1、 Hangzhou Hikvision Digital Technology Co.,Ltd.2017 Annual Report April 21st 2018 Hikvision 2017 Annual Report 1 To shareholders In 2017,Hikvision maintained steady and healthy growth,reporting sales revenue of RMB 41.91 billion,representing year-over-year growth of 31.22%,and net profit attributabl

2、e to the listed company of RMB 9.41 billion,representing year-over-year growth of 26.77%.In 2017,the Company focused on Hikvision-developed products,notably its intelligent products,enhancing solution through product innovation and creating more value for customers.For the overseas market,the Compan

3、y continues to expand from a channel distribution market to a project-based market.Despite a significant increase in the selling expense ratio,the Company continued to strengthen its investments in the project-based market.After several years of exploration,our innovative businesses saw certain grow

4、th.EZVIZ,business based on internet application,reported its first-ever annual profit,with sales revenue in excess of RMB 1 billion.In the window period for development of the artificial intelligence industry,the Company has enhanced its investment in artificial intelligence technology research and

5、development to ensure its industry leadership in niche areas.Capital-driven innovation leads to increasing competition for talent,rising housing prices,cost of living,and personnel costs have contributed to a rapid increase in operating costs of the Company.With enterprise growth,internal management

6、 of the enterprise becomes much more complex,and diseconomy problems resulting from increased scale increase are more prominent.Continuing to improve the internal management ability of the Company becomes more important.At the same time,rewarding shareholders with current profits is also the respons

7、ibility and obligation of the Company.The Company is working hard to balance technology accumulation,market expansion,employee stability,improvement of internal management ability and current reward to shareholders.We understand that customers come first and that the continuous development of the co

8、mpany,greater room for employees growth and continuous rewards for shareholders can be secured only by creating more value for customers through continuous product innovation and providing convenient services to customers through improvement in the marketing system.In 2017,the Company put forward th

9、e concept of AI Cloud aligning with the Internet of Things(IoT)industry development under the artificial intelligence(AI)era.The Company defined Hikvision 2017 Annual Report 2 a three-layered architecture incorporating the edge node,edge domain and cloud center of AI Cloud,and proposed the core prin

10、ciple of“Edge perception,on-demand(data)convergence,multi-layered cognition,multi-tier application”of AI Cloud.Over the next few years,the Company will focus on AI Cloud open platforms and cooperate with numerous partners to promote development of the IoT industry.In spite of uncertainties in operat

11、ion,especially uncertainties arising out of trade protectionism,we look forward to the Company maintaining a steady and healthy development in 2018:The trend of artificial intelligence is just getting started,the global marketing network of the Company becomes more and more balanced,and the developm

12、ent speed of innovative businesses will accelerate,all of which will further stabilize the operation of the Company.The Company will further enhance its management ability,pay more attention to profitable growth,continue to promote sustainable and healthy development,and provide long-term rewards fo

13、r shareholders.In closing,we would like to express our heartfelt gratitude to all shareholders for trusting,understanding and supporting the Companys operation and management team.See far,go further.Board of Hangzhou Hikvision Digital Technology Co.,Ltd.April 2018 Hikvision 2017 Annual Report 3 Sect

14、ion I Important Notes,Contents and Definitions The Board of Directors,Board of Supervisors,directors,supervisors and senior management of Hangzhou Hikvision Digital Technology Co.,Ltd.(hereinafter referred to as the“Company”)hereby guarantee that the information presented in this report shall be tog

15、ether be wholly liable for the truthfulness,accuracy and completeness of its contents and free of any false records,misleading statements or material omissions,and will undertake individual and joint legal liabilities.Chen ZongNian,the Companys legal representative;Jin Yan,the person in charge of th

16、e Companys accounting work and the head of accounting department,hereby declare and warrant that the financial statements in this report are authentic,accurate and complete.The Companys chairman Chen Zongnian,and director Gong Hongjia,Qu Liyang,Hu Yangzhong,Wu Weiqi,independent director Cheng Tianzo

17、ng,Lu Jianzhong,Wang Zhidong attend the board meeting to review this report in person.Independent director Hong Tianfeng was on a business trip and not able to attend the board meeting in person,and Hong authorized independent director Cheng Tianzong to attend and exercise the voting right for him.T

18、he profit distribution proposal passed upon deliberation at the meeting of the Board of Directors is set out as follows:Based on the Companys current total share capital of 9,227,270,473 shares,the Company proposed to distribute cash dividend of RMB 5(tax inclusive)per each 10 shares to all sharehol

19、ders,bonus share and share distribution from capital reserve is nil.Note:This document is a translated version of the Chinese version 2017 Annual Report(“2017 年年度报告”),and the published announcements in the Chinese version shall prevail.The complete published Chinese 2017 Annual Report may be obtaine

20、d at .Hikvision 2017 Annual Report 4 Please read the annual report and pay particular attention to the following risk factors:1)Risk of technology upgrade:With the development of cloud computing,big data,artificial intelligence,and other technologies,the demand and business models of the industry wi

21、ll change accordingly.If the Company cannot follow the changes in the cutting-edge technologies,or fail to realize the business innovation rapidly,the risks of future development uncertainties will increase.2)Risk of cyber-security:Risk of cyber-security:The Company has always attached importance an

22、d taken active measures to enhance security performance of our products and systems,but under the Internet application environment,there is still a possibility of deliberate attempts，including computer viruses,malicious software,hacker and similar disruptions，to damage our systems or products,causin

23、g the security issues.3)Risk of exchange rate fluctuation:At the overseas market,the Company carries out operations in various countries and regions with different currencies.The risk of exchange rate mainly comes from foreign exchange exposures arising out of sales,purchase and financing that not s

24、ettled in RMB(mainly in USD)as well as the exchange rate fluctuations,which may probably affect the profitability level of the Company.4)Risk of internal management:The continual expansion of business scale,the continuous increase of new products and new businesses,the sustained growth in total numb

25、er of employees and the significant rise of internal management complexity have posed challenges to the Companys management work and raised higher requirements on the Companys management team.The Companys sustainable development will face certain risks if the management level fails to match up with

26、the Companys business expansion.5)Risk of global market expansion:The Companys business covers more than 150 countries and regions worldwide.If various situations such as trade protectionism,debt problem or political conflict occur in the country where our business is carried out,adverse impact may

27、be caused to the Companys business development.6)Risk of local debt:In the government-related project field,the Company has been maintaining a prudent attitude towards PPP(Public-Private Partnership)and other construction modes,and endeavors to reduce risks in the course of management and control fo

28、r signing the project and implementing project.However,the risk of extension of project schedule and failure of capital recovery might still appear if some government policies change or the financial payment ability reduces.7)Risk of intellectual property(IP)rights:The Company continues to maintain

29、the relative large scale of R&D investment,and produces considerable technical achievements.At the same time,the Company implements well-organized intellectual property right(IPR)protection measures,however,the risk of provoking IPR disputes and suffering from IPR infringements still exists.The abov

30、e notices might not be all-inclusive of all other potential risks,please pay attention to the potential investment risks Hikvision 2017 Annual Report 5 CONTENTS To shareholders.1 Section I Important Notes,Contents and Definitions.3 Section II Corporate Profile&Key Financial Data.7 Section III Corpor

31、ate Business Summary.13 Section IV Operation Discussion and Analysis.35 Section V Significant Events.57 Section VI Changes in Shares and Information about Shareholders.76 Section VII Information of Preferred Shares.87 Section VIII Information about Directors,Supervisors,Senior Management and Staffs.

32、88 Section IX Corporate Governance.105 Section X Corporate Bonds.118 Section XI Financial Report.119 Section XII Documents Available for Reference.233 Hikvision 2017 Annual Report 6 Definitions Term Definition Reporting Period From January 1st 2017 to December 31st 2017 Articles of Associations Arti

33、cles of Associations for Hangzhou Hikvision Digital Technology Co.,Ltd Hikvision,our Company,the Company Hangzhou Hikvision Digital Technology Co.,Ltd CETHIK CETHIK Group Co.,Ltd.Controlling Shareholder of the Company Innovative Co-investment Partnership Hangzhou Hikvision Equity Investment Partners

34、hip(Limited Partnership)Ezviz,Ezviz Network Inc.Hangzhou Ezviz Network Co.,Ltd.(According to the context,also refers to the corresponding business)Hikvision Robotics Hangzhou Hikvision Robtics Technology Co.,Ltd.(According to the context,also refers to the corresponding business)Hikvision Automotive

35、 Technology Hangzhou Hikvision Automotive Technology Co.,Ltd.(According to the context,also refers to the corresponding business)Hikvision Weiying Hangzhou Hikvision Weiying Sensor Technology Co.,Ltd.(According to the context,also refers to the corresponding business)Hikvision Storage Wuhan HIK Stor

36、age Technology Co.,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 t

37、he Companys 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 Base Located in Binjiang district,Hangzhou,Zhejiang province,purposes for the office building.Initi

38、ally disclosed in Announcement about the Companys 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 Base Located in Chongqing,purposes for manufacturing facility,initially disclosed in Announcement about Resolution of the 20th Meet

39、ing of the 3rd Session Board（No：2016-068）Innovative Business A long investment cycle,business prospects uncertain,has the high risk and uncertainty,in need for direct or indirect investment in exploration,in order for the Company to timely enter into new areas of business.Initially disclosed in Anno

40、uncement about Management Measures for Core Staff Investment in Innovative Business(核心员工跟投创新业务管理办法)()In this report,innovative business also refers to Ezviz,Hikvision Robtics,Hikvision Automotive Technology,Hikvision Weiying,Hikvision Storage,and their related business or products.Euro Bond The Comp

41、any 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)Hikvision 2017 Annual R

42、eport 7 Section II Corporate Profile&Key Financial Data I.Corporate Information Stock abbreviation HIKVISION Stock code 002415 Stock exchange where the shares of the Company are listed Shenzhen Stock Exchange Name of the Company in Chinese 杭州海康威视数字技术股份有限公司 Abbr.of the Company name in Chinese 海康威视 Na

43、me of the Company in English(if any)HANGZHOU HIKVISION DIGITAL TECHNOLOGY CO.,LTD Abbr.of the Company name in English(if any)HIKVISION Legal representative Chen Zongnian Registered address No.555 Qianmo Road,Binjiang District,Hangzhou Postal code of Registered address 310051 Business address No.555

44、Qianmo Road,Binjiang District,Hangzhou Postal code of Business address 310051 Company website E-mail ; II.Contacts and contact information Board Secretary Securities Affairs Representative Name Huang Fanghong Li Yi Address No.555 Qianmo Road,Binjiang District,Hangzhou No.555 Qianmo Road,Binjiang Dis

45、trict,Hangzhou Tel. Fax E-mail III.Information disclosure and place of the report Newspaper designated by the Company for information disclosure Securities Times,China Securities Journal Website specified by CSRC for release of the Annual Report

46、 Place where the Annual Report is available for inspection Office of the Board of Directors of the Company Hikvision 2017 Annual Report 8 IV.Company Registration and Alteration Organization code 996106P Changes in principle business activities since the Company was listed(if any)During th

47、e reporting period,the Company operating range newly added electronic technology consulting service,training service(excluding the organizational training).After the change,the Companys business scope is:the electronic products(including explosion-proof electrical products,communication equipment an

48、d related ancillary equipment,multimedia equipment),aircrafts,robots,intelligent equipment,auto parts and accessories,research and development(R&D)and production of automotive electrical signal equipment;Sales of self-produced products;provide technical services,electronic technology consulting serv

49、ice,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 r

50、atification 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 firm Deloitte Touche T

51、ohmatsu Certified Public Accountants LLP Business address of the accounting firm 30F Bund Center 222 Yan An Road East Shanghai Name of accountants for writing signature Mou Zhenfei,Zhang Shushu Sponsor institution engaged by the Company to continuously perform its supervisory function during the Rep

52、orting Period Applicable Inapplicable Financial advisor engaged by the Company to perform the duties of continuous supervision during the reporting period Applicable Inapplicable Hikvision 2017 Annual Report 9 VI.Key accounting data and Financial Indicators Whether the Company performed a retroactiv

53、e adjustment or restatement of previous accounting data Yes No The reason for retroactive adjustment or restatement of previous accounting data:Accountant arrangement method for business merger involving enterprises under the common control Unit:RMB 2017 2016 YoY Change(%)2015 Before Adjustments Aft

54、er Adjustments After Adjustments Before Adjustments After Adjustments Operating income(RMB)41,905,476,572.07 31,924,020,872.44 31,934,544,088.82 31.22%25,271,390,273.42 25,285,784,528.15 Net profits attributable to shareholders of the Company(RMB)9,410,855,084.82 7,422,261,983.16 7,423,683,960.91 26

55、.77%5,869,049,646.23 5,869,119,852.19 Net profits attributable to shareholders of the Company excluding non-recurring gains and losses(RMB)9,177,116,964.06 7,270,742,762.47 7,270,742,762.47 26.22%5,604,890,259.09 5,604,890,259.09 Net cash flows from operating activities(RMB)7,373,160,250.68 6,213,69

56、2,160.56 6,216,364,642.05 18.61%3,216,722,169.17 3,216,816,901.02 Basic earnings per share(RMB/share)1.030 0.818 0.818 25.92%0.651 0.651 Diluted earnings per share(RMB/share)1.024 0.817 0.817 25.34%0.649 0.649 Weighted average ROE 34.96%34.56%34.58%0.38%35.28%35.28%Hikvision 2017 Annual Report 10 At

57、 December 31st 2017 At December 31st 2016 YoY Change(%)At December 31st 2015 Before Adjustments After Adjustments After Adjustments Before Adjustments After Adjustments Total assets(RMB)51,570,963,466.61 41,339,007,814.83 41,348,428,750.40 24.72%30,316,442,436.17 30,325,728,486.51 Net assets attribu

58、table to shareholders of the Company(RMB)30,358,072,874.22 24,288,634,890.08 24,285,707,211.82 25.00%19,253,803,738.78 19,249,454,082.77 Hikvision 2017 Annual Report 11 VII.Differences in Accounting Data between Domestic and Overseas Accounting Standards 1.Difference in the financial report of net p

59、rofits and net assets according to the disclosure of International Financial Reporting Standards and China Accounting Standards Applicable Inapplicable There is no difference in the financial report of net profits and net assets according to the disclosure of International Financial Reporting Standa

60、rds(IFRS)and China Accounting Standards in the reporting period.2.Difference in the financial report of net profits and net assets according to the disclosure of Overseas Accounting Standards and China Accounting Standards Applicable Inapplicable There is no difference in the financial report of net

61、 profits and net assets according to the disclosure of Overseas Accounting Standards and China Accounting Standards in the reporting period.VIII.Key Quarterly Financial Indicators Unit：RMB Whether there is significant difference between the above individual or aggregate financial indicators and that

62、 of what disclosed in the quarterly report,half-year report Yes No 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Operating income 7,043,724,101.73 9,403,815,634.79 11,282,202,421.66 14,175,734,413.89 Net profit attributable to shareholders of the Company 1,480,780,632.01 1,810,765,424.69 2,861,268

63、,129.82 3,258,040,898.30 Net profit attributable to shareholders of the Company excluding non-recurring gains and losses 1,440,574,125.37 1,749,292,093.49 2,819,127,478.83 3,168,123,266.37 Net cash flows from operating activities -3,035,286,557.20 1,092,485,754.78 2,038,650,373.18 7,277,310,679.92 H

64、ikvision 2017 Annual Report 12 IX.Items and Amounts of Non-recurring Gains and Losses Applicable Inapplicable Unit：RMB Item 2017 2016 2015 Profit or loss from disposal of non-current assets(including the write-off for the impairment of assets)1,585,222.50-736,149.02 1,715,423.04 The government subsi

65、dies1 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.)184,557,043.27 171,321,088.31

66、 169,279,486.81 Net gains and losses from beginning of the reporting period to the merge date for the subsidiary merged involving enterprises under common control-42,070.90 3,949,938.20 195,016.56 Held-to-maturity financial assets,profits and losses of fair value held-for-trading financial liabiliti

67、es,and investment income in disposal of held-for-trading financial assets and liabilities and available-for sale financial assets excluding the effective hedging business related to the regular business operation of the Company.86,740,196.23 321,708.86 132,518,794.00 Other non-operating income and e

68、xpenditures except the items mentioned above 30,044,820.52 18,276,871.37 15,481,300.69 Less:Impact of income tax 50,405,620.44 36,000,258.26 54,882,891.58 The impact of the minority interests(after tax)18,741,470.42 4,192,001.02 77,536.42 Total 233,738,120.76 152,941,198.44 264,229,593.10 Explain th

69、e reasons if the Company classifies an item as a non-recurring gain/loss according to the definition in the,or classifies any non-recurring gain/loss item mentioned in the aforementioned note as a recurrent gain/loss item Applicable Inapplicable In the reporting period,the Company did not classify a

70、n item as a non-recurring gain/loss according to the definition in the into a recurrent gain/loss item 1 Please refer to Note(V)48 for details about government subsidy(Value-added Tax Rebate for Software Product),which is closely related to daily operations of the Company.Hikvision 2017 Annual Repor

71、t 13 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 IoT solutions,which provides security,intelligence business and big data services to customers around the wo

72、rld.As the worlds largest security manufacturer,Hikvision is the witness,practitioner and important promoter of video surveillance revolutions in digitalization,HD networking,and intelligence.Global research firm IHS Markit has ranked Hikvision as global No.1 in the video surveillance industry for s

73、ix consecutive years,with 21.4%of the global video surveillance market share.First established as an audio-video compression board provider,Hikvision has gradually developed into a provider of a broad range of products and solutions covering the demands of security and visualized management of the e

74、ntire video surveillance industry.In 2017,Hikvision led the intelligent application trend based on the fusion of cloud and edge computing,innovatively launching the three-tier AI Cloud architecture of edge node,edge domain and cloud center,and vigorously promoting the development and application of

75、AI in the IoT field.2.Main Products and Solutions 2.1 Hikvisions AI Cloud Architecture Cloud computing is a commonly used in the Internet industry,but the pure cloud computing mode based on Internet does not apply to IoT.Massive heterogeneous data has been generated as the IoT scale continues to exp

76、and.If all of such data is converged to the cloud center for centralized processing,swift business response will not be able to fulfilled,and network bandwidth,storage resources,computing power,etc.will also be exposed to tremendous pressure.Take a video network with 100,000 cameras as an example:ap

77、proximately 30PB video data can be generated every month,and if all of the original data is converged to the cloud center for processing,the construction cost will be significantly increased,and the business response agility will be affected as well,making it unfeasible.Coping with the bottleneck in

78、 the course of IoT development is a challenge faced by the whole industry.In the opinion of Hikvision,the fusion of edge and cloud computing is the reasonable architecture to better solve the current practical problems related to IoT.For example,video surveillance not only requires proximal Hikvisio

79、n 2017 Annual Report 14 storage and intelligent analysis of the original data flow,on-demand convergence and big data analysis of structured data,but also needs to conduct uniform management,operation and maintenance of various IoT and IT equipment.Its similar to the human body,where connecting sens

80、ory nerve endings with the brain to enable orderly operation is a very complicated meridian system,rather than a simple information channel.Therefore,we need an intelligent architecture capable of realizing both edge computing and on-demand centralized processing of massive heterogeneous data,so as

81、to achieve organic fusion of AI,big data,cloud computing and terminal equipment.With this in mind,Hikvision launched the AI Cloud architecture incorporating cloud and edge computing.Hikvisions AI Cloud architecture consists of three levels,which are edge node,edge domain and cloud center.Edge node f

82、ocuses on the acquisition of multi-dimensional perception data and front-end intelligent processing of such data;edge domain focuses on convergence,storage,processing and intelligent application of perception data;cloud center focuses on the fusion of business data and multi-dimensional analysis and

83、 application of big data.From edge node to edge domain,data from edge nodes is processed in real time and converged to edge domains;from edge domain to cloud center,data from edge nodes and edge domains is converged to the cloud center on demand to support multi-dimensional big data analysis.The edg

84、e domain and cloud center architecture could consists of multiple layers and tiers,and according to different applications,the data converged and uploaded to the cloud center from edge domain will be different in format and content.The edge domain serves like a football“midfield”,as it is responsibl

85、e to determine the time,type and processing degree of the data transmitted to the Hikvision 2017 Annual Report 15 cloud center and achieve“on-demand data convergence”.In summary,cloud-edge fusion of Hikvision AI Cloud is neither the simple cloud+edge,nor to simply divide into numerous so-called“litt

86、le clouds”and converged to a larger scale cloud;but instead it is a new architecture that can practically solve a series of problems in real application,data processing and management incurred from edge to cloud.AI Cloud adheres to the core concept of“edge perception,on-demand data convergence,multi

87、-layered cognition and multitier application”,designs and constructs a multi-dimensional intelligent service system.In short,AI Cloud is not Cloud Computing,but an aggregation of infrastructure,data resources,platform services and application software.2.2 Product Innovation in the Era of Intelligenc

88、e In 2017,the Company completed the core product layout of edge node,edge domain and cloud center based on the AI Cloud architecture,injects AI into the products,and continuously leading the market by virtue of technology and product innovation.The rapid development of AI technology unfolds a new ch

89、apter of intelligent products.Hikvisions intelligent products,represented by the“DeepInview”(深眸)series intelligent video cameras,DeepinMind Traffic Management Server,intelligent traffic products(神捕),DeepinMind open platform(深思)series intelligent servers,and“DeepinGo”(明眸)series swing barrier turnstil

90、e with facial recognition terminal,have been widely applied in the government market,enterprise market and consumer market.Hikvision 2017 Annual Report 16 Front-End Products In 2017,Hikvision comprehensively integrated deep intelligence into front-end products,and endeavored to facilitate the iterat

91、ive upgrade of products through the increasingly diversified intelligent chips.For example,Hikvision“DeepinView”series intelligent video camera is a typical representative of edge perception,which achieves intelligent perception and understanding functions such as object detection and feature extrac

92、tion in edge nodes by intelligentizing the edge,which makes perception and understanding more efficient and more accurate.Attributable to the breakthroughs in wide scenario,long distance and HD object capture,it can obtain clearer,more effective,richer and more valued video data information;as for t

93、he complicated environment like serious backlight and side mount,the camera has a special algorithm to optimize face recognition scenarios,which can achieve a higher face capture rate;Hikvisions“DeepinView”Darkfighter X(深眸黑光)camera uses the proprietary dual lighting fusion technology,and enables use

94、rs to capture the HD full-color visual perception effect under extremely low illumination circumstances;Hikvisions”DeepinView”AR series camera lays a solid foundation for three-dimensional security control and achieves the visualization of business management and control.Back-End Products In 2017,Hi

95、kvision realized comprehensive intelligence of the back-end products.The product system Hikvision 2017 Annual Report 17 consists of storage and computing all-in-one integrated equipment and GPU video image intelligent computing equipment with better adaptability to IT environment,showing higher cost

96、-effectiveness and being dedicated to video perception computing,as well as data center equipment with higher universalization,better openness,and better openness,and that can achieve free switching of algorithms and pooled deployment of computing and storage resources.For example,Hikvisions DeepinM

97、ind NVR(超脑)adopts the embedded design,integrates with high-performance GPU chips,builds in the deep learning algorithm,combines video storage with intelligent analysis,and achieves facial analysis,perimeter protection,video structuring and other analysis applications while taking into account the co

98、nventional NVR video storage.For different markets,Hikvision caters to customer demand by launching intelligent products for scattered scenarios such as financial ATM security protection,student campus security protection,academic analysis,vehicle analysis in gas stations,safety helmet-wearing monit

99、oring,etc.,thereby providing competitive solutions for various industries.Hikvisions DeepinMind NVR products have been recognized for high quality and innovative intelligent applications,and we were honored as 2017 China Top Ten New Prominent Security Products.2 In terms of the enterprise-level inte

100、lligent server,Hikvision has launched“Falcon”(猎鹰),a video cloud structuring server,“Blade”(刀锋),an image cloud structuring server,DeepinMind Face Recognition server（脸谱）for intelligent facial analysis,behavioral trend analysis server etc.,integrated the industry-leading deep learning algorithm,and dee

101、ply developed the public security,traffic and other industries.As a result,weve successfully developed the first generation of intelligent servers for practical business applications in the industry.Based on open architecture and pooled resource application,Hikvision launched the DeepinMind open pla

102、tform(深思)image fusion intelligent analysis system product.Open architecture and open data are one of the core concepts of the DeepinMind open platform.It opens the algorithm engine to allow all kinds of algorithm vendors to develop,train and commercially operate different algorithms on it.Meanwhile,

103、the data generated by DeepinMind open platform through fusion with video analysis can be opened to the outside via standard interface and protocol,and any platform vendors with certain development capability can use such data for upper-level business applications,thereby supporting the industry to d

104、evelop an AI ecological environment.2 2017 China Top Ten New Prominent Security Products was selected and issued by China Public Security Magazine,together with competent authorities like Ministry of Public Security,the Science Research Institute,and the Security Industry Association.Hikvision 2017

105、Annual Report 18 Display Products In 2017,Hikvision created multi-layer products of cloud center,edge domain and edge node incorporating AI Cloud strategy,and continues to expand the central display business field,and achieve interactive access to information,intelligent delivery of information,and

106、comprehensive presentation of big data through diversified display approaches such as seamless splicing,transparent,curved surface and holographic display.For example,Hikvisions central decoding and splicing control system,which is based on the technologies of video-audio processing,multimedia data

107、integration,UHD display,AI,clustering and scattering,intelligentizes products such as universal decoder,splicing controller,multifunction video center,etc.,diversifies the application of monitoring center and command center,and maintains the leadership position in the industry.Access Control and Ala

108、rm Products In 2017,Hikvision launched various kinds of innovative application products in the access control and alarm product field by applying AI technology.For example,Hikvision“DeepinGo”(明眸)series close-range facial recognition product,which covers numerous edge devices for access control,atten

109、dance checking,visitors,consumption,elevator control,personnel access,visual intercom,etc.,has greatly expanded the application scenarios of facial recognition technology with rapid response speed,a friendly interactive interface,and support for massive face matching and picture anti-faking.“DeepinG

110、o”(明眸)series products have not only upgraded the traditional one-card access control system to the AI era,but more importantly enhanced the security and usability effectively by combining with intelligent surveillance products.It has also laid a foundation for the smart Hikvision 2017 Annual Report

111、19 communities and campuses to improve their access control solutions.Moreover,based on its fast,accurate and convenient features,facial recognition technology is highly accepted by users in such scenarios as face and identity matching in hotels,real-name attendance checking on construction sites,fa

112、ce,identity and ticket verification in high-speed railway stations and bus stations,school dormitory management,and more.Intelligent Traffic Products In 2017,Hikvision further enriched its intelligent traffic deep learning products,and launched a series of intelligent traffic products based on AI Cl

113、oud and incorporating the concept of edge node and edge domain.The intelligent traffic product line helps technical bottlenecks,builds in new IoT applications by virtue of IT approaches,lays out the ecological road environment,and achieves sustainable development.For example,Hikvisions DeepinMind se

114、ries intelligent traffic management server(神捕)has been extensively applied to urban areas with such intelligent functions as“pedestrian jaywalking”,“vehicles not being courteous to pedestrians”,“high beam light detection”,etc.In terms of road perception,the Company took the lead in upgrading the new

115、 generation of intelligent traffic products,switched the sensor of road capture camera from CCD to CMOS for the first time,and designed the 900-megapixel(MP)intelligent tollgate and off-site traffic law enforcement products.The brand-new sensor has contributed to qualitative leaps in high frame rate

116、 and low illumination level night view,and explored into many business types including off-site traffic law enforcement.In terms of road cognition,the Company launched terminal products such as“Intelligent Cube”(智能魔方)series,“ALL IN ONE”,adaptive intelligent signal controller,etc.As a typical product

117、 of the edge domain,the intelligent road terminal enables unified management of the data within the domain and proximal agile business responses.The“ALL IN ONE”comprehensive integrated management and control machine has further simplified the construction wiring cost at the crossroad,and helped simp

118、lify design of crossroads by virtue of excellent structural composition and thermal design.Transmission Products Hikvisions transmission products support the access and networking of all kinds of IoT terminal equipment,and achieve the all-weather,all-region reliable transmission.Such products includ

119、e the optical transmission products such as video optical transceivers and network optical transceivers,as well as network transmission products such as network switches,industrial switches,wireless bridges,wireless AP(access point)and AC Hikvision 2017 Annual Report 20(access point controller),and

120、etc.In 2017,the Company launched the remote POE switch product series and wireless bridge product series for elevators,making a more rapid and convenient network access for perception-end equipment.2.3 AI Cloud Boosting Intelligent Applications to Industries According to the AI Cloud architecture,Hi

121、kvision is devoted to enhancing its top four capability in AI resources schedulability,on-demand data convergence,scenario-based application and integrated operation and maintenance services for public security,transportation,law enforcement,education and healthcare,energy,finance,intelligent buildi

122、ng,etc.,in an attempt to empower various industries to realize intelligent transformation.For example,in the public security field,AI Cloud helps to combat crime and maintain a stable civil life;in the public service field,AI Cloud serves intelligent transportation and creates a green and harmonious

123、 ecological environment;in the commerce field,AI Cloud helps owners optimize products and services,and enhance operational efficiency;in the finance field,AI Cloud enables precision marketing and improves customer experience;and in the education field,AI Cloud will help achieve intelligent education

124、 and innovate upon teaching management.2.3.1 Public Security-Taking XueLiang Project(雪亮工程雪亮工程)Solution as an Example Hikvision XueLiang Project Solution regards“multi-dimensional and stereoscopic mode,distributed intelligence,and global sharing”as the core concept,focuses on networking application c

125、onstruction of public security video surveillance,takes the five-level comprehensive treatment centers covering village(community),town(street),county(district),city and province as the command platform,bases on grid management,and applies technologies such as video surveillance,face matching,licens

126、e plate recognition,intelligent pre-alert,radio frequency identification and Big Dipper Navigation System,so as to build up the stereoscopic security prevention and control system,improve the refined and intelligent level in comprehensive treatment of social security,and get through the“last mile”of

127、 convenience service for the public.Hikvision 2017 Annual Report 21 Through hierarchical establishment of the public security video image information sharing platform,XueLiang Project converges massive governmental,industrial and social video image resources,so as to promote the sharing of video res

128、ources,and provide visualized support services in real-time monitoring,access to videos,etc.Meanwhile,based on AI capability,it converts video image resources into data resources,and maximizes the extraction of valued information;and based on massive valued data,it carries out in-depth analysis and

129、mining by big data technology,and provides data and service support for deep business application of government sectors and industries,so as to enhance public safety and security 2.3.2 Public Services-Taking Intelligent Traffic Comprehensive Management and Control Solution as an Example In the intel

130、ligent traffic field,Hikvision considers the big traffic data platform as the commanding height,and converges the data of urban bus,taxi,online car-hailing service,“passenger transport coach,tourism transport coach and dangerous goods transport vehicle”,highway passenger transportation,railway passe

131、nger transportation,freeway traffic flow,urban parking lot,etc.Based on the construction concept of“AI Cloud+urban traffic intelligent management”,the Company has achieved front-end side intelligent advancement,on-demand data convergence,layered autonomy and traffic management on cloud,and provided

132、integrated solutions and services for business applications of transportation management and urban traffic control,in order to safeguard the road traffic security,alleviate traffic flow pressure,optimize the external traffic services,enhance the traffic operation Hikvision 2017 Annual Report 22 effi

133、ciency,and promote the industry business innovation and the application transformation and upgrade.Making full use of the advanced technologies of AI,Augmented Reality(AR)and 3D positioning,etc.,Hikvision provides users with a command platform for holographic perception,precision analysis,real scene

134、 operation and efficient scheduling,and acquires panoramic videos of the monitoring points via the AR PanoVu camera.Meanwhile,the AR PanoVu camera can interlink with low-position cameras within the field of view in the form of virtual tags,and demonstrate the video data of low-position cameras,tollg

135、ate capture data,road traffic data,abnormal traffic incident data and other information by means of Picture-in-Picture.This can achieve the linkage between three-dimensional management and control and multi-businesses,which focuses on both the general situation and the details,facilitates inquiry,se

136、arch,positioning,description,alarming and linkage,and enhances operational command efficiency.2.3.3 Boosting Commercial Development-Taking Hikvision Cloud Visualized Management Platform(云云眸眸)System Solution as an Example Hikvision Cloud Visualized Management Platform(云眸)system solution is a large vi

137、deo networking and structured could platform solution constructed by Hikvision specially for commercial users under great chain business era on the basis of Hikvision EZVIZ(萤石)public cloud under the AI Cloud architecture.It can realize remote video inspection nationwide based on Internet technology,

138、conduct unified management of processes and Hikvision 2017 Annual Report 23 deliver results of video inspection according to management requirements.Meanwhile,through the front-end intelligent device,it can collect structured data in multiple aspects such as customer flow,human body attributes,etc.,

139、and provide management and operation data by combining the scenario-based demands,such as terminal customer analysis,customer group analysis,targeted advertising push,facial attendance system,etc.In addition,the Cloud Visualized Management Platform(云眸)has optimized the overall product design in term

140、s of convenient operation and efficient management,and greatly enhanced the usability and friendliness of the mobile APP terminal while intensifying the service capability of cloud data in the central terminal,thereby providing efficient technical tools for commercial users to improve their overall

141、operation.For example,Hikvisions Cloud Visualized Management Platform(云眸)helps to achieve precise marketing in the chain retail industry.Through the store traffic statistics device,it collects customer traffic data in and around the store;by combining the transaction settlement data via POS system,u

142、sers can see the sales turnover rate of products in the focus areas,which is helpful for retail analysis and decision making.In the catering industry,it enhances management efficiency and quality intensity by jointly establishing a operation and management cloud platform.Through Hikvisions Cloud Vis

143、ualized Management Platform(云眸),users can achieve services such as hygienic supervision on kitchens,management of store personnel,regular inspection on stores,upgrade supervision models,and streamline management of multi-site businesses.Meanwhile,it allows enterprises to provide an open interface li

144、nked with the WeChat Official Account,which makes the store management more transparent and healthy.Hikvision 2017 Annual Report 24 2.3.4 Intelligentizing Finance-Taking Intelligent Financial Branch Solution as an Example Hikvision considers“AI intelligentizing the edge,integrating cloud and edge co

145、mputing,and enhancing business agility”as the design philosophy,and organically integrates with various scenarios of the finance industry by relying on deep learning algorithm model and the full series of intelligent products,to establish a brand new customer identification and interactive marketing

146、 mode.Facial identification technology enables better control of marketing,customer service as well as better design of bank branch facilities by identifying customers and the dynamic flow of customers in the offices.The information release and display technology is designed to engage customers with

147、 information about financial products.Intelligent branches provide a differentiated experience for customers,and according to the standardized and regulated service requirements,Hikvision applies intelligent products to business channels such as counter,e-banking,self-service equipment,etc.,to provi

148、de financial customers with a safer identification matching approach,to prevent operational risks such as internal and external fraud,and to enhance overall business processing efficiency.2.3.5 Facilitating Campus Management-Taking Smart Education Solution as an Example Hikvision Smart Education pro

149、vides a full series of intelligent applications based on various businesses scenarios for users like schools,education bureaus and education groups.With respect to the current situation of Hikvision 2017 Annual Report 25 numerous campus security protection subsystems,and to meet management requireme

150、nts,Hikvision has launched a comprehensive integrated system for education security protection by integrating multiple subsystems including video surveillance,alarming management,personnel management and control,vehicle management and control,door access control management,dormitory management,schoo

151、l bus management and emergency response and command.This has deeply integrated the core work of safeguarding and achieving the“three-in-one”of security information system consisting of unified business planning,unified authority management and unified resource scheduling.Through real-time identifica

152、tion of personnel information,the school gate personnel control system can achieve the functions of risk early-warning of blacklist personnel,high-frequency appearance early-warning of strangers,face and identification matching of visitors,and management of restricted range of areas;the dormitory ma

153、nagement system deploys the facial capture camera at the entrance and exit of a student dormitory,which can simultaneously identify the faces of all personnel entering the dormitory,and help the dormitory administrator identify and check the identification of personnel while also ensuring access eff

154、iciency;based on the advanced analysis algorithm,the 4K teaching recording and broadcasting system can complete automatic broadcasting switching,achieve HD recording of routine teaching courses,and carry out teaching management and educational administration,such as analysis of class performance,att

155、endance rate statistics,routine classroom inspection,etc.Based on the development of deep learning technology,and by identification and analysis of face and vehicle,Hikvision 2017 Annual Report 26 as well as the innovation in teaching and campus management,Hikvision Smart Education System further ac

156、hieves the fusion,secondary refining and value adding of data.It is designed for comprehensive IoT perception and efficient and collaborative campus management,thus providing safe and convenient campus life services for teachers and students.To sum up,Hikvision“AI Cloud”strategy centers on user dema

157、nds,and integrates AI,big data,cloud computing,edge computing,and other technologies into an IoT application covering perception,transmission,cognition and application,in an effort to lead the intelligent IoT development based on the fusion of cloud and edge computing concepts.Hikvision continues to

158、 develop the market,provides customized solutions,products and services for various industries,and establishes new business development modes co-existing and co-developing with intelligent applications of various industries.2.4 Pursuing Prosperity Together with Industry Users and Building the New Ec

159、osystem of AI Cloud AI Cloud involves numerous aspects of the industry,requires multiple factors such as algorithm,computing power,product,data,training system,software platform and application software to jointly participate.Hikvision adheres to the principle of“openness,cooperation and win-win”,es

160、tablishes a complete system with open capabilities by opening the infrastructure,data resources,platform services and application interface,and collaborates with partners to build the new ecosystem of AI Cloud.Hikvision 2017 Annual Report 27 Meanwhile,it promotes and implements industry solutions ba

161、sed on AI Cloud architecture in various industries,cultivates and develops professional partners in segment industries and fields,and establishes an industrial ecological cooperation system;besides,Hikvision will also continue paying attention to the extension development of industry chain,and the c

162、onstruction of service ecosystems such as consultancy,operation and maintenance,security protection,etc.3.Hikvisions Innovative Businesses Centered on video technology,Hikvision has deployed five new innovative businesses.3.1 EZVIZ Guiding the Growth of Innovation Business and Laying a Foundation fo

163、r Commercial Intelligence Hikvision EZVIZ Internet Business serves the smart home and intelligent commercial fields,and over five years development,it realized the revenue of more than RMB 1 billion and achieved profitability in 2017.In terms of smart home,EZVIZ continues to improve the user experie

164、nce by advanced technologies,products and services,and provide home users with intelligent security services.The new products debuted in 2017 include the active defense Wi-Fi camera C3W,smart entry kit with a smart door viewer DP1 and intelligent fingerprint lock,human-shape-detection smart Wi-Fi bu

165、llet camera C5Si,etc.Together with EZVIZ cloud Hikvision 2017 Annual Report 28 platform and by combining IoT cloud platform and big data technology,these new products have effectively integrated home demands and scenarios such as intelligent control of household equipment,home environment perception

166、,home security perception as well as information communication,consumption service,etc.,so as to create a safe and convenient home,and provide users with the one-stop intelligent service solutions.In terms of intelligent commerce,EZVIZ has many types of security equipment for business purposes,which

167、 provide video services for business operation and management through video analysis by combining the globalized video cloud service platform-EZVIZ Cloud and by centering on the video content,and extend diversified applications.EZVIZ cloud can be connected to massive IoT equipment to support large-s

168、cale concurrence,achieve the interconnection between equipment and users,and interconnection between different equipment,and efficiently realize equipment networking.EZVIZ cloud provides rich and well-organized API interfaces,including the support of multiple platforms like Windows,Android,iOS and L

169、inux,so as to achieve cross-industry cooperation.With the operation nodes covering throughout the globe,EZVIZ Cloud can provide borderless real-time data transmission and application services for both domestic and overseas users,and has gradually become a public cloud platform carrying commercial in

170、telligence.3.2 The Rapid Growth in Other Innovative Businesses Laying the Foundation for the Companys Long-term and Sustainable Development Based on the Companys technical accumulation in the multi-dimensional perception and system control fields,Hikvision Robotics is mainly engaged in intelligent m

171、anufacturing,and developing mobile robots,machine Hikvision 2017 Annual Report 29 vision and industrial-level unmanned aerial vehicle(UAV).In the mobile robot field,Hikvision continues to launch reliable AGV(Auto Guided Vehicle)products and solutions,and help JD.COM,SF EXPRESS and other partners to

172、reduce operating costs and improve business efficiency.In 2017,the Company released the carrying robot(forklift)and carrying robot(compound robot)based on laser navigation,which has further enriched the product choices for customers.In the machine vision field,Hikvision endows the machine with perce

173、ptual ability by virtue of image identification,uses cameras to measure and judge in place of human eyes,and facilitates industrial automation;and it achieves stronger resolving power,larger sensitivity range and higher observation accuracy,and greatly enhances productivity.As the UAV influence on t

174、he consumer market increases,the application of industrial-level UAV is also increasing.For this purpose,the Company has presented various products such as the Falcon Series quad-rotor and hex-rotor aerial vehicles,Commander-Series All-In-One Ground Station,and Defender-Series Unmanned Aerial Vehicl

175、e Jammer,etc.,which help extend the security industry solutions from two-dimensional surface to three-dimensional space.Attributable to the increase in perception and computing power of semiconductor devices and the iterative development of network technology,automotive intelligence is emerging.The

176、Company extends the advantages of video technology to the automotive electronics field,and provides powerful protection for the driving safety of both industrial-level and consumer-level users by using advanced image capture technology and video analysis technology.The Company has developed various

177、intelligent automotive electronics products and solutions including the intelligent vehicle-mounted rearview mirror(云 镜),360 panoramic view system and vehicle-mounted intelligent surveillance system,which covers double chips of both the industrial-level image processor and the intelligent processor.

178、The Company has also launched the Advanced Driver Assistance Systems(ADAS)integrating the functions of vehicle front detection,lane departure warning(LDW),vehicle driver behavior analysis and right side blind area detection,etc.,so as to facilitate intelligent,comfortable and safe driving in future.

179、Hikvision 2017 Annual Report 30 The data size of data generated by the video surveillance industry reaches ZB level every year.As a leader in the video surveillance industry,Hikvision has deployed the business of solid state disks(SSD)and intelligent storage solutions by combining the development pr

180、ospects of AI and big data.In 2017,the Company launched a number of industrial-level,industry-level,data center-level and consumer-level products based on SSD as the carrier,as well as personal portable NAS,private cloud and other storage application solutions to meet the data storage demands of per

181、sonal and home users.Hikvision Weiying(海 康 微 影)is a provider of far infrared(IR)sensors centered on MEMS(Micro-electromechanical Systems)technology.Based on the deep understanding of security applications,Hikvision lays out the uncooled infrared(IR)sensors,and has launched thermal imaging sensors ap

182、plicable to multiple fields such as security surveillance,driving assistance,disaster forecast,industrial temperature measurement,medical inspection and quarantine,consumer electronics,etc.The Companys innovative businesses are carried out on the basis of video technology and based on users demands.

183、Hikvision will continuously expand the new technologies and new applications,look for more market opportunities,and lay a solid foundation for the Companys long-term and sustainable development.4.Market Demands and Technology Motivation Security is a priority in countries and regions worldwide,and t

184、he continual improvement of security protection capability is in demand.Governments,enterprises and families in various countries want security products,and complex business demands further promotes the diversity of products and the development of Hikvision 2017 Annual Report 31 overall solutions.Me

185、anwhile,growth of the existing market and the increasing new demands have contributed to video surveillance industry growth.In terms of technical R&D for satisfying and leading customer demands,the long-term planning and continual investment contribute to the Companys sustainable development and inn

186、ovation in technical fields,as technical innovation is the powerful impetus driving corporate development.Along with the application of Artificial Intelligence(AI)technology in the video field,video as the perception dimension with the richest information content is gradually becoming an important m

187、ethod for supporting transformation and upgrading of traditional industries.The combination of AI,video technologies and business demands is promoting development of video technologies from an application focusing on security assurance to an important application for improving business management ef

188、ficiency in more and more industries.Based on our accumulation in products,software,solutions and industry applications,weve constructed a three-dimensional IoT-based intelligent system architecture-AI Cloud,which puts forward the core concept of“edge perception,on-demand(data)convergence,multi-laye

189、r cognition and multi-tier application”,responds to the basic construction ideas for IoT infrastructure,data resources,platform services and application software,goes beyond R&D at specific scheme level,forms into a systematically theoretic architecture and guideline,and provides the direction for i

190、ndustry development.II.Significant changes in main assets 1.Major Changes in Main Assets Major assets Explanation on Major Changes Equity Assets Increased by 31.08%,mainly due to investment to Maxio Technology(Hangzhou)Ltd.Fixed Assets No significant changes Intangible Assets No significant changes

191、Construction in Progress Increased by 353.84%,mainly due to the investment to Internet Security Industry Base and Security Industrial Base(Tonglu)project-phase 2.2.Major Overseas Assets Applicable Inapplicable III.Core Competitiveness As an industry leader,Hikvision insists on technology leadership,

192、centers on customer demands,widely Hikvision 2017 Annual Report 32 converges the talents and builds global comprehensive competitive advantages by virtue of strong R&D,sales,production and service integration capabilities as well as software,hardware and system integration capabilities.1.Closely Foc

193、using on Customer Demands to Develop the Segment Industry Hikvision promotes R&D by centering on meeting the market demands;based on customer demands,Hikvision carries out in-depth development and customization close to the industry,ensuring the products and solutions comply with and properly guide

194、the market demands,and helps users to create value.The video application scenarios are scattered.Customers of various industries have their respective and rich business scenarios of different business logics,and they have very different demands for video applications.In terms of hardware,the Company

195、 has more than 10,000 product models available for sale,and provides rich product types and segmented product models for differentiated scenario demands to achieve the best performance requirements.In terms of solutions,the Company has multiple scenario-based software platform solutions for the seve

196、n industries of public security,transportation,law enforcement,education and healthcare,finance,energy and intelligent building,and provides software and hardware combination solutions and business operation modes specific to different business demands.All of our actions from supplying products to p

197、roviding solutions and launching the strategy of“platform+ecosystem”are based on the Companys deep understanding and confidence of the market.Hikvision will closely center on the customer demands to promote the concept of“industry segmentation,regional grass-roots marketing and end-to-end business d

198、evelopment”continuously,always listening to customers to continue improving the solution customization capability and consultative selling capability,and constantly transforming technology into market value.2.Optimizing the R&D System and Enhancing the R&D Efficiency Hikvision has established a R&D

199、center system,which is headquartered in Hangzhou and covers Beijing,Shanghai,Chongqing,Wuhan,Xinjiang,and Montreal in Canada,Silicon Valley in the United States and Liverpool in Britain,and plans to establish new R&D bases in Xian,Wuhan,Chengdu,Chongqing and Shijiazhuang.Hikvision has established a

200、three-in-one hierarchical R&D system consisting of the technology platform,product platform and solution platform.Technology platform is the foundation of product platform and solution Hikvision 2017 Annual Report 33 platform.Innovation and growth of the technology platform,products and solutions en

201、sures continual competitiveness;without the support of product platform and solution platform,the technology would be prone to remaining at the academic research level.The Companys three R&D platforms are subject to different functions and mutual cooperation at the same time,enabling the technology,

202、product and solution platforms to integrate and complement each other,thereby jointly facing and quickly satisfying the users needs.A sound operation system enables the R&D team to achieve continual innovation and launch the products and applications leading the industry,and meanwhile,to summarize a

203、nd adjust the R&D priorities according to market feedbacks,enhance product functions and performance,and form effective,market-oriented R&D.3.Improving Manufacturing Flexibility and Enhancing Product Delivery Capability The fragmentation of video application scenarios leads to a relatively scattered

204、 market.The Company receives more than 1,000 product orders every day,and each order contains more than 10 types of product items on average.Effectively and accurately conducting demand forecasts and management for raw materials,and flexibly and efficiently coordinating plans and organizing producti

205、on are key for the Companys supply chain to cope with the diversified demands,optimize costs and enhance efficiency.Hikvision currently has three manufacturing bases in Hangzhou,Tonglu and Chongqing,and has a large-scale production expansion plan in Tonglu,Wuhan and Chongqing,so as to ensure steady

206、and rapid development of the Companys business.So far,the Company has gradually launched more than 800 intelligent warehouse robots(阡陌)at the Tonglu Production Base,so as to comprehensively implement the warehousing and internal logistics automation,reducing the labor cost by approximately 50%and im

207、proving efficiency by nearly 80%.The Company will continue implementing the intelligent factory construction to strengthen the intelligence level of the design and manufacturing system with the support of a comprehensive information system and by virtue of the IoT technology and automation technolog

208、y.Based on the Tonglu Production Base template,well build up more agile,flexible and scaled intelligent factories,develop the leading production,manufacturing and service capability,and further enhance production efficiency.4.Optimizing the Marketing Service System to Better Serve the Users Hikvisio

209、ns marketing service network spreads all over the world to achieve resource allocation worldwide.The Company owns 35 branches and more than 200 liaison offices in Mainland China;and has established 37 overseas sales branches,forming a marketing network covering more than 100 countries and regions in

210、 overseas Hikvision 2017 Annual Report 34 markets,with the independently branded products being sold to more than 150 countries and regions.In addition to the self-built marketing network,Hikvision has also established a three-tier service system,which comprises the Global Customer Service Center,th

211、e Branch Customer Service Department and the Authorized Customer Service Station.Through cooperating with tens of thousands of partners,such as engineering contractors,distributors and outsourced service providers,the Company provides multi-dimensional services including product delivery,project del

212、ivery,software deployment,system operation and maintenance,etc.to customers in various industries and different regions.Moreover,the Company continuously improves the product and technical service standards,provides an all-round certification and training system for partners,and enhancing their prof

213、essional qualifications to serve the users together.5.Establishing a Long-term Talent Training and Incentive System to Support the Companys Sustainable Development Talent training is the top priority of the Company.A well-organized talent development and training system helps the employees grow and

214、gain the sense of accomplishment and sense of belonging,and is the impetus for the Companys sustainable and sound development.The Company has always adhered to the talent-focused,growing together employment concept,and has set up a dual career development path consisting of management sequence and p

215、rofessional sequence,established a professional qualification evaluation system and a talent assessment system,and implemented a multi-level training mechanism,so as to continuously cultivate the core talents and back-up talents for the Company.In addition to providing employees comprehensive welfar

216、e and compensation benefits,which are competitive in the industry,the Company has implemented three restricted share incentive schemes since 2012,awarding nearly 5,000 employees,covering the core talent team from the management staffs and business backbones of various levels and focusing on business

217、 backbones as the main incentive objects,thereby maintaining the stability and motivation of core talents.In 2016,the Company implemented the innovative business co-investment mechanism for core staffs,under which employees can become a shareholder of our innovative businesses.Such innovative busine

218、sses have become an incubator for entrepreneurship and growth of employees,while the employee co-investment mechanism is becoming a significant system guarantee for the Companys sustainable development.Hikvision 2017 Annual Report 35 Section IV Operation Discussion and Analysis I.Overview In 2017,th

219、e global economy recovered slowly in fluctuation,the increasing protectionist tendency in developed economies led to continuously rising uncertainty risks.The video surveillance industry benefited from the overall stability in domestic economic environment and the development of AI technology,but al

220、so suffered from the pressure due to changes in trade protection and increased cross-industry competition.Hikvision continued to maintain solid growth through our own operations and efforts.Facing the complicated domestic and overseas environment,the Company took a targeted regional strategy,and ins

221、isted on guidance by customer demands and stimulation by technological innovation,thereby promoting the profitable growth.During the reporting period,the Company achieved total operating income of RMB 41.91 billion,increased by 31.22%on a year-over-year basis;and net profit attributable to sharehold

222、ers of the listed company of RMB 9.41 billion,increased by 26.77%on a year-over-year basis.The Companys overall gross profit margin was 44.00%in 2017,increased by 2.41%on a year-on-year basis.II.Core business analysis 1.Overview（1）Leading the Industry Development by Technological Innovation In 2017,

223、the Companys research and development(R&D)investment reached RMB 3.19 billion,accounting for 7.62%of its total sales volume.The Company maintains a relatively large scale R&D investment,with the number of R&D and technical service personnel in excess of 13,000.The Company considered the construction

224、 of intelligent product systems and solutions as the strategic direction,completed the core product layout of edge node,edge domain and cloud center based on the AI Cloud architecture,developed numerous industry intelligent application solutions,injected AI into the products and solutions,formed the

225、 competitive edges in video intelligence,and continued to maintain the leading position by virtue of technology,product innovation and solution innovation.The Company has kept continual investment and innovation in technology,and maintained the competitiveness in products and solutions through the t

226、hree-in-one R&D system consisting of the technology platform,product platform and solution platform.Meanwhile,the Company constantly strengthened the inputs in Hikvision 2017 Annual Report 36 systematic work such as R&D management,quality management and cyber-security management,and helped enhance t

227、he systematic,standard and security level of R&D.（2）Optimizing Marketing Strategy and Continuing Expand the Market For the domestic market,the Company constantly promoted the marketing strategy of“industry segmentation,regional grass-roots marketing and end-to-end business development”,enabled regio

228、nal sales branches to cooperate closely with the business departments of vertical industries,and further optimized the coverage of the marketing network.The Company continued to improve the product and technical service system,and continuously enhanced the technical service capability while providin

229、g high-quality products and solutions to users.As for the channel market,the Company established partnerships with multiple channel partners,strengthened sales supervision and standardized the channel market;the Company continued improving the Internet marketing platform,promoted product standardiza

230、tion and market transparency,and facilitated well-organized competition and healthy development of the industry.For the overseas market,the Company established seven overseas subsidiaries in Kenya,Uzbekistan,Hungary,New Zealand,Czech,Malaysia and Germany and two new offices respectively in Indonesia

231、 and Vietnam in 2017;with 37 overseas branches,106 overseas service points and 77 authorized repair centers,the Companys overseas sales network has been further improved.The Company continued expanding from channel distribution market to project market,strengthened the input in overseas project mark

232、et,improved the product influence in overseas markets,and better served local customers.In 2017,the Company achieved major project breakthroughs in Singapore,and made some progress in the project markets of many countries and regions.（3）Development of Innovative Businesses to Create Innovation Impet

233、us EZVIZ business continued to develop rapidly.By the end of 2017,the devices connected to EZVIZ Cloud reached 28 million,and the number of EZVIZ Cloud APP users exceeded 20 million.In 2017,EZVIZ launched new products such as smart door viewer and smart door lock to enrich the product choices of med

234、ium-to-small and micro enterprises,families and individual users.Based on the growing opening platform of EZVIZ Cloud business,the Company has carried out new types of business such as Hikvision Cloud Visualized Management Platform(云眸)to provide SaaS-based comprehensive services of video analysis an

235、d big data information management for business users,which integrated with traditional security business of the Company to Hikvision 2017 Annual Report 37 complement each other and promote the rapid development of intelligence in the industry.In 2017,EZVIZ recorded operating revenue of more than RMB

236、 1 billion and succeeded in making profits,thereby becoming the first innovation business of the Company to achieve profitability.The robot business of Hikvision made rapid breakthroughs.In 2017,Hikvision Robotics launched the carrying robot(forklift)and carrying robot(compound robot)based on laser

237、navigation,as well as the more advanced industrial camera products and platform software,to further enrich the product choices for customers.Hikvision Robotics succeeded in helping JD.com,SF EXPRESS and other logistics industry customers to complete the implementation and application of complicated

238、automation projects,and developed a number of successful cases with great influence.In the UAV field,the Company has developed full product lines covering the Falcon Series quad-rotor and hex-rotor aerial vehicles,Commander-Series All-In-One Ground Station,and Defender-Series Unmanned Aerial Vehicle

239、 Jammer,etc.,indicating that the industrial-level UAV market is being gradually opened up.The automotive electronics business has developed comprehensively.The Company continuously diversified the post-mounted product types such as video and millimeter wave radar,and launched the intelligent automot

240、ive electronics products and solutions including the intelligent vehicle-mounted rearview mirror(云镜),360 panoramic view system and vehicle-mounted intelligent surveillance system.In terms of systems,the Company has also launched the Advanced Driver Assistance Systems(ADAS)integrating the functions o

241、f vehicle front detection,lane departure warning(LDW),vehicle driver behavior analysis and right side blind area detection,etc.,and applied the product to the pre-mounted customers and industry customers and markets.Hikvision Smart Storage launched a number of industrial-level and consumer-level sto

242、rage products and household storage center products,achieving rapid market breakthrough.Hikvision Weiying accumulated imaging technology,and promoted thermal imaging products to develop from the industrial-level application to the public market by virtue of better cost performance advantages.（4）Incr

243、easing Infrastructure Investment and Deploying R&D and Manufacturing Sub-Centers In 2017,the Company disclosed the investment plan of more than RMB 10 billion to prepare the construction of four R&D bases in Xian Wuhan,Chengdu and Shijiazhuang,expand Hangzhou R&D center,as well as construct two manu

244、facturing bases in Chongqing and Wuhan.The investment will provide office space and help ensure productivity needed to meet Hikvisions current and future business demands,and help the Company Hikvision 2017 Annual Report 38 expand the market.（5）Management Reform and Optimizing Internal Management In

245、 2017,the Company continuously strengthened process construction and optimization under the leadership of the Reform Management Committee;continuously promoted the system constructions such as BLM(Business Leadership Model)and IPD(Integrated Product Development)systems;continuously constructed the f

246、lat organization by implementing the policies of decentralization,disintermediation,downward shift of decision-making focus,etc.;and enhanced the internal management efficiency by continually promoting improvement and optimization of internal management.2.Operating incomes and operating costs 1)Oper

247、ating income structure Unit：RMB 2017 2016 YoY Change(%)Amount Proportion to operating income Amount Proportion to operating income Total operating income 41,905,476,572.07 100.00%31,934,544,088.82 100.00%31.22%Classified by industry Video products and video services 41,905,476,572.07 100.00%31,934,5

248、44,088.82 100.00%31.22%Classified by product Front-end equipment 21,090,230,299.49 50.33%15,881,528,158.70 49.73%32.80%Back-end equipment 6,151,038,063.70 14.68%5,197,388,761.80 16.28%18.35%Central control equipment 5,073,899,931.95 12.11%3,988,683,952.14 12.49%27.21%Constructions 2,540,799,165.58 6

249、.06%1,451,424,275.00 4.54%75.06%Others 5,394,298,987.25 12.87%4,757,562,355.69 14.90%13.38%Subtotal 40,250,266,447.97 96.05%31,276,587,503.33 97.94%28.69%Smart home business 1,090,629,830.13 2.60%507,566,718.33 1.59%114.87%Other innovative businesses 564,580,293.97 1.35%150,389,867.16 0.47%275.41%Su

250、btotal 1,655,210,124.10 3.95%657,956,585.49 2.06%151.57%Hikvision 2017 Annual Report 39 2017 2016 YoY Change(%)Amount Proportion to operating income Amount Proportion to operating income Classified by region Domestic 29,661,186,316.32 70.78%22,574,159,436.75 70.69%31.39%Overseas 12,244,290,255.75 29

251、.22%9,360,384,652.07 29.31%30.81%Note:in the category classified by product,“smart home business”under innovative businesses was listed separately starting from this reporting period,and the“other innovative businesses”includes corresponding business products of innovative business subsidiaries-Hikv

252、ision Robotics,and Hikvision Automotive Technology,Hikvision Weiying,Hikvision Storage,and Similar hereinafter.2)Industries,products or regions accounting for more than 10%of the Companys operating income or operating profit Applicable Inapplicable Unit:RMB Operating income Operating cost Gross marg

253、in YoY Change(%)of operating income YoY Change(%)of operating cost YoY Change(%)of gross margin Classified by industry Video products and video services 41,905,476,572.07 23,467,310,590.76 44.00%31.22%25.81%2.41%Classified by product Front-end equipment 21,090,230,299.49 10,354,906,543.30 50.90%32.8

254、0%26.49%2.45%Back-end equipment 6,151,038,063.70 3,164,186,804.35 48.56%18.35%16.96%0.61%Central control equipment 5,073,899,931.95 2,320,570,446.43 54.26%27.21%12.15%6.14%Constructions 2,540,799,165.58 2,280,617,025.82 10.24%75.06%71.66%1.78%Others 5,394,298,987.25 4,293,560,908.63 20.41%13.38%8.27

255、%3.76%Subtotal 40,250,266,447.97 22,413,841,728.53 44.31%28.69%22.78%2.68%Smart home business 1,090,629,830.13 708,022,298.25 35.08%114.87%114.86%0.01%Other innovative businesses 564,580,293.97 345,446,563.98 38.81%275.41%408.84%-16.04%Subtotal 1,655,210,124.10 1,053,468,862.23 36.35%151.57%165.07%-

256、3.25%Classified by region Domestic 29,661,186,316.32 17,196,669,563.86 42.02%31.39%25.09%2.92%Overseas 12,244,290,255.75 6,270,641,026.90 48.79%30.81%27.84%1.19%Hikvision 2017 Annual Report 40 Adjusted statistics of principal business are based on the caliber at the end of the reporting period of la

257、st year,if the statistics 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 Industry Item Unit 2017 2016 YoY Change(%)Video products and video services Sale

258、s volume Per unit 98,345,860 68,801,020 42.94%Output volume Per unit 100,205,025 70,402,646 42.33%Inventory Per unit 6,883,937 5,024,772 37.00%Explanation on why the related data varied by more than 30%on a YOY basis Applicable Inapplicable During the reporting period,the Companys sales volume,outpu

259、t volume and inventory grew with the steady and healthy increase of the operating performance.(4)Fulfillment of signed significant sales contracts by the reporting period Applicable Inapplicable (5)Operating cost structure Classified by industry and products Unit:RMB Industry Item 2017 2016 Increase

260、/decrease over previous year Amount Proportion to operating cost Amount Proportion to operating cost Video products and video services Operating cost 23,467,310,590.76 100.00%18,652,707,155.56 100.00%25.81%Unit:RMB Product Item 2017 2016 Increase/decrease over previous year Amount Proportion to oper

261、ating cost Amount Proportion to operating cost Front-end equipment Operating cost 10,354,906,543.30 44.12%8,186,413,345.14 43.89%26.49%Back-end equipment Operating cost 3,164,186,804.35 13.48%2,705,461,109.51 14.50%16.96%Central control equipment Operating cost 2,320,570,446.43 9.89%2,069,135,295.77

262、 11.09%12.15%Constructions Operating cost 2,280,617,025.82 9.72%1,328,601,510.98 7.12%71.66%Others Operating cost 4,293,560,908.63 18.30%3,965,672,628.93 21.26%8.27%Subtotal Operating cost 22,413,841,728.53 95.51%18,255,283,890.33 97.86%22.78%Smart home business Operating cost 708,022,298.25 3.02%32

263、9,534,759.28 1.77%114.86%Hikvision 2017 Annual Report 41 Product Item 2017 2016 Increase/decrease over previous year Amount Proportion to operating cost Amount Proportion to operating cost Other innovative businesses Operating cost 345,446,563.98 1.47%67,888,505.95 0.37%408.84%Subtotal Operating cos

264、t 1,053,468,862.23 4.49%397,423,265.23 2.14%165.07%(6)Any change in consolidation scope during the reporting period Yes No During the reporting period,the Company has newly set up eight wholly-owned subsidiaries and eight holding subsidiaries,acquired one company,and cancelled one company,which have

265、 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 Companys business,products or services during the reporting period:Applicable Inapplicable (8)Major customers and

266、suppliers:Sales to major customers of the Company Sales to top five customers(RMB)2,224,928,412.84 Total sales to top five customers as a percentage of the total sales for the year(%)5.31%Total sales to the related parties in top five customers as a percentage of the total sales of the year(%)1.90%I

267、nformation on top five customers No.Name of Customer Sales Amount(RMB)Percentage of total sales for the year 1 First 817,548,444.32 1.95%2 Second(related party)796,423,974.48 1.90%3 Third 225,764,450.52 0.54%4 Fourth 221,821,004.78 0.53%5 Fifth 163,370,538.74 0.39%Total-2,224,928,412.84 5.31%Other i

268、nformation of major customers Applicable Inapplicable The Companys second customer regarding sales amount is a related party:branch research institute and subsidiary of CETC(under the common control of CETC,consolidated as required)Hikvision 2017 Annual Report 42 Major suppliers of the Company Total

269、 purchases from top five suppliers(RMB)7,162,069,353.84 Total purchases from top five suppliers as a percentage of the total purchases for the year 29.23%Total purchases from the related parties in the top five suppliers as a percentage of the total purchases for the year 0.00%Information on top fiv

270、e suppliers of the Company No.Supplier Name Purchase Amount(RMB)Percentage of total purchase for the year 1 First 3,800,476,717.20 15.51%2 Second 1,257,751,104.57 5.13%3 Third 783,310,867.67 3.20%4 Fourth 738,069,618.85 3.01%5 Fifth 582,461,045.55 2.38%Total -7,162,069,353.84 29.23%Other information

271、 on major suppliers Applicable Inapplicable 3.Expenses Unit:RMB 2017 2016 Increase/decrease over previous year Note of significant change Sales expenses 4,430,220,065.13 2,991,273,819.81 48.10%Improve sales network,increase personnel contribution Administrative expenses 4,205,437,565.45 3,109,309,83

272、7.05 35.25%Expansion of the scale of operation,increase of R&D expense Financial expenses 265,411,287.66-225,305,567.12-217.80%Increase of exchange losses 4.R&D Investment Applicable Inapplicable Benefited from the professional intellectual property management system,the Company has newly added 684

273、patents(including 93 patents for invention,148 utility models and 443 product design patents),and newly added 165 software copyrights.As of the end of 2017,the Company had accumulatively owned 1959 patents(including 397 invention patents,471 utility models and 1091 product design patents),and owned

274、769 software copyrights.During the reporting period,the Company invested RMB 3.19 billion in R&D,which accounted for 7.62%of the 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 posi

275、tion and rapidly transform technical Hikvision 2017 Annual Report 43 advantage to product superiority,so as to continually promote the growth of the Companys performance.R&D investment of the Company 2017 2016 Change Percentage Number of Engineers(ppl)13,085 9,366 39.71%Percentage of Total headcount

276、 49.70%46.80%2.90%Amount of R&D expenses(RMB)3,194,223,108.16 2,433,400,645.23 31.27%R&D investment as a percentage of operating income 7.62%7.62%0.00%Capitalized R&D expenses(RMB)0.00 0.00 0.00%Capitalized R&D expenses as a percentage of R&D expenses 0.00%0.00%0.00%Reason of significant change of t

277、otal 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 Item 2017 2016 Increase/decrease over previous year S

278、ubtotal of cash inflows from operating activities 45,403,833,925.46 35,756,663,658.06 26.98%Subtotal of cash outflows from operating activities 38,030,673,674.78 29,540,299,016.01 28.74%Net cash flows from operating activities 7,373,160,250.68 6,216,364,642.05 18.61%Subtotal of cash inflows from inv

279、esting activities 10,418,044,681.02 5,071,127,419.52 105.44%Subtotal of cash outflows from investing activities 11,626,742,349.71 8,454,293,960.61 37.52%Net cash flows from investing activities-1,208,697,668.69-3,383,166,541.09 64.27%Subtotal of cash inflows from financing activities 3,642,688,936.0

280、6 8,480,182,623.37-57.04%Subtotal of cash outflows from financing activities 7,044,435,588.93 8,037,387,072.16-12.35%Net cash flows from financing activities-3,401,746,652.87 442,795,551.21-868.24%Net increase in cash and cash equivalents 2,506,847,571.89 3,488,868,947.09-28.15%Explanation of why th

281、e 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;Hikvision 2017 Annual Report 44 the fluctuation of net cash flows from investing activities is mainly due to the in

282、crease in the net recovery amount of principal-guaranteed financial products;the fluctuation of net cash flows from financing activities is mainly due to the euro bonds financing in prior year,versus no similar fund-raising activity in this year.Explanation of reasons leading to the material differe

283、nce between cash flow from operating activities during the reporting period and net profit for the year Applicable Inapplicable III.Non-Core Business Analysis Applicable Inapplicable Hikvision 2017 Annual Report 45 IV.Analysis of assets and liabilities 1.Material changes of asset items Unit：RMB Dece

284、mber 31st 2017 December 31st 2016 YoY Change(%)Note of significant change Amount Percentage of total assets Amount Percentage of total assets Cash and bank balances 16,468,430,702.64 31.93%13,638,078,139.56 32.98%-1.05%Increase in sales collection Accounts receivable 14,705,210,072.81 28.51%11,243,8

285、43,324.90 27.19%1.32%Increase follows the increase in sales revenue Inventory 4,940,332,311.65 9.58%3,829,947,876.75 9.26%0.32%Inventory increases as sales increase Long-term equity investment 130,474,733.58 0.25%35,000,000.00 0.08%0.17%Mainly due to investments in associates Fixed assets 3,024,025,

286、496.31 5.86%2,853,913,621.12 6.90%-1.04%No significant change in fixed assets during the current period Construction in process 1,436,319,118.30 2.79%316,482,522.36 0.77%2.02%Mainly due to increase of investments in projects i.e.Internet Security Industry Base,Security Industrial Base(Tonglu)Project

287、 Phase 2,and etc.Short-term loans 97,114,655.91 0.19%32,291,324.85 0.08%0.11%Increase due to increasing demand in temporary capital turnover Long-term loans 490,000,000.00 0.95%1,722,207,584.33 4.17%-3.22%Long-term loans due within one year were transferred to non-current liabilities due within one

288、year.Non-current liabilities due within one year 1,546,407,270.89 3.00%15,340,813.03 0.04%2.96%Hikvision 2017 Annual Report 46 2.Assets and liabilities measured at fair value Applicable Inapplicable Unit:RMB Item Opening balance Profit or loss from change in fair value during the period Difference i

289、n conversion of foreign currency statements Provision for decline in value during the current period Purchase during the period Sales during the period Closing balance Financial assets 1.Financial assets at fair value through profits and losses(exclude derivative financial assets)15,547,537.34-11,75

290、2,575.40 305,695.60 4,100,657.54 Subtotal of financial assets 15,547,537.34-11,752,575.40 305,695.60 4,100,657.54 Financial Liabilities 69,789,502.97 53,842,666.51 15,946,836.46 Whether there were any material changes on the measurement attributes of major assets of the Company during the Reporting

291、Period:Yes No 3.Assets right restrictions as of the end of reporting period Unit:RMB Item Closing Book Value Reasons for being restricted Monetary fund 439,245,433.47 Various cash deposits and deposit pledge for long-term loan Notes receivable 99,091,810.24 Pledge for issuance of bank acceptance Acc

292、ounts receivable 60,646,697.33 Pledge for long-term loan Total 598,983,941.04 V.Analysis of Investments 1.Overview Applicable Inapplicable Investment during 2017(RMB)Investment during 2016(RMB)Fluctuation(%)1,804,851,313.86 884,389,030.00 104.08%2.Significant equity investment during the reporting p

293、eriod Applicable Inapplicable Hikvision 2017 Annual Report 47 3.Significant non-equity investment during the reporting period Applicable Inapplicable Unit:RMB Project name Invest method Fixed assets investment or not Project industry Investment during the current reporting period Cumulative amount o

294、f investment by the end of reporting period Source of funds Project schedule Internet Security Industry Base Self-built YES Video product and video service 675,744,837.71 914,014,265.08 Bond 71%Security Industrial Base(Tonglu)phase 2 Self-built YES Video product and video service 297,975,685.07 300,

295、688,913.96 Bond 32%Chongqing Manufacture Base Self-built YES Video product and video service 87,310,592.95 89,393,611.81 Self-fund 17%Total -1,061,031,115.73 1,304,096,790.85-4.Financial assets measured at fair values Applicable Inapplicable Unit:RMB Category Initial investment cost Current profits

296、or losses on the changes in fair value Cumulative fair value change charged to equity Purchase during the reporting period Sales during the reporting period Cumulative investment income Closing balance Source of funds Derivative instruments 2,485,985,565.37 42,090,091.11 0.00 4,769,836,134.05 0.00 1

297、5,885,274.53 1,400,293,692.23 Companys own funds Total 2,485,985,565.37 42,090,091.11 0.00 4,769,836,134.05 0.00 15,885,274.53 1,400,293,692.23-5.Use of raised funds Applicable Inapplicable During the reporting period,there was no use of raised fund Hikvision 2017 Annual Report 48 VI.Disposal of sig

298、nificant assets and equity 1.Disposal of significant assets:Applicable Inapplicable During the reporting period,there was no disposal of significant assets 2.Sale of significant equity:Applicable Inapplicable Hikvision 2017 Annual Report 49 VII.Analysis of major subsidiaries and investees Applicable

299、 Inapplicable Information about major subsidiaries,and investees that contribute above 10%of the Companys Net Profit Unit：RMB Company name Company type Principal business Registered capital Total assets Net assets Operating revenue Operating profit Net profit Hangzhou Hikvision System Technology.Co.

300、,Ltd.Subsidiary 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;manufacturing:video surveillance system,selling its self-pro

301、duced products,import and export its own products and technology.600 million 3,221,059,335.96 1,141,353,846.43 3,333,441,412.17-1,201,888.82 21,765,952.09 Hangzhou Hikvision Science and Technology Co.Ltd.Subsidiary Manufacturing:security electronic product,intelligent hardware electronic products,ex

302、plosion-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

303、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 p

304、hone,cordless phone,handheld wireless police terminal,hand held mobile police terminal;；import and export business 1000 million 21,355,691,123.68 1,991,103,008.73 39,233,313,930.37 695,206,278.08 535,840,371.64 Hikvision 2017 Annual Report 50 Information about obtaining and disposal of subsidiaries

305、during the reporting period Applicable Inapplicable Company name Equity acquisition and disposal method during the reporting period Impact on overall production results Hangzhou Haikang Ximu Intelligent Technology Co.,Ltd.Business merger involving enterprises under common control Business developmen

306、t Hikvision New Zealand Limited Cash contribution Expand overseas sales channels Wuhan Hik Storage Technology Co.,Ltd.Cash contribution Business development Urumchi Hai Shi Xin An Electronics Technology Co.,Ltd.Cash contribution Business development Chengdu Hikvision Digital Technology Co.,Ltd.Cash

307、contribution Business development Hangzhou Hik Automotive Software Co.,Ltd.Cash contribution Business development Hangzhou Haikang Intelligent Technology Co.,Ltd.Cash contribution Business development Wuhan Hik Storage Software Co.,Ltd.Cash contribution Business development Hangzhou EZVIZ Software C

308、o.,Ltd.Cash contribution Business development PiShanHaiShi YongAn Electronic Technology Co.,Ltd.Cash contribution Business development MoYuHaiShi Electronic Technology Co.,Ltd.Cash contribution Business development Hikvision Kenya(Pty)Ltd.Cash contribution Expand overseas sales channels Hikvision Ta

309、shkent LLC Cash contribution Expand overseas sales channels Hikvision Hungary Kft Cash contribution Expand overseas sales channels Hikvision(Malaysia)SDN.BHD.Cash contribution Expand overseas sales channels Hikvision Czech s.r.o.Cash contribution Expand overseas sales channels Hikvision Deutschland

310、GmbH Cash contribution Expand overseas sales channels Wuhan Hikvision System Technology Co.,Ltd.Liquidation Adjustments of organizational framework VIII.Structural entities controlled by the Company Applicable Inapplicable IX.Outlook for the Future Development of the Company 1.Industry developing tr

311、ends 1.1 Continual Growth in Traditional Comprehensive Security Needs with Emerging Intelligent Business Demands Hikvision 2017 Annual Report 51 Security is the basis of a happy life,so continuously enhancing the security and protection capability is an inevitable requirement for development.The sec

312、urity needs of governments,enterprises and families in various countries will increase continually,while the demand for traditional comprehensive security business will maintain stable growth.Along with the application of AI technology in video field,video surveillance has become an important approa

313、ch to facilitate transformation and upgrade of the traditional industry,and the segment markets of various industries have generated substantial demands for video intelligence;the intelligence business cases of various industries are being implemented and copied,and the new market growth space is op

314、ening up.1.2 Expansion of the Industry Pattern with new competition format emerges The application of AI technology has enabled the video surveillance industry to transform from post investigation to pre-warning and interim management,and greatly expanded the feasibility of video technology applicat

315、ion in business management.As the industry pattern further opens,video surveillance industry starts to have has cross-business with high-tech,Internet and other industries,forming into a new competition pattern,which brings both opportunities and challenges.1.3 Continuously Increasing Uncertainty Fa

316、ctors of the Global Market Leading to both Opportunities and Challenges The competition of Chinese companies at the overseas market was restricted by economic and political environment of respective countries and regions,and the uncertainty risk of overseas market increased continuously,leading to f

317、urther higher uncertainty in business development.2.Development Strategy of the Company Hikvision is an IoT solution provider with video as its core competence.The Company adheres to the business philosophy of professionalism,honesty,and integrity”,is dedicated to core corporate value of“clients suc

318、cess,value-oriented,integrity and down-to-earth,pursuit of excellence”The Company provides high-quality products and services for global customers and create greater values for customers worldwide through continuous innovation.With the corporate mission of“exploring innovative ways to better perceiv

319、e and understand the world,empowering vision for decision-makers and practitioners and work together to enhance safety and advance sustainable development of the world”(“善见致知、同行致远”),the Company is committed to developing new Hikvision 2017 Annual Report 52 vision for the security.3.Key Operation Pri

320、orities in 2018(1)Effectively promote the AI Cloud and boost the rapid development of intelligent applications.The Company will follow up the development of new technologies such as AI,big data,cloud computing,edge computing,etc.,grasp the market opportunities in public security upgrade,urban treatm

321、ent upgrade and corporate management upgrade,and lead the intelligent development direction of the industry.(2)Continuously increase R&D investment and constantly promote technological innovation.Based on the R&D system advantages of technology platform,product platform and solution platform,the Com

322、pany will maintain its leading level in core technology fields including video technology,multi-dimensional perception,AI,big data analysis,etc.,and conduct research and development of more excellent products and solutions to lead,response to and fulfill the customer demands.(3)Optimize the marketin

323、g system and listen to the customers voice.The Company will continuously construct and adjust the marketing system according to regional market features,and establish the sales and service system closer to customers.(4)Orient on both products and solutions and constantly expand the overseas project

324、market.The Company will accelerate the upgrade and iteration of overseas products,enrich the product lines for overseas markets,and enlarge the market share of overseas channels;and expand the overseas project market for more breakthroughs by focusing on key regions and industries.(5)Constantly deve

325、lop innovative business and cultivate more development opportunities.The Company will continue to develop EZVIZ,robotics,automotive electronics,intelligent storage,Hikvision Weiying and other innovative businesses,and continue to deploy the emerging business with a promising prospect and the key tec

326、hnical segments.(6)Continuously deepen organizational reform and enhance management efficiency.The Company will continue to learn from the world-class enterprises about the successful practical experience,improve the internal management level,and enhance the management efficiency.Hikvision 2017 Annu

327、al Report 53 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 reception Method of reception Type of reception object Basic situation of the research From J

328、anuary 3rd,2017 to January 20th,2017 Site Research and telephone communication Institutional investors CNINF,Investor Relations Activity Record:From January 3rd,2017 to January 20th,2017 From February 6th,2017 to February 10th,2017 Site Research and telephone communication Institutional investors CN

329、INF,Investor Relations Activity Record:From February 6th,2017 to February 10th,2017 From February 13th,2017 to February 24th,2017 Site Research and telephone communication Institutional investors CNINF,Investor Relations Activity Record:From February 13th,2017 to February 24th,2017 From February 27t

330、h,2017 to March 10th,2017 Site Research and telephone communication Institutional investors CNINF,Investor Relations Activity Record:From February 27th,2017 to March 10th,2017 April 14th,2017 Annual performance result Conference Call Institutional and individual investors CNINF,Investor Relations Ac

331、tivity Record:April 14th,2017 From April 17th,2017 to April 28th,2017 Site Research and telephone communication Institutional investors CNINF,Investor Relations Activity Record:From April 17th,2017 to April 28th,2017 May 4th,2017 Investor Reception Day Institutional and individual investors CNINF,In

332、vestor Relations Activity Record:May 4th,2017 From May 8th,2017 to May 19th,2017 Site Research and telephone communication Institutional investors CNINF,Investor Relations Activity Record:From May 8th,2017 to May 19th,2017 From May 22nd,2017 to May 27th,2017 Site Research and telephone communication

333、 Institutional investors CNINF,Investor Relations Activity Record:From May 22nd,2017 to May 27th,2017 From June 5th,2017 to June 9th,2017 Site Research and telephone communication Institutional investors CNINF,Investor Relations Activity Record:From June 5th,2017 to June 9th,2017 From June 12th,2017 to June 23rd,2017 Site Research and telephone communication Institutional investors CNINF,Investor