD in engineering, senior research engineer. From April 1999 toAugust 2016, she held various positions in the 15

th

Research Institute at China Electronics Technology GroupCorporation (CETC), including engineer, senior engineer, senior research engineer, head of R&D department,vice chief engineer, and deputy director. She joined Hikvision in August 2016, and served as a deputy generalmanager of the Company. Ms. Bi currently serves as a senior deputy general manager of the Company.

Mr. Jiang Yufeng (蒋玉峰): born in 1971, bachelor degree of engineering, an engineer. He joined Hikvision inJanuary 2005 and held various positions in the Company, including general manager of Beijing branch, marketingdirector, assistant to general manager, deputy general manager and marketing director, and deputy generalmanager. Mr Jiang currently serves as a senior deputy general manager of the Company.

Mr. Pu Shiliang (浦世亮): born in 1977, doctor of engineering, a senior engineer. He joined Hikvision in April2006 and held various positions in the Company, including R&D engineer, R&D manager, R&D director, dean ofthe R&D institute, and chief expert. He currently serves as a senior deputy general manager of the Company.

Mr. Jin Duo (金铎): born in 1965, bachelor degree in engineering, a senior engineer. He served as a technician,assistant to engineers, an engineer and a senior engineer of the 52

nd

Research Institute from July 1986 to June2004. He joined Hikvision in July 2004 and served as general manager of Hangzhou Branch, and a deputy generalmanager of the Company. Mr. Jin currently serves as a senior deputy general manager of the Company.

Ms. Jin Yan (金艳): born in 1979, master degree in management, an accountant. She joined Hikvision in 2004and held various positions at the Company, including financial manager, the general manager of the FinancialManagement Center, and a deputy general manager and the person in charge of finance and accounting. Ms. Jincurrently serves as a senior deputy general manager and the person in charge of finance and accounting of theCompany.

Ms. Huang Fanghong (黄方红): born in 1982, master degree in law. She joined Hikvision in June 2009 and heldvarious positions at the Company including legal department manager, internal audit manager, internal controldirector, and a deputy general manager and the board secretary. Ms. Huang currently serves as a senior deputygeneral manager, and board secretary of the Company.

Mr. Chen Junke (陈军科): Born in 1971, bachelor degree in engineering, senior engineer. Chen held variouspositions in the 52nd Research Institute from 1994 to 2001, including assistant engineer, engineer and seniorengineer. He joined the Company in 2001 and served as the technology director of the Digital Video Recorder(DVR) Division of the Technology Management Center, general manager of supply chain management center,employee representative supervisor. Chen currently serves as senior deputy general manager of the Company.

Position held in shareholders’ entities

√Applicable □ Inapplicable

NameShareholder's entityPosition in shareholders’ entitiesCommencement of the termCompensation and allowance from the shareholders' entity
Chen ZongnianChina Electronics Technology HIK Group Ltd.Chairman, Secretary of party committeeNovember 2013Y
Hu YangzhongChina Electronics Technology HIK Group Ltd.DirectorDecember 2013N
Xu LirongChina Electronics Technology HIK Group Ltd.Supervisor, Member of Commission for Discipline InspectionDecember 2013N
Liu XiangChina Electronics Technology HIK Group Ltd.Deputy General ManagerDecember 2013Y
Zheng YiboChina Electronics Technology HIK Group Ltd.Member of party committeeDecember 2015N

Positions held in other entities

√Applicable □ Inapplicable

NameName of other EntityPosition in other entityCommencement of the termTermination of the termCompensation and allowance from the other entities
Cheng ZongnianZhejiang Intelligent IoT Technology MagazineLegal RepresentativeFebruary 2004N
Cheng ZongnianCETC Finance Ltd.DirectorDecember 2012N
Cheng ZongnianZhejiang Wuzhen Street Technology Ltd.ChairmanMay 2016February 2019N
Gong HongjiaFurong Technology Ltd.DirectorOctober 1999N
Gong HongjiaHangzhou FunVio Ltd.ChairmanFebruary 2004N
Gong HongjiaFunian Technology Ltd.Chairman of the BoardOctober 2007N
Gong HongjiaBeijing Funian Technology Ltd.ChairmanNovember 2011N
Gong HongjiaShanghai Fullhan Microelectronics Co., Ltd.DirectorApril 2013N
Gong HongjiaShenzhen Innovation Valley Investment Management Ltd.DirectorJuly 2014N
Gong HongjiaShanghai Pukun Information TechnologyDirectorSeptember 2014N
NameName of other EntityPosition in other entityCommencement of the termTermination of the termCompensation and allowance from the other entities
Ltd.
Gong HongjiaFuCe Holdings Ltd.DirectorOctober 2014N
Gong HongjiaChuangjia Venture Capital Investment LtdDirectorOctober 2014N
Gong HongjiaShenzhen Jiadao Valley Investment Management Ltd.General ManagerOctober 2014Y
Gong HongjiaShenzhen Jiadao Gongcheng Equity Investment Fund (Limited Partnership)Executive Partner & delegateNovember 2014N
Gong HongjiaJiuBaYi Health Technology Ltd.DirectorNovember 2014N
Gong HongjiaBeijing JiaBoWen Biotechnology Ltd.DirectorMarch 2015N
Gong HongjiaWuhan YouXin Technology Co., Ltd.DirectorJanuary 2016N
Gong HongjiaQingKe Management Consulting Group Ltd.DirectorFebruary 2017N
Gong HongjiaShenzhen JiadaoFangzhi Education Industry Investment Enterprise (Limited Partnership)Executive Partner & delegateJune 2017N
Gong HongjiaShenzhen Jiadao Successful Investment Enterprise (Limited Partnership)Executive Partner & delegateAugust 2017N
Gong HongjiaShanghai AoYuan Medical Supplies Ltd.ChairmanSeptember 2017N
Gong HongjiaSichuan JiaDao BoWen Ecological Technology Ltd.ChairmanDecember 2017N
Gong HongjiaBeijing JiaDaoGu Management Consulting Ltd.SupervisorApril 2018N
Gong HongjiaCore Microelectronics (Shanghai) Ltd.DirectorOctober 2018N
Gong HongjiaSichuan Five-Plus-One Ecological AgricultureChairmanNovember 2018N
NameName of other EntityPosition in other entityCommencement of the termTermination of the termCompensation and allowance from the other entities
Technology Service Ltd.
Gong HongjiaSichuan JiaBoWen Biological Technology Ltd.ChairmanNovember 2018N
Gong HongjiaShenzhen Zhongke Science and Technology Achievements Transformation Equity Investment Fund Management Ltd.ChairmanDecember 2018N
Gong HongjiaZhongYuan Concord Cell Genetic Engineering Co., Ltd.Legal Representative ChairmanDecember 2018N
Qu LiyangZhejiang Haikang Technology Ltd.DirectorApril 2009N
Qu LiyangZhejiang YiBo High Technology Ltd.DirectorAugust 2009N
Wu WeiqiXinjiang Pukang Investment Management Limited PartnershipExecutive PartnerMay 2011N
Wu WeiqiWuhu Sensor Tech Intelligent Technology Ltd.DirectorJanuary 2017N
Wu WeiqiMaxio Technology (Hangzhou) Ltd.DirectorMay 2017N
Cheng TianzongHechun Technology Co., Ltd.DirectorJune 2014Y
Cheng TianzongZuozhen Co., Ltd.DirectorJanuary 2015Y
Cheng TianzongWenhui Technology Co., Ltd.Independent DirectorJune 2016Y
Lu JianzhongShanghai Jiao Tong University- Antai College of Management,Mentor for enterprisesDecember 2013N
Lu JianzhongDahua Certificated Public Accountants LLPChartered AccountantJanuary 2016N
Lu JianzhongChangShu FengFan Electric Power Equipment Co., Ltd.Independent DirectorSeptember 2015Y
Lu JianzhongNingbo Lehui InternationalIndependentMarch 2016Y
NameName of other EntityPosition in other entityCommencement of the termTermination of the termCompensation and allowance from the other entities
Construction Equipment Co., Ltd.Director
Lu JianzhongCOSCO Maritime Transport Development Co., Ltd.Independent DirectorJanuary 2018Y
Lu JianzhongShanghai Xinnanyang Angli Education Technology Co., Ltd.Independent DirectorJanuary 2019Y
Lu JianzhongShanghai Mingzhi Electric Co., Ltd.Independent DirectorOctober 2017March 2018Y
Wang ZhidongBeijing Yilian Yisheng Science and Technology Ltd.Chairman, CEOOctober 2013Y
Hong TianfengShanghai Fangguang Investment Management Ltd.Executive DirectorFebruary 2012Y
Hong TianfengShanghai Fangguang Venture Investment Management Partnership Enterprise (Limited Partnership)Managing PartnerFebruary 2012N
Hong TianfengShanghai Fangguang Venture Investment Partnership Enterprise (Limited Partnership)Managing PartnerAugust 2012N
Hong TianfengShanghai Fangguang Erqi Venture Investment Partnership Enterprise (Limited Partnership)Managing PartnerSeptember 2016N
Hong TianfengSuzhou Fangguang Venture Investment Management Partnership Enterprise (Limited Partnership)Managing PartnerSeptember 2012N
Hong TianfengSuzhou Fangguang Venture Investment Partnership Enterprise (Limited Partnership)Managing PartnerSeptember 2012N
Hong TianfengSuzhou Fangguang Venture Investment Phase 2 Partnership EnterpriseManaging PartnerJuly 2016N
NameName of other EntityPosition in other entityCommencement of the termTermination of the termCompensation and allowance from the other entities
(Limited Partnership)
Hong TianfengShenzhen Pengfenghui Venture Investment Ltd.Executive Director & General ManagerJune 2014N
Hong TianfengShenzhen Fangguang Enterprise Management Consulting Ltd.Executive Director & General ManagerMay 2016N
Hong TianfengSannuo Biology Sensor Co., Ltd.DirectorSeptember 2013Y
Hong TianfengShenzhen YunZhiXun Network Technology Ltd.DirectorMay 2014N
Hong TianfengJiangsu JiTaiKe Electrics Co., Ltd.DirectorJuly 2015N
Hong TianfengZhongwei Dahe Cloud Connection Network Technology Ltd.DirectorNovember 2016N
Hong TianfengShenzhen DongFengMingTu Enterprise Management Ltd.SupervisorAugust 2016N
Hong TianfengCETC Huayun Information Technology Ltd.DirectorMarch 2017N
Hong TianfengShanghai Chuangyuan Equipment Technology Co., Ltd.DirectorAugust 2014December 2018N
Hong TianfengShanghai Baishitong Information Technology Co., Ltd.DirectorSeptember 2016August 2018N
Cheng HuifangZhejiang FuRun Co., LtdIndependent DirectorApril 2014Y
Cheng HuifangHangzhou HangYang Co., Ltd.Independent DirectorJanuary 2016Y
Cheng HuifangZhejiang HuaCe Media Co., Ltd.Independent DirectorFebruary 2016Y
Cheng HuifangZhejiang Commercial Bank Co., Ltd.External SupervisorJune 2016Y
Cheng HuifangQuzhou NanGaoFeng Chemical Co., Ltd.Independent DirectorMarch 2017Y
NameName of other EntityPosition in other entityCommencement of the termTermination of the termCompensation and allowance from the other entities
Cheng HuifangKings Resources Group Co., LtdIndependent DirectorMarch 2014December 2018Y
Wang QiuchaoZhejiang T&C Law FirmPartnerAugust 1993Y
Wang QiuchaoZhejiang JingSheng Mechanical & Electrical Co.,ltdIndependent DirectorApril 2015Y
Wang QiuchaoZhejiang KaiShan Compressor Co., Ltd.Independent DirectorMay 2015Y
Wang QiuchaoHanjia Design Group Co., Ltd.Independent DirectorJuly 2015Y
Wang QiuchaoSanBian Sci-Tech Co., Ltd.External SupervisorAugust 2014August 2018Y
Jia YonghuaHangzhou Confirmwaref Technology Co., Ltd.DirectorNovember 2016N
Zheng YiboZhejiang TuXun Technology Co., Ltd.DirectorDecember 2016N
Liu XiangXinjiang Weixun Investment Management Limited PartnershipExecutive partnerMay 2011N
Liu XiangPhoenix Optical Co. LTDChairmanJuly 2015N
Liu XiangPhoenix Optical Holding Co. LTDChairmanJuly 2015N
Liu XiangBeijing LeiShengQiangShi Technology Ltd.DirectorJanuary 2017N
Liu XiangCETHIK Wuxi Technology Ltd.ChairmanJanuary 2018N
Description of the status of employment in other unitsLiu Xiang and Zheng Yibo have left their posts on March 7th 2018 and March 21st 2018 respectively when terms up.

Incumbent and off-office directors, supervisors and senior management personnel during the reporting period thathave been imposed administrative penalties by the CSRC during the last three years.□ Applicable √ Inapplicable

IV. Remuneration of directors, supervisors and senior management personnel

The decision-making program, determination basis and actual remuneration payment of directors, supervisors and

senior management personnel:

The remuneration of directors, supervisors and senior management personnel will be received preliminarily bythe Remuneration and Appraisal Committee of the Board, among them, remuneration of independent directorsand external supervisors would be further reviewed and approved by general meeting of shareholders. As forthose directors (exclude independent directors), supervisors (exclude external supervisors) and seniormanagement personnel who receive remuneration from the Company directly, they will receive remunerationaccording to the Company’s current Salary System and Performance Appraisal Schemes.

Remuneration of directors, supervisors and senior management personnel

Unit: RMB 0,000

NameTitleGenderAgeTenure statusTotal remuneration from the Company (RMB'0,000)Remuneration from related parties (Y/N)
Chen ZongnianChairmanM54Incumbent0Y
Gong HongjiaVice ChairmanM54Incumbent0Y
Qu LiyangDirectorM55Incumbent0Y
Hu YangzhongDirector, General ManagerM54Incumbent308.79N
Wu WeiqiDirector, Standing Deputy General ManagerM55Incumbent293.64N
Cheng TianzongIndependent DirectorM67Incumbent27.5N
Lu JianzhongIndependent DirectorM65Incumbent27.5N
Wang ZhidongIndependent DirectorM52Incumbent27.5N
Hong TianfengIndependent DirectorM53Incumbent27.5N
Cheng HuifangSupervisor ChairmanF66Incumbent18.33N
Wang QiuchaoExternal SupervisorM68Incumbent18.33N
Xu LirongEmployee Supervisor, Person in charge of internal auditM56Incumbent118.78N
Jiang HaiqingSenior Deputy General ManagerM50Incumbent248.62N
Jia YonghuaSenior Deputy General ManagerM42Incumbent238.20N
Li PanSenior Deputy General ManagerM41Incumbent238.17N
He HongliSenior Deputy General ManagerF46Incumbent278.43N
Fu BaijunSenior Deputy General ManagerF47Incumbent248.32N
Cai ChangyangSenior Deputy GeneralM48Incumbent242.94N
NameTitleGenderAgeTenure statusTotal remuneration from the Company (RMB'0,000)Remuneration from related parties (Y/N)
Manager
Xu XimingSenior Deputy General ManagerM46Incumbent418.20N
Bi HuijuanSenior Deputy General ManagerF48Incumbent362.94N
Jiang YufengSenior Deputy General ManagerM48Incumbent248.43N
Pu ShiliangSenior Deputy General ManagerM42Incumbent208.66N
Jin DuoSenior Deputy General ManagerM54Incumbent238.32N
Jin YanSenior Deputy General Manager, person in charge of finance and accountingF40Incumbent238.21N
Huang FanghongSenior Deputy General Manager Board Secretary Internal audit directorF37Incumbent238.21N
Chen JunkeSenior Deputy General ManagerM48Incumbent178.69N
Liu XiangDirectorM47Left the post0Y
Chen JunkeSupervisorM48Left the post59.52N
Zheng YiboDeputy General ManagerM57Left the post44.66N
Cai DingguoDeputy General ManagerM52Left the post24.66N
Zhou ZhipingDeputy General ManagerM54Left the post44.66N
Xu LirongDeputy General ManagerM56Left the post44.61N
Total--------4712.32--

Note: The salary of the new appointed and adjusted directors, supervisors and executive management in the reporting period is thesalary during the period in which they held the position.

Share incentives for directors, supervisors and senior executives in the Reporting Period

√ Applicable □ Inapplicable

Unit: share

NameTitleRestricted Shares held at the beginning of the periodShares vested in the current periodShares newly granted in the current periodPrice for restricted shares granted (RMB per share)Restricted Shares held at period-end
Hu YangzhongDirector, General Manager336,00087,750--248,250
Wu WeiqiDirector, Standing Deputy General Manager305,10078,300--226,800
Jiang HaiqingSenior Deputy General Manager258,00067,500--190,500
Zheng YiboSenior Deputy General Manager121,50060,750--60,750
Cai DingguoSenior Deputy General Manager231,00060,750--170,250
He HongliSenior Deputy General Manager254,10058,050--196,050
Fu BaijunSenior Deputy General Manager312,60058,050--254,550
Xu LirongSupervisor, person in charge of internal audit225,60058,050--167,550
Zhou ZhipingSenior Deputy General Manager225,60058,050--167,550
Jiang YufenSenior Deputy General Manager244,50060,750--183,750
Jin DuoSenior Deputy General Manager109,500---109,500
Jin YanSenior Deputy General Manager, person in charge of finance174,000---174,000
Jia YonghuaSenior Deputy General Manager109,500---109,500
Li PanSenior Deputy General Manager109,500---109,500
Cai ChangyangSenior Deputy General Manager109,500---109,500
Bi HuijuanSenior Deputy General Manager150,000---150,000
Pu ShiliangSenior Deputy General Manager293,90050,000243,900
Huang FanghongSenior Deputy General Manager, Secretary of the148,50074,25074,250
NameTitleRestricted Shares held at the beginning of the periodShares vested in the current periodShares newly granted in the current periodPrice for restricted shares granted (RMB per share)Restricted Shares held at period-end
board
Total--3,718,400772,250--2,946,150

Note:

(1) This personnel listed above are executives who were included in 2014 restricted shares incentive plan and

2016 restricted shares incentive plan, and current executives.(2) The 2018 restricted shares incentive plan is granted on December 20

th

2018, and the listing date is January 18

th

2019, which is not covered in the above form.

V. Staff in the Company

1. Statistics of employees, professional structure of the staff, and educational background

Number of incumbent employees in the parent Company18137
Number of incumbent employees in major subsidiaries16255
Number of incumbent employees34392
Number of employees receiving salaries in current period34392
Number of retired employees requiring the parent Company and its subsidiaries to bear costs0
Professional structure
TierNumber of employees
Administrative staff499
Engineers16010
Sales staff7482
Functional staff1312
Production staff9089
Total34392
Educational background
Education backgroundNumber of employees
Master and/or doctor/or above5570
Bachelor18505
Junior College (professional training)2115
Other8202
Total34392

2. Staff remuneration policy

Hikvision applies scientific talent cultivation methods, effective talent incentive mechanisms and faircompetition platforms to recruit talents, and continuously optimizes the talent structure. The Company providesemployees with remuneration packages which are competitive in the industry. In addition to endowment insurance,medical insurance, unemployment insurance, employment injury insurance, maternity insurance and housingprovident funds, the Company provides employees with the supplementary commercial insurance, medicalsubsidies, travel and communication allowances and other special allowances, in order to create a fairer and morehumanized working environment for each employee; so that each employee is able to demonstrate his/her value,and creates value to satisfy increasing demands for a good life.3. Staff training plans

The Company is committed to building a strategically oriented training model, formulating talent planningbased on corporate strategy, and implementing it into a training program to help achieve business strategy throughthe development of the Company's talent.

In 2018, on the basis of the steady operation of key training systems such as new employees andmanagement cadres, the Company made key construction and investment in the professional talent developmentsystem and cultural training system. The Company closely follows the strategic transformation of business andchanges in the external environment, and cooperates with business experts and training experts to build aprofessional talent development system in six key business area; the cultural training system has clarified themethodology of the cultural work system through co-creation with senior executives, seminars with middle-levelmanagers, and research and interviews with front-line employees. In addition, the new employee training, as animportant input port of the cultural training system, has made a deeper link in the understanding, identificationand integration of culture; and the coverage rate of new employee training has reached 99%. The tieredmanagement training system was implemented across the Company, the implementation of the grassrootsmanagement cadre training program, the middle-level management cadre training project and the middle-to-highlevel leadership projects have fully promoted the capacity improvement of different levels of management cadres;and the cumulative coverage rate of management training projects reached 88% .

In 2019, the Company will continue to be strategically oriented, aim at improving business capabilities,strengthen the system operation of learning and development, and build a professional platform.

4. Labor outsourcing

□ Applicable √ Inapplicable

Section IX Corporate Governance

I. Basic situation of corporate governance

During the reporting period, in accordance relevant laws and regulations, and regulatory and regulatorydocuments from supervision department, i.e. Company Law(公司法), Securities Law(证券法), Code ofCorporate Governance for Listed Companies in China(上市公司治理规则), Listing Rules of Shenzhen StockExchange Stock(深圳证券交易所股票上市规则), Guidelines of the Shenzhen Stock Exchange for the StandardOperation of Listed Companies on the Small and Medium-sized Enterprise Board(深圳证券交易所中小板上市公司规范运作指引), the Company further improved its corporate governance structure and optimized theinternal management system based on the actual situation; improved the standardized operation level; performedinformation disclosure obligations, disclose relevant information in a true, accurate, complete and timely manner,and maintained the legitimate rights and interests of investors.

During the reporting period, the improvement of corporate governance is mainly reflected in the followingaspects:

1. The Company continuously optimizes its internal management systems.

In light of the current business development, the Company revised the Authorization Management System《授权管理制度》 and the General Manager's Working Rules 《总经理工作细则》 to strengthen internal controland improve the standardized operation level. The Company revised the Regulations on the Management of FixedAssets and Low-Value Consumables 《固定资产和低值易耗品管理规范》to further strengthen assetsmanagement and improve the efficiency of asset use. The Company formulated the Position Management System《岗位管理制度》 and the Talent Selection and Promotion System 《人才选拔与晋升降级制度》, in order toimprove the post system, promote the construction of talent team, and support the sustainable development of theCompany's business. In order to promote the Company's standardized operation in various countries and regions,the Company established the Compliance Department during the reporting period to strengthen the construction ofcompliance system and ensure the Company's standardized operation.

2. Continuously strengthen internal control and process management. During the reporting period, the

Company focused on supervising high-risk business processes, finding loopholes, and building a defense line forthe Company’s risk control. The Company conducted investigations related to reported complaints, convenedanti-corruption conferences, and invited family members of key positions to participate in probity education. TheCompany's Change Management Steering Committee continued to build a flat organization by promotingdecentralization, de-intermediation, and shifting decision-making downwards, and improved and optimized theCompany's internal management by enhancing system construction.

3. Continuous improvement on investor relations management. After each periodic financial report disclosure,the Company took the initiative to hold a public performance briefing (including conference call, Web-meeting),hosted periodic investor receptions; actively listened to investors' opinions and suggestions to form goodinteractions between the Company and investors, forming a positive interaction and communication. After theabove events, the Company also timely released Investor Relations Activity Record Form to ensure that allinvestors have fair access to the Company’s information. In routine duties, the company also communicates withinvestors through various channels such as telephone, email and interactive platform in order to maintainlong-term trust relationship between investors and Company.

The Company's information disclosure was approved by the regulatory authorities: the Company has beenawarded the A-level evaluation of the information disclosure of small-and-medium sized listed companies by theShenzhen Stock Exchange for 8 consecutive years. The Company has also won some honors in the capital market:

Jin Junma's “Technology Innovation Award for Listed Company” selected by Securities Daily; "The Top 50 ListedCompanies of China's Small-and-Medium Sized Boards" and "Top Ten Management Teams of China'sSmall-and-Medium sized Listed Companies" selected by Securities Times and New Fortune Magazine's 12thChina Listed Company Value Selection; and "Top 10 of the Top 50 China's Board of Directors" selected byFortune (Chinese version) and Aon Hewitt Management Consulting.

Any significant incompliance for the relevant regulatory documents issued by China Securities RegulatoryCommission in respect of corporate governance:

□ Yes √ No

II. Company’s Independence in Businesses, Management, Assets, Institutions and Finance fromControlling Shareholders

The Company is completely independent in business, management, assets, organization, and finance from itsshareholders. The Company has established a sound internal control system, being capable of operatingindependently with its complete and independent business.

(1) Business independence: The Company has its own production, purchases and sales systems, which

are completely independent from controlling shareholders. Therefore, there is no competition amongthe Company, controlling shareholders, and related parties.

(2) Personnel independence: The Company has independent personnel. The management has set up

various independent departments, including R&D, production, administration, finance and operationmanagement divisions, etc., and established complete management methods for labor, personnel,and salary management. Personnel of the Company are independent from controlling shareholders,e.g. the Chairman is elected through the general meetings of the Board. In addition, the GeneralManager, Senior Deputy General Managers, the Secretary of the Board, CFO, and other seniormanagement personnel of the Company are only employed and remunerated by the Company, anddo not hold any position in controlling shareholders and is not remunerated by controllingshareholders. Directors, Supervisors and Senior Management Personnel are appointed through legalprocedures strictly in accordance with relevant regulations stipulated in Company Law and Articlesof Association. There is no controlling shareholder intervention in the Company’s personneldecisions in general meetings of the Board or shareholders.

(3) Asset Completeness: The property rights of assets are explicitly between the Company and the

controlling shareholders, and no assets, funds, or other resources owned by the Company areillegally and irregularly occupied or controlled by the controlling shareholders. Assets of theCompany are integrated, including complete property rights of fixed assets for production,supporting assets for production, and intangible assets of patents, etc. The Company has the fullcontrol and ownership of all assets.

(4) Independence in organizations: The Company’s Board, Supervisor Committee, Management and

other internal organizations operates independently, and each functional department is independentfrom controlling shareholders in duty and personnel. There is no superior-subordinate relationbetween functional departments of controlling shareholders and those of the Company, which wouldhave an impact on the Company’s independent operations.

(5) Financial Independence: The Company has established an independent financial department, as

well as a sound and independent financial and accounting system. The Company makes financialdecisions independently. There is no controlling shareholder intervention in the Company’s financial

and accounting activities. The Company has maintained accounts with banks independently of anddo not share any bank account with our Controlling Shareholders. The Company has undertakenindependent tax registration in accordance with applicable laws, and paid tax independently.

III. Horizontal competition

□ Applicable √ Inapplicable

IV. Annual General Meeting and Extraordinary General Meetings convened during theReporting Period

1. Annual General Meeting convened during the reporting period

MeetingNatureProportion of participating investorsConvened DateDisclosure DateDisclosure Index
2018 First Extraordinary General MeetingExtraordinary General Meetings70.80%March 7th 2018March 8th 2018Public Announcement: No. 2018-011
2017 Annual General MeetingAnnual General Meeting73.66%May 11th 2018May 12th 2018Public Announcement: No. 2018-032
2018 Second Extraordinary General MeetingExtraordinary General Meetings73.11%December 19th 2018December 20th 2018Public Announcement: No. 2018-065

2. Extraordinary general meetings convened at the request of preferred shareholders with resumed votingrights:

□ Applicable √ Inapplicable

V. Performance of duties by independent directors during the reporting period

1. Attendance of independent directors in board meetings and general meetings

Attendance of independent directors in board meetings and general meetings
Name of Independent DirectorBoard meeting presence required in the reporting period (times)Board meeting presence on site (times)Board meeting presence by telecom- communication (times)Board meeting presence through a proxy (times)Board meeting absence (times)Board meeting not attend in person for two consecutive timesPresence of independent directors in general meetings (times)
Cheng Tianzong101900N0
Lu Jianzhong101900N1
Wang Zhidong101900N0
Hong Tianfeng100910N1

2. Objections from independent directors on related issues of the CompanyWere there any objections on related issues of the Company from independent directors?

□ Yes √ No

3. Other details about the performance of duties by independent directorsWere there any suggestions from independent directors accepted by the Company?

√ Yes □ No

Details: During the Reporting Period, independent directors strictly followed related rules, regulations,including Company Act(《公司法》), Guidance of Board of Directors for Listed Compaies (《关于在上市公司建立独立董事的指导意见》), Shenzhen Stock Exchange Place Standardized Operational Guidance onSmall-and-Medium Size Listed companies (《深圳证券交易所中小企业板上市公司规范运作指引》), the ArticlesAssociation (《公司章程》), and Regulations on Independent Directors (《独立董事工作条例》). They focusedon the Company operation, carried out their duties independently and imparted considerable professional adviceon improving the Company’s systems, daily operations and decision making. They provided fair advice during theReporting Period and played an effective role in improving the Company supervisory systems and protecting thelegal rights of the Company and the shareholders as a whole. For details, please refer to Independent Directors’2018 Debriefings disclosed on www.cninfo.com.cn.

VI.Performance of duties by special committees under the Board during the Reporting Period

1. Strategy Committee

During the reporting period, the Strategy Committee has researched, studied and put forward proposalsregarding significant investment decisions, considering the domestic and international situation and thecharacteristics of the Industry in which the Company operated, and carried out inspection and evaluation on theimplementation situation of the above matters. Meanwhile, the Strategy Committee listened carefully to the seniormanagement’s report on the operation and development of each business module, actively discussed long-termfuture strategic development plans of the Company considering the industrial characteristics and developmentalstage of the Company, and provided valuable suggestions for sustainable, steady and healthy development of theCompany.

2. Audit Committee

The Audit Committee is primarily responsible for the communication, supervision and inspection of internaland external audits. During the reporting period, the Audit Committee carefully reviewed the Company's financialinformation and its disclosure, reviewed the annual audit work summary report of the external audit institution,listened to the relevant internal audit department's report, and made comments and suggestions on the selectionand appointment of the external audit institution. At the same time, the Audit Committee also organized a specialwork meeting to track the implementation of major issues in the financial center and internal control department,and put forward relevant requirements for internal control of the Company.

3. Nomination Committee

During the reporting period, the Nomination Committee carefully studied the selection criteria andprocedures of the Company's directors and senior management personnel, conducted a review of the resume andqualifications of the new directors and senior executives through communication with relevant departments of theCompany, and actually fulfilled the duties of the Nominating Committee.

4. Remuneration and Appraisal Committee

During the reporting period, the Remuneration and Appraisal Committee carefully studied and reviewed the

remuneration policies and plans for senior management personnel and for the company overall, and madeprofessional recommendations on the assessment criteria of the above-mentioned personnel, and tracked andsupervised the implementation of the previous year's programs; reviewed and provided guidance for the grantingof 2018 restricted shares, the 3

rd

unlocking of 2014 restricted stocks and the 1

st

unlocking of 2016 restrictedstocks.

VII. Performance of duties by the Supervisory Committee

Were there any risks to the Company identified by Supervisory Committee when performing its duties during theReporting Period?

□ Yes √ No

The Supervisory Committee of the Company will strictly abide by provisions of the Company Law, StandardOperation Guidelines on Enterprises Listed on SMEs Board at Shenzhen Stock Exchange, Articles of Association,Rules of Procedures of Supervisory Committee, and relevant laws, regulations and rules, diligently perform itsduties, supervise the legalization and standardization of the corporate finance and directors and seniormanagement personnel when executing their positions, and practically safeguard the legitimate rights and interestsof the Company, staff and shareholders.

In 2018, the Company's Board of Supervisors convoked a total of 9 meetings, and reviewed a total of 29proposals which mainly involved in aspects of the Company’s daily operation, financial information and itsdisclosure, and vesting of restricted incentive share plan, and etc., for details or Supervisory Committeeresolutions, please refer to www.cninfo.com.cn. Meanwhile, the Company’s Supervisory Committee alsoorganized on-site special working meetings, listened to the senior management’s report on the operation anddevelopment of each module of the Company, deeply understood the measures of Company's operational andfinancial situation, the establishment and implementation of internal control system, and protection of employees’rights and interests, etc.Supervisory Committee’s opinions on relevant matters in 2018:

1. Normative Operation Conditions of the Company

During the reporting period, the Supervisory Committee members have supervised the Company's dailyoperation situation by means of attending the board meeting and the shareholders' meeting, listening to and reviewspecial report, interview and other forms. The Board of Supervisors believes that the Company has established afairly sophisticated internal control system, all significant decisions are scientific and reasonable, and

decision-making processes are legal. Directors and senior management personnel of the Company are diligent andresponsible when executing duties; and behaviors of violating laws and regulations, damaging interests of theCompany and legitimate rights and interests of shareholders were not found.

2. Checking the financial situation of the CompanyDuring the reporting period, the Supervisory Committee carefully listened to reports of annual financialworks by person in charge of finance and accounting, understood audit work arrangement of external auditors, andthe Supervisory Committee believes that preparation and deliberation procedure of the Company's periodic reportconforms to provisions of laws, administrative regulations and CSRC (China Securities Regulatory Commission)regulations, the report contents truly, correctly and completely reflects actual conditions of the Company, and isfree of any false record, misleading statement or significant omission. There is no behavior violatingconfidentiality provisions founded for personnel who participated in preparation and deliberation procedure ofperiodic reports.

3. Self-evaluation report about internal control of year 2018

During the reporting period, the Supervisory Committee has listened to reports regarding construction andimplementation situations for the internal control system of the Company and its branches and subsidiaries byInternal Audit Department, Process Management Department and other relevant departments. After a carefulstudy and discussion, the Supervisory Committee believes that the Company has established a fairly sophisticatedinternal control system which conforms to relevant national laws and regulations and fulfills the actual demand ofthe Company's production and operation management, obtained effective implementation, and has played a role inrisk prevention and control effect on each section of the Company's production and operation management. TheBoard of Directors’ 2018 self-evaluation report about internal control can truthfully and objectively reflect theinternal control system construction and operation conditions of the Company.

4. External Guarantee Situation of the Company

During the reporting period, the Supervisory Committee has carefully listened to the reports by the person incharge of finance and accounting, understood about demand of guarantees items and relevant implementationsituations of the Company and its subsidiaries, and researched and reviewed relevant proposals regardingguarantees provided for subsidiaries by the Company. The Supervisory Committee believes that: The Companyprovides guarantees for subsidiaries, which fully meets fund demand for its production and management, and isbeneficial to further improve its production and operation abilities. The financial risk of the guarantee provided by

the Company is in the controllable scope of the Company, and has no significant impact on normal operation ofthe Company. For guarantees provided to subsidiaries not wholly-owned by the Company, the minorityshareholders will not provide proportional guarantees, however, those subsidiaries all have good businessprospects and the Company has control power on the subsidiaries’ operation and finance, So there's basically norisk in providing a guarantee. There is no contravention between relevant provisions of CSRC and Articles ofAssociation. The guarantee conforms to interests of the Company and general shareholders, and won't have anyadverse effect on the Company.

5. Related-party transactions of the CompanyDuring the reporting period, the Supervisory Committee has supervised decision-making process andfollow-up performance of daily related-party transactions of the Company by means of attending board meetingsand interviewing the senior management personnel. The Supervisory Committee believes that related-partytransactions happened to the Company are subject to the principles of voluntariness, fairness and reasonableness,and consensus of the transaction parties, and conform to relevant laws and regulations and provisions of Articlesof Association. The Board of Directors reviewed related-party transactions according to legal procedures, relateddirectors avoid votes; and the decision-making processes of related-party transactions are legal and compliant.There is no situation damaging interests of the Company and medium and small shareholders.

6. Implementation of resolutions of shareholders' meetingDuring the reporting period, the Supervisory Committee has carefully reviewed each proposal of theshareholders' meeting submitted by the Board of Directors, and further inspected practical implementation of eachproposal. The Supervisory Committee believes that the Company's Board of Directors can diligently performrelevant resolutions of the Shareholders' Meeting.

7. Restricted share plan of the CompanyDuring the reporting period, the Supervisory Committee has researched and reviewed relevant proposals ofunlocking 2014 & 2016 restricted incentive shares plan, and the implementation of 2018 Restricted IncentiveShares Plan. The Supervisory Committee considered that the company's restricted stock plan implementationprocedures are legal and effective; the introduction of restrictive stock plans is conducive to further improve thecorporate governance structure, and to form a sound and balanced value distribution system; fully motivate theenthusiasm of core employees, support the Company's strategic realization and long-term sustainable development;attract and retain core employees to ensure the Company's long-term development and competitive advantage. At

the same time, the Board of Supervisors conducted a special review of the "List of Incentives for the 2018Restricted Share Plan", and considered that the incentive targets included in the company's 2018 Restricted SharePlan are in compliance with the conditions of incentives specified in laws, regulations and regulatory documents,in line with the scope and conditions of incentives specified in the 2018 Restricted Share Plan, and are legal andvalid as the subject of the 2018 Restricted Share Plan.

During the Reporting Period, the Company strictly followed relevant rules and regulations, strengthenedregistration management of information insiders and inside information confidentiality management inpreparation of periodic reports, resolution and disclosure, and planning, implementation and announcement ofsignificant affairs, and other matters related to the Company’s inside information. The Company truthfully filledin and submitted the Registration Form for Information Insiders, and reported to Shenzhen Stock Exchange Placein a timely manner.

VIII. Assessment and incentive mechanism for the senior management

The Company has established a fairly sophisticated mechanism on employees’ evaluation and incentiverestraint, and has established a fair and transparent appraisal and incentive mechanism on senior managementpersonnel and other various level management personnel and employees. The Company’s board of directors hascarried out annual appraisals of senior management members mainly based on annual target achievement index.The Board is responsible for appraisals of the general manager on the general manager’s duty, capacity andperformance of operation; and the general manager carried out appraisals of other senior management memberson their operational management and implementation of relevant assignments. In the year 2018, seniormanagement personnel carried out their duties diligently with good performance, and fairly completed theirobjectives and missions set out at the beginning of the year.

IX. Evaluation report on internal control

1. Any significant internal control deficiencies during the reporting period

□ Yes √ No

2. Self-evaluation report on internal control

Disclosure date of full text of self-evaluation report on internal controlApril 20th 2019
Disclosure index of full text of self-evaluation report on internal controlwww.cninfo.com.cn
Proportion of assets evaluated in total assets100.00%
Proportion of revenue evaluated in total revenue per consolidated financial statement100.00%
Recognition standard of deficiencies
NatureFinancial report levelNon-financial report level
Qualitative criteriaSignificant deficiency: A deficiency or a combination of deficiencies in internal control may prevent significant errors in financial reports from being identified or prevented, e.g.: A. Invalid internal control environment; B. Fraud of directors, supervisors and senior management personnel on the financial report ; C. Significant errors identified by external auditors but not identified during the Company is operating; D. Invalid supervision of audit committee and internal audit system; E. Other deficiencies that may lead to the wrong judgement of financial statement reporter. Important deficiency: A deficiency or a combination of deficiencies in internal control may prevent errors in financial report from being identified or prevented, although such deficiency is not significant, but require attention of the Board and Management, e.g.: A. Application of accounting policies does not follow the enterprise accounting standard; B. No internal control systems for fraud; C. No control systems or system not effective for unusual or special transactions or no compensatory relevant control; D. One or more deficiencies which prevent the preparation of true and fair financial statements. Normal deficiency: Not significant and not important deficiency.Internal control deficiencies at non-financial report level are mainly identified by the likelihood of occurrence and the extent of impacts on operating effective in business. Significant deficiency: the high likelihood leading to significant reduction of working efficiency, or significant increase of uncertainty, or significant deviation from the expected target; Important deficiency: a higher likelihood leading to remarkable reduction of working efficiency, or remarkable increase of uncertainty, or remarkable deviation from the expected target; Normal deficiency: a low likelihood leading to reduction of working efficiency, or increase of uncertainty, or deviation from the expected target;
Quantitative criteriaSignificant deficiencypotential errors 5% or more of total profitsdirect losses of assets is 5% or more of total profits
Important deficiency:potential errors 2% or more but below 5% of total profitsdirect losses of assets is over 2% but below 5% of total profits
Normal deficiency:potential errors is 2% or less of total profitsdirect losses of assets is below 2% of total profits
Number of significant deficiencies in financial report level0
Number of significant deficiencies in non-financial report level0
Number of important deficiencies in financial report level0
Number of important deficiencies in non-financial report level0

X.Audit report or assurance report on internal control

□ Applicable √ Inapplicable

Section X Corporate Bonds

The Company does not have publicly issued corporate bonds on stock exchange place, which has not terminatedor terminated but fail to collect the full payment before the annual report authorized disclosure date.

Section XI Financial Report

I. Audit report

Audit OpinionUnmodified unqualified audit opinion
Audit Report sign-off DateApril 18th 2019
Audit Institution NameDeloitte Touche Tohmatsu Certified Public Accountants LLP
Audit Report NumberDeloitte Auditors’ Report (Audit) No. 19-P02882
Certified Public Accounts NameMou Zhengfei, Zhang Shushu

To all shareholders of Hangzhou Hikvision Digital Technology Co., Ltd.:

I. Audit Opinion

We have audited the accompanying financial statements of Hangzhou Hikvision Digital TechnologyCo., Ltd. (hereinafter referred to as “Hikvision"), including consolidated and parent company's balancesheet as of December 31

st

2018, consolidated and parent company's income statement, cash flowstatement and statement of changes in owners’ equity of 2018 as well as relevant financial notes tofinancial statements.

In our opinion, the financial statements annexed have been prepared in accordance with AccountingStandards for Business Enterprises in all material respects and they present fairly the consolidated andparent company’s financial position of Hikvision as of December 31

st

2018 and consolidated andparent company’s financial performance and cash flows of 2018.

II. Basis of Opinion

We have conducted our audit in accordance with the Auditing Standards for Chinese Certified PublicAccountants. “Responsibilities of Certified Public Accountants for Financial Statements Audit” in theAudit Report further states our responsibilities under the standards. As per the code of ethics ofChinese certified public accountants, we are independent from Hikvision and have implemented otherresponsibilities as required by the code of ethics. We believe that the audit evidence we have acquiredis sufficient and appropriate to provide a basis for our audit opinion.

III. Key Matters

Key matters are matters we deem the most significant to the financial statements audit for the currentperiod based on our professional judgment. These matters are handled based on the financialstatements audit as a whole and the audit opinion formed accordingly. We don’t present opinionsseparately on these matters. We confirm that the following matters are key matters to be communicatedthrough in the audit report.

(I) Recognition of Sales Revenues

Description:

As shown in Note (V) (37) and Note (XIV) (1), the operating revenue in 2018 in the consolidatedfinancial statements of the Group for the year ended December 31

st

2018 is RMB 49,837.13 million.The product sales revenue, a key performance indicator, reaches RMB 47,552.07 million, accountingfor 95.41% of the operating revenue, which is a significant amount and has a significant influence onresults of operations. The product sales revenue models include internal and external sales of products,etc. There may be relevant risks of revenue recognition, as the point in time at which risks and rewardsare transferred is different under different revenue models. Therefore, we treat sales revenueoccurrence and cutoff as key audit matters.

Audit Measures:

Main audit procedures that we perform for the aforesaid key audit matters include:

(1) Understanding and evaluating design and implementation of key internal control in relation to

revenue recognition, and testing the effectiveness of its operation;

(2) For revenues under different sales models, selecting a sample to check a sales contract, reviewing

its main transaction terms, evaluating whether revenue recognition complies with requirements ofaccounting policies of the Group and the Accounting Standards for Business Enterprises;conducting a background investigation of important customers to check whether there is anyindication of existence of abnormal customers or transactions;

(3) Analyzing revenues and gross profits, based on product types, to understand whether there are

abnormal fluctuations in the revenues and gross profits for the year, and conducting a test of detailsfor identified specific transactions, through systematic analysis of revenue data, and reviewingrelevant supporting documents;

(4) Selecting sample(s) from product sales revenues recorded for the year, checking invoices, sales

contracts or orders, shipping orders, signature forms or customs declarations and other supportingdocuments; carrying out an additional check of sample(s) under the selected external sales modelfor customs declaration records; critically focusing on occurrence of sales revenue recognition andwhether they are recorded in the correct accounting period.

(5) Sampling review the sales revenue of products for a certain period before the end of the year, check

the relevant supporting documents, and confirm whether the sales revenue is booked in the correctaccounting period.

(II) Provision for Decline in Value of Inventories

Description:

As shown in Note (V) (6), as of December 31

st

2018, the carrying amount of inventories in theconsolidated financial statements of the Group was RMB 5,842.85 million (excluding completed butunsettled assets formed by construction contracts), and the provision for diminution in value ofinventories was RMB 321.61 million. The carrying value of the Group’s inventories is relatively high,so the provision for diminution in value of inventories has a relatively significant influence on thefinancial statements. As shown in Note (III) 11.3 and Note (III) 26 to the financial statements,

inventories are measured at the lower of cost and net realizable value, on the balance sheet date. Theprovision for impairment of inventories is made when the net realizable value is lower than the cost.Net realizable value is the estimated selling price for inventories less estimated costs of completion tobe incurred, estimated costs to make the sale and relevant taxes. As the management needs to usecritical accounting estimates in determining the net realizable value of inventories and the amount issignificant, we treat the provision for diminution in value of inventories as a key audit matter.

Audit Measures

Main audit procedures that we perform for the aforesaid key audit matters include:

(1) Understanding and evaluating design and implementation of key internal control in relation to

provision for diminution in value of inventories by the Company’s management, and testing theeffectiveness of its operation;

(2) Understanding the Group’s accounting policies for the provision for diminution in value of

inventories, evaluating whether identification of inventories by the management for which theprovision for diminution in value of inventories should be made is appropriate, and evaluating thereasonableness of the estimated net realizable value by the management;

(3) Testing the completeness and accuracy of data in the list of inventories for which the provision for

diminution in value of inventories should be made, based on which the Company’s managementestimates the provision for diminution in value of inventories, and recalculating the provision fordiminution in value of inventories;

(4) Selecting sample(s) from inventories to test the net realizable value. For the finished product selected

as a sample, comparing the book cost of the finished product with recent or subsequent actual sellingprice; for raw materials and unfinished products selected as samples, comparing costs of completionfor the same type of raw materials and unfinished products and costs to make the sale for the period,and evaluating the reasonableness of estimated cost of completion to be incurred, costs to make thesale and relevant taxes;

(5) Performing the supervision and selective examination procedure for inventory-taking of the Group,

with focus on defective, obsolete or slow-moving inventories, and checking whether there areinventories with an indication of impairment which are not recorded.

IV. Other Information

Management of Hikvision shall be responsible for other information. Other information includes theinformation covered in the annual report, excluding the financial statements and our audit report.

Our audit opinion on the financial statements does not cover other information and we do not expressany form of authentication conclusion on other information.

In connection with our audit of the financial statements, our responsibility is to read other informationand to consider whether other information is significantly misstated or materially inconsistent with thefinancial statements or the information we learned during the audit.

Based on the works we have performed, if we determine that there is a material misstatement in otherinformation, we should report the fact. In this respect, we have nothing to report.

V. Responsibility of the Management and Governance for the Financial Statements

The management of Hikvision is responsible for the preparation of financial statements in accordancewith Accounting Standards for Business Enterprises to achieve fair presentation, and design,implementation and maintenance of necessary internal control to enable the financial statements arefree from material misstatement, whether due to fraud or error.

When preparing the financial statements, the management is responsible for assessing thegoing-concern ability of Hikvision, disclosing issues related to going-concern as applicable, andapplying going-concern assumptions, unless the management plans to liquidate Hikvision, terminateoperation or has no other realistic choice.

The governance is responsible for supervising financial reporting processes of Hikvision.

VI. Responsibility of Certified Public Accountants on Audit of the Financial Statements

Our objective is to obtain reasonable assurance as to whether the overall financial statements are freefrom material misstatement, whether due to fraud or error, and to issue audit report that contain auditopinions. Reasonable assurance is a high level of assurance, but could not guarantee that an auditperformed in accordance with the Auditing Standards can always figure out any existing materialmisstatements. Misstatements may be caused by fraud or error. Misstatement is generally considered tobe material if it is reasonably expected that the misstatement, alone or aggregated, may affect the users’financial decisions based on the financial statements.

In performing the audit in accordance with the Auditing Standards, we applied professional judgmentand maintained professional skepticism. Meanwhile, we also perform the following duties:

(1) Identify and evaluate the risk of material misstatement of financial statements due to fraud or

error; design and implement audit procedures to cope with these risks, and obtain adequateand appropriate audit evidence as the basis for expressing audit opinions. As fraud mayinvolve collusion, forgery, willful omission, misrepresentation or override of internal control,the risk of not discovering a material misstatement due to fraud is higher than the risk of notdiscovering a material misstatement due to error.

(2) Understand the internal control related to auditing as a way to design appropriate audit

procedures. However, the purpose is not to comment on the effectiveness of internal controls.

(3) Evaluate the properness of accounting policy selected by the management and the rationality of

accounting estimate and related disclosure.

(4) Reach a conclusion on whether the going concern assumption adopted by the management is

appropriate. Meanwhile, based on the audit evidence obtained, reach a conclusion on whetherthere are material uncertainties in the events or conditions that may cast significant doubts onHikvision's ability to continue as a going concern. If we reach a conclusion that there is amaterial uncertainty, the Auditing Standards require us to call the attention of the users of thereport to the relevant disclosures in the financial statements in the audit report. If the disclosureis insufficient, we should issue modified audit opinions. Our conclusion is based on theinformation available up to the date of the audit report. However, future events or conditionsmay result in the failure of Hikvision to continue as a going concern.

(5) Evaluate the overall presentation, structure and content (including the disclosure) of the financial

statements and evaluate whether the financial statements fairly reflect the related transactionsand events.

(6) Obtain adequate and appropriate audit evidence on the financial information of entity or business

activities of Hikvision so as to express audit opinions on the financial statements. We areresponsible for directing, supervising and executing the audit on the Group, and assume fullresponsibility for the audit opinions.

We communicated with the governance about the scope of the audit, the schedule and major auditfindings, including the notable shortcomings of internal control identified during the auditing.

We also provide statement to the governance on the independence-related work ethics we follow, andcommunicate with the governance on all relations and other matters that might be reasonably deemedto influence our independence as well as relevant precautionary measures (as applicable).

We determine which of the matters we communicated with the governance are of the greatestimportance to the audit of financial statements of the current period so as to make them key matters.We describe the matters in the audit report. We decide not to communicate on such matters in the auditreport unless the laws and regulations forbid the public disclosure of such matters, or, in rarecircumstances, if the negative consequence of communication of matters in the audit report isreasonably expected to exceed the benefit of the public interest.

At December 31

st

2018

Consolidated Balance Sheet

Unit: RMB

ItemNotesClosing balanceOpening balance
Current Assets:
Cash and bank balances(V)126,552,402,711.2316,468,430,702.64
Financial assets at fair value through profit or loss(V)21,860,050.594,100,657.54
Notes receivable & Accounts receivable(V)319,188,886,471.1018,342,171,688.84
Including : Notes receivable(V)3.22,569,445,189.923,636,961,616.03
Accounts receivable(V)3.316,619,441,281.1814,705,210,072.81
Prepayments(V)4460,304,219.65527,576,857.11
Other receivables(V)5586,748,265.21583,681,240.81
Inventories(V)65,725,104,153.414,940,332,311.65
Non-current assets due within one year(V)7380,795,020.4766,566,230.12
Other current assets(V)8730,682,813.143,720,449,532.88
Total Current Assets53,626,783,704.8044,653,309,221.59
Non-current Assets:
Available-for-sale financial assets(V)9290,966,813.00287,466,813.00
Long-term receivables(V)10705,512,368.1723,375,680.61
Long-term equity investment(V)11163,301,844.56130,474,733.58
Fixed assets(V)125,082,415,160.103,024,025,496.31
Construction in progress(V)13416,092,413.421,436,319,118.30
Intangible assets(V)14869,913,050.09429,160,982.63
Goodwill(V)15212,269,337.23248,964,102.97
Deferred tax assets(V)16534,346,941.25479,070,649.49
Other non-current assets(V)171,582,750,600.80858,796,668.13
Total Non-current Assets9,857,568,528.626,917,654,245.02
Total Assets63,484,352,233.4251,570,963,466.61

At December 31

st

2018

Consolidated Balance Sheet - continued

Unit: RMB

ItemNotesClosing balanceOpening balance
Current Liabilities:
Short-term borrowings(V)183,465,655,688.2997,114,655.91
Financial liabilities at fair value through profit or loss(V)19290,998.4315,946,836.46
Notes payable & Accounts payable(V)2010,765,145,485.7410,885,340,440.18
Receipts in advance(V)21641,430,490.22570,573,208.60
Payroll payable(V)221,921,608,104.041,391,291,256.90
Taxes payable(V)231,418,921,664.571,453,515,065.77
Other payables(V)242,953,203,190.99496,718,217.83
Including : Dividend payable(V)24.2119,917,640.9294,857,139.16
Non-current liabilities due within one year(V)253,178,171,147.161,546,407,270.89
Other current liabilities(V)26364,984,759.94744,583,627.22
Total Current Liabilities24,709,411,529.3817,201,490,579.76
Non-current Liabilities:
Long-term borrowings(V)27440,000,000.00490,000,000.00
Bonds payable(V)28-3,120,920,000.00
Long-term payables-2,437,038.62
Provisions(V)2977,625,238.4963,068,638.49
Deferred income(V)30293,179,089.1388,925,771.65
Total non-current liabilities810,804,327.623,765,351,448.76
Total liabilities25,520,215,857.0020,966,842,028.52
Owners’ Equity
Share capital(V)319,227,270,473.009,228,865,114.00
Capital reserves(V)321,956,139,660.521,819,397,715.63
Less: Treasury shares(V)33364,984,759.94744,583,627.22
Other comprehensive income(V)34(49,576,351.10)(27,677,939.35)
Surplus reserves(V)354,460,712,358.453,483,742,918.53
Retained earnings(V)3622,360,593,257.5316,598,328,692.63
Total owners' equity attributable to owner of the Company37,590,154,638.4630,358,072,874.22
Minority equity373,981,737.96246,048,563.87
Total owners' equity37,964,136,376.4230,604,121,438.09
Total liabilities and owners' equity63,484,352,233.4251,570,963,466.61

The accompanying notes form part of the financial statements.The financial statements were signed by the following:

Legal Representative: Chen Zongnian;Person in charge of the accounting work: Jin Yan;Person in Charge of the Accounting Department: Zhan Junhua

At December 31

st

2018

Balance sheet of the parent company

Unit: RMB

ItemNotesClosing balanceOpening balance
Current Assets:
Cash and bank balances19,192,461,228.2212,304,090,713.99
Notes receivable & Accounts receivable(XV)115,556,312,793.9512,851,334,929.89
Including : Notes receivable(XV)1.2351,793,632.24345,651,612.11
Accounts receivable(XV)1.315,204,519,161.7112,505,683,317.78
Prepayments132,344,929.5594,545,948.67
Other receivables(XV)2522,987,955.34712,142,493.72
Including : Dividend receivables(XV)22,550,000.002,550,000.00
Inventories168,885,723.93376,776,045.69
Other current assets93,661,315.143,296,055,941.42
Total Current Assets35,666,653,946.1329,634,946,073.38
Non-current Assets:
Available-for-sale financial assets290,956,813.00287,456,813.00
Long-term equity investment(XV)34,361,147,395.903,367,076,734.95
Fixed assets2,844,176,300.341,757,777,870.77
Construction in progress65,156,482.70914,859,063.00
Intangible assets197,147,608.73154,604,755.69
Deferred tax assets221,779,547.02200,147,031.89
Other non-current assets14,601,579.5516,925,712.83
Total Non-current Assets7,994,965,727.246,698,847,982.13
Total Assets43,661,619,673.3736,333,794,055.51

At December 31

st

2018

Balance sheet of the company - continued

Unit: RMB

ItemNotesClosing balanceOpening balance
Current Liabilities:
Notes payable & Accounts payable356,787,605.91286,629,255.35
Receipts in advance204,337,524.21216,747,866.68
Payroll payable1,272,626,004.95946,587,240.01
Taxes payable987,057,652.701,219,102,007.88
Other payables2,529,600,057.31800,458,183.20
Including : Dividends payable117,467,640.9292,407,139.16
Non-current liabilities due within one year3,172,727,888.3733,614,018.51
Other current liabilities364,984,759.94744,583,627.22
Total Current Liabilities8,888,121,493.394,247,722,198.85
Non-current Liabilities:
Bonds payable-3,120,920,000.00
Provisions52,956,535.0943,024,784.70
Deferred Income186,747,708.0162,903,600.00
Total non-current liabilities239,704,243.103,226,848,384.70
Total liabilities9,127,825,736.497,474,570,583.55
Owners’ Equity
Share capital9,227,270,473.009,228,865,114.00
Capital reserves1,883,262,407.461,742,755,331.51
Less: Treasury shares364,984,759.94744,583,627.22
Surplus reserves4,460,712,358.453,483,742,918.53
Retained earnings19,327,533,457.9115,148,443,735.14
Total owners' equity34,533,793,936.8828,859,223,471.96
Total liabilities and owners' equity43,661,619,673.3736,333,794,055.51

For the reporting period from January 1

st

2018 to December 31

st

2018

Consolidated Income Statement

Unit: RMB

ItemNotesAmount for the current periodAmount for the prior period
I. Total operating income(V)3749,837,132,481.6141,905,476,572.07
Less:Total operating costs(V)3727,483,469,555.2423,467,310,590.76
Business taxes and surcharges(V)38418,323,053.64370,993,824.45
Selling expenses(V)395,892,500,406.524,430,220,065.13
Administrative expenses(V)401,376,013,682.791,011,214,457.29
Research and Development (R&D) expenses(V)414,482,780,693.413,194,223,108.16
Financial expenses(V)42(424,257,896.76)265,411,287.66
Including:Interest expenses154,599,429.0399,488,392.12
Interest income444,981,799.05216,789,778.20
Impairment losses of assets(V)43426,949,023.05484,568,899.16
Add: Other Income(V)442,083,997,067.371,673,251,852.26
Investment income(V)4551,929,640.6344,650,105.12
Including: Investment gains (losses) in associated enterprise and joint-venture enterprise(9,072,889.02)(2,525,266.42)
Gains (losses) from changes in fair values(V)4613,406,932.1742,090,091.11
Asset disposal income (loss)4,975,825.831,585,222.50
II. Operating profit12,335,663,429.7210,443,111,610.45
Add: Non-operating income(V)47111,362,918.3446,729,250.63
Less: Non-operating expenses(V)488,593,484.583,020,378.72
III. Total profit12,438,432,863.4810,486,820,482.36
Less: Income tax expenses(V)491,056,739,998.821,109,318,842.54
IV. Net profit11,381,692,864.669,377,501,639.82
4.1 Classification by continuous operation
(a) Net profit on continuous operation11,381,692,864.669,377,501,639.82
(b) Net loss on terminated operation--
4.2 Classification by attribution of ownership
(a) Profit or loss attributable to minority shareholders28,823,623.34(33,353,445.00)
(b) Net profit attributable to owners of parent company11,352,869,241.329,410,855,084.82
V. Other comprehensive income, net of income tax(24,062,992.06)13,852,652.33
Other comprehensive income attributable to owners of the Company, net of tax(21,898,411.75)13,552,837.86
(I) Items that will not be reclassified subsequently to profit or loss--
(II) Other comprehensive income to be reclassified to profit or loss in subsequent periods(21,898,411.75)13,552,837.86
1. Exchange differences arising on conversion of financial statements denominated in foreign currencies(21,898,411.75)13,552,837.86
Other comprehensive income attributable to minority interests, net of tax(2,164,580.31)299,814.47
VI. Total comprehensive income11,357,629,872.609,391,354,292.15
ItemNotesAmount for the current periodAmount for the prior period
Total comprehensive income attributable to owners of the parent company11,330,970,829.579,424,407,922.68
Total comprehensive income attributable to minority shareholders26,659,043.03(33,053,630.53)
VII. Earnings per share
(I) Basic earnings per share(XVI)21.2401.030
(II) Diluted earnings per share(XVI)21.2341.024

For the reporting period from January 1

st

2018 to December 31

st

2018

Income statement of the parent company

Unit: RMB

ItemNotesAmount for the current periodAmount for the prior period
I. Total operating income(XV)422,288,214,116.6619,167,979,291.38
Less: Operating Cost(XV)46,599,669,485.306,100,951,920.79
Business taxes and surcharges284,413,700.01258,550,741.27
Selling expenses2,758,483,789.961,987,923,082.04
Administrative expenses625,098,237.96375,734,883.68
Research and Development (R&D) expenses3,502,168,162.602,531,443,228.88
Financial expenses(180,009,521.00)(187,143,169.54)
Including : Interest expenses92,955,424.6536,221,864.47
Interest income394,158,854.37193,381,088.48
Impairment losses of assets226,183,330.78107,602,826.75
Add: Other income1,814,462,323.261,467,905,996.67
Investment income(XV)582,844,595.1834,502,356.33
Including: Investment gain (loss) in associated enterprise and joint-venture enterprise(4,200,612.39)(2,525,266.42)
Gains (losses) from changes in fair values-53,573,806.57
Asset disposal income (loss)4,138,938.482,755,085.52
II. Operating profit10,373,652,787.979,551,653,022.60
Add: Non-operating income56,661,310.9718,333,263.62
Less: Non-operating expenses1,444,733.801,489,124.20
III. Total profit10,428,869,365.149,568,497,162.02
Less: Income tax expenses659,174,965.95885,446,198.25
IV. Net profit9,769,694,399.198,683,050,963.77
V. Other comprehensive income, net of income tax--
VI. Total comprehensive income9,769,694,399.198,683,050,963.77

For the reporting period from January 1

st

2018 to December 31

st

2018Consolidated Cash Flow Statement

Unit: RMB

ItemNotesAmount for the current periodAmount for the prior period
I. Cash flows from operating activities:
Cash received from sale of goods or rendering of services51,986,564,929.2442,136,145,087.13
Receipts of tax refunds3,721,596,390.152,733,759,603.00
Other cash receipts relating to operating activities(V)50(1)1,623,810,261.97533,929,235.33
Sub-total of cash inflows from operating activities57,331,971,581.3645,403,833,925.46
Cash payments for goods purchased and services received32,254,846,787.6725,634,553,120.83
Cash paid to and on behalf of employees7,091,219,541.275,036,917,567.98
Payments of various types of taxes4,362,658,730.443,557,905,236.73
Other cash payments relating to operating activities(V)50(2)4,509,233,235.923,801,297,749.24
Sub-total of cash outflows from operating activities48,217,958,295.3038,030,673,674.78
Net Cash Flow from Operating Activities(V)51(1)9,114,013,286.067,373,160,250.68
II. Cash Flows from Investing Activities:
Cash receipts from recovery of investments10,684,968,183.9710,300,303,620.25
Cash receipts from investment income101,672,000.3931,290,097.01
Net cash receipts from disposals of fixed assets, intangible assets and other long-term assets17,971,830.9923,086,294.46
Other cash receipts relating to investing activities(V)50(3)89,505,228.6263,364,669.30
Sub-total of cash inflows from investing activities10,894,117,243.9710,418,044,681.02
Cash payments to acquire or construct fixed assets, intangible assets and other long-term assets2,055,859,307.211,692,193,203.99
Cash paid to acquire investments7,367,537,654.719,921,049,145.72
Other cash payments relating to investing activities(V)50(4)20,000,000.0013,500,000.00
Sub-total of cash outflows from investing activities9,443,396,961.9211,626,742,349.71
Net Cash Flow from Investing Activities1,450,720,282.05(1,208,697,668.69)
III. Cash flows from financing activities:
Cash receipts from capital contributions97,509,000.0092,089,826.67
Including: cash receipts from capital contributions from minority owners of subsidiaries97,509,000.0092,089,826.67
Cash receipts from borrowings10,338,144,732.553,550,599,109.39
Other cash receipts relating to financing activities(V)50(5)2,057,898,876.84-
Sub-total of cash inflows from financing activities12,493,552,609.393,642,688,936.06
Cash repayments of borrowings8,590,620,738.173,205,532,364.13
Cash payments for distribution of dividends or profits or settlement of interest expenses4,701,738,534.323,800,451,724.80
Including : Dividends and profits paid by subsidiaries to minority shareholders-3,062,500.00
Other cash payments relating to financing activities(V)50(6)6,555,746.3338,451,500.00
Sub-total of cash outflows from financing activities13,298,915,018.827,044,435,588.93
Net Cash Flow from Financing Activities(805,362,409.43)(3,401,746,652.87)
IV. Effect of foreign exchange rate changes on Cash and Cash Equivalents235,182,564.34(255,868,357.23)
V. Net Increase in Cash and Cash Equivalents(V)51(1)9,994,553,723.022,506,847,571.89
Add: Opening balance of Cash and Cash Equivalents(V)51(1)16,029,185,269.1713,522,337,697.28
VI. Closing Balance of Cash and Cash Equivalents(V)51(2)26,023,738,992.1916,029,185,269.17

For the reporting period from January 1

st

2018 to December 31

st

2018

Cash Flow Statements of the parent company

Unit: RMB

ItemNotesAmount for the current periodAmount for the prior period
I. Cash Flows from Operating Activities::
Cash receipts from the sale of goods and the rendering of services22,847,371,972.0519,722,915,694.68
Receipts of tax refunds1,651,607,032.631,439,270,404.56
Other cash receipts relating to operating activities796,433,730.94339,663,486.81
Sub-total of cash inflows from operating activities25,295,412,735.6221,501,849,586.05
Cash payments for goods acquired and services received7,541,359,566.517,025,548,254.61
Cash payments to and on behalf of employees3,610,460,282.382,598,154,101.03
Payments of all types of taxes3,556,689,194.012,868,678,724.73
Other cash payments relating to operating activities2,871,618,240.211,742,871,959.31
Sub-total of cash outflows from operating activities17,580,127,283.1114,235,253,039.68
Net Cash Flow from Operating Activities(XV)8(1)7,715,285,452.517,266,596,546.37
II. Cash Flows from Investing Activities:
Cash receipts from recovery of investments4,350,005,971.535,279,892,396.70
Cash receipts from investment income97,039,236.0434,474,342.25
Net cash receipts from disposals of fixed assets, intangible assets and other long-term assets13,852,133.8818,569,173.19
Other cash receipts relating to investing activities15,536,557,642.398,014,628,629.24
Sub-total of cash inflows from investing activities19,997,454,983.8413,347,564,541.38
Cash payments to acquire or construct fixed assets, intangible assets and other long-term assets604,984,875.82612,742,341.37
Cash payments to acquire investments2,131,183,014.006,280,754,974.91
Other cash payments relating to investing activities15,385,247,510.538,280,364,802.77
Sub-total of cash outflows from investing activities18,121,415,400.3515,173,862,119.05
Net Cash Flow from Investing Activities1,876,039,583.49(1,826,297,577.67)
III. Cash Flows from Financing Activities
Cash receipts from borrowings700,000,000.00300,000,000.00
Other cash receipts relating to financing activities4,988,766,432.462,415,734,336.55
Sub-total of cash inflows from financing activities5,688,766,432.462,715,734,336.55
Cash repayments of borrowings700,000,000.00300,000,000.00
Cash payments for distribution of dividends or profits or settlement of interest expenses4,640,094,529.943,734,122,697.15
Other cash payments relating to financing activities3,422,541,181.421,855,669,510.90
Sub-total of cash outflows from financing activities8,762,635,711.365,889,792,208.05
Net Cash Flow from Financing Activities(3,073,869,278.90)(3,174,057,871.50)
IV. Effect of foreign exchange rate changes on Cash and Cash Equivalents177,395,997.38(208,127,567.22)
V. Net increase in cash and cash equivalents(XV)8(1)6,694,851,754.482,058,113,529.98
Add: Beginning balance of cash and cash equivalents(XV)8(1)12,304,082,533.1110,245,969,003.13
VI. Closing Balance of Cash and Cash Equivalents(XV)8(2)18,998,934,287.5912,304,082,533.11

For the reporting period from January 1

st

2018 to December 31

st

2018

Consolidated Statement of Changes in Owners' Equity

Unit: RMB

ItemAmount for the 2018
Owner’s Equity Attributable to owners of the CompanyMinority interestsTotal owners' equity
Share capitalCapital reservesLess: Treasury shareOther comprehensive incomeSurplus reserveRetained profits
I. Opening balance of the current period9,228,865,114.001,819,397,715.63744,583,627.22(27,677,939.35)3,483,742,918.5316,598,328,692.63246,048,563.8730,604,121,438.09
II. Increase or decrease in the current period(1,594,641.00)136,741,944.89(379,598,867.28)(21,898,411.75)976,969,439.925,762,264,564.90127,933,174.097,360,014,938.33
(I) Total comprehensive income---(21,898,411.75)-11,352,869,241.3226,659,043.0311,357,629,872.60
(II) Owners’ contributions and reduction in capital(1,594,641.00)136,741,944.89(323,387,643.28)---101,274,131.06559,809,078.23
1. Capital contribution from shareholders------97,509,000.0097,509,000.00
2. Share-based payment recognized in owners’ equity-141,703,050.22----3,765,131.06145,468,181.28
3. Others(1,594,641.00)(4,961,105.33)(323,387,643.28)----316,831,896.95
(III) Profit distribution--(56,211,224.00)-976,969,439.92(5,590,604,676.42)-(4,557,424,012.50)
1. Transfer to surplus reserve----976,969,439.92(976,969,439.92)--
2. Distributions to shareholders--(56,211,224.00)--(4,613,635,236.50)-(4,557,424,012.50)
3. Others--------
III. Closing balance of the current period9,227,270,473.001,956,139,660.52364,984,759.94(49,576,351.10)4,460,712,358.4522,360,593,257.53373,981,737.9637,964,136,376.42

For the reporting period from January 1

st

2018 to December 31

st

2018

Consolidated Statement of Changes in Owners' Equity-continued

Unit: RMB

ItemAmount for 2017
Owner’s Equity Attributable to owners of the CompanyMinority interestsTotal owners' equity
Share capitalCapital reservesLess: Treasury shareOther comprehensive incomeSurplus reserveRetained profits
I. Closing balance of the preceding period6,102,706,885.001,045,440,853.66300,177,750.17(41,230,777.21)2,615,437,822.1514,866,457,856.65198,039,035.0724,486,673,925.15
Add: Business merger under common control-2,880,000.00---(5,807,678.26)(5,204,761.36)(8,132,439.62)
II. Opening balance of the current period (restated)6,102,706,885.001,048,320,853.66300,177,750.17(41,230,777.21)2,615,437,822.1514,860,650,178.39192,834,273.7124,478,541,485.53
III. Increase or decrease in the current period3,126,158,229.00771,076,861.97444,405,877.0513,552,837.86868,305,096.381,737,678,514.2453,214,290.166,125,579,952.56
(I) Total comprehensive income---13,552,837.86-9,410,855,084.82(33,053,630.53)9,391,354,292.15
(II) Owners’ contributions and reduction in capital49,869,858.00771,076,861.97536,813,016.21---91,780,420.69375,914,124.45
1. Capital contribution from shareholders52,326,858.00608,561,358.54660,888,216.54---92,089,826.6792,089,826.67
2. Share-based payment recognized in owners’ equity-186,951,885.95----4,248,711.50191,200,597.45
3. Others(2,457,000.00)(24,436,382.52)(124,075,200.33)---(4,558,117.48)92,623,700.33
(III) Profit distribution3,076,288,371.00-(92,407,139.16)-868,305,096.38(7,673,176,570.58)(5,512,500.00)(3,641,688,464.04)
1. Transfer to surplus reserve----868,305,096.38(868,305,096.38)--
2. Distributions to shareholders--(92,407,139.16)--(3,728,583,103.20)(5,512,500.00)(3,641,688,464.04)
3. Others3,076,288,371.00----(3,076,288,371.00)--
IV. Closing balance of the current period (restated)9,228,865,114.001,819,397,715.63744,583,627.22(27,677,939.35)3,483,742,918.5316,598,328,692.63246,048,563.8730,604,121,438.09

For the reporting period from January 1

st

2018 to December 31

st

2018

Statement of Changes in Owners' Equity of the parent company

Unit: RMB

ItemAmount for 2018
Share capitalCapital reservesLess: Treasury shareSurplus reserveRetained profitsTotal owners' equity
I. Opening balance of the current period9,228,865,114.001,742,755,331.51744,583,627.223,483,742,918.5315,148,443,735.1428,859,223,471.96
II. Increase or decrease in the current period(1,594,641.00)140,507,075.95(379,598,867.28)976,969,439.924,179,089,722.775,674,570,464.92
(I) Total comprehensive income----9,769,694,399.199,769,694,399.19
(II) Owners’ contributions and reduction in capital(1,594,641.00)140,507,075.95(323,387,643.28)--462,300,078.23
1. Capital contribution from shareholders------
2. Share-based payment recognized in owners’ equity-145,468,181.28---145,468,181.28
3. Others(1,594,641.00)(4,961,105.33)(323,387,643.28)--316,831,896.95
(III) Profit distribution--(56,211,224.00)976,969,439.92(5,590,604,676.42)(4,557,424,012.50)
1.Transfer to surplus reserve---976,969,439.92(976,969,439.92)-
2. Distributions to shareholders--(56,211,224.00)-(4,613,635,236.50)(4,557,424,012.50)
3. Others------
III. Closing balance of the current period9,227,270,473.001,883,262,407.46364,984,759.944,460,712,358.4519,327,533,457.9134,533,793,936.88
ItemAmount for 2017
Share capitalCapital reservesLess: Treasury shareSurplus reserveRetained profitsTotal owners' equity
I. Opening balance of the current period6,102,706,885.00955,687,875.52300,177,750.172,615,437,822.1514,138,569,341.9523,512,224,174.45
II. Increase or decrease in the current period3,126,158,229.00787,067,455.99444,405,877.05868,305,096.381,009,874,393.195,346,999,297.51
(I) Total comprehensive income----8,683,050,963.778,683,050,963.77
(II) Owners’ contributions and reduction in capital49,869,858.00787,067,455.99536,813,016.21--300,124,297.78
1. Capital contribution from shareholders52,326,858.00608,561,358.54660,888,216.54---
2. Share-based payment recognized in owners’ equity-191,200,597.45---191,200,597.45
3. Others(2,457,000.00)(12,694,500.00)(124,075,200.33)--108,923,700.33
(III) Profit distribution3,076,288,371.00-(92,407,139.16)868,305,096.38(7,673,176,570.58)(3,636,175,964.04)
1.Transfer to surplus reserve---868,305,096.38(868,305,096.38)-
2. Distributions to shareholders--(92,407,139.16)-(3,728,583,103.20)(3,636,175,964.04)
3. Others3,076,288,371.00---(3,076,288,371.00)-
III. Closing balance of the current period9,228,865,114.001,742,755,331.51744,583,627.223,483,742,918.5315,148,443,735.1428,859,223,471.96

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

I. Basic Information about the Company

Hangzhou Hikvision Digital Technology Co., Ltd. (hereinafter referred to as "Company" or "theCompany" or “Hikvision”), is a Sino-foreign equity joint venture company, formerly known as"Hangzhou Hikvision Digital Technology Ltd", established on November 30

th

2001 in Hangzhou uponthe approval letter of Hangzhou High-tech No. 604 [2001] issued by Hangzhou High-tech IndustrialDevelopment Zone Management Committee. On June 25

th

2008, with approval of document No. 598[2008] issued by the MOFCOM (The Ministry of Commerce of the People's Republic of China), thecompany was renamed as “Hangzhou Hikvision Digital Technology Co., Ltd.”, headquartered inHangzhou, and obtained the business license of enterprise No.91330000733796106P. On May 28

th

2010,the Company was listed on the Shenzhen Stock Exchange.

On December 23

rd

2016, pursuant to the Articles of Association of the Company revised by theresolution of 20th Meeting of the 3rd session Board of Directors authorized by the 2nd extraordinarygeneral meeting in 2016, the Company granted 52,326,858 restricted incentive shares to the incentivegrantees, The Company completed the registration procedure for business changes on January 20th 2017,adjusted the Company’s total capital share to 6,155,033,743 shares.

On April 27

th

2017, authorized by the Company’s first Extraordinary General Meeting in 2014, theCompany completed procedures of repurchase and cancellation of some of the 2,457,000.00 restrictedstocks that did not meet the incentive conditions, and the total share capital of the Company was adjustedto 6,152,576,743 shares.

On May 4

th

2017, 2016 Profit Distribution Scheme was approved on 2016 Annual General Meeting.On May 16

th

2017, based on total capital shares of 6,152,576,743 shares on the date of interestdistribution, the company issued bonus shares for 3,076,288,371 shares, which adjusted the Company’stotal capital share to 9,228,865,114 shares.

On March 27th 2018, according to the authorization of the Company's first extraordinaryshareholders meeting in 2014, the Company completed the procedures of repurchase and cancellation ofsome of the 1,594,641 restricted stocks that did not meet the incentive conditions, and the share capital ofthe Company was changed to 9,227,270,473 shares. For details of the share capital, please refer to Notes(V) 31.

As of December 31

st

2018, the Company’s total registered capital is RMB 9,227,270,473, with total

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

capital shares of 9,227,270,473 shares (face value RMB 1per share), of which restricted A-shares were1,313,073,005 shares, A-shares without restriction are 7,914,197,468 shares.

The Company is engaged in other electronic equipment manufacturing business under electronicsindustry. Business scope of the Company includes development and production of electronic products(including explosion-proof electrical products, tele-communication equipment and its ancillaryequipment, multimedia equipment), fire control products, aircraft, robot, intelligent equipment, auto partsand accessories, and electrical signal equipment for vehicle; sales of self-manufactured products;technical service, electronic technology consulting service, training service (excluding class training),electronic equipment installation, electronic engineering, and design, construction and maintenance ofintelligent systems. For details about business scope of the Company and its subsidiaries, please refer toNote (VII) 1.

The Company’s and consolidated financial reports were approved for issuance by the 10

th

meetingof the fourth session Board of Directors of the Company on April 18

th

2019.

For consolidation scope of the financial statements, please refer to Note (VII) “Interest in otherentities”. For changes in consolidation scope of the financial statements, please refer to “changes in theconsolidation scope” in Note (VI).

II. Basis of preparation of financial statements

Basis of preparation of financial statementsThe Company and its subsidiaries (hereinafter referred to as "the Group") have adopted the AccountingStandards 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 withInformation Disclosure and Presentation Rules for Companies Offering Securities to the Public No. 15-

General Provisions on Financial Reporting (revised in 2014).

Going concernThe Group has evaluated its going concern for 12 months going forward starting from December 31

st

2018, and there is no factor that may cast significant doubt on the entity's ability to continue as a goingconcern. 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. Exceptcertain financial instruments are measured by fair value, these financial statements are prepared in

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

accordance with the measurements basis of historical costs. If the asset decreases in value, the provisionfor 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 orcash equivalent paid at the time of purchase, or the fair value of consideration paid for the purchase ofsuch assets. The liabilities shall be measured in accordance with the amount of funds or assets actuallyreceived when undertaking current obligations, or the contract amount when undertaking the currentobligations, or the amount of cash or cash equivalents required for paying back the debts in dailyactivities.

The fair value is a price received by the market participants from selling asset or transferring liabilityduring orderly transaction at the measurement date. No matter the fair value is observable or estimated byusing valuation technique, the measured and disclosed fair value in the financial statement shall bedetermined on this basis.

When measuring non-financial assets at fair value, the assets shall be measured considering the ability ofmarket participants to use the assets for optimal use to generate economic benefits, or to sell the assets toother 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 valuationtechniques involving unobservable inputs in the subsequent fair value measurement, the valuationtechnique is corrected in the valuation process in order to make the initial recognition results confirmedby 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 valueto 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 marketacquired on measurement date;? Level 2: The input value is the input value of relevant assets or liabilities observable directly orindirectly 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 trulyand completely, the Company's and consolidated financial position as of December 31

st

2018; and theCompany's and consolidated results of operations, the Company’s and consolidated changes inshareholders' equity, and the Company’s and consolidated cash flows for the year of 2018.

2. Accounting PeriodThe Group has adopted the calendar year as its accounting year from January 1

st

to December 31

st

eachyear.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

3. Business CycleThe business cycle refers to the period from purchase of assets used for processing to realization of cashor cash equivalents. The Group business cycle is usually 12 months.

4. Functional currencyRenminbi (“RMB”) is the currency in the primary economic environments in which the Company and itsdomestic subsidiaries are operated. The Company and its domestic subsidiaries take RMB as theirfunctional currency. Overseas subsidiaries of the Company determine their functional currency on thebasis of the primary economic environment in which it operates. For functional currency of overseassubsidiaries of the Company, see Note (V) 53. The Group adopts RMB to prepare its financial statements.

5. The accounting treatment of business combinations involving enterprises under common controland business combinations not involving enterprises under common controlBusiness combinations are classified into business combinations involving enterprises under commoncontrol 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 whichall of the combining enterprises are ultimately controlled by the same party or parties both before andafter the combination, and that control is not transitory.

Assets and liabilities obtained shall be measured at their respective carrying amounts as recorded by thecombining entities at the date of the combination. The difference between the carrying amount of the netassets obtained and the carrying amount of the consideration paid for the combination (the aggregate facevalue of shares issued as consideration) is adjusted to the share premium in capital reserve. If the sharepremium 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 whichthey 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 inwhich all of the combining enterprises are not ultimately controlled by the same party or parties beforeand 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 theacquiree. The intermediary expenses incurred by the acquirer in respect of auditing, legal services,

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

valuation and consultancy services, etc. and other associated administrative expenses attributable to thebusiness 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 abusiness combination, that meet the recognition criteria shall be measured at fair value at the acquisitiondate.

Where the cost of combination exceeds the acquirer’s interest in the fair value of the acquiree’sidentifiable net assets, the difference is treated as an asset and recognized as goodwill, which is measuredat cost on initial recognition. Where the cost of combination is less than the acquirer’s interest in the fairvalue of the acquiree’s identifiable net assets, the acquirer firstly reassesses the measurement of the fairvalues of the acquiree’s identifiable assets, liabilities and contingent liabilities and measurement of thecost of combination. If after that reassessment, the cost of combination is still less than the acquirer’sinterest in the fair value of the acquiree’s identifiable net assets, the acquirer recognizes the remainingdifference immediately into profit or loss for the current period.

Goodwill arising on a business combination is measured at cost less accumulated impairment losses, andis presented separately in the consolidated financial statements.

6. Preparation method of consolidated financial statements

6.1 Preparation method of consolidated financial statements

The scope of consolidated financial statements shall be confirmed based on the control. Control rightmeans that an investor may control an investee; the investor may participate in relevant activities of theinvestee to obtain variable rewards and also be able to use the control rights for the investee to influenceits amount of returns. The Group will re-evaluate, if the change of the relevant facts and circumstancesleading 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, andterminates when the Group loses the control power of the subsidiary.

As for subsidiaries disposed by the Group, operating results and cash flow prior to the disposal date (thedate of losing control right) have been properly included in the consolidated profit statement andconsolidated cash flow statement.

For a subsidiary acquired through a business combination not involving enterprises under commoncontrol, 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 abusiness combination involving enterprises under common control are included in the Group's scope ofconsolidation as if they had been included in the scope of consolidation from the date when they first

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

came under the common control of the ultimate controlling party. Their operating results and cash flowsfrom the beginning of the earliest reporting period are included in the consolidated income statement andconsolidated statement of cash flows, as appropriate.

The significant accounting policies and accounting periods adopted by the subsidiaries are determinedbased 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 interestsand presented as "minority equity" in the consolidated balance sheet. The portion of net profits or lossesof subsidiaries for the period attributable to minority interests is presented as "minority interests" in theconsolidated income statement below the "net profit" line item.

When the amount of loss for the period attributable to the minority shareholders of a subsidiary exceedsthe minority shareholders' portion of the opening balance of owners' equity of the subsidiary, the excessamount are still allocated against minority interests.

Acquisition of minority interests or disposal of interest in a subsidiary that does not result in the loss ofcontrol over the subsidiary is accounted for as equity transactions. The carrying amounts of the totalowners' equity attributable to owner of the Company and minority equity are adjusted to reflect thechanges in their relative interests in the subsidiary. The difference between the amount by which theminority interests are adjusted and the fair value of the consideration paid or received is adjusted tocapital reserve under owners' equity. If the capital reserve is not sufficient to absorb the difference, theexcess are adjusted against retained earnings.

7. Recognition criteria of cash and cash equivalents

Cash comprises cash on hand and deposits that can be readily withdrawn on demand. Cash equivalentsare the Group's short-term, highly liquid investments that are readily convertible to known amounts ofcash and which are subject to an insignificant risk of changes in value.

8. Conversion of transactions and financial statements denominated in foreign currencies.

8.1 Transactions denominated in foreign currencies

A foreign currency transaction is recorded, on initial recognition, by applying an exchange rate thatapproximates the actual spot exchange rate on the date of transaction; The exchange rate thatapproximates the actual spot exchange rate on the date of transaction is calculated according to themiddle price of market exchange rate at the beginning of the month in which the transaction happened.

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

At the balance sheet date, foreign currency monetary items are translated into [RMB] using the spotexchange rates at the balance sheet date. Exchange differences arising from the differences between thespot exchange rates prevailing at the balance sheet date and those on initial recognition or at the previousbalance sheet date are recognized in profit or loss for the period, except for exchange differences relatedto a specific-purpose borrowing denominated in foreign currency that qualify for capitalization arecapitalized 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 currencymonetary item constituting a net investment in a foreign operation, exchange difference arising fromchanges in exchange rates are recognized as "exchange differences arising on conversion of financialstatements denominated in foreign currencies " in other comprehensive income, and in profit and loss forthe period upon disposal of the foreign operation.Foreign currency non-monetary items measured at historical cost are converted to the amounts infunctional currency at the spot exchange rates on the dates of the transactions. Foreign currencynon-monetary items measured at fair value are re-converted at the spot exchange rate on the date the fairvalue is determined. Difference between the re-converted functional currency amount and the originalfunctional currency amount is treated as changes in fair value (including changes of exchange rate) and isrecognized in profit and loss or as other comprehensive income.

8.2 Conversion of financial statements denominated in foreign currencies

For the purpose of preparing the consolidated financial statements, financial statements of a foreignoperation are converted from the foreign currency into RMB using the following method: assets andliabilities 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 atexchange rates that approximate the actual spot exchange rates on the dates of the transactions; Thedifference between the converted assets and the aggregate of liabilities and shareholders' equity items isrecognized into other comprehensive income and shareholders’ equity.

The foreign currency cash flow and cash flow of overseas subsidiaries adopt the exchange rate similar tothe spot rate at the date of cash flow for conversion. The affected amount of cash and cash equivalentsdue to the change of exchange rate, as an adjustment item, shall be separately listed as "the impact of cashand cash equivalents due to the change of exchange rate" in the cash flow statement.

The opening balances and the comparative figures of previous year are presented at the convertedamounts in the previous year's financial statements.

On disposal of the Group's entire interest in a foreign operation, or upon a loss of control over a foreignoperation due to disposal of certain interest in it or other reasons, the Group transfers the accumulatedexchange differences arising on conversion of financial statements of this foreign operation attributable tothe owners' equity of the Company and presented under shareholders' equity, to profit or loss in the periodin which the disposal occurs.

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

In case of a disposal or other reason that does not result in the Group losing control over a foreignoperation, but only a decrease in proportion of overseas business interests, the proportionate share ofaccumulated exchange differences arising on conversion of financial statements are re-attributed tominority interests and are not recognized in profit and loss under current period. For partial disposals ofequity interests in foreign operations which are associates or joint ventures, the proportionate shares ofthe accumulated exchange differences arising on conversion of financial statements of foreign operationsis reclassified to profit or loss under current period.

9. Financial Instruments

Financial assets and financial liabilities are recognized when the Group becomes a party to thecontractual provisions of the instrument. Financial assets and financial liabilities are initially measured atfair value. For financial assets and financial liabilities at fair value through profit or loss, transaction costsare immediately recognized in profit or loss. For other financial assets and financial liabilities, transactioncosts are included in their initial recognized amounts.

For the purchase or sale of financial assets in the regular method, the assets and the correspondingundertaken liabilities are recognized when the assets are received on the trading day, or the assets sold arederecognized on the trading day.

9.1 Effective Interest Method

The effective interest method is a method of calculating the amortised cost of a financial asset or afinancial liability (or a group of financial assets or financial liabilities) and of allocating the interestincome or interest expense over the relevant period, using the effective interest rate. The effective interestrate is the rate that exactly discounts estimated future cash flows through the expected life of the financialasset or financial liability, or a shorter period if appropriate, to the current net carrying amount of thefinancial asset or financial liability.

When calculating the effective interest rate, the Group estimates future cash flows considering allcontractual terms of the financial asset or financial liability (without considering future credit losses), andalso considers all fees paid or received between the parties to the contract giving rise to the financial assetand financial liability that are an integral part of the effective interest rate, transaction costs, andpremiums or discounts, etc.9.2 Classification, Confirmation and Measurement of the Financial Assets

On initial recognition, the Group’s financial assets are classified into one of the four categories, includingfinancial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables,and available-for-sale financial assets. All purchases or sales of financial assets through regular methodsare recognized and derecognized on a trade date basis.

9.2.1 Financial Assets at Fair Value through Profit or Loss ("FVTPL")

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

Financial assets at FVTPL include financial assets held for trading and those designated as financialassets at fair value through profit or loss.

A financial asset is classified as held for trading if one of the following conditions is satisfied: (1) It hasbeen acquired principally for the purpose of selling in the near term; or (2) On initial recognition it is partof a portfolio of identified financial instruments that the Group manages together and there is objectiveevidence that the Group has a recent actual pattern of short-term profit-taking; or (3) It is a derivative thatis not designated and effective as a hedging instrument, or a financial guarantee contract, or a derivativethat is linked to and must be settled by delivery of an unquoted equity instrument (without a quoted pricein an active market) whose fair value cannot be reliably measured.

Financial assets that meet one of the following conditions can be initially designated as financial assets atfair value through profit or loss: (1) The designation may eliminate or significantly reduce theinconsistency in the recognition or measurement of the relevant gains or losses resulting from thedifferent measurement basis of the financial asset; (2) The formal written documents of the Group's riskmanagement or investment strategy have stated that the financial asset portfolio or financial assets andfinancial liabilities in which the financial assets are located are managed, evaluated and reported to keymanagement personnel on the basis of fair value; (3) Eligible hybrid tools with embedded derivatives

Financial assets at FVTPL are subsequently measured at fair value. Any gains or losses arising fromchanges in the fair value and any dividend or interest income earned on the financial assets arerecognized in profit or loss.

9.2.2 Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments andfixed maturity dates that the Group's management has the positive intention and ability to hold tomaturity.

Held-to-maturity investments are subsequently measured at amortized cost using the effective interestmethod. Gain or loss arising from derecognition, impairment or amortization is recognized in profit orloss.

9.2.3 Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market. Financial assets classified as loans and receivables by the Group includenotes receivable, accounts receivable, other receivables, long-term receivables, and etc.Loans and receivables are subsequently measured at amortized cost using the effective interest method.Gain or loss arising from derecognition, impairment or amortization is recognized in profit or loss.

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

9.2.4 Available-for-sale Financial Assets

Available-for-sale financial assets include non-derivative financial assets that are designated on initialrecognition as available for sale, and financial assets that are not classified as financial assets at fair valuethrough profit or loss, loans and receivables or held-to-maturity investments.Available-for-sale financial assets are subsequently measured at fair value, and gains or losses arisingfrom changes in the fair value are recognized as other comprehensive income, except that impairmentlosses and exchange differences related to amortized cost of monetary financial assets denominated inforeign currencies are recognized in profit or loss, until the financial assets are derecognized, at whichtime the gains or losses are released and recognized in profit or loss.Interests obtained and the dividends declared by the investee during the period in which theavailable-for-sale financial assets are held, are recognized in investment gains.For investments in equity instruments that do not have a quoted market price in an active market andwhose fair value cannot be reliably measured, and derivative financial assets that are linked to and mustbe settled by delivery of such unquoted equity instruments, they are measured at cost.

9.3 Impairment of financial assets

The Group assesses at each balance sheet date the carrying amounts of financial assets other than those atfair value through profit or loss. If there is objective evidence that a financial asset is impaired, the Groupdetermines the amount of any impairment loss. Objective evidence that a financial asset is impaired isevidence that, arising from one or more events that occurred after the initial recognition of the asset, theestimated future cash flows of the financial asset, which can be reliably measured, have been affected.Objective evidence that a financial asset is impaired includes the following observable events:

(1) Significant financial difficulty of the issuer or obligor;(2) A breach of contract by the borrower, such as a default or delinquency in interest or principalpayments;(3) The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting aconcession to the borrower;(4) It becoming probable that the borrower will enter bankruptcy or other financial reorganizations;(5) The disappearance of an active market for that financial asset because of financial difficulties of theissuer;(6) Upon an overall assessment of a group of financial assets, observable data indicates that there is ameasurable decrease in the estimated future cash flows from the group of financial assets since the initialrecognition of those assets, although the decrease cannot yet be identified with the individual financialassets in the group. Such observable data includes:

- Adverse changes in the payment status of borrower in the group of assets;- Economic conditions in the country or region of the borrower which may lead to a failure to pay thegroup of assets;(7) Significant adverse changes in the technological, market, economic or legal environment in which theissuer operates, indicating that the cost of the investment in the equity instrument may not be recoveredby the investor;

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

(8) A significant or prolonged decline in the fair value of an investment in an equity instrument below itscost;(9) Other objective evidence indicating there is an impairment of a financial asset.- Impairment of financial assets measured at amortized costIf financial assets carried at amortized cost are impaired, the carrying amounts of the financial assets arereduced to the present value of estimated future cash flows (excluding future credit losses that have notbeen incurred) discounted at the financial asset's original effective interest rate. The amount of reductionis recognized as an impairment loss in profit or loss. If, subsequent to the recognition of an impairmentloss on financial assets carried at amortized cost, there is objective evidence of a recovery in value of thefinancial assets which can be related objectively to an event occurring after the impairment is recognized,the previously recognized impairment loss is reversed. However, the reversal is made to the extent thatthe carrying amount of the financial asset at the date the impairment is reversed does not exceed what theamortized cost would have been had the impairment not been recognized.For a financial asset that is individually significant, the Group assesses the asset individually forimpairment. For a financial asset that is not individually significant, the Group assesses the assetindividually for impairment or includes the asset in a group of financial assets with similar credit riskcharacteristics and collectively assesses them for impairment. If the Group determines that no objectiveevidence of impairment exists for an individually assessed financial asset (whether significant or not), itincludes the asset in a group of financial assets with similar credit risk characteristics and collectivelyreassesses them for impairment. Assets for which an impairment loss is individually recognized are notincluded in a collective assessment of impairment.

- Impairment of available-for-sale financial assets

When an available-for-sale financial asset is impaired, the cumulative loss arising from decline in fairvalue previously recognized directly in other comprehensive income is reclassified from othercomprehensive income to profit or loss. The amount of the cumulative loss that is reclassified from othercomprehensive income to profit or loss is the difference between the acquisition cost (net of any principalrepayment and amortization) and the current fair value, less any impairment loss on that financial assetpreviously recognized in profit or loss.If, subsequent to the recognition of an impairment loss on available-for-sale financial assets, there isobjective evidence of a recovery in value of the financial assets which can be related objectively to anevent occurring after the impairment is recognized, the previously recognized impairment loss is reversed.The amount of reversal of impairment loss on available-for-sale equity instruments is recognized as othercomprehensive income, while the amount of reversal of impairment loss on available-for-sale debtinstruments is recognized in profit or loss.

- Impairment of financial assets measured at costIf an impairment loss has been incurred on an investment in unquoted equity instrument (without aquoted price in an active market) whose fair value cannot be reliably measured, or on a derivativefinancial asset that is linked to and must be settled by delivery of such an unquoted equity instrument, thecarrying amount of the financial asset is reduced to the present value of estimated future cash flowsdiscounted at the current market rate of return for a similar financial asset. The amount of reduction isrecognized as an impairment loss in profit or loss. The impairment loss on such financial asset is notreversed once it is recognized.

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

9.4 Transfer of Financial Assets

The Group derecognizes a financial asset if one of the following conditions is satisfied: (1) thecontractual rights to the cash flows from the financial asset expire; or (2) the financial asset has beentransferred and substantially all the risks and rewards of ownership of the financial asset is transferred tothe transferee; or (3) although the financial asset has been transferred, the Group neither transfers norretains substantially all the risks and rewards of ownership of the financial asset but has not retainedcontrol of the financial asset.If the Group neither transfers nor retains substantially all the risks and rewards of ownership of afinancial asset, and it retains control of the financial asset, it recognizes the financial asset to the extent ofits continuing involvement in the transferred financial asset and recognizes an associated liability. Theextent of the Group’s continuing involvement in the transferred asset is the extent to which it is exposedto changes in the value of the transferred asset.For a transfer of a financial asset in its entirety that satisfies the recognition criteria, the differencebetween (1) the carrying amount of the financial asset transferred; and (2) the sum of the considerationreceived from the transfer and any cumulative gain or loss that has been recognized in othercomprehensive income, is recognized in profit or loss.If a part of the transferred financial asset qualifies for derecognition, the carrying amount of thetransferred financial asset is allocated between the part that continues to be recognized and the part that isderecognized, based on the respective fair values of those parts. The difference between (1) the carryingamount allocated to the part derecognized; and (2) the sum of the consideration received for the partderecognized and any cumulative gain or loss allocated to the part derecognized which has beenpreviously recognized in other comprehensive income, is recognized in profit or loss.

9.5 Classification, recognition and measurement of financial liabilities

Debt and equity instruments issued by the Group are classified into financial liabilities or equity on thebasis of the substance of the contractual arrangements with the relevant reflected economic essence (notonly in the form of law) and definitions of financial liability and equity instrument.On initial recognition, financial liabilities are classified into financial liabilities at fair value throughprofit or loss and other financial liabilities.

9.5.1 Financial liabilities at fair value through profit or loss (FVTPL)

Financial liabilities at FVTPL consist of financial liabilities held for trading and those designated as atFVTPL.A financial liability is classified as held for trading if one of the following conditions is satisfied: (1)undertake the purpose of financial liability, it has been acquired principally for the purpose ofrepurchasing in the near term; or (2) On initial recognition it is part of a portfolio of identified financialinstruments that the Group manages together and there is objective evidence that the Group has a recentactual pattern of short-term profit-taking; or (3) It is a derivative, except for a derivative that is adesignated and effective hedging instrument, or a financial guarantee contract, or a derivative that islinked to and must be settled by delivery of an unquoted equity instrument (without a quoted price in anactive market) whose fair value cannot be reliably measured.

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

A financial liability may be designated as at FVTPL upon initial recognition only when one of thefollowing conditions is satisfied: (1) Such designation eliminates or significantly reduces a measurementor recognition inconsistency that would otherwise result from measuring liabilities or recognizing thegains or losses on them on different bases; or (2) The financial liability forms part of a group of financialliabilities or a group of financial assets and financial liabilities, which is managed and its performance isevaluated on a fair value basis, in accordance with the Group's documented risk management orinvestment strategy, and information about the grouping is reported to key management personnel on thatbasis.; or (3) qualified hybrid tool with inclusion of embedded derivatives.Financial liabilities at FVTPL are subsequently measured at fair value. Any gains or losses arising fromchanges in the fair value or any dividend or interest expenses related to the financial liabilities arerecognized in profit or loss.

9.5.2 Other financial liabilities

For a derivative liability that is linked to and must be settled by delivery of an unquoted equity instrument(without a quoted price in an active market) whose fair value cannot be reliably measured, it issubsequently measured at cost. Other financial liabilities, except for financial guarantee contracts, aresubsequently measured at amortized cost using the effective interest method, with gain or loss arisingfrom derecognition or amortization recognized in profit or loss.

9.5.3. Financial Guarantee Contracts

A financial guarantee contract is a contract by which the guarantor and the lender agree that the guarantorwould settle the debts or bear obligations in accordance with terms of the contract in case the borrowerfails to settle the debts. Financial guarantee contracts that are not designated as financial liabilities at fairvalue through profit or loss, are initially measured at their fair values less the directly attributabletransaction costs. Subsequent to initial recognition, they are measured at the higher of: (i) the amountdetermined in accordance with Accounting Standard for Business Enterprises No. 13 – Contingencies;and (ii) the amount initially recognized less cumulative amortization recognized in accordance with theprinciples set out in Accounting Standard for Business Enterprises No. 14 – Revenue.

9.6 Derecognition of Financial Liabilities

The Group derecognizes a financial liability (or part of it) when the underlying present obligation (or partof it) is discharged. An agreement between the Group (an existing borrower) and an existing lender toreplace the original financial liability with a new financial liability with substantially different terms isaccounted for as an extinguishment of the original financial liability and the recognition of a newfinancial liability.When the Group derecognizes a financial liability or a part of it, it recognizes the difference between thecarrying amount of the financial liability (or part of the financial liability) derecognized and theconsideration paid (including any non-cash assets transferred or new financial liabilities assumed) inprofit or loss.

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

9.7 Derivative Instruments and Embedded Derivative Instruments

Derivative financial instruments include forward exchange contracts, interest rate swaps and foreignexchange options, etc. Derivatives are initially measured at fair value at the date when the derivativecontracts are entered into and are subsequently re-measured at fair value. The resulting gain or loss isrecognized in profit or loss.An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is notdesignated as a financial asset or financial liability at fair value through profit or loss, and treated as astandalone derivative if 1) the economic characteristics and risks of the embedded derivative are notclosely related to the economic characteristics and risks of the host contract; and 2) a separate instrumentwith the same terms as the embedded derivative would meet the definition of a derivative. If the Group isunable to measure the embedded derivative separately either at acquisition or at a subsequent balancesheet date, it designates the entire hybrid instrument as a financial asset or financial liability at fair valuethrough profit or loss.

9.8 Offsetting financial assets and financial liabilities

Where the Group has a legal right that is currently enforceable to set off the recognized financial assetsand financial liabilities, and intends either to settle on a net basis, or to realize the financial asset andsettle the financial liability simultaneously, a financial asset and a financial liability shall be offset and thenet amount is presented in the balance sheet. Except for the above circumstances, financial assets andfinancial liabilities shall be presented separately in the balance sheet and shall not be offset.

9.9 Equity instrument

An equity instrument is any contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. That the group issues (including refinancing), repurchases, sells or cancelsequity instruments is taken as the treatment of changes in equities. The group does not confirm thechanges of fair value of equity instruments. Transaction fees relevant to the equity transaction shall bededucted from the equity.The Group considers the allocation of the equity holder as the allocation of profits; issued share dividendsdo not influence the total equity of the shareholders.

10. Receivables

10.1 Receivables that are individually significant and for which bad debt provision is individuallyassessed

Basis or monetary criteria for determining an individually significant receivableA receivable that exceeds RMB 4 million (inclusive) and accounting for more than 10% of the receivables book balance is deemed as an individually significant receivable by the Group.

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

Method of determining provision for receivables that are individually significant and for which bad debt provision is individually assessedFor account receivables that are individually significant, the Group assesses the receivables individually for impairment. For account receivables that are not impaired individually, the Group includes the account receivables in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Account receivables for which an impairment loss is individually recognized are not included in a collective assessment of impairment.

10.2 Receivables for which bad debt provision is collectively assessed on a portfolio basis

Method of recognizing bad debt provisions for receivables based upon collective assessment on a portfolio basis.
Accounts receivables with insignificant single amount and significant single amount but no single test impairmentAging analysis

Portfolios that aging analysis is used for bad debt provision:

AgingProvision as a proportion of accounts receivable (%)Provision as a proportion of other receivables (%)
Within 1 year (inclusive, the same below)55
1-2 years1010
2-3 years3030
3-4 years5050
4-5 years8080
More than 5 years100100

10.3 Accounts receivable that are not individually significant but for which bad debt provision isindividually assessed:

Reasons for making individual bad debt provisionThere are significant differences between the present value of future cash flow of the receivables and the present value of future cash flow of the receivables portfolio based on aging analysis as credit risk feature.
Bad debt provision methodsThrough individual impairment test, determine the bad debts provisions according to the difference of the amount that the present value of future cash flows lower than carrying value.

11. Inventories11.1 Categories of inventories

The Group's inventories mainly include finished goods or commodities held for sale in the daily activities,completed outstanding assets formed in the construction contract, products in the production process,

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

st

2018

materials and supplies used in the production process or in the process of proving labor service.Inventories are initially measured at cost. Cost of inventories comprises all costs of purchase, costs ofconversion and other expenditures incurred in bringing the inventories to their present location andcondition.

11.2 Valuation method of inventories upon delivery

The actual cost of inventories upon delivery is calculated using the mobile weighted average method.

11.3 Basis for determining net realizable value of inventoriesThe inventory is according to cost and net realizable value low metering on the date of balance sheet.When the net realizable value is lower than cost, withdraw inventory falling price reserves. The netrealizable value refers to the amount derived by deducting the potential cost, estimated selling expenseand 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 andconsider the purposes of holding inventories and influence of events after the balance sheet date.

Provision for decline in value of inventories is made based on the excess of cost of inventory over its netrealizable value on an item-by-item basis.

After provision for inventory depreciation reserves is made, if the factors resulting in the write-down ofinventory 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 inprofits and losses of the current period.

11.4 Inventory count system

The perpetual inventory system is maintained for stock system.

11.5 Amortization method for low cost and short-lived consumable items and packaging materials

Packaging materials and low cost and short-lived consumable items are amortized using the immediatewrite-off method.

12. Long-term Equity Investment

12.1 Basis for determining joint control and significant influence over investee

Control is the power to govern an entity through participating in relevant activities of the investee; theinvestor is able to obtain variable benefits from its activities, and at same time, to use the control rights onthe investee to influence the amount of returns. Joint control means that joint control for certain

Notes to Financial StatementsFor the reporting period from January 1

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2018 to December 31

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2018

arrangement in accordance with relevant agreements; activities relevant to the arrangement cannot bedecided until obtaining the unanimous consent of parties sharing control right. Significant influence is thepower to participate in the financial and operating policy decisions of the investee but is not control orjoint control over those policies. When determining whether an investing enterprise is able to exercisecontrol or significant influence over an investee, the effect of potential voting rights of the investee, suchas current convertible debts, current executable warrants, etc., held by the investing enterprises or otherparties shall be considered.

12.2 Determination of initial investment cost

For a long-term equity investment acquired through a business combination involving enterprises undercommon control, the shares of merged party's book value of owners' equity in the final controlling partyconsolidated financial statements obtained on the merger date shall be considered as the initial investmentcost of long-term equity investment. The differences between the initial investment cost of long-termequity investment and the paid cash, the transferred non-cash assets and the book value of the assumeddebts are adjusted against the capital surplus; if the capital surplus is not sufficient to be offset, theremaining balance is adjusted against retained earnings. In the case of issued equity securities treated asconsolidation consideration, share of book value of owner's equity of merged party in the final controllingparty consolidated financial statements is regarded as initial investment cost of long-term equityinvestments on the date of consolidation; capital reserve shall be adjusted in accordance with taking totalnominal value of issued share as capital share, the difference between the initial investment cost oflong-term equity investments and total book value of issued shares; In case the capital reserve is notenough for writing down, the retained earnings shall be adjusted.

For a long-term equity investment acquired through business combination not involving enterprises undercommon control, and the merging cost confirmed on the purchased date are regarded as the initialinvestment cost.

The intermediate expenses made by the combining party or purchaser for audit, legal service, assessmentand other management related expenses during the business merger should be included into the currentprofit and loss as it happens.

Conduct initial measurement according the cost for other equity investment other than the long-termequity investment formed in business merger. In case that the investor may post a significant impact onthe investee or execute joint control but not constitute the control right, long-term equity investment costis the sum of fair value of original-held equity investment plus newly-added investment cost inaccordance with No. 22 Accounting Standards for Business Enterprises----Recognition and Measure ofthe Financial Instruments.

12.3 Subsequent measurement and recognition of profit or loss

12.3.1 Long-term equity investment accounted for using the cost methodLong-term equity investments in subsidiaries are accounted for using the cost method in the Company'sfinancial 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

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

cost. If there are additional investments or disinvestments, the long-term equity investment cost shall beadjusted. Income from the investment in the current period shall be recognized in accordance with thecash dividends or profits declared and issued by the investee.

12.3.2 Long-term equity investment accounted for using the equity methodThe Group accounts for investment in associates and joint ventures using the equity method. An associateis an entity over which the Group has significant influence and a joint venture is an entity over which theGroup 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 theGroup’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, noadjustment is made to the initial investment cost. Where the initial investment cost is less than theGroup’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, thedifference is recognized in profit or loss for the period, and the cost of the long-term equity investment isadjusted accordingly.

Under the equity method, the Group recognizes its share of the net profit or loss and other comprehensiveincome of the investee for the period as investment income or loss and comprehensive income for theperiod, meanwhile, the book value of the long-term equity investment shall be adjusted; The Companyshall accordingly reduce the book value of the long-term equity investment in terms of the part that shallbe enjoyed according to the profit or cash dividends declared by the invested unit to be distributed; Forother changes in the owners' equity of the invested unit other than net profits and losses, othercomprehensive incomes and the profit distribution, the book value of long-term equity investment shallbe adjusted and be included into the capital reserves. The Company shall, on the ground of the fair valueof all identifiable assets of the invested entity when it obtains the investment, recognize the attributableshare 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 thoseadopted by the Company, the adjustment shall be made for the financial statements of the invested unit inaccordance with the accounting policies and accounting periods of the Company to recognize theinvestment income and other comprehensive incomes. For the transaction incurred between the group andassociated enterprises and joint ventures, invested or sold assets don't constitute a business, the part thatdoesn't achieve internal transaction profit or loss or belongs to the group calculated according to theenjoyed ratio will be offset, and the profit or loss on investment will be confirmed on this basis. But forthe unrealized loss arising from the internal transaction between the group and the invested unit, if suchtransaction loss is defined as the impairment loss of the transferred asset, they cannot be offset.

When the Company determines the net loss of the invested unit which shall be shared, it is necessary towrite-down the book value of the long-term equity investment and other long-term equities substantiallyconstituting the net investment of the invested unit to zero as a limit. Besides, if the group is obliged tobear extra loss for the invested unit, it shall be necessary to determine provisions and record them tocurrent investment loss in compliance with obligations expected to be assumed. If the invested unitrealizes any net profits later, the group shall, after the amount of its attributable share of profits offsets itsattributable share of the un-confirmed losses, resume recognizing its attributable share of profits.

12.4 Disposal of long-term equity investments

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

On disposal of a long term equity investment, the difference between the proceeds actually received andthe carrying amount is recognized in profit or loss for the period.

13. Fixed Assets

13.1 Recognition criteria for fixed assets

Fixed assets are tangible assets that are held for use in the production or supply of goods or services, forrental to others, or for administrative purposes, and have useful lives of more than one accounting year. Afixed asset is recognized only when it is probable that economic benefits associated with the asset willflow to the Group and the cost of the asset can be measured reliably. Fixed assets are initially measured atcost.

Subsequent expenditures incurred for the fixed asset are included in the cost of the fixed asset and if it isprobable that economic benefits associated with the asset will flow to the Group and the subsequentexpenditures can be measured reliably. Meanwhile the carrying amount of the replaced part isderecognized. Other subsequent expenditures are recognized in profit or loss in the period in which theyare incurred.

13.2 Depreciation of each category of fixed assets

A fixed asset is depreciated over its useful life using the straight-line method since the month subsequentto the one in which it is ready for intended use. The useful life, estimated net residual value rate andannual depreciation rate of each category of fixed assets are as follows:

ClassDepreciation period (years)Residual value rate (%)Annual depreciation rate (%)
Buildings and Constructions20 years104.5
General-purpose equipment3-5 years1018.0-30.0
Special-purpose equipment3-5 years1018.0-30.0
Transportation vehicles5 years1018.0

Estimated net residual value of a fixed asset is the estimated amount that the Group would currentlyobtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were alreadyof the age and in the condition expected at the end of its useful life.

13.3 Identification basis and valuation methods for fixed assets acquired under finance leases

On the commencement date of the lease term, record the lower of the fair value of the leasing asset or thepresent value of the minimum lease payments on the lease commencement date as the entry book value ofthe leased asset, and book the amount of the minimum lease payments as the entry book value oflong-term account payable, and recognize the difference between the entry value of the leased asset andthat of the long-term account payables as unrecognized financing expenses. In addition, the initial direct

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

costs directly attributable to the leased item incurred during the process of negotiating the lease andsigning the leasing agreement shall be included into the value of the leased assets.

The Group adopts a depreciation policy for a fixed asset held under a finance lease which is consistentwith that for its owned fixed asset. If there is reasonable certainty that the Group will obtain ownership ofthe leased asset at the end of the lease term, the leased asset is depreciated over its useful life. If there isno reasonable certainty that the Group will obtain ownership of the leased asset at the end of the leaseterm, the leased asset is depreciated over the shorter of the lease term and its useful life.

13.4 Other explanations

If a fixed asset is upon disposal or no future economic benefits are expected to be generated from its useor 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 isrecognized in profit or loss for the period.

The Group reviews the useful life and estimated net residual value of a fixed asset and the depreciationmethod applied at least once at each financial year-end, and account for any change as a change in anaccounting estimate.

14. Construction in Process

Construction in progress is measured at its actual costs. The actual costs include various constructionexpenditures during the construction period, borrowing costs capitalized before it is ready for intendeduse and other relevant costs. Construction in progress is not depreciated. Construction in progress istransferred to a fixed asset when it is ready for intended use.

15. Borrowing Costs

Borrowing costs directly attributable to the acquisition & construction or production of assets eligible forcapitalization shall be capitalized when assets expenditure, borrowing costs and necessary construction orproduction for bringing assets to expected conditions for use or marketing have taken place; whenconstruction or production of assets ready for capitalization reach to expected conditions for use ormarketing, capitalization shall be ceased. Other borrowing expenses are recognized as expenses in thecurrent period.

Where funds are borrowed under a specific-purpose borrowing, the amount of interest to be capitalized isthe actual interest expense incurred on that borrowing for the period less any bank interest earned fromdepositing the borrowed funds before being used on the asset or any investment income on the temporaryinvestment of those funds. Where funds are borrowed under general-purpose borrowings, the Groupdetermines the amount of interest to be capitalized on such borrowings by applying a capitalization rateto the weighted average of the excess of cumulative expenditures on the asset over the amounts ofspecific-purpose borrowings. The capitalization rate is the weighted average of the interest ratesapplicable to the general-purpose borrowings. During the capitalization period, exchange differences

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

related to a specific-purpose borrowing denominated in foreign currency are all capitalized. Exchangedifferences in connection with general-purpose borrowings are recognized in profit or loss in the periodin which they are incurred.

16. Intangible Assets

16.1 Intangible Assets Valuation Method and Service Life

Intangible assets include land use right, intellectual property (IP) and application software, etc.

An intangible asset is measured initially at cost. When an intangible asset with a finite useful life isavailable 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:

ClassService life (year)Salvage value rate (%)
Land use right40 or 50 years-
IP Right10 Years-
Application Software5-10 years-

For an intangible asset with a finite useful life, the Group reviews the useful life and amortization methodat the end of the period, and makes adjustments when necessary.

16.2 Internal Research and Development Expenditure

Expenditure during the research phase is recognized as an expense in the period in which it is incurred.

Expenditure during the development phase that meets all of the following conditions at the same time isrecognized as intangible asset. Expenditure during development phase that does not meet the followingconditions 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 intangibleasset 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 andthe ability to use or sell the intangible asset; and(5) The expenditure attributable to the intangible asset during its development phase can be reliablymeasured.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

If the expenditures cannot be distinguished between the research phase and development phase, theGroup recognizes all of them in profit or loss for the period.

17. Long-term Assets Impairment

The Group assesses at each balance sheet date whether there is any indication that the long-term equityinvestment, fixed assets, construction in process and intangible assets with a finite useful life may beimpaired. If there is any indication that such assets may be impaired, recoverable amounts are estimatedfor such assets. Intangible assets with indefinite useful life and intangible assets not yet available for useare tested for impairment annually, irrespective of whether there is any indication that the assets may beimpaired.

Recoverable amount is estimated on individual basis. If it is not practical to estimate the recoverableamount of an individual asset, the recoverable amount of the asset group to which the asset belongs willbe estimated. The recoverable amount is determined by the higher of 1) net amount of fair value of theasset or asset group deducted by the disposal expenses; or 2) the present value of the expected future cashflow 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 isaccounted for as an impairment loss and is recognized in profit or loss for the period.

Goodwill impairment test shall be conducted at the end of each year at least. Goodwill impairment testshall be conducted in accordance with the concerned asset group or asset portfolio. That is to allocate thebook value of goodwill to the asset group or asset portfolio that is expected to benefit from the synergiesof the combination in a reasonable way from the date of purchasing. When recoverable amount ofapportion-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 bookvalue of goodwill of the said asset group or asset portfolio, and then book value of other assets, except forgoodwill, in asset group or asset portfolio shall be abated in proportion.

Once the impairment loss of such assets is recognized, it is not be reversed in any subsequent period.

18. Employee compensation18.1 Accountant Arrangement Method of Short-term RemunerationDuring accounting period when the Group's employees provide services, actual short-term remunerationshall be recognized as the liabilities and current profit and loss or relevant asset cost. The Group’semployee benefits and welfare are included into current profit and loss or relevant asset cost according toactual amount occurred during the period. If the employee benefits and welfare is non-monetary, it shallbe measured according to its fair value.

During the accounting period that the employees service the Group, the Group pays social insurancepremiums such as medical insurance premium, industrial injury insurance premium, maternity insurancepremium and housing accumulation fund for its employees, as well as labor union expenditure andemployee education expenses calculated and withdrawn according to the regulations, corresponding

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

employee remuneration amount shall be calculated and determined in accordance with specifiedcalculation and withdrawal basis and proportion to recognize corresponding liabilities and included intothe current profit and loss or relevant asset cost.

18.2 Accountant Arrangement Method of Post-employment Benefits

All post-employment benefits shall be considered as the defined contribution plan.

In the accounting period when the employee serves for the Group, the deposited amount calculated basedon defined contribution plan shall be recognized as liabilities and included in the current profit and loss orrelevant asset cost.

18.3 Accountant Arrangement Method of the Termination Benefits

Where the Group provides termination benefits, the employee remuneration liabilities caused by suchtermination benefits will be determined as the following date, whichever is earlier, and will be included inthe current profit and loss: 1) When the Group cannot unilaterally withdraw the termination benefitsprovided due to labor relation cancellation plan or employee lay-off suggestion; or 2)when the Groupdetermines costs or expenses in relation with the restructuring of the paid termination benefits.

19. Provisions

Provisions are recognized when the Group has a present obligation related to a contingency such asproducts quality assurance, etc. And it is probable that an outflow of economic benefits will be requiredto settle the obligation, and the amount of the obligation can be measured reliably.

The amount recognized as a provision is the best estimate of the consideration required to settle thepresent obligation at the balance sheet date, taking into account factors pertaining to a contingency suchas the risks, uncertainties and time value of money. Where the effect of the time value of money ismaterial, the amount of the provision is determined by discounting the related future cash outflows.

20. Share-based Payment

Share-based payment refers to a transaction in which the Group grants the equity instruments orundertakes the equity-instrument-based liabilities in return for services from employees. The Group'sshare-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 foramounts that are determined based on the price of equity instruments, in return for services rendered byemployees. The Group's share-based payments are equity-settled share-based payments.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

20.1 Equity-settled share-based payments

Grants to employees are equity-settled share-based payments.

Equity-settled share-based payments in exchange for services rendered by employees are measured at thefair value of the equity instruments granted to employees at the grant date. Such amount is recognized asrelated costs or expenses on a straight-line basis over the vesting period, with a corresponding increase incapital reserve.

At each balance sheet date during the vesting period, the Group makes the best estimate according to thesubsequent latest information of change in the number of employees who are granted with options thatmay vest, etc. and revises the number of equity instruments expected to vest. The effect of the aboveestimate is recognized as related costs or expenses, with a corresponding adjustment to capital reserve.]

20.2. Accounting treatment related to implementation, modification and termination of share-basedpayment arrangement

In case the Group modifies a share-based payment arrangement, if the modification increases the fairvalue of the equity instruments granted, the Group will include the incremental fair value of the equityinstruments granted in the measurement of the amount recognized for services received. If themodification increases the number of the equity instruments granted, the Group will include the fair valueof additional equity instruments granted in the measurement of the amount recognized for servicesreceived. The increase in the fair value of the equity instruments granted is the difference between fairvalue of the equity instruments before and after the modification on the date of the modification. If theGroup modifies the terms or conditions of the share-based payment arrangement in a manner that reducesthe total fair value of the share-based payment arrangement, or is not otherwise beneficial to theemployee, the Group will continue to account for the services received as if that modification had notoccurred, 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 accountfor the cancellation of the equity instruments granted as an acceleration of vesting, and recognizeimmediately the amount that otherwise would have been recognized over the remainder of the vestingperiod in profit or loss for the period, with a corresponding recognition in capital reserve. When theemployee or counterparty can choose whether to meet the non-vesting condition but the condition is notmet during the vesting period, the Group treats it as a cancellation of the equity instruments granted.

21. Revenue

21.1 Revenue from sale of goods

Revenue from sale of goods is recognized when (1) the Group has transferred to the buyer the significantrisks and rewards of ownership of the goods; (2) the Group retains neither continuing managerialinvolvement to the degree usually associated with ownership nor effective control over the goods sold; (3)the amount of revenue can be measured reliably; (4) it is probable that the associated economic benefitswill flow to the Group; and (5) the associated costs incurred or to be incurred can be measured reliably.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

21.2 Revenue from rendering of servicesRevenue from rendering of services is recognized when (1) the amount of revenue can be measuredreliably; (2) it is probable that the associated economic benefits will flow to the enterprise; (3) the stageof completion of the transaction can be determined reliably; and (4) the associated costs incurred or to beincurred can be measured reliably. Revenue from rendering of services is recognized using the percentageof completion method at the balance sheet date. The stage of completion of a transaction for rendering forservices is determined based on the proportion that costs incurred to date bear to the estimated total costsof the transaction.

When the outcome of the transaction involving the rendering of services cannot be estimated reliably,revenue is recognized only to the extent of the costs incurred that will be recoverable, and the costsincurred are recognized as expenses for the period. When it is not probable that the costs incurred will berecovered, revenue is not recognized.

21.3 Construction ContractWhere the outcome of a construction contract can be estimated reliably, contract revenue and costs arerecognized using the percentage of completion method at the balance sheet date.

The stage of completion of a contract is determined using the proportion that completed contract workbears to the estimated total contract work.

Where the outcome of a construction contract cannot be estimated reliably, (1) if contract costs areexpected to be recoverable, contract revenue is recognized to the extent of contract costs that are expectedto be recoverable; and contract costs are recognized as expenses in the period in which they are incurred;(2) if contract costs are not expected to be recoverable, they are recognized as expenses immediatelywhen incurred and contract revenue is not recognized. When the uncertainties that prevented the outcomeof the construction contract from being estimated reliably no longer exist, revenue and expensesassociated with the construction contract are recognized using the percentage of completion method.

If the estimated total contract costs exceed total contract revenue, the expected loss is recognizedimmediately as an expense for the period.

The cumulative costs incurred and cumulative gross profits (or losses) recognized for contracts inprogress and the progress billings are offset and the net amount is presented in the balance sheet. Wherethe aggregate of cumulative costs incurred and cumulative gross profits (or losses) recognized exceed theprogress billings for contracts in progress, the surplus is shown as inventory. Where the progress billingsfor contracts in progress exceed the aggregate of cumulative costs incurred and cumulative gross profits(or losses) recognized, the surplus is shown as receipts in advance.

For participation in public infrastructure construction using the Build-Operate-Transfer (BOT) model, theGroup recognizes revenue and expenses associated with the construction services rendered during theconstruction period in accordance with Accounting Standard for Business Enterprises No.15 –Construction Contracts. When the construction of the public infrastructure is completed, the Grouprecognizes revenue and expenses associated with subsequent operations and services in accordance withAccounting Standard for Business Enterprises No. 14 – Revenue.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

22. Governmental Subsidy

22.1 Judgment basis and Accountant treatment of government subsidy related to assets

The government subsidies for Chongqing Manufacture Base construction and etc. are used forconstructions and forms long-term assets in other ways, and therefore are categorized as governmentsubsidy related to assets.

A government grant related to an asset is recognized as deferred income or writing down book value ofrelated assets. For government grants recognized as deferred income, it should be evenly amortized toprofit or loss over the useful life of the related asset.

22.2 Judgment basis and accountant treatment of government subsidy related to incomeThe Group receives government subsidies including subsidies for Core Electronic Devices, High-endUniversal Chip and Basic Software Product Projects, Value-Added-Tax rebate (VAT rebate), subsidiesfor special projects, and tax refunds, etc., which are not used for constructions and forms long-term assetsin other ways, and therefore are categorized as government subsidy related to income.

For a government grant related to income, if the grant is a compensation for related expenses or losses tobe incurred in subsequent periods, the grant is recognized as deferred income, and recognized in profit orloss over the periods in which the related costs or losses are recognized. If the grant is a compensation forrelated expenses or losses already incurred, the grant is recognized immediately in profit or loss for theperiod.

For government subsidies related to the Group’s daily operations shall be booked into other income oroffsetting related expenses; for those not related to the Group’s daily operations, shall be booked intonon-operating income/expense.

23. Deferred Income Tax Assets / Deferred Income Tax Liabilities

The income tax expenses include current income tax and deferred income tax.

23.1. Current Income Tax

At the balance sheet date, current income tax liabilities (or assets) for the current and prior periods aremeasured at the amount expected to be paid (or recovered) according to the requirements of tax laws.

23.2 Deferred Income Tax Assets and Deferred Income Tax Liabilities

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

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 theirtax base that can be determined according to tax laws, deferred tax assets and liabilities are recognizedthrough the balance sheet liability method.

Deferred tax is generally recognized for all temporary differences. Deferred tax assets for deductibletemporary differences are recognized to the extent that it is probable that taxable profits will be availableagainst which the deductible temporary differences can be utilized. However, for temporary differencesassociated with the initial recognition of goodwill and the initial recognition of an asset or liability arisingfrom a transaction (not a business combination) that affects neither the accounting profit nor taxableprofits (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 theextent that it is probable that future taxable profits will be available against which the deductible lossesand tax credits can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments insubsidiaries, except where the Group is able to control the timing of the reversal of the temporarydifference 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 areonly recognized to the extent that it is probable that there will be taxable profits against which to utilizethe 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 measuredat the applicable tax rates in the period in which the related assets are recovered or the related liabilitiesare recovered in accordance with the tax laws.

Current and deferred tax expenses or income are recognized in profit or loss for the period, except whenthey arise from transactions or events that are directly recognized in other comprehensive income or inshareholders' equity, in which case they are recognized in other comprehensive income or inshareholders' equity; and when they arise from business combinations, in which case they adjust thecarrying amount of goodwill.

At the balance sheet date, the carrying amount of deferred tax assets is reviewed and reduced if it is nolonger probable that sufficient taxable profits will be available in the future to allow the benefit ofdeferred tax assets to be utilized. Such reduction in amount is reversed when it becomes probable thatsufficient taxable profits will be available.

23.3 Offset of Income TaxWhen the Group has a legal right to settle on a net basis and intends either to settle on a net basis or torealize the assets and settle the liabilities simultaneously, current tax assets and current tax liabilities areoffset and presented on a net basis.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

When the Group has a legal right to settle current tax assets and liabilities on a net basis, and deferred taxassets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either thesame taxable entity or different taxable entities which intend either to settle current tax assets andliabilities on a net basis or to realize the assets and liabilities simultaneously, in each future period inwhich significant amounts of deferred tax assets or liabilities are expected to be reversed, deferred taxassets and deferred tax liabilities are offset and presented on a net basis.

24. Lease

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.

24.1 Accounting treatment of operating Lease

24.1.1 The Group as lessee under operating leases

Operating lease payments are recognized on a straight-line basis over the term of the relevant lease, andare either included in the cost of related asset or charged to profit or loss for the period. Initial direct costsincurred are charged to profit or loss for the period. Contingent rents are charged to profit or loss in theperiod in which they are actually incurred.

24.1.2 The Group as lessor under operating leases

Rental income from operating leases is recognized in profit or loss on a straight-line basis over the termof the relevant lease. Initial direct costs with more than an insignificant amount are capitalized whenincurred, and are recognized in profit or loss on the same basis as rental income over the lease term.Other initial direct costs with an insignificant amount are charged to profit or loss in the period in whichthey are incurred. Contingent rents are charged to profit or loss in the period in which they actually arise.

24.2. Accounting treatment of the finance lease

24.2.1 The Group as lessee under finance leases

For relevant accounting treatment, refer to Note (III) 13.3 Identification basis, valuation and depreciationmethod of finance lease of fixed assets.

Unrecognized finance charges are recognized as finance charge for the period using the effective interestmethod over the lease term. Contingent rents are credited to profit or loss in the period in which they areactually incurred. The net amount of minimum lease payments less unrecognized finance charges isseparated into long-term liabilities and the portion of long-term liabilities due within one year forpresentation.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

24.2.2 The Group as lessor under finance leases

At the commencement of the lease term, the aggregate of the minimum lease receivable at the inceptionof the lease and the initial direct costs is recognized as a finance lease receivable, and the unguaranteedresidual value is recorded at the same time. The difference between the aggregate of the minimum leasereceivable, the initial direct costs and the unguaranteed residual value, and the aggregate of their presentvalues is recognized as unearned finance income.

Unearned finance income is recognized as finance income for the period using the effective interestmethod over the lease term. Contingent rents are credited to profit or loss in the period in which they areactually incurred.

The net amount of financial lease receivables less unearned finance income is separated into long-termdebts receivable and the portion of long-term debts receivable due within one year for presentation.

25. Repurchase of the Company’s shares

The consideration and transaction costs paid to repurchase the Company’s shares are deducted fromshareholders' equity. No gain or loss is recognized in profit or loss in such repurchase.

26. Important judgments while applying accounting policy, and key assumptions and uncertaintyfactors applied for accounting estimateDuring the process of using accounting policy described in note (III), due to the uncertainty in operationactivities, the group should judge, estimate and assume the book value of the report items which may notbe metered reliably. These judgments, estimates and assumptions are based on the historical experience ofthe Group's management and other related factors. Differences may exist between the actual results andthe Group’s estimate.

The Group regularly reviews the above judgments, assumptions and estimations on the basis ofcontinuous operation. If the changes of accounting estimate only influence current period, the influenceamount will be affirmed during the changing period; if it influences the current period and subsequentperiods, 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 bookvalue of assets and liabilities in subsequent future periods are:

Impairment of the fixed assets

At the balance sheet date, the Group will review whether fixed assets have signs that impairment is likelyto occur. When the signs indicate that the carrying amount cannot be repurchased, then the impairment

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

test shall be implemented. The impairment occurred when the book value of asset or asset group is higherthan the recoverable amount, which is the net amount of fair value minus the disposal expenses or thepresent value of expected future cash flow (whichever is higher). The net amount of fair value minusdisposal expenses is determined by deducting the incremental cost which directly belongs to the assetsdisposal referring to the price of sales agreement of similar assets in fair transaction or the observablemarket price. When predicting present value of future cash flows, management team must estimate thepredicted future cash flows of the said asset or asset portfolio, and shall select proper discount rate toconfirm the present value of future cash flows. Based on the above procedure, the Group's managementteam deems that it is not necessary to withdraw provision of fixed assets impairment.

Useful life and predicted net residual value of fixed asset

The Group's estimation of fixed assets useful life is based on the historical experience of actual usableterm of fixed assets with similar properties and functions, the estimation of predicted net residual value isthe amount obtained currently by the Group from the assets after deducting the anticipated disposalexpense based on the anticipated status assuming the conditions that fixed assets' predicted useful lifeexpires and fixed assets are at the end of useful life. The Group shall conduct the review on the predictedservice life and predicted net residual value of fixed assets at least annually. For the current reportingperiod, the Group's management did not see signs either indicating a shortened or extended useful life ofthe Group’s fixed asset or indicating a change in predicted net residual value.

Impairment of accounts receivables

When there is a clear evidence to make the accounts receivables collection in doubt, then the Group willcalculate and withdraw the impairment provision to the accounts receivables. Because the Group'smanagement needs to judge the historic conditions of receivable collection, aging, debtor's financialcondition and overall economic environment when considering the impairment provision, there areuncertainties related to the calculation of impairment provision. Although there is no reason to believethat the estimation applied when calculating the impairment provision of accounts receivables will havesignificant changes in the future, the book value and impairment loss of accounts receivables will changewhen the future actual result is different from the anticipated and original estimations.

Accrued liabilities of product quality warranty

Accrued liabilities of product quality assurance are an estimation made by the Group according to thepredicted repair and replacement cost of relevant products. The estimation considers the product claimrate trend, historic defect rate, industry practice and other major estimations. The management deems thatthe current estimation on accrued liabilities of product quality warranty is reasonable, however, the Groupwill continue to review the conditions of product repairs, and will conduct adjustment if any signindicating the need to make adjustments on accounting estimates.

Impairment provision for inventories

Inventories are measured at the lower of cost and net realizable value. The Group will regularly conduct acomprehensive stocktaking to review the impairment circumstances on outmoded and dull inventory if

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

any; in addition, the Group's management will regularly review the impairment circumstance of inventorywith long storage time according to the inventory aging list. The review procedure includes thecomparison between carrying value of outmoded, dull inventory and inventory with long storage time andits corresponding net realizable value in order to determine whether to withdraw provisions on theoutmoded, dull inventory and inventory with long storage time. Based on the above procedure, theGroup's management deems that the full provision amounts have been withdrawn for the outmoded, dullinventory and inventory with long storage time

Assets from deferred income tax

The realization of deferred income tax assets mainly depends on the actual future profits and the effectivetax rate of temporary difference in the future applicable years. If the actual profit in the future is less thanthe estimation, or actual tax rate is lower than the estimation, then the confirmed deferred income taxassets will be reversed and confirmed in the income statement during the corresponding period. If theactual profit in the future is more than the estimation, or actual tax rate is higher than the estimation, thenthe corresponding deferred income tax assets will be adjusted and confirmed in the income statementduring the corresponding period.

Long-term equity investment impairment

The Group judges whether there is any possibility of impairment of long-term equity investments on thebalance sheet date. When there is an indication that the carrying amount is not recoverable, theimpairment test is carried out, and the impairment provision is measured at the lower of the carryingamount and the recoverable amount. The recoverable amount of an asset or asset group is determined bythe higher of the fair value of the asset or asset group less the disposal expense and the present value ofthe estimated future cash flows of the asset or asset group. When estimating the present value of futurecash flows, management needs to estimate the future cash flows of the asset or asset group and select anappropriate discount rate to determine the present value of future cash flows. When calculating the netamount for the fair value less disposal costs to sell, the fair value is the price that the market participantcan receive when selling an asset in an orderly transaction that occurs on the measurement date. If thereassessed recoverable amount is lower than the current estimate, the difference will affect the book valueof the asset during the change.

Goodwill impairment

When performing impairment test on goodwill, the predicted present value of future cash flow of relevantasset group or asset group portfolio included the goodwill need to be calculated, the future cash flow ofrelevant asset group or asset group portfolio need to be estimated, and the proper pretax rate that fairlyreflects the current market time value of money and specific asset risk need to be determined. When thefuture actual result is different from the original estimation, the goodwill impairment loss will alter.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

27. Significant alternation in accounting policy and accounting estimations

Changes in accounting policies and reasonsApproval ProceduresNotes
The Group has implemented the Notice on Amending the 2018 Annual Financial Statements of General Enterprises issued by the Ministry of Finance on June 15th 2018 starting from the preparation of the 2018 financial statements (Accounting Council (2018) No. 15, hereinafter referred to as Financial Accounting No. 15 Document). The Financial Accounting No. 15 Document revised the presentation items on the balance sheet and the income statement, and added new items such as “receivable notes and accounts receivable”, “payable notes and accounts payable” and “research and development expenses”; revised contents of line items such as "other receivables", "fixed assets", "construction in progress", "other payables" and "long-term payables" and "management expenses"; reduced line items such as "receivable notes", “accounts receivable”, “dividends receivable”, “interests receivable”, “fixed assets clearance”, “engineering materials”, “payable notes”, “accounts payable”, “interest payable”, “dividends payable” and the "special payables"; Under the “Financial Expenses” item, the “Including: Interest Expenses” and “Interest Income” lines were added to report, and the presentation position of some items in the income statement were adjusted. For the above-mentioned changes in the listed items, the company adopted the retrospective adjustment method for accounting treatment, and made retrospective adjustments to the comparative data of the previous year.Such alternations in accounting policy were approved by the Group at board of director general meeting.None

IV. Taxes1. Major categories of taxes and tax rates

Category of taxBasis of tax computationTax rate
Enterprise income taxTaxable income25% (Note 1)
VATFor the taxable product sales revenue or taxable labor revenue, the Company and its domestic subsidiaries are ordinary Value-added Tax payers; the VAT payable is the balance of input tax after deducting the deductible output tax.6%, 10%, 11%, 16%, 17% and simple collection rate of 3% (Note 2)
City maintenance and construction taxActual payable turnover tax7%
Education surchargesActual payable turnover tax3%
Local education surchargesActual payable turnover tax2%

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, theoverseas subsidiaries are applicable to corresponding local tax rate.

(1) In accordance with the Letter of Reply on Publishing the List of First Batch of identified High-tech

Enterprises of Zhejiang Province in 2017 (GuoKeHuoZi [2017] No. 201) issued by the leading groupoffice of Zhejiang high-tech enterprise identification management work on December 15

th

2017, theCompany was identified as the high-tech enterprise with a valid term of 3 years, from 2017 to 2019.Therefore, the Company’s enterprise income tax rate is 15% for the current reporting period.According to the Notice on Printing and Distributing the List of Key Software Enterprises and ICDesign Enterprises in the National Planning Layout for 2013-2014 (Development and Reform HighTechnology [2013] No. 2458), in 2013, the Company was recognized as a national key software

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

company. According to the Notice on Issues Related to Enterprise Income Tax Preferential Policiesfor Software and Integrated Circuit Industry (Finance and Tax [2016] No. 49), the Company wasapproved by the tax authorities in August 2018 to pay the 2017 annual corporate income tax at therate of 10%. As of the approval date of this report, the Company's 2018 income tax concessions havenot been filed; therefore, the Company's 2018 corporate income tax is still paid at the rate of 15%.

(2) In accordance with the Letter of Reply on Publishing the Registration of First Batch of High-Tech

Enterprises of Zhejiang Province in 2016 (GuoKeHuoZi [2016] No. 149) issued by leading groupoffice of Zhejiang high-tech enterprise identification management work on December 9

th

2016, thewholly-owned subsidiary, Hangzhou Hikvision System Technology Co., Ltd. (Hangzhou SystemTechnology) was identified as the high-tech enterprise with a valid term of 3 years, from 2016 to 2018,the enterprise income tax in the current reporting period shall be calculated and paid according to taxrate of 15%.

(3) According to the Notice on Publishing the List of Second Batch of proposed identified High-tech

Enterprises of Shanghai in 2017 issued by Shanghai high-tech enterprise identification office, theCompany’s wholly-owned subsidiary, Shanghai Goldway Intelligent Traffic System Co., Ltd.(Shanghai Goldway) was identified as the high-tech enterprise with a valid term of 3 years, from 2017to 2019, the enterprise income tax in the current reporting period shall be calculated and paidaccording to tax rate of 15%.

(4) In accordance with the Replies on Publishing the List of First Batch of identified High-tech

Enterprises of Zhejiang Province in 2017 (GuoKeHuoZi [2017] No. 201) issued by the leading groupoffice of Zhejiang high-tech enterprise identification management work on December 15

th

2017, theCompany’s joint-venture subsidiary, Hangzhou HIK Robotic Technology Co., Ltd. (HangzhouRobotic Technology) were identified as the high-tech enterprises with a valid term of 3 years, from2017 to 2019. Therefore, the enterprise income tax in the current reporting period shall be calculatedand paid according to tax rate of 15%.

(5) In accordance with the Replies on Publishing the List of First Batch of identified High-tech

Enterprises of Zhejiang Province in 2017 (GuoKeHuoZi [2017] No. 201) issued by the leading groupoffice of Zhejiang high-tech enterprise identification management work on December 15

th

2017,Hangzhou EZVIZ Network Co., Ltd. (Hangzhou EZVIZ), a joint venture subsidiary of the Company,was recognized as a high-tech enterprise and was valid for 3 years from 2017 to 2019. This year,Hangzhou EZVIZ Company has separated the sales and R&D functions and did not meet thehigh-tech enterprise certification. Therefore, the corporate income tax is paid at the rate of 25% thisyear.

(6) 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-ownedsubsidiaries, Chongqing Hikvision Science and Technology Co., Ltd. and Chongqing HikvisionSystem Technology Co., Ltd., are qualified to enjoy the west development preferential tax policyfrom 2011 to 2020, therefore, the enterprise income rate shall be calculated and paid on the basis of15% in the current reporting period.

(7) 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

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

office of Zhejiang high-tech enterprise identification management work on February 20

th

2019, theCompany’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 to2020. Therefore, this year's corporate income tax is reduced at a rate of 15%.

Note 2: In accordance with the Notice on Software Product Value-added Tax Policy (Finance andTaxation [2011] No. 100) of Ministry of Finance and State Administration of Taxation (SAT), as for theself-developed software product sales of the Company and the Company’s wholly-owned subsidiariessuch as Shanghai Goldway, Hangzhou System, Beijing Brainaire Storage Technology Ltd., as well as theCompany’s joint-venture subsidiaries such as Wuhan HIK Storage Technology Ltd. (Wuhan Storage),Hangzhou EZVIZ Software Ltd. (EZVIZ Software), Hangzhou HIK Automotive Software Ltd.(Automotive Software), Hangzhou HIK Huiying Technology Ltd. (Huiying), and Hangzhou RoboticTechnology, and Hangzhou HIK Automotive Technology Ltd. (Hangzhou Auto Technology), the VATshall be calculated and paid with tax rate of 17% at first, then the portion with actual tax bearing excess 3%shall be refunded after SAT reviews.

Note 3: According to Finance and Tax [2018] No. 32, since May 1

st

2018, taxpayers are subject to VATtaxable sales or imported goods, and the VAT rate is adjusted from 17%, 11% and 6% to 16%, 10% and 6%respectively.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

V. Notes to items in the consolidated financial statements

1. Cash and bank balances

Closing BalanceOpening Balance
ItemForeign currency amountExchange rate for conversionRMB amountForeign currency amountExchange rate for conversionRMB amount
Cash:
RMB--79,737.43--130,403.91
USD24,087.346.8632165,316.2635,098.976.5342229,343.66
EUR9,765.867.847376,635.6015,918.337.8023124,199.58
GBP8,927.978.676277,460.867,396.178.779264,932.46
ZAR17,034.950.47358,066.0519,530.510.527710,306.25
INR2,000,830.710.0980196,081.411,222,954.960.1019124,619.11
RUB13,899.490.09861,370.4922,805.810.11352,588.46
AED585.761.86881,094.6835,070.031.779062,389.59
HKD697.900.8762611.503,072.660.83592,568.44
BRL8,697.301.756915,280.299,297.271.964118,260.77
Bank balance:
RMB--20,217,862,141.55--10,082,944,463.42
USD707,524,091.986.86324,855,879,348.05822,098,082.756.53425,371,753,292.29
EUR51,833,430.497.8473406,752,479.1136,681,727.647.8023286,201,843.60
GBP4,918,810.458.676242,676,583.251,171,110.928.779210,281,416.98
JPY407.980.061925.25408.000.057923.62
ZAR22,340,466.040.473510,578,210.6611,105,021.550.52775,860,119.88
INR3,438,377,221.940.0980336,960,967.751,604,304,664.420.1019163,478,645.31
RUB534,613,774.240.098652,712,918.14431,796,810.540.113549,008,937.99
HKD1,837,365.440.87621,609,899.60147,865.080.8359123,600.42
AUD1,821,443.304.82508,788,463.911,110,556.925.09285,655,844.28
AED7,944,928.081.868814,847,550.815,099,038.051.77909,071,188.69
BRL8,376,095.191.756914,715,961.644,579,468.831.96418,994,534.73
SGD102,603.215.0062513,652.1935,788.264.8831174,757.65
PLN489,691.461.8269894,617.32338,408.191.8680632,146.48
KRW845,397,940.000.00615,178,062.38461,310,471.000.00612,818,145.67
CAD828,274.505.03814,172,929.76824,149.985.20094,286,321.63
KZT25,306,904.920.0183463,116.3643,256,830.490.0195843,508.19
COP441,460,035.460.0021921,371.24150,707,765.530.0022328,799.13
TRY371.191.2962481.1446,834.841.729180,982.11
THB13,527,107.820.21102,854,219.754,267,411.590.1998852,750.61
HUF2,372,916.620.024457,888.2557,206,835.370.02501,430,205.20
NZD77,267.454.5954355,074.84106,049.604.6327491,295.98
CZK245,451.930.302974,347.391,701,256.640.3057520,074.15
KES923,936.070.067161,996.1123,771,784.150.06301,497,622.40
UZS330,724,362.570.0008271,094.76260,975,830.780.0008208,597.98
IDR4,324,868,647.850.00052,037,445.62---
MYR337,537.881.6479556,228.67---
PHP7,098,709.590.1304925,671.73---
VND2,400,000,000.000.0003706,800.00---
QAR92,830.451.8378170,603.80---

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Closing BalanceOpening Balance
ItemForeign currency amountExchange rate for conversionRMB amountForeign currency amountExchange rate for conversionRMB amount
Other currency funds:
RMB--530,958,544.17--459,284,934.33
USD5,130,938.506.863235,214,593.877,768.396.534250,760.21
EUR140,937.527.84731,105,979.01100,775.097.8023786,277.48
BRL498,949.671.7569876,604.67---
INR119,281.000.098011,689.54---
ZAF28,499.200.473513,494.37---
Total26,552,402,711.2316,468,430,702.64
including: deposited in overseas banks1,071,979,704.80788,391,050.26

Details of other currency funds:

Closing BalanceOpening Balance
ItemForeign currency amountExchange rate for conversionRMB amountForeign currency amountExchange rate for conversionRMB amount
Capitals with limitations:
Deposits for letter of Credit in RMB--60,199,342.63---
Bank acceptance bill--52,522,279.43--204,607,890.97
Deposits for letter of guarantee--41,428,996.22--20,379,624.20
Deposits for letter of Credit in EUR137,209.867.84731,076,726.9474,056.267.8023577,809.16
Deposits for letter of Credit in BRL498,949.671.7569876,604.67---
Deposits for letter of Credit in USD5,133.886.863235,234.785,133.726.534233,544.74
Tax Operation Margin for India119,281.000.098011,689.54---
Other security deposit--504,195.08--502,664.40
Deposits pledged for long-term borrowing-----35,000,000.00
Other capitals with limitations--372,008,649.75--178,143,900.00
Subtotal528,663,719.04439,245,433.47
Capitals without limitations:
Other currency funds in USD5,127,923.386.863235,193,900.562,634.676.534217,215.47
Deposit in Alipay, Tenpay, etc.--4,280,539.59--20,650,854.76
Other currency funds in EUR3,727.667.847329,252.0726,718.837.8023208,468.32
Other currency funds in ZAR28,499.200.473513,494.37---
Subtotal39,517,186.5920,876,538.55
Total568,180,905.63460,121,972.02

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

2. Financial assets valued at fair value through profit and loss

Unit: RMB

ItemClosing BalanceOpening Balance
Held-for-trading financial assets1,860,050.594,100,657.54
including: derivative financial assets1,860,050.594,100,657.54
Total1,860,050.594,100,657.54

Derivative financial assets includes forwards, foreign exchange option contract and interest rate swap contracts, notdesignated as a hedging instrument, gains or losses due to changes in fair value is directly included in the current periodprofits and losses.

3. Notes receivable & Accounts receivable

3.1 Categories of notes receivable & accounts receivable

Unit:RMB

CategoryClosing BalanceOpening Balance
Notes receivable2,569,445,189.923,636,961,616.03
Accounts receivable16,619,441,281.1814,705,210,072.81
Total19,188,886,471.1018,342,171,688.84

3.2 Notes receivable(1) Categories of notes receivable

Unit:RMB

CategoryClosing BalanceOpening Balance
Bank acceptance bill2,273,846,399.853,513,890,558.68
Commercial acceptance bill295,598,790.07123,071,057.35
Total2,569,445,189.923,636,961,616.03

(2) Notes receivable pledged by the Group at the closing of the reporting period

Unit:RMB

CategoryPledged amount by December 31st 2018
Bank acceptance bill412,061,782.74
Commercial acceptance bill-
Total412,061,782.74

(3) Notes receivable discounted or endorsed by the Group at the closing of the reporting period

Unit:RMB

CategoryDerecognized amount by December 31st 2018 (Note)Not Derecognized amount by December 31st 2018
Bank acceptance bill2,370,887,528.74-
Commercial acceptance bill32,316,962.8594,097,879.36
Total2,403,204,491.5994,097,879.36

Note:Because the main risks related to such bank acceptance bill, such as interest rate risk, has been transferred to bankor others, therefore, those discounted and endorsed bank acceptance bills have been derecognized by the Group.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(4) As of December 31

st

2018, the Group transferred the defaulted notes receivable into accounts receivable.

Unit:RMB

CategoryAmounts transferred into accounts receivable by December 31st 2018
Bank acceptance bill207,600,000.00
Commercial acceptance bill-
Total207,600,000.00

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

3.3 Accounts Receivable

(1) Disclosure of accounts receivable by categories

Unit: RMB

CategoryClosing BalanceBeginning Balance
Carrying amountBad debt provisionCarrying ValueCarrying amountBad debt provisionCarrying Value
AmountProportion (%)AmountProportion (%)AmountAmountProportion (%)AmountProportion(%)Amount
Accounts receivable that are individually significant and for which bad debt provision has been assessed individually----------
Accounts receivable with provision accrued collectively on a portfolio basis for credit risk17,878,831,244.30100.001,259,389,963.127.0416,619,441,281.1815,839,958,044.79100.001,134,747,971.987.1614,705,210,072.81
Accounts receivable that are not individually significant but for which bad debt provision has been assessed individually----------
Total17,878,831,244.30100.001,259,389,963.127.0416,619,441,281.1815,839,958,044.79100.001,134,747,971.987.1614,705,210,072.81

Note: The Group categorizes a single account receivable in an amount above RMB 4 million and representing more than 10% of the total accounts receivable closing balance asaccounts receivable that is individually significant.

In the portfolio, bad debt provision of accounts receivable by aging analysis:

Unit: RMB

AgingClosing Balance
Carrying amountBad debt provisionProportion (%)
Within 1 year15,987,369,870.28799,368,493.515.00
1-2 years1,146,177,216.01114,617,721.6010.00
2-3 years417,396,769.58125,219,030.8730.00
3-4 years194,009,612.9797,004,806.4950.00
4-5 years53,489,324.0442,791,459.2380.00
Over 5 years80,388,451.4280,388,451.42100.00
Subtotal17,878,831,244.301,259,389,963.127.04

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(2) Provision, re-collection, or reverse of the bad debt allowance in the current reporting period

In the current reporting period, the Company recorded a bad debt allowance of RMB 131,669,945.21, bad debtallowance balance increased for RMB 6,296,818.63 due to conversion of financial reports prepared in foreign currency.No reversal of bad debts during the year.

(3) Actual write-off of account receivable during current reporting period

In the current reporting period, the amount of accounts receivable write-off is RMB 13,324,772.70.

(4) Top five debtors based on corresponding closing balance of account receivables

Unit: RMB

Name of the PartyRelationship with the CompanyBook balance of accounts receivableClosing balance for bad debt provisionProportion (%)
Related party ARelated Party545,951,381.9728,351,499.313.05
Company AThird party174,862,609.678,743,130.480.98
Company BThird party138,877,590.528,136,252.190.78
Company CThird party105,757,148.265,287,857.410.59
Company DThird party90,662,456.714,533,122.840.51
Total1,056,111,187.1355,051,862.235.91

(5) As of December 31

st

2018, there is no termination of accounts receivable booking due to transfer of a financial asset.

(6) As of December 31

st

2018, the Group has no assets/liabilities booked due to transferred accounts receivable that theGroup still keep recourse or retain part of the corresponding rights or interests.

4. Prepayments

(1) Prepayments by aging analysis

Unit: RMB

AgingClosing BalanceOpening Balance
Carrying amountProportion (%)Carrying amountProportion (%)
Within 1 year371,339,135.7680.67481,603,579.1591.29
1-2 years87,446,891.7519.0038,258,814.477.25
2-3 years1,219,965.560.277,480,653.491.42
Over 3 years298,226.580.06233,810.000.04
Total460,304,219.65100.00527,576,857.11100.00

(2) Closing balances of top five prepayments partiesAs of December 31

st

2018, the Group’s top five balances of prepayments amounted to RMB 160,994,485.73, accountingfor 34.98% of total closing balance of prepayments.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

5. Other receivables

(1) Disclosure of other receivables by categories

Unit: RMB

CategoryClosing BalanceOpening Balance
Carrying amountBad debt provisionCarrying ValueCarrying amountBad debt provisionCarrying Value
AmountProportion (%)AmountProportion (%)AmountAmountProportion (%)AmountProportion (%)Amount
Other receivables that are individually significant and for which bad debt provision has been assessed individually----------
Other receivables with provision accrued collectively on a portfolio basis for credit risk656,516,001.11100.0069,767,735.9010.63586,748,265.21641,690,488.45100.0058,009,247.649.04583,681,240.81
Other receivables that are not individually significant but for which bad debt provision has been assessed individually----------
Total656,516,001.11100.0069,767,735.9010.63586,748,265.21641,690,488.45100.0058,009,247.649.04583,681,240.81

Note: The group categorizes other receivables above RMB 4 million and accounts for more than 10% of the total other receivables closing balance as other receivable that isindividually significant.

In the portfolio, bad debt provision of other receivables by aging analysis

Unit: RMB

AgingClosing Balance
Carrying amountBad debt provisionProportion (%)
Within 1 year361,469,319.9418,073,466.445.00
1-2 years217,350,403.3421,735,040.3310.00
2-3 years51,754,285.7215,526,285.7230.00
3-4 years21,211,001.9710,605,500.9950.00
4-5 years4,517,736.723,614,189.0080.00
Over 5 years213,253.42213,253.42100.00
Total656,516,001.1169,767,735.9010.63

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(2) Provision, re-collection, or reverse of the bad debt allowance in the current reporting periodDuring the reporting period, the Company recorded a bad debt allowance of RMB 21,082,073.23; bad debt allowance amount increased by RMB 2,261,415.03 due to conversionof financial statements prepared in foreign currency; there is no such case as recollected or reversed bad debt allowance.(3) Actual write-off of other receivables during current reporting periodIn the current reporting period, the actual write-off of other receivables is RMB 11,585,000.00.(4) Nature of other receivables

Unit: RMB

Nature of other receivablesClosing balanceOpening balance
Other receivables for interim payments354,225,077.10365,413,004.37
Guarantee deposits185,672,767.89199,237,401.53
Tax rebates for export30,189,439.5628,195,951.27
Acquisition of asset group-19,053,271.93
Investment intention fund20,000,000.0013,500,000.00
Others66,428,716.5616,290,859.35
Total656,516,001.11641,690,488.45

(5) Top five debtors based on corresponding closing balance of other receivables

Unit: RMB

EntitiesNatureCarrying amountAgingProportion of total (%)Bad debt Provision
Tax authoritiesTax rebates30,000,000.00Within 1 year4.571,500,000.00
The company EIntentional payments for investment20,000,000.00Within 1 year3.051,000,000.00
Hangzhou customs of the People's Republic of China.Guarantee deposits9,444,600.00Within 2 year1.44550,635.00
The company FGuarantee deposits9,064,435.00Within 2 year1.38556,905.75
The company GTemporary payments for receivables8,096,878.80Within 1 year1.23404,843.94
Total76,605,913.8011.674,012,384.69

(6) As of December 31

st

2018, the Group does not have other receivables related to government subsidies.

(7) As of December 31

st

2018, there is no termination of other receivables booking due to transfer of a financial asset.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(8) As of December 31

st

2018, the Group has no assets/liabilities booked due to any transferred other receivable that the Group still keep recourse or retain part of thecorresponding rights or interests.

6. Inventories

(1) Categories of inventories

Unit: RMB

CategoryClosing BalanceOpening Balance
Carrying amountProvision for decline in value of inventoriesCarrying valueCarrying amountProvision for decline in value of inventoriesCarrying value
Raw materials1,558,519,309.654,736,249.821,553,783,059.831,279,086,935.834,092,497.081,274,994,438.75
Work-in-progress415,593,344.57-415,593,344.57196,583,804.97-196,583,804.97
Finished goods3,868,735,444.19316,870,213.783,551,865,230.413,598,361,044.81190,211,526.563,408,149,518.25
Completed but unsettled assets formed by construction contracts203,862,518.60-203,862,518.6060,604,549.68-60,604,549.68
Total6,046,710,617.01321,606,463.605,725,104,153.415,134,636,335.29194,304,023.644,940,332,311.65

(2) Provision for decline in value of inventories

Unit: RMB

CategoryOpening balanceIncrease in the current periodDecrease in the current periodEffect of foreign currency exchange differenceClosing Balance
Reversalswrite-offs
Raw materials4,092,497.082,542,286.05-1,898,533.31-4,736,249.82
Finished goods190,211,526.56228,959,145.12-107,143,721.894,843,263.99316,870,213.78
Subtotal194,304,023.64231,501,431.17-109,042,255.204,843,263.99321,606,463.60

Net realizable value of inventory is calculated based on estimated selling price less all estimated cost of completion, estimated sales expenses, and related tax fees. The write-offs ofprovision for inventories in the current reporting period are due to use or sale of inventories.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(3) Completed but unsettled assets formed by construction contracts at the end of December 31

st

2018.

Unit: RMB

ItemAmount
Accumulated occurred costs of construction3,951,469,639.19
Accumulated booked gross profit margin262,224,571.96
Less: estimated losses-
Settled amounts2,756,423,950.27
Completed but unsettled assets formed by construction contracts1,457,270,260.88
Including: other non-current assets (Note (V) 17)1,253,407,742.28
Inventories203,862,518.60

7. Non-current assets due within one year

Unit: RMB

ItemClosing BalanceOpening Balance
Long-term receivables due within one year (Note (V) 10)380,795,020.4766,566,230.12
Total380,795,020.4766,566,230.12

8. Other current assets

Unit: RMB

ItemClosing balanceOpening balance
Principal-guaranteed bank finance products-3,390,000,000.00
Deductible VAT input608,132,453.24286,332,435.43
Withhold and remit individual income tax71,402,966.15-
Prepaid corporate income tax31,542,797.5742,645,678.02
Prepaid tariff12,880,594.90-
Others6,724,001.281,471,419.43
Total730,682,813.143,720,449,532.88

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

9. Available-for-sale financial assets

(1) Available-for-sale financial assets

Unit: RMB

ItemClosing BalanceOpening Balance
Carrying amountProvision for decline in valueCarrying ValueCarrying amountProvision for decline in valueCarrying Value
Available-for-sale equity instruments290,966,813.00-290,966,813.00287,466,813.00-287,466,813.00
Measured by cost method290,966,813.00-290,966,813.00287,466,813.00-287,466,813.00
Total290,966,813.00-290,966,813.00287,466,813.00-287,466,813.00

(2) Closing balance of available-for-sale financial assets by cost method

Unit: RMB

The invested entity (Note 1)Carrying BalanceProvision for decline in valueProportion of shareholding in the invested entity (%)Cash dividend in the current reporting period
Opening balanceIncreaseDecreaseClosing balanceOpening balanceIncreaseDecreaseClosing balance
Zhejiang Tuxun Technology Co., Ltd.32,430,800.00--32,430,800.00----8.1318-
Hangzhou Confirmware Technology Co., Ltd.26,629,200.00--26,629,200.00----9.5238-
Nanwang Information Industry Group Ltd.604,313.00--604,313.00----0.2518-
Hangzhou Hikvision Equity Investment Partnership (Limited Partnership)10,000.00--10,000.00----0.0017-
CETC Finance Ltd. (Note 2)227,792,500.00--227,792,500.00----3.830012,256,000.00
Zhengzhou Guokong Smart City Technology Ltd.-3,500,000.00-3,500,000.00----7.0000-
Total287,466,813.003,500,000.00-290,966,813.00-----12,256,000.00

Note1: The Group’s equity investments listed are all non-listed companies; and the Group has no control, joint control or significant influence on the invested entities.Note2: CETC Finance Co., Ltd is one of the companies held under CETC, which is the Company’s ultimate controlling shareholder.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

10. Long-term receivables(1) Details of long-term receivables

Unit: RMB

ItemClosing balanceOpening balanceRange of discount rate
Carrying amountProvision for decline in valueCarrying valueCarrying amountProvision for decline in valueCarrying value
Financial leases receivables100,574,420.65-100,574,420.6589,941,910.73-89,941,910.730.54% ~ 6.05%
Including: Unrealized income from financing4,218,121.83-4,218,121.832,516,655.49-2,516,655.49-
Installments for selling goods985,732,967.99-985,732,967.99---4.24% ~ 6.45%
Including: Unrealized income from financing167,871,990.88167,871,990.88-
Less: Non-current assets due within one year (Note (V) 7)380,795,020.47-380,795,020.4766,566,230.12-66,566,230.12-
Total705,512,368.17-705,512,368.1723,375,680.61-23,375,680.61-

(2) As of December 31

st

2018,there is no termination of long-term receivables booking due to transfer of a financial asset.

(3) As of December 31

st

2018, the Group has no assets/liabilities booked due to any transferred long-term receivable that the Group still keep recourse or retain part of thecorresponding rights or interests.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

11. Long-term equity investment

Unit: RMB

The invested entityOpening BalanceDecrease/Increase in the current reporting periodClosing BalanceClosing balance for impairment provision
Additional InvestmentsInvestment reductionInvestment Profit (Loss) recognized under the equity MethodAdjustment: Other comprehensive incomeOther Changes in equityDeclaration of cash dividends or profit distributionImpairment provisionothers
Associated Companies
Wuhu Sensor Technology Ltd.38,207,959.74--3,563,480.71-----41,771,440.45-
Maxio Technology (Hangzhou) Ltd. (Note 1)92,266,773.8427,000,000.00-(12,615,600.21)-----106,651,173.63-
Zhiguang Hailian Big Data Technology Ltd. (Note 2)-10,000,000.00-------10,000,000.00-
Sanmenxia Xiaoyun Vision Technology Ltd. (Note 3)-4,900,000.00-(20,769.52)-----4,879,230.48-
Subtotal130,474,733.5841,900,000.00(9,072,889.02)-----163,301,844.56-
Total130,474,733.5841,900,000.00-(9,072,889.02)-----163,301,844.56-

Note 1: According to the Equity Capital Increase Agreements signed between the Group and Maxio Technology (Hangzhou) Ltd. (hereinafter referred to Maxio Technology) and itsshareholders, the Company increased capital investment of RMB 27 million on Maxio Technology, and increased capital has been paid by the end of the reporting year. After this capitalincrement, the Group together is holding 47.64% equity of Maxio Technology. The board of Maxio Technology consists of three directors, one of whom is appointed by the Group toexert a significant influence on the Maxio Technology.

Note 2: The Group signed an agreement with independent third party Tianjin Xinzhi Video Technology Co., Ltd. and Guizhou Province Radio and Television Information Network Co.,Ltd. on the establishment of Zhiguang Hailian Big Data Technology Ltd. (hereinafter referred to as “Zhiguang Hailian”). According to the agreement, the Company invested RMB 20million and the equity ratio obtained was 20%. As of the reporting year end, the Company has actually paid over RMB 10 million. The board of directors of Zhiguang Hailian consistsof five directors, of which one director is appointed by the Company, who exerts a significant influence on Zhiguan Hailian.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Note 3: This year, the Group signed an agreement with the independent third party Sanmenxia Xiaoyun Information Service Co., Ltd. on the establishment of Sanmenxia XiaoyunVision Technology Ltd. (hereinafter referred to as “Vision Technology”). The Company’s subsidiary, Hangzhou Hikvision System Technology Ltd. (hereinafter referred to as“Hangzhou System”), contributed RMB 4.90 million, which was paid in full by Hangzhou System by the end of the year, and the proportion of equity acquired was 49%. The board ofdirectors of Vision Technology consists of three directors, of which one director is appointed by Hangzhou System, who exerts a significant influence on Vision Technology.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

12. Fixed Assets

(1) Details of fixed assets

Unit: RMB

ItemsBuilding and constructionGeneral-purpose equipmentSpecial-purpose equipmentTransportation vehiclesTotal
Total original carrying amount
1. Opening balance2,635,572,180.62232,106,450.97927,755,822.6262,377,196.973,857,811,651.18
2. Increase in the current reporting period2,034,093,829.56258,239,589.14169,061,686.0423,736,103.762,485,131,208.50
1) purchase1,883,571.53255,563,691.31158,636,847.8423,736,103.76439,820,214.44
2) transferred from construction in progress2,032,210,258.032,675,897.8310,424,838.20-2,045,310,994.06
3.Decrease in the current reporting period14,085,354.769,617,141.573,323,406.367,323,639.7934,349,542.48
1) disposal or write-off14,085,354.769,617,141.573,323,406.367,323,639.7934,349,542.48
4. Effect of foreign currency exchange difference2,290,994.48(238,678.93)(400,631.58)(65,436.92)1,586,247.05
5.Closing Balance4,657,871,649.90480,490,219.611,093,093,470.7278,724,224.026,310,179,564.25
Accumulated depreciation
1. Opening balance388,100,028.5284,717,617.61320,033,092.5440,935,416.20833,786,154.87
2. Increase in the current reporting period164,921,860.1456,852,833.36187,839,213.027,904,995.06417,518,901.58
(1) provided164,921,860.1456,852,833.36187,839,213.027,904,995.06417,518,901.58
3.Decrease in the current reporting period3,629,580.0010,257,335.502,821,773.066,599,778.8423,308,467.40
(1) disposal or write-off3,629,580.0010,257,335.502,821,773.066,599,778.8423,308,467.40
4. Effect of foreign currency exchange difference76,627.53(226,067.98)(51,700.61)(31,043.84)(232,184.90)
5.Closing balance549,468,936.19131,087,047.49504,998,831.8942,209,588.581,227,764,404.15
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-----
Total carrying value
1. Closing balance4,108,402,713.71349,403,172.12588,094,638.8336,514,635.445,082,415,160.10
2. Opening balance2,247,472,152.10147,388,833.36607,722,730.0821,441,780.773,024,025,496.31

(2) As of December 31

st

2018, the Group did not have any significant idle fixed assets.

(3) As of December 31

st

2018, the Group had not leased any fixed asset through financial leasing.

(4) As of December 31

st

2018, the Group had not rent out any fixed asset through operating leasing(5) Fixed assets of which certificates of title have not been granted as of December 31

st

2018.

Unit: RMB

ItemCarrying amountReason for certificates of title not granted
Office building for branches38,620,111.22In the process of obtaining the real estate certificates
Phase I Plant of Chongqing Production Base277,289,173.62In the process of obtaining the real estate certificates after transferred from construction in process to fixed assets
Total315,909,284.84

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

13. Construction in progress

(1) Details of construction in progress

Unit: RMB

ItemClosing balanceOpening balance
Carrying amountProvisionCarrying valueCarrying amountProvisionCarrying value
Security industrial base (Tonglu) -Phase 2---300,688,913.96-300,688,913.96
Internet Video Industry Base---914,014,265.08-914,014,265.08
Public Security Monitoring Site Project291,404,089.32-291,404,089.32105,039,082.92-105,039,082.92
Hangzhou Innovation Industrial Base50,840,516.83-50,840,516.83---
Others73,847,807.27-73,847,807.27116,576,856.34-116,576,856.34
Total416,092,413.42-416,092,413.421,436,319,118.30-1,436,319,118.30

(2) Changes in significant construction in progress during the current reporting period

Unit: RMB

ItemBudget (RMB 0,000)Opening balanceIncrease in the current reporting periodTransferred to fixed assets during the current reporting periodEffect of foreign currency exchange differenceOther Reductions ( Note 1)Closing balanceAmount invested as a proportion of budget amount (%)Construction in Progress (%)Accumulated capitalized interest and profit/loss on exchange (Note 2)Including: capitalized interest and profit/loss on exchange for the current reporting periodCapitalization rate for interest in the current reporting period (%)Source of funds
Internet Video Industry Base108,000.00914,014,265.08171,166,453.221,085,180,718.30---100%100%231,020,655.0424,249,143.131.25%Bond
Security industrial base (Tonglu) project-Phase 264,000.00300,688,913.96341,337,980.27642,026,894.23---100%100%(87,331,908.38)(87,331,908.38)1.25%Bond
Chongqing Manufacture Base27,700.0089,393,611.81187,895,561.81277,289,173.62---100%100%---Self- financing
Hangzhou Innovation Industry Base102,600.00-50,840,516.83---50,840,516.834.96%4.96%---Self- financing
Chengdu Science and Technology Base Project135,100.00-6,577,446.74---6,577,446.740.49%0.49%---Self- financing
Chongqing Science and Technology76,200.00-2,257,412.05---2,257,412.050.30%0.30%---Self- financing

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

ItemBudget (RMB 0,000)Opening balanceIncrease in the current reporting periodTransferred to fixed assets during the current reporting periodEffect of foreign currency exchange differenceOther Reductions ( Note 1)Closing balanceAmount invested as a proportion of budget amount (%)Construction in Progress (%)Accumulated capitalized interest and profit/loss on exchange (Note 2)Including: capitalized interest and profit/loss on exchange for the current reporting periodCapitalization rate for interest in the current reporting period (%)Source of funds
Base project- phase 2
Xi’an Science and Technology Base project113,400.00-1,664,067.68---1,664,067.680.15%0.15%---Self- financing
Wuhan Science and Technology Base project254,200.00-1,641,509.43---1,641,509.430.06%0.06%---Self- financing
Wuhan Intelligent Industry Base project238,700.00-934,836.51---934,836.510.04%0.04%---Self- financing
Others-132,222,327.45316,625,325.5540,814,207.911,145,681.5057,002,502.41352,176,624.18-----Self- financing
Total1,119,900.001,436,319,118.301,080,941,110.092,045,310,994.061,145,681.5057,002,502.41416,092,413.42--143,688,746.66(63,082,765.25)--

Note 1:Other reductions during the current reporting period were completed construction of assets under financial leasing project that transferred into long-term receivables.

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 ratedifference.

As of December 31

st

2018, the Group did not have any sign of impairment of projects under construction; therefore, no provision for impairment loss was booked.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

14. Intangible assets

(1) Details of Intangible assets

Unit: RMB

ItemLand use rightIntellectual property rightApplication SoftwareTotal
Total original carrying amount
1.Opening balance324,362,066.4439,269,042.11182,640,105.31546,271,213.86
2. Increased451,227,259.69106,965.0253,278,481.88504,612,706.59
(1) Purchase451,227,259.69106,965.0253,278,481.88504,612,706.59
3.Decreased-106,965.023,201,729.943,308,694.96
(1)Disposal or write-off-106,965.023,201,729.943,308,694.96
4.Effect of foreign currency exchange difference-1,755.77409,263.61411,019.38
5.Closing balance775,589,326.1339,270,797.88233,126,120.861,047,986,244.87
Total accumulated amortization
1.Opening balance18,571,240.3912,058,812.0086,480,178.84117,110,231.23
2.Increased16,295,483.257,207,993.4938,657,773.8562,161,250.59
(1)Provided16,295,483.257,207,993.4938,657,773.8562,161,250.59
3.Decreased-66,848.751,286,916.131,353,764.88
(2)Disposal or write-off-66,848.751,286,916.131,353,764.88
4.Effect of foreign currency exchange difference-1,112.73154,365.11155,477.84
5. Closing balance34,866,723.6419,201,069.47124,005,401.67178,073,194.78
Provision for decline in value
1.Opening balance----
2.Increased----
3. Decreased----
4.Closing balance----
Total carrying value
Closing carrying value740,722,602.4920,069,728.41109,120,719.19869,913,050.09
Opening carrying value305,790,826.0527,210,230.1196,159,926.47429,160,982.63

15. Goodwill

(1) Goodwill book value

Unit: RMB

The invested entityOpening balanceIncreasedDecreasedEffect of foreign currency exchange differenceClosing balance
Business combination not involving enterprises under common controlDisposal
ZAO Hikvision67,349.64---67,349.64
Beijing Brainaire Storage Technology Ltd.42,695,573.44---42,695,573.44
Henan HuaAn Intelligence Development Ltd. and its subsidiaries61,322,871.63---61,322,871.63
Hundure Technology (Shanghai) Ltd.13,774,405.88---13,774,405.88
Hangzhou Haikang Zhicheng Investment and Development Ltd.12,573.42---12,573.42
Secure Holdings Limited (SHL)131,091,328.96--6,000,807.70137,092,136.66
Total248,964,102.97--6,000,807.70254,964,910.67

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(2) Provision of impairment in goodwill

Unit: RMB

Invested CompanyOpening balanceIncreasedDecreaseEffect of foreign currency exchange differenceClosing Balance
ProvisionDisposal
Beijing Bangnuo Storage Technology Ltd.-42,695,573.44--42,695,573.44
Total-42,695,573.44--42,695,573.44

The key assumptions used in the Group’s annual impairment test performed for goodwill at the end of thereporting period:

The recoverable amounts of the relevant assets have been determined on the discounted present value of thefuture cash flow projections. The cash flow projections are based on 2019-2023 Financial Budgets approved bymanagement covering a 5-year period, with discount rates of 18% to 20%. The sets of cash flows beyond the5-year period are projected without growth. This growth rates are based on the relevant industry growthforecasts and do not exceed the average long-term growth rate for the relevant industry. Expected cashinflows/outflows, considering budgeted net sales, cost of revenue and operating expenses, have been determinedby management based on past performance and expectations for the future market development.

During the current reporting year, the Group assessed the recoverable amount of goodwill and determined thatthe goodwill related to Beijing Bangnuo Storage Technology Ltd. was impaired. Therefore, goodwill in therelevant asset group was fully provided with impairment provision amounting to RMB 42,695,573.44. As of theyear end, Beijing Bangnuo Storage Technology Ltd. has entered the cancellation process.

16. Deferred tax assets/deferred tax liabilities

(1) Deferred tax assets that are not presented on net off basis

Unit: RMB

ItemClosing balanceOpening balance
Deductible temporary differencesDeferred tax assetsDeductible temporary differencesDeferred tax assets
Provision for impairment losses of assets1,364,242,526.16322,143,179.091,162,036,595.26252,830,021.37
Payroll payables220,173,893.7933,026,084.07253,384,576.5138,007,686.48
Share-based compensation115,893,666.9418,240,425.31208,856,209.8532,070,672.55
Provisions52,956,535.097,943,480.2743,024,784.706,453,717.71
Expenditure without invoice113,835,410.8017,075,311.62--
Unrealized profit from inter-group transactions892,163,728.04133,824,559.21978,313,377.64146,747,006.65
Changes in the fair value of derivative financial instruments275,080.0068,770.0015,946,836.463,986,709.12
Deferred income186,747,708.0128,012,156.20--
Total2,946,288,548.83560,333,965.772,661,562,380.42480,095,813.88

(2) Deferred tax liabilities that are not presented on net off basis

Unit: RMB

ItemClosing balanceOpening balance
Taxable temporary differencesDeferred tax liabilitiesTaxable temporary differencesDeferred tax liabilities
Changes in the fair value of derivative financial instruments1,482,366.03370,591.514,100,657.541,025,164.39
Difference in fixed asset depreciation170,081,176.3925,512,176.46--
Difference in amortization of intangible assets695,043.70104,256.55--
Total172,258,586.1225,987,024.524,100,657.541,025,164.39

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(3) Deferred tax assets or deferred tax liabilities that are presented at the net amount after offset

Unit: RMB

ItemClosing balanceOpening balance
Offset amount at the end of the reporting periodDeferred tax assets or liabilities at the net amount after offsetOffset amount at the beginning of the reporting periodDeferred tax assets or liabilities at the net amount after offset
Deferred tax assets25,987,024.52534,346,941.251,025,164.39479,070,649.49
Deferred tax liabilities25,987,024.52-1,025,164.39-

(4) Unrecognized deferred income tax assets

Unit: RMB

ItemClosing balanceOpening balance
Deductible temporary difference811,602,394.93628,129,115.31
Deductible losses935,162,077.25520,259,773.50
Total1,746,764,472.181,148,388,888.81

(5) Deductible losses of unrecognized deferred income tax assets that will expire in the following years

Unit: RMB

YearClosing balanceOpening balance
2018-6,269,195.05
20195,645,442.545,645,442.54
20203,636,058.383,636,058.38
2021103,268,429.06172,921,472.26
2022331,787,605.27331,787,605.27
2023490,824,542.00-
Total935,162,077.25520,259,773.50

17. Other non-current assets

Unit: RMB

ItemClosing balanceOpening balance
Completed but unsettled assets formed by construction contracts (Note (V) 6)1,253,407,742.28488,178,801.99
Prepayments for equipment196,992,554.0952,356,860.27
Prepayments for acquisition of land98,000,000.05314,410,044.45
Prepayments for infrastructure32,759,311.953,850,961.42
Prepayments for purchase of property1,590,992.43-
Total1,582,750,600.80858,796,668.13

18. Short-term borrowings

(1) Categories of short-term loans

Unit: RMB

ItemClosing balanceOpening balance
Guaranteed loans3,166,655,588.2974,622,548.39
Fiduciary loan247,000,100.0010,492,107.52
Pledged loans52,000,000.0012,000,000.00
Total3,465,655,688.2997,114,655.91

(2) As of December 31

st

2018, the Group did not have any overdue short-term loans that were failed to repay.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

19. Financial liabilities booked at fair value, and differences in fair value booked through profit or loss in the

current reporting period

Unit: RMB

ItemClosing balanceOpening balance
Held-for-trading financial liabilities290,998.4315,946,836.46
Including: derivative financial liabilities290,998.4315,946,836.46
total290,998.4315,946,836.46

Derivative financial liabilities include forward foreign exchange contracts and foreign exchange option contracts, notdesignated as a hedging instrument, gains or losses due to changes in fair value is directly included in the currentperiod profits and losses.

20. Notes payable & Accounts payable

20.1 Categories

Unit: RMB

ItemClosing balanceOpening balance
Notes payable463,479,760.54845,397,427.92
Accounts payable10,301,665,725.2010,039,943,012.26
Total10,765,145,485.7410,885,340,440.18

20.2 Notes payable

Unit: RMB

ItemClosing balanceOpening balance
Bank acceptance Bill463,479,760.54845,397,427.92
Total463,479,760.54845,397,427.92

As of December 31

st

2018, the Group did not have any unpaid matured notes payable.

20.3 Accounts payable

(1) List of accounts payable

Unit: RMB

ItemClosing balanceOpening balance
Payments for goods10,208,299,054.089,948,393,218.09
Payables on equipment93,366,671.1291,549,794.17
Total10,301,665,725.2010,039,943,012.26

As of December 31

st

2018, the Group did not have any significant accounts payable with aging above one year.

21. Receipts in advance

(1) List of receipts in advance

Unit: RMB

ItemClosing balanceOpening balance
Advanced receipts from sales of goods449,150,259.60417,208,664.56
Advanced receipts from construction contracts192,280,230.62153,364,544.04
Total641,430,490.22570,573,208.60

(2) As of December 31

st

2018, the Group did not have any significant receipts in advance with aging above one year

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

22. Payroll payable

(1) Details of payroll payable

Unit: RMB

ItemOpening balanceIncrease in the current reporting periodDecrease in the current reporting periodClosing balance
1.Short-term remuneration1,387,542,162.197,163,307,772.496,635,595,690.551,915,254,244.13
2. Termination benefits – defined contribution scheme3,749,094.71458,228,615.92455,623,850.726,353,859.91
Total1,391,291,256.907,621,536,388.417,091,219,541.271,921,608,104.04

(2) List of Short-term remuneration

Unit: RMB

ItemOpening balanceIncrease in the current reporting periodDecrease in the current reporting periodClosing balance
1.Wages or salaries, bonuses, allowances and subsidies1,317,396,875.016,240,288,518.675,763,694,461.001,793,990,932.68
2.Staff welfare5,090,949.83186,948,698.09191,146,525.46893,122.46
3.Social insurance contributions3,010,470.90326,976,000.47326,752,046.833,234,424.54
Including: medical insurance2,966,831.43285,393,088.52285,372,431.392,987,488.56
Injury insurance9,592.9412,634,957.3812,587,146.8257,403.50
Maternity insurance34,046.5328,947,954.5728,792,468.62189,532.48
4.Housing funds109,455.82290,592,426.25290,654,271.6747,610.40
5.Labor union and education fund61,934,410.63118,502,129.0163,348,385.59117,088,154.05
subtotal1,387,542,162.197,163,307,772.496,635,595,690.551,915,254,244.13

(3) Defined contribution scheme (Note)

Unit: RMB

ItemOpening balanceIncrease in the current periodDecrease in the current periodClosing balance
Basic pension insurance3,530,623.96442,866,778.48440,126,577.046,270,825.40
Unemployment insurance218,470.7515,361,837.4415,497,273.6883,034.51
Subtotal3,749,094.71458,228,615.92455,623,850.726,353,859.91

Note:

During the reporting periods, the employees of the Company are the members of state-managed retirementbenefit plan, and unemployment insurance plan, operated by the respective governments of these jurisdictions.The Group is required to contribute specified percentage out of payroll costs to the retirement benefit schemesand unemployment insurance schemes to fund the benefits. The Group has no other material obligation for thepayment of pension benefits beyond the contributions described above, and corresponding expenses are bookedinto profits and losses of related assets during the current period.

The Group shall pay a total of RMB 442,866,778.48 and RMB 15,361,837.44 (2017: RMB 293,546,430.53 andRMB 13,341,057.64) to the pension insurance and unemployment insurance schemes respectively. OnDecember 31

st

2018, the Group still had RMB 6,270,825.40 and RMB 83,034.51 (December 31

st

2017: RMB3,530,623.96 and RMB 218,470.75) payable expenses for pension insurance and unemployment insurance plansthat were due during the reporting period but were not paid. The relevant dues have been paid off after thereporting period.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

23. Taxes payable

Unit: RMB

ItemClosing balanceOpening balance
Enterprise income tax1,085,546,102.661,099,786,533.85
Value-added tax242,237,174.61281,447,062.92
City construction and maintenance tax26,667,741.7919,789,046.85
Education surcharges11,563,769.428,501,502.81
Local education surcharges7,686,512.175,666,165.96
Others45,220,363.9238,324,753.38
Total1,418,921,664.571,453,515,065.77

24. Other payables

24.1 Categories

Unit: RMB

ItemClosing balanceOpening balance
Dividend payable119,917,640.9294,857,139.16
Other payables2,833,285,550.07401,861,078.67
Total2,953,203,190.99496,718,217.83

24.2 Dividend payable

Unit: RMB

ItemClosing balanceOpening balance
Dividends of restricted shares117,467,640.9292,407,139.16
Dividends of ordinary shares2,450,000.002,450,000.00
Total119,917,640.9294,857,139.16

24.3 Other payables

(1) List of other payables according to the nature of the payment

Unit: RMB

ItemClosing balanceOpening balance
Share incentive funds (Note)2,057,898,876.84-
Accrued expenses297,778,297.42149,359,652.21
Guarantee and deposit fees212,959,951.64145,730,079.74
Collection and payment on behalf124,191,240.2787,921,755.93
Unexpired commercial acceptance bills that were endorsed94,097,879.36-
Other expense payable46,359,304.5418,849,590.79
Total2,833,285,550.07401,861,078.67

Note: As of December 31

st

2018, the restricted stock funds received by the Group for 2018 share incentivescheme amounted to RMB 2,057,898,876.84 (see Note XI for details), and the stock registration was notcompleted. This part of the stock has completed the equity registration work on January 18

th

2019.

(2) As of December 31

st

2018, the Group does not have any significant other payables aging over one year.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

25. Non-current liabilities due within one year

Unit:RMB

ItemClosing balanceOpening balance
Bonds Payable due within one year (Note (V) 28)3,172,727,888.3733,614,018.51
Long-term borrowings due within one year (Note (V) 27)2,984,575.251,512,793,252.38
Long-term payables due within one year2,458,683.54-
Total3,178,171,147.161,546,407,270.89

26. Other current liabilities

Unit: RMB

ItemClosing balanceOpening balance
Subscription payment of restricted shares364,984,759.94744,583,627.22
Total364,984,759.94744,583,627.22

27. Long-term borrowings

Unit: RMB

ItemClosing balanceOpening balance
Pledged loan (Note 1)251,000,000.00310,473,667.00
Fiduciary loan1,984,575.252,319,585.38
Guaranteed loans-1,500,000,000.00
Other borrowing (Note 2)190,000,000.00190,000,000.00
Less:Long-term loans due within one year (Note (V) 25)2,984,575.251,512,793,252.38
Total440,000,000.00490,000,000.00

As of December 31

st

2018, the GBP loans with carrying value of RMB 857,412.45, carry annual interest rate of2.40% to 2.50% (December 31

st

2017: 2.40% to 2.50%); the RMB loan, with carrying value RMB442,127,162.80, carry annual interest rate ranging from 4.445% to 4.900% (December 31

st

2017: 2.65% to5.00%).

Note 1: As of December 31

st

2018, the pledged loan was obtained by the Group with all the rights and benefitspledged under the Public Security Video Surveillance Network Application Construction-Public-PrivatePartnership (PPP) Project Agreement; the maturity date is November 5

th

2031. Among them, the annual interestrate of RMB 250,000,000.00 is 4.445%, and the annual interest rate of RMB 1,000,000.00 is 4.900%.

As of December 31

st

2017, the Group’s RMB 300,000,000.00 pledged loan was pledged by VAT RebateAccount under the Company’s wholly-owned subsidiary, Hangzhou HIK Science and Technology Ltd., thebalance of VAT Rebate Account is not less than RMB 5,000,000.00 according to the contract, maturity date isFebruary 16

th

2019, annual interest rate is 2.65%; this loan was returned in advance in 2018. Besides, theCompany bear joint liability guarantee for the loan. As of December 31

st

2017, The RMB borrowings with acarrying amount of RMB 10,473,667.00 under the pledged loan were obtained by the Group with a pledge ofaccounts receivable with a book value of RMB 60,646,697.33; the maturity date is September 21

st

2018, and theannual interest rate is 5.00%.

Note 2: During 2016, the Group entered into an agreement with CDB Development Fund(国开发展基金, as"CDBDF") to jointly inject capital into Hikvision Electronics Co., Ltd. ("Hangzhou Electronics"), a subsidiaryof the Group. Pursuant to the capital injection agreement, CDBDF would not participate in senior managementpersonnel such as directors, and it would either take part in decision-making or make significant influence onHangzhou Electronics. The Group shall pay a 1.2% annualized return to CDBDF through dividends or interestpayments, and the Group is required to redeem the CDBDF's equity investment in the current reporting periodby installments each year from 2021 to 2024. Therefore, the capital injection by CDBDF is treated as a

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

long-term loan. As of December 31

st

2018, CDBDF has aggregately invested RMB 190 million (December 31

st

2017: RMB 190 million).

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

28. Bonds payable

(1) Bonds payable

Unit: RMB

ItemClosing balanceOpening balance
Euro Bond (Note)-3,120,920,000.00
Total-3,120,920,000.00

(2) Change in bond payable balance

Unit: RMB

ItemFace valueIssue DateMaturityIssuanceOpening balanceIssued in the current reporting periodEffects of changes in Foreign exchangeInterests expenses accrued based on the principal amountRepayments in the current reporting periodLess: Amount due within one year (Note (V) 25)Closing balance
Irish Euro Bond (Note)Euro 400,000,000.00February 18th 20163 years2,903,120,000.003,154,534,018.51-18,319,994.8638,982,875.0039,109,000.003,172,727,888.37-
TotalEuro 400,000,000.002,903,120,000.003,154,534,018.51-18,319,994.8638,982,875.0039,109,000.003,172,727,888.37-

Note: On February 3

rd

, 2016, the Company publically issued the bond with nominal value amounting to Euro 400 million ("Euro Bond"); and the bond was settled, listed and tradedon the Irish Stock Exchange on February 18

th

, 2016. The Euro Bond has a maturity term for 3 years, maturity date is February 18

th

, 2019, the issuance price of the bond is 99.959%of the principal value, and coupon rate is 1.25%, with interest payment date of February 18

th

per annum, and one-time principal repayment on maturity date. The Euro Bond ismainly used for constructions of the Company's Security Industry Base (Tonglu), the Internet Security Industry Base. On February 18

th

2019, the Company had fully repaid theprincipal and interest of the bonds.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

29. Provisions

Unit: RMB

Item

ItemClosing balanceOpening balance
Product warranty77,625,238.4963,068,638.49
Total77,625,238.4963,068,638.49

30. Deferred income

Unit: RMB

ItemOpening balanceIncrease in current reporting periodDecrease in current reporting periodClosing balanceDetails
Cloud storage service income26,022,171.65127,494,411.8194,825,957.0958,690,626.37Note 1
Government Subsidies62,903,600.00221,389,300.0049,804,437.24234,488,462.76Note 2
Total88,925,771.65348,883,711.81144,630,394.33293,179,089.13

As of December 31

st

2018, the deferred income related to government subsidies:

Unit: RMB

Liability ItemsOpening BalanceIncrease in current reporting periodAmounts booked into other income during the current reporting periodOther changesClosing BalanceRelated to assets/related to incomes
Projects of core electronic devices, high-end universal chips and basic software products38,714,300.00136,074,800.0043,222,036.99-131,567,063.01Related to incomes
Chongqing Manufacture Base construction24,189,300.0024,189,300.00403,155.00-47,975,445.00Related to assets
Other special subsidies-33,384,445.241,415,094.30-31,969,350.94Related to incomes
Other special subsidies-27,740,754.764,764,150.95-22,976,603.81Related to assets
Subtotal62,903,600.00221,389,300.0049,804,437.24-234,488,462.76

Note 1: This is revenue related to cloud storage service, video service, and telephone service that the Group provides toits customers; and the Group recognized the revenue accordingly during the period the service is actually provided.

Note 2: Refer to government subsidies received by the Group for projects of Core Electronic Devices, High-endUniversal Chip and Basic Software Products, Chongqing Manufacture Base construction, and other projects; Actualexpenses occurred in the current year for projects of core electronic devices, high-end universal chips and basic softwareproducts and other special subsidies related to incomes were recognized in other income; and relevant assets forChongqing Manufacture Base construction and other special subsidies related to assets were amortized averagely inother income within the assets’ useful lives.

31. Share capital

Unit: RMB

Opening balanceChanges for the periodClosing balance
New issue of shares (Note 1)Bonus issue (Note 2)Transfer from Capital Reserve (Note 2)Others (Note 3)Subtotal
2018
Total shares9,228,865,114.00---(1,594,641.00)(1,594,641.00)9,227,270,473.00
2017
Total shares6,102,706,885.0052,326,858.003,076,288,371.00-(2,457,000.00)3,126,158,229.009,228,865,114.00

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Note 1: On December 23

rd

2016, pursuant to the Articles of Association of the Company revised by the resolution of

th

Meeting of the 3

rd

session Board of Directors authorized by the 2

nd

extraordinary general meeting in 2016, thecompany was approved to grant 52,326,858 shares RMB common shares to 2,936 grantees, with face value of RMB1.00 per share and issuing price of RMB 12.63 per share. Equity registration for those granted shares were completedon January 20

th

2017, which increased the paid-in capital of RMB 52,326,858.00 in the current year and resulted incapital reserve of RMB 608,561,358.54.

Note 2:Pursuant to shareholder's resolution of 2016 annual General Meeting dated on May 4

th

2017, based upon thetotal capital share of 6,152,576,743.00 shares on equity distribution date, the company distributed 5 bonus shares foreach 10 common shares (tax inclusive), resulted in 3,076,288,371 shares increase in total shares, with face value ofRMB 1.00 per share, and a total increase in capital share of RMB 3,076,288,371.00.

Note 3:On December 15

th

2017, pursuant to the Articles of Association of the Company revised by the resolution of

th

General Meeting of 3

rd

session Board of Directors authorized by the first Extraordinary General Meeting in 2014,the Company repurchased and cancelled 1,594,641 granted but restricted RMB treasury shares by cash, and the totalshare capital of the Company decreased by RMB 1,594,641.00, capital reserve decreased by RMB 4,961,105.33 Theregistration procedures were completed on March 27

th

2018.

On December 6

th

2016, pursuant to the Articles of Association of the Company revised by the resolution of 19

th

General Meeting of 3

rd

session Board of Directors authorized by the first Extraordinary General Meeting in 2014, theCompany repurchased and cancelled 2,457,000 granted but restricted treasury shares by cash, and the total sharecapital of the Company decreased by RMB 2,457,000.00, capital reserve decreased by RMB 12,694,500.00. Theregistration procedures were completed on April 27

th

2017.

32. Capital reserves

Unit: RMB

Item

ItemOpening balanceIncrease in the current reporting period (Note 1)Decrease in the current reporting period (note 2)Closing balance
2018
Share premium1,594,317,396.71243,326,385.078,726,236.391,828,917,545.39
Other capital reserves225,080,318.92145,468,181.28243,326,385.07127,222,115.13
Total1,819,397,715.63388,794,566.35252,052,621.461,956,139,660.52
2017
Share premium906,039,832.49716,962,658.2428,685,094.021,594,317,396.71
Other capital reserves142,281,021.17191,200,597.45108,401,299.70225,080,318.92
Total1,048,320,853.66908,163,255.69137,086,393.721,819,397,715.63

Note 1:This increase in share premium during the current reporting period was due to the share distributions by equitysettlements for stock exercise, transferring other capital reserves into share premium of RMB 243,326,385.07.

During the current reporting period, the increase of RMB 145,468,181.28 in other capital reserves is due to recognitionof equity investment payments into capital reserve; please refer to Note (XI).

Note 2:The decrease of RMB 4,961,105.33 in share premium during the current reporting period was due to theCompany’s repurchase of 1,594,641 granted but restricted RMB treasury shares by cash, please refer to Note (V)31-Note 3; The decrease of RMB 3,765,131.06 in share premium during the current reporting period was due to sharedistributions by equity settlements to minority shareholders.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

33. Treasury shares

Unit: RMB

Item

ItemOpening BalanceIncrease in the current reporting period (Note 1)Decrease in the current reporting period (Note 2)Closing balance
2018
Restricted shares incentive scheme744,583,627.22-379,598,867.28364,984,759.94
Total744,583,627.22-379,598,867.28364,984,759.94
2017
Restricted shares incentive scheme300,177,750.17660,888,216.54216,482,339.49744,583,627.22
Total300,177,750.17660,888,216.54216,482,339.49744,583,627.22

Note 1:The increase of treasury shares was due to granting 52,326,858 shares RMB common shares to 2,936 grantees,with issuing price of RMB 12.63 per share on December 23

rd

2016. Please refer to Note (V) 31-Note 1.

Note 2: During the current year, the decreased amounts of treasury shares includes a decrease of RMB 5,452,943.05 dueto the repurchase and cancellation of 1,594,641 restricted RMB ordinary shares of 2014 Restricted Share IncentiveScheme; a decrease of RMB 56,211,224.00 due to provision of cash dividend allocated to restricted shareholders; adecrease of RMB 91,280,659.43 due to the vesting and exercising of 33,422,536 shares for the maturity of 3

rd

vestingperiod of 2014 Restricted Share Incentive Scheme; and a decrease of RMB 226,654,040.80 due to the vesting andexercising of 30,140,165 shares for the maturity of 1

st

vesting period of 2016 Restricted Share Incentive Scheme.

During the prior year, the decreased amounts in treasury shares includes a decrease of RMB 15,151,500.00 due to therepurchase and cancellation of 2,457,000 restricted ordinary shares of 2014 Restricted Share Incentive Scheme; adecrease of RMB 92,407,139.16 due to provision of cash dividend allocated to restricted shareholders; and a decrease ofRMB 108,923,700.33 due to the vesting and exercising of 33,803,907 shares for the maturity of 2

nd

vesting period of2014 Restricted Share Incentive Scheme.

34. Other comprehensive income

Unit: RMB

ItemOpening balanceChange for the current reporting periodClosing balance
Before tax balanceLess: transfer to current period P/L from previous other comprehensive incomeLess: income tax expenseAttributable to the owner of the Company (after tax)Attributable to minority interest (after tax)
2018
Other incomes that may be reclassified subsequently to profit or loss(27,677,939.35)(24,062,992.06)--(21,898,411.75)(2,164,580.31)(49,576,351.10)
Included: Effect on conversion of financial statements denominated in foreign currencies(27,677,939.35)(24,062,992.06)--(21,898,411.75)(2,164,580.31)(49,576,351.10)
Other comprehensive income(27,677,939.35)(24,062,992.06)--(21,898,411.75)(2,164,580.31)(49,576,351.10)
2017
Other incomes that may be reclassified subsequently to profit or loss(41,230,777.21)13,852,652.33--13,552,837.86299,814.47(27,677,939.35)
Included: Effect on conversion of financial statements denominated in foreign currencies(41,230,777.21)13,852,652.33--13,552,837.86299,814.47(27,677,939.35)
Other comprehensive income(41,230,777.21)13,852,652.33--13,552,837.86299,814.47(27,677,939.35)

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

35. Surplus reserves

Unit: RMB

Item

ItemSurplus reserveIncrease in the current reporting periodDecrease in the current reporting periodClosing balance
2018
Statutory surplus reserves (Note)3,483,742,918.53976,969,439.92-4,460,712,358.45
Total3,483,742,918.53976,969,439.92-4,460,712,358.45
2017
Statutory surplus reserves (Note)2,615,437,822.15868,305,096.38-3,483,742,918.53
Total2,615,437,822.15868,305,096.38-3,483,742,918.53

Note: According to the Company Law and the Articles of Association of the Company, the Group shall make statutorysurplus reserves for 10% of the parent company’s net profit.

36. Retained earnings

Unit: RMB

Item20182017
Retained Earnings at the close of previous reporting period before adjustment16,598,328,692.6314,866,457,856.65
Business merger involving enterprises under common control-(5,807,678.26)
Adjusted retained earnings at the beginning of the period16,598,328,692.6314,860,650,178.39
Add: Net profit attributable to owners of the Company for the current period11,352,869,241.329,410,855,084.82
Less: Appropriation to statutory surplus reserve976,969,439.92868,305,096.38
Dividends on ordinary shares payable (Note)4,613,635,236.503,728,583,103.20
Bonus shares (Note)-3,076,288,371.00
Retained earnings at the end of the period22,360,593,257.5316,598,328,692.63

Note:According to the resolution of 2017 annual General Meeting dated on May 11

th

2018, based upon the total capitalshare of the Company on the equity distribution date, for each 10 ordinary shares, the Company proposed distributingcash dividends of RMB 5 (tax inclusive), the rest of retained earnings were all carried forward for future distributions.

37. Operating income/operating cost

Unit: RMB

Item20182017
RevenueCostRevenueCost
Operating income49,295,187,751.2227,196,229,537.0241,433,492,971.6423,281,637,281.80
Other operating income541,944,730.39287,240,018.22471,983,600.43185,673,308.96
Total49,837,132,481.6127,483,469,555.2441,905,476,572.0723,467,310,590.76

38. Business Taxes and Surcharges

Unit: RMB

Items20182017
City construction and maintenance tax211,078,359.19184,178,487.72
Education surcharges90,741,825.2179,171,750.66
Local education surcharges60,416,824.3152,554,052.44
Stamp duty23,480,129.3321,204,038.05
Real estate tax22,533,688.7527,313,836.21
Tax on use of land5,802,424.473,809,143.26
Vehicle and vessel tax230,511.99359,385.12
Others4,039,290.392,403,130.99
Total418,323,053.64370,993,824.45

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

39. Selling expenses

Unit:RMB

Items

Items20182017
Payroll3,042,017,625.282,059,369,959.77
Marketing Expenses1,009,897,096.88989,796,431.96
Shipping, transportation, and vehicle expense615,804,479.82524,069,679.12
Travelling expenses361,180,853.78237,314,257.81
Business entertainment160,025,004.46125,379,736.40
Office expenses169,194,478.31170,953,756.11
Professional Intermediary expenses142,079,756.9461,246,276.11
Rental expenses139,899,056.72114,093,486.77
Depreciation and amortization expenses79,460,744.3671,891,477.67
Others172,941,309.9776,105,003.41
Total5,892,500,406.524,430,220,065.13

40. Administrative Expenses

Unit:RMB

Items20182017
Payroll820,726,311.40603,359,766.87
Office expenses136,511,246.3894,520,352.22
Depreciation and amortization expenses91,425,634.4665,761,526.31
Travelling expenses64,067,674.2962,187,444.48
Shipping, transportation, utility expense46,011,849.6931,626,528.25
Professional Intermediary expenses42,816,965.7127,989,898.95
Rental expenses22,313,258.2037,430,367.92
Business entertainment5,186,034.0913,092,056.07
Others146,954,708.5775,246,516.22
Total1,376,013,682.791,011,214,457.29

41. R&D Expenses

Unit:RMB

Items20182017
Payroll3,259,555,224.242,389,327,036.58
Consumables and service fees455,302,393.17271,984,271.83
Office expenses155,140,877.67140,334,835.75
Depreciation and amortization expenses152,029,898.69115,713,790.11
New product design fees132,612,918.4821,670,917.63
Travelling expenses124,739,331.8180,919,135.10
Intermediate testing fees117,034,981.4786,804,811.03
Rental expenses26,312,384.2211,800,310.70
Others60,052,683.6675,667,999.43
Total4,482,780,693.413,194,223,108.16

42. Financial Expenses

Unit: RMB

Items20182017
Interest expenses176,236,038.18144,540,387.42
Less:Interest income476,088,318.21270,155,908.15
Effect on changes in foreign exchange(208,897,575.81)685,439,581.63
Less﹕Foreign exchange differences on specific loan and the capitalized specific loan interests(63,082,765.25)311,771,511.91
Others21,409,193.8317,358,738.67
Total(424,257,896.76)265,411,287.66

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

43. Impairment losses of assets

Unit: RMB

Items

Items20182017
Inventory devaluation231,501,431.17160,349,172.37
Bad debt152,752,018.44324,219,726.79
Goodwill devaluation42,695,573.44-
Total426,949,023.05484,568,899.16

44. Other income

Unit: RMB

Item20182017Amounts booked into current year non-recurring gains and losses
VAT Rebates1,772,810,771.851,503,184,391.37-
Special subsidies295,650,812.88146,314,453.00295,650,812.88
Tax refunds15,535,482.6423,753,007.8915,535,482.64
Total2,083,997,067.371,673,251,852.26311,186,295.52

45. Investment income

(1) Details of investment income

Unit: RMB

Item20182017
Long-term equity investment losses based on equity method(9,072,889.02)(2,525,266.42)
Investment income (losses) on disposal of financial assets at fair value through profits and losses(40,669,470.74)15,885,274.53
Investment incomes for available-for-sale financial assets during the holding period12,256,000.008,505,842.42
Investment income redeemed on matured financial products89,416,000.3922,784,254.59
Total51,929,640.6344,650,105.12

46. Profits (losses) from changes in fair values

Unit: RMB

Sources of gains/losses from changes in fair values20182017
Financial assets at fair value through profits and losses(2,249,271.02)(11,752,575.40)
Including: Profits (losses) on the changes in fair value of derivative financial instruments(2,249,271.02)(11,752,575.40)
Financial liabilities at fair value through profits and losses15,656,203.1953,842,666.51
Including: Profits (losses) on the changes in fair value of derivative financial instruments15,656,203.1953,842,666.51
Total13,406,932.1742,090,091.11

47. Non-operating income

Unit: RMB

Item20182017The amount booked into current period non-recurring profits and looses
Fines and confiscations88,125,508.9228,955,431.8088,125,508.92
Special subsidies7,622,573.329,456,852.877,622,573.32
Tax reduction495,446.665,032,729.51495,446.66
Others15,119,389.443,284,236.4515,119,389.44
Total111,362,918.3446,729,250.63111,362,918.34

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Government subsidies included in current profit and loss:

Unit: RMB

Item

Item20182017Related to assets/Related to incomes
Other special subsidies7,622,573.329,456,852.87Related to incomes
Tax reduction495,446.665,032,729.51Related to incomes
Total8,118,019.9814,489,582.38

48. Non-operating expenses

Unit: RMB

Item20182017Amount recorded into the current period non-recurring profits (losses)
Local water conservancy construction fund755,016.33825,530.98755,016.33
Others7,838,468.252,194,847.747,838,468.25
Total8,593,484.583,020,378.728,593,484.58

49. Income tax expenses(1) Details of Income tax expenses

Unit: RMB

Item20182017
Current income tax1,533,491,545.291,564,816,313.41
Deferred income tax(55,276,291.76)(103,759,710.79)
Previous year's income tax filing and payment difference(421,475,254.71)(351,737,760.08)
Total1,056,739,998.821,109,318,842.54

(2) Reconciliation of income tax expenses to the accounting profit

Unit: RMB

20182017
Total profit12,438,432,863.4810,486,820,482.36
Income tax expenses calculated at applicable tax rates of 15%1,865,764,929.521,573,023,072.35
Impact of non-deductible costs, expenses and losses14,328,775.339,131,011.50
Tax effect of non-taxable income(3,329,287.02)(2,382,834.30)
Impact of deductible temporary differences or deductible losses for which no deferred income tax assets is recognized for the current period113,046,478.04101,441,652.47
Impact of deductible temporary differences or deductible losses for which no deferred income tax assets is recognized for the prior periods(21,330,045.22)(4,975,770.84)
Differences of income tax annual filing (Note)(421,475,254.71)(351,737,760.08)
Impact by different tax rates applicable to different subsidiaries129,320,046.8491,779,869.98
Impact of additional deduction of R&D expenses(474,764,267.90)(209,272,075.55)
Others(144,821,376.06)(97,688,322.99)
Income tax expenses1,056,739,998.821,109,318,842.54

Note: Pursuant to the Notice on Printing the List of Key Software Enterprises and Integrated Circuit Design Enterprisesunder the National Planning Layout between 2013 and 2014 (Fa Gai Gao Ji [2013] No. 2458) , the Company wasidentified as a national key software enterprise in December 2013. Pursuant to the Notice on Relevant Issues Concerningthe Preferential Policies for Enterprise Income Tax on Software and Integrated Circuit Industry (Finance and Taxation[2016] No. 49), the Company was approved by the tax authorities in August 2018 to apply enterprise income tax of 10%for 2017, therefore, the enterprise’s 2018 income tax expenses was reduced by RMB 421,475,254.71.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

50. Notes to consolidated cash flow statement

(1) Other cash receipts relating to operating activities

Unit: RMB

Item

Item20182017
Interest income476,088,318.21270,155,908.15
Government subsidies475,057,090.12194,485,605.87
Others672,664,853.6469,287,721.31
Total1,623,810,261.97533,929,235.33

(2) Other cash payments relating to operating activities

Unit: RMB

Item20182017
Office expenses and business expenses982,457,628.37813,083,186.67
Advertising and Selling services760,259,932.32762,346,850.11
Shipping and transportation expense673,183,441.02566,519,922.42
R&D expense641,409,412.08403,860,343.28
Travelling expense515,750,188.76380,420,837.39
Outsourced service expenses, professional Intermediary expenses, and etc.421,095,361.96218,848,220.03
Deposits to restricted monetary funds276,503,897.11348,737,496.48
Rental expense188,524,699.14163,324,165.39
Others50,048,675.16144,156,727.47
Total4,509,233,235.923,801,297,749.24

(3) Other cash receipts relating to investing activities

Unit: RMB

Item20182017
Receipts of financing leases89,505,228.6221,175,369.30
Government subsidies received related to assets-24,189,300.00
Withdrawal of project loans-18,000,000.00
Total89,505,228.6263,364,669.30

(4) Other cash payments related to investing activities

Unit: RMB

Item20182017
Cash payments for investment intention funds20,000,000.0013,500,000.00
Total20,000,000.0013,500,000.00

(5) Other cash receipts relating to financing activities

Unit: RMB

Item20182017
Receipts of subscriptions for share incentives2,057,898,876.84-
Total2,057,898,876.84-

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(6) Other cash payments relating to financing activities

Unit: RMB

Item

Item20182017
Repurchase of restricted shares6,555,746.3315,151,500.00
Payments for temporary borrowing-7,000,000.00
Payments for acquiring minority shareholders’ equity-6,520,000.00
Payments for business merger involving enterprises under the common control in cash consideration-9,780,000.00
Total6,555,746.3338,451,500.00

51. Supplementary information about cash flow statement

(1) Supplementary information about cash flow statement

Unit: RMB

Supplementary information20182017
1. Reconciliation of net profit to cash flow from operating activities:
Net profit11,381,692,864.669,377,501,639.82
Add: Impairment of assets426,949,023.05484,568,899.16
Fixed assets depreciation417,518,901.58301,861,330.86
Amortization of intangible assets62,161,250.5939,412,000.70
Gains on disposal of fixed assets, intangible assets and other long-term assets(4,975,825.83)(1,585,222.50)
Gains from changes in fair value(13,406,932.17)(42,090,091.11)
Financial expenses81,142,249.58272,067,756.32
Investment income(51,929,640.63)(44,650,105.12)
Share-based payment based on equity settlement145,468,181.28191,200,597.45
Changes in restricted fund(89,418,285.57)(323,504,991.19)
Increase in deferred income tax assets(55,276,291.76)(103,759,710.79)
Increase in inventories(1,021,116,536.92)(1,269,276,296.32)
Increase in operating other non-current assets(765,228,940.29)(488,178,801.99)
Increase in operating receivables(2,355,926,510.27)(4,734,950,220.76)
Increase in operating payables752,106,461.283,660,640,740.49
Increase in deferred income204,253,317.4853,902,725.66
Net cash flow from operating activities9,114,013,286.067,373,160,250.68
2. Significant investing and financing activities not involving cash receipts and payments:
3. Net changes in cash and cash equivalents:
Ending balance of cash26,023,738,992.1916,029,185,269.17
Less: Opening balance of cash16,029,185,269.1713,522,337,697.28
Add: Ending balance of cash equivalents--
Less: Opening balance of cash equivalents--
Net increase in cash and cash equivalents9,994,553,723.022,506,847,571.89

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(2) Constituents of cash and cash equivalents

Unit: RMB

Item

ItemClosing balanceOpening balance
Cash26,023,738,992.1916,029,185,269.17
Including: Cash on hand621,654.57769,612.23
Bank deposit for payment at any time25,983,600,151.0316,007,539,118.39
Other monetary capital for payment at any time39,517,186.5920,876,538.55
Cash equivalents--
Ending balance of cash and cash equivalents26,023,738,992.1916,029,185,269.17

Among the total balance of RMB 568,180,905.63 of the other monetary fund(s) at the end of the reporting period(December 31

st

2017: RMB 460,121,972.02), RMB 528, 663,719.04 are various guarantee deposits and otherrestricted funds, etc. (December 31

st

2017: RMB 439,245,433.47), not cash and cash equivalents.

52. Assets with restriction in ownership or use rights

Unit: RMB

ItemCarrying Value at the end of the periodCause of restriction
Monetary fund(s)528,663,719.04Various guarantee deposits and other restricted funds
Notes receivable412,061,782.74Pledged for issuing bank acceptance bill
Total940,725,501.78

53. Monetary items of foreign currencies

(1) foreign currencies

ItemBalance in foreign currency at the end of the reporting periodExchange rate for conversionBalance of RMB converted at the end of the reporting period
Monetary funds
Including: USD700,987,933.456.86324,811,020,384.85
EUR44,084,093.347.8473345,941,105.67
GBP63,379.228.6762549,890.79
RUB215,795,923.950.098621,277,478.10
AED7,945,514.191.868814,848,646.14
Accounts receivable
Including: USD326,728,855.586.86322,242,405,481.62
EUR5,745,656.807.847345,087,892.61
Short-term borrowing
Including: GBP10,564,000.008.676291,655,376.80
Accounts Payable
Including: USD222,426,824.526.86321,526,559,782.05
Bonds payable
Including: EUR404,308,219.187.84733,172,727,888.37

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(2) Details of Overseas Operational Entities

Name of overseas subsidiaries

Name of overseas subsidiariesMain overseas operational officeRecording CurrencyBasis of selection
HDT International Ltd.HongkongHKDSelection based on local economic environment
Hikvision Europe BVNetherlandsEURSelection based on local economic environment
Prama Hikvision Indian Private LimitedIndiaINRSelection based on local economic environment
Hikvision Uk LimitedUKGBPSelection based on local economic environment
Hikvision Italy (S.R.L.)ItalyEURSelection based on local economic environment
Hikvision International Co., LimitedHongkongHKDSelection based on local economic environment
Hikvision Australia PTY Ltd.AustraliaAUDSelection based on local economic environment
Hikvision Spain, S.L.SpainEURSelection based on local economic environment
Hikvision France SASFranceEURSelection based on local economic environment
Hikvision Singapore Pte. LtdSingaporeSGDSelection based on local economic environment
Hikvision South Africa (Pty) Ltd.South AfricaZARSelection based on local economic environment
Hikvision FZEDubaiUSDSelection based on local economic environment
Hikvision Poland Spolka Z ograniczona Odpowiedzialnoscia.PolandPLNSelection based on local economic environment
Hikivision do Brasil Comercio de Equipamentos de Seguran?a Ltda.BrazilBRLSelection based on local economic environment
Hikvision LLCRussiaRUBSelection based on local economic environment
EZVIZ Inc.USAUSDSelection based on local economic environment
Cooperative Hikvision Europe U.A.NetherlandsUSDSelection based on local economic environment
Hikvision Korea LimitedKoreaKRWSelection based on local economic environment
Hikvision Colombia SASColumbiaCOPSelection based on local economic environment
Hikvision Kazakhstan limited liability partnershipKazakhstanKZTSelection based on local economic environment
Pyronix LtdUKGBPSelection based on local economic environment
Microwave Solutions LimitedUKGBPSelection based on local economic environment
Secure Holdings limitedUKGBPSelection based on local economic environment
Hikvision Turkey Technology And Security Systems Commerce CorporationTurkeyTRYSelection based on local economic environment
ZAO HikvisionRussiaRUBSelection based on local economic environment
Hikvision Hungary LimitedHungaryHUFSelection based on local economic environment
Hikvision New Zealand LimitedNew ZealandNZDSelection based on local economic environment
Hikvision Czech s.r.o.CzechCZKSelection based on local economic environment
Hikvision Deutschland GmbHGermanyEURSelection based on local economic environment
Hikvision Kenya (Pty) LtdKenyaKESSelection based on local economic environment
LLC Hikvision TashkentUzbekistanUZSSelection based on local economic environment
Hikvision (Malaysia) SDN. BHDMalaysiaMYRSelection based on local economic environment
Hikvision USA,Inc.USAUSDSelection based on local economic environment
Hikvision Canada INC.CanadaCADSelection based on local economic environment
Hikvision Mexico S.A.de C.V.MexicoMXNSelection based on local economic environment
Hikvision Panama Commercial S.A.PanamaUSDSelection based on local economic environment
Hikvision Pakistan (SMC-Private) LimitedPakistanPKRSelection based on local economic environment
Hikvision Peru Closed Stock CompanyPeruPENSelection based on local economic environment
Hikvision Technology Israel Ltd.IsraelILSSelection based on local economic environment

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

54. Government Subsidies

(1) Categories

Unit: RMB

Category

CategoryAmountFinancial Report ItemsAmount booked in current profit and loss
VAT Rebate1,772,810,771.85Other Income1,772,810,771.85
Special subsidies
Including: other special subsidies314,594,148.96Deferred income / Other income/ Non-operating income259,648,194.21
Subsidies for core electronic devices, high-end universal chip and basic software product projects136,074,800.00Deferred income / Other income43,222,036.99
Chongqing Manufacture Base construction subsidies24,189,300.00Deferred income / Other income403,155.00
Tax Reduction16,030,929.30Other income/ Non-operating income16,030,929.30
Total2,263,699,950.112,092,115,087.35

(2) There was no refund of government subsidies during the reporting period.

Notes to Financial StatementsFor the reporting period ended on December 31

st

2017

VI. Changes in consolidation scope

1. Business mergers involving enterprises under the common control

(1) Business mergers involving enterprises under common control during last year

Hangzhou Haikang Ximu Intelligent Technology Co., Ltd. (“Haikang Ximu”)

Pursuant to the resolution approved by the Company’s 21

st

meeting of the 3rd session of the Board of Directors held on January 18

th

2017, the Company’s subsidiary HangzhouAutomotive Technology, CETHIK and 7 individual shareholders including Yang Feng signed the agreement to acquire CETHIK’s subsidiary Hangzhou Haikang Ximu IntelligentTechnology Co., Ltd., of which RMB 9.78 million was for acquiring 60% shares of Haikang Ximu held by CETHIK, and RMB 6,520,000.00 was for acquiring 40% shares ofHaikang Ximu held by 7 individual shareholders including Yang Feng. The aforementioned acquisition was completed on April 30

th

2017 and May 24

th

2017 respectively. CETHIKis the controlling shareholder of Haikang Ximu, therefore, this acquisition of 60% shares of Haikang Ximu is categorized as business merger involving enterprises under commoncontrol

Unit:RMB

Name of the

acquiree

Name of the acquireeEquity acquisition ratio (%)Basis for Business merger under common controlDate of acquisitionBasis for determining date of acquisitionIncome of acquiree from beginning of the year to the date of acquisitionNet profit of acquiree from beginning of the year to the date of acquisitionIncome of acquiree from beginning of the prior year to the date of acquisition in prior comparative periodNet profit of acquiree from beginning of the prior year to the date of acquisition in prior comparative period
HIK Ximu60%Both parties are under the common control of CETHIK before and after the business combination, which is not temporaryApril 30th 2017Equity transfer date of acquiring the control of acquiree-(42,070.90)10,523,216.383,949,939.20

(2) Cost of business merger

Unit:RMB

Cost of business mergerHIK Ximu
- Cash9,780,000.00

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

(3) Acquiree’s carrying value of assets and liabilities at the date of acquisition

Unit: RMB

HIK Ximu
On the date of acquisitionEnding balance at the end of prior year of the acquistiiton
Assets:
Cash and bank balances2,462,383.903,084,985.38
Accounts receivable919,422.041,030,422.04
Inventories4,788,664.474,788,664.47
Other assets386,806.71516,863.68
Liabilities:
Other payables15,927,658.6815,995,583.60
Other liabilities804,128.961,557,791.59
Net assets (liabilities)(8,174,510.52)(8,132,439.62)
less:minority interests(3,269,804.21)(3,252,975.85)
Net assets (liabilities) acquired(4,904,706.31)(4,879,463.77)

2. Changes of consolidation scope due to other causes

(1) The subsidiaries newly established and incorporated in the consolidation scope during the current period as

follows:

Company NameTime of establishmentRegistered capitalAmount of contribution of the CompanyRatio of contribution (%)
Hikvision Xi’an Xueliang Construction Project Management Ltd. (Hikvision Xi’an Xueliang Construction)February 2018RMB 216.16 millionRMB 213.99 million99
Luo Pu District Hai Shi Ding Xin Electronic Technology Ltd. (Luopu Haishi) (Note 1)April 2018RMB 71.33 millionRMB 64.20 million90
Yu Tian Hai Shi Mei Tian Electronic Technology Ltd. (Yutian Haishi) (Note 2)March 2018RMB 73.65 millionRMB 72.18 million98
Xi’An Hikvision Digital Technology Ltd. (Xi’An Hikvision) (Note 3)January 2018RMB 200 millionRMB 200 million100
Wuhan Hikvision Technology Ltd. (Wuhan Hikvision) (Note 4)January 2018RMB 200 millionRMB 200 million100
Wuhan Hikvision Science and Technology Ltd. (Wuhan Science and Technology) (Note 5)January 2018RMB 200 millionRMB 200 million100
Wuhan Hikvision Fire Control Technology Ltd. (Wuhan Fire Control) (Note 6)July 2018RMB 50 millionRMB 50 million100
Hainan Hikvision System Technology Ltd. (Hainan System) (Note 6)July 2018RMB 10 millionRMB 10 million100
Hangzhou HIK Huiying Science and Technology Ltd. (Hangzhou Huiying Science and Technology)March 2018RMB 80 millionRMB 48 million60
Hikvision Mexico S.A.de C.V. (Mexico Subsidiary) (Note 6)July 2018MXN 6.70 millionMXN 6.70 million100
Guizhou Hikvision Transportation Big Data Ltd. (Guizhou Big Data)August 2018RMB 80.00 millionRMB 44.00 million55
Xinjiang CET Yihai Information Technology Ltd. (Xinjiang CET Yihai) (Note 7)August 2018RMB 200.00 millionRMB 120.00 million60
Hikvision Panama Commercial S.A. (Panama Subsidiary) (Note 6)August 2018USD 300,000USD 300,000100

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Company Name

Company NameTime of establishmentRegistered capitalAmount of contribution of the CompanyRatio of contribution (%)
Hikvision Pakistan (SMC-Private) Limited (Pakistan Subsidiary) (Note 6)August 2018PKR 11.00 millionPKR 11.00 million100
Hikvision Peru Closed Stock Company (Peru Subsidiary) (Note 6)October 2018PEN 800,000PEN 800,000100
Hikvision Technology Israel Ltd. (Israel Subsidiary) (Note 6)December 2018ILS 550,000ILS 550,000100
Nanjing Hikvision Digital Technology Ltd. (Nanjing Hikvision) (Note 6)December 2018RMB 80 millionRMB 80 million100

Note 1: At the end of the reporting period, the actual paid-up capital of Luo Pu District Hai Shi Ding Xin ElectronicTechnology Ltd. was RMB 64,197,000.00, entirely contributed by the Group.

Note 2: At the end of the reporting period, the actual paid-up capital of Yu Tian Hai Shi Mei Tian Electronic TechnologyLtd. was RMB 72,181,700.00, entirely contributed by the Group.

Note 3: At the end of the reporting period, the actual paid-up capital of Xi’an Hikvision was RMB 50,000,000.00,entirely contributed by the Group.

Note 4: At the end of the reporting period, the actual paid-up capital of Wuhan Hikvision was RMB 12,600,000.00,entirely contributed by the Group.

Note 5: At the end of the reporting period, the actual paid-up capital of Wuhan Science and Technology was RMB65,250,000.00, entirely contributed by the Group.

Note 6: At the end of the reporting period, Wuhan Fire Control, Nanjing System, Mexico Subsidiary, Panama Subsidiary,Pakistan Subsidiary, Peru Subsidiary, Israel Subsidiary, and Nanjing Hikvision have not completed capital contributionyet; therefore, its actual paid-up capital was nil.

Note 7: At the end of the reporting period, the actual paid-up capital of Xinjiang CET Yihai was RMB 24,000,000.00,entirely contributed by the Group.

(2) Cancellation of the Company’s Subsidiary during the current period:

Company NameDate of equity dispositionProportion of shareholding (%)
Beijing Hikvision Security and Protection Technology Service Ltd.January 2018100

VII. Interest in other entities

1. Equity in subsidiaries

(1) Composition of the corporate group

NameLocation of operationPlace of registrationNature of businessShareholding ratio (%)Acquisition Method
DirectIndirect
Hangzhou Hikvision System Technology Ltd.HangzhouHangzhou, ZhejiangSystem integration, Technology development100.00-Establishment
Hangzhou Hikvision Science and Technology Ltd.HangzhouHangzhou, Zhejiangmanufacture100.00-Establishment
Hangzhou Hikvision Security Equipment Leasing Services Ltd.HangzhouHangzhou, ZhejiangFinance lease100.00-Establishment
Chongqing Hikvision System Technology Ltd.ChongqingChongqingSystem integration100.00-Establishment
Hikvision USA, Inc.USALos AngelesSales100.00-Establishment

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Name

NameLocation of operationPlace of registrationNature of businessShareholding ratio (%)Acquisition Method
DirectIndirect
HDT International Ltd.Hong KongHong KongSales95.005.00Establishment
Prama Hikvision Indian Private LimitedIndiaMumbaiSales58.00-Business combination not involving enterprises under common control
Hikvision Europe BVEuropeAmsterdamSales-100.00Establishment
Hikvision FZEDubaiDubaiSales100.00-Establishment
Hikvision Singapore Pte. LtdSingaporeSingaporeSales100.00-Establishment
Chongqing Hikvision Science and Technology Ltd.ChongqingChongqingManufacture100.00-Establishment
Hangzhou Fuyang Hik Baotai Security Technology Services Ltd. (Note 1)HangzhouHangzhou, ZhejiangConstruction-51.00Establishment
Hikvision South Africa (Pty) Ltd.South AfricaSouth AfricaSales100.00-Establishment
Hikvision Italy S.R.L.ItalyMilanSales-100.00Establishment
Hikvision do Brasil Comercio de Equipamentos de Seguran?a Ltda.BrazilBrazilSales95.005.00Establishment
Hikvision Australia PTY Ltd.AustraliaAustraliaSales100.00-Establishment
Hikvision International Co., LimitedHong KongHong KongSales100.00-Establishment
Hikvision France SASFranceFranceSales-100.00Establishment
Hikvision Spain,S.L.SpainSpainSales-100.00Establishment
Shanghai Goldway Intelligent Traffic System Ltd.ShanghaiShanghaiManufacture100.00-Business combination not involving enterprises under common control
ZAO HikvisionRussiaSt. PeterburgSales-100.00Business combination not involving enterprises under common control
Beijing Brainaire Storage Technology Ltd.BeijingBeijingManufacture100.00-Business combination not involving enterprises under common control
Henan Hua’an Intelligence Development Ltd.ZhengzhouZhengzhouConstruction51.00-Business combination not involving enterprises under common control
Henan Hua’an Security Services Ltd. (Note 2)ZhengzhouZhengzhouServices-45.90Business combination not involving enterprises under common control
Hundure Technology (Shanghai) Ltd.ShanghaiShanghaiManufacture100.00-Business combination not involving enterprises under common control
Hikvision Uk LimitedUKUKSales-100.00Establishment
Hikvision Poland Spolka Z Ograniczona OdpowiedzialnosciaPolandPolandSales-100.00Establishment
Hangzhou Hikvision Electronics Ltd.(Note 3)HangzhouHangzhouManufacture71.30-Establishment
Beijing Hikvision Security and Protection Technology Service Ltd. (Note 4)BeijingBeijingServices100.00-Establishment
Cooperative Hikvision Europe U.A.NetherlandsNetherlandsSales99.001.00Establishment
Hikvision Canada Inc.CanadaCanadaSales100.00-Establishment
Hikvision LLCMoscowMoscowSales100.00-Establishment
Hikvision Korea LimitedKoreaKoreaSales100.00-Establishment
Hangzhou EZVIZ Network Ltd.HangzhouHangzhouTechnology development60.00-Establishment
EZVIZ Inc.USALos AngelesSales-60.00Establishment
Hangzhou Haikang Zhicheng InvestmentHangzhouHangzhouSystem integration80.00-Business

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Name

NameLocation of operationPlace of registrationNature of businessShareholding ratio (%)Acquisition Method
DirectIndirect
Development Ltdcombination not involving enterprises under common control
Hangzhou Hikvision Robtics Technology Ltd.HangzhouHangzhouTechnology development60.00-Establishment
Hangzhou Hikvision Investment Management Ltd.HangzhouHangzhouInvestment Management100.00-Establishment
Hangzhou Hik Automotive Technology Ltd.HangzhouHangzhouTechnology development60.00-Establishment
Hangzhou Hikvision Communication Technology Ltd.HangzhouHangzhouTechnology development70.00-Establishment
Hangzhou Hikvision Weiying Sensory Technology Ltd.HangzhouHangzhouTechnology development60.00-Establishment
Hikvision Turkey Technology And Security Systems Commerce CorporationTurkeyIstanbulSales100.00-Establishment
Hikvision Colombia SASColumbiaSanta Fe BogotaSales100.00-Establishment
Hikvision Kazakhstan limited liability partnershipKazakhstanAstanaSales100.00-Establishment
Secure Holding LimitedBritishSheffieldManufacture-100.00Business combination not involving enterprises under common control
Pyronix LimitedBritishSheffieldManufacture-100.00Business combination not involving enterprises under common control
Microwave Solutions LimitedBritishSheffieldManufacture-100.00Business combination not involving enterprises under common control
Tianjin Hikvision System Technology Ltd.TianjinTianjinConstruction100.00-Establishment
Hikvision Hungary LimitedHungaryHungarySales-100.00Establishment
Hikvision New Zealand LimitedNew ZealandAucklandSales-100.00Establishment
Wuhan HIK Storage Technology Ltd.WuhanWuhan,HubeiTechnology Development60.00-Establishment
Urumqi Hai Shi Xin An Electronic Technology Ltd.UrumqiUrumqi, XinjiangConstruction-90.00Establishment
Hangzhou Ximu Intelligent Technology Ltd.HangzhouHangzhou, ZhejiangManufacture-60.00Business combination involving enterprises under common control
LLC Hikvision TashkentUzbekistanTashkentSales100.00-Establishment
Hikvision Kenya (Pty) LtdKenyaKenyaSales-100.00Establishment
Hangzhou HIK Automotive Software Ltd.HangzhouHangzhou, ZhejiangTechnology Development-60.00Establishment
Hangzhou Intelligent Technology Ltd.HangzhouHangzhou, ZhejiangTechnology Development-60.00Establishment
Wuhan HIK Storage Software Ltd.WuhanWuhan, HubeiTechnology development-60.00Establishment
Chengdu Hikvision Digital Technology Ltd.ChengduChengduTechnology development100.00-Establishment
MoYuHaiShi Electronic Technology Ltd.HetianMoyuConstruction-85.00Establishment
Hangzhou EZVIZ Software Ltd.HangzhouHangzhouTechnology development-60.00Establishment
PiShanHaiShi YongAn Electronic Technology Ltd.HetianPishanSystem integration-90.00Establishment
Henan Haikang Hua’anBaoQuan Electronics Ltd.ZhengzhouZhengzhouConstruction51.00-Establishment
Hikvision Czech s.r.o.CzechCzechSales-100.00Establishment
Hikvision (Malaysia) SDN. BHDMalaysiaMalaysiaSales-100.00Establishment

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Name

NameLocation of operationPlace of registrationNature of businessShareholding ratio (%)Acquisition Method
DirectIndirect
Hikvision Deutschland GmbHGermanyGermanySales-100.00Establishment
Hikvision Xi’an Xueliang Construction Project Management Ltd.Xi’anXi’an, ShanxiConstruction99.00Establishment
Luo Pu District Hai Shi Ding Xin Electronic Technology Ltd.HetianXinjiang HetianSystem integration-90Establishment
Yu Tian Hai Shi Mei Tian Electronic Technology Ltd.HetianXinjiang HetianSystem integration98Establishment
Xi’An Hikvision Digital Technology Ltd.Xi’AnXi’AnTechnology development100.00-Establishment
Wuhan Hikvision Technology Ltd.WuhanWuhan, HubeiTechnology development100.00-Establishment
Wuhan Hikvision Science and Technology Ltd.WuhanWuhan, HubeiSales100.00-Establishment
Wuhan Hikvision Fire Control Technology Ltd.WuhanWuhan, HubeiSales100.00-Establishment
Hainan Hikvision System Technology Ltd.HainanHainanSystem integration100.00-Establishment
Hangzhou HIK Huiying Technology Ltd.HangzhouHangzhou, ZhejiangTechnology development60.00-Establishment
Hikvision Mexico S.A.de C.V.MexicoMexicoSales100.00Establishment
Guizhou Hikvision Transportation Big Data Ltd.GuiyangGuiyang, GuizhouTechnology development55.00Establishment
Xinjiang CET Yihai Information Technology Ltd.UrumqiUrumqi, XinjiangSystem integration60.00Establishment
Hikvision Panama Commercial S.APanamaPanamaSales100.00Establishment
Hikvision Pakistan (SMC-Private) LimitedPakistanPakistanSales100.00Establishment
Hikvision Peru Closed Stock CompanyPeruPeruSales95.005.00Establishment
Hikvision Technology Israel Ltd.IsraelIsraelSales100.00Establishment
Nanjing Hikvision Digital Technology Ltd.NanjingNanjing, JiangsuSales100.00Establishment

Note 1: Hangzhou Fuyang HIK Baotai Security Technology Services Ltd. is a subsidiary controlled by HangzhouSystem, who holds 51% equity interests. According to the Articles of Association of the Company, Hangzhou Systemhas a 50% dividend payout ratio in the said company (Fuyang Baotai).

Note 2: Henan Hua’an Security Services Ltd. is a subsidiary controlled and invested by Henan Hua’an IntelligenceDevelopment Ltd.

Note 3: The remaining 28.70% equity interests of Hangzhou Hikvision Electronics Ltd.is held by China DevelopmentBank Fund. Please refer to Note (V) 27 for details.

Note 4: Beijing Hikvision Security and Protection Technology Service Ltd. has completed Industrial and Commercialcancellation in 2018.

2. Equity in joint ventures or associates

(1) Aggregated financial information of insignificant joint-ventures or associates

Unit:RMB

Closing balance / Amount for 2018Opening balance / Amount for 2017
Associates:
The aggregate carrying amount of investments in associates174,900,000.00133,000,000.00
The aggregate amount of the following items calculated based on the Company’s equity share percentage of the associates
--Net loss and total comprehensive loss(11,598,155.44)(2,525,266.42)

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

VIII. Risks associated with financial instrument

The Group's principal financial instruments include cash and bank balances, long-term equity investments, notesreceivable & accounts receivable, other receivables, long-term receivables, borrowings, notes payable & accountspayable, other payables, other current liabilities, bonds payable, long-term payables, derivative financial instruments, etc.Details of these financial instruments are set out in Note (V). Below are the risks associated with such financialinstruments and the risk management policies adopted by the Group to mitigate such risks. The management of theGroup manages and monitors such risk exposures to ensure such risks are contained within a prescribed scope.

The Company adopts sensitivity analysis techniques to analyze the possible effects of rational and probable changesin risk variables to profit or loss for the period or to the interests of shareholders. Since risk variables seldom change ona stand-alone basis, while the correlation between variables may have significant influence to the ultimate amount ofchange effected by the change in a single risk variable, the analysis below is based on the assumption that the changes ineach variable occurred separately.

1. Objectives and policies of risk management

The Group engages in risk management with the aim of achieving an appropriate balance between risk and return,where the negative effects of risks against the Group’s operating results are minimized, in order to maximize the benefitsof shareholders and other stakeholders. Based on such objective in risk management, the underlying strategy of theGroup’s risk management is to ascertain and analyze all types of risks exposures of the Group, establish appropriate risktolerance thresholds, carry out risk management procedures and perform risk monitoring on all kinds of risks in a timelyand reliable manner, thus containing risk exposures within a prescribed scope.1.1 Market risks

1.1.1. Foreign exchange risks

Foreign exchange risks refer to the risk that losses will occur because of changes in foreign exchange rates. TheCompany is primarily exposed to risks relating to the currencies such as USD and EUR. The Group’s subsidiaries in themainland of China whose procurement, sales and financing are denominated in RMB, USD and EUR, other principalactivities are settled in RMB. The Group’s subsidiaries in Hong Kong and outside China are principally engaged inprocurement, sales, financing and other major business activities in local currencies such as USD, EUR, GBP, RUB, andetc.

As of December 31

st

2018, except for monetary items of foreign currencies set out in Note (V) 53, the Groupmainly adopted the functional currency of each of its subsidiary to present the balance of its assets and liabilities. Theforeign exchange risks arising from assets and liabilities denominated in USD and EUR (which has been converted intoRMB) as follows may generate significant impact on the operating results of the Group.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Unit: RMB

Currencies

CurrenciesAssetsLiabilities
Closing balanceOpening balanceClosing balanceOpening balance
USD7,053,425,866.476,919,071,811.351,526,559,782.051,336,240,339.97
EUR391,028,998.28288,885,022.473,172,727,888.373,154,534,018.51

The Group has been paying close attention to the effect of fluctuation in exchange rate on the foreign exchange risks ofthe Group, and has purchased forward foreign exchange contracts to mitigate the foreign exchange risk exposure.

Sensitivity analysis on exchange rate risk

With other variables unchanged, the exchange rate might float within a reasonable range, and has the followingbefore-tax effect on profit or loss and shareholders’ equity for the current period:

Unit: RMB

Change in foreign exchange rates20182017
Effect on profitEffect on shareholders’ equityEffect on profitEffect on shareholders’ equity
5% appreciation of USD against functional currency276,343,304.22276,343,304.22279,141,573.57279,141,573.57
5% depreciation of USD against functional currency(276,343,304.22)(276,343,304.22)(279,141,573.57)(279,141,573.57)
5% appreciation of EUR against functional currency(139,084,944.50)(139,084,944.50)(143,282,449.80)(143,282,449.80)
5% depreciation of EUR against functional currency139,084,944.50139,084,944.50143,282,449.80143,282,449.80

1.1.2. Interest rate risk-risk related to changes in cash flow

.The Group's risk related to changes in the cash flow of financial instruments due to changes in interest rates is mainlyrelated to floating interest rate bank borrowings. The Group's policy is to maintain the floating rate of these borrowingsto eliminate the risk of changes in the fair value of interest rates.

The Group's amount of borrowings with floating interest rate at the end of the year was not significant, and the risk ofchanges in cash flows of financial instruments due to changes in interest rates was relatively low. Therefore, Interest raterisk sensitivity analysis was not conducted.

1.2 Credit risk

As of December 31

st

2018, the biggest credit risk exposure that may cause financial loss suffered by the Group wasmainly due to the other party’s inability to fulfill obligations that caused the loss on the Group’s financial assets,which include:

The book value of a confirmed financial asset in the consolidated balance sheet : for those financial instruments thatare measured by fair value, the book value reflects its risk exposure rather than its biggest risk exposure, the biggestrisk exposure will change as the future fair value changes.

In order to minimize credit risk, the Group has established a team responsible for formulating credit limit, creditapproval and implementing other monitoring procedures to ensure necessary follow-up measures are carried out torecover the overdue debts. In addition, the Group reviews the recovery of each individual receivable at each balancesheet date to ensure that sufficient provision for bad debts is made for uncollectible funds. As such, themanagement of the Group believes that the Group’s exposure to credit risk has been significantly lowered.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

The Group only deposits cash and cash equivalents into banks with relatively high level of credit rating; as such therisk of cash and cash equivalents is low.

The Group has adopted necessary policies to ensure that all the sales customers have good credit records. Since theGroup’s risk exposure exists in several parties to the contract and certain customers, the Group has no othersignificant concentration of credit risk.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

1.3. Liquidity risk

The Group maintains and monitors a level of cash and cash equivalents deemed adequate by the managementto meet the operation needs of the Group and to reduce the effect of cash flow movements when managing liquidityrisk. The management of the Company monitors the usage of bank borrowings, and ensures compliance withborrowing agreements.

According to the term to maturity of non-discounted and remaining contract obligations, the financial liabilitiesheld by the Group are analyzed as below:

Unit:RMB

December 31

st

2018

December 31st 2018
Within one year1-5 yearsMore than five yearsTotal
Non-derivative financial liabilities
Short-term borrowings3,574,343,151.20--3,574,343,151.20
Notes payable & Accounts payable10,765,145,485.74--10,765,145,485.74
Other payables2,953,203,190.99--2,953,203,190.99
Other current liabilities364,984,759.94--364,984,759.94
Bonds payable3,178,156,500.00--3,178,156,500.00
Long-term borrowings16,269,458.68301,148,355.56192,697,383.33510,115,197.57
Long-term payables2,458,683.54--2,458,683.54
Derivative financial liabilities
Forward foreign exchange contracts- settled in the gross amount
- Cash inflow181,663,617.62--181,663,617.62
- Cash outflow181,954,616.05--181,954,616.05
- Net cash outflow290,998.43--290,998.43

IX. Fair value disclosure

1. The financial assets and financial liabilities measured at fair value at the end of the reporting period

Unit:RMB

ItemsClosing fair value
Level 1Level 2Level 3Total
I. Continuous fair value measurement-1,569,052.16-1,569,052.16
(I) Financial assets at fair value through profit and loss
1. Tradable Financial Assets-1,860,050.59-1,860,050.59
-- Derivative financial assets-1,860,050.59-1,860,050.59
Total assets measured continuously at fair value-1,860,050.59-1,860,050.59
(II) Tradable Financial Liabilities
- Derivative financial liabilities-290,998.43-290,998.43
Total liabilities measured continuously at fair value-290,998.43-290,998.43

2. Information on the estimation technique and important parameters adopted as for continuous Level 2 fair

value measurement items

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Unit: RMB

Fair value at December 31st 2018Estimation techniqueInputs
Forward Foreign Exchange Contracts (Assets)1,860,050.59Discounted cash flow approachForward exchange rate Discounted rate that reflects the credit risk of counterparties
Forward Foreign Exchange Contracts (Liabilities)(187,498.43)Discounted cash flow approachForward exchange rate Discounted rate that reflects the credit risk of counterparties
Foreign Exchange Structured Options (Liabilities)(103,500.00)Discounted cash flow approachForward exchange rate Discounted rate that reflects the credit risk of counterparties

3. Items measured at continuous fair value. There were no transfers between levels for the current reporting

period. There was no estimation technique change for the current reporting period

4. Fair values of financial assets and financial liabilities that not measured at fair value

The Group’s management believes that the carrying amounts of financial assets and financial liabilities stated incurrent assets and current liabilities in financial statements approximate to their respective fair values.

The financial liabilities which are not subsequently measured at fair values by the Group include long-termborrowings, bonds payable and long-term payables, and the differences between their carrying amounts and theirrespective fair values are insignificant.

X. Related parties and related-party transactions

1. Information on parent company of the Company

NamePlace of registrationNature of businessRegistered capitalShareholding ratio of parent company in the Company (%)Percentage of voting rights of parent company to the Company (%)
China Electronics Technology HIK Group Co., Ltd. (CETHIK)Hangzhou, ZhejiangIndustrial investmentRMB 660 million39.6039.60

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).

3. Information on the joint ventures and associated companies of the Company

For details of the associated companies of the Company, see Note (V) 11.

4. Information on other related parties

NameRelationship
Gong HongjiaDirector of the company, holds 13.60% of 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)
Zhejiang Tuxun Technology Co.,Ltd. (Zhejiang Tuxun)The Group’s senior management serve(s) as director(s) of this company (Note 1)
Confirmware Technology(Hangzhou) Co., Ltd. (Hangzhou Confirmware)The Group’s senior management serve(s) as director(s) of this company
Beijing Woqi Co., Ltd.(Beijing Woqi)Gong Hongjia or his relative(s) serve(s) as the director(s) (Note 2)
Wuhu Sensor Technology Co., Ltd. (Wuhu SensorTech)Associated company of the Group
Maxio Technology (Hangzhou) Ltd. and its subsidiaries (Maxio Technology and its subsidiaries)Associated company of the Group
Zhiguang Hailian Big Data Technology Ltd. (Zhiguang Hailian)Associated company of the Group
Subsidiaries of CETE (Note 3)Under common control of the ultimate controlling party of the Company

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Note 1: Due to the departure of the senior management of the Group, and this reporting year is the year of departure,Zhejiang Tuxun was still identified as a related party of the Group for the current reporting year.

Note 2: Mr Gong Hongjia left Beijing Woqi as a director in November 2016. The year of 2017 is the subsequent oneyear after Gong left his post; therefore, Beijing Woqi was still regarded as the Group's related party in 2017. It was nolonger regarded as the Group’s related party in the current reporting period.

Note 3: 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

Related party

Related partyTransaction typeAmount for 2018Amount for 2017
Subsidiaries of CETEPurchase of materials and receiving of services300,540,055.04215,050,909.52
Shanghai Fullhan MicroPurchase of materials and receiving of services268,000,337.28219,306,864.78
Maxio Technology and its subsidiariesPurchase of materials and receiving of services52,129,576.7523,702,468.99
Wuhu SensorTechPurchase of materials and receiving of services45,607,202.3231,125,042.77
Beijing WoqiPurchase of materialsNot applicable4,441,973.51
Total666,277,171.39493,627,259.57

Sales of commodities / rendering of services:

Unit: RMB

Related partyTransaction contentAmount for 2018Amount for 2017
Subsidiaries of CETESales of products and rendering of services501,207,585.45796,423,974.48
Wuhu Sensor TechSales of products2,934,921.28985,868.39
Zhejiang TuxunSales of products1,368,910.391,474,411.13
Zhiguang HailianSales of products1,259,520.66-
Hangzhou ConfirmwareSales of products779,678.00370,341.82
Maxio Technology and its subsidiariesSales of products39,051.297,068.37
Total507,589,667.07799,261,664.19

Statement of capital deposits:

Unit: RMB

Related PartyContent of related party transactionAmount occurred in 2018Balance at the end of the current periodAmount occurred in 2017Opening Balance
Subsidiaries of CETE (Note)Deposit into fixed deposits3,000,000,000.004,000,000,000.001,000,000,000.001,000,000,000.00
Subsidiaries of CETE (Note)Deposit into call deposits(500,000,000.00)-500,000,000.00500,000,000.00
Total2,500,000,000.004,000,000,000.001,500,000,000.001,500,000,000.00

Note: the fixed deposits and call 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

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

As required by the project owner, China Electronics Technology Group Co., Ltd. has provided a joint guarantee toresponsibility and duties of construction projects of “Safe Chongqing, Emergency Control System Digital ConstructionProject”, including 41 districts and counties, signed by Chongqing Hikvision System Technology Co., Ltd. (ChongqingSystem) Meanwhile, the Company provides a counter guarantee to China Electronics Technology Group Co., Ltd.

(3) Remuneration of key management personnel

Unit: RMB

Item

ItemAmount for the current yearAmount for the prior year
Compensation of key management personnel45,672,000.0043,518,890.00

(4) Other related party transactions

Prior reporting year:

Pursuant to resolution of the Company’s 21

st

meeting of the 3

rd

session of the Board on January 18

th

2017, theCompany’s subsidiary Hangzhou Hikvision Automotive Electronics acquired the parent company CETHIK’s assetgroup with RMB 79.41 million in cash, including RMB 32,700,579.89 in inventories, net of RMB 37,747,049.94 incredit and debt, RMB 3,966,381.68 in fixed assets, and RMB 5,000,000.00 in prepaid expenses

6. Receivables from related parties and payables to related parties

(1) Receivables from related parties

Unit: RMB

ItemRelated PartyClosing balanceOpening balance
Carrying balanceBad debt provisionCarrying balanceBad debt provision
Accounts receivableSubsidiaries of CETE707,471,470.7438,564,084.85764,292,224.0539,661,148.57
Accounts receivableZhejiang Tuxun345,738.0417,286.90833,986.9841,699.35
Accounts receivableHangzhou Confirmware298,619.9915,611.0021,219.991,197.00
Accounts receivableZhiguang Hailian986,160.7549,308.04--
Total709,101,989.5238,646,290.79765,147,431.0239,704,044.92
Notes receivableSubsidiaries of CETE (Note)60,983,163.83---
Notes receivableHangzhou Confirmware150,000.00---
Total61,133,163.83---
Other receivablesMaxio Technology and its subsidiaries--13,500,000.00675,000.00
Total--13,500,000.00675,000.00
PrepaymentsSubsidiaries of CETE13,328,415.31---
PrepaymentsMaxio Technology and its subsidiaries--5,201,444.41-
Total13,328,415.31-5,201,444.41-

Note: the RMB 30,440,529.78 portion of the notes receivable is the acceptance note of the related party, who is the issuer ofthe note, and the former endorser is a non-associated third party.

(2) Payables to related parties

Unit: RMB

ItemRelated PartyClosing balanceOpening balance
Accounts payableSubsidiaries of CETE166,845,140.44160,186,487.11
Accounts payableShanghai Fullhan Micro106,744,509.28103,732,194.30
Accounts payableWuhu Sensor Tech5,944,535.6114,496,160.00
Accounts payableBeijing WoqiNot applicable1,301,025.64
Accounts payableMaxio Technology and its subsidiaries-117,563.33
Total279,534,185.33279,833,430.38

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Item

ItemRelated PartyClosing balanceOpening balance
Notes PayableShanghai Fullhan Micro13,838,900.00-
Total13,838,900.00-
Receipts in advanceSubsidiaries of CETE2,306,953.471,647,988.21
Total2,306,953.471,647,988.21
Other payablesSubsidiaries of CETE63,683,807.9473,881,697.00
Other payablesShanghai Fullhan Micro100,000.00100,000.00
Other payablesWuhu Sensor Tech50,000.00-
Other payablesZhejiang Tuxun9,290.00-
Other payablesBeijing WoqiNot applicable150,000.00
Total63,843,097.9474,131,697.00

XI. Share-based payments

1. Overview of share-based payments

According to the “Approval of the Implementation of the Restrictive Share Incentive Scheme of HangzhouHikvision 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 AdministrationCommission of the State Council and the “Opinion the Restrictive Share Incentive Scheme of HangzhouHikvision 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 Companyconvened the ninth meeting of the second session of the Board of Directors on July 25

th

2012 and the firstextraordinary general meeting for 2012 on August 13

th

2012, whereat the Proposal Relating to the RestrictiveShare Scheme (Amendments to the Draft) of the Company and Highlights was reviewed and passed. Thepurpose of the Share Incentive Scheme is to: further improve the Company’s governance structure to establish agood and balanced value allocation system; establish a profit-sharing and restriction mechanism amongshareholders, the Company and its employees, so as to provide shareholders with sustainable return; fullymobilize the positivity of core employees to support the Company in realizing its strategies and long-termsustainable 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 meetingof the Company, during which the Company may grant restricted shares to grantees under the Scheme. Inprinciple, each grant should be at an interval of two years. After the expiry of the Scheme, no restricted sharescould be granted to grantees under the Scheme. However, all the provisions of the Scheme remain valid to therestricted shares granted under the Scheme.

The total number of subject Shares related to the Restricted Shares granted under the Scheme (excluding lapsedrestricted shares) and the total number of subject Shares related to other effective share incentive schemes of theCompany (if any) in aggregate shall not exceed 10% of the total issued share capital of the Company. Unlessapproval is obtained at the general meeting by way of special resolution, the total number of Restricted Sharesgranted or to be granted to any Participant under this Scheme or other effective share incentive schemes of theCompany (if any) in aggregate shall not exceed 1% of the total issued share capital of the Company.

The grant price for restricted shares, being the purchase price by staff, shall be determined by the Board ofDirectors. The grant price shall not be lower than 50% of the following price, whichever is the highest:

(I) The closing price of the subject shares of the Company for one trading day prior to publication of thesummary Share Incentive Scheme draft;(II) The average closing price of the subject shares of the Company for 30 trading days prior to publication ofthe summary Share Incentive Scheme draft;(III) The average price of the subject shares of the Company for 20 trading days prior to publication of thesummary Share Incentive Scheme draft; or(IV) The unit nominal value of the subject shares of the Company.

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

Each batch of restricted shares shall not be unlocked unless fulfilling, each time, by the Company its unlockperformance criteria (including net asset yield and operating income growth rate), and by grantees’ individualperformance criteria simultaneously. Where, during any year of the unlocking period, any one or more unlockcriteria 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 futureyears. The cancelled restricted shares will be repurchased by the Company based on the grant price.

On August 23

rd

2012, after consideration and approval by the general meeting, the Company granted 8,611,611restricted shares to grantees at a grant price of RMB 10.65 per share (“2012 Share Incentive Scheme”). TheLock-up Period of the Subject Shares shall last for a period of 24 months commencing on the grant date, duringwhich the Subject Shares granted to grantees under the scheme shall be subject to lock-up and shall not betransferable. 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 thescheme being satisfied, apply for unlocking in 3 tranches: the first unlocking period shall be the 24 to 36 monthsfollowing the grant date and the number of shares to be unlocked shall be 1/3 of the aggregate number of theSubject Shares granted; the second unlocking period shall be the 36 to 48 months following the grant date andthe number of shares to be unlocked shall be 1/3 of the aggregate number of the Subject Shares granted; thethird unlocking period shall be the 48 to 60 months following the grant date and the number of shares to beunlocked shall be 1/3 of the aggregate number of the Subject Shares granted. As of December 31

st

2016, the2012 restricted incentive shares scheme had been completed.

On October 24

th

2014, after consideration and approval by the general meeting, the Company granted52,910,082 restricted shares to grantees at a grant price of RMB 9.25 per share (“2014 Share IncentiveScheme”). The Lock-up Period of the Subject Shares shall last for a period of 24 months commencing on thegrant date, during which the Subject Shares granted to grantees under the scheme shall be subject to lock-up andshall not be transferable. The Unlocking Period shall be the 24 to 60 months following the grant of restrictedshares (including Lock-up Period), during which grantees may, subject to unlocking conditions stipulated by thescheme being satisfied, apply for unlocking in 3 tranches: the first unlocking period shall be the 24 to 36 monthsfollowing the grant date and the number of shares to be unlocked shall be 40% of the aggregate number of theSubject Shares granted; the second unlocking period shall be the 36 to 48 months following the grant date andthe number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted; thethird unlocking period shall be the 48 to 60 months following the grant date and the number of shares to beunlocked shall be 30% of the aggregate number of the Subject Shares granted. As of December 31

st

2018, therestricted stock granted in 2014 has all vested.

On December 23

rd

2016, after consideration and approval by the general meeting, the Company granted52,326,858 restricted shares to grantees at a grant price of RMB 12.63 per share (“2016 Share IncentiveScheme”). The Lock-up Period of the Subject Shares shall last for a period of 24 months commencing on thegrant date, during which the Subject Shares granted to grantees under the scheme shall be subject to lock-up andshall not be transferable. The Unlocking Period shall be the 24 to 60 months following the grant of restrictedshares (including Lock-up Period), during which grantees may, subject to unlocking conditions stipulated by thescheme being satisfied, apply for unlocking in 3 tranches: the first unlocking period shall be the 24 to 36 monthsfollowing the grant date and the number of shares to be unlocked shall be 40% of the aggregate number of theSubject Shares granted; the second unlocking period shall be the 36 to 48 months following the grant date andthe number of shares to be unlocked shall be 30% of the aggregate number of the Subject Shares granted; thethird unlocking period shall be the 48 to 60 months following the grant date and the number of shares to beunlocked shall be 30% of the aggregate number of the Subject Shares granted.

On December 20

th

2018, authorized by the 2

nd

extraordinary general meeting of 2018 and reviewed by the boardof directors, the Company granted 121,195,458 restricted shares to grantees at a grant price of RMB 16.98 pershare (“2018 Share Incentive Scheme”). The Lock-up Period of the Subject Shares shall last for a period of 24months commencing on the grant date, during which the Subject Shares granted to grantees under the schemeshall be subject to lock-up and are not transferable. The Unlocking Period shall be the 24 to 60 monthsfollowing the grant of restricted shares (including Lock-up Period), during which grantees may, subject tounlocking conditions stipulated by the scheme being satisfied, apply for unlocking in 3 tranches: the firstunlocking period shall be the 24 to 36 months following the grant date and the number of shares to be unlockedshall be 40% of the aggregate number of the Subject Shares granted; the second unlocking period shall be the 36to 48 months following the grant date and the number of shares to be unlocked shall be 30% of the aggregatenumber of the Subject Shares granted; the third unlocking period shall be the 48 to 60 months following the

Notes to Financial StatementsFor the reporting period from January 1

st

2018 to December 31

st

2018

grant date and the number of shares to be unlocked shall be 30% of the aggregate number of the Subject Sharesgranted. The restricted shares of 2018 equity incentives have completed the share registration work in January2019.

Unit: share

2014 Share Incentive Scheme

2014 Share Incentive Scheme20182017
Total of equity instruments outstanding at the beginning of the reporting period33,932,16146,220,473
Total of equity instruments granted during the current reporting period-23,110,236
Total of equity instruments vested during the current reporting period33,422,53633,803,907
Total of equity instruments forfeited during the current reporting period (Note)509,6251,594,641
Total of equity instruments outstanding at the end of the reporting period-33,932,161
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-RMB 4.11 per share and 22 months

Note: on December 26

th

2018, pursuant to the revised Articles of Association and resolutions of the 26

th

general meetingof 3

rd

session board, and approved by the 2

nd

extraordinary general meeting of 2016, the Company repurchased andcancelled 509,625 granted and unvested restricted RMB treasury shares in cash settlement. As of the reporting date, theCompany has not completed the registration procedures for industrial and commercial changes.

On December 15

th

2017, pursuant to the revised articles of association and resolutions of the 26

th

general meeting of 3

rd

session board, and approved by the 2

nd

extraordinary general meeting of 2016, the Company repurchased and cancelled1,594,641 granted and unvested restricted RMB treasury shares in cash settlement. The company completed the businesschange registration procedure on March 27

th

2018.

Unit: share

2016 Share Incentive Scheme20182017
Total of equity instruments outstanding at the beginning of the reporting period78,490,28752,326,858
Total of equity instruments granted (share dividend) during the current reporting period26,163,429
Total of equity instruments vested during the current reporting period30,140,165-
Total of equity instruments forfeited during the current reporting period2,945,610-
Total of equity instruments outstanding at the end of the reporting period45,404,51278,490,287
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 contractRMB 8.42 per share and 36 monthsRMB 8.42 per share and 48 months

Note: on December 26

th

2018, pursuant to the revised Articles of Association and resolutions of the 26

th

general meetingof 3

rd

session board, and approved by the 2

nd

extraordina