Announcements
ZTE's revenue rises 12.7% in 1H2022 to US$8.65 billion - Converge Digest
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
ZTE CORPORATION (a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 763)
2022 INTERIM RESULTS ANNOUNCEMENT
The Company and all the members of the Board of Directors confirm that all the information contained in this information disclosure is true, accurate and complete and that there is no false and misleading statement or material omission in this information disclosure.
The board of directors (the "Board") of ZTE Corporation (the "Company") hereby announces the unaudited results of the Company and its subsidiaries (the "Group") for the six months ended 30 June 2022. This announcement, containing the full text of the 2022 Interim Report of the Company, complies with the relevant requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited in relation to information to accompany preliminary announcement of interim results.
Both the Chinese and English versions of this results announcement are available on the websites of the Company (www.zte.com.cn) and The Stock Exchange of Hong Kong Limited (www.hkexnews.hk). The Company's 2022 Interim Report will be dispatched to holders of H shares and published on the websites of the Company and The Stock Exchange of Hong Kong Limited in due course.
By Order of the Board Li Zixue Chairman
Shenzhen, the PRC 26 August 2022
As at the date of this announcement, the Board of Directors of the Company comprises three executive directors, Li Zixue, Xu Ziyang, Gu Junying; three non-executive directors, Li Buqing, Zhu Weimin, Fang Rong; and three independent non-executive directors, Cai Manli, Gordon Ng, Zhuang Jiansheng.
1
Important
The Board of Directors, Supervisory Committee and the Directors, Supervisors and senior management of the Company warrant that the contents of this report are true, accurate and complete without any false information, misleading statements or material omissions, and accept individual and collective legal responsibility.
There are no Directors, Supervisors or senior management who do not warrant or who dispute the truthfulness, accuracy and completeness of the contents of this report.
This report has been considered and approved at the Fourth Meeting of the Ninth Session of the Board of Directors of the Company. Mr. Gu Junying, Director, was unable to attend the meeting due to work reasons and has authorised Mr. Li Zixue, Chairman, to vote on his behalf; Ms. Fang Rong, Director, was unable to attend the meeting due to work reasons and has authorised Mr. Zhu Weimin, Director, to vote on her behalf.
The interim financial reports of the Group for the six months ended 30 June 2022 were prepared in accordance with PRC Accounting Standards for Business Enterprises and unaudited.
Mr. Li Zixue, Chairman of the Company, Ms. Li Ying, Chief Financial Officer of the Company and Mr. Xu Jianrui, Head of Finance Division of the Company, hereby declare that they warrant the truthfulness, accuracy and completeness of the financial reports contained in this report.
No profit distribution or conversion of capital reserves will be implemented in respect of the interim period of 2022.
This report contains forward-looking statements in relation to subjects such as future plans, which do not constitute any specific undertakings to investors by the Company. Investors should beware of investment risks. The attention of investors is drawn to the potential risks inherent in the operations of the Company set out in the section headed "Report of the Board of Directors (IV) Business outlook for the second half of 2022 and risk exposures" in this report.
This report has been prepared in Chinese and English respectively. In case of discrepancy in the interpretation of this report, the Chinese version shall prevail.
China Securities Journal, Securities Times, Shanghai Securities News, http://www.cninfo. com.cn and http://www.hkexnews.hk are media for the Company's information disclosure. Investors should beware of investment risks.
Contents
DEFINITIONS
2
GLOSSARY
3
I. CORPORATE INFORMATION
7
II. HIGHLIGHTS OF ACCOUNTING DATA AND FINANCIAL INDICATORS
8
III. SUMMARY OF THE COMPANY'S BUSINESS
10
IV. REPORT OF THE BOARD OF DIRECTORS
17
V. CORPORATE GOVERNANCE
37
VI. ENVIRONMENTAL AND SOCIAL RESPONSIBILITY
48
VII. MATERIAL MATTERS
51
VIII. CHANGES IN SHAREHOLDINGS AND INFORMATION OF SHAREHOLDERS
63
IX. DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
68
X. INFORMATION ON BONDS
73
XI. FINANCIAL STATEMENTS (UNAUDITED) AND NOTES THERETO
76
XII. DOCUMENTS AVAILABLE FOR INSPECTION
244
ZTE CORPORATION INTERIM REPORT 2022
Definitions
In this report, unless the context otherwise requires, the following terms shall have the meanings set out below. Certain other terms are explained in the section headed "Glossary."
Company or ZTE
ZTE Corporation, a limited company incorporated in China, the shares of which are listed on the Shenzhen Stock Exchange and the Hong Kong Stock Exchange, respectively
Articles of Association
The Articles of Association of ZTE Corporation (June 2021)
Company Law
Company Law of the People's Republic of China
Securities Law
Securities Law of the People's Republic of China
Group
ZTE and one or more of its subsidiaries
Board of Directors
The board of directors of the Company
Directors
Members of the board of directors of the Company
Supervisory Committee
The supervisory committee of the Company
Supervisors
Members of the supervisory committee of the Company
China or PRC
The People's Republic of China
CSRC
China Securities Regulatory Commission
Shenzhen Stock Exchange
The Shenzhen Stock Exchange
Shenzhen Listing Rules
Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange
Hong Kong Stock Exchange
The Stock Exchange of Hong Kong Limited
Hong Kong Listing Rules
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
SFO
Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
Companies Ordinance
Companies Ordinance (Chapter 622 of the laws of Hong Kong)
2017 Share Option Incentive Scheme
the share option incentive scheme considered and approved at the 2016 Annual General Meeting, the First A Shareholders' Class Meeting of 2017 and the First H Shareholders' Class Meeting of 2017 of the Company
2020 Share Option Incentive Scheme
the share option incentive scheme considered and approved at the Second Extraordinary General Meeting 2020 of the Company
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ZTE CORPORATION INTERIM REPORT 2022
Glossary
This glossary contains definitions of certain technical terms used in this report as they relate to the Group. Some of these definitions may not correspond to standard industry definitions or usage.
Distributed database
A logically coherent database formed by the interconnection of multiple data storage units located in different physical locations using a high-speed computer network, so as to enable larger storage capacity and higher volume of simultaneous visits.
UBR product
Ultra Broadband Radio, the most complete dual-band/tri-band UBR series products in the industry launched by ZTE catered to integrated multiple frequencies and multiple modes of wireless mobile networks, with one base station simultaneously supporting work over multiple frequency bands and supporting coverage of multiple modes including GSM/UMTS/LTE/NR.
AAU
Active Antenna Unit, the principal equipment at a 5G base station mainly responsible for receiving and transmitting 5G radio frequency signals.
AI
Artificial Intelligence, the use of machine to aid or replace human in doing
certain tasks by simulating the sight, hearing, senses and thinking of human.
PowerPilot
5G green energy efficiency solution.
Definitive network
A network with large bandwidth, low latency, low jitters and definitive capability created with the use of network resources, which is capable of providing definitive service experience in response to different industry requirements.
TSN
Time Sensitive Networking, as defined by the Institute of Electrical and Electronics Engineers Association (IEEE), is a solution for the provision of definitive service based on standard ethernet technology which facilitates the completion of data packet transmission within a definite time latency to meet the rigid transmission requirements of the industrial sector.
uRLLC
Ultra-Reliable Low-Latency Communications is one of the three major application scenarios of 5G, supporting services that are highly sensitive to time latency and stability and protected through network chip technology. Examples include applications which are extremely sensitive to time latency, such as the Internet of Vehicles, remote controls in smart factory and remote operation in smart medicine.
Integrated core network
Mobile network comprises a wireless access network and a core network, the latter of which provides services such as call control, billing and mobility. An integrated core network supports multi-modal core network functions on a simultaneous basis.
5G NSA
The Non-Standalone network architecture model as defined under 3GPP, where the 4G base station is used in conjunction with the 5G base station on the wireless side, while the core network could be a 4G core network or 5G core network. As a transitional network architecture model, NSA allows full utilisation of existing 4G network resources.
5G SA
The Standalone network architecture model as defined under 3GPP, where the 5G base station is used on the wireless side and 5G core network is used. SA is the target infrastructure of 5G network evolution.
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ZTE CORPORATION INTERIM REPORT 2022
Glossary
Integrated cloud-net cabinet
Cloud-net integration NGN Single carrier C+L bands SRv6
CN2 OTN OXC CLOS architecture PON
Integrated deployment of equipment such as edge cloud, wireline access and private wireless net through a centralised cabinet with default typical applications, supporting feature functions such as integrated wireline and wireless access, private net voice and news and capable of flexibly submerged to the access server rooms of corporate business zones or carriers.
A base resource layer oriented towards the cloud and the network that ultimately achieves succinct, swift, open, integrated, safe and intelligent resource supply for novel information infrastructure by implementing virtualised/cloudified technical structures.
Next Generation Network is a network based on soft switch capable of providing a wide array of services such as integrated multimedia services including voice, video and data using an open and standardised architecture.
In a dense wavelength-division multiplexing (DWDM) system that facilitates the use of multiple wavelengths on one optical fibre, each wavelength is known as a single-carrier, the speed of which has been increasing with the evolution of optical technology such as single carrier 2.5G, 10G, 100G, 200G, 400G, 800G and 1.2T.
Conventional band and long-wavelength band, the two commonly used wavelength-division frequency bands in the usable wavelengths of optical fibre. In the DWDM system, the C band has already been put to wide applications, while with the increasing demand for bandwidth, the L band has now also been put to trial runs for commercial applications.
SRv6 (Segment Routing IPv6), a protocol for forwarding IPv6 data packs on the network designed on the basis of the source router concept. SRv6 adopts the existing IPv6 forwarding technology and facilitates processing similar to label forwarding by expanding the header fields of the IPv6 text. SRv6 is capable of further simplifying the network protocol to allow more flexible service route planning.
ChinaNet Next Carrying Network.
Optical Transmission Net, a next-generation backbone transmission network within the optical zone organisational network based on WDM technology.
Optical cross-connect, which offers the advantages of greater scalability compared to ROADM, "0" fibre jump, a high level of systems integration, easy maintenance, occupation of less server room space and lower equipment cost.
An architecture for multi-level circuit exchange network representing an improvement to the Crossbar structure, through which unobstructed network could be provided. CLOS has the merits of cost savings and efficiency enhancement.
Passive Optical Network, a network that provides optical access services to users through the use of passive optical network technology and facilitates conservation of optical fibre resources on the main line through the adoption of a point-to-multipoint topological structure. It also offers flow management and security control functions.
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ZTE CORPORATION INTERIM REPORT 2022
FTTR MEC
vSTB Algorithmic network CDN XR VR AR CPE Cloud base
Heterogeneous acceleration
FTTR (Fiber to The Room) is a networking mode connecting different indoor AP with the indoor all-optical node through optical fibre to achieve a 1000M+ coverage throughout the house.
Mobile Edge Computing, through which services and cloud computing functions required by telecom users IT can be provided from a nearby point using wireless access networks to create a telecom service environment featuring high performance, low latency and high bandwidth, accelerating the fast download of contents, services and applications in the network to allow uninterrupted premium network experience on the part of consumers.
Virtual Set Top Box, the upshifting of services traditionally processed in a physical set-top box to the cloud and the transmission of the processed data back to the set-top box by way of video stream, thereby reducing the requirement for set-top box upgrade and software compatibility.
A novel information infrastructure that allocates and flexibly modulates computing resources, storage resources and network resources among the cloud, the network and the edge on an as-needed basis according to business requirements.
Content Delivery Network, a network structure capable of redirecting on a real-time basis a user's request to the closest service node available to such user based on network flow and information of various service nodes such as connection, load, distance from the user and response time.
Extended Reality, a collective reference to AR (Augmented Reality), VR (Virtual Reality) and MR (Mixed Reality), which is an environment featuring the combination of reality and simulation and human-machine interaction enabled by computer technology and wearable device.
Virtual Reality, a simulated environment that allows the creation and experience of a virtual world. VR technology is the technology that expresses the environment and objects in real life through a 3D model, which is a reality simulated by computer technology.
Augmented Reality, a technology that integrates virtual information and the real world by applying virtual information such as text, graphic, 3D model, music and video to the real world, thereby augmenting the real world.
Customer Premise(s) Equipment, equipment responsible for connecting and handling at the customer's location when the service is provided to users.
Provision of basic virtual singular or hybrid resource services for virtual machine, bare machine and container based on the cloud infrastructure, operating on standardised hardware facilities or enhanced and customised hardware equipment. It provides technical components and network and business services on an integrated basis and is expandable as required to provide cloud-native technology stack for a range of products.
The technology of allocating processing tasks to accelerated hardware to reduce the workload of the CPU with the application of hardware modules in place of software algorithm to achieve performance enhancement and cost optimisation. A computing structure applying hardware structure is also known as heterogenous computing.
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ZTE CORPORATION INTERIM REPORT 2022
Glossary
sPV 5G private network Intrinsic safety base station
High-precision time protocol Smart integrated coal
exploitation Private chip Differential protection
Smart Photovoltaic is a direct-current overlay solution deployed at the station point. Its power conversion unit allows the application of maximum power tracking technology on the solar battery panel unit component to maximise the power generation efficiency of solar components while increasing the flexibility of photovoltaic deployment at station points.
Corporate or industry wireless private network built according to 5G standards and separated from the 5G public network operated by carriers.
Mine intrinsic safety base station is an Internet access device that facilitates communication at critical locations in a coal mine well. It is suitable for use at a corrosive gas scene in coal mine wells where explosive mixtures such as methane and coal dust are present but where insulation is uncompromised by corrosive gases. It does not require the addition of metal cases or fillings to avoid explosion, and the level of energy generated from sparks or thermal effect occurring during normal use or breakdown complies with national standards applicable to mines. The device is characterised by its small size, light weight and high safety level.
Time protocol refers to the process of disseminating standard time information to synchronise local clocks with the standard time. Highprecision time protocol means time protocol with a higher level of accuracy and progress.
An integrated mechanical coal exploitation work surface for coal mines applying intelligent technological upgrades, characterised mainly by automation and unmanned operation through the use of remote control and video monitor for operations at the extraction work surface such as coal exploitation, support and conveyance, in order to enhance operational efficiency and safety.
An approach to form a network on an as-need basis by segregating multiple virtual end-to-end networks from uniform basic network facilities to cater to the safety, separation and protection requirements of different services.
Protection for power transmission circuits and electrical equipment. In normal operation, the electric current entering the protected equipment is equivalent to that exiting the equipment, and the differential current equals to zero. When the differential current is higher than the default value set in the differential protection device, the circuit breaker on the sides of the protected equipment will be activated and power will be cut off from the malfunctioning equipment.
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ZTE CORPORATION INTERIM REPORT 2022
I. Corporate Information
1. Legal name (in Chinese) Chinese abbreviation Legal name (in English) English abbreviation
ZTE Corporation ZTE
2. Legal representative
Li Zixue
3. Secretary to the Board of Directors/Company Secretary
Securities affairs representatives Correspondence address
Telephone Facsimile E-mail
Ding Jianzhong
Qian Yu No. 55, Keji Road South, Shenzhen, Guangdong Province, The People's Republic of China +86 755 26770282 +86 755 26770286 IR@zte.com.cn
4. Registered and office address
ZTE Plaza, Keji Road South, Hi-Tech Industrial Park,
Nanshan District, Shenzhen, Guangdong Province,
The People's Republic of China
Postal code
518057
Website
http://www.zte.com.cn
E-mail
IR@zte.com.cn
Principal place of business in Hong Kong 31/F, Tower Two, Times Square,
1 Matheson Street, Causeway Bay,
Hong Kong
5. Authorised representatives
Gu Junying Ding Jianzhong
6. Media designated for information disclosure China Securities Journal, Securities Times, Shanghai
by the Company
Securities News
Authorised websites on which this report http://www.cninfo.com.cn
is made available
http://www.hkexnews.hk
Place where this report is available for
No. 55, Keji Road South, Shenzhen,
inspection
Guangdong Province,
The People's Republic of China
7. Listing information
A shares Shenzhen Stock Exchange Abbreviated name of stock: Stock code: 000063
H shares Hong Kong Stock Exchange Abbreviated name of stock: ZTE Stock code: 763
8. Change in registered address of the
½ Applicable N/A
Company and other relevant information
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ZTE CORPORATION INTERIM REPORT 2022
II. Highlights of Accounting Data and Financial Indicators
(I) STATEMENT OF RETROSPECTIVE ADJUSTMENTS TO OR RESTATED ACCOUNTING DATA OF THE PREVIOUS YEAR BY THE COMPANY BECAUSE OF CHANGES IN ACCOUNTING POLICIES OR FOR THE RECTIFICATION OF ACCOUNTING ERRORS
½ Applicable N/A
(II) MAJOR ACCOUNTING DATA AND FINANCIAL INDICATORS OF THE GROUP
Unit: RMB in thousands
Item Total assets Owners' equity attributable to holders of
ordinary shares of the listed company Share capital (thousand shares)Note 1 Net assets per share attributable to
holders of ordinary shares of the listed company (RMB/share)
Gearing ratio
End of the reporting period
(30 June 2022)
179,724,762
End of last year (31 December 2021)
Changes as at the end of the
reporting period compared with the
end of last year
168,763,425
6.50%
54,954,923 4,735,829
51,482,089 4,730,796
6.75% 0.11%
11.60 68.44%
10.88 68.42%
6.62% Increased by 0.02 percentage point
Unit: RMB in thousands
Item
Operating revenue Net profit attributable to holders of
ordinary shares of the listed company Net profit after extraordinary items
attributable to holders of ordinary shares of the listed company Basic earnings per share (RMB/share)Note 2 Diluted earnings per share (RMB/share)Note 3 Basic earnings per share after extraordinary items (RMB/share)Note 2
Weighted average return on net assets Weighted average return on net assets
after extraordinary items Net cash flows from operating activities Net cash flows from operating activities per
share (RMB/share)
Reporting period (Six months ended
30 June 2022) 59,818,300
4,565,826
3,725,359 0.96 0.96
0.79
8.56%
6.98% 3,499,634
0.74
Same period of last year (Six months ended
30 June 2021)
Changes compared with the same period of last year
53,070,970
12.71%
4,078,613
11.95%
2,246,454 0.88 0.88
65.83% 9.09% 9.09%
0.49
9.04%
4.98% 7,028,435
61.22% Decreased by 0.48
percentage point Increased by 2.0 percentage points
(50.21%)
1.52
(51.32%)
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ZTE CORPORATION INTERIM REPORT 2022
Note 1: Note 2: Note 3:
The total share capital of the Company increased from 4,730,795,972 shares to 4,735,828,580 shares following the exercise of a total of 4,971,974 A share options by the participants under the 2017 Share Option Incentive Scheme and 60,634 A share options by the participants under the initial grant of the 2020 Share Option Incentive Scheme during the reporting period;
Basic earnings per share and basic earnings per share after extraordinary items for the reporting period and for the same period last year have been calculated on the basis of the weighted average number of ordinary shares in issue as at the end of the respective periods;
As the 2017 share options granted by the Company have given rise to 108,000 and 17,177,000 potentially dilutive ordinary shares for the six months ended 30 June 2022 and six months ended 30 June 2021, respectively, dilutive earnings per share have been calculated on the basis of basic earnings per share taking into account the said factor.
Extraordinary gains or losses items and amounts deducted are set out as follows:
Unit: RMB in thousands
Extraordinary gains or losses items
Gain from disposal of non-current assets Investment gain from disposal of long-term equity investment Gain/loss from fair-value change of derivative financial assets and derivative financial
liabilities held and investment gain from disposal of derivative financial assets and derivative financial liabilities, excluding the effective value protection hedge business relating to the Company's ordinary business Note 2 Write-back of provision for individually tested receivable impairment Gain/loss from fair-value change of investment properties Other gains other than income from software VAT rebate and income from handling charge for withholding personal tax Net of other non-operating income and expenditure other than the above Other gains/losses falling under the definition of extraordinary gain/loss Less: Effect of income tax
Effect of non-controlling interest (after tax)
Total
Amounts 7,602 7,445
55,259 72,905 (1,484)
163,823 (55,295) 739,772 148,504
1,056 840,467
Note 1:
The Group recognised extraordinary items of gain or loss in accordance with provisions under the "Explanatory Announcement No. 1 for Information Disclosure by Public Issuer of Securities -- Extraordinary Items" (CSRC Announcement [2008] No. 43). The following items, which are set out in the provisions as extraordinary items, have been categorised as recurring items:
Item
Income from VAT rebate for software products
Income from handling charge for withholding personal tax
Investment gain and gain/loss from fair-value change of Shenzhen ZTE Capital Management Company Limited ("ZTE Capital")
Amount for the six months ended
30 June 2022 (RMB in thousands)
Reasons
714,735 23,028 91,371
In compliance with national policies and occurring on an ongoing basis
In compliance with national policies and occurring on an ongoing basis
Business with the scope of operation of ZTE Capital
Note 2:
The Company has entered into a series of forward exchange contracts. Subject to compliance with conditions for hedge accounting, the Company has elected not to apply hedge accounting. The gain/loss of hedging instruments was included in recurring gain/loss to the extent of the exchange gain/loss of the hedged items. The effective value protection hedge relating to the Company's ordinary business operations included in recurring gain/loss for the reporting period amounted to RMB328,019 thousand, while RMB134,025 thousand for the same period last year.
(III) DIFFERENCE IN ACCOUNTING DATA BETWEEN DOMESTIC AND OVERSEAS ACCOUNTING STANDARDS
½ Applicable N/A
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ZTE CORPORATION INTERIM REPORT 2022
III. Summary of the Company's Business
I. PRINCIPAL BUSINESSES
The Group is dedicated to the provision of ICT products and solutions that satisfy the needs of customers, integrating design, development, production, sales and services with a special focus on carriers' networks, government and corporate business and consumer business. There was no significant change to the principal businesses of the Group during the reporting period.
The carriers' network is focused on meeting carriers' requirements in network evolution with the provision of wireless access, wireline access, bearer networks, core networks, telecommunication software systems and services and other innovative technologies and product solutions.
The government and corporate business is focused on meeting requirements of government and corporate clients, providing informatization solutions for the government and corporations through the application of products such as communications networks, IOT, big data and cloud computing.
The consumer business is engaged in the development, production and sales of products such as smart phones, mobile data terminals, home information terminals and innovative fusion terminals, as well as the provision of related software application and value-added services, with a focus on bringing experience in smart devices to customers while catering to requirements of the industry.
II. THE INDUSTRY IN WHICH WE OPERATE
The Company is a leading provider of integrated communication and information solutions in the world market, providing innovative technologies and product solutions to customers in numerous countries and regions around the world.
The Group owns complete end-to-end products and integrated solutions in the telecommunications industry. Through a complete range of "wireless, wireline, cloud computing and terminal" products, we have the flexibility to fulfil differentiated requirements and demands for fast innovation on the part of different customers around the world.
In future, the Group will continue to focus on mainstream markets and products, enhancing customer's satisfaction as well as market share in an ongoing effort and constantly strengthening its product competitiveness through persistent endeavours in proprietary innovation of core technologies, while forging closer cooperation with partners with a more open-minded approach to build a mutually beneficial industrial chain and embrace together the brilliant and best new era of "smart interconnection of all things".
III. TECHNOLOGICAL INNOVATION
Digital and intelligent transformation is currently the dominant trend of the day. The digital economy has become one of the core pillars of qualitative economic development. In the meantime, increasing risks of uncertainty around the globe have also become a significant factor conversely obliging corporations and even the society to transform to digital and intelligent applications. More importantly, carbon neutrality has become a common goal for the world and humanity as a whole, and digital and intelligent transformation is a key pathway to rapid green and low-carbon development.
According to data published by IDC, the volume of global data flow in the past decade was growing at an average compound annual growth rate (CAGR) of close to 50%. With the dawning of the era of Internet of Everything, the growth curve is expected to get steeper. Meanwhile, the Moore's Law and Nielsen's Law remain relevant, though heading in opposition directions. In other words, the growth rate for Internet bandwidth has exceeded that of CPU speed. The overwhelming impact of data on terminal, edge and cloud has given rise to the distributed computing and heterogeneous computing. Under this technological trend, algorithm is more closely associated with network and software with hardware, with boundaries more blurred than ever. The integration and evolution of multiple technologies will be critical to the enhancement of service quality and efficiency for the overall optimisation of benefits.
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ZTE CORPORATION INTERIM REPORT 2022
In line with the philosophy of being "customer-centred and ahead of the times" in technological development, the Group has been vigorously seizing significant opportunities presented by developments such as 5G, New Infrastructure, digital and intelligent transformation, East-to-West Data Computing and Double Carbon, persisting in its objectives and leveraging its strengths to position itself as a "pathbuilder for digital economy" that helps carriers and business partners to forge "connectivity + algorithm + capacity" as the foundation of digital and intelligent operations and speed up the process of digital and intelligent transformation and upgrade of the society as a whole. We have continued to focus on the ascertained areas of ICT for ongoing explorations, including the further enhancement of frequency and spectrum efficiency, while accelerating the optimisation and autonomous evolution of the commercial functions of networks. Benefits under the Moore's Law have been extended on the back of domain specific architecture (DSA), seal packaging and architectural innovation, while we have continued to enhance our efforts in the software and hardware synergisation and optimisation for chip, algorithm and architecture. Meanwhile, in connection with uncertain areas such as the expansion of industrial digitalisation, we have enhanced the component-based and service-oriented features of our technical competence and segment competence, focusing on scenarios and key businesses to start with low-cost projects while ensuring fast generational upgrades and ongoing innovation.
These efforts have been rapidly enhancing the Group's competitiveness in a full range of ICT end-to-end products and digital and intelligent solutions and contributed to steady growth in its market share.
In the chip sector, the Group has continued to increase investment in fields such as advanced process design, core IP, architecture and seal packaging design and digitalised efficient development platform on the back of more than 26 years' R&D build-up. We are an industry leader in terms of the ability to design the whole process of chip production. As the digital transformation of industries continues to advance, the complementary development of chips, algorithms and architectures has become a fundamental requirement which will effectively underpin the competitiveness and leading position of its products.
In connection with database, GoldenDB (distributed database), the Group's proprietary innovative product commanding long-term investment and offering sophisticated commercial applications, has further consolidated its leading position in key industries. In the finance sector, GoldenDB became the first domestically developed database to be commissioned for the core business systems of major Stateowned banks and sustaining stable operation. It also assisted in the commissioning of China Development Bank's "new core project" to guide the transformation of core financial business system. In the carrier market, it teamed up with Hebei Mobile to create autonomous controllable template points for core database, and was selected as an "Exemplary Trustworthy and Innovative Solution" named by the Ministry of Industry and Information Technology of the PRC ("MIIT"). In active promotion of the development of industry standards and ecology for domestic-made database, GoldenDB played a leading role in the drafting of nine industry standards, eight issues and white papers and seven industry test conventions to assist in the sound and sustainable development of domestic-made database.
In connection with operating systems, the Group has achieved a range of results in core technologies such as internal core, virtualisation and R&D tools and their commercial applications, on the back of close to 21 years of proprietary R&D effort. Systems developed by us are at the forefront of the industry in terms of real-time performance, reliability and security, with solutions for a complete range of operating systems of equipment types such as built-in device, server, desk-top system and terminal. The products have been extensively used in the communication, automobile, electricity and railway transportation sectors, as more than 200 million sets have been delivered by far, providing solid and reliable base software platforms with robust functions to global customers. Our products have won the Class I Science and Technology Award of China Institute of Communications and the Fourth China Industry Award.
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ZTE CORPORATION INTERIM REPORT 2022
III. Summary of the Company's Business
In connection with wireless products, the Group is committed to creating high-performance, intelligent and minimal and green and low-carbon mobile communication networks catered to carrier customers and industry customers. On the back of strong base-level capabilities in chip, algorithm and architecture, we have launched the new-generation minimal station UniSite NEO solution, including innovative products such as the integrated OmniUBR product with three frequencies and three fans, large power output UBR products and the new Generation 5 series AAU. While supporting multiple frequencies and modes, large power output and large bandwidth, the equipment is an industry leader in terms of its significantly reduced size, weight and power consumption. The Group has been engaged in intensive cooperation with carriers to create "5G pilot cities" in Beijing, Guangzhou, Chengdu and Dalian, where a number of premium network benchmark featuring consecutive coverage, outstanding performance and advanced technologies have been formed. PowerPilot, the Group's network energy conservation scheme built upon AI technology, has further enabled energy conservation through precise coverage and identification, precision service navigation and in-depth coordination of networks of multiple frequencies and protocols, offering energy conservation effects twice as much as those offered by the usual smart power conservation schemes currently adopted. It has been put to large-scale commercial application on 30 networks around the world and has won the "Mobile Technology Innovation and Breakthrough Award" at the GTI Forum. Our definitive network solution safeguards definitive latency and jitters through 5G TSN+ uRLLC enhancement. Meanwhile, the Group worked with China Mobile and NR Electric to launch the first end-to-end 5G TSN based on the green power of the industry to accelerate the commercial application of 5G in key industries, and the product received the "Market Development Award" at the 2022 GTI Forum. The Common Core fully integrated core network solution launched by the Group supporting 2G/3G/4G/5G NSA/5G SA full access serves to simplify network complexities to the maximum extent and helps to reduce network construction cost by more than 40% and increase delivery speed by 30% while supporting smooth evolution. The iCube serialised 5G private network solution developed by the Group provides multi-purpose, fast, high-quality and cost-efficient one-stop private network services through the i5GC lightweight ultra-minimal private core network for industries, one-stop integrated cloud-net cabinet and base station edge computing engine solutions to meet the requirements of different industries. The iCube private network solution is the first product in the industry featuring three integrations: 4G/5G integration, voice/data integration and cloud/net integration, in a bid to simplify the mesh and maximise resource sharing.
In the IP segment, the Group has provided inter-cloud as well as intra-cloud end-to-end SRv6 programmable solutions to assist carriers' creation of ultra-wide, minimal and intelligent IP networks for ongoing evolution from basic connection to the integration of algorithm and network. T8000, our flagship core router, has served the super core nodes of the 163 backbone network of China Telecom for largescale deployment in the CN2-DC1 network and also successfully facilitated the online connection and commercial application of China Mobile's IDC. We have assisted in the official commencement of the NGN IP CORE network built by Telekom Malaysia which is the first high-speed mobile service transmission backbone bearer network in Malaysia.
In connection with optical transmission, the new optical network with intelligent features and wide bandwidth has provided an ultra-wide, flexible and intelligent high-speed information passage for the inter-connection among clouds. The Group has garnered the "Best Data Centre Connection Equipment Supplier Award" presented by NGON&DCI World. The single carrier 1.2T system solution, the first of its kind among peers, allows the doubling of single-fibre capacity to 96T+ when applied in connection with C+L bands, which would meet the business requirement for optical network bandwidth in the next 58 years. We have assisted Turkcell in its deployment of the world's first commercial C+L wave division system. Our exclusive Flex Shaping technology has facilitated a 30% improvement in 100G+ transmission distance, making 100G+ deployment substantially easier and upgrade substantially cheaper. Our newgeneration compact, metropolitan edge OTN product has been named for the 2022 Lightwave Optical Transmission Core Sector Award. We ranked second globally in terms of annual market shares for OTN cross connection products and among global top two for 200G port dispatch. Our OXC products has been put to large-scale deployment in the provincial backbone and local networks of more than twenty provinces, including Guangdong, Shandong, Zhejiang, Jiangsu others.
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ZTE CORPORATION INTERIM REPORT 2022
In fixed-line access, ZTE PON OLT ranked first in global dispatch, while its optical access technology twice won the Class II National Science and Technology Progress Award. We have launched the world's first precision 50G PON template and the first ONU prototype supporting 50G PON and Wi-Fi 7, marking a milestone in the development of 50G PON technologies and products. Our OLT (Optical Line Terminal) features the first high-end router platform based on CLOS distributed architecture. TITAN, our flagship product in optical access, has been given a Leader rating by GlobalData, as it claims the largest capacity and highest level of integration among peers providing a level of integration twice as much as its peers. Our unique built-in blade server enabling integration of edge computing and access equipment completed the verification process for OLT built-in MEC on-site network with China Unicom Shandong as the first of its kind in the industry to do so, while also receiving the Layer123 Global Assembly Innovation Award and BBWF Innovation Award. We completed trial operation and started commercial application of our FTTR (Home Optical LAN) in more than 20 provinces across the country.
In connection with algorithm infrastructure, the Group has continued to enhance the research and development of basic software and hardware for cloud platform infrastructure. In connection with server and storage products, serialised products have been launched to provide strong algorithmic support for the digital transformation of sectors across the board. Global dispatch in the first half of 2022 exceeded 110,000 units, increasing by close to 140%, year-on-year. TCF, the distributed precision cloud base designed for ICT integration, supports deployment in a full range of scenarios and fulfils the requirement for centralised cloud management and edge operation and maintenance. Through heterogeneous hardware acceleration and software and hardware coordination, diversified algorithm resource services offering low latency, high bandwidth and high algorithmic capacity have been provided to match the requirements of customers' differentiated businesses with precision. In connection with switch products, a new generation of large-capacity, high-performance and highly-reliable core switch products have been launched, offering ultra-large switch capacity and high-density, large-capacity ports to support the operation of a comprehensive data centre and assist the construction of a large-scale, highly flexible data centre network catered to cloud computation. In connection with data centre, as a leader in full module data centre, we have creatively constructed a solution for prefabricated data centres which shortens the turnover period for delivery by 40% and reduces initial investment by 30%, heralding the construction of novel data centre infrastructure facilities which are eco-friendly, reliable, fast and intelligent. We have won an exclusive tender for Tencent's MDC centralised procurement in 2022. We have also won the bids for a number of carriers' integration projects, while making breakthroughs in the centralised procurement tenders of China Telecom Group for high-voltage direct-current products in an ongoing attempt to develop the domestic market for data centre. In the overseas market, we have made a breakthrough in the data centre overlapping solution for multi-level containers that enables lower civil engineering requirement and lessens the turnover period by 50%. We have also won the tender for the DITO 2022 edge data centre project in the Philippines with the largest share.
In the video business, the Group has developed general competitiveness in video through ongoing investment in multiple aspects such as innovative terminal, platform, CDN and VR/AR new technologies to enhance our competence in servicing technology. The Group has launched W600D, a notebook-size cloud computer product, and has commercially dispatched W100D, a name card-size cloud computer product in a pioneering move for revolution in computer products. Our vSTB (cloudified set-top box) solution, the first of its kind in the industry which enhances user experience through the cloudification of end services, has received the BBWF "Annual Home Customer Experience Award". The video middle office has successfully commenced online operation at China Mobile to provide video services with ultra-low latency and high reliability at low cost in a move to build a leading video algorithmic network; our video conferencing product has won the tender for a project of the emergency management authorities in a breakthrough for provincial-level projects. Our integrated CDN product has continued to stay ahead in terms of competitiveness and progress in commercial application, deployed at more than 150 bureau outlets globally with over 200 million users for the Big Video system and a CDN capacity in excess of 270T as market shares has continued to rise. Our XR platform which supports ultra-HD AR live cast with ultra-low latency and HD real-time cloud render and which is capable of AR spatial computation for an ultra-large scenario of up to one million square metres, has provided full AR/VR technical support for the major theme stories "Cultural Gem in Hong Kong" and "The Story Behind the Hong Kong Palace Museum" produced by Xinhua News Agency in celebration of the 25th anniversary of Hong Kong's return to China. We have also collaborated with Zhejiang Mobile and Jinhua Guzi City Scenic Area in metaverse cultural tourism.
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ZTE CORPORATION INTERIM REPORT 2022
III. Summary of the Company's Business
In the smart home segment, leaping growth has been reported for our home information terminal which has ranked first globally in terms of PON CPE dispatch volume and sales, sustaining a leading position in market share for set-top box and ranking first globally for IP set-top box. Our Wi-Fi6 product has been put to large-scale commercial application in Italy, Spain, Japan and Thailand. In the international market, we have completed large-scale dispatch of Android TV set-top box products to carriers of major nations in the Asia Pacific, Europe and South America while negotiating breakthroughs in South America and Africa. The new-generation cloud AI home guard camera Pro has been launched, which is capable of AI application expansion on an as-needed basis to enhance the efficiency of scenario analysis on the back of innovative applications of cloud-end coordination technologies, has received the 2022 GLOMO Best Internet Consumer Equipment Award. Active investigations into the new business of household-wide video have been made, underpinned by the full-scenario retiree platform created in a joint effort with carriers, communities and institutions which has become a new highlight in the smart home business in addition to IPTV and handset TV.
In connection with terminals, the Group continued to improve the "1+2+N" full-scenario ecosystem built around the handset, emphasising users' experience of seamless connection for multiple ends and creating a mega-ecosystem for terminals through strong interactive sensory capability and cloud-end computational capability. In connection with handsets, we heralded innovation in the industry through anchored image and screen as two major pivots. Nubia Z40 Pro was crowned the Best Smart Phone at MWC 2022 for its exclusive 35mm customised optical computational camera technology designed for the capture of human images and advanced starlight photography. ZTE Axon 40 Ultra third-generation underscreen camera featured the one-on-one device-independent pixel technology, the first of its kind in the industry, which allows users to experience an authentic, flawless and full screen, while the 64MP triple main camera represented a brand new upgrade in computational camera. In the mobile Internet business, we continued to lead in the global carrier market on the back of our strengths in 5G products, as more than 2 million units of 5G FWA and CPE were dispatched worldwide. The AX3000 Pro and AX5400 ZTE Qiji routers won the iF Design Award 2022. We completed the global debut of the high gain antenna CPE. In the vehicle IoT sector, we entered into strategic cooperation with a number of automobile manufacturers and commenced commercial projects.
In connection with vehicular electronics, the Group is committed to becoming a provider of digital infrastructure capabilities for vehicles and a partner for domestically manufactured proprietary highperformance products on the back of its strong base-level technology and innovative ability in chip, algorithm, architecture and operating systems to assist in the development of Internet-based interconnection and intelligentisation for vehicles. The Group was actively engaged in the deployment and development of products such as chip, vehicle operating systems and vehicle modules to solve the domestic industry's deficiency in chips and software in association with leading domestic automobile manufacturers. The Group's automobile operating system products received the management and product double certification of ISO 26262 ASIL-D, the highest level of accreditation for automobile electronic functional safety. On this basis, an integrated solution for vehicular operating systems has been formed covering scenarios such as smart vehicle control, smart driving and smart driving cabins, for which we have garnered the 2021 Automobile Electronics Science and Technology Award. Comprehensive end-toend solutions have been developed covering the 5G+C-V2X chip module, TBOX/OBU vehicle end, roadside RSU equipment, edge computing MEC equipment and V2X infrastructure cloud control platform. In future, the Group will continue to build on its core base-level technologies and implement the "chip + software" paradigm in association with its partners to assist in the technological innovation of automobile manufacturers and work with them to provide end-customers with premium experiences.
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ZTE CORPORATION INTERIM REPORT 2022
In connection with the energy sector, the Group has established a Digital Energy Operations Department in a major effort to develop business in the new energy sector, aiming to provide green power generation, smart power storage, smart power consumption and energy management products and solutions to governments and corporate customers around the world. As a world-leading supplier of communications energy, the Group has completed large-scale deployment of 5G power source and minimal station point solutions to safeguard power supply for 450,000 5G base stations around the world. We have also launched the sPV solar energy power supply solution that enables smooth overlay at station points to facilitate low-carbon or zero-carbon development of carriers' networks. In recent years, the Group has continued to make intensive efforts in the development of communication energy storage and proposed the new idea of "tiered intelligentisation of communication energy storage, as we have launched the world-leading L3 intelligent lithium battery products, which have been adopted for large-scale application.
In connection with industrial digitalisation, the Group launched the digital star cloud platform in 2022 to provide swift and flexible customised solutions for corporate digital transformation. The first batch of smart operation centre based on digital star cloud have 100% passed the corporate smart operation service competence assessment conducted by China Academy of Information and Communications Technology. The Group has provided top-level design for digital transformation to large companies such as CITIC Offshore Helicopter and Nanjing Port Group, while teaming up with 500+ partners in 15 sectors, including industrial manufacturing, steel and metallurgy, transport, mining, cultural tourism and media, to launch more than one hundred innovative applications for digital transformation, creating a series of benchmark projects that have garnered honours such as the MIIT Blooming Cup and the United Nations WSIS Champions Award. On the industrial front, the Group implemented the concept of "manufacturing 5G with 5G" and the intelligent manufacturing base in Binjiang, Nanjing has produced 16 types in online operation and more than 60 5G+ integrated industrial innovative applications, which have also been replicated at companies such as Gree, JA Solar, Sany Heavy Industry, Bosch, Chongqing Changan Automobile and Deli Group. In connection with metallurgical smelting, the Group has launched the 5G smart smelting independent private network 2.0 solution to assist in the application innovation and digital construction of industry giants such as Ansteel Group, Baosteel Zhanjiang Iron & Steel, Wuhan Iron and Steel and Yunnan Shenhuo. On the energy front, the Group has launched the "Tiangong" network solution and worked with China Coal Technology Engineering Group to present the world's first 700M intrinsically safe base station, while teaming up with carriers to help industry leaders such as Pingdingshan Coal Group, Shandong Energy Group, China Coal Group and Shaanxi Coal Group with the implementation of innovative applications such as 5G smart integrated coal exploitation and driving. The Group has also teamed up with Southern Power Grid and China Mobile to launch the industry's first 5G R16 high-precision time-protocol power distribution grid service, first commercial power grid private chip, and first 5G differential protection service. We have assisted State Grid Shandong Electric in the construction of China's first provincial 5G demonstration power grid. In connection with transportation, the Group collaborated with Guangzhou Railway Bureau to deploy 5G+ high-speed railway video boarding aid preview system to facilitate safe driving for railway transport. At Tianjin Port, four services, including 5G quayside gantry remote control, 5G smart cargo handling, 5G smart unmanned container truck and the 5G smart locking and unlocking station, have been put to normalised commercial application. In connection with cybersecurity, the Group's quantum integrated encryption management system, the first of its kind in the industry, has been officially put to commercial application in the Bishan Quantum Trustworthy Cloud Project in Chongqing, while the innovative 5G private network terminal and asset security management solution has been launched to facilitate the 5G asset security service of China Telecom Tianyi Security Company. We have also launched the government affairs cloud scenario data security solution to create in Hunan the nation's first provincial government affair cloud covering three locations and four centres regions, while providing cross-level, cross-region and inter-departmental data service.
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ZTE CORPORATION INTERIM REPORT 2022
III. Summary of the Company's Business
The Group is positioned within the first quadrant in terms of global patents as a major contributor and participant in the technology research and standard formulation for global 5G. As at 30 June 2022, the Group had filed applications for approximately 85,000 patents globally, among which approximately 43,000 patents had been licensed over the years. According to the report published by internationally renowned patent data company IPlytics in November 2021, ZTE ranked fourth globally in terms of the number of declared 5G SEP (standard essential patents) disclosed to ETSI. In 2022, the Group won a gold award in the 23rd China Patent Award. The Group has by far garnered 10 gold awards, 2 silver awards and 36 excellence awards in the China Patent Awards and 27 awards in the Guangdong Provincial Patent Awards. The Group is a member of more than 200 international standardisation organisations, industry alliances, scientific associations and open-source communities, such as ITU (International Telecommunication Union), 3GPP (third generation partnership programme), ETSI (European Telecommunications Standards Institute), NGMN (The Next Generation Mobile Networks), IEEE (Institute of Electrical and Electronics Engineers), CCSA (The China Communications Standards Association), 5GAIA (5G Applications Industry Array) and AII (Alliance of Industrial Internet), a board member of numerous organisations such as GSA (Global Suppliers' Alliance) and ETSI, while more than 100 specialists has been serving in key roles such as chairman/vice chairman and reporter of leading international standardisation organisations, industry alliances, scientific associations and open-source communities, having submitted more than 100,000 propositions and research papers for international or domestic standardisation by far.
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ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
FINANCIAL RESULTS
Please refer to page 79 to 80 of this report for the income statement of the Group for the six months ended 30 June 2022.
(I) REVIEW OF BUSINESS FOR THE FIRST HALF OF 2022
1. Overview of the domestic telecommunications industry for the first half of 2022 During the first half of 2022, the domestic telecommunication industry was generally stable in operation. According to the data published by MIIT, the domestic telecommunications sector reported revenue of RMB815.8 billion for January to June 2022, representing year-on-year growth of 8.3%. Domestic carriers were actively engaged in the development of novel businesses such as Internet data centre, Big Data, Cloud Computing and Internet of Things, reporting revenue from related businesses of RMB162.4 billion, representing year-on-year growth of 36.3%. Accelerated progress in the construction of 5G base stations was noted. As at the end of June 2022, there were a total of 1,854 thousand 5G base stations, accounting for 17.9% of the total number mobile base stations which as 3.6 percentage points higher compared to that as at the end of 2021. During January to June 2022, 429 thousand new 5G stations were built. The 512 "5G+ Industrial Internet" project reported extensive, in-depth advancement with more than 3,100 projects constructed. In the intelligent manufacturing sector, the digitalisation rate for key processes at large-scale industrial enterprises and general utilisation rate for digitalised R&D design tools were 55.7% and 75.1%, respectively, underpinning further acceleration of the process of digitalised transformation and upgrade for traditional industries. The coverage and servicing ability of our GB-grade optical broadband network has been enhanced. As at the end of June 2022, we had 11.03 million 10G PON ports capable of GB-grade network servicing, an increase by 3.18 million compared to the end of 2021.
Source: PRC Ministry of Industrial and Information Technology ("MIIT")
2. Overview of the global telecommunications industry for the first half of 2022 Global telecommunication carriers' investment was generally stable during the first half of 2022, as telecom carriers resumed their investment in the wake of the gradually easing pandemic. Ongoing advancement of 5G construction was underpinned by intensive 5G network construction in developed countries and successive issuance of 5G frequencies in developing countries. According to the statistics of Global mobile Suppliers Association (GSA), 218 carriers in 87 countries or regions across the globe had launched 5G services as at June 2022, an addition of 9 nations and 18 carriers compared to December 2021. In the meantime, the modernisation conversion of 4G networks was still developing at a rapid pace, as the pandemic had changed the people's mode of work and lifestyle, prompting rapid development of the home broadband market and generating the demand for optical fibre installation and home information terminal.
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ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
3. Operating results of the Group for the first half of 2022 During the first half of 2022, the Group reported operating revenue of RMB59.818 billion, representing a year-on-year increase of 12.71%, as it persisted in strengthening its principal businesses and expanding into new areas as well as reinforcing its operational stability to achieve continuous optimisation in its market profile, amidst challenges posed by the COVID-19 pandemic and other external conditions. Year-on-year growth in operating revenue was reported in both the domestic market and the international market, as well as the three principal business segments of carriers' network, government and corporate business and consumer business. The Group's net profit attributable to holders of ordinary shares of the listed company for the first half of 2022 amounted to RMB4.566 billion, increasing by 11.95%, year-on-year. Basic earnings per share amounted to RMB0.96. (1) By market The domestic market For the reporting period, the Group's operating revenue from the domestic market amounted to RMB40.602 billion, accounting for 67.88% of the Group's overall operating revenue. During the first half of 2022, the Group was deeply involved in large-scale 5G construction in China and the construction of double-GB cities. Meanwhile, we seized opportunities for development in New Infrastructure to empower digital transformation in various industries. The international market For the reporting period, the Group's operating revenue from the international market amounted to RMB19.216 billion, accounting for 32.12% of the Group's overall operating revenue. During the first half of 2022, the Group persisted in the focus of efficiency enhancement as it reported ongoing optimisation in the market profile of its premium products and improvements in operating quality, riding on market opportunities presented by new 5G construction, 4G modernisation conversion, optical conversion of fixed-line networks and upgrades and generational replacement of home broadband products. (2) By business segment For the reporting period, the Group's operating revenue for carriers' networks, government and corporate business and consumer business amounted to RMB38.721 billion, RMB6.705 billion and RMB14.392 billion, respectively. Carriers' networks The Group has been focused on customer value with ongoing effort in innovative breakthrough to optimise its market profile.
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ZTE CORPORATION INTERIM REPORT 2022
For the traditional networks of carriers in connection with wireless products, the Group was actively involved in global 5G construction and committed to creating premium customer experience and network efficiency and building the most cost-efficient 5G networks with its serialised innovative products and solutions. Currently, we have entered into 5G cooperation with more than 110 carriers worldwide, covering major markets such as China, Europe, Asia Pacific and the Middle East. In connection with wireline products, the Group continued to drive the construction of global GB-grade optical network and 5G bearer. In connection with optical access, we have launched the industry's first precision 50G PON template in an ongoing effort to drive global fiberisation. In connection with optical network, we have launched the first single carrier 1.2T system solution of the industry for the construction of the new smart broadband optical network as an ultrawide, flexible and smart high-speed information highway, for which we have been honoured with the 2022 Lightwave Optical Transmission Award. In connection with 5G bearer network, large-scale deployment of the full range of end-to-end products has been achieved with more than 400 5G bearer networks having been built by far.
For the cloud network of carriers, the Group has been selected for the centralised server procurement of domestic carriers for consecutive years as it has been providing compatible products and solutions to seize business opportunities. During the first half of 2022, the Group has ranked among the top two in a number of centralised server procurement tenders of domestic carriers.
Government and corporate business
Focusing on the Internet, finance, electricity, transport, government affairs and industrial sectors, based on the high efficient digital infrastructure and cloud native transaction architecture "digital star cloud", the Group has deeply engaged in the digital transformation of the industry, and has fully participated in major national engineering projects such as East-to-West Data Computing. Our core products and solutions such as server and storage device, data centre, corporate network, video conference, cloud computer and distributed database were put to extensive applications in the government and corporate market to form a sound cloud network ecology. We achieved breakthroughs in the scale of the server and storage and data centre businesses with leading enterprises in the Internet and finance sectors. Our distributed database GoldenDB has been providing stable operation at the core systems of large-scale commercial banks for more than three years and has been rated as the prime band in domestic distributed database for the finance industry. In connection with 5G industry applications, the Group has set up two sub-segment task forces for the mining sector and the metallurgical smelting sectors to assist in the digital transformation of industries with the aid of 5G applications, IT and Big Data.
Consumer business
The Company has forged a "1+2+N" pattern for development comprising personal data, home data and intelligent peripheral products on the basis of the core handset product. In connection with the handset product, the Group has enhanced the prime role of handsets in the mobile Internet ecology to realise sales of personal and home products and facilitate the development of peripheral sectors, sustaining rapid growth in operating revenue against the run of the market. In connection with home information terminal, the Group continued to lead in market shares for its existing products, while making vigorous efforts to expand in consumer-oriented home intelligent products.
In conclusion, the Group has continued to consolidate its primary-curve business represented by wireless and wireline products, while rapidly expanded and made sound progress in the secondary-curve business represented by server and storage, terminal (including handset, mobile Internet and smart home), vehicle electronics, digital energy (including power source, data centre and new energy) and 5G industry application. For the first half of 2022, we reported year-on-year growth of close to 40% in revenue from the secondary curve.
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ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
(II) MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS
The financial data below are extracted from the Group's unaudited financial statements. The following discussion and analysis should be read in conjunction with the Group's financial statements and the accompanying notes thereto.
1. Breakdown of indicators by industry, business segment and region and comparison with the same period last year
Unit: RMB in thousands
Revenue mix
Operating revenue
As a percentage of operating
revenue
I. By industry Manufacturing of
communication equipment
59,818,300
100%
Total
59,818,300
100%
II. By business Carriers' networks Government and
corporate business Consumer business
38,720,841
6,705,277 14,392,182
64.73%
11.21% 24.06%
Total
59,818,300
100.00%
III. By region The PRC Asia (excluding the PRC) Africa Europe, Americas and
Oceania
40,602,370 7,899,366 2,510,729
8,805,835
67.88% 13.21%
4.20%
14.71%
Total
59,818,300
100.00%
Operating costs
Gross profit margin
Year-onyear
increase/ decrease in
operating revenue
Year-onyear
increase/ decrease in
operating costs
Year-onyear
increase/ decrease in gross profit
margin (percentage
points)
37,662,894 37,662,894
21,175,717
4,870,571 11,616,606 37,662,894
24,666,315 5,104,649 1,272,074
6,619,856 37,662,894
37.04% 37.04%
45.31%
27.36% 19.29% 37.04%
39.25% 35.38% 49.33%
24.82% 37.04%
12.71% 12.71%
10.47%
18.32% 16.51% 12.71%
12.93% 10.63%
6.78%
15.49% 12.71%
11.12% 11.12%
5.68%
19.53% 18.78% 11.12%
8.88% 14.11%
9.65%
18.09% 11.12%
0.90 0.90
2.48
(0.74) (1.53) 0.90
2.26 (1.97) (1.33)
(1.66) 0.90
(1) Analysis of change in operating revenue
The Group reported RMB59,818,300 thousand in operating revenue for the first half of 2022, increasing by 12.71% as compared with the same period last year. Operating revenue generated from the domestic business amounted to RMB40,602,370 thousand, increasing by 12.93% as compared with the same period last year. Operating revenue generated from the international business amounted to RMB19,215,930 thousand, increasing by 12.27% as compared with the same period last year.
Analysed by business segment, the Group reported year-on-year growth in operating revenue for the first half of 2022, reflecting mainly year-on-year growth in revenue from carriers' networks, government and corporate business and consumer business. Operating revenue from carriers' networks increased by 10.47% compared to the same period last year, reflecting mainly year-on-year growth in operating revenue from products such as fixed-line network, core network and servers. The government and corporate business reported 18.32% year-onyear increase in operating revenue, reflecting mainly year-on-year growth in operating revenue from domestic government and corporate business. The consumer business reported 16.51% year-on-year increase in operating revenue, reflecting mainly year-on-year growth in operating revenue from products such as home information terminal and handset.
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ZTE CORPORATION INTERIM REPORT 2022
(2) Analysis of operating cost and gross profit
Operating cost of the Group for the first half of 2022 increased by 11.12%, year-on-year, to RMB37,662,894 thousand, reflecting mainly year-on-year increase in the cost of carriers' networks, government and corporate business and consumer business.
The Group's overall gross profit margin increased by 0.90 percentage point, year-on-year, to 37.04% for the first half of 2022, which was attributable mainly to higher gross profit margin for carriers' networks. The gross profit margin for carriers' networks increased by 2.48 percentage points to 45.31%, compared to 42.83% for the same period last year, reflecting mainly the Group's change in revenue structure and ongoing optimization of cost. The gross profit margin for government and corporate business was 27.36%, decreasing by 0.74 percentage point compared to 28.10% for the same period last year, reflecting mainly the decrease in gross profit margin for government and corporate business in the domestic market. The gross profit margin for consumer business was 19.29%, decreasing by 1.53 percentage points compared to 20.82% for the same period last year, attributable mainly to the decrease in gross profit margin for handset products and home information terminal in the international market.
2. Research and development expense of the Group
Unit: RMB in thousands
Item Amount of R&D expense R&D expense as a percentage of
operating revenue Amount of capitalised R&D expense
Capitalised R&D expense as a percentage of R&D expense
Six months ended
30 June 2022 10,151,500
16.97% 840,025
8.27%
Six months ended
30 June 2021
Year-on-year increase/ decrease
8,861,406 16.70%
1,059,622
11.96%
14.56% Increased by 0.27 percentage point
(20.72%) Decreased by 3.69 percentage
points
The Group's research and development costs for the first half of 2022 increased as compared to the same period last year, which was attributable mainly to ongoing investments in technologies for 5G-related products, chip, server and storage, and innovative business. Research and development costs as a percentage of operating revenue increased by 0.27 percentage point to 16.97% as compared to 16.70% for the same period last year.
3. Breakdown of the Group's expenses by principal items
Unit: RMB in thousands
Item
Selling and distribution expenses Administrative expenses Finance expenses Income tax
Six months ended
30 June 2022
4,423,548 2,532,696
303,745 665,057
Six months ended
30 June 2021
4,169,804 2,543,538
480,702 976,350
Year-on-year increase/ decrease
6.09% (0.43%) (36.81%) (31.88%)
The year-on-year increase in the Group's selling and distribution expenses for the first half of 2022 was mainly attributable to the increase in advertising expenses for the period. Selling and distribution expenses accounted for 7.39% of operating revenue, a decrease by 0.47 percentage point compared to 7.86% for the same period last year.
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ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
The Group's administrative expenses for the first half of 2022 remained generally flat compared to the same period last year, accounting for 4.23% of operating revenue, a decrease by 0.56 percentage point compared to 4.79% for the same period last year.
The year-on-year decrease in the Group's finance expenses for the first half of 2022 was mainly attributable to the decrease in the Group's net interest expense for the period.
The year-on-year decrease in the Group's income tax for the first half of 2022 was mainly attributable to the increase in the Group's deferred tax assets for the period.
4. Other components in the Company's profit mix
Unit: RMB in thousands
Item
Other income Investment income Gains and losses from changes
in fair value Credit impairment losses
(loss indicated as a negative value) Asset impairment losses
(loss indicated as a negative value)
Six months ended
30 June 2022 901,586 671,223
(392,234)
(116,912)
(160,771)
Six months ended
30 June 2021 1,267,706 703,109
874,661
(125,249)
40,928
Year-on-year increase/ decrease (28.88%) (4.54%)
(144.84%)
(6.66%)
492.81%
The year-on-year decrease in the Group's other income for the first half of 2022 was mainly attributable to the increase in the Group's deferred income received but yet to qualify for recognition for the period.
The year-on-year decrease in the Group's investment income for the first half of 2022 was attributable to investment income arising from the Group's disposal of equity interests held by a subsidiary fund partnership of ZTE Capital and investment income arising from settlement of derivative contracts for the period versus investment income from the transfer of equity interest in Caltta Technologies Company Limited for the same period last year.
The year-on-year decrease in the Group's gains and losses from changes in fair value for the first half of 2022 was mainly attributable to the transfer of disposal of listed equity interests held by subsidiary fund partnership enterprises of ZTE Capital from fair-value gain/loss to investment gain for the period versus gains from changes in fair value of equity interests held was recorded for the same period last year.
The year-on-year decrease in the Group's credit impairment losses for the first half of 2022 was mainly attributable to the decrease in impairment of the Group's receivables for the period.
The year-on-year increase in the Group's asset impairment losses for the first half of 2022 was mainly attributable to the charge of the Group's dispatch of goods impairment provision for the period versus reversal for the same period last year.
22
ZTE CORPORATION INTERIM REPORT 2022
5. Breakdown of the Group's cash flow
Item Sub-total of cash inflows from
operating activities Sub-total of cash outflows from
operating activities Net cash flows from operating activities Sub-total of cash inflows from investing
activities Sub-total of cash outflows from
investing activities Net cash flows from investing activities Sub-total of cash inflows from financing
activities Sub-total of cash outflows from
financing activities Net cash flows from financing activities Net increase in cash and cash
equivalents Closing balance of cash and cash
equivalents
Six months ended
30 June 2022
74,376,587
70,876,953 3,499,634
6,481,556
7,443,826 (962,270)
61,062,615
58,870,046 2,192,569
5,010,582
44,081,165
Unit: RMB in thousands
Six months ended
30 June 2021
Year-on-year increase/ decrease
63,326,655
56,298,220 7,028,435
5,077,686
11,759,123 (6,681,437)
20,796,602
12,007,418 8,789,184
8,981,054
40,384,110
17.45%
25.90% (50.21%)
27.65%
(36.70%) 85.60%
193.62%
390.28% (75.05%)
(44.21%)
9.15%
For the reasons underlying the difference between the net cash flow and net profit generated by the Group's operating activities for the reporting period, please refer to the section headed 55. Supplemental information on cash flow statement under Note V to the financial statements.
The year-on-year decrease in the Group's net cash flows from operating activities for the first half of 2022 was attributable mainly to the increase in cash paid for purchase of goods and labour services by the Group for the period.
The year-on-year increase in the Group's net cash flows from investing activities for the first half of 2022 was attributable mainly to the combined effect of decrease in cash paid for investment and increase in cash received on disposal of investment by the Group for the period.
The year-on-year decrease in the Group's net cash flows from financing activities for the first half of 2022 was attributable mainly to the decrease in the cash inflow received from external net borrowings by the Group for the period.
Cash and cash equivalents of the Group as of 30 June 2022 amounted to RMB44,081,165 thousand held mainly in RMB, with the remaining held in USD, EUR, JPY and other currencies.
6. Analysis of non-principal businesses
½ Applicable N/A
23
ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
7. Analysis of the Group's assets and liabilities
(1) Change in assets and liabilities
Unit: RMB in thousands
Item
Total assets Cash Trade receivables Contract assets Inventories Investment
properties Long-term equity
investments Fixed assets Construction
in progress Right-of-use
assets Short-term loans Contract liabilities Long-term loans
due within one year Long-term loans Lease liabilities
As at 30 June 2022
Amount
179,724,762 54,926,295 17,936,988 5,738,542 41,848,316
As a percentage
of total assets
100.00% 30.56% 9.98% 3.19% 23.28%
2,012,443
1.12%
1,619,616 11,456,642
0.90% 6.37%
1,666,168
0.93%
691,916 9,815,823 20,166,471
0.38% 5.46% 11.22%
4,295,660 30,703,014
465,825
2.39% 17.08%
0.26%
As at 31 December 2021
Amount
As a percentage
of total assets
Year-on-year increase/
decrease in percentage of
total assets (percentage
points)
168,763,425 50,713,310 17,509,059 6,585,307 36,316,753
100.00% 30.05% 10.37% 3.90% 21.52%
-- 0.51 (0.39) (0.71) 1.76
2,013,927
1.19%
(0.07)
1,684,909 11,437,011
1.00% 6.78%
(0.10) (0.41)
1,372,869
0.81%
0.12
815,346 8,946,935 16,101,652
0.48% 5.30% 9.54%
(0.10) 0.16 1.68
977,336 29,908,441
531,983
0.58% 17.72%
0.32%
1.81 (0.64) (0.06)
(2) Major overseas assets ½ Applicable N/A
24
ZTE CORPORATION INTERIM REPORT 2022
(3) Assets and liabilities measured at fair value
Unit: RMB in thousands
Item
Financial assets Including: 1. Trading
financial assets (excluding derivative financial assets) 2. Derivative financial assets 3. Receivable financing 4. Other non-current financial assets Sub-total of financial assets Investment properties Productive living assets Others
Total
Financial liabilities
Gains/losses arising from Cumulative
fair value fair value Opening change for change dealt balance the period with in equity
Impairment charge for the period
1,360,697
(457,042)
209,352
5,196,458
1,175,249 7,941,756 2,013,927
-- -- 9,955,683 27,729
41,614
--
11,689 (403,739)
(1,484) -- --
(405,223) (12,989)
--
--
--
--
--
4,644
--
--
--
4,644
--
--
--
--
--
--
--
4,644
--
--
Amount purchased
for the period
Amount disposed of
for the period
Other movements
Closing balance
--
585,196
22,011 897,389
--
10,083,574
-- 10,083,574
-- -- -- 10,083,574 --
--
7,657,921
13,506 8,256,623
-- -- -- 8,256,623 --
196 251,162
-- 7,617,467
(21,147) 1,060 -- -- --
1,152,720 9,918,738 2,012,443
-- --
1,060 11,931,181
24,853 39,593
Assets of the Group are stated at historical costs, except for derivative financial instruments, equity and debt investments at fair value through profit and loss, investment properties and receivables at fair value through other comprehensive income, which are measured at fair value.
There was no significant change to the measurement attributes of the principal assets of the Group during the reporting period.
(4) For details of assets of the Company subject to restrictions in ownership or use as at the end of the reporting period, please refer to Note V. 56 "Assets subject to restrictions in ownership or use" to the financial statements.
8. Analysis of investments
(1) Overview
The Company's long-term equity investments at the end of the reporting period amounted to approximately RMB1,619,620 thousand, decreasing by 7.85% compared to approximately RMB1,757,500 thousand as at 30 June 2021. Other third-party investments amounted to approximately RMB2,050,110 thousand, decreasing by 21.73% compared to approximately RMB2,619,240 thousand as at 30 June 2021.
(2) The Company did not conduct any significant equity investment or significant non-equity investment during the reporting period.
25
ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
(3) Investment in financial assets
Investment in securities
A. Investment in securities as at the end of the reporting period
Unit: RMB in ten thousands
Type of Stock securities code Stock name
Stock 002579 China Eagle
ElectronicNote 1
Stock 688639 Huaheng BiotechNote 1
Stock 688019 Anji TechnologyNote 2
Stock 688630 Circuit FabologyNote 2
Stock 301160 Xianglou New
MaterialNote 2
Stock 301000 HajimeNote 3
Stock ENA: Enablence
TSV
TechnologiesNote 4
Other securities investments held
at the end of the period
Total
Initial Accounting investment method
1,151.94 Fair-value measurement
2,396.88 1,490.59 2,000.00 1,350.00
Book value Gain/loss Cumulative at the arising from fair value
beginning fair value change of the change for accounted period the period for in equity
936.71 (206.29)
--
69,929.88 (32,294.92)
--
21,667.49 (12,271.86)
--
31,963.38 (171.93)
--
2,201.06 1,822.19
--
Amount purchased during the
period
--
-- -- -- --
Amount disposed during the
period
--
39,783.22 15,585.19
563.27 --
Gain/loss Book value Shareholding
for the at the end at the end of
reporting
of the the period
period period (10,000 shares)
(198.63) 730.42
95.73
4,147.08 1,569.44
427.67 1,822.19
36,338.35 8,437.00 31,754.64 4,023.25
275.96 39.63 490.79
100
Shareholding percentage at the end Accounting
of the period classification
0.16% Trading financial assets
2.55% 0.53% 4.06% 1.34%
Source of funds
Issue funds
3,037.50
11,572.20 (2,581.37)
--
-- 2,587.96 (213.71) 8,455.23
275.59
2.87%
3,583.26 Fair-value
414.00 327.09
--
--
-- 327.09 741.09
79.17
4.26% Other non-current Internal
measurement
financial assets funds
----
--
--
--
--
--
--
--
--
----
--
15,010.17 --
138,684.72 (45,377.09)
--
-- 58,519.64 7,881.13 90,479.98
--
----
--
Note 1: Note 2:
Note 3: Note 4:
The Company and Jiaxing Xinghe Venture Investment Management Company Limited, a whollyowned subsidiary of ZTE Capital, held in aggregate 31.79% equity interests in Jiaxing Xinghe Equity Investment Partnership (Limited Partnership) ("Jiaxing Fund"), a partnership reported in the consolidated financial statements of the Company. Figures corresponding to Huizhou China Eagle Electronic Technology Inc. ("China Eagle Electronic") and Anhui Huaheng Biotechnology Co., Ltd. ("Huaheng Biotech") are provided with Jiaxing Fund as the accounting subject;
The Company and Changshu Changxing Capital Management Company Limited, a whollyowned subsidiary of ZTE Capital, held in aggregate 25.83% equity interests in Suzhou Zhonghe Chunsheng Partnership Investment Fund III (Limited Partnership) ("Zhonghe Chunsheng Fund III"), a partnership reported in the consolidated financial statements of the Company. Figures corresponding to Anji Microelectronics Technology (Shanghai) Co., Ltd. ("Anji Technology"), Circuit Fabology Microelectronics Equipment Co., Ltd. ("Circuit Fabology") and Suzhou Xianglou New Material Co., Ltd. ("Xianglou New Material", listed on GEM of Shenzhen Stock Exchange on 6 June 2022) are provided with Zhonghe Chunsheng Fund III as the accounting subject.
Figures corresponding to Shanghai Hajime Advanced Material Technology Co., Ltd ("Hajime") are provided with Jiaxing Fund and Zhonghe Chunsheng Fund III as the accounting subject.
ZTE (H.K.) Limited ("ZTE HK"), a wholly-owned subsidiary of the Company, entered into a Subscription Agreement with Enablence Technologies Inc. ("Enablence Technologies") on 4 December 2014. ZTE HK subscribed for 18 million shares issued by Enablence Technologies on 6 January 2015 for a total investment of CAD2.70 million, equivalent to approximately RMB13,931,000 based on the Company's foreign currency statement book exchange rate (CAD1: RMB5.15963) on 31 January 2015. ZTE HK entered into a Subscription Agreement with Enablence Technologies on 27 January 2016. On 2 February 2016, ZTE HK subscribed for 77 million shares issued by Enablence Technologies for a total investment of CAD4.62 million, equivalent to approximately RMB21,901,600 based on the Company's foreign currency statement book exchange rate (CAD1: RMB4.74060) on 29 February 2016. In 2021, Enablence Technologies underwent an asset reorganisation, including share consolidation (120 shares into 1 share), debt-to-share conversion, additional share issue and issue of options. As at the end of the reporting period, ZTE HK held 791,700 shares (following share consolidation under the asset reorganisation of Enablence Technologies) in Enablence Technologies, accounting for 4.26% of its total share capital with a book value of approximately HKD8,683,000, equivalent to approximately RMB7,410,900 based on the Company's foreign currency statement book exchange rate (HKD1: RMB0.85349) on 30 June 2022.
26
ZTE CORPORATION INTERIM REPORT 2022
B. Save as aforesaid, the Group did not invest in non-listed financial enterprises such as commercial banks, securities companies, insurance companies, trusts or futures companies, or conduct securities investment such as dealing in stocks of other listed companies during the reporting period.
Entrusted fund management
½ Applicable N/A
Derivative investments
Unit: RMB in ten thousands
Name of party operating the derivative investment
Financial institution Financial institution
Total
Whether a Connected connected relationship transaction
N/A
No
N/A
No
Type of derivative investmentNote 1
Forward exchange forwards interest rate derivatives
Initial investment amount in the derivative investment Start date
--
2021/7/8
--
2022/6/26
--
--
End date
2023/5/30 2022/12/26 --
Opening balance of investment amountNote 2
743,286.78 1,531.77
744,818.55
Amount purchased during the
period
1,309,824.94 --
1,309,824.94
Amount disposed of during the
period
1,332,894.15 765.89
1,333,660.04
Closing
balance of
investment
amount as a
percentage
of net assets
Note 3 of the
Impairment
Company at Actual profit
provision Closing balance the end of or loss for
amount of investment the period the reporting
(if any)
amount
(%)
period
-- 720,217.57
--
765.88
13.11% 0.01%
38,320.98 6.78
-- 720,983.45
13.12% 38,327.76
Source of funds for derivative investment
Internal funds
Litigation (if applicable)
Not involved in any litigation
Date of announcement of the Board of Directors in respect of the approval of derivative investments (if any)
"Announcement Resolutions of the Thirty-third Meeting of the Eighth Session of the Board of Directors" and "Overseas Regulatory Announcement Announcement on the Application for Derivative Investment Limits for 2021," both dated 16 March 2021, and "Announcement Resolutions of the Fortyfifth Meeting of the Eighth Session of the Board of Directors" and "Overseas Regulatory Announcement Announcement on the Application for Derivative Investment Limits for 2022", both dated 8 March 2022.
Date of announcement of the general meeting in respect of the approval of derivative investments (if any)
"Announcement on Resolutions of the 2020 Annual General Meeting" dated 25 June 2021 and "Announcement on Resolutions of the 2021 Annual General Meeting" dated 21 April 2022.
Risk analysis and control measures (including but not limited to market risks, liquidity risks, credit risks, operational risks and legal risks) in respect of derivative positions during the reporting period
1. Analysis of major risks:
(1) Market risks: Gains or losses arising from the difference between the exchange rate for settlement of value protection derivative investment contracts and the exchange rate prevailing on the maturity date will be accounted for as gains or losses on revaluation for each accounting period during the effective period of the valueprotection derivative investments. Effective gains or losses shall be represented by the accumulative gains or losses on revaluation on the maturity date;
27
ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
(2) Liquidity risks: The value-protection derivative investments of the Company were based on the Company's budget of foreign exchange income and expenditure and foreign exchange exposure and these investments were matched with the Company's actual foreign exchange income and expenditure to ensure sufficient fund for settlement on completion. Therefore, their impact on the Company's current assets was insignificant;
(3) Credit risks: The counterparties of the derivative investment trades of the Company are financial institution with sound credit ratings and long-standing business relationships with the Company and therefore the transactions were basically free from performance risks;
(4) Other risks: Failure of personnel in charge to operate derivative investments in accordance with stipulated procedures or fully understand information regarding derivatives in actual operation may result in operational risks; obscure terms in the trade contract may result in legal risks.
2. Control measures adopted to counter risks:
The Company addressed legal risks by entering into contracts with clear and precise terms with counterparty financial institution and strictly enforcing its risk management system. The Company has formulated the "Risk Control and Information Disclosure System relating to Investments in Derivatives" that contains specific provisions for the risk control, approval procedures and subsequent management of derivative investments, so that derivative investments will be effectively regulated and risks relating to derivative investments duly controlled.
Changes in the market prices or fair values of invested derivatives during the reporting period, including the specific methods, assumptions and parameters adopted in the analysis of the fair values of the derivatives
The Company has recognised gains/losses from investments in derivatives during the reporting period. Total gain recognised for the reporting period amounted to RMB383 million, comprising gain from fair-value change of RMB54 million and recognised investment gain of RMB329 million. The calculation of the fair value was based on forward exchange rates quoted by Reuters on a balance sheet date in line with the maturity date of the product.
Statement on whether the accounting policy and accounting audit principles for derivatives for the reporting period were significantly different from the previous reporting period
There was no significant change in the Company's accounting policy and accounting audit principles for derivatives for the reporting period as compared to that of the previous reporting period.
28
ZTE CORPORATION INTERIM REPORT 2022
Specific opinion of Independent Nonexecutive Directors on the Company's derivative investments and risk control
The Company has conducted value protection derivative investments by using financial products to enhance its financial stability, so as to mitigate the impact of exchange rate volatility on its assets, liabilities and profitability. The Company has conducted stringent internal assessment of its derivative investments made and has established corresponding regulatory mechanisms and assigned dedicated staff to be in charge thereof. The counterparties with which the Company and its subsidiaries have entered into contracts for derivative investments are organisations with sound operations and good credit standing. The derivative investments made by the Company and its subsidiaries have been closely related to their day-to-day operational requirements and the internal review procedures performance have been in compliance with the provisions of relevant laws and regulations and of the Articles of Association.
Note 1:
Derivative investments are classified according to the types of derivative investments. Foreign exchange derivatives included forward exchange and exchange swaps. Interest rate derivatives included interest rate swap contracts;
Note 2:
The investment amount at the beginning of the period represented the amount denominated in the original currency translated at the exchange rate prevailing as at the end of the reporting period;
Note 3:
Net assets as at the end of the reporting period represented net assets attributable to holders of ordinary shares of the listed company as at the end of the reporting period.
9. Material disposals of assets and equity interests by the Group during the reporting period
½ Applicable N/A
The Group was not engaged in any material acquisitions and disposals related to subsidiaries, associates and joint ventures during the reporting period.
29
ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
10. Analysis of principal subsidiaries and investee companies
(1) For the reporting period, Shenzhen Zhongxing Software Company Limited ("Zhongxing Software"), ZTE Microelectronics Technology Company Limited ("ZTE Microelectronics") accounted for more than 10% of the net profit reported in the Group's consolidated statements and reported year-on-year change in net profit of more than 30%: Zhongxing Software reported a year-on-year growth in net profit by 48.27% reflecting mainly the increase in gross profit; ZTE Microelectronics reported a year-on-year growth in net profit by 241.83%, attributable mainly to enhanced profitability.
Unit: RMB in thousands
Name of company
Shenzhen Zhongxing Software Company Limited
ZTE Microelectronics Technology Company Limited
Corporate
type
Principal operations Registered capital Total assets
Subsidiary Software development RMB51.08 million 16,346,357
Subsidiary Design, manufacturing RMB131,578,947 and sales of integrated circuits
9,204,097
Net assets 3,006,706
6,793,140
Operating revenue
10,985,209
4,255,226
Operating profit
1,229,451
939,387
Net profit 1,223,368
937,613
(2) For information of other subsidiaries and principal investee companies (including associates and joint ventures), please refer to Note VII. Interests in Other Entities and Note XIV.4 Long-term Equity Investments to the financial statement.
(3) For details of acquisitions and disposals of subsidiaries acquired during the reporting period and their impact, please refer to Note VI. Changes to the Scope of Consolidation to the financial statements.
11. There was no structured entity under the control of the Company within the meaning of "ASBEs No. 41 -- Disclosure of Interests in Other Entities."
12. Other information disclosed under the requirements of the Hong Kong Listing Rules
(1) Debt-equity ratio and the basis of calculation
Debt-equity ratio is calculated by dividing interest-bearing liabilities by the sum of interestbearing liabilities and equity (including non-controlling interests).
The Group's debt-equity ratio for the first half of 2022 was 44.6%, increasing by 1.2 percentage points as compared to 43.4% for 2021, attributable mainly to the increase in interest-bearing liabilities for the reporting period.
(2) Source and application of capital
In the first half of 2022, the Group's development funds were financed mainly by cash generated from its operations and bank loans. The Group's cash requirements related primarily to production and operating activities, repayment of due liabilities, capital expenditure, interest and dividend payments and other contingent cash requirements. The Group has adopted a prudent capital management policy and sufficient funds are in place to meet its debt repayment obligations as due, capital expenditure and the requirements of normal production operations.
30
ZTE CORPORATION INTERIM REPORT 2022
(3) Capital expenditure
The Group's capital expenditure for the first half of 2022 was amounted to RMB2,488,136 thousand, compared to RMB2,668,249 thousand for the first half of 2021, which was mainly applied in the Nanjing Project, Shanghai R&D Phase III, purchase of equipment assets and internal R&D investment, among others.
(4) Indebtedness
The Group's bank loans were mainly settled in RMB, USD and EUR. As at 30 June 2022, the Group's bank loans amounted to RMB44,502,601 thousand in aggregate, and were applied mainly as working capital. Bank loans subject to interests at fixed rates amounted to approximately RMB7,436,810 thousand, while the remaining portion was subject to floating interest rates, the details of which are as follows:
Analysed by maturity profile
Unit: RMB in thousands
Item
Short-term bank loans Long-term bank loans Total
30 June 2022
13,799,587 30,703,014
44,502,601
31 December 2021
9,535,075 29,908,441
39,443,516
Analysed by security
Unit: RMB in thousands
Item
Secured bank loans Unsecured bank loans Total
30 June 2022
92,824 44,409,777
44,502,601
31 December 2021
75,515 39,368,001
39,443,516
(5) Foreign exchange risks and related hedging
The Group's consolidated financial statements are expressed in RMB. The exchange rate risk of the Group arises mainly from foreign exchange exposures associated with the sales, purchases and financing settled in currencies other than RMB and the volatility of exchange rates. Based on end-to-end exchange risk management throughout its business processes, the Group seeks to reduce the impact of exchange rate volatility through the use of measures such as business strategic guidance, internal settlement management, financing mix design and value-protected derivative products on exchange rates. The Group also strengthens liquidity risk management in countries practicing exchange control and endeavoured to facilitate RMB pricing and settlement for overseas projects to lower its exchange risks in the long term. For details, please refer to the section headed "Report of the Board of Directors (II) 8. Analysis of investment -- Derivative investments" in this report.
31
ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
(6) Contractual obligations
Unit: RMB in thousands
Item Bank loans
Total 44,502,601
30 June 2022
Less than
1 year
25 years
13,799,587
30,703,014
More than 5 years --
(7) Capital commitments
The Group had the following capital commitments as of the dates indicated:
Unit: RMB in thousands
Item
Land and buildings: Contracted, but not provided for Investment in associates: Contracted,
but not provided for
30 June 2022
2,446,852
126,500
31 December 2021
2,534,033
13,000
(8) Contingent liabilities
For details of the Group's contingent liabilities as at 30 June 2022, please refer to Note XII.2 Contingent Liabilities to the financial statements.
(9) Charges on Assets
For details of the Group's charges on assets as at 30 June 2022, please refer to Note V.21 Short-term loans and V.30 Long-term loans to the financial statements.
(10) Plans for investment in or acquisition of capital assets
For details of the Group's investments, performance and prospects as at 30 June 2022, please refer to the sections headed "Report of the Board of Directors (II) 8. "Analysis of Investment" and "Material Matters" in this report.
The Group will arrange future plans for investments or acquisition of capital assets in accordance with strategic plans and actual operation conditions.
(11) Employees of the Group
As at 30 June 2022, the Group had 73,191 employees, including 68,658 employees at the parent company. The total amount of staff remuneration for the reporting period was about RMB14.7 billion. Details of staff training programmes, remuneration policy and share option schemes are set out in the sections headed "Directors, Supervisors, Senior Management and Employees" in the 2021 Annual Report and "Corporate Governance Report (VII) Implementation and Impact of the Company's Share Option Incentive Scheme and Management Stock Ownership Scheme" in this report.
(12) Others
As at the date of the publication of this report, so far as known to the Company, the Group's financial conditions and operating results will not be materially and adversely affected by the COVID-19 epidemic.
32
ZTE CORPORATION INTERIM REPORT 2022
(13) Save as disclosed herein, there has been no material change in information disclosed in the interim report from the information disclosed in the 2021 Annual Report of the Company in relation to matters set out in Appendix 16 of the Hong Kong Listing Rules. And there are no other matters that need to be disclosed in this report.
(14) There are no post-balance sheet date events by the Group.
(III) RECORDS OF RECEPTION OF INVESTMENT ANALYSTS, COMMUNICATIONS AND PRESS INTERVIEWS DURING THE REPORTING PERIOD
Nature
Time
Results presentation April 2022
Location Shenzhen
External meeting January to
Shenzhen
June 2022
Shenzhen
Shenzhen Shenzhen
Shenzhen
Shenzhen Shenzhen
Shenzhen Shenzhen Shenzhen Shenzhen
Shenzhen Shenzhen
Shenzhen
Shenzhen
Key contents
Mode
Audience received
discussed
Live Internet video
Investors and securities houses
broadcast +
including Guotai Fund,
in-person meeting
Southern Fund, Credit Suisse,
Guangdong Hengjian, China
Merchants Securities, Tianfeng
Securities, Zheshang
Securities and Morgan
Stanley.
Morgan Stanley investors' Customers of Morgan Stanley
telephone conference
Guosheng Securities Customers of Guosheng Securities
investors' telephone
conference
USB investors' telephone Customers of USB
conference
Huatai Securities
Customers of Huatai Securities
investors' telephone
conference
Tianfeng Securities
Customers of Tianfeng Securities
investors' telephone
conference
Credit Suisse investors' Customers of Credit Suisse
telephone conference
Western Securities
Customers of Western Securities
investors' telephone
conference
CICC investors' telephone Customers of CICC
conference
Citi investors' telephone Customers of Citi
conference
China Securities investors' Customers of China Securities
telephone conference
CMB International
Customers of CMB International
investors' telephone
conference
Guotai Junan investors' Customers of Guotai Junan
telephone conference Securities
Haitong Securities
Customers of Haitong Securities
investors' telephone
conference
Guosen Securities
Customers of Guosen Securities
investors' telephone
conference
Essence Securities
Customers of Essence Securities
investors' telephone
conference
Day-to-day operations of the Company
Day-to-day operations of the Company
Information furnished Published announcements
and regular reports
Published announcements and regular reports
33
ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
(IV) BUSINESS OUTLOOK FOR THE SECOND HALF OF 2022 AND RISK EXPOSURES
1. Business outlook for the second half of 2022
China's digital economy has ranked second in the world for consecutive years. In 2021, the size of the digital commercialisation business reached RMB8.35 trillion, accounting for 7.3% of the nation's GDP, while the size of the industrial digitalisation business amounted to RMB37.18 trillion, accounting for 32.5% of the nation's GDP. (source: "Report on the Development of China's Digital Economy (2022)"). Since early 2022, the domestic digital economy has maintained sound growth momentum, showing an increasing effect as a driving force for economic growth. The Group has long been committed to the role of a path-builder for the digital economy, as it actively contributes to the rapid development of the nation's digital economy. In 2022, the Group has entered the stage of strategic overtaking, as it steps up with the growth of the secondary-curve business while maintaining stable progress for the primary-curve business in a bid to consolidate its existing businesses and expand into new frontiers, in order to achieve the strategic overtaking goal.
In connection with carriers' networks, in the domestic market, the Group will devote its effort towards transformation from a mainstream supplier to a core supplier. In the overseas market, we will continue to optimise the market profile of our dominant products to focus on efficiency enhancement and compliant operation. In the meantime, we will persist in technological innovation in key areas and increase investment in core technologies such as chip, algorithm and network architecture to assure our technological edge, while helping carriers to build minimal, excellent and green premium networks in a speedy manner.
In connection with the government and corporate business, increased investment in New Infrastructure, acceleration of digital transformation and advances of key national projects such as the East-to-West Data Computing have resulted in new development opportunities in the domestic government and corporate market. The Group will continue to invest in resources for the government and corporate business and consistently enhance its basic competitiveness for key products such as server and storage and data centre, expediting development in the Internet and finance sectors while enhancing our general competitiveness in channels to seize opportunities for rapid growth.
In connection with the consumer business, the Group will forge a "1+2+N" pattern for development comprising personal data, home data and intelligent peripheral products on the basis of the core handset product to gradually expand the consumer channel and strive to turn it into another robust driver for the Company's sales growth. Meanwhile, the Group will further leverage the advantage afforded by its current home information terminal products to construct a matrix of connect and video products and gradually grow into a mainstream industry player.
In the meantime, the Group will continue to advance digital transformation and enhance operating efficiency at all sections. We will also continue to enhance our effort to attract and incentivise core personnel, while making improvements to our compliance management regime, strengthen internal control governance and prevent corporate risks. We will forge a highly resilient organisation and actively implement the dual carbon objective and green development principles to achieve corporate sustainability.
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ZTE CORPORATION INTERIM REPORT 2022
2. Risk exposures
(1) Country risks
Given the complex nature of international economic and political conditions and the presence of the Group's business and branch organisations in over 100 countries with differences in macro-economy, policy and regulation and political and social backgrounds, the Group will continue to be exposed to risks relating to legal compliance, taxation, exchange rates and political developments (such as war and domestic unrest), which might affect the operations of the Group. For the possible impact of risks relating to compliance on the operation of the Group, please refer to Note XII.2.5 to the financial statements. The Group ensures compliance primarily through the establishment of a complete compliance management regime to identify and comply with trade and taxation policy requirements in these countries (including export control and GDPR (General Data Protection Regulation)); we also work with independent professional organisations to analyse and address country risks. We take out necessary export insurance for businesses in regions with higher evaluated risks, and we also resort to financing to avoid possible losses.
(2) Risk associated with intellectual property rights
The Group has always attached great importance to product technology research and development as well as the protection and management of intellectual property rights. Trademarks of the Group's products and services, "ZTE" or "ZTE", are all protected by trademark registration, and intellectual property right protection in various forms, including but not limited to application for patent right or copyright, has been adopted wherever possible in respect of such products and services. While the Group has adopted highly stringent measures to protect its intellectual property rights, potential disputes over intellectual property rights between the Group and other telecommunications equipment manufacturers, franchisee companies and carriers under partnerships with the Group cannot be totally avoided. The Group will continue to drive the solution of related issues with an open-minded, cooperative and mutually beneficial approach.
(3) Exchange rate risks
The Group's consolidated financial statements are expressed in RMB. The exchange rate risk of the Group arises mainly from foreign exchange exposures associated with the sales, purchases and financing settled in currencies other than RMB and the volatility of exchange rates, which might affect the operations of the Group. The Group adopts ongoing measures to strengthen foreign exchange risk management covering the entire business process and seeks to minimise the impact of exchange rate volatility through initiatives such as business strategic guidance, internal settlement management, financing mix design and value-protected derivative exchange instruments. The Group has also strengthened liquidity risk management in countries practicing exchange control and endeavoured to facilitate RMB pricing and settlement for overseas projects to lower its exchange risks in the long term.
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ZTE CORPORATION INTERIM REPORT 2022
IV. Report of the Board of Directors
(4) Interest rate risk The interest rate risk of the Group is mainly associated with interest-bearing liabilities. Fluctuations in the interest rates of RMB or foreign currencies will result in changes in the total amount of interest payable by the Group and will therefore affect the Group's profitability. The Group seeks to lower its interest rate risk mainly through control over the total amount and structured management of its interest-bearing liabilities. The total amount of interest-bearing liabilities is matched with the funding requirements of the Group's operational development. Control over the total amount of interest-bearing liabilities is mainly achieved by improving the cash turnover efficiency and increasing the free cash flow of the Group. Structured management of interest-bearing liabilities is achieved mainly through portfolio control of a mixture of long-term/short-term domestic and overseas loans denominated in RMB or foreign currencies with fixed or floating interests, complemented by derivative instruments such as interest rate swaps, sought from a diverse range of low-cost financing channels in the global market taking into account the trends of market changes.
(5) Customer credit risk The Group provides one-stop communications solutions to its customers. With the rapid expansion of its business, the Group is serving a large customer base with differing credit status, and its business will inevitably be affected by the varied credit profiles of these customers. The Group seeks to mitigate the aforesaid impact mainly by identifying and managing credit risks through the adoption of internal credit management measures, such as customer credit search, customer credit rating, customer credit limit management, overall risk control and credit control against customers with faulty payment records, and by transferring credit risks through the purchase of credit insurance and appropriate financial instruments.
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ZTE CORPORATION INTERIM REPORT 2022
V. Corporate Governance
(I) COMPLIANCE OF THE COMPANY'S CORPORATE GOVERNANCE STATUS WITH RELEVANT REQUIREMENTS OF THE CSRC
The Company has been making improvements to its corporate governance regimes and structures, regulating corporate operations and optimising internal control structures on an ongoing basis in accordance with the requirements of the Company Law, the Securities Law, Corporate Governance Standards for Listed Companies and relevant laws and regulations of the CSRC. The Company conducts internal control in accordance with the requirements of provisions such as the "Notice on the Publication of the Corporate Internal Control Supplementary Guide" ( ). During the reporting period, the general meeting, Board of Directors and Supervisory Committee of the Company were operated in compliance with the law, and the corporate governance of the Company was in compliance with provisions set out in the regulatory documents on corporate governance of listed companies issued by the CSRC.
The Company focused its efforts on the following internal control work in the first half of 2022:
(1) The conclusion and assessment of the internal control work for 2021 was completed, on which basis the 2021 Internal Control Audit Work Report and 2021 Internal Control Assessment Report were published; the internal control work plans for 2022 was formulated and internal control assessment for 2022 was commenced with stronger effort in pre-emptive supervision and inspection as well as supervision and inspection during the process.
(2) Ongoing advancement of the development of our risk management-oriented internal control regime to strengthen the development of professional competence in internal control and deepen the development of internal control organisation at primary level; institutional development was strengthened and the internal control system was optimised; inspection was implemented through a three-tier line of defense comprising business execution, ability building and supervision of implementation, utilising internal control self-assessment, business audit and self-rectification tools.
(3) The risk categorisation framework was optimised and risk classification and hierarchy was developed to strengthen duties of risk management units at all levels, while standardising the risk control process for identifying, assessing and addressing risks with in-depth implementation of risk control practices at primary levels; key internal control tasks for various segments were streamlined and launched and the operating model of the internal control system was optimised to enhance the management duties of the internal control ability development modules and consistently optimise the management process for rectifying deficiencies.
(4) The organisational ability relating to internal control was enhanced with stronger internal control empowerment, while activities to foster the culture of internal control among all employees, such as lectures on internal control, seminars on internal control in business operations, sharing of internal control cases and a new round of internal control manager accreditation were organised on a continuous basis.
(II) DURING THE PERIOD FROM 1 JANUARY TO 30 JUNE 2022, THE COMPANY WAS IN FULL COMPLIANCE WITH THE PRINCIPLES AND CODE PROVISIONS OF THE CORPORATE GOVERNANCE CODE SET OUT IN APPENDIX 14 OF THE HONG KONG STOCK EXCHANGE LISTING RULES.
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ZTE CORPORATION INTERIM REPORT 2022
V. Corporate Governance
(III) INFORMATION ON THE CONVENING OF GENERAL MEETING
On 30 March 2022, the Company convened the First Extraordinary General Meeting of 2022 by way of a combination of on-site and online voting. Shareholders (proxies) representing 32.21% of the total number of shares of the Company entitled to vote at the meeting attended the meeting. A total of 6 resolutions including Resolution on the Re-election of the Board of Directors and the Election of Non-independent Directors for the Ninth Session of the Board of Directors, Resolution on the Re-election of the Board of Directors and the Election of Independent Non-executive Directors for the Ninth Session of the Board of Directors; Resolution on the Re-election of the Supervisory Committee and the Election of Shareholders' Representative Supervisors for the Ninth Session of the Supervisory Committee were considered and approved at the meeting. For details, please refer to the "Announcement on Resolutions of the First Extraordinary General Meeting of 2022" published by the Company on 30 March 2022. On 21 April 2022, the Company convened the 2021 Annual General Meeting by way of a combination of on-site and online voting. Shareholders (proxies) representing 31.49% of the total number of shares of the Company entitled to vote at the meeting attended the meeting. A total of 12 resolutions including 2021 Annual Report; 2021 Report of the Board of Directors; 2021 Report of the Supervisory Committee and Proposal for Profit Distribution for 2021 were considered and approved at the meeting. For details, please refer to the "Announcement on Resolutions of the 2021 Annual General Meeting" published by the Company on 21 April 2022.
(IV) SECURITIES TRANSACTIONS BY DIRECTORS AND SUPERVISORS
The Directors and Supervisors of the Company confirmed that the Company had adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as set out in Appendix 10 to the Hong Kong Listing Rules. Having made due enquiries with all Directors and Supervisors of the Company, the Company was not aware of any information that reasonably suggested that the Directors and Supervisors had not complied with the requirements in the Model Code during the reporting period.
(V) THE AUDIT COMMITTEE
According to the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules, the Company established Audit Committee and formulated the Working Rules of the Audit Committee. The Audit Committee comprised 5 members, including three Independent Non-executive Directors of the Company, Ms. Cai Manli, Mr. Gordon Ng, Mr. Zhuang Jiansheng, and two Non-executive Directors, Mr. Li Buqing and Mr. Zu Weimin. Ms. Cai Manli served as the convener of the Audit Committee. The Audit Committee of the Company has discussed with the management the accounting standards and practices adopted by the Group, and has also discussed and reviewed this report, including the financial statements of the Group for the six months ended 30 June 2022.
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ZTE CORPORATION INTERIM REPORT 2022
(VI) PROFIT DISTRIBUTION OR CONVERSION OF CAPITAL RESERVE
According to pertinent provisions of the Articles of Association, the "Profit Distribution Proposal for 2021" was considered and approved at the 2021 Annual General Meeting of the Company held on 21 April 2022. A dividend of RMB3 in cash (before tax) for every 10 shares was distributed based on the total share capital in issue of 4,734,044,778 shares (comprising 3,978,542,244 A shares and 755,502,534 H shares) as at the record date, equivalent to a total distribution amount of RMB1,420,213,433.4 (before tax). The A share dividend payment date was 10 May 2022 and the H share dividend payment date was 20 May 2022.
The aggregate profit distribution of the Company in the form of cash in 20192021 accounted for 62.61% of the annual average profit available for distribution in the past three years, in compliance with Article 232 of the Articles of Association which states that "the aggregate profit distribution of the Company in the form of cash in the past three years shall not be less than 30% of the annual average profit available for distribution in the past three years."
The Company did not conduct any adjustments or changes to its profit distribution policy during the reporting period.
The Company does not propose any profit distribution or conversion of capital reserve for the six months ended 30 June 2022.
(VII)IMPLEMENTATION AND IMPACT OF THE COMPANY'S SHARE OPTION INCENTIVE SCHEME AND MANAGEMENT STOCK OWNERSHIP SCHEME
1. Progress of the 2017 Share Option Incentive Scheme during the reporting period
(1) General information on the 2017 Share Option Incentive Scheme
Objective
The 2017 Share Option Incentive Scheme has been implemented by the Company to further refine the corporate governance structure of the Company, improve corporate incentive systems of the Company, enhance loyalty and sense of responsibility of the management and key employees of the Company and retain talent, so as to facilitate sustainable development of the Company and ensure the realisation of its development targets.
Participants and maximum share options granted to scheme participants
Under the 2017 Share Option Incentive Scheme, the date of grant was 6 July 2017 and 149,601,200 share options was granted to 1,996 participants (including Directors, senior management and key employees of the Company) at an initial exercise price of RMB17.06 per A share. Participants were not required to pay any consideration to the Company on application or acceptance of the share options. Under the 2017 Share Option Incentive Scheme, to the extent that the offer to grant an option is not accepted within 7 days from the date upon which it is made, it shall be deemed to have been irrevocably declined and lapsed automatically.
The aggregate number of A shares to be issued to a scheme participant upon exercise of his or her share options under the 2017 Share Option Incentive Scheme and other effective share option incentive schemes of the Company at any time must not exceed 1% of the Company's total share capital of the same class, and the maximum entitlement which may be granted to a scheme participant (including exercised, cancelled and unexercised share options) within any 12-month period shall not exceed 1% of the Company's total share capital of the same class.
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ZTE CORPORATION INTERIM REPORT 2022
V. Corporate Governance
Adjustments to exercise price The exercise price of share options was adjusted to RMB16.66 per A share with the approval of the Board following the implementation of the 2019 and 2020 profit distribution plans. As considered and approved at the Second Meeting of the Ninth Session of the Board of Directors of the Company held on 25 April 2022, the exercise price of share options would be adjusted to RMB16.36 per A share following the implementation of the 2021 A share profit distribution plan.
Validity period, vesting period, exercise period The 2017 Share Option Incentive Scheme shall remain in force for 5 years from the date of grant (6 July 2017). The closing price of the Company's A shares on the trading date which is 1 day prior to the date of grant was RMB23.52 per A share. There shall be a vesting period of 2 years from the date of grant, after which share options can be exercised in 3 exercise periods. Prior to the commencement of the first exercise period, due to participants who were no longer qualified as such or share options for which exercise conditions under the first exercise period had not been fulfilled, and the exercise conditions under the second exercise period had not been fulfilled, the Company cancelled 70,210,561 share options in total in July 2019. The first exercise period comprised the exercise dates within the period from 16 July 2019 to 5 July 2020, during which 39,664,087 share options were exercised out of a total of 39,664,153 share options exercisable by 1,684 participants. The 66 unexercised options as at the end of the exercisable period under the first exercise period were cancelled in September 2020. Prior to the commencement of the third exercise period, due to participants who were no longer qualified as such or share options for which exercise conditions under the third exercise period had not been fulfilled, the Company cancelled 2,437,430 share options in July 2021. The third exercise period comprised the exercise dates within the period from 14 July 2021 to 5 July 2022, during which 37,289,056 share options exercisable by 1,573 participants were exercised in full.
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ZTE CORPORATION INTERIM REPORT 2022
(2) Details of share options held and exercised by scheme participants during the reporting period
The share options under the 2017 Share Option Incentive Scheme of the Company shall be exercised on a voluntary basis. During the reporting period, a total of 4,971,974 share options were exercised and the number of the Company's A shares increased by 4,971,974 shares accordingly. The exercise prices prior to and after the implementation of 2021 profit distribution were RMB16.66 and RMB16.36, respectively. Funds required for the exercise of options were paid on the date on which the participants exercise the share options and were financed by the participants on their own. The Company did not provide any loans or any other forms of financial assistance to the participants for exercising the options. The proceeds were deposited in the Company's dedicated account. The closing price of the A shares as at the end of the reporting period was RMB25.53. Details of the holding and exercise of share options by participants during the reporting period are set out in the table below:
Name of participant
Position of participant
Number of unexercised options at the beginning of the reporting
period
Xu Ziyang
Director and
President
Sub-total of DirectorsNote 2
Wang Xiyu
Executive Vice
President
Li Ying
Executive Vice
President and
Chief Financial
Officer
Xie Junshi
Executive Vice
President
Ding Jianzhong
Secretary to the
Board of Directors
and Company
Secretary
Sub-total of senior management
Other key employees of the Company
84,000 84,000 87,468 52,800
82,468 33,160
255,896 4,916,006
Total
5,255,902
Number of options granted
during the reporting
period
0
Number of options
exercisable during the reporting
period
84,000
0
84,000
0
87,468
0
52,800
0
82,468
0
33,160
0
255,896
0 4,916,006
0 5,255,902
Number of options
exercised during the reporting
period 84,000
84,000 87,468
52,800
82,468
33,160
255,896 4,632,078 4,971,974
Number of
Number of
options Number of unexercised
cancelled
options options at the
during the lapsed during end of the
reporting the reporting reporting
period
period
period
Weighted average
closing price (RMB/share)
Note 1
0
0
0
23.63
0
0
0
23.63
0
0
0
23.63
0
0
0
23.63
0
0
0
23.63
0
0
0
23.63
0
0
0
23.63
0
0
283,928
26.05
0
0
283,928
25.88
Note 1:
The weighted average closing price of the A shares of the Company on the trading day immediately preceding the date of exercise.
Note 2:
To avoid repetition in counting, the number of share options granted to Mr. Xu Ziyang, Director and President, was included in the sub-total for Directors.
During the period after the end of the reporting period up to the date of the publication of this report, a total of 283,928 share options were exercised in the third exercise period under the 2017 Share Option Incentive Scheme of the Company. As at the date of publication of this report, A share options for the third exercise period under the 2017 Share Option Incentive Scheme of the Company had been exercised in full and implementation of the 2017 Share Option Incentive Scheme was completed. Accordingly, the total number of shares available for issue under the 2017 Share Option Scheme was 0 as at the date of publication of this report.
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ZTE CORPORATION INTERIM REPORT 2022
V. Corporate Governance
(3) Share option value, accounting treatment and impact on the financial conditions and operating results of the Company
Valuation of the share options
The Company has adopted the Binomial Tree model to calculate the value of the 2017 share options, the estimated value of the 2017 share options is RMB10.40 per A share. For the data used in and results of the calculation, please refer to the section headed "Corporate Governance Report -- (X) IMPLEMENTATION AND IMPACT OF THE COMPANY'S SHARE OPTION INCENTIVE SCHEME AND MANAGEMENT STOCK OWNERSHIP SCHEME" in the Company's 2021 Annual Report.
Accounting policies, Accounting treatment and impact on the financial conditions and operating results of the Company
Specific accounting policies are set out in Note III.18 Share-based Payment to the financial statements, accounting treatments of share options and the impact on the Company's financial conditions and operating results for the reporting period are set out in Note XI Share-based Payments to the financial statements.
2. Progress of the 2020 Share Option Incentive Scheme during the reporting period
(1) General information on the 2020 Share Option Incentive Scheme
Objective
The 2020 Share Option Incentive Scheme adopted by the Company is aimed at further refining the corporate governance structure and improving the incentive systems of the Company, enhance the sense of responsibility and mission of the management and key employees of the Company for the sound and sustainable development of the Company and safeguard the realisation of development targets of the Company.
Participants and maximum share options granted to scheme participants
Under the 2020 Share Option Incentive Scheme, the date of grant for the initial grant was 6 November 2020 and 158,472,000 share options were granted to 6,123 participants (including Directors, senior management and key employees of the Company) under the initial grant at an exercise price of RMB34.47 per A share. The date of grant of the reserved grant was 23 September 2021 and 5,000,000 share options were granted to 410 participants (all are key employees of the Company) under the reserved grant at an exercise price of RMB34.92 per A share. Participants were not required to pay any consideration to the Company on application or acceptance of the share options. Under the 2020 Share Option Incentive Scheme, to the extent that the offer to grant an option is not accepted within 7 days from the date upon which it is made, it shall be deemed to have been irrevocably declined and lapsed automatically.
The aggregate number of A shares to be issued to a scheme participant upon exercise of his or her share options under the 2020 Share Option Incentive Scheme and other effective share option incentive schemes of the Company at any time must not exceed 1% of the Company's total share capital of the same class, and the maximum entitlement which may be granted to a scheme participant (including exercised, cancelled and unexercised share options) within any 12-month period shall not exceed 1% of the Company's total share capital of the same class.
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ZTE CORPORATION INTERIM REPORT 2022
Validity period, vesting period, exercise period
A. Share options under the initial grant
The initial grant of 2020 Share Option Incentive Scheme of the Company shall remain in force for 4 years from the date of grant of the initial grant (i.e. 6 November 2020). The closing price of the Company's A shares on the trading date which is 1 day prior to the date of grant was RMB34.80 per A share. There shall be a vesting period of 1 year from the date of grant, after which share options can be exercised according to the following proportion, subject to the fulfillment of the exercise conditions:
Exercise period Duration
Exercisable share options as a percentage
of the total number of share options granted
First exercise Commencing from the first trading
1/3
period
day after expiry of the 12-month
period from the date of initial grant
and ending on the last trading day
of the 24-month period from the
date of initial grant
Second exercise Commencing from the first trading
1/3
period
day after expiry of the 24-month
period from the date of initial grant
and ending on the last trading day
of the 36-month period from the
date of initial grant
Third exercise Commencing from the first trading
1/3
period
day after expiry of the 36-month
period from the date of initial grant
and ending on the last trading day
of the 48-month period from the
date of initial grant
Prior to the commencement of the first exercise period for share options under the initial grant of the 2020 Share Option Incentive Scheme, the Company cancelled 3,796,661 share options previously granted to participants who were no longer qualified as such or share options for which exercise conditions under the first exercise period had not been fulfilled. The first exercise period for the share options under the initial grant shall comprise the exercise dates within the period from 17 November 2021 to 5 November 2022 and a total of 51,442,763 share options exercisable by 5,956 participants.
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ZTE CORPORATION INTERIM REPORT 2022
V. Corporate Governance
B. Reserved share options
The reserved share options shall remain in force for 3 years from the date of grant (i.e. 23 September 2021). The closing price of the Company's A shares on the trading date which is 1 day prior to the date of grant was RMB33.80 per A share. There shall be a vesting period of 1 year from the date of grant, after which share options can be exercised according to the following proportion, subject to the fulfillment of the exercise conditions:
Exercise period Duration
Exercisable share options as a percentage
of the total number of share options granted
First exercise Commencing from the first trading
1/2
period
day after expiry of the 12-month
period from the date of reserved
grant and ending on the last
trading day of the 24-month
period from the date of reserved
grant
Second exercise Commencing from the first trading
1/2
period
day after expiry of the 24-month
period from the date of reserved
grant and ending on the last
trading day of the 36-month
period from the date of reserved
grant
As at the end of the reporting period, the exercise period for the reserved grant of the 2020 Share Option Incentive Scheme had yet to commence.
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ZTE CORPORATION INTERIM REPORT 2022
(2) Details of share options held by the participants and their exercise during the reporting period
The share options under the 2020 Share Option Incentive Scheme of the Company shall be exercised on a voluntary basis. As at the end of the reporting period, 67,411 share options under the first exercise period for the share options under the initial grant of the 2020 Share Option Incentive Scheme had been exercised. During the reporting period, a total of 60,634 share options were exercised and the number of the Company's A shares increased by 60,634 shares. The exercise price was RMB34.47 per A share. Funds required for the exercise of options were paid on the date on which the participants exercise the share options and were financed by the participants on their own. The Company did not provide any loans or any other forms of financial assistance to the participants for exercising the options. The proceeds received were placed in a designated account of the Company. The closing price of the Company's A shares as at the end of the reporting period was RMB25.53 per share. Details of the holding and exercise of share options by participants during the reporting period are set out in the table below:
Name of participant
Number of
unexercised
options at the
beginning of
the reporting
Position of participant
period
1. Share options under the initial grant
Li Zixue
Chairman
Xu Ziyang
Director and President
Li Buqing
Director
Gu Junying
Director and Executive
Vice President
Zhu Weimin
Director
Fang Rong
Director
Sub-total of DirectorsNote 2
Wang Xiyu
Executive Vice President
Li Ying
Executive Vice President
and Chief Financial
Officer
Xie Junshi
Executive Vice President
Ding Jianzhong Secretary to the Board of
Directors and Company
Secretary
Sub-total of senior management
Other key employees of the Company
180,000 180,000 50,000 180,000
50,000 50,000 690,000 180,000 180,000
180,000 120,000
660,000 153,318,562
Total
154,668,562
2. Reserved share options Other key employees of the Company
5,000,000
Total
5,000,000
Number of options granted
during the reporting
period
Number of options
exercisable during the reporting
period
0
60,000
0
60,000
0
16,666
0
60,000
0
16,666
0
16,666
0
229,998
0
60,000
0
60,000
0
60,000
0
40,000
0
220,000
0 50,985,988
0 51,435,986
0
0
0
0
Number of options
exercised during the reporting
period
0 0 0 0
0 0 0 0 0
0 0
0 60,634 60,634
0 0
Number of
Number of
options Number of unexercised
cancelled
options options at the
during the lapsed during end of the
reporting the reporting reporting
period
period
period
Weighted average
closing price (RMB/share)
Note 1
0
0
180,000
N/A
0
0
180,000
N/A
0
0
50,000
N/A
0
0
180,000
N/A
0
0
50,000
N/A
0
0
50,000
N/A
0
0
690,000
N/A
0
0
180,000
N/A
0
0
180,000
N/A
0
0
180,000
N/A
0
0
120,000
N/A
0
0
660,000
N/A
0
0 153,257,928
34.10
0
0 154,607,928
34.10
0
0 5,000,000
N/A
0
0 5,000,000
N/A
Note 1: Note 2:
The weighted average closing price of the A shares of the Company on the trading day immediately preceding the date of exercise.
To avoid repetition in counting, the number of share options granted to Mr. Xu Ziyang, Director and President and Mr. Gu Junying, Director and Executive Vice President, was included in the sub-total for Directors.
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ZTE CORPORATION INTERIM REPORT 2022
V. Corporate Governance
As at the date of publication of this report, a total of 154,607,928 A share options were unexercised under the initial grant of the 2020 Share Option Incentive Scheme of the Company, accounting for approximately 3.26% of the Company's total share capital in issue and 3.88% of the Company's A shares in issue. A total of 5,000,000 A share options were unexercised under the reserved grant, accounting for approximately 0.11% of the Company's total share capital in issue and 0.13% of the Company's A shares in issue. As at the date of the publication of this report, the Company had no outstanding share options pending to be granted. Accordingly, the total number of shares available for issue under the 2020 Share Option Scheme was 159,607,928, which represented approximately 3.37% of the total issued shares and 4.01% of issued A shares of the Company as at the date of publication of this report.
(3) Share option value, accounting treatment and impact on the financial conditions and operating results of the Company
Valuation of the share options
The Company has adopted the Binomial Tree model to calculate the value of the 2020 share options, the estimated value of the share options under the initial grant of the 2020 Share Option Incentive Scheme is RMB9.12 per A share, the estimated value of the share options under the reserved grant of the 2020 Share Option Incentive Scheme is RMB7.22 per A share. For the data used in and results of the aforesaid calculation, please refer to the section headed "Corporate Governance Report -- (X) IMPLEMENTATION AND IMPACT OF THE COMPANY'S SHARE OPTION INCENTIVE SCHEME AND MANAGEMENT STOCK OWNERSHIP SCHEME" in the Company's 2021 Annual Report.
Accounting policies, accounting treatment and impact on the financial conditions and operating results of the Company
Specific accounting policies are set out in Note III.18 Share-based Payment to the financial statements, accounting treatments of share options and the impact on the Company's financial conditions and operating results for the reporting period are set out in Note XI Share-based Payments to the financial statements.
3. For other information on the Company's 2017 Share Option Incentive Scheme and 2020 Share Option Incentive Scheme, such as basis of determination of the exercise price, please refer to the section headed "Corporate Governance Report (X) IMPLEMENTATION AND IMPACT OF THE COMPANY'S SHARE OPTION INCENTIVE SCHEME AND MANAGEMENT STOCK OWNERSHIP SCHEME" in the Company's 2021 Annual Report. References are also made to the annual report of the Company for the year ended 31 December 2021 and published on 11 March 2022, participants of the 2017 Share Option Incentive Scheme and the 2020 Share Option Incentive Scheme include Directors, senior management and other key personnel of the Company (all are employees of the Company), participants shall not be required to pay any consideration to the Company on application or acceptance of the share options. Funds required for the exercise of options shall be paid on the date on which the participants exercise the share options and it shall be financed by the participants on their own. The Company shall not provide any loans or any other forms of financial assistance to the participants for exercising the options. Furthermore, under the 2017 Share Option Incentive Scheme and 2020 Share Option Incentive Scheme, to the extent that the offer to grant an option is not accepted within 7 days from the date upon which it is made, it shall be deemed to have been irrevocably declined and lapsed automatically.
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ZTE CORPORATION INTERIM REPORT 2022
4. Management Stock Ownership Scheme of the Company The Management Stock Ownership Scheme of the Company has been approved by the Remuneration and Evaluation Committee, Twenty-fifth Meeting of the Eighth Session of the Board of Directors, Eighteenth Meeting of the Eighth Session of the Supervisory Committee and Second Extraordinary General Meeting of 2020 of the Company. The source of funds is the Management Stock Ownership Scheme Special Fund amounting to RMB114,765,557.00 set aside by the Company. The source of shares under the Management Stock Ownership Scheme is 2,973,900 repurchased A shares of the Company, accounting for 0.06% of the total share capital of the Company. There were 27 participants, including Directors, Supervisors, senior management and other core management personnel of the Company. The total amount of funds paid for the Management Stock Ownership Scheme was RMB114,765,557.00, divided into 114,766 thousand units at RMB1.00 each, The Directors, Supervisors and senior management of the Company subscribed for a total of 62,606 thousand units, while other participants of the Company subscribed for a total of 52,160 thousand units. For details, please refer to the "Proposed Adoption of the Management Stock Ownership Scheme" published by the Company on 12 October 2020 and the circular dated 20 October 2020 of the Company. The lock-up period for Company shares transferred to the Management Stock Ownership Scheme was from 18 December 2020 to 17 December 2021. On 18 December 2021, the lock-up period for shares under the Management Stock Ownership Scheme expired. Pursuant to the "ZTE Corporation Management Stock Ownership Scheme (Draft)", 50% of the units under the Management Stock Ownership Scheme were vested during the reporting period. Details of the accounting treatment of the Management Stock Ownership Scheme have been disclosed in Note XI. Share-based Payments to the financial statements.
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ZTE CORPORATION INTERIM REPORT 2022
VI. Environmental and Social Responsibility
(I) ENVIRONMENTAL INFORMATION OF THE GROUP
1 During the reporting period, ZTE and ZTE Smart Auto Company Limited ("ZTE Smart Auto"), a subsidiary of the Company, are major pollutant discharging units in the atmospheric announced by environmental protection authorities. ZTE (Nanjing) Company Limited ("ZTE Nanjing"), a wholly-owned subsidiary of the Company, is a major pollutant discharging unit in the soil (hazardous waste) environment category announced by environmental protection authorities.
ZTE, ZTE Smart Auto and ZTE Nanjing have adopted effective measures to ensure compliance of production operations with pertinent environmental laws and regulations, the details of which are as follows.
(1) Pollution discharge
Name of company ZTE
ZTE Smart Auto
Name of major pollutants and Mode of typical pollutants discharge
Total VOCs
Organised discharge
Particulates
Organised discharge
NMHC
Organised discharge
Total VOCs
Organised discharge
Particulates
Organised discharge
Benzene
Organised discharge
Toluene + xylene Organised discharge
Nitrogen oxides Organised discharge
Number of discharge
outlets
Distribution of discharge outlets
1 Plant rooftop
Concentration Applicable pollutant of discharge discharge standards
1.08 mg/m³
"Atmospheric Pollutant Emission Limits" (DB44/272001) Second Time Period Grade II Standards
Approved
Total volume total discharge Excessive
of discharge
volume discharge
0.042705t
/ Compliant
1 Plant rooftop
Ö20 mg/m³
"Atmospheric Pollutant Emission Limits" (DB44/272001) Second Time Period Grade II Standards
0.4015t
/ Compliant
1 Plant rooftop
1.19 mg/m³
"Atmospheric Pollutant Emission Limits" (DB44/272001) Second Time Period Grade II Standards
0.047085t
/ Compliant
8 Coating workshop, 0.5630.9mg/m³ "Volatile Organic Compound
completion
Emission Standards for
inspection
Surface Coating (Auto
workshop
Manufacturing)"
(DB44/8162010)
0.000023t
9.44t/a Compliant
21 Coating workshop
Ö20mg/m³
"Atmospheric Pollutant Emission Limits" (DB44/272001) Second Time Period Grade II Standards
0.00007t
/ Compliant
4.96.7mg/m³
"Atmospheric Pollutant Emission Limits for Boilers" (DB44/7652019)
3 Coating workshop, 0.020.03mg/m³ "Volatile Organic Compound
completion
Emission Standards for
inspection
Surface Coating (Auto
workshop
Manufacturing)"
(DB44/8162010)
0.000001t
/ Compliant
3 Coating workshop, 0.130.25mg/m³ "Volatile Organic Compound
completion
Emission Standards for
inspection
Surface Coating (Auto
workshop
Manufacturing)"
(DB44/8162010)
0.000003t
/ Compliant
13 Coating workshop, completion inspection workshop
983mg/m³
"Volatile Organic Compound Emission Standards for Surface Coating (Auto Manufacturing)" (DB44/8162010)
0.000012t
/ Compliant
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ZTE CORPORATION INTERIM REPORT 2022
Name of company ZTE Nanjing
Name of major pollutants and Mode of typical pollutants discharge
Sulphur dioxide Organised discharge
Waste box
Entrusted
containing lead treatment
and tin
Waste empty container
Entrusted treatment
Waste circuit board
Entrusted treatment
Waste bonding agent and sealant
Entrusted treatment
Waste liquid containing solvent
Entrusted treatment
Number of discharge
outlets
Distribution of discharge outlets
Coating workshop
Concentration Applicable pollutant of discharge discharge standards
5358mg/m³
"Atmospheric Pollutant Emission Limits for Boilers" (DB44/7652019)
Approved
Total volume total discharge Excessive
of discharge
volume discharge
13 Coating workshop
N/D "Volatile Organic Compound
/
Emission Standards for
Surface Coating (Auto
Manufacturing)"
(DB44/8162010)
/ Compliant
/ Production line
//
2.599t
8t/a Compliant
/ Production line
//
/ Production line
//
/ Production line
//
9.113t 17.1025t 16.3955t
20t/a Compliant 45t/a Compliant 25t/a Compliant
/ Production line
//
13.3075t
66t/a Compliant
(2) Construction and operation of pollution prevention and treatment facilities
ZTE has installed VOC exhaust gas processing equipment at the outlet of exhaust gas discharge and the exhaust gas is processed through the internal adsorption unit of equipment, UV photolysis, water spraying system and discharged after meeting relevant standards in accordance with environmental protection requirements. The Company has formulated administrative systems and contingency plans and conducted regular safety inspections. All equipment have been operating in good conditions.
ZTE Smart Auto has installed corresponding pollution treatment facilities such as bag filter, paint and mist purification system, glass, fiber and cotton filter and activated carbon adsorption tower in accordance with environmental protection requirements, formulated administrative systems and contingency plans, and conducted regular safety inspections. All systems and facilities have been operating in good conditions and exhaust gas is discharged only after processing and meeting relevant standards.
ZTE Nanjing has installed independent hazardous waste warehouse handled by duly qualified suppliers, formulated administrative systems and contingency plans, and conducted regular safety inspections in accordance with environmental protection requirements. All systems and facilities have been operating in good conditions.
(3) Environmental impact assessment of construction projects and other administrative permission relating to environmental protection
ZTE, ZTE Smart Auto and ZTE Nanjing have conducted environmental impact assessment in respect of their construction projects and obtained the approval documents of environmental authorities in accordance with environmental protection laws and regulations.
(4) Contingency plans for unforeseen environmental incidents
The respective "Contingency Plans for Environmental Emergencies" formulated by ZTE, ZTE Smart Auto and ZTE Nanjing have passed the assessment by experts and completed filing with the environmental authorities.
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ZTE CORPORATION INTERIM REPORT 2022
VI. Environmental and Social Responsibility
(5) Environmental self-monitoring plan
ZTE, ZTE Smart Auto and ZTE Nanjing have appointed a qualified third party to conduct environmental monitoring.
(6) Administrative punishments relating to environmental issues during the reporting period
The Group was not subjected to any administrative punishment relating environmental issues during the reporting period.
(7) Measures adopted for the reduction of carbon emission during the reporting period and effectiveness
As a company actively practising green development, the Group takes heed of the impact of its operations on the environment and has streamlined and improved the environmental management system in relation to its production and operation on a normalised basis. In active fulfillment of our environmental duties, we give full consideration to the environmental effect of all operating segments. We emphasise environmental protection at all steps throughout the life-cycle of the product from the choice of materials, R&D, manufacturing, sales, maintenance to retirement and recycling, endeavouring to minimise the full-cycle environmental impact of our products, such that a green strategy is underpinning all business segments of the Company.
Meanwhile, as a path-builder for the digital economy, the Group seeks to enhance technological innovation with incessant effort to improve the energy efficiency of products and actively empower various industries to practice energy conservation and carbon reduction, laying a broad pathway for the digital and smart economy to facilitate green, low-carbon and sustainable development for the global community and contribute to the fulfilment of the "Double Carbon" goal through four dimensions: green enterprise operation, green supply chain, green digital base and green industry empowerment.
(II) DETAILS OF EFFORT TO CEMENT AND EXPAND THE POSITIVE OUTCOMES OF OUR INITIATIVES IN POVERTY AID AND RURAL REVITALISATION
In adherence to its fundamental objectives of "championing the spirit of community welfare, fulfilling corporate responsibility and promoting public welfare development", ZTE Charity Foundation is engaged in public welfare projects in three major areas: poverty aid through education, medical care for the poor and relief for the underprivileged. Meanwhile, in active response to the call of the community, we address the actual needs of society and leverage our role as a charitable group.
During the reporting period, the Company launched projects in areas such as educational assistance, industrial aid and infrastructure in Guizhou, Heilongjiang, Gansu and other places to contribute to rural revitalisation. Specifically: (1) In connection with educational assistance, a ZTE Community Welfare Service Group was established at Panzhou No. 1 Secondary School in Panzhou, Guizhou Province to provide three-year ongoing financial aid and comprehensive growth support for 50 financially underprivileged senior students. (2) In connection with industrial aid, we supported the agricultural produce processing business in Zhuqing Village in Taipingchuan Rural Area of Tangyuan County, Heilongjiang Province by helping with the purchase of oil extraction machines and filling machines. (3) In connection with infrastructure construction, we commenced the building of "Safe Rural Villages" in 13 rural townships and 34 natural villages in the two counties of Weiyuan and Jishishan in Gansu Province, which were key areas designated for aid under the nation's rural revitalisation initiative, with a view to expediting digitalisation and modernisation in these rural villages.
Based on the actual needs of society, the Company will continue to implement public welfare projects and support rural revitalisation initiatives with a special focus on key areas designated for aid. Meanwhile, the Company will continue to promote the participation of employees in voluntary services and create a culture of charity to convey ZTE's love and warmth to the society with solid actions.
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ZTE CORPORATION INTERIM REPORT 2022
VII. Material Matters
(I) MATERIAL LITIGATION AND ARBITRATION
During the reporting period, the Group did not incur any material litigation or arbitration as defined under the Shenzhen Listing Rules. The Group's major litigation and arbitration proceedings are set out as follows:
1. In November 2012, ZTE Brazil filed an application with the Civil Court of Brasilia to freeze the assets of a Brazilian company on the grounds that the said Brazilian company had failed to honour purchase payments of approximately BRL31,353,700 (equivalent to approximately RMB44,293,400). On 7 February 2013, the Civil Court of Brasilia ruled to suspend the freezing of the assets of such Brazilian company on the grounds that such company was not currently involved in any significant debt dispute with any other companies and that there was no indication that it would be subject to bankruptcy. In July 2013, ZTE Brazil filed a litigation with the Civil Court of Brasilia to demand a compensation amount of BRL31,224,300 (equivalent to approximately RMB44,110,600) together with accrued interests and legal fees payable immediately by the Brazilian company (the "Primary Case"). In January 2016, the Civil Court of Brasilia handed down the first trial judgement, ruling the Brazilian company to pay a compensation amount of BRL31,224,300 (equivalent to approximately RMB44,110,600) together with accrued interests and an adjustment amount for inflation. In April 2016, the Civil Court of Brasilia notified ZTE Brazil that the said Brazilian company had filed an application for appeal in respect of the aforesaid first trial judgement. On 29 August 2016, ZTE Brazil was notified that the federal district court had handed down a second trial judgement rejecting the appeal of the said Brazilian company. In November 2016, the federal district court ruled to activate provisional enforcement procedures to require the said Brazilian company to pay to ZTE Brazil BRL31,224,300 (equivalent to approximately RMB44,110,600) together with accrued interests and an adjustment amount for inflation. In February 2017, the federal district court ruled to reject the request of the said Brazilian company filed in October 2016 for clarification of the aforesaid second trial judgement. The court trial proceedings of the aforesaid case have ended.
On 30 November 2012, Civil Court No. 15 of Sao Paulo City, Brazil notified ZTE Brazil that the said Brazilian company had filed a lawsuit with the said court (the "Sued Case") alleging that ZTE Brazil had committed fraud and negligence in the course of cooperation and demanding compensation for direct and indirect losses in the aggregate amount of approximately BRL82,974,500 (equivalent to approximately RMB117 million). The Company has appointed a legal counsel to conduct active defense in respect of the said case.
On 18 March 2022, the presiding judge of the Primary Case ruled that the valid period for the execution of the credit rights ruled in favour of ZTE Brazil expired on 13 June 2022. On 1 April 2022, ZTE Brazil filed an appeal against such ruling. Pursuant to Brazilian law, the valid period for an execution will not be suspended because of an appeal. Therefore, on 8 June 2022, ZTE Brazil applied to the Court of Brasilia, the court for the Primary Case, to request deliberation between the Court of Brasilia and Civil Court No. 15 of Sao Paulo City, Brazil, the court for the Sued Case, in support of the Brazilian subsidiary's application for the set-off of the credit rights ruled in favour in the Primary Case against any liabilities that may materialise in the event of an unfavourable ruling under the Sued Case. On 18 June 2022, the Court of Brasilia ruled in favour of the aforesaid application for set-off, confirming that, in the event of an unfavourable ruling against ZTE Brazil under the Sued Case, ZTE Brazil will be allowed to set off a compensation amount of BRL176,997,100 (equivalent to approximately RMB250 million as at the date of ruling, subject to inflationary adjustments as at the date of actual set-off).
Based on the legal opinion furnished by legal counsels engaged by the Company and the progress of the case, the aforesaid case will not have any material adverse impact on the financial conditions and operating results of the Group for the current period.
Note: The exchange rates are based on the book exchange rates of the Company as at 30 June 2022 where BRL amounts are translated at the exchange rate of BRL1:RMB1.4127.
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ZTE CORPORATION INTERIM REPORT 2022
VII. Material Matters
2. On 31 October 2018, a natural person filed a litigation with the Guangdong Provincial Higher People's Court ("Guangdong Higher Court") against the Company as defendant and ZTE Integration Telecom Limited ("ZTE Integration") and Nubia Technology Limited as third parties without independent rights of claim, on the grounds that the Company had infringed upon his interests as a shareholder of ZTE Integration, demanding (1) a RMB200 million compensation payable to him by the Company; and (2) the assumption by the Company of all costs of the litigation (including but not limited to litigation costs and legal fees amounting to RMB200,000).
On 9 April 2019, the Company received judiciary documents from the Guangdong Higher Court, including a notice of response to action, summons for exchange of evidence and a notice requiring the provision of evidence, among others. The Company has appointed an attorney for active response to the case.
On 28 December 2020, the Guangdong Higher Court made a ruling on the case to reject the aforesaid natural person's petition for litigation and to require the aforesaid natural person to pay the case admission fees.
On 25 January 2021, the aforesaid natural person filed an appeal to the Supreme People's Court for the withdrawal of the first trial judgement and ruling in support of all the claims of the aforesaid natural person instead. On 16 August 2021, the Supreme People's Court ruled for the appeal to be automatically withdrawn and the first trial judgement to remain in effect on the grounds the aforesaid natural person had not furnished the prepayment of the second trial case admission fee within the stipulated period.
On 26 December 2021, the aforesaid natural person filed an application for retrial to the Guangdong Higher Court appealing for the withdrawal of first trial judgement and ruling in support of all the claims of the aforesaid natural person instead, and that the litigation fees for the primary trial should be borne by the Company in full. On 7 February 2022, the Company received a summons for hearing on the application for civil case retrial from the Guangdong Higher Court.
On 21 March 2022, the Company received the retrial ruling from the Guangdong Higher Court which rejected the natural person's application for retrial, upon which the litigation proceedings of the case were closed in full.
Based on the progress of the case, the aforesaid case will not have any material adverse impact on the financial conditions and operating results of the Group for the current period.
3. In August 2020, China MCC20 Group Corporation ("MCC20") filed a litigation with the People's Court of Jinwan District, Zhuhai, Guangdong Province demanding progress payment together with outstanding interests in the amount of RMB12,307,000 in aggregate from ZTE Smart Auto. The People's Court of Jinwan District, Zhuhai, Guangdong Province ruled to freeze ZTE Smart Auto's cash at bank amounting to RMB12,307,000. ZTE Smart Auto has appointed an attorney for active response to the case.
In September 2020, ZTE Smart Auto filed a counter-claim for a total amount of RMB17,958,000 and application for preservation with the court on the grounds that the work project involved in the case had been grossly overdue, the construction process had been subject to numerous penalties and a number of work items had required repair because of quality issues.
In October 2020, MCC20 applied for change of its litigation claim, demanding ZTE Smart Auto to settle project work payment and related outstanding interests amounting in aggregate to RMB188 million, and the case was referred to Zhuhai Intermediate People's Court ("Zhuhai Intermediate Court").
In December 2020, Zhuhai Intermediate Court ruled to freeze funds in ZTE Smart Auto's account with an amount of RMB15,865,000 and seize the land use rights of two sites under the name of ZTE Smart Auto.
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ZTE CORPORATION INTERIM REPORT 2022
In January 2021, ZTE Smart Auto filed an application to increase the amount of counter-claim to RMB72,548,000 on the grounds that MCC20 had not applied for relevant certificates in a timely manner and the project work under the case had not passed the delivery inspection in one instance. Application was also made to the court for property preservation in relation to the additional amount of counter-claim.
In November 2021, Zhuhai Intermediate Court ruled to approve the replacement of the aforesaid frozen and seized account funds and land use rights of two sites with RMB80 million and production equipment by ZTE Smart Auto.
Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress of the case, the aforesaid case will not have any material adverse impact on the financial conditions and operating results of the Group for the current period.
4. On 2 August 2021, Xi'an Zhongxing New Software Company Limited ("Xi'an Zhongxing Software") filed litigation at Xi'an Intermediary People's Court against China Construction No. 8 Engineering Bureau Company Limited ("China Construction No. 8 Bureau") on the grounds that China Construction No. 8 Bureau had not completed and delivered project work within the agreed timeframe, demanding payment of delay penalty, rental loss and construction penalty with an aggregate amount of approximately RMB257 million to Xian Zhongxing Software by China Construction No. 8 Bureau.
On 8 November 2021, China Construction No. 8 Bureau filed a counter-claim against Xian Zhongxing Software on the grounds that Xian Zhongxing Software had repeatedly made variations to its requirements, failed to honour payments in a timely manner and caused delay in work schedules owing to force majeure resulting in substantial loss for China Construction No. 8 Bureau, and demanded payment of project work amounts and work suspension and stalling loss with an aggregate amount of approximately RMB400 million by Xian Zhongxing Software to China Construction No. 8 Bureau.
On 30 November 2021, Xi'an Intermediary People's Court held the first session of the first trial, at which the two parties exchanged evidence.
Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress of the case, the aforesaid case will not have any material adverse impact on the financial conditions and operating results of the Group for the current period.
5. On 21 February 2022, ("") filed an litigation with Jining City Rencheng District People's Court ("Rencheng Court") against Shenzhen Zhongxing ICT Company Limited ("Shenzhen ICT") and Shandong Zhongxing ICT Company Limited ("Shandong ICT") on the grounds that the latter two had not fulfilled contractual agreements, demanding: (1) compensation for loss caused by default with a provisional amount of RMB90,499,085.06 to be paid by Shenzhen ICT and Shandong ICT in accordance with the law; (2) the assumption by Shenzhen ICT and Shandong ICT of agency fees, litigation fees and preservation fees incurred by in connection with the case.
On 29 April 2022, Shandong ICT received the civil case verdict for property preservation from Rencheng Court and civil litigation petition of . Rencheng Court ruled to freeze in aggregate RMB95 million bank deposits or seal properties with the corresponding value of Shenzhen ICT and Shandong ICT.
On 26 May 2022, Shandong ICT received a writ of summons from Rencheng Court and an application for modification of litigation petition from , who had modified the litigation claim amount from RMB90,499,085.06 to RMB94,148,627.01.
On 18 July 2022, the first trial commenced at Rencheng Court.
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ZTE CORPORATION INTERIM REPORT 2022
VII. Material Matters
Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress of the case, the aforesaid case will not have any material adverse impact on the financial conditions and operating results of the Group for the current period.
(II) THE TERM OF PROBATION AND THE TERM OF THE MONITOR END
According to the announcement issued by the Company in 8 March 2017, the Company has reached agreements (collectively the "2017 Agreements") with the Bureau of Industry and Security of the United States Department of Commerce, the United States Department of Justice ("DOJ") and the Office of Foreign Assets Control of the United States Department of Treasury in relation to investigations regarding the Company's compliance with U.S. Export Administration Regulations and U.S. sanctions laws. The 2017 Agreements include that a three-year monitor term shall be set up pursuant to the agreement between the Company and DOJ, to prepare annual reports during his/her term of office in order to monitor the Company's compliance with U.S. export control laws and performance of its obligations under the agreement. On 22 March 2017 (United States time), the agreement with DOJ has become effective upon approval by the United States District Court for the Northern District of Texas ("Court"). For details, please refer to "INSIDE INFORMATION -- UPDATED INFORMATION IN RELATION TO THE EXPORT RESTRICTIONS BY THE UNITED STATES DEPARTMENT OF COMMERCE" published by the Company on 8 March 2017 and 23 March 2017, respectively.
Due to the conduct described in the superseding settlement agreement entered into amongst the Company, Shenzhen ZTE Kangxun Telecom Company Limited (a wholly-owned subsidiary of the Company) and United States Department of Commerce's Bureau of Industry and Security in June 2018, the Court issued an order on 3 October 2018 (United States time) modifying the conditions of the Company's corporate probation as described in the Agreement which became effective on 22 March 2017 (United States time) upon approval by the Court. According to the modification of probation conditions by the Court, extending the term of the Court-appointed Monitor (the "Monitor") to 22 March 2022 (United States time). For details, please refer to "INSIDE INFORMATION ANNOUNCEMENT ON ORDER MODIFYING CONDITIONS OF PROBATION" published by the Company on 4 October 2018.
The Company has received an order from a court of the United States of America on 3 March 2022 (United States time) to notify the Company that it shall participate in a revocation of probation hearing, scheduled for 14 March 2022 (United States time). On 22 March 2022 (United States time), the Company received an order from the Court declining to revoke probation or impose any penalties upon ZTE, and confirming that the term of probation and the term of the Monitor end as scheduled on 22 March 2022 (United States time). For details, please refer to "INSIDE INFORMATION ANNOUNCEMENT" and "INSIDE INFORMATION ANNOUNCEMENT AND RESUMPTION OF TRADING" published by the Company on 4 March 2022 and 23 March 2022, respectively.
(III) SUBSCRIPTION FOR SHARES IN HONGTU ZHANLU FUND TRANCHE II
The Company subscribed for shares in Shenzhen Hongtu Zhanlu Tranche II Equity Investment Partnership Enterprise (Limited Partnership) (tentative title subject to the final approval of the industrial and commercial registration authorities) as limited partner with a capital contribution of not more than RMB400 million. The aforesaid matter was considered and approved at the Second Meeting of the Ninth Session of the Board of Directors of the Company. For details, please refer to the "Announcement Resolutions of the Second Meeting of the Ninth Session of the Board of Directors" and "Overseas Regulatory Announcement Announcement on the Subscription for Shares in Hongtu Zhanlu Fund Tranche II" published by the Company on 25 April 2022.
(IV) APPROPRIATION OF NON-OPERATING CAPITAL BY THE CONTROLLING SHAREHOLDER AND OTHER RELATED PARTIES
½ Applicable N/A
(V) BANKRUPTCY, REORGANISATION OR RELATED ACTIONS OF THE COMPANY DURING THE REPORTING PERIOD
½ Applicable N/A
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ZTE CORPORATION INTERIM REPORT 2022
(VI) SIGNIFICANT CONNECTED TRANSACTIONS AS DEFINED UNDER PRC LAWS AND REGULATIONS
1. Connected transactions related to the ordinary course of business
The connected transactions disclosed in the following table represent connected transactions reaching the benchmark for public disclosure as defined under the Shenzhen Listing Rules.
Counterparty to connected transaction
Nature of connection
Classification Subject matter
Pricing principle
Price (RMB)
Transaction
amount
As a
during the percentage of Whether
reporting transactions approved
period in the same cap has
(RMB in ten classification been
thousands)
(%) exceeded
Settlement
Market price for similar transactions available (RMB)
Domestic
announcement Domestic
date
announcement index
Zhongxingxin
Controlling
Purchase of raw The purchase of cabinets Connected parties from Cabinets and related accessories: RMB1-RMB300,000 per
Telecom
shareholder of the materials
and related accessories, which the Company unit, cases and related accessories: RMB1-RMB15,000 per
Company Limited Company and its
c a s e s a n d r e l a t e d made purchases were unit;, shelters: RMB1,000-RMB100,000 per unit; railings:
("Zhongxingxin") and subsidiaries and
accessories, shelters, selected through the RMB1,00050,000 per piece; antenna poles: RMB2002,000
its subsidiaries and companies in which
railings, antenna poles, Company's
per piece;
companies in which it it held equity
optical products, refined- accreditation and
held equity interests interests of 30% or
processing products, bidding or negotiation Optical products: RMB1.330,000 per unit; refined-
of 30% or above above
packaging materials, FPC, procedures. Prices at processing products: RMB0.550,000 per unit; packaging
R-FPC and components and which the purchase materials: RMB0.015,000 per piece; FPC, R-FPC and
LiFePO4 battery and orders were entered into components: RMB0.5100 per piece; LiFePO4 battery:
accessories, industrial by the two parties were RMB6008,000 per unit; battery accessories: RMB100600
c a m e r a s , a u x i l i a r y determined through per unit; industrial cameras: RMB5,000150,000 per unit;
installation device for arm's length
auxiliary installation device for image-forming systems:
image-forming systems, negotiations and on the RMB1,00050,000 per set; industrial lens: RMB1,00015,000
industrial lens, industrial basis of normal
per unit; industrial light source: RMB1,00050,000 per set;
light source, industrial commercial terms. The industrial robots: RMB100,000280,000 per set; graphic
robots, graphic processing prices of properties processing controllers: RMB50050,000 per set; graphic
controllers, graphic capture leased to connected capture systems: RMB2,000100,000 per set; software
s y s t e m s , s o f t w a r e parties by the Group algorithms: RMB20,000400,000 per set; motion control
algorithms, motion control were determined
systems: RMB2,000200,000 per set; video monitoring
systems, video monitoring through arm's length systems: RMB20,000100,000 per set; temperature control
systems, temperature negotiations based on systems: RMB2002,000 per set; industrial light source
control systems, industrial normal commercial controllers: RMB50020,000 per set; wiring equipment:
light source controllers, terms. Transaction RMB040,000 per unit; optical fibre patch cords:
wiring equipment, optical prices at which products RMB03,000 per piece; optical cable components: 0500 per
fibre patch cords and and services were sold piece, depending on measurement, level of sophistication,
optical cable components and provided by the materials used and functional features.
by the Company from the Group to connected
connected party
parties were based on
market prices and were
Huatong Technology Subsidiary of a Purchase of The purchase of personnel not lower than prices at Special-grade engineer at a price ranging from
Company Limited company for which software
h i r i n g a n d p r o j e c t which similar products RMB9701,800 per head/day; Supervisory engineer at a price
("Huatong")
a connected natural outsourcing outsourcing services by the and services of similar ranging from RMB8301,300 per head/day; Senior engineer
person of the services
C o m p a n y f r o m t h e quantities were
at a price ranging from RMB5201,150 per head/day;
Company acted as
connected party
purchased by third Common engineer at a price ranging from RMB440750 per
director and
parties from the Group, head/day; Assistant engineer at a price ranging from
executive vice
taking into consideration RMB350550 per head/day; Technician at a price ranging
president
of factors relating to the from RMB320500 per head/day.
specific transactions
ZTE Software
Subsidiary of a Purchase of The purchase of personnel such as conditions of Special-grade engineer at a price ranging from
Technology
company for which software
h i r i n g a n d p r o j e c t the projects, size of RMB9701,800 per head/day; Supervisory engineer at a price
(Nanchang) Company a connected natural outsourcing outsourcing services by the transaction and product ranging from RMB8301,300 per head/day; Senior engineer
Limited ("Nanchang person of the services
C o m p a n y f r o m t h e costs.
at a price ranging from RMB5201,150 per head/day;
Software")
Company acted as
connected party
Common engineer at a price ranging from RMB440750 per
director and
head/day; Assistant engineer at a price ranging from
executive vice
RMB350550 per head/day; Technician at a price ranging
president
from RMB320500 per head/day.
17,860.17
1,993.97 1,783.10
0.47% No
0.05% No 0.05% No
Commercial N/A acceptance bill
Tele-
N/A
transfer
Tele-
N/A
transfer
20211217
Announcement No. 2021128 "Announcement on Projected Continuing Connected Transactions under the Rules Governing Listing of Stocks on The Shenzhen Stock Exchange"
2020117
Announcement No. 202004 "Announcement on Projected Continuing Connected Transactions under the Rules Governing Listing of Stocks on The Shenzhen Stock Exchange"
2020117
Announcement No. 202004 "Announcement on Projected Continuing Connected Transactions under the Rules Governing Listing of Stocks on The Shenzhen Stock Exchange"
Shenzhen Zhongxing A company for Purchase of
Hetai Hotel
which a connected hotel services
Investment and natural person of
Management
the Company acted
Company Limited as director and its
("Zhongxing Hetai") or subsidiaries
its subsidiaries
The purchase of hotel services by the Company from the connected party
Purchase price not higher than prices at which Zhongxing Hetai sells products (or services) to other customers purchasing similar products (or services) in similar amounts, subject to the actual agreement signed by the two parties.
Hotel services purchased by the Group from Zhongxing Hetai included mainly hotel accommodation and conference and training venue. The purchase price of hotel accommodation ranged from RMB350--800/room/day, with variation depending on factors such as room type, seasonality and the number of breakfast included. The purchase price for conference and training venue ranged from RMB1,100--10,000/room/day, depending on factors such as size and capacity of the conference room.
1,667.58
0.04% No
Tele-
N/A
transfer
20211217
Announcement No. 2021128 "Announcement on Projected Continuing Connected Transactions under the Rules Governing Listing of Stocks on The Shenzhen Stock Exchange"
Zhongxing Hetai or its A company for Lease of
subsidiaries
which a connected property and
natural person of equipment and
the Company acted facilities
as director and its
subsidiaries
The lease of property and related equipment and facilities by the Company to the connected party
In 20222023, the rental fee was RMB60/sq.m./month for hotel properties in Dameisha in Shenzhen; RMB53/sq.m./ month for hotel properties in Nanjing; RMB72/sq.m./month for hotel properties in Shanghai; RMB41/sq.m./month for hotel properties in Xi'an. The rental fee for related equipment and facilities required by the hotel operations in Shenzhen, Shanghai, Nanjing and Xi'an was 1,050,000/year.
2,736.94
18.06% No
Tele-
N/A
transfer
20211217
Announcement No. 2021129 Announcement -- Connected Transaction in relation to the 20222023 Property and Equipment and Facilities Lease Framework Agreement with Zhongxing Hetai, a Connected Party"
("")
Subsidiary of a Sale of products The sale of the full range of
company for which
government and enterprise
a connected natural
products by the Company
person of the
to the connected party
Company acted as
senior management
Based on market prices and not lower than prices at which similar products of similar quantities were purchased by third parties from the Company, taking into consideration factors relating to the specific transactions such as conditions of the projects, size of transaction and product costs.
40,160.35
0.67% No
Tele-
N/A
transfer or
bank
acceptance
bill
20211217
Announcement No. 2021128 "Announcement on Projected Continuing Connected Transactions under the Rules Governing Listing of Stocks on The Shenzhen Stock Exchange"
Total
--
--
66,202.11
N/A --
--
--
--
--
55
ZTE CORPORATION INTERIM REPORT 2022
VII. Material Matters
Detailed information of
None
substantial sales return
Approved Cap
At the Forty-third Meeting of the Eighth Session of the Board of Directors of the Company held on 16 December 2021, it was considered and approved that the estimated purchases of raw materials from Zhongxingxin, a connected party, and its subsidiaries and companies in which it held equity interests of 30% or above by the Group in 2022 be capped at RMB550 million (before VAT);
At the Thirteen Meeting of the Eighth Session of the Board of Directors of the Company held on 17 January 2020, it was considered and approved that the estimated purchases of software outsourcing services from Huatong and Nanchang Software, both connected parties, in 2022 be capped at RMB98.38 million and RMB66.00 million (before VAT), respectively;
At the Forty-third Meeting of the Eighth Session of the Board of Directors of the Company held on 16 December 2021, it was considered and approved that the estimated purchases of hotel services from Zhongxing Hetai, a connected party, or its subsidiaries by the Group in 2022 be capped at RMB46.00 million (before VAT);
At the Forty-third Meeting of the Eighth Session of the Board of Directors of the Company held on 16 December 2021, it was considered and approved that the estimated lease of properties and equipment and facilities to Zhongxing Hetai or its subsidiaries by the Group in 2022 be capped at RMB57.54 million/year;
At the Forty-third Meeting of the Eighth Session of the Board of Directors of the Company held on 16 December 2021, it was considered and approved that the estimated sales of products to , a connected party, by the Group in 2022 be capped at RMB1,200 million (before VAT); and
Please refer to the above table for details of the execution of the aforesaid continuing connected transactions.
Reason for the substantial difference between transaction prices and N/A referential market prices (if applicable)
2. Connected transactions arising from acquisitions or disposals of assets or equity interests
½ Applicable N/A
3. Connected transactions involving joint investment in third parties
½ Applicable N/A
4. Creditors or debtors with connected parties
½ Applicable N/A
The Company did not have any creditors or debtors with connected parties during the reporting period.
5. The Company did not have any connected financial companies. There was no deposit, lending, credit facilities or other financial transactions between financial companies controlled by the Company and connected parties during the reporting period.
6. Other significant connected transactions
½ Applicable N/A
56
ZTE CORPORATION INTERIM REPORT 2022
(VII)MATERIAL CONTRACTS AND THEIR PERFORMANCE
1. There was no trust, contract management or lease of assets of other companies by the Company or of the Company's assets by other companies commencing or subsisting during the reporting period.
2. Third-party guarantees of the Group
Third-party guarantees provided by the Company and subsidiaries (excluding guarantees provided by the Company on behalf of subsidiaries and vice versa and by subsidiaries on behalf of fellow subsidiaries)
Guaranteed party
Date and index of domestic announcement disclosing the guarantee amount
Amount guaranteed
Date incurred
Actual amount guaranteed Type of guarantee
Collateral
Counterguarantee
Term of guarantee
Whether performance was completed
Whether provided on behalf of connected parties
Beijing Fuhua Yuqi Information Technology Co., LtdNote 1
1 December 2016 201678
RMB21,019,250 1 April 2017
RMB21,019,250 Joint liability assurance N/A
Note 1
From the date on which the Technology Development (Entrustment) Yes
No
Contract comes into effect upon execution and ending
on the completion of Fuhua Yuqi's performance of obligations
under the Technology Development (Entrustment) Contract.
Total amount of third-party guarantee approved
--
Total amount of third-party guarantee actually incurred
--
during the reporting period (A1)
during the reporting period (A2)
Total amount of third-party guarantee approved
RMB21,019,300
Total amount of balance of third-party guarantee actually
--
as at the end of the reporting period (A3)
incurred as at the end of the reporting period (A4)
Guaranteed party ZTE France SASUNote 2
ZTE (H.K.) LimitedNote 3
Guarantees provided by the Company on behalf of subsidiaries and vice versa
Date and index of domestic announcement disclosing the guarantee amount
Amount guaranteed
Date incurred
14 December 2011 201152
EUR10 million N/A
16 March 2018 201822
Not more than 1 June 2020 USD600 million
Actual amount guaranteed Type of guarantee
-- Assurance
Collateral N/A
Counterguarantee
N/A
USD280 million Joint liability assurance N/A
N/A
13 August 2020
USD50 million Joint liability assurance N/A
N/A
2 March 2021
USD150 million Joint liability assurance N/A
N/A
PT. ZTE IndonesiaNote4
19 February 2021 202118
11 overseas subsidiaries involved 17 March 2021 in the MTN Group projectNote5 202128
Xi'an Cris Semiconductor Technology Company LimitedNote 6
25 June 2022 202257
Total amount of guarantee approved during the reporting period (B1)
Total amount of guarantee approved as at the end of the reporting period (B3)
USD40 million 30 June 2021
USD40 million Joint liability guarantee N/A
N/A
IDR400 billion 30 June 2021
IDR400 billion Joint liability guarantee N/A
N/A
USD160 million N/A
-- Joint liability guarantee N/A
N/A
USD16 million N/A USD500 million 27 June 2022
-- Joint liability guarantee N/A
N/A
-- Joint liability assurance N/A
N/A
RMB5,361,200,000Note 7 RMB11,079,708,600Note 7
Total amount of guarantee actually incurred during the reporting period (B2) Total amount of balance of guarantee actually incurred as at the end of the reporting period (B4)
Term of guarantee
Whether performance was completed
Whether provided on behalf of connected parties
From maturity to the date on which performance of obligations of N/A
No
ZTE France under the "SMS Contract" and "PATES Contract" expires
or terminates (whichever is later)
From 1 June 2020 to (1) six months after 1 June 2023, or (2) the No
No
irrevocable settlement in full by ZTE HK of all amounts payable under
the loan agreement and other agreements and documents thereunder,
including the guarantee agreement, from the date of such agreements
and documents to the long-stop date, whichever period occurs first
From 13 August 2020 to (1) 13 August 2025, or (2) the irrevocable Yes
No
settlement in full by ZTE HK of all amounts payable under the loan
agreement and other agreements and documents thereunder,
including the guarantee agreement, from the date of such agreements
and documents to the long-stop date, whichever period occurs first
A period from 2 March 2021 to six months after the loan maturity No
No
date (for loans, guarantee periods are calculated on the basis of
individual drawdowns), provided that in the event of maturity being
brought forward by the lender owing to the occurrence of events
stipulated by laws and regulations or the master contract, guarantee
period shall be two years from the date of maturity being brought
forward
Commencing on the date of issuance of the guarantee letter of the No
No
Company and ending upon the date on which performance of
obligations of PT. ZTE Indonesia under the "Equipment Purchase
Contract" and "Technical Support Contract" is completed
Effective term of 3 years and 6 months or the date on which
No
No
performance of obligations of PT. ZTE Indonesia under the
"Equipment Purchase Contract" and "Technical Support Contract" is
completed, whichever is later
Commencing on the date of issuance of the guarantee certificate to N/A
No
MTN Group by the Company and ending upon the date of expiry of
the "Framework Agreement", in any case not later than 5 years after
the effective date of the "Framework Agreement"
Commencing on the date of issuance of the performance bond and N/A
No
ending upon the date on which performance of obligations under the
"Framework Agreement" and its subsidiary contract is completed
Commencing on the date on which the letter of guarantee comes into No
No
effect and ending upon on the conclusion of a consecutive 2-year
period during which Cris has not ordered any manufacturing service
from the supplier provided that no debt payment is due and
outstanding
--
RMB3,329,828,600
57
ZTE CORPORATION INTERIM REPORT 2022
VII. Material Matters
Guarantees provided by subsidiaries on behalf of fellow subsidiaries
Guaranteed party
Date and index of domestic announcement disclosing the guarantee amount
Amount guaranteed
Date incurred
Actual amount guaranteed Type of guarantee
Collateral
Counterguarantee
Term of guarantee
Whether
provided
Whether
on behalf of
performance was connected
completed parties
Xi'an Cris Semiconductor
N/A
Technology Company
LimitedNote 8
Netas Biliim Teknolojileri A..Note 9 N/A
BDH Biliim Destek Hizmetleri N/A Sanayi ve Ticaret A..Note 9
Neta Biliim Teknolojileri A.Note 10
BDH Biliim Destek Hizmetleri Sanayi ve Ticaret.A..Note 10
NETA TELEKOMÜNKASYON A..Note 10
Neta Telecom Limited Liability PartnershipNote 10
9 March 2022 202218 9 March 2022 202218 9 March 2022 202218 9 March 2022 202218
USD30 million 26 January 2017
USD19,647,200 Joint liability guarantee N/A
N/A
Commencing on the date on which the "Guarantee Contract" comes No
No
into effect and ending upon on the conclusion of a 2-year period
during which Cris has not ordered any manufacturing service from
TSMC provided that no debt payment is due and outstanding.
USD2,153,300 14 November 2012
-- Joint liability guarantee N/A
N/A
Commencing on the date on which the "Systems Integration
No
No
Agreement" comes into effect upon execution and ending on the date
on which performance of the obligations of Netas Bilisim under the
"Systems Integration Agreement" is completed.
EUR10,753,800 5 May 2017
EUR10,753,800 Joint liability guarantee N/A
N/A
Commencing on 5 May 2017 and ending on the date on which the No
No
performance of obligations of BDH under the "Procurement and
Installation Agreement" is completed
USD65 million Note 10
USD25,123,600 Joint liability guarantee N/A
N/A
Ending on the date on which the repayment of debt relating to the No
No
guarantee is completed
USD15 million Note 10
USD702,800 Joint liability guarantee N/A
N/A
Ending on the date on which the repayment of debt relating to the No
No
guarantee is completed
USD30 million Note 10
USD7,323,800 Joint liability guarantee N/A
N/A
Ending on the date on which the repayment of debt relating to the No
No
guarantee is completed
USD10 million Note 10
USD1,701,900 Joint liability guarantee N/A
N/A
Ending on the date on which the repayment of debt relating to the No
No
guarantee is completed
Total amount of guarantee for subsidiary approved during the reporting period (C1)
Total amount of guarantee for subsidiary approved as at the end of the reporting period (C3)
RMB804,180,000 RMB1,094,890,000
Total amount of guarantee for subsidiary actually incurred during the reporting period (C2) Total amount of balance of guarantee for subsidiaries actually incurred as at the end of the reporting period (C4)
RMB365,227,100 RMB440,461,700
Total amount guaranteed by the Company (sum of the three categories set out above)
Total amount of guarantee approved during the
RMB6,165,380,000
reporting period (A1+B1+C1)
Total amount of guarantee approved as at the end of the RMB12,195,617,900
reporting period (A3+B3+C3)
Total amount of guarantee (A4+B4+C4) as a percentage of net assets of the Company
Including:
Amount of guarantee provided on behalf of shareholders, de facto controllers and their connected parties (D)
Amount of debt guarantee provided directly or indirectly on behalf of parties with a gearing ratio exceeding 70% (E)
Amount of total guarantee exceeding 50% of net assets (F)
Aggregate amount of the three guarantee amounts stated above (D+E+F)
Statement on liability incurred during the reporting period or potential joint liability for debt settlement (if any) in respect of
outstanding guarantees
Statement on provision of guarantee to third parties in violation of stipulated procedures (if any)
Total amount of guarantee actually incurred during the reporting period (A2+B2+C2) Total amount of balance of guarantee actually incurred as at the end of the reporting period (A4+B4+C4)
RMB365,227,100
RMB3,770,290,300
6.86%
0 RMB3,750,643,100 0 RMB3,750,643,100 N/A
N/A
Note 1: Note 2: Note 3:
The Technology Development (Entrustment) Contract came into effect on 1 April 2017 upon execution. Beijing Fuhua Yuqi Information Technology Co., Ltd. ("Fuhua Yuqi") has provided a third-party counter-guarantee to the Company in respect of the aforesaid guarantee. As at the end of the reporting period, performance of the obligations under the Technology Development (Entrustment) Contract had been completed and the aforesaid guarantee had been released.
It was approved at the Twenty-fourth Meeting of the Fifth Session of the Board of Directors of the Company that a guarantee for an amount of not more than EUR10 million in respect of the performance obligations of ZTE France SASU ("ZTE France"), a wholly-owned subsidiary of the Company under the 2010 SMS Execution Contract ("SMS Contract") and the PATES-NG Execution Contract ("PATES Contract"). The PATES Contract was completed and the guarantee provided by the Company in respect of the performance obligations of ZTE France has not completed registration procedures of the State Administration of Foreign Exchange and had yet to be performed.
The Company sought medium/long-term debt financing (including but not limited to syndicate loans, bank facilities and the issue of corporate bonds) in Hong Kong, with ZTE HK, a wholly-owned subsidiary of the Company, as the principal. The Company provided guarantee by way of joint liability assurance for an amount of not more than USD600 million. The aforesaid guarantee was considered and passed at the Twenty-eighth Meeting of the Seventh Session of the Board of Directors and the 2017 Annual General Meeting of the Company. In June 2020, ZTE HK entered a USD300 million loan agreement with 8 Chinese/foreign banks headed by Bank of China, Macau Branch ("BOC Macau"). At the same time, the Company entered into a guarantee agreement with BOC Macau to provide guarantee by way of joint liability assurance in respect of the debt of ZTE HK under the loan agreement and the agreements and documents thereunder. On 13 August 2020, ZTE HK entered into a USD50 million loan agreement with 3 banks, including CITIC Bank London Branch. At the same time, the Company entered into a guarantee agreement with CITIC Bank London Branch to provide guarantee by way of joint liability assurance in respect of the debt of ZTE HK under the loan agreement and the agreements and documents thereunder. On 2 March 2021, ZTE HK entered into a USD150 million loan agreement with BOCHK. At the same time, the Company entered into a guarantee agreement with BOCHK to provide guarantee by way of joint liability assurance in respect of the debt of ZTE HK under the loan agreement and the agreements and documents thereunder. As of the end of the reporting period, the guarantee agreement in relation to the USD50 million loan agreement with 3 banks including CITIC Bank London Branch was terminated in June 2022 following the repayment of the loan in full by ZTE HK in June 2022; in relation to the USD300 million loan agreement with 8 chinese/foreign banks including BOC Macau, the currently effective guarantee amount is USD280 million following the early repayment of USD20 million by ZTE HK in June 2022; other guarantees were under normal performance.
58
ZTE CORPORATION INTERIM REPORT 2022
Note 4: Note 5: Note 6: Note 7: Note 8: Note 9:
Note 10:
Note 11:
As considered and passed at the Thirty-second Meeting of the Eighth Session of the Board of Directors of the Company and the 2020 Annual General Meeting, the provision of USD40 million performance guarantee and the application to the relevant bank for the issuance of an IDR400 billion bank letter of guarantee by the Company for PT. ZTE Indonesia ("ZTE Indonesia"), a wholly-owned subsidiary, was approved. The aforementioned performance guarantee and bank letter of guarantee came into effect on 30 June 2021. As of the end of the reporting period, the aforementioned guarantees implement normally.
As considered and passed at the Thirty-third Meeting of the Eighth Session of the Board of Directors of the Company and the 2020 Annual General Meeting, the provision of no more than USD160 million performance guarantee and the application to the relevant bank for the issuance of an USD16 million bank letter of guarantee by the Company for 11 overseas subsidiaries involved in MTN Group projects was approved. As of the end of the reporting period, the aforementioned guarantee has not yet become effective.
As considered and passed at the Third Meeting of the Ninth Session of the Board of Directors of the Company, the provision of guarantee with an amount of not more than USD500 million guarantee in respect of the procurement business of Xi'an Cris Semiconductor Technology Company Limited ("Cris"), a subsidiary, by the Company was approved. On 27 June 2022, the Company issued a guarantee letter to the suppliers with a guarantee amount of USD500 million for a guarantee period commencing on the date on which the guarantee letter came into effect and ending on the date of conclusion of a consecutive two-year period during which Cris has not ordered any manufacturing service from the supplier provided that no debt payment is due and outstanding. As of the end of the reporting period, no transactions under the guarantee had occurred.
As considered and passed at the Forty-fifth Meeting of the Eighth Session of the Board of Directors of the Company and the 2021 Annual General Meeting, the provision of performance guarantee line of no more than USD300 million in aggregate for 8 overseas subsidiaries. The computations of the total amount of guarantee on behalf of subsidiaries approved during the reporting period (B1) and the total amount of guarantee on behalf of subsidiaries approved as at the end of the reporting period (B3) include a USD300 million guarantee provided for the 8 overseas subsidiaries. As at the end of the reporting period, the aforesaid guarantee had yet to be applied.
It was considered and approved at the board meeting of ZTE Microelectronics, a subsidiary of the Company, that ZTE Microelectronics would provide joint liability guarantee for an amount of not more than USD30 million in connection with the procurement orders between Cris, its wholly-owned subsidiary, and Taiwan Semiconductor Manufacturing Company Limited ("TSMC") for a term commencing on the date on which the "Guarantee Contract" comes into effect and ending upon on the conclusion of a 2-year period during which Cris has not ordered any manufacturing service from TSMC provided that no debt payment is due and outstanding. As at the end of the reporting period, the aforesaid guarantee was under normal operation and guarantee for an amount of USD19,647,200 had come into effect.
The Company completed the acquisition of NETA TELEKOMÜNKASYON A.. "Neta" , a listed Turkish company, on 28 July 2017. Prior to the acquisition of Neta by the Company, Neta had provided the following guarantee for its subsidiaries Netas Biliim Teknolojileri A. ("Netas Biliim") and BDH Biliim Destek Hizmetleri Sanayi ve Ticaret A.. ("BDH"): (1) guarantee in respect of the performance obligations of Netas Biliim under the "Systems Integration Agreement" for an amount of approximately USD2,153,300 for a term commencing on the date on which the "Systems Integration Agreement" comes into effect upon execution and ending on the date on which the performance of the obligations of Netas Biliim under the "Systems Integration Agreement" are completed. As at the end of the reporting period, the actual amount of guarantee incurred by Netas Biliim was 0; (2) guarantee in respect of the performance obligations of BDH under the "Procurement and Installation Agreement" for an amount of EUR10,753,800 for a term commencing on 5 May 2017 and ending on the date on which the performance of obligations of BDH under the "Procurement and Installation Agreement" is completed. As at the end of the reporting period, the aforesaid guarantees were under normal performance.
As considered and approved at the Forty-fifth Meeting of the Eighth Session of the Board of Directors of the Company, the 2021 Annual General Meeting and the Neta board of directors, it was approved that a reciprocal joint-liability guarantee would be effected among Neta and its subsidiaries in respect of composite credit facilities sought from financial institutions for an amount of not more than USD120 million. The facilities shall cover loans, letters of guarantee and reverse supply chain financing, among others. The effective period of the guarantee shall be from the date on which the guarantee was considered and approved at the general meeting to the date on which the next annual general meeting of the Company is convened. Neta and BDH shall provide credit loan guarantee for Neta Biliim within the guarantee limit and as at the end of the reporting period, the balance of actual guarantee was USD25,123,600; Neta and Neta Biliim shall provide credit loan guarantee for BDH within the guarantee limit and as at the end of the reporting period, the balance of actual guarantee was USD702,800; Neta Biliim shall provide credit loan guarantee for Neta within the guarantee limit and as at the end of the reporting period, the balance of actual guarantee was USD7,323,800; Neta shall provide credit loan guarantee for Neta Telecom Limited Liability Partnership within the guarantee limit and as at the end of the reporting period, the balance of actual guarantee was USD1,701,900.
The guarantee amounts were translated at the book exchange rates of the Company as at 30 June 2022: USD1: RMB6.7015; EUR1: RMB6.9961; IDR1: RMB0.000450309.
59
ZTE CORPORATION INTERIM REPORT 2022
VII. Material Matters
3. Statement on guarantees provided in violation of regulations
½ Applicable N/A
4. For the special statement and independent opinion on the fund transfers between the Company and connected parties and third-party guarantees of the Company furnished by the Independent Non-Executive Directors of the Company, please refer to the "Overseas Regulatory Announcement" published by the Company on 26 August 2022.
5. Progress during the reporting period of material contracts entered into during or prior to the reporting period
½ Applicable N/A
(VIII) UNDERTAKINGS
1. Undertaking given upon initial public offering
Zhongxingxin, the controlling shareholder of the Company, entered into "Non-Competition Agreement" with the Company on 19 November 2004, pursuant to which Zhongxingxin has undertaken to the Company that: Zhongxingxin will not, and will prevent and preclude any of its other subsidiaries from carrying on or participating in any activities in any businesses deemed to be competing with existing and future businesses of the Company in any form (including but not limited to sole ownership, equity joint venture or co-operative joint venture and direct or indirect ownership of equity or other interests in other companies or enterprises, other than through ZTE); Zhongxingxin will immediately terminate and/or procure any of its subsidiaries to terminate any participation in, management or operation of any competing businesses or activities that Zhongxingxin and/or such subsidiaries are participating in or carrying on in any manner at any time.
The undertaking was under normal performance during the reporting period and there was no instance of non-completion of the performance of undertaking after the end of the relevant period.
2. Undertaking by parties to share issuance for asset acquisition and raising ancillary funds
The parties to the Company's issuance of shares to purchase assets and raise ancillary funds provided undertakings on 28 October 2020 and 16 November 2020, respectively. For details, please refer to the Overseas Regulatory Announcements published by the Company on 28 October 2020, 16 November 2020 and 8 November 2021, respectively.
The Company acquired 18.8219% equity interest in ZTE Microelectronics, a subsidiary, held in aggregate by Guangdong Hengjian Xinxin Investment Partnership Enterprise (Limited Partnership) ("Hengjian Xinxin") and Shenzhen Huitong Rongxin Investment Company Limited (renamed "Shenzhen Nanshan Strategic New Industry Investment Company Limited") ("Huitong Rongxin") by way of share issuance. The new shares were listed on Shenzhen Stock Exchange on 10 November 2021. For details, please refer to the "Announcement on the Completion of the Issuance of Consideration Shares under the Acquisition of Assets by Issuance of Shares and Ancillary Fundraising" published by the Company on 8 November 2021. The undertaking of Hengjian Xinxin, Huitong Rongxin, ZTE Microelectronics, and the directors, supervisors and senior of management of ZTE Microelectronics regarding the provision of true, accurate and complete information, the undertaking of Hengjian Xinxin, Huitong Rongxin regarding the ownership status of the subject assets, and the undertaking of Zhongxingxin and the Directors and senior management of the Company regarding share sell-down plans were fulfilled and completed on 10 November 2021.
60
ZTE CORPORATION INTERIM REPORT 2022
The Company resolved to terminate the Ancillary Fundraising Issuance, taking into consideration the interests of the Company's shareholders, capital market conditions and the Company's financial conditions. For details please refer to the "Announcement on the Termination of the Issuance of Share to Raise Ancillary Funds" published by the Company on 21 June 2022. The undertaking of Zhongxingxin, the Company and the Company's Directors, Supervisors and senior management on the provision of true, accurate and complete information has been completed in a normal manner. Meanwhile, as the Company reported RMB51.482 billion, RMB6.813 billion and RMB1.47/share in owners' equity attributable to holders of ordinary shares of the listed company, net profit attributable to holders of ordinary shares of the listed company and basic earnings per share, respectively, for 2021, which were in excess of the relevant requirements under the "Overseas Regulatory Announcement Analysis of dilution of return for the current period caused by the transaction and explanatory statement on remedial measures and related undertakings" published on 16 November 2020. Therefore, the undertaking of Zhongxingxin and the Company's Directors and senior management on the remedial measures against dilution of return for the current period caused by the reorganisation has been completed. The undertaking of Hengjian Xinxin and Huitong Rongxin on share lock-up and the independence of the listed company was under normal performance and there was no instance of non-completion of the performance of undertaking after the end of the relevant period. 3. Other undertaking given to minority shareholders of the Company On 10 December 2007, Zhongxingxin gave an undertaking that it shall disclose any intention in future to dispose of unlocked shares in the Company held via the securities trading system to sell down shareholdings by a volume equivalent to 5% or more within six months after the first selldown, by way of an indicative announcement to be published by the Company within two trading days before the first sell-down. The undertakings were under normal performance during the year and there was no instance of non-completion of the performance of undertaking after the end of the relevant period.
(IX) EXPLANATORY STATEMENT FROM THE BOARD OF DIRECTORS AND THE SUPERVISORY COMMITTEE OF THE COMPANY ON THE ACCOUNTANT'S "QUALIFIED AUDIT REPORT" FOR THE REPORTING PERIOD
½ Applicable N/A
(X) EXPLANATORY STATEMENT FROM THE BOARD OF DIRECTORS AND THE SUPERVISORY COMMITTEE OF THE COMPANY ON CHANGES AND HANDLING OF MATTERS RELATING TO THE ACCOUNTANT'S "QUALIFIED AUDIT REPORT" FOR THE PREVIOUS YEAR
½ Applicable N/A
(XI) EXPLANATORY STATEMENT ON CHANGES IN THE ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND COMPUTATION METHODS FOR THE REPORTING PERIOD IN COMPARISON WITH THE PREVIOUS ANNUAL FINANCIAL REPORT
½ Applicable N/A
61
ZTE CORPORATION INTERIM REPORT 2022
VII. Material Matters (XII) EXPLANATORY STATEMENT ON RECTIFICATION AND RETROSPECTIVE
RESTATEMENT OWING TO SIGNIFICANT ACCOUNTING ERRORS FOR THE REPORTING PERIOD
½ Applicable N/A
(XIII) REPLACEMENT OR DISMISSAL OF ACCOUNTING FIRM BY THE COMPANY DURING THE PERIOD
½ Applicable N/A
(XIV) ENFORCEMENT AND CRIMINAL PUNISHMENT IN ACCORDANCE WITH THE LAW ON ALLEGED CRIMES, CASE INVESTIGATION BY CSRC OR ADMINISTRATIVE PENALTY BY CSRC OR MATERIAL ADMINISTRATIVE PENALTY BY OTHER COMPETENT AUTHORITIES FOR ALLEGED VIOLATIONS OF LAWS AND REGULATIONS, DETAINMENT FOR ALLEGED MATERIAL VIOLATIONS OF DISCIPLINE AND LAW OR CRIME IN OFFICE BY DISCIPLINARY AUTHORITIES AFFECTING THE PERFORMANCE OF DUTIES, AND ENFORCEMENT BY OTHER COMPETENT AUTHORITIES FOR ALLEGED VIOLATION OF LAWS AND REGULATIONS AFFECTING THE PERFORMANCE OF DUTIES AGAINST THE COMPANY, ITS DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT OR CONTROLLING SHAREHOLDER DURING THE REPORTING PERIOD.
½ Applicable N/A
(XV)CREDIBILITY OF COMPANY AND CONTROLLING SHAREHOLDER
½ Applicable N/A The Company and its controlling shareholder were not subject to any non-compliance with obligations under valid court judgement or overdue debts of a substantial nature during the reporting period.
(XVI) OTHER SIGNIFICANT EVENTS
Save as aforesaid, no other significant events as specified under Rule 80 of the Securities Law and Article 22 of the Measures for the Administration of Information Disclosure by Listed Companies and events that were significant in the judgment of the Board of Directors of the Company occurred to the Company during the reporting period.
(XVII) THERE WERE NO OTHER DISCLOSEABLE MATERIAL MATTERS OCCURRING TO THE SUBSIDIARIES OF THE COMPANY DURING THE REPORTING PERIOD THAT REMAINED UNDISCLOSED.
62
ZTE CORPORATION INTERIM REPORT 2022
VIII. Changes in Shareholdings and Information of Shareholders
(I) CHANGES IN SHAREHOLDINGS DURING THE REPORTING PERIOD
Unit: share
31 December 2021
Number of shares
I. Shares subject to lock-up
85,909,064
1. State-owned shares
--
2. State-owned corporate shares 39,378,989
3. Other domestic shares
45,942,154
Comprising: domestic
non-state-owned
corporate shares 45,942,154
Domestic natural
person shares
--
4. Foreign shares
--
Comprising: Foreign corporate
shares
--
Foreign natural
person shares
--
5. Shares held by Directors,
Supervisors and senior
management subject to
lock-up
587,921
II. Shares not subject to lock-up 4,644,886,908
1. RMB ordinary shares
3,889,384,374
2. Domestic-listed foreign shares
--
3. Overseas-listed foreign shares
(H shares)
755,502,534
4. Others
--
III. Total number of shares
4,730,795,972
Percentage 1.82% -- 0.84% 0.97%
0.97%
-- --
--
--
0.01% 98.18% 82.21%
--
15.97% --
100.00%
Increase/decrease as a result of the change during the reporting period (+, -)
New issueNote 1
Transfer
Bonus from capital
issue
reserve
OthersNote 2
+254,922
--
--
110,600
--
--
--
--
--
--
--
--
--
--
--
--
Sub-total
+144,322 -- -- --
30 June 2022
Number of shares
86,053,386 --
39,378,989 45,942,154
Percentage
1.82% --
0.83% 0.97%
--
--
--
--
-- 45,942,154
0.97%
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
+254,922
--
--
110,600
+144,322
732,243
0.02%
+4,777,686
--
-- +110,600 +4,888,286 4,649,775,194
98.18%
+4,777,686
--
-- +110,600 +4,888,286 3,894,272,660
82.23%
--
--
--
--
--
--
--
--
--
--
--
-- 755,502,534
15.95%
--
--
--
--
--
--
--
+5,032,608
--
--
-- +5,032,608 4,735,828,580
100.00%
Note 1:
The Company's A shares increased 5,032,608 shares following the exercise of a total of 4,971,974 A share options by the participants under the 2017 Share Option Incentive Scheme and the exercise of a total of 60,634 A share options by the participants under the initial grant of the 2020 Share Option Incentive Scheme during the reporting period;
Note 2:
Lock-up or unlocking of shares of Directors, Supervisors and senior management on a pro-rata basis in accordance with pertinent domestic regulations.
(II) CHANGES IN SHARES SUBJECT TO LOCK-UP DURING THE REPORTING PERIOD
Unit: share
Number of
A shares subject
to lock-up as at
Name of shareholders 31 December
No. subject to lock-up
2021
1 Guangdong Hengjian Xinxin Investment Partnership Enterprise (Limited Partnership)
2 Shenzhen Nanshan Strategic New Industry Investment Company Limited
3 Xie Daxiong 4 Xu Ziyang 5 Wang Xiyu 6 Xie Junshi 7 Li Ying 8 Xia Xiaoyue 9 Ding Jianzhong 10 Li Quancai
45,942,154
39,378,989
371,852 63,000 51,424 22,500 40,950 38,195 -- --
Total
85,909,064
Increase in the
Number of
number of
A shares A shares subject
unlocked during to lock-up during
the reporting
the reporting
period
period
--
--
Number of A shares subject to lock-up as at
30 June 2022
45,942,154
Reason for lock-up
Restricted shares
under share
--
--
39,378,989
issuance for asset
acquisition
92,925 --
12,750 --
8,925 -- -- --
114,600
-- 63,000 65,601 61,851 39,600
-- 24,870
4,000
258,922
278,927 126,000 104,275
84,351 71,625 38,195 24,870
4,000
86,053,386
Shares held by Directors,
Supervisors and senior
management subject to lock-upNote 2
--
Date of unlocking
Note 1
-- -- -- -- -- -- -- --
63
ZTE CORPORATION INTERIM REPORT 2022
VIII. Changes in Shareholdings and Information of Shareholders
Note 1:
The new shares under the share issuance for asset acquisition were listed on the Shenzhen Stock Exchange on 10 November 2021 and shall not be traded or transferred within 12 months from 10 November 2021;
Note 2:
In accordance with "the Company Law of the People's Republic of China", "Administrative Rules Governing the Holding of Shares in a Listed Company by Its Directors, Supervisors and Senior Management and Changes Thereof" and "Shenzhen Stock Exchange Self-Disciplinary and Regulatory Guide for Listed Companies No. 10 -- Management of Shareholding Changes", China Securities Depository and Clearing Corporation Limited, Shenzhen Branch computes the number of shares held by the directors, supervisors and senior management of listed companies subject to selling restrictions for the year based on shares registered under their names as at the last trading date of the previous year. The new shares acquired by the Directors, Supervisors and senior management of the Company as a result of the exercise of 2017 A shares options shall be subject to a 75% automatic lock-up. Supervisor Mr. Li Quancai shall not transfer his holdings in the Company's shares within six months from the date of his departure.
(III) ISSUE AND LISTING OF SECURITIES DURING THE REPORTING PERIOD
1. During the reporting period, a total of 4,971,974 A share options were exercised by scheme participants under the 2017 Share Option Incentive Scheme of the Company, and a total of 60,634 A share options were exercised by scheme participants under the 2020 Share Option Incentive Scheme of the Company, and the total share capital of the Company was increased by 5,032,608 shares accordingly.
2. For details of the Company's issuance of Super and Short-term Commercial Paper ("SCP"), please refer to the section headed "Information on Bonds -- (III) Non-financial corporate debt financing instruments" in this report.
3. The Company had no employees' shares.
(IV) SHAREHOLDERS AS AT THE END OF THE REPORTING PERIOD
1. Total number of shareholders, shareholdings of top ten shareholders and top ten holders that were not subject to lock-up as at the end of the reporting period
Total number of shareholders
As at 30 June 2022
There were 483,282 shareholders (comprising 482,977 holders of A shares and 305 holders of H shares) Shareholdings of shareholders holding 5% or above of the shares or top 10 shareholders
Name of shareholders
Nature of shareholders
Percentage of shareholdings
Total number of shares held as at
the end of the reporting period
(shares)
Increase/decrease
during the Number of shares Number of shares
Class of reporting period held subject to pledged, marked
shares
(shares) lock-up (shares) or frozen (shares)
1. Zhongxingxin
Domestic general
corporation
2. HKSCC Nominees LimitedNote 2
Foreign
shareholders
3. Hong Kong Securities Clearing
Overseas
Company LimitedNote 3
corporation
4. Shenzhen Nanshan Strategic New Industry State-owned
Investment Company Limited
corporation
5. Guangdong Hengjian Xinxin Investment Domestic general
Partnership Enterprise (Limited
corporation
Partnership)
6. Shenzhen Investment Holding Capital Co., Others
Ltd. -- Shenzhen Investment Holding
Win-Win Equity Investment Fund
Partnership (Limited)
7. Central Huijin Asset Management Co. Ltd. State-owned
corporation
8. Hunan Nantian (Group) Co. Ltd.
State-owned
corporation
9. NSF Portfolio #113
Others
10. Guangdong Hengjian Asset Management Others
Co., Ltd. -- Guangdong Henghui Equity
Investment Fund (Limited Partnership)
21.28% 15.89% 2.17% 1.44% 0.97%
1,005,840,400 2,038,000Note 1
752,395,542
A share H share H share
102,561,995 A share
68,030,180 A share
45,942,154 A share
0.91%
43,032,108 A share
-- -- +6,986 7,594,633 14,380,917 --
--
0.89%
0.88%
0.87% 0.74%
42,171,534 A share
41,516,065 A share
41,324,239 A share 34,900,000 A share
--
--
+11,506,721 --
-- -- -- 39,378,989 45,942,154
--
--
Nil Unknown
Nil Nil Nil
Nil
Nil Nil Nil Nil
64
ZTE CORPORATION INTERIM REPORT 2022
Shareholdings of top 10 holders of shares that were not subject to lock-up
Name of shareholders
Number of shares not subject to lock-up (shares)
Class of shares
1. Zhongxingxin
2. HKSCC Nominees Limited 3. Hong Kong Securities Clearing Company Limited 4. Shenzhen Investment Holding Capital Co., Ltd. -- Shenzhen Investment Holding
Win-Win Equity Investment Fund Partnership (Limited) 5. Central Huijin Asset Management Co. Ltd. 6. Hunan Nantian (Group) Co. Ltd. 7. NSF Portfolio #113 8. Guangdong Hengjian Asset Management Co., Ltd. -- Guangdong Henghui Equity
Investment Fund (Limited Partnership) 9. NSF Portfolio #111 10. NSF Portfolio #112
1,005,840,400 2,038,000
752,395,542 102,561,995
43,032,108 42,171,534 41,516,065 41,324,239
34,900,000 33,025,385 31,887,971
A share H share H share A share
A share A share A share A share
A share A share A share
Descriptions of any connected party relationships or concerted actions among the above shareholders
Description of involvement in financing and securities lending businesses of top 10 shareholders (if any)
Description of the above-mentioned shareholders' delegated/entrusted voting rights and waiver of voting rights
Special description for the existence of special repurchase account among the top 10 shareholders (if any)
Top 10 shareholders and top 10 holders of shares that were not subject to lock-up of the Company conducted any transactions on agreed repurchases during the reporting period
1. Zhongxingxin was neither a connected party nor a party of concerted action of any of the top ten shareholders and top ten holders of shares that were not subject to lock-up set out in the table above.
2. Save for the above, the Company is not aware of any connected party relationships or concerted party relationships among the top ten shareholders and the top ten holders of shares that were not subject to lock-up.
N/A
N/A
N/A
N/A
Note 1: Note 2:
Note 3: Note 4:
2,038,000 H shares in the Company held by Zhongxingxin were held by HKSCC Nominees Limited as nominee shares.
Shares held by HKSCC Nominees Limited represented the sum of shares held in the accounts of the H shareholders of the Company traded on the trading platform of HKSCC Nominees Limited. To avoid repetition in counting, 2,038,000 H shares in the Company held by Zhongxingxin have been excluded from the number of shares held HKSCC Nominees Limited.
Shares held by Hong Kong Securities Clearing Company Limited represented the sum of A shares in the Company purchased through Shenzhen Hong Kong Stock Connect (Northbound).
During the reporting period, the Company had no strategic investor or general legal person who participated in the placing of new shares with a designated period of shareholding.
65
ZTE CORPORATION INTERIM REPORT 2022
VIII. Changes in Shareholdings and Information of Shareholders
2. Controlling shareholder of the Company
(1) During the reporting period, there was no change in the Company's controlling shareholder.
(2) The shareholders (or de facto controllers) of the controlling shareholders of the Company
Zhongxingxin, the controlling shareholder of the Company, was jointly formed by three shareholders, Xi'an Microelectronics Technology Research Institute ("Xi'an Microelectronics"), Shenzhen Aerospace Guangyu Industrial Company Limited ("Aerospace Guangyu") and Shenzhen Zhongxing WXT Equipment Company Limited ("Zhongxing WXT"). In April 2017, Aerospace Guangyu transferred 2.5% equity interests in Zhongxingxin to Zhuhai Guoxing Ruike Capital Management Centre (Limited Partnership) ("Guoxing Ruike"). Upon closing of the transfer, each of Xi'an Microelectronics, Aerospace Guangyu, Zhongxing WXT and Guoxing Ruike held a 34%, 14.5%, 49% and 2.5% stake in Zhongxingxin, respectively. Zhongxingxin currently has 9 directors, of which 3 have been nominated by Xi'an Microelectronics, 2 by Aerospace Guangyu and 4 by Zhongxing WXT, representing 33.33%, 22.22% and 44.45% of the board of directors of Zhongxingxin, respectively. Therefore, no shareholder of Zhongxingxin has the right to control the financial and operating decisions of the Company whether in terms of shareholding or corporate governance structure. Therefore, the Company does not have any de facto controller and no party has effective control over the Company, whether by way of trust or other forms of asset management.
The following diagram shows the shareholding relationships between the aforesaid entities and the Company as at 30 June 2022:
Xi'an Microelectronics
34%
Aerospace Guangyu 14.5%
Zhongxing WXT 49%
Guoxing Ruike 2.5%
Zhongxingxin 21.28%
ZTE
For details of Zhongxingxin and its four shareholders, please refer to the section headed "Changes in Shareholdings and Information of Shareholders -- (IV) SHAREHOLDERS AND DE FACTO CONTROLLERS OF THE COMPANY AS AT THE END OF THE YEAR" in the 2021 Annual Report of the Company.
3. The Company had no other corporate shareholder which was interested in more than 10% of its shares.
66
ZTE CORPORATION INTERIM REPORT 2022
4. Interests of substantial shareholders of the Company in shares and underlying shares required to be disclosed under the SFO and Hong Kong Listing Rules
As at 30 June 2022, the following shareholders held interests or short positions in 5% or more in various classes of the issued share capital of the Company, as shown in the share register maintained by the Company in accordance with Section 336 of the SFO:
Name
Capacity
Zhongxingxin
Beneficial owner
Zhongxing WXT
Interests of corporate
controlled by you
Xi'an Microelectronics
Interests of corporate
controlled by you
China Aerospace Electronics
Interests of corporate
Technology Research Institute
controlled by you
China Aerospace Science and
Interests of corporate
Technology Corporation
controlled by you
BlackRock, Inc.
Interests of corporate
controlled by you
Capital Research and Management Investment manager
Company
(L) -- long position, (S) -- short position
Number of shares held 1,005,840,400 A shares (L) 1,005,840,400 A shares (L)
1,005,840,400 A shares (L)
1,005,840,400 A shares (L)
1,005,840,400 A shares (L)
78,079,812 H shares (L) 714,400 H shares (S)
38,410,000 H shares (L)
Shareholding as an approximate
percentage of Note
Total Relevant class of
share capital
shares
21.24% (L) 21.24% (L)
25.27% (L) 25.27% (L)
21.24% (L)
25.27% (L)
21.24%(L)
25.27% (L)
21.24% (L)
25.27% (L)
1.65% (L) 0.02% (S) 0.81% (L)
10.33% (L) 0.09% (S) 5.08% (L)
Note: Shareholdings as percentage of total share capital and relevant class of shares was calculated on the basis of the Company's total share capital of 4,735,828,580 shares, comprising 3,980,326,046 A shares and 755,502,534 H shares, as at 30 June 2022.
The interests in shares or debentures of the Company held by Directors, Supervisors and chief executive of the Company as at 30 June 2022 are set out in the section of this report headed "Directors, Supervisors and Senior Management".
Save as disclosed above, as at 30 June 2022, so far as the Directors, Supervisors and senior management of the Company are aware, no person had an interest or short position in the shares and underlying shares of the Company that was required to be recorded in the register maintained pursuant to Section 336 of the SFO.
(V) REPURCHASE, SALE AND REDEMPTION OF SECURITIES
During the reporting period, the Company and its subsidiaries did not repurchase, sell or redeem any listed securities of the Company.
(VI) THE COMPANY HAD NO PREFERENTIAL SHARES
67
ZTE CORPORATION INTERIM REPORT 2022
IX. Directors, Supervisors and Senior Management
(I) NEW SESSION OF THE BOARD OF DIRECTORS AND SUPERVISORY COMMITTEE AND APPOINTMENT OF NEW SENIOR MANAGEMENT OF THE COMPANY
At the First Extraordinary General Meeting of 2022 and the First Meeting of the Ninth Session of the Board of Directors of the Company held on 30 March 2022, Mr. Li Zixue was elected as Chairman of the Ninth Session of the Board of Directors of the Company and Mr. Li Zixue, Mr. Xu Ziyang and Mr. Gu Junying were elected as Executive Directors of the Ninth Session of the Board of Directors of the Company, Mr. Li Buqing, Mr. Zhu Weimin and Ms. Fang Rong were elected as Non-executive Directors of the Ninth Session of the Board of Directors of the Company, and Ms. Cai Manli, Mr. Gordon Ng and Mr. Zhuang Jiansheng were elected as Independent Non-executive Directors of the Ninth Session of the Board of Directors of the Company. The term of appointment of Independent Non-executive Directors Ms. Cai Manli and Mr. Gordon Ng commenced on 30 March 2022 and shall end on 28 June 2024. The term of appointment of other Directors commenced on 30 March 2022 and shall end on 29 March 2025. At the First Extraordinary General Meeting of 2022 of the Company held on 30 March 2022, Ms. Jiang Mihua and Mr. Hao Bo were elected as Shareholders' Representative Supervisors of the Ninth Session of the Supervisory Committee of the Company. In addition, Mr. Xie Daxiong, Ms. Xia Xiaoyue and Ms. Li Miaona were elected as Staff Representative Supervisors of the Ninth Session of the Supervisory Committee of the Company through elections among staff representatives. At the First Meeting of the Ninth Session of the Supervisory Committee of the Company held on 30 March 2022, Mr. Xie Daxiong was elected as Chairman of the Ninth Session of the Supervisory Committee of the Company. The term of the Ninth Session of the Supervisory Committee of the Company commenced on 30 March 2022 and shall end on 29 March 2025. Pursuant to the "Resolution on Appointment of New Senior Management of the Company" considered and approved at the First Meeting of the Ninth Session of the Board of Directors of the Company held on 30 March 2022, it was approved that Mr. Xu Ziyang be re-appointed as President of the Company, each of Mr. Wang Xiyu, Mr. Gu Junying, Ms. Li Ying and Mr. Xie Junshi be re-appointed Executive Vice President of the Company, Ms. Li Ying be concurrently re-appointed as Chief Financial Officer of the Company and Mr. Ding Jianzhong be re-appointed as the Secretary to the Board of the Company. The term of office of the new senior management commenced on 30 March 2022 and shall end on 29 March 2025. For details of the aforesaid matters, please refer to the "Announcement on Resolutions of the First Extraordinary General Meeting of 2022", "Announcement of Resolutions of the First Meeting of the Ninth Session of the Board of Directors" and "Overseas Regulatory Announcement" published by the Company on 30 March 2022.
68
ZTE CORPORATION INTERIM REPORT 2022
(II) CHANGES IN THE SHAREHOLDINGS AND SHARE OPTIONS OF THE COMPANY'S DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY
No. Name
Directors of the Company 1 Li Zixue 2 Xu Ziyang
Gender Age
Male 58 Male 50
3 Li Buqing 4 Gu Junying
Male 50 Male 55
5 Zhu Weimin 6 Fang Rong 7 Cai Manli
Male 57 Female 58 Female 49
8 Gordon Ng
Male 58
9 Zhuang Jiansheng
Male 57
Supervisors of the Company 10 Xie Daxiong
Male 59
11 Xia Xiaoyue
Female 47
12 Li Miaona
Female 48
13 Jiang Mihua
Female 46
14 Hao Bo
Male 33
15 Li Quancai
Male 61
16 Shang Xiaofeng
Male 47
17 Zhang Sufang
Female 48
Senior management of the Company
18 Wang Xiyu
Male 48
19 Li Ying
Female 44
20 Xie Junshi 21 Ding Jianzheng
Male 47 Male 46
Total
--
--
Number of
A shares
Decrease Number of
held at the Increase in in the A shares
beginning the number number of held at the
Term of
of the of A shares A shares end of the
office
Term of
reporting held during held during reporting Reasons
Status
commencing office
period the period the period period
for
Title
of office on Note 1
ending on Note 1 (shares) (shares) (shares) (shares) changes
Chairman
Incumbent
Director
Incumbent
President
Director
Incumbent
Director
Incumbent
Executive Vice President
Director
Incumbent
Director
Incumbent
Independent Non-executive Incumbent
Director
Independent Non-executive Incumbent
Director
Independent Non-executive Incumbent
Director
3/2022 3/2022 3/2022 3/2022 3/2022 3/2022 3/2022 3/2022 3/2022
3/2022
3/2022
Chairman of Supervisory Committee
Supervisor Supervisor Supervisor Supervisor Supervisor Supervisor Supervisor
Incumbent
Incumbent Incumbent Incumbent Incumbent Resigned Resigned Resigned
3/2022
3/2022 3/2022 3/2022 3/2022 3/2019 3/2019 3/2019
Executive Vice President Incumbent Executive Vice President and Incumbent
Chief Financial Officer Executive Vice President Incumbent Secretary to the Board of Incumbent
Directors
--
--
3/2022 3/2022
3/2022 3/2022
--
3/2025 3/2025 3/2025 3/2025 3/2025 3/2025 3/2025 3/2025 6/2024
6/2024
3/2025
3/2025
3/2025 3/2025 3/2025 3/2025 3/2022 3/2022 3/2022
3/2025 3/2025
3/2025 3/2025
--
-- 84,000
-- --
-- -- --
--
--
-- 84,000
-- --
-- -- --
--
--
371,903
50,927 Note 3 Note 3 Note 3
-- -- --
51,566 42,700
30,000 --
--
-- -- -- -- 4,000 -- --
87,468 52,800
82,468 33,160
631,096 343,896
--
--
-- 168,000
--
--
--
--
--
--
--
--
--
--
--
--
--
--
-- Note 2
-- --
-- -- --
--
--
-- 371,903
-- 50,927
--
--
--
--
--
--
--
4,000
--
--
--
--
-- 139,034 -- 95,500
-- 112,468 -- 33,160
--
-- -- -- -- Note 4 -- --
Note 2
-- 974,992
--
Note 1:
Note 2: Note 3: Note 4: Note 5: Note 6:
The starting and ending dates of the term of office set out in this table are the starting and ending dates of the term of office of the incumbent Directors of the Ninth Session of the Board of Directors, Supervisors of the Ninth Session of the Supervisory Committee and senior management of the Company appointed by the Ninth Session of the Board of Directors.
Exercise of 2017 A share options by the Directors and senior management of the Company during the reporting period.
Ms. Li Miaona, Ms. Jiang Mihua and Mr. Hao Bo did not hold any A shares in the Company when they were elected as Supervisors of the Company on 30 March 2022.
The term of office of Mr. Li Quancai concluded on 30 March 2022. Following such conclusion, Mr. Li Quancai acquired an additional 4,000 A shares in the Company.
None of the Directors, Supervisors and senior management personnel in office as at the end of the reporting period held any H shares in the issued share capital or any equity in the subsidiary of the Company during the reporting period.
As at the end of the reporting period, spouse of Ms. Li Ying held 20,000 2020 A shares options of the Company. Such share options have been recorded in the register required to be kept under the SFO.
69
ZTE CORPORATION INTERIM REPORT 2022
IX. Directors, Supervisors and Senior Management
For details of the share options of A shares of the Company held by the Directors and senior management of the Company, please refer to the section headed "Corporate Governance -- (VII) Implementation and Impact of the Company's Share Option Incentive Scheme and Management Stock Ownership Scheme" in this report.
(III) INFORMATION CONCERNING CURRENT DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY HOLDING POSITIONS IN CORPORATE SHAREHOLDERS OF THE COMPANY AS AT THE END OF THE REPORTING PERIOD
Name
Zhu WeiminNote 1 Jiang MihuaNote 2 Hao Bo
Name of shareholder
Zhongxingxin Zhongxingxin Zhongxingxin
Position with the shareholder
Commencement of term of office
Director
August 2018
Supervisor
February 2022
Head of strategic March 2019
planning department
Conclusion of term of office
August 2024 August 2024 /
Whether receiving remuneration from Zhongxingxin
Yes Yes Yes
Note 1:
Mr. Zhu Weimin was appointed as director of the ninth session of the board of directors of Zhongxingxin in August 2018. Zhongxingxin completed the re-election of a new session in August 2021. The date of conclusion of term of office in the table represents the date of conclusion of the tenth session of the board of directors.
Note 2:
Ms. Jiang Minhua was appointed as supervisor of the tenth session of the supervisory committee of Zhongxingxin in February 2022. The date of conclusion of term of office in the table represents the date of conclusion of the tenth session of the supervisory committee.
(IV) INFORMATION CONCERNING CURRENT DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY HOLDING MAJOR POSITIONS IN OTHER ENTITIES AS AT THE END OF THE REPORTING PERIOD
Name Li Buqing
Gu JunyingNote 1 Zhu Weimin
Fang RongNote 2
Cai Manli
Name of other entities
Shenzhen Aerospace Industrial Technology Research Institute Limited
CASIC Shenzhen (Group) Company Limited Shenzhen Aerospace Property Management Co., Ltd. Shenzhen Aerospace Liye Industry Development Co.,
Ltd. Shenzhen Zhongxing Information Company Limited Shenzhen Hangxin Property Management Co., Ltd. Jinzhuan Information Technology Co., Ltd. Shenzhen Zhongxing International Investment Limited Held positions in 6 subsidiaries of Shenzhen Zhongxing
International Investment Limited including Beijing United Zhongxing International Investment Limited Zhongxing WXT Shenzhen Techaser Technologies Co., Ltd. Shenzhen Xinyu Tengyue Electronics Co., Ltd. Hainan Xinghang Technology Co., Ltd. Zhongxing Development Company Limited
Held positions in 10 subsidiaries or investees of Zhongxing Development Company Limited including Xiazhi Technology Company Limited
Shenzhen Zhongxing International Investment Limited Beijing United Zhongxing International Investment
Limited Beijing King & Wood Mallesons Sichuan Xinwang Bank Co., Ltd. Shanghai Flyco Electrical Appliance Co., Ltd. New Hope Liuhe Co., Ltd. Kuangshi Technology Co., Ltd. Guangzhou Jifei Technology Co., Ltd.
Position in other entities Chief accountant
Director, chief accountant Director Chairman
Director Director Chairman, general manager Chairman Chairman/Director
Director Director Director Director Director, executive vice
president Chairman/director
Director Director
Senior consultant External supervisor Independent director Independent director Independent director Independent director
Whether remuneration is received from other entities Yes
No No No
No No No Yes No
No No No No Yes
No
No No
Yes Yes Yes Yes Yes Yes
70
ZTE CORPORATION INTERIM REPORT 2022
Name Gordon Ng
Zhuang Jiansheng Xie Daxiong
Li Miaona Jiang Mihua
Hao BoNote 3
Wang XiyuNote 4 Li Ying
Name of other entities
Dentons Hong Kong LLP China Energine International (Holdings) Limited
Mainland Headwear Holdings Limited
Shanghai Huiyue Law Firm Guangdong Newstart Technology & Service Company
Limited Guangzhou Huijian Testing Technology Company
Limited Shenzhen Aerospace Industrial Technology Research
Institute Limited Shenzhen Aerospace Guangyu Industrial Company
Limited Held positions in 4 subsidiaries or investees of
Zhongxingxin including Sindi Technologies Co., Ltd. Shenzhen Haina Jingying Management Consultant
Company Limited ZTE Microelectronics ZTE Optoelectronics Technology Company Limited Jinzhuan Information Technology Co., Ltd. ZTE Group Finance ZTE HK Shenzhen ZTE Jinkong Commercial Factoring Company
Limited ZTE Microelectronics
Position in other entities
Partner Independent non-executive
Director Independent non-executive
Director Partner Chairman
Chairman
Chairman Deputy head of finance
department Director
Director/supervisor/executive director, general manager
Executive director
Chairman Chairman Vice-chairman Chairman Chairman Chairman
Director
Whether remuneration is received from other entities Yes Yes
Yes
Yes No
No
No Yes
No
No
No
No No No No No No
No
Note 1:
Mr. Gu Junying has been appointed as the chairman and general manager of Jinzhuan Information Technology Co., Ltd. since January 2022.
Note 2:
Ms. Fang Rong has ceased to be director of Zhongxing Herun Investment (Shenzhen) Company Limited as from May 2022 and director of Shenzhen Jinghui Heyuan Equity Investment Management Company Limited as from July 2022.
Note 3:
Mr. Hao Bo has ceased to be executive director and general manager of Shenzhen Xinshangke Management Consultant Company Limited as from June 2022.
Note 4:
Mr. Wang Xiyu has been appointed as vice-chairman of Jinzhuan Information Technology Co., Ltd. since January 2022.
(V) DECISION-MAKING PROCESS AND BASES FOR DETERMINATION OF REMUNERATION FOR DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY
Allowances for Directors are based on recommendations made to the Board of Directors by the Remuneration and Evaluation Committee of the Board of Directors with reference to the duties of Directors at the Company and markets levels represented by other listed companies in the same industry and determined upon consideration and approval by the Board of Director and the general meeting.
Allowances for Supervisors are based on recommendations of the Supervisory Committee made with reference to the duties of Supervisors and markets levels represented by other listed companies in the same industry and determined upon consideration and approval by the general meeting.
The remuneration for senior management personnel is based on the results of their annual performance appraisals conducted by the Remuneration and Evaluation Committee and determined upon consideration by the Board of Directors.
Remuneration for the Directors, Supervisors and senior management are determined and payable by the Company in accordance with the aforesaid provisions and procedures.
71
ZTE CORPORATION INTERIM REPORT 2022
IX. Directors, Supervisors and Senior Management (VI) INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE IN
SHARES OR DEBENTURES
The interests in shares of the Company held by Directors, Supervisors and Chief Executive of the Company as at 30 June 2022 are set out in the section of this chapter head "(II) CHANGES IN THE SHAREHOLDINGS AND SHARE OPTIONS OF THE COMPANY'S DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY". Save as disclosed above, as at 30 June 2022, none of the Directors, Supervisors and Chief Executive of the Company had any interest or short position in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) that is required to be recorded in the register to be kept under Section 352 of the SFO, or otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code as set out in Appendix 10 to the Hong Kong Listing Rules. Save as disclosed above, as at 30 June 2022, none of the Directors, Supervisors or the Chief Executive of the Company, or their respective spouses or children under the age of 18 had been granted or had exercised any rights to subscribe for the share capital or debentures of the Company or its associated corporations.
72
ZTE CORPORATION INTERIM REPORT 2022
X. Information on Bonds
(I) CORPORATE BONDS
½ Applicable N/A
(II) DEBENTURES
½ Applicable N/A
(III) NON-FINANCIAL CORPORATE DEBT FINANCING INSTRUMENTS
As considered and approved at the 2020 Annual General Meeting of the Company, the Company has sought the consolidated registration with the National Association of Financial Market Institutional Investors ("NAFMII") for issuance of multiple types of debt financing instruments, including super short term commercial paper ("SCPs"), short term commercial paper, medium term note, perpetual note and asset-backed note, such that the Company may conduct such issuance during the effective term of registration without further application. NAFMII has accepted the Company's registration of multiple types of debt financing instruments as aforesaid, which is valid within 2 years from the date of the "Notice of Acceptance of Registration"(13 August 2021). For details, please refer to the "Overseas Regulatory Announcement Announcement on the Proposed Application for Consolidated Registration For Issuance of Multiple Types of Debt Financing Instruments for 2021", "Announcement on Resolutions of the 2020 Annual General Meeting and "Overseas Regulatory Announcement Announcement on the Approval of Registration for Multiple Types of Debt Financing Instruments" published by the Company on 16 March 2021, 25 June 2021 and 18 August 2021, respectively.
1. Basic information on non-financial corporate debt financing instruments
During the first half of 2022, the Company issued a total of 21 tranches of SCPs for an aggregate issue amount of RMB21.5 billion, which had been repaid upon maturity as at 30 June 2022.
Information on the Company's SCPs issued and outstanding as at the date of the publication of this report is set out as follows:
Bond name 2022 Tranche XXII SCPs
2022 Tranche XXIII SCPs
2022 Tranche XXIV SCPs
2022 Tranche XXV SCPs
2022 Tranche XXVI SCPs
2022 Tranche XXVII SCPs
2022 Tranche XXVIII SCPs (Technology Innovation Instrument)
2022 Tranche XXIX SCPs (Technology Innovation Instrument)
2022 Tranche XXX SCPs (Technology Innovation Instrument)
2022 Tranche XXXI SCPs (Technology Innovation Instrument)
Bond abbreviation 22SCP022 22SCP023 22SCP024 22SCP025 22SCP026 22SCP027 22 SCP028
Bond code Issue date
Accrual date
Maturity date
Bond balance (RMB100 million)
012282348 30 June 2022 1 July 2022 30 September
15
2022
012282335 30 June 2022 1 July 2022 30 September
10
2022
012282331 30 June 2022 1 July 2022 30 September
10
2022
012282340 30 June 2022 1 July 2022 30 September
10
2022
012282332 30 June 2022 1 July 2022 30 September
15
2022
012282328 30 June 2022 1 July 2022 30 September
10
2022
012282403 7 July 2022 8 July 2022 30 September
15
2022
Interest rate
1.90% 1.90% 1.90% 1.90% 1.90% 1.90% 1.90%
Principal and interest repayment method
Trading market
One-off principal and interest repayment on maturity
One-off principal and interest repayment on maturity
One-off principal and interest repayment on maturity
One-off principal and interest repayment on maturity
One-off principal and interest repayment on maturity
One-off principal and interest repayment on maturity
One-off principal and interest repayment on maturity
Inter-bank bond market
Inter-bank bond market
Inter-bank bond market
Inter-bank bond market
Inter-bank bond market
Inter-bank bond market
Inter-bank bond market
22 SCP029
012282413 7 July 2022
8 July 2022
30 September 2022
10
1.90% One-off principal and interest Inter-bank bond
repayment on maturity
market
22 SCP030
012282417 7 July 2022
8 July 2022
30 September 2022
10
1.90% One-off principal and interest Inter-bank bond
repayment on maturity
market
22 SCP031
012282410 7 July 2022
8 July 2022
30 September 2022
5
1.90% One-off principal and interest Inter-bank bond
repayment on maturity
market
73
ZTE CORPORATION INTERIM REPORT 2022
X. Information on Bonds
Bond name
Bond abbreviation
Bond code Issue date
Accrual date
Maturity date
Bond balance (RMB100 million)
2022 Tranche XXXII SCPs
22 SCP032
012282728 3 August 2022 4 August 2022 30 September
10
(Technology Innovation
2022
Instrument)
Investor suitability arrangements (if any) Applicable trading mechanism Whether there are risks (if any) of terminating listing transactions and
countermeasures Overdue bonds
N/A Inter-bank bond market trading mechanism
N/A N/A
Interest rate
1.77%
Principal and interest repayment method
Trading market
One-off principal and interest Inter-bank bond
repayment on maturity
market
2. Trigger or execution of issuer or investor option clause or investor protection clause
½ Applicable N/A 3. Adjustment of ratings by credit rating agencies during the reporting period
½ Applicable N/A
4. Implementation of and change in guarantees, debt repayment schemes and other debt repayment assurance measures during the reporting period and their impact on bond investors' interests
½ Applicable N/A
(IV) CONVERTIBLE CORPORATE BONDS
½ Applicable N/A
(V) LOSS REPORTED IN CONSOLIDATED STATEMENT FOR THE REPORTING PERIOD EXCEEDING 10% OF NET ASSETS AT THE END OF LAST YEAR
½ Applicable N/A
(VI) THE COMPANY'S MAJOR ACCOUNTING DATA AND FINANCIAL INDICATORS FOR THE PAST TWO YEARS AS AT THE END OF THE REPORTING PERIOD
Items Current ratio
Gearing ratio Quick ratio
At the end of the reporting period
1.64
68.44% 1.14
At the end of last year
1.63
68.42% 1.16
Increase/decrease at the end of the
reporting period as compared to the end
of last year
0.61% Increased by 0.02 percentage point
(1.72%)
74
ZTE CORPORATION INTERIM REPORT 2022
Net profit after extraordinary gain/loss attributable to holders of ordinary shares of the listed company (RMB in thousand)
Debt-to-EBITDA ratioNote Interest coverage ratio Cash interest coverage ratio EBITDA interest coverage ratio Loan repayment ratio
Interest repayment ratio
For the reporting period
Corresponding period of last year
Increase/decrease of the reporting period
as compared to the corresponding period
of last year
3,725,359
13.67% 6.49 5.82 8.74
100.00%
100.00%
2,246,454
15.12% 9.31
12.49 12.64 100.00%
99.78%
65.83% Decreased by 1.45 percentage points
(30.29%) (53.40%) (30.85%)
--
Increased by 0.22 percentage point
Note: Total amount of debt Ø long-term borrowings + bonds payable + short-term borrowings + financial liabilities at fair value through current profit or loss + bills payable + short-term bonds payable (other current liabilities) + non-current liabilities due within one year + lease liabilities + long-term payables
75
ZTE CORPORATION INTERIM REPORT 2022
Consolidated Balance Sheet
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Assets
Note V
30 June 2022
(Unaudited)
31 December 2021
(Audited)
Current assets Cash Trading financial assets Derivative financial assets Trade receivables Receivable financing Factored trade receivables Prepayments Other receivables Inventories Contract assets Other current assets
Total current assets
Non-current assets Long-term receivables Factored long-term receivables Long-term equity investments Other non-current financial assets Investment properties Fixed assets Construction in progress Right-of-use assets Intangible assets Development costs Goodwill Deferred tax assets Other non-current assets
Total non-current assets
TOTAL ASSETS
1
54,926,295
50,713,310
2
897,389
1,360,697
3
251,162
209,352
4A
17,936,988
17,509,059
4B
7,617,467
5,196,458
4A
119,996
200,992
5
584,863
606,781
6
1,666,520
1,353,779
7
41,848,316
36,316,753
8
5,738,542
6,585,307
20
6,895,529
7,818,597
138,483,067
127,871,085
9
2,274,869
2,356,413
9
201,956
243,701
10
1,619,616
1,684,909
11
1,152,720
1,175,249
12
2,012,443
2,013,927
13
11,456,642
11,437,011
14
1,666,168
1,372,869
15
691,916
815,346
16
7,946,004
8,094,542
17
2,394,509
2,453,275
18
--
--
19
3,389,592
3,194,741
20
6,435,260
6,050,357
41,241,695
40,892,340
179,724,762
168,763,425
The notes to the financial statements appended hereto form part of these financial statements.
76
ZTE CORPORATION INTERIM REPORT 2022
Consolidated Balance Sheet (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Liabilities
Note V
30 June 2022
(Unaudited)
31 December 2021
(Audited)
Current liabilities Short-term loans Bank advances on factored trade receivables Derivative financial liabilities Bills payable Trade payables Contract liabilities Salary and welfare payables Taxes payable Other payables Provisions Non-current liabilities due within one year
Total current liabilities
Non-current liabilities Long-term loans Bank advances on factored long-term trade receivables Lease liabilities Provision for retirement benefits Deferred income Deferred tax liabilities Other non-current liabilities
Total non-current liabilities
Total liabilities
21
9,815,823
8,946,935
4A
121,317
202,249
22
14,739
27,729
23A
11,696,452
11,557,376
23B
20,728,610
21,717,267
24
20,166,471
16,101,652
25
10,216,221
11,691,423
26
1,487,698
1,216,334
27
3,425,848
3,505,419
28
2,692,910
2,741,536
29
4,295,660
977,336
84,661,749
78,685,256
30
30,703,014
29,908,441
9
208,612
250,452
31
465,825
531,983
145,169
147,539
2,750,829
1,872,518
19
108,331
150,348
32
3,968,683
3,929,228
38,350,463
36,790,509
123,012,212
115,475,765
The notes to the financial statements appended hereto form part of these financial statements.
77
ZTE CORPORATION INTERIM REPORT 2022
Consolidated Balance Sheet (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Shareholder's equity
Note V
30 June 2022
(Unaudited)
31 December 2021
(Audited)
Shareholder's equity Share capital Capital reserves Other comprehensive income Surplus reserve Retained profits
Total equity attributable to holders of ordinary shares of the parent
Non-controlling interests
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
33
4,735,829
4,730,796
34
25,684,798
25,359,964
35
(2,289,667)
(2,287,021)
36
3,027,154
3,027,154
37
23,796,809
20,651,196
54,954,923 1,757,627
56,712,550 179,724,762
51,482,089 1,805,571
53,287,660 168,763,425
The notes to the financial statements appended hereto form part of these financial statements.
Legal Representative: Li Zixue
Chief Financial Officer: Li Ying
Head of Finance Division: Xu Jianrui
78
ZTE CORPORATION INTERIM REPORT 2022
Consolidated Income Statement
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Note V
Six months ended 30 June
2022 (Unaudited)
Six months ended 30 June
2021 (Unaudited)
Operating revenue
38
Less: Operating costs
38
Taxes and surcharges
39
Selling and distribution costs
40
Administrative expenses
41
Research and development costs
42
Finance costs
43
Including: Interest expense
Interest income
Add: Other income
44
Investment income
45
Including: Share of losses of associates and joint ventures
Losses from derecognition of financial assets
at amortised cost
Gains/losses from changes in fair values
46
Credit impairment losses
47
Asset Impairment losses
48
Gains from asset disposal
49
Operating profit
Add: Non-operating income
50
Less: Non-operating expenses
50
Total profit
Less: Income tax
52
Net profit
Analysed by continuity of operations Net profit from continuing operations
Analysed by ownership Holders of ordinary shares of the parent Non-controlling interests
59,818,300 37,662,894
387,407 4,423,548 2,532,696 10,151,500
303,745 949,580 1,141,487 901,586 671,223 (56,564)
(108,165) (392,234) (116,912) (160,771)
7,602 5,267,004
99,313 154,608 5,211,709 665,057 4,546,652
4,546,652
4,565,826 (19,174)
53,070,970 33,892,782
385,671 4,169,804 2,543,538 8,861,406
480,702 665,129 661,600 1,267,706 703,109 (70,777)
(106,075) 874,661 (125,249)
40,928 47,494 5,545,716 143,174 161,914 5,526,976 976,350 4,550,626
4,550,626
4,078,613 472,013
The notes to the financial statements appended hereto form part of these financial statements.
79
ZTE CORPORATION INTERIM REPORT 2022
Consolidated Income Statement (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Note V
Six months ended 30 June
2022 (Unaudited)
Six months ended 30 June
2021 (Unaudited)
Other comprehensive income, net of tax
Other comprehensive income attributable to holders of
ordinary shares of the parent company, net of tax
35
Other comprehensive income that will be reclassified to profit or loss Exchange differences on translation of foreign operations
Other comprehensive income attributable to non-controlling interests, net of tax
Total comprehensive income
Attributable to: Holders of ordinary shares of the parent
Non-controlling interests
Earnings per share (RMB/share)
Basic
53
Diluted
53
(4,457)
(2,646)
(2,646) (2,646)
(1,811) 4,542,195
4,563,180 (20,985)
RMB0.96 RMB0.96
12,448
17,325
17,325 17,325
(4,877) 4,563,074
4,095,938 467,136
RMB0.88 RMB0.88
The notes to the financial statements appended hereto form part of these financial statements.
80
ZTE CORPORATION INTERIM REPORT 2022
Consolidated Statement of Changes in Equity
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
I.
Previous period's closing balance
II.
Changes during the period
(I) Total comprehensive income
(II) Shareholder's capital injection and
capital reduction
1. Ordinary share injection
from shareholders
2. Equity settled share expenses charged
to equity
3. Acquisition of non-controlling interests
4. Disposal of subsidiaries
(III) Profit appropriation
1. Distribution to shareholders
III.
Current period's closing balance
Six months ended 30 June 2022 (Unaudited)
Equity attributable to holders of ordinary shares of the parent
Share capital
Other
Capital comprehensive
reserves
income
Surplus reserve
Retained profits
Sub-total
Non-
Total
controlling shareholders'
interests
equity
4,730,796 25,359,964
--
--
(2,287,021) 3,027,154 20,651,196 51,482,089
(2,646)
-- 4,565,826 4,563,180
1,805,571 53,287,660 (20,985) 4,542,195
5,033
--
-- 326,902
--
(2,068)
--
--
--
--
4,735,829 25,684,798
--
--
--
5,033
36,650
41,683
--
--
--
326,902
--
326,902
--
--
--
(2,068)
(5,535)
(7,603)
--
--
--
--
(28,374)
(28,374)
-- (2,289,667)
-- 3,027,154
(1,420,213) (1,420,213) 23,796,809 54,954,923
(29,700) 1,757,627
(1,449,913) 56,712,550
Share capital
Six months ended 30 June 2021 (Unaudited)
Equity attributable to holders of ordinary shares of the parent
Capital reserves
Less:
Other
treasury comprehensive
stock
income
Surplus reserve
Retained profits
Sub-total
Non-
Total
controlling shareholders'
interests
equity
I.
Previous period's closing balance
4,613,435 23,275,810 (114,766) (2,270,622) 2,968,473 14,824,478 43,296,808 2,825,698 46,122,506
II.
Changes during the period
(I) Total comprehensive income
--
--
--
17,325
-- 4,078,613 4,095,938
467,136 4,563,074
(II) Shareholder's capital injection and
capital reduction
1. Ordinary share injection
from shareholders
--
9,258
--
--
--
--
9,258
10,742
20,000
2. Equity settled share expenses charged
to equity
-- 468,770
--
--
--
--
468,770
--
468,770
3. Capital reduction by shareholders
--
--
--
--
--
--
--
(24,867)
(24,867)
(III) Profit appropriation
1. Distribution to shareholders
--
--
--
--
--
(922,687) (922,687)
(60,579) (983,266)
III.
Current period's closing balance
4,613,435 23,753,838 (114,766) (2,253,297) 2,968,473 17,980,404 46,948,087 3,218,130 50,166,217
The notes to the financial statements appended hereto form part of these financial statements.
81
ZTE CORPORATION INTERIM REPORT 2022
Consolidated Cash Flow Statement
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Note V
Six months ended 30 June
2022 (Unaudited)
Six months ended 30 June
2021 (Unaudited)
I. Cash flows from operating activities
Cash received from sale of goods or rendering of services
Refunds of taxes
Cash received relating to other operating activities
54
Sub-total of cash inflows
Cash paid for goods and services Cash paid to and on behalf of employees Cash paid for various types of taxes Cash paid relating to other operating activities
Sub-total of cash outflows
Net cash flows from operating activities
55
II. Cash flows from investing activities Cash received from sale of investments Cash received from return on investment Net cash received from the disposal of fixed assets, intangible assets and other long-term assets Net cash received from the disposal of subsidiaries and other operating units
Sub-total of cash inflows
Cash paid to acquisition of fixed asset, intangible assets and
other long-term assets
Cash paid for acquisition of investments
Other cash paid in relation to investing activities
54
Sub-total of cash outflows
Net cash flows from investing activities
III. Cash flows from financing activities Cash received from capital injection Including: Capital injection into subsidiaries by minority shareholders Cash received from borrowings
Sub-total of cash inflows
Cash repayment of borrowings
Cash payments for distribution of dividends, profits and
for interest expenses
Including: Distribution of dividends, profits by subsidiaries to
minority shareholders
Other cash paid relating to financing activities
54
Sub-total of cash outflows
Net cash flows from financing activities
IV. Effect of changes in foreign exchange rate on cash and cash equivalents
V. Net increase in cash and cash equivalents Add: cash and cash equivalents at beginning of period
VI. Net balance of cash and cash equivalents
at the end of period
55
67,593,369 3,935,121 2,848,097
74,376,587 47,193,669 15,376,536
3,961,774 4,344,974 70,876,953 3,499,634
5,941,408 441,612
9,436
89,100 6,481,556
2,330,563 5,041,165
72,098 7,443,826
(962,270)
124,823
36,650 60,937,792 61,062,615 56,319,452
2,346,793
75,905 203,801 58,870,046 2,192,569
280,649 5,010,582 39,070,583
44,081,165
57,879,831 2,826,692 2,620,132
63,326,655 35,185,808 12,880,301
3,862,435 4,369,676 56,298,220 7,028,435
3,927,641 92,361
14,032
1,043,652 5,077,686
2,988,051 8,771,072
-- 11,759,123 (6,681,437)
20,000
20,000 20,776,602 20,796,602 11,029,930
756,904
126,904 220,584 12,007,418 8,789,184
(155,128) 8,981,054 31,403,056
40,384,110
The notes to the financial statements appended hereto form part of these financial statements.
82
ZTE CORPORATION INTERIM REPORT 2022
Balance Sheet
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Assets
Note XIV
30 June 2022
(Unaudited)
31 December 2021
(Audited)
Current assets Cash Derivative financial assets Trade receivables Receivable financing Factored trade receivables Prepayments Other receivables Inventories Contract assets Other current assets
Total current assets
Non-current assets Long-term trade receivables Factored long-term trade receivables Long-term equity investments Other non-current financial assets Investment properties Fixed assets Construction in progress Right-of-use assets Intangible assets Development costs Deferred tax assets Other non-current assets
Total non-current assets
TOTAL ASSETS
32,208,290
26,959,247
235,435
208,877
1
21,938,625
20,970,487
7,276,410
4,943,204
1
87,865
169,613
12,458
41,618
2
32,211,340
28,772,253
18,192,989
17,333,958
4,108,642
5,127,209
2,325,343
2,634,789
118,597,397
107,161,255
3
6,330,701
6,200,183
3
196,471
222,746
4
15,919,951
16,957,563
606,885
627,848
1,612,516
1,614,000
6,079,931
5,937,863
581,800
490,891
162,753
246,209
2,879,263
3,085,517
403,861
307,740
1,343,400
1,289,485
4,882,867
4,558,759
41,000,399
41,538,804
159,597,796
148,700,059
The notes to the financial statements appended hereto form part of these financial statements.
83
ZTE CORPORATION INTERIM REPORT 2022
Balance Sheet (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Liabilities and shareholders' equity
Note XIV
30 June 2022
(Unaudited)
31 December 2021
(Audited)
Current liabilities Short-term loans Bank advances on factored trade receivables Derivative financial liabilities Bills payable Trade payables Contract liabilities Salary and welfare payables Taxes payable Other payables Provisions Non-current liabilities due within one year
Total current liabilities
Non-current liabilities Long-term loans Bank advances on factored long-term trade receivables Lease liabilities Provision for retirement benefits Deferred income Other non-current liabilities
Total non-current liabilities
Total liabilities
Shareholders' equity Share capital Capital reserves Other comprehensive income Surplus reserve Retained profits
Total shareholders' equity attributable to holders of ordinary shares
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
2,850,050 88,281 14,549
15,556,635 34,803,273 16,308,770
6,156,461 194,735
6,847,002 1,996,433 1,189,279 86,005,468
23,660,280 197,600 86,004 145,169 459,990
1,861,104 26,410,147 112,415,615
4,735,829 25,714,481
717,525 2,365,398 13,648,948
47,182,181 47,182,181 159,597,796
2,865,000 170,822 27,625
15,474,186 32,865,858 12,141,684
7,267,864 215,423
7,402,014 1,796,414
247,572 80,474,462
19,463,550 229,500 137,135 147,539 136,962
1,812,185 21,926,871 102,401,333
4,730,796 25,387,579
714,191 2,365,398 13,100,762
46,298,726 46,298,726 148,700,059
The notes to the financial statements appended hereto form part of these financial statements.
84
ZTE CORPORATION INTERIM REPORT 2022
Income Statement
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Six months ended 30 June
2022 Note XIV (Unaudited)
Six months ended 30 June
2021 (Unaudited)
Operating revenue
5
Less: Operating costs
5
Taxes and surcharges
Selling and distribution costs
Administrative expenses
Research and development costs
Finance costs
Including: Interest expense
Interest income
Add: Other income
Investment income
6
Including: Share of losses of associates and joint ventures 6
Losses from derecognition of financial assets
at amortised cost
6
Gain/(losses) from changes in fair values
Credit impairment losses
Asset Impairment losses
Gain on asset disposal
7
Operating profit Add: Non-operating income Less: Non-operating expenses
Total profit Less: Income tax
Net profit
Including: net profit from continuing operations Analysed by ownership
Attributable to holders of ordinary shares
Other comprehensive income, net of tax
Other comprehensive income that will be reclassified to profit and loss Exchange differences on translation of foreign operations
Total comprehensive income
Attributable to: Holders of ordinary shares
55,906,298 47,675,351
107,427 2,482,615 2,164,419 1,935,144
(488,770) 624,809 871,611
82,408 85,125 (53,453)
(52,798) 29,044 (148,713) (132,538)
4,521
1,949,959 68,054 40,362
1,977,651 9,252
1,968,399
1,968,399
1,968,399
3,334
50,890,634 42,705,115
109,066 2,344,578 2,068,229 1,598,161
336,205 464,259 405,988 353,248 893,762 (67,079)
(46,752) 196,281 (60,658) 423,953
47,494
3,583,360 109,185 42,724
3,649,821 436,184
3,213,637
3,213,637
3,213,637
11,723
3,334 1,971,733
1,971,733
11,723 3,225,360
3,225,360
The notes to the financial statements appended hereto form part of these financial statements.
85
ZTE CORPORATION INTERIM REPORT 2022
Statement of Changes in Equity
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
I.
Closing balance of previous period
II.
Changes during the period
(I) Total comprehensive income
(II) Shareholder's capital injection and
capital reduction
1. Shareholder's capital injection
2. Equity settled share expenses
charged to equity
(III) Profit appropriation
1. Distribution to shareholders
III. Current period's closing balance
Share capital
Six months ended 30 June 2022 (unaudited)
Other
Capital comprehensive
reserves
income
Surplus reserve
Total equity of Retained holders of
profits ordinary shares
Total shareholders'
equity
4,730,796 --
25,387,579 --
714,191 3,334
2,365,398 --
13,100,762 1,968,399
46,298,726 1,971,733
46,298,726 1,971,733
5,033 -- --
4,735,829
-- 326,902
-- 25,714,481
-- -- -- 717,525
-- -- -- 2,365,398
-- -- (1,420,213) 13,648,948
5,033 326,902 (1,420,213) 47,182,181
5,033 326,902 (1,420,213) 47,182,181
I.
Closing balance of previous period
II.
Changes during the period
(I) Total comprehensive income
(II) Shareholder's capital injection and
capital reduction
1. Equity settled share expenses
charged to equity
2. Others
(III) Profit appropriation
1. Distribution to shareholders
III. Current period's closing balance
Share capital
Capital reserves
Six months ended 30 June 2021 (unaudited)
Other
Less: treasury comprehensive
stock
income
Surplus reserve
Total equity of
Retained
holders of
profits ordinary shares
Total shareholders'
equity
4,613,435 --
21,583,815 --
(114,766) --
701,136 11,723
2,306,717 --
5,816,798 3,213,637
34,907,135 3,225,360
34,907,135 3,225,360
-- --
-- 4,613,435
468,770 14,837
-- 22,067,422
-- --
-- (114,766)
-- --
-- 712,859
-- --
-- 2,306,717
-- --
(922,687) 8,107,748
468,770 14,837
(922,687) 37,693,415
468,770 14,837
(922,687) 37,693,415
The notes to the financial statements appended hereto form part of these financial statements.
86
ZTE CORPORATION INTERIM REPORT 2022
Cash Flow Statement
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
Six months ended 30 June
2022 (Unaudited)
Six months ended 30 June
2021 (Unaudited)
I. Cash flows from operating activities Cash received from sale of goods or rendering of services Refunds of taxes Cash received relating to other operating activities
Sub-total of cash inflows
Cash paid for goods and services Cash paid to and on behalf of employees Cash paid for various types of taxes Cash paid relating to other operating activities
Sub-total of cash outflows
Net cash flows from operating activities
II. Cash flows from investing activities Cash received from sale of investments Cash received from return on investments Net cash received from the disposal of fixed assets, intangible assets and other long-term assets Cash received relating to other investing activities
Sub-total of cash inflows
Cash paid to acquisition of fixed asset, intangible assets and other long-term assets
Cash paid for acquisition of investments Other cash paid in relation to investing activities
Sub-total of cash outflows
Net cash flows from investing activities
III. Cash flows from financing activities Cash received from capital injection Cash received from borrowings Other cash received in relation to financing activities
Sub-total of cash inflows
Cash repayment of borrowings Cash payments for distribution of dividends and profits or
for interest expenses Other cash paid in relation to financing activities
Sub-total of cash outflows
Net cash flows from financing activities
IV. Effect of changes in foreign exchange rate on cash and cash equivalents
V. Net increase in cash and cash equivalents Add: cash and cash equivalents at the beginning of the period
VI. Net balance of cash and cash equivalents at the end of the period
64,809,387 1,346,705 1,186,076
67,342,168 55,398,229
4,907,145 871,517
3,454,258 64,631,149
2,711,019
4,967,520 876,982
8,810 31,098 5,884,410
1,024,658 4,149,556
563,574 5,737,788
146,622
88,173 47,668,667
3,025,406 50,782,246 42,543,868
1,977,672 3,111,258 47,632,798 3,149,448
181,926 6,189,015 17,381,816
23,570,831
55,708,144 1,291,719 762,903
57,762,766 45,023,046
4,111,210 804,387
2,457,805 52,396,448
5,366,318
3,918,950 685,025
19,000 1,120,000 5,742,975
1,246,338 9,152,920
-- 10,399,258 (4,656,283)
-- 14,144,360
-- 14,144,360
7,828,070
373,080 71,819
8,272,969 5,871,391
(107,013) 6,474,413 20,097,442
26,571,855
The notes to the financial statements appended hereto form part of these financial statements.
87
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
I. CORPORATE BACKGROUND
ZTE Corporation (the "Company") was a limited liability company jointly founded by Zhongxingxin Telecom Company Limited, China Precision Machinery Import & Export Shenzhen Company, Lishan Microelectronics Corporation, Shenzhen Zhaoke Investment Development Company Limited, Hunan Nantian (Group) Company Limited, Shanxi Telecom Industrial Corporation, China Mobile No. 7 Research Institute, Jilin Posts and Telecommunications Equipment Company and Hebei Posts and Telecommunications Equipment Company and incorporated through a public offering of shares to the general public. On 6 October 1997, the Company issued ordinary shares to the general public within the network through the Shenzhen Stock Exchange and the shares were listed and traded on the Shenzhen Stock Exchange on 18 November 1997.
The Company and its subsidiaries (collectively the "Group") are mainly engaged in production of remote control switch systems, multimedia communications systems and communications transmission systems; research and production of mobile communications systems equipment, satellite communications, microwave communications equipment and beepers, technical design, development, consultation and related services for computer hardware and software, closed-circuit TVs, microwave communications, automated signal control, computer information processing, process monitoring systems, disaster alarm systems, new energy power generation and application systems; provision of technical design, development, consultation and related services for wireline and wireless communications projects of railways, underground railways, urban rail transit, highways, plants and mines, ports and terminals and airports (excluding restricted projects); research and development, production, sales, technical services, engineering installation and maintenance in connection with communication power sources and power distribution systems; research and development, production, sales, technical services, engineering installation and maintenance in connection with data centre infrastructure facilities and ancillary products (including power supply and distribution, air-conditioning refrigeration equipment, cold passages and intelligent management systems); purchase and sale of electronics devices, micro-electronics components (excluding franchised, state-controlled and monopolised merchandises); sub-contracting of communications and related projects outside the PRC and global tendering projects within the PRC, as well as import and export of the equipment and materials required by the aforesaid projects outside the PRC and deployment of labors and workers for carrying out the aforesaid projects outside the PRC; technical development and sale of electronics systems equipment (excluding restricted items and franchised, state controlled and monopolised merchandises); operations of import and export businesses (implemented in accordance with the provision under the certificate of qualifications approved and issued by Shenzhen Bureau of Trade and Development); specialised subcontracting of telecommunications projects (subject to obtaining relevant certificate of qualification); lease of owned properties; accreditation service.
The controlling shareholder of the Group is Zhongxingxin Telecom Company Limited, a company incorporated in the PRC.
The financial statements were approved by the Board of Directors of the Company by way of resolution on 26 August 2022.
The consolidation scope for consolidated financial statement is determined based on the concept of control. For details of changes during the period, please refer to Note VI.
88
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
II. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
These financial statements have been prepared in accordance with the "Accounting Standards for Business Enterprises -- Basic Standards" promulgated by the Ministry of Finance of the PRC and the specific accounting standards, subsequent practice notes, interpretations and other relevant regulations subsequently announced and revised (collectively "ASBEs"). The financial statements are prepared on a going concern basis. In the preparation of the financial statements, all items are recorded by using historical cost as the basis of measurement except for some financial instruments and investment properties. Impairment provision is made according to relevant regulation if the assets are impaired.
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
The specific accounting policies and accounting estimation prepared by the Group based on actual production and operation characteristics mainly include provisions for trade receivables and bad debts, inventory pricing, government grants, revenue recognition and measurement, deferred development costs, depreciation of fixed assets, amortisation of intangible assets and measurement of investment properties. 1. Statement of compliance
The financial statements truly and completely reflect the financial position of the Group and the Company and the results of their operations and their cash flows as at and for the six months ended 30 June 2022. 2. Financial year The financial year of the Group is from 1 January to 31 December of each calendar year. 3. Reporting currency The Company's reporting currency and the currency used in preparing the financial statements were Renminbi. The amounts in the financial statements were denominated in thousands of Renminbi, unless otherwise stated. The Group's subsidiaries, jointly-controlled entities and associates determine their reporting currency according to the major economic environment in which they operate the business, and translate into Renminbi when preparing the financial statements.
89
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
4. Business combination
Business combinations are classified into business combinations involving entities under common control and business combinations not involving entities under common control.
Business combinations involving entities under common control
A business combination involving entities under common control is a business combination in which all of the combining entities are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory.
Assets and liabilities obtained by combining party in the business combination involving entities under common control (including goodwill arising from the acquisition of the merged party by the ultimate controller) are recognised on the basis of their carrying amounts at the combination date recorded on the financial statements of the ultimate controlling party. The difference between the carrying amount of the consideration paid for the combination (or aggregate face values of the shares issued) and the carrying amount of the net assets obtained is adjusted to capital reserves. If the capital reserve is not sufficient to absorb the difference, any excess is adjusted to retained profits.
Business combinations not involving entities under common control
A business combination not involving entities under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the business combination.
The acquiree's identifiable assets, liabilities and contingent liabilities are recognised at their fair values at the acquisition date. The excess of the sum of the consideration paid (or equities issued) for business combination and equity interests in the acquiree held prior to the date of acquisition over the share of the attributable net identifiable assets of the acquiree, measured at fair value, was recognised as goodwill, which is subsequently measured at cost less cumulative impairment loss. In case the fair value of the sum of the consideration paid (or equities issued) and equity interests in the acquire held prior to the date of acquisition is less than the fair value of the share of the attributable net identifiable assets of the acquiree, a review of the measurement of the fair values of the identifiable assets, liabilities and contingent liabilities, the consideration paid for the combination (or equity issued) and the equity interests in the acquiree held prior to the date of acquisition is conducted. If the review indicates that the fair value of the sum of the consideration paid (or equities issued) and equity interests in the acquiree held prior to the date of acquisition is indeed less than the fair value of the share of the attributable net identifiable assets of the acquiree, the difference is recognised in current profit or loss.
90
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
5. Consolidated financial statements
The consolidation scope for consolidated financial statement is determined based on the concept of control, including the Company and all subsidiaries' financial statements are those enterprises or entities which the Company has control over (including enterprises, separable components of investee units and structured entities controlled by the Company).
The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All assets, liabilities, equities, income, costs and cash flows arising from intercompany transactions, and dividends are eliminated on consolidation.
The excess of current loss attributable to minority shareholders of a subsidiary over their entitlements to the opening balance of shareholders' equity shall be charged to minority interests.
For subsidiaries obtained through a business combination not involving entities under common control, the operating results and cash flows of the acquirees will be recognised in consolidated financial statements from the date the Group effectively obtains the control until the date that control is terminated. When consolidated financial statement is prepared, the subsidiaries' financial statements will be adjusted based on the fair values of the identifiable assets, liabilities and contingent liabilities at the acquisition date.
For subsidiaries obtained through a business combination involving entities under common control, the operating result and cash flow of the party being combined will be recognised in consolidated financial statement from the beginning of the current period during which the combination occurs. In preparing the comparative consolidated financial statements, adjustments were made to relevant items in financial statements in previous periods as if the reporting entity formed after the consolidation had been in existence since the ultimate controlling party started to exercise effective control.
In the event of the change in one or more elements of control as a result of changes in relevant facts and conditions, the Group reassesses whether it has control over the investee.
6. Classification of joint venture arrangements and joint operation
Joint venture arrangements are in the form of joint operation or joint venture enterprise. A joint operation is a joint venture arrangement under which the joint venture parties are entitled to assets and undertake liabilities under the arrangement. A joint venture enterprise is a joint venture arrangement under which the joint venture parties are only entitled to the net assets under such arrangement.
The following items should be recognised by a joint venture party in relation to its share of profit in the joint operation: solely held assets, as well as jointly held assets according to its share; solely assumed liabilities, as well as jointly assumed liabilities according to its share; income derived from its entitled share of production of the joint operation; income derived from the sales of production of production of the joint operation according to its share; solely incurred expenses, as well as expenses incurred by the joint operation according to its share.
91
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
7. Cash and cash equivalents
Cash comprises cash on hand and deposits readily available for payments. Cash equivalents represent short-term highly liquid investments which are readily convertible to known amounts of cash, and subject to an insignificant risk of changes in value.
8. Foreign currency translation
For foreign currency transactions, the Group translates the foreign currency into its functional currency.
Upon initial recognition, foreign currency transactions are translated into the functional currency using the median exchange rate published by the PBOC at the beginning of the month in which transactions occur. At the balance sheet date, foreign currency monetary items are translated using the spot exchange rate at the balance sheet date. The translation differences arising from the settlement and foreign currency monetary items, except those relating to foreign currency monetary items eligible for the capitalisation shall be dealt with according to the principle of capitalisation of borrowing costs, are recognised in profit or loss. Also at the balance sheet date, foreign currency non-monetary items measured at historical cost continue to be translated using the spot exchange rate at the dates of the transactions and it does not change its carrying amount in functional currency. Foreign currency non monetary items measured at fair value are translated using the spot exchange rate. The differences arising from the above translations are recognised in current profit or loss or other comprehensive income according to the nature of foreign currency non-monetary items.
The Group translates the functional currencies of foreign operations into Renminbi when preparing the financial statements. Asset and liability items in the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date. Shareholders' equity items, except for retained profits, are translated at the spot exchange rates at the date when such items arose. Income and expense items in the income statement are translated using the average exchange rate for the periods when transactions occur (unless the adoption of such exchange rate is considered inappropriate owing to exchange rate fluctuations, in which case the spot exchange rate prevailing on the date of transaction shall be adopted). Translation differences arising from the aforesaid translation of financial statements denominated in foreign currency shall be recognised as other comprehensive income. When foreign operations are disposed, other comprehensive income relating to the foreign operation is transferred to current profit or loss. Partial disposal shall be recognised on a pro-rata basis.
Cash flows denominated in foreign currencies and foreign subsidiaries' cash flows are translated using the average exchange rate for the period when cash flows occur (unless the adoption of such exchange rate is considered inappropriate owing to exchange rate fluctuations, in which case the spot exchange rate prevailing on the date on which the cash flow is incurred shall be adopted). The impact on cash by the fluctuation of exchange rates is presented as a separate line item of reconciliation in the cash flow statement.
92
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments
Financial instruments refer to the contracts which give rise to a financial asset in one entity and a financial liability or equity instrument in another entity.
Recognition and derecognition of financial instruments
The Group recognises a financial asset or a financial liability when it becomes a party to the contractual provisions of the financial instrument.
A financial asset (or part of it, or a part of a group of similar financial asset) is derecognised when one of the following criteria is met, that is, when a financial asset is written off from its account and balance sheet:
(1) The right of receiving the cash flow generated from the financial asset has expired;
(2) The right of receiving cash flow generated by the financial assets is transferred, or an obligation of paying the full amount of cash flow received to third parties in a timely manner has been undertaken under "pass-through" agreements, where (a) substantially all risks and rewards of the ownership of Such type of financial assets have been transferred, or (b) control over Such type of financial assets has not been retained even though substantially all risks and rewards of the ownership of Such type of financial assets have been neither transferred nor retained.
If the obligation of financial liability has been fulfilled, cancelled or expired, the financial liability is derecognised. If the present financial liability is substituted by the same debtor with another liability differing in substance, or the terms of the present liability have been substantially modified, this substitution or modification is treated as derecognition of a present liability and recognition of a new liability with any arising differences recognised in profit or loss.
Conventional dealings in financial assets are recognised or derecognised under the trade day accounting method. Conventional dealings refer to the receipt or delivery of financial assets within periods stipulated by the law and according to usual practices. The trade day is the date on which the Group undertakes to buy or sell a financial asset.
Classification and valuation of financial assets
At initial recognition, the Group classifies its financial assets into: financial assets at amortised cost, financial assets at fair value through other comprehensive income or financial assets at fair value through profit or loss according to the Group's business model for managing financial assets and the contract cash flow characteristics of the financial assets. Financial assets are measured at fair value at initial recognition, provided that trade receivables or bills receivable not containing significant financing components or for which financing components of not more than one year are not taken into consideration shall be measured at their transaction prices at initial recognition.
For financial assets at fair value through profit or loss, the relevant transaction costs are directly recognised in profit or loss; for other financial assets, the relevant transaction costs are recognised in their initial recognition amount.
93
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments (continued) Classification and valuation of financial assets (continued) The subsequent measurement of financial assets is dependent on its classification: Debt instruments at amortised cost Financial assets fulfilling all of the following conditions are classified as financial assets at amortised cost: the objective of the Group's business management model in respect of Such type of financial assets is to generate contract cash flow; the contract terms of such type of financial assets provide that cash flow generated on specific dates represents interest payment in relation to principal amounts based on outstanding principal amounts only. Interest income from such type of financial assets are recognised using the effective interest rate method, and any profit or loss arising from derecognition, amendments or impairment shall be charged to current profit or loss. Such type of financial assets includes mainly cash, trade receivables, factored trade receivables, other receivables and long-term receivables. The Group shall classify debt investment and long-term receivables with a maturity of less than one year from the balance sheet date as non-current assets with a maturity of less than 1 year. Debt investment with an original maturity of less than one year shall be classified as other current assets. Debt instrument at fair value through other comprehensive income Financial assets fulfilling all of the following conditions are classified as financial assets at fair value through other comprehensive income: the objective of the Group's business management model in respect of Such type of financial assets is both to generate contract cash flow and to sell Such type of financial assets; the contract terms of Such type of financial assets provide that cash flow generated on specific dates represents interest payment in relation to principal amounts based on outstanding principal amounts only. Interest income from this type of financial assets are recognised using the effective interest rate method. Other than interest income, impairment loss and exchange differences which shall be recognised as current profit or loss, other fair value changes shall be included in other comprehensive income. Upon derecognition of the financial assets, the cumulative gains or losses previously included in other comprehensive income shall be transferred from other comprehensive income to current profit or loss. Such type of financial assets shall be classified as receivable financing.
94
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments (continued) Classification and valuation of financial assets (continued) Financial assets at fair value through current profit or loss Other than financial assets measured at amortised cost and financial assets at fair value through other comprehensive income as aforementioned, all financial assets are classified as financial assets at fair value through current profit or loss, which are subsequently measured at fair value, any changes of which are recognised in current profit or loss. Such type of financial assets shall be classified as trading financial assets. Financial assets with a maturity of over 1 year from the balance sheet date and expect to be held for over 1 year shall be classified as other non-current financial assets. A financial asset which has been designated as financial asset at fair value through current profit or loss upon initial recognition cannot be reclassified as other types of financial assets; neither can other types of financial assets be redesignated, after initial recognition, as financial assets at fair value through current profit or loss. In accordance with the aforesaid criterion, financial assets designated by the Group as such include mainly equity investments, and have not been designated as at fair value through other comprehensive income at initial measurement. Classification and valuation of financial liabilities The Group classifies its financial liabilities at initial recognition: financial liabilities at fair value through profit or loss, financial liabilities at amortised cost and derivatives designated as effective hedging instruments. For financial liabilities at fair value through profit or loss, the relevant transaction costs are directly recognised in profit or loss; for financial liabilities at amortised cost, the relevant transaction costs are recognised in their initial recognition amount. The subsequent measurement of financial liabilities is dependent on its classification: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include mainly derivative financial liabilities (comprising derivatives classified as financial liabilities) and financial liabilities designated at initial recognition to be measured at fair value through current profit or loss. Trading financial liabilities (comprising derivatives classified as financial liabilities) are subsequently measured at fair value and all changes, other than those relating to hedge accounting, are recognised in current period's profit or loss.
95
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments (continued)
Classification and valuation of financial liabilities (continued)
Financial liabilities at amortised cost
Subsequent to initial recognition, these financial liabilities are carried at amortised cost using the effective interest method.
Impairment of financial instruments
The Group performs impairment treatment on financial assets at amortised cost, debt instruments at fair value through other comprehensive income and contract assets based on expected credit losses and recognises provision for losses.
Credit loss refers to the difference between all contract cash flow receivable from the contract and all cash flow expected to be received discounted at the original effective, namely, the present value of the full amount of cash shortfall. Financial assets purchased by or originated from the Group to which credit impairment has occurred should be discounted at the credit-adjusted effective interest rate of the financial assets.
For receivables, contract assets and bills receivable under other current assets that do not contain significant financing components, the Group adopts a simplified measurement method to measure provision for losses based on an amount equivalent to expected credit losses for the entire period.
For trade receivables and contract assets that contain a significant financing component and lease receivables, the Group chooses as its accounting policy to adopt the simplified approach in calculating ECLs with policies as described above.
Financial assets other than those measured with simplified valuation methods, the Group evaluates at each balance sheet date whether its credit risk has significantly increased since initial recognition. The period during which credit risk has not significantly increased since initial recognition is considered the first stage, at which the Group shall measure loss provision based on the amount of expected credit loss for the next 12 months and shall compute interest income according to the book balance and effective interest rate; the period during which credit risk has significantly increased since initial recognition although no credit impairment has occurred is considered the second stage, at which the Group shall measure loss provision based on the amount of expected credit loss for the entire valid period and shall compute interest income according to the book balance and effective interest rate; The period during which credit impairment has occurred after initial recognition is considered the third stage, at which the Group shall measure loss provision based on the amount of expected credit loss for the entire period and shall compute interest income according to the amortised cost and effective interest rate. For financial instruments with relatively low credit risk at the balance sheet date, the Group assumes its credit risk has not significantly increase since initial recognition.
96
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments (continued) Impairment of financial instruments (continued) The Group estimates the expected credit loss of financial instruments individually and on a group basis. The Group considers the credit risk features of different customers and estimates the expected credit loss of amounts receivable, contract assets and bills receivable in other current assets based on customers' credit rating portfolio and aging portfolio of overdue debts. The Group considers past events, current conditions and reasonable and evidenced information pertaining to future economic forecasts when assessing expected credit losses. For the Group's criteria for judging whether credit risks have significantly increased, the definition of assets subjected to credit impairment, and assumptions underlying the measurement of expected credit losses, please refer to Note VIII.3. Factors reflected in the Group's method of measuring ECL of financial instruments include: unbiased weighted average amount, currency time value, and reasonable and substantiated information on past events, current conditions and projected future economic conditions obtainable at the balance sheet date without undue excessive cost or effort. When the Group no longer reasonably expects to be able to fully or partially recover the contract cash flow of financial assets, the Group directly writes down the book balance of such financial assets. Financial guarantee contracts A financial guarantee contract is a contract under which the issuer shall indemnify the contract holder suffering losses with a specified amount in the event that the debtor fails to repay its debt in accordance with the terms of the debt instrument. Financial guarantee contracts are measured at fair value at initial recognition, other than financial guarantee contracts designated as financial liabilities at fair value through current profit or loss, other financial guarantee contracts shall be subsequently measured at the higher of the amount of provision for expected credit loss determined as at the balance sheet date after initial recognition and the amount at initial recognition less the cumulative amortised amount determined in accordance with revenue recognition principles.
97
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments (continued)
Derivative financial instruments
The Group uses derivative financial instruments such as forward currency contracts. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Other than to the extent related to hedge accounting, profit or loss arising from changes in the fair value of derivative instruments shall be directly recognised in current profit or loss.
Transfer of financial assets
If the Group has transferred substantially all the risks and rewards associated with the ownership of a financial asset to the transferee, the asset should be derecognised. If the Group retains substantially all the risks and rewards of ownership of a financial asset, the asset should not be derecognised.
When the Group has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, it may either derecognise the financial asset and recognise any associated assets and liabilities if control of the financial asset has not been retained; or recognises the financial asset to the extent of its continuing involvement in the transferred financial asset and recognises an associated liability if control has been retained.
Assets formed by the continuing involvement by way of the provision of financial guarantee in respect of the transferred financial assets shall be recognised as the lower of the carrying value of the financial asset and the amount of financial guarantee. The amount of financial guarantee means the maximum amount among considerations received to be required for repayment.
10. Inventories
Inventories include raw materials, materials sub-contracted for processing, work-in-progress, finished goods, product deliveries and cost of contract performance.
Inventories are initially recorded at costs. Inventories' costs include purchasing costs, processing costs and other costs. Actual costs of goods delivered are recognised using the weighted moving average method.
Inventories are valued using the perpetual inventories stock-take system.
Inventories at the end of the year are stated at the lower of cost or net realisable value. Provision for impairment of inventories is made and recognised in profit or loss when the net realisable value is lower than cost.
Net realisable values represent estimated selling prices less any estimated costs to be incurred to completion, estimated selling expenses and relevant tax amounts. Provision for impairment of inventories is made on the basis of individual categories.
Contract fulfilment costs classified as current assets are shown under inventories.
98
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
11. Long-term equity investments
Long-term equity investments include equity investments in subsidiaries, joint ventures and associates.
Long-term equity investments were recorded at initial investment cost on acquisition. For long-term equity investments acquired through the business combination of entities under common control, the initial investment cost shall be the share of carrying value of the owners' equity of the merged party at the date of combination as stated in the consolidated financial statements of the ultimate controlling party. Any difference between the initial investment cost and the carrying value of the consideration for the combination shall be dealt with by adjusting the capital reserve (if the capital reserve is insufficient for setting off the difference, such difference shall be further set off against retained profits). Upon disposal of the investment, other comprehensive income prior to the date of combination shall be dealt with on the same basis as if the relevant assets or liabilities were disposed of directly by the investee. Shareholders' equity recognised as a result of changes in shareholders' equity other than the set-off of profit and loss, other comprehensive income and profit allocation of the investee shall be transferred to current profit and loss upon disposal of the investment. Items which remain long-term equity investments after the disposal shall be accounted for on a pro-rata basis, while items reclassified as financial instruments following the disposal shall be accounted for in full. For long-term equity investments acquired through the business combination of entities not under common control, the initial investment cost shall be the cost of combination (for business combinations of entities not under common control achieved in stages through multiple transactions, the initial investment cost shall be the sum of the carrying value of the equity investment in the acquired party held at the date of acquisition and new investment cost incurred as at the date of acquisition). The cost of combination shall be the sum of assets contributed by the acquiring party, liabilities incurred or assumed by the acquiring party and the fair value of equity securities issued. Upon disposal of the investment, other comprehensive income recognised under the equity method held prior to the date of acquisition shall be dealt with on the same basis as if the relevant assets or liabilities were disposed of directly by the investee. Shareholders' equity recognised as a result of changes in shareholders' equity other than the set-off of profit and loss, other comprehensive income and profit allocation of the investee shall be transferred to current profit and loss upon disposal of the investment. Items which remain long-term equity investments after the disposal shall be accounted for on a pro-rata basis, while items reclassified as financial instruments following the disposal shall be accounted for in full. The accumulated fair value change of equity investments held prior to the date of acquisition and included in the other comprehensive income as financial instruments shall be transferred in full to current profit and loss upon the change to cost method. The initial investment cost of long-term equity investments other than those acquired through business combination shall be recognised in accordance with the following: for those acquired by way of cash payments, the initial investment cost shall be the consideration actually paid plus expenses, tax amounts and other necessary outgoings directly related to the acquisition of the long-term equity investments. For long-term equity investments acquired by way of the issue of equity securities, the initial investment cost shall be the fair value of the equity securities issued. For long-term equity investments acquired by way of the swap of non-monetary assets, the initial investment cost shall be determined in accordance with "ASBE No. 7 -- Swap of Non-monetary Assets." For long-term equity investments acquired by way of debt restructuring, the initial investment cost shall be determined in accordance with "ASBE No. 12 -- Debt Restructuring."
99
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
11. Long-term equity investments (continued)
In the financial statements of the Company, the cost method is used for long term equity investments in investees over which the Company exercises control. Control is defined as the power exercisable over the investee, the entitlement to variable return through involvement in the activities of the investee and the ability to influence the amount of return using the power over the investee.
When the cost method is used, long-term equity investments are measured at initial cost on acquisition. When additional investments are made or investments are recouped, the cost of longterm equity investments shall be adjusted. Cash dividend or profit distribution declared by the investee shall be recognised as investment gains for the period.
The equity method is used to account for long-term equity investments when the Group can jointly control or has significant influence over the invested entity. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Significant influence means having the authority to take part in the decision over the financial and operational policies but not the authority to control or jointly control with other parties the formulation of such policies.
Under the equity method, any excess of the initial investment cost over the Company's share of the net fair value of the investment's identifiable assets and liabilities is included in the initial investment cost of the long-term equity investment. When the carrying amount of the investment is less than the Company's share of the fair value of the investment's identifiable net assets, the difference is recognised in profit or loss of the current period and debited to long-term equity investment.
Under the equity method, after the long-term equity investments are acquired, investment gains or losses and other comprehensive income are recognised according to the entitled share of net profit or loss and other comprehensive income of the investee and the carrying amount of the long-term equity investment is adjusted accordingly. When recognising the Group's share of the net profit or loss of the invested entity, the Group makes adjustments based on fair values of the investees' identifiable assets and liabilities at the acquisition date in accordance with the Group's accounting policy and accounting period to investee's net profits, eliminating pro-rata profit or loss from internal transactions with associates and joint ventures attributed to investor (except that loss from inter-group transactions deemed as asset impairment loss shall be fully recognised), provided that invested or sold assets constituting businesses shall be excluded. When the invested enterprise declares profit appropriations or cash dividends, the carrying amount of investment is adjusted down by the Group's share of the profit appropriations and dividends. The Group shall discontinue recognising its share of the losses of the investee after the long-term equity investment together with any long-term interests that in substance forms part of the Group's net investment in the investee are reduced to zero, except to the extent that the Group has incurred obligations to assume additional losses. The Group also adjusts the carrying amount of long-term equity investments for other changes in owner's equity of the investees (other than the net-off of net profits or losses, other comprehensive income and profit allocation of the investee), and includes the corresponding adjustment in equity.
100
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
11. Long-term equity investments (continued) On disposal of the long-term equity investments, the difference between carrying value and market price is recognised in profit or loss for the current period. For long-term equity investments under equity method, when the use of the equity method is discontinued, other comprehensive income previously accounted for under the equity method shall be dealt with on the same basis as if the relevant assets or liabilities were disposed of directly by the investee. Shareholders' equity recognised as a result of changes in shareholders' equity other than the net-off of profit and loss, other comprehensive income and profit allocation of the investee shall be transferred in full to current profit and loss. If the equity method remains in use, other comprehensive income previously accounted for under the equity method shall be dealt with on the same basis as if the relevant assets or liabilities were disposed of directly by the investee and transferred to current profit and loss on a pro-rata basis. Shareholders' equity recognised as a result of changes in shareholders' equity other than the net-off of profit and loss, other comprehensive income and profit allocation of the investee shall be transferred to current profit and loss on a pro-rata basis.
12. Investment properties Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties of the Group included houses and buildings leased to other parties. Investment properties are initially measured at cost. Subsequent expenses relating to the investment properties are charged to investment property costs if there is a probable inflow of economic benefits relating to the asset and its cost can be reliably measured; otherwise, those expenditure are recognised in profit or loss as incurred. Investment properties of the Group represented owned properties reclassified to investment properties measured at fair value. The amount of fair value in excess of the carrying value as at the date of reclassification is included in the other comprehensive income. After initial recognition, investment properties will be subsequently measured and presented in fair value. The difference between the fair value and the original carrying value shall be included in current profit or loss. Fair values are assessed and determined by independent valuers based on open market prices of properties of the same or similar nature and other relevant information.
101
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
13. Fixed Assets
A fixed asset is recognised when, and only when, it is probable that future economic benefits that are associated with the fixed asset will flow to the Group and the cost can be measured reliably. Subsequent expenditures related to a fixed asset are recognised in the carrying amount of the fixed asset if the above recognition criteria are met, and the carrying value of the replaced part is derecognised; otherwise, those expenditures are recognised in profit or loss as incurred.
Fixed assets are initially recognised at cost taking into account the impact of expected future disposal expenditure. Cost of purchased fixed assets includes purchasing price, relevant taxes, and any directly attributable expenditure for bringing the asset to working conditions for its intended use.
Fixed assets are depreciated on a straight-line basis, and the respective estimated useful lives, estimated residual values and annual depreciation rates are as follows:
Useful life
Estimated residual
value ratio
Annual depreciation
rate
Freehold land Buildings Electronic equipment Machinery equipment Motor vehicles Other equipment
Indefinite 3050 years
35 years 510 years 510 years
5 years
-- No depreciation
5% 1.90%3.17%
5%
19%32%
5%
9.5%19%
5%
9.5%19%
5%
19%
The Group reviews, at least at each year end, useful lives, estimated residual values and depreciation methods of fixed assets and makes adjustments if necessary.
14. Construction in progress
Construction in progress is measured at the actual construction expenditures, including necessary project work expenses incurred during the period while construction is in progress, borrowing costs subject to capitalisation before they can be put into use and other related fees.
Construction-in-progress is transferred into fixed assets when it is ready for its intended use.
102
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
15. Borrowing costs Borrowing costs directly attributable to the acquisition or construction of assets qualified for capitalisation, i.e., fixed assets, investment properties and inventories that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. Other borrowing costs are charged to current profit or loss. Capitalisation of borrowing costs begins where: (1) Capital expenditure has already happened; (2) Borrowing expenses has already incurred; (3) Purchasing or production activities to get the assets ready for their intended use or sale have already happened. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Borrowing costs incurred afterwards are recognised in profit or loss. During capitalisation, interest of each accounting period is recognised using the following methods: (1) Where funds are borrowed specifically, costs eligible for capitalisation are the actual costs incurred less any income earned on the temporary investment of such borrowings. (2) Where funds are part of a general pool, the eligible amount is determined by applying a capitalisation rate to the expenditure on that asset. The capitalisation rate will be the weighted average of the borrowing costs applicable to the general pool. Except for expected suspension under normal situation of qualifying assets, capitalisation should be suspended during periods in which abnormal interruption has lasted for more than three months during the process of acquisition, construction or production. The borrowing cost incurred during interruption should be recognised as expenses and recorded in the income statement until the construction resumes.
103
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
16. Intangible assets
Intangible assets are recognised only when it is probable that economic benefits relating to such intangible assets would flow into the Group and that their cost can be reliably measured. Intangible assets are initially measured at cost, provided that intangible assets which are acquired in a business combination not under common control and whose fair value can be reliably measured shall be separately recognised as intangible assets at fair value.
Useful life of an intangible asset is determined by the period over which it is expected to bring economic benefits to the Group. For an intangible asset with no foreseeable limit to the period over which it is expected to bring economic benefits to the Group, it is treated as an intangible asset with indefinite useful life.
Useful life of respective intangible assets is as follows:
Estimated useful life
Software Technology know-how Land use rights Franchise Development expenses
25 years 210 years 3070 years 210 years
35 years
Land use rights acquired by the Group are normally accounted for as intangible assets. Land use rights and buildings relating to plants constructed by the Group are accounted for as intangible assets and fixed assets, respectively. The costs for acquiring land and buildings are apportioned between the land use rights and buildings, or accounted for as fixed assets if they cannot be apportioned.
Straight-line amortisation method is used during the useful life period for intangible assets with definite useful lives. The Group reviews, at least at each year end, useful lives and amortization method for intangible assets with definite lives and makes adjustment when necessary.
The Group classifies the expenses for internal research and development as research costs and development costs. All research costs are charged to the current profit or loss as incurred. Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits (including demonstration that the product derived from the intangible asset or the intangible asset itself will be marketable or, in the case of internal use, the usefulness of the intangible asset as such), the availability of technical and financial resources to complete the project and procure the use or sale of the intangible asset, and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.
Corresponding projects that meet the above conditions in the Group are formed after technical feasibility and economic feasibility studies. Then, those projects are progressed into the development phase.
104
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
17. Provisions
Other than contingent consideration and assumed contingent liabilities in a business combination involving parties not under common control, the Group recognises as provision an obligation that is related to contingent matters when all of the following criteria are fulfilled:
(1) the obligation is a present obligation of the Group;
(2) the obligation would probably result in an outflow of economic benefits from the Group;
(3) the obligation could be reliably measured.
Provisions are initially valued according to the best estimate of expenses on fulfilling the current liabilities, in connection with the risk, uncertainty and timing value of the currency. The carrying value of the provisions would be reassessed on every balance sheet date. The carrying value will be adjusted to the best estimated value if there is certain evidence that the current carrying value is not the best estimate.
18. Share-based payments
Share-based payments can be distinguished into equity-settled share-based payments and cashsettled share-based payments. Equity-settled share-based payments are transactions of the Group settled through the payment of shares or other equity instruments in consideration for receiving services.
Equity-settled share-based payments made in exchange for services rendered by employees are measured at the fair value of equity instruments granted to employees. Instruments which are vested immediately upon the grant are charged to relevant costs or expenses at the fair value on the date of grant and the capital reserve is credited accordingly. Instruments of which vesting is conditional upon completion of services or fulfillment of performance conditions are measured by recognising services rendered during the period in relevant costs or expenses and crediting the capital reserve accordingly at the fair value on the date of grant according to the best estimates conducted by the Group at each balance sheet date during the pending period based on subsequent information such as latest updates on the change in the number of entitled employees and whether performance conditions have been fulfilled, and etc. The fair value of equity instruments is determined using the binomial option pricing model. For details see Note XI. Sharebased payment.
The cost of equity-settled transactions is recognised, together with a corresponding increase in capital reserve, over the period in which the performance and service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest.
No expense is recognised for awards that do not ultimately vest due to non-fulfillment of nonmarket conditions and/or vesting conditions. For the market or non-vesting condition under the share-based payments agreement, it should be treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that other performance condition and/or vesting conditions are satisfied.
105
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
18. Share-based payments (continued)
Where the terms of an equity-settled share-based payment are modified, as a minimum, services obtained are recognised as if the terms had not been modified. In addition, an expense is recognised for any modification which increases the total fair value of the instrument ranted, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. Where employees or other parties are permitted to choose to fulfill non-vesting conditions but have not fulfilled during the pending period, equity-settled share-based payments are deemed cancelled. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the new awards are treated as if they were a modification of the original award.
19. Other equity instrument
The perpetual capital instruments issued by the Group, the term of which can be extended by the Group for an unlimited number of times upon maturity, the coupon interest payment for which can be deferred by the Group and for which the Group has no contractual obligation to pay cash or other financial assets, are classified as equity instruments.
20. Revenue
The Group recognises its revenue upon the fulfilment of contractual performance obligations under a contract, namely, when the customer obtains control over the relevant products or services. The acquisition control over relevant products or services shall mean the ability to direct the use of the products or the provision of the services and receive substantially all economic benefits derived therefrom.
Contract for the sales of products
The product sales contract between the Group and its customers typically includes contractual performance obligations for the transfer of products. The Group typically recognises its revenue at the time of delivery and acceptance upon inspection taking into account the following factors: the acquisition of the current right to receive payments for the products, the transfer of major risks and rewards of ownership, the transfer of the legal title of the products, the transfer of the physical assets of the products, and customers' acceptance of the products.
Contract for the rendering of services
The service contract between the Group and its customers includes contractual performance obligations for maintenance service, operational service and engineering service. As the customer is able to forthwith obtain and consume the economic benefits brought by the Group's contractual performance when the Group performs a contract, the Group considers such contractual performance obligations to be obligations performed over a period of time, and revenue shall be recognised according the progress of performance. For contracts with specific output indicators, such as contracts for maintenance service and operational service, the Group determines the progress of performance of the service according to the output method. For a small number of contracts which do not specify output indicators, the progress of performance is determined using the input method.
106
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
20. Revenue (continued)
Telecommunication system construction contract
The Group's Telecommunication system construction contract typically includes a range of contractual performances, such as equipment sales and installation service and their combinations. Equipment sales and installation service that are distinctly separable are accounted for standalone contractual performances. Combinations of equipment sales and installation services that are not individually separable are accounted for as standalone contractual performances, as customer can benefit from the individual use of such combinations or their use together with other readily available resources and such combinations among themselves are distinctly separable from one another. As the control of such combination of equipment and installation service is transferred to the customer upon acceptance by the customer, revenue of each standalone contractual performance is recognised after the fulfillment of such standalone contractual obligation corresponding to each combination of equipment sales and installation service.
Variable consideration
Certain contracts between the Group and its customers contain cash discount and price guarantee clauses which will give rise to variable consideration. Where a contract contains variable consideration, the Group determines the best estimates on the variable consideration based on expected values or the most probable amount, provided that transaction prices including variable consideration shall not exceed the cumulative amount of recognised revenue upon the removal of relevant uncertainties in connection with which a significant reversal is highly unlikely.
Consideration payable to customers
Where consideration is payable by the Group to a customer, such consideration payable shall be deducted against the transaction price, and against current revenue upon the recognition of revenue or the payment of (or the commitment to pay) the consideration to the customer (whichever is later), save for consideration payable to the customer for the purpose of acquiring from the customer other clearly separable products.
Return clauses
In connection with sales with a return clause, revenue is recognised according to the amount of consideration it expects to be entitled to for the Transfer to a customer when the customer acquires control of the relevant. Amounts expected to be refunded for the return of sales are recognised as liabilities. At the same time, the balance of the carrying value of the product expected to be returned upon transfer less expected costs for the recall of such product (including impairment loss of the recalled product) shall be recognised as an asset (i.e. cost of return receivables), and the net amount of the carrying value of the transferred product upon the transfer less the aforesaid asset cost shall be transferred to cost. At each balance sheet date, the Group reassess the future return of sales and remeasured the above assets and liabilities.
107
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
20. Revenue (continued)
Significant financing component
Where a contract contains a significant financing component, the Group determines transaction prices based on amounts payable assumed to be settled in cash by customers immediately upon the acquisition of control over the products. The difference between such transaction price and contract consideration is amortised over the contract period using the effective interest rate method based on a ratio that discounts the nominal contractual consideration to the current selling price of the products.
The Group shall not give consideration to any significant financing component in a contract if the gap between the customer's acquisition of control over the products and payment of consideration is expected to be less than 1 year.
Warranty clauses
The Group provides quality assurance for products sold and assets built in accordance with contract terms and laws and regulations. The accounting treatment of quality assurance in the form of warranty assuring customers products sold are in compliance with required standards is set out in Note III.17. Where the Group provides a service warranty for a standalone service in addition to the assurance of compliance of products with required standards, such warranty is treated as a standalone contractual performance obligation, and a portion of the transaction price shall be allocated to the service warranty based on a percentage of the standalone price for the provision of product and service warranty. When assessing whether a warranty is rendering a standalone service in addition to providing guarantee to customers that all sold goods are in compliance with required standards, the Group will consider whether or not such warranty is a statutory requirement, the term of the warranty and the nature of the Group's undertaking to perform its obligations.
21. Contract assets and contract liabilities
The Group presents contract assets or contract liabilities on the balance sheet according to the relationship between contractual performance obligations and customer payments.
Contract assets
The unconditional (namely, dependent only on the passage of time) right to receive consideration from customers owned by the Group shall be presented as amounts receivable. The right to receive consideration following the transfer of products to customers which is dependent on factors other than the passage of time is presented as contract assets.
For details of the Group's determination and accounting treatment of expected credit losses from contract assets, please refer to Note III.9.
108
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
21. Contract assets and contract liabilities (continued) Contract liabilities The obligation to pass products to customers in connection with customer consideration received or receivable is presented as contract liabilities, for example, amounts received prior to the transfer of the promised products. Contract assets and contract liabilities under the same contract are presented on a net basis after set-off.
22. Assets relating to contract cost The Group's assets relating to contract costs include the contract acquisition costs and contract performance costs, presented respectively under inventories, other current assets and other noncurrent assets. Where the Group expects the incremental costs for acquiring a contract to be recoverable, such contract acquisition costs are recognised as an asset (unless the amortisation period of the asset is not more than 1 year). Costs incurred by the Group for the performance of a contract are recognised as an asset as contract performance costs if they do not fall under the scope of the relevant standards for inventories, fixed assets or intangible assets but meet all the following conditions: (1) they are directly related to a current or anticipated contract, including direct labour, direct materials, manufacturing expenses (or similar expenses), to be borne by customers as specifically stipulated, and otherwise incurred solely in connection with the contract; (2) they will increase the resources to be utilised in the Company's future performance of its contractual obligations; (3) they are expected to be recoverable. The Group amortises assets relating contract costs on the same basis as that for the recognition of revenue relating to such assets and recognises the amortised assets in current profit or loss. For assets relating to contract costs whose carrying value is higher than the difference between the following two items, the Group makes provision for impairment for the excess to be recognised as asset impairment losses: (1) The remaining consideration expected to be obtained as a result of the transfer of goods relating to such assets; (2) Estimated costs to be incurred in connection with the transfer of relevant goods.
109
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
23. Government grants Government grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. The grant is measured as the amount received or receivable where it takes the form of a cash asset, or at fair value where it is not a cash asset. Where the fair value cannot be reliably obtained, it should be measured at the nominal value. In accordance with the stipulations of the government instruments, government grants applied towards acquisition or the formation of long-term assets in other manners are asset-related government grants; the instruments unspecifically refer to the exercise of judgement based on the basic conditions for receiving the asset-related grant applied towards or the formation of long-term assets in other manners. All other grants are recognised as income-related government grants. Government grants relating to income and applied to make up for related costs or losses in future periods shall be recognised as deferred income, and shall be recognised in current profit or loss or written off against related costs of the period for which related costs or loss are recognised. Government grants specifically applied for the reimbursement of incurred related costs and expenses shall be directly recognised in current profit or loss or set off against related costs. Government grants relating to assets shall be written off against the carrying value of the asset concerned or recognised as deferred income and credited to profit or loss over the useful life of the asset concerned by reasonable and systematic instalments (provided that government grants measured at nominal value shall be directly recognised in current profit or loss). Where the asset concerned is disposed of, transferred, retired or damaged prior to the end of its useful life, the balance of the deferred income yet to be allocated shall be transferred to "asset disposal" under current profit or loss. Loans extended to the Group by borrowing banks at favourable interest rates mandated by government policies under which the borrowing banks receive interest rate subsidies from the financial authorities shall be recognised based on the actual amount of loans received, and borrowings costs shall be recognised based on the principal amount of the loan and the policymandated favourable interest rates.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
24. Deferred income tax The Group recognises deferred tax assets and liabilities based on temporary differences using balance sheet liability method. Temporary differences are differences between the carrying amount of assets or liabilities in the balance sheet and their tax base on the balance sheet date. Temporary differences also include the differences between the carrying values and tax bases of items not recognised as assets or liabilities where the tax base can be calculated according to the relevant tax regulations. Deferred tax liabilities are recognised for all taxable temporary differences, except: (1) where the taxable temporary difference arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; (2) in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised except: (1) where the deductible temporary difference arises from transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. (2) deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures are recognised when all following conditions are met: it is probable that the temporary differences will reverse in the foreseeable future, it is probable that taxable profit against the deductible temporary differences will be available. As at balance sheet date, deferred tax assets and liabilities are measured in accordance with relevant tax laws at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, and reflects the tax consequences that would follow the manner in which the Group expects, at the balance sheet date, to recover the assets or settle the carrying amount of its assets and liabilities.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
24. Deferred income tax (continued)
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.
Deferred tax assets and deferred tax liabilities are offset and presented as a net amount if all of the following conditions are met: the Group has the legal right to set off current tax assets current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities, provided that the taxable entity concerned intends either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
25. Leases
At the inception of a contract, the Group assesses whether the contract is, or contains, a lease. If one party to the contract conveys a right to control the use of one or more identified assets for a period of time in exchange for consideration, such contract is, or contains, a lease.
Right-of-use assets
At the inception of a lease term, the right to use lease assets during the lease term is recognised as right-of-use assets and is initially measured at cost. Right-of-use assets include: the initially measured amount of lease liabilities; the lease payment incurred at or prior to the lease inception date, less the lease incentive amount received where applicable; initial direct expenses incurred by the lessee; estimated cost to be incurred by the lessee for demolishing and removing lease assets, restoring the premises at which the lease assets are located or restoring the lease assets to the agreed state under the lease terms. Where Group remeasures the lease liabilities owing to changes in the lease payment amount, the carrying value of the right-of-use assets should be adjusted accordingly. In subsequent measurement, the Group provides depreciation of the right-of-use assets using the averaging method over the lease term. Where it can be reasonably ascertained that the ownership over the lease assets can be obtained upon the conclusion of the lease term, depreciation is provided over the remaining useful life of the lease assets. Where the acquisition of the ownership over the lease assets upon the conclusion of the lease term cannot be reasonably ascertained, depreciation is provided over the lease term or the remaining useful life of the lease assets, whichever shorter.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
25. Leases (continued)
Lease liabilities
At the inception of the lease period, the Group recognised the present value of outstanding lease payments as lease liabilities, other than short-term leases and low-value asset lease. Lease payment amounts include fixed payments and the amount of substantial fixed payments less rental incentives, variable lease payment amounts depending on indices or ratios, estimated amounts payable based on the remaining value of guarantees, as well as amounts payable for the exercise price of buying option or termination of lease renewal option, provided that the Group reasonably ascertains that the option will be exercised or the lease period reflects that the Group will terminate the renewal option.
In calculating the present value of the lease payment amount, the Group adopts the inherent interest rate of the lease as the discount rate. Where the inherent interest rate of the lease cannot be ascertained, the incremental loan interest rate of the lessee is adopted as the discount rate. Interest expenses on lease liabilities over the respective periods of the lease term are computed based on fixed cyclical interest rates and charged to current profit or loss, other than those otherwise required to be included in relevant asset cost. Variable lease payments not included in lease liabilities are charged to current profit or loss as and when incurred, other than those otherwise required to be included in relevant asset cost.
After the inception of the lease period, the carrying amount of lease liabilities is increased when the Group recognises interest expenses and reduced when lease amounts are paid. Where there are changes in the substantial fixed payment amount, changes in amounts payable expected of the remaining value of guarantees, changes in the index or ratio used to determine lease payment amounts, and changes in the assessment outcome relating to or actual exercise of the call option, renewal option and termination option, the Group re-measures the lease liabilities based on present value of the modified lease payment and adjusts the carrying value of the right-of-use assets accordingly.
Short-term lease and low-value asset lease
A lease with a term of not more than 12 months at the inception of the lease term and without any call option is recognised as a short-term lease; lease comprising an individual lease asset worth not more than 30,000 in brand new conditions is recognised as a low-value asset lease. If the Group sub-leases or expects to sub-lease such lease assets, the original lease shall not be recognised as a low-value asset lease. For short-term leases and low-value asset leases, the Group elects not to recognise right-of-use assets and lease liabilities, which are instead charged to relevant asset cost or current profit or loss over the respective periods during the lease term on a straight-line basis, while contingent rental is charged to current profit or loss as and when incurred.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
25. Leases (continued) As a lessee Please refer to the note above for the Group's accounting treatment for recognition of right-of-use assets and lease liabilities, other than short-term lease and lease of low-value assets. As a lessor Other than leases that transfer substantially all risk and reward relating to the ownership of lease assets at inception which are recognised as finance leases, all leases are recognised as operating leases. As a sub-leasing lessor, the Group classifies the sub-leases based on the right-of-use assets of the original leases. As the lessor under a finance lease At the inception of the lease term, finance lease receivables are recognised in respect of finance lease, while financing leases are derecognised. At initial measurement, the carrying value of finance lease receivables are recognised as the net amount of lease investment, which is in turn the sum of the unsecured residual value and the lease payments yet to be received at the commencement of the lease term discounted to their present value using the implicit interest rate of the lease, including initial direct expenses. Interest income over the respective periods of the lease term are computed and recognised based on fixed cyclical interest rates and charged to current profit or loss. Variable lease payments not included in the net amount of lease investment are charged to current profit or loss as and when incurred. As the lessor under an operating lease Rental income under an operating lease is recognised as current profit or loss over the respective periods of the lease term on a straight-line basis, while contingent rental is charged to current profit or loss as and when incurred. Initial direct cost is capitalised and distributed over the lease period in accordance with the same bases for recognising rental income and included in current profit or loss for each period. Leaseback transactions The Group determines whether the transfer of assets in a leaseback transaction should be classified as sales in accordance with Note III.20.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
25. Leases (continued)
As lessee
If the transfer of assets in a leaseback transaction is classified as sales, the Group, as lessee, measures the right-of-use assets formed by the leaseback based on the portion of the original book value of the assets relating to the right-of-use acquired in the leaseback and recognise profit or loss only to the extent of the rights transferred to the lessor. If the transfer of assets in a leaseback transaction is not classified as sales, the Group, as lessee, continues to recognise the transferred assets and at the same time also recognises financial liabilities equivalent in amount to the transfer income. Such financial liabilities are accounted for in accordance with Note III.9.
As lessor
If the transfer of assets in a leaseback transaction is classified as sales, the Group accounts for the acquisition of assets as lessor and account for leased assets in accordance with the aforesaid provisions. If the transfer of assets in a leaseback transaction is not classified as sales, the Group, as lessor, does not recognise the transferred assets, but instead recognises financial assets equivalent in amount to the transfer income. Such financial assets are accounted for in accordance with Note III.9.
26. Impairment
Impairment of assets other than inventories, investment properties measured at fair value, deferred tax assets, contract assets and financial assets, is determined using the methods described below:
At each balance sheet date, it is determined whether there is an indication that a non-financial asset may be impaired. If any such indication exists, the Group makes an estimate of the asset's recoverable amount and performs a test of impairment for the asset. For goodwill generated from business consolidation and intangible assets with indefinite useful lives and intangible assets not yet ready for use, tests for impairment is performed at least annually regardless of whether there are indications of impairment.
Recoverable amount is the higher of the asset's fair value less costs to sell and its present value of estimated future cash flows. The Group estimates recoverable value for individual assets. When it is difficult to estimate individually, the recoverable value of the cash generating units which the asset belongs to will be estimated. The definition of cash generating units is determined on the basis of whether the cash generating units generate cash flows which are largely independent of those from other cash generating units.
Where the carrying amount of an asset or a cash generating unit exceeds its recoverable amount, the asset or cash generating unit is considered impaired and is written down to its recoverable amount. The difference between the carrying amount and recoverable amount is recognised in the current period's profit or loss and provision for impairment is made accordingly.
In connection with impairment tests for goodwill, the carrying value of goodwill arising from business combination is allocated to relevant cash generating units ("CGU") from the date of acquisition on a reasonable basis. If it is difficult to allocate such goodwill to a relevant CGU, it should be allocated to a relevant CGU group. A relevant CGU or CGU group is defined as one which can benefit from the synergies of the business combination and is not larger than the reporting segments determined by the Group.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
26. Impairment (continued)
In connection with impairment tests for CGUs or CGU groups that comprise goodwill, where indications of impairment exists in a CGU or CGU group related to goodwill, impairment tests should be performed first on CGUs or CGU groups that do not comprise goodwill and recognise impairment loss after estimating the recoverable amount. Then impairment tests on CGUs or CGU groups that comprise goodwill should be performed and the carrying value and recoverable amount should be compared. Where the recoverable amount is lower than the carrying value, the impairment loss should first be offset against the carrying value of the goodwill allocated to CGUs or CGU groups and then against assets in the CGUs or CGU groups other than goodwill in proportion to the weighting of these assets.
Previously recognised impairment losses are not reversed in subsequent periods.
27. Employee remuneration
Employee remuneration includes all kinds of rewards or compensation (other than share-based payments) incurred by the Group in exchange for service rendered by employees or in the termination of employment. Employee remuneration includes short-term remuneration, retirement benefits, termination benefits and other long-term employees' benefits. Benefits provided by the Group to the spouses, children and dependents of employees and families of deceased employees are also a part of employee remuneration.
Short-term remuneration
For accounting periods during which services are rendered by employees, short-term remuneration that will incur is recognised as liability and included in current profit and loss or related capital costs.
Retirement benefit (defined deposit scheme)
Employees of the Group participated in pension insurance and unemployment insurance schemes managed by the local government. The contribution costs are charged as asset cost or to current profit or loss when incurred.
Retirement benefit (defined benefit scheme)
The Group operates a defined benefit pension scheme. No funds have been injected into the scheme. The cost of benefits provided under the defined benefit scheme is calculated using the expected benefit accrual unit approach.
Remeasurement arising from defined benefit pension schemes, including actuarial gains or losses, changes in the asset cap effect (deducting amounts included in net interest) and return on scheme assets (deducting amounts included in net interest) are instantly recognised in the balance sheet and charged to shareholders' equity through other comprehensive income for the period during which it is incurred. It will not be reversed to profit and loss in subsequent periods.
Previous service costs are recognised as current expenses when: the defined benefit scheme is revised, or relevant restructuring costs or termination benefits are recognised by the Group, whichever earlier.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
27. Employee remuneration (continued)
Retirement benefit (defined benefit scheme) (continued)
Net interest is arrived at by multiplying net liabilities or net assets of defined benefits with a discount rate. Changes in net obligations of defined benefits are recognised as operating costs and administration expenses in the income statement. Service costs included current services costs, past service costs and settlement of profit or loss. Net interest included interest income from scheme assets, interest expenses for scheme obligations and interest of the asset cap effect.
Termination benefits
Where termination benefits are provided to employees, liabilities in employee remuneration are recognised and charged to current profit and loss when: the company is not in a position to withdraw termination benefits provided under termination plans or redundancy plans, or costs or expenses relating to the restructuring exercise which involves the payment of termination benefits are recognised, whichever earlier.
Other long-term employees' benefits
Other long-term employees' benefits provided to employees shall be recognised and measured as net liabilities or net assets where provisions regarding post-employment benefits are applicable, provided that changes shall be included in current profit and loss or related capital costs.
28. Fair value measurement
At each balance sheet date, the Group measures the fair value of investment properties, derivative financial instruments, other debt investments and listed and unlisted equity instrument investments. Fair value means the price receivable from the disposal of an asset or required to be paid for the transfer of a liability in an orderly transaction incurred by market participants on the measurement date.
The fair value hierarchy to which an asset or liability measured or disclosed in the financial statements at fair value will be determined on the basis of the lowest level of input which is significant for the fair value measurement as a whole. Input at the first level represents unadjusted quoted prices in an active market for the acquisition of the same asset or liability on the measurement date. Input at the second level represents directly or indirectly observable assets or liabilities apart from input at the first level. Input at the third level represents unobservable input for the asset or liability.
At each balance sheet date, the Group reassesses assets and liabilities measured at fair value on an ongoing basis recognised in the financial statements to determine whether the level of fair value measurement should be changed.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
29. Profit distribution
Cash dividend of the Company is recognised as liability after approval by the general meeting.
30. Significant accounting judgements and estimates
The preparation of financial statements requires judgement and estimation of the management. Such judgement and estimation will affect the reported amounts of revenue, expenses, assets and liabilities and the disclosure of contingent liabilities as at the balance sheet date. However, the consequence arising from the uncertain nature of such estimation may result in significant adjustment to the carrying value of the asset or liability affected in the future.
Judgement
In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:
Determination of standalone contractual performance obligations under telecommunication system construction contracts
The Group's telecommunication system construction contract typically includes a range of pledged performance, such as equipment sales and installation service or a combination of both set out in contracts with customers. The Group determines whether the equipment sales and installation service and their combination are distinctly separable. Where the customer can benefit from the individual use of such products or services or their use together with other readily available resources, the standalone equipment sales and installation service are accounted for as standalone contractual performances. Such standalone equipment sales and installation service are considered individual separable if: (1) the customer can receive the equipment pledged under the contract without the provision of significant installation service by the Group; (2) each of the equipment sales and the installation service do not constitute any modification or customisation to the other, nor will they modify or customise other equipment or installation service pledged under the contract; (3) such equipment sales and installation service are not significantly correlated to other equipment or installation pledged under the contract. Each of the aforesaid combinations of equipment sales and installation services that is not individually separable and not significantly correlated to other combinations and that enable the customer to benefit from its individual use or use together with other readily available resources is accounted for as a standalone contractual performances. The comprehensive application of the aforesaid judgement is significant for the determination of standalone contractual performance obligations under telecommunication system construction contracts.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
30. Significant accounting judgements and estimates (continued)
Judgement (continued)
Determination of progress of performance of service rendering contracts
The service contract between the Group and its customers typically include obligations such as maintenance service, operational service and engineering service and revenue is recognised according to the progress of performance of each contract. For contracts with specific output indicators, such as contracts for maintenance service and operational service, the Group determines the progress of performance of the service according to the output method. For a small number of contracts which do not specify output indicators, the progress of performance is determined using the input method.
Performance of obligation at a point of time
For performance obligations of the Group in respect of separately sold communication system equipment and terminals, as well as obligations in respect of communication system equipment sold in a block together with project construction, as the customer is unable to obtain and consume the economic benefits brought by the Group's performance of obligation at the same time as such obligations are performed or control goods in progress during the course of the Group's performance, the Group is not entitled to collect progress billing according to work completed todate during the entire contract period. Hence, such performance is treated as performance at a point of time. Specifically, revenue corresponding to such standalone contractual performance is recognised upon acceptance by the customer after the performance of each standalone obligation.
Business model
The classification of financial assets at initial recognition is dependent on the Group's business model for managing the assets. Factors considered by the Group in judging the business model include enterprise valuation, the method of reporting the results of financial assets to key management members, risks affecting the results of financial assets and the method for managing such risks, as well as the form of remuneration received by the management personnel of the businesses concerned. In assessing whether the business model is aimed at receiving contract cash flow, the Group is required to analyse and exercise judgment in respect of the reasons, timing, frequency and values of any disposals prior to maturity.
Characteristics of contract cash flow
The classification of financial assets at initial recognition is dependent on the characteristics of the contract cash flow of such type of financial assets. Judgement is required to determine whether the contract cash flow represents interest payment in relation to principal amounts based on outstanding principal amounts only, including judgement of whether it is significantly different from the benchmark cash flow when assessing modifications to the time value of currencies, and judgement of whether the fair value of early repayment features is minimal where the financial assets include such early repayment features.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
30. Significant accounting judgements and estimates (continued)
Judgement (continued)
Deferred tax liabilities relating to subsidiaries, associates and joint ventures
The Group is required to recognise deferred tax liabilities for taxable temporary differences relating to investments in certain subsidiaries, associates and joint ventures, unless two conditions are met as follows: the Group is able to control the timing of the reversal of the temporary difference and such temporary difference is not likely to be reversed in the foreseeable future, in which case the recognition of deferred tax liabilities is not required. The Group is of the view that it is able to fully control the timing of the reversal of the temporary difference arising from dividend distribution of the subsidiary and that the subsidiary will not make any profit distribution in the foreseeable future. Therefore, the Group is not required to recognise any deferred income tax liability. Whether the temporary difference related to investments in associates and joint ventures will be reversed in the foreseeable future is dependent on the expected method of recouping the investment, and the Group is required to exercise significant judgement in respect of the method of recouping the investment.
Derecognition of financial assets
Where the Group has transferred the right to receive cash flow arising from an asset but has not transferred or has retained substantially all risks and rewards associated with such asset, or has not transferred the controlling right in such asset, such asset shall be recognised and accounted for so long as the Group continues to be involved in such asset. If the Group has not transferred or has retained substantially all risks and rewards associated with the asset or transferred the controlling right in the asset, the exercise of significant judgment is often required, and estimations need to be made as to the extent of the Group's continued involvement in the asset.
Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within subsequent financial years, are discussed below.
Impairment of long-term equity investments, fixed assets, construction in progress and intangible assets
The Group assesses at each balance sheet date whether there is an indication that long-term equity investments, fixed assets, construction in progress and intangible assets may be impaired. If any such indication exists, the Group makes an estimate of the asset's recoverable amount and performs a test of impairment for the asset. The recoverable amount is measured at the net amount of the fair value of the asset less disposal costs or the present value of the estimated future cash flow of the asset, whichever is higher. This requires an estimate of the expected future cash flows from the asset or the cash generating unit to which the asset was allocated and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
An impairment loss is recognised when the carrying amount of fixed assets, construction in progress and intangible assets exceeds the recoverable amount. The carrying amount is written down to the recoverable amount and the write-down is charged to current profit or loss, while corresponding provision for asset impairment is also made.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
30. Significant accounting judgements and estimates (continued)
Estimation uncertainty (continued)
Impairment of financial instruments
The Group has adopted the expected credit loss model to evaluate the impairment of financial instruments. The application of the expected credit loss model requires significant judgement and estimates and the consideration of all reasonable and soundly based information, including forwardlooking information. In making such judgement and estimates, the Group estimates the projected movements of the debtor's credit risk according to past repayment records, economic policies, macro-economic indicators and industry risks.
Depreciation and amortisation
The Group depreciates items of fixed assets and amortises items of intangible assets on the straight line basis over their estimated useful lives, and after taking into account their estimated residual value, commencing from the date the items of fixed assets are placed into productive use. It reflect the directors' estimate of the periods that the Group intends to derive future economic benefits from the use of the Group's fixed assets and intangible assets.
Development costs
In determining the amount of capitalisation, the management must make assumptions concerning the expected future cash flow, applicable discount rate and expected beneficial period.
Deferred tax assets
Deferred tax assets are recognised for all unused tax losses, to the extent that it is likely that taxable profit will be available to utilise these unused tax losses. Significant judgments are needed from management to estimate the timing and amount of taxable profit in the future, with tax planning strategies, to determine the amount of the deferred tax assets that should be recognised.
Estimated standalone selling price
The standalone selling price refers to the price at which the Group may independently sell pledged goods or service. Observable prices for goods or services sold to similar customers under similar circumstance on a standalone basis is the best evidence for standalone selling prices. An estimation of standalone selling prices is required if such prices cannot be directly obtained. The Group has adopted cost plus pricing according the characteristics of the goods or services and its related price and cost and the level of difficulty in obtaining it. Cost plus pricing is a method for determining standalone selling prices by adding a reasonable profit margin to the estimated cost of a product. This method is mainly concerned with internal factors and requires adjustments to profit according to different products, customers and differences in other variables. It is a more appropriate method when the direct cost for performance of obligation can be ascertained.
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
30. Significant accounting judgements and estimates (continued) Estimation uncertainty (continued) Provision for inventory impairment The impairment of inventory to its net realisable value is based on the marketability and net realisable value of the inventory. The determination of the impairment value requires the acquisition of conclusive evidence by the management, who should also take into account factors such as the purpose of stocking the inventory and the impact of post-balance sheet date events before making judgments and estimates. The difference between the actual outcome and the original estimates shall affect the carrying value of the inventory and charge or reversal of impairment provision for the period during which the estimates were revised. Warranty The Group makes reasonable estimates on warranty fee rates in respect of contract groups with similar characteristics based on the historic data and current conditions of warranty, taking into consideration all relevant information such as product improvements and market changes, among others. The Group reassesses the warranty fee rates at least annually at each balance sheet date and determines its estimated liabilities based on the reassessed warranty fee rates. Fair value estimates of investment properties The best evidence of fair value is given by current prices in an active market for similar lease and other contracts. In the absence of relevant information, the management shall determine the relevant amount within the range of reasonable fair value estimates. The management's judgment will be based on market rental prices of similar properties under current leases in an active market and discounted cash flow projections based on reliable estimates of future cash flows using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. Principal assumptions adopted by the Group in estimating fair values include market rents for similar properties at the same location and under the same conditions, discount rates, vacancy rates, projected future market rent and maintenance cost. The carrying value of investment property as at 30 June 2022 was RMB2,012,443,000 (31 December 2021: RMB2,013,927,000).
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Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
30. Significant accounting judgements and estimates (continued)
Estimation uncertainty (continued)
Fair value of non-listed equity investment
The Group determines the fair value of non-listed equity investment using the market approach. This requires the Group to ascertain comparable listed companies, select market multiples and make estimates on liquidity discounts. Fair value of non-listed equity investment at fair value through profit or loss is estimated using the market-based method. The assumptions on which it is based are unobservable input. The estimation requires the management to determine comparable public companies (peers) based on industry, scale, gearing and strategy and compute appropriate price multiples in respect of each identified comparable company, such as enterprise value to EBIT ("EV/ EBIT"), price to book ("P/B") or price to earnings ("P/E"), etc. Such multiples are measured and arrived at based on the relevant data of the comparable companies and discounted by a percentage for the lack of liquidity. The discounted multiple shall be used for the measurement of the profit or asset of the non-listed equity investment to arrive at its fair value. The management believes that the estimated fair value (as recorded in the balance sheet) and changes in fair value (as recorded in profit or loss and other comprehensive income) arrived at using the aforesaid valuation method were reasonable and represented the most appropriate value as the end of the reporting period. For details, please refer to Note IX.3.
Provision for expected credit losses on trade receivables and contract assets
The Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e., by geography, product type, customer type and rating, and coverage by letters of credit and other forms of credit insurance).
The provision matrix is initially based on the Group's historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions (i.e., gross domestic production) are expected to deteriorate over the next year which can lead to an increased number of defaults in the manufacturing sector, the historical default rates are adjusted. At each reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
The assessment of the correlation among historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and forecast economic conditions. The Group's historical credit loss experience and forecast of economic conditions may also not be representative of customer's actual default in the future.
123
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
30. Significant accounting judgements and estimates (continued)
Estimation uncertainty (continued)
Lease period -- lease contracts comprising the optional for renewal
The lease term is the period during which the Group owns a non-cancellable right to use the lease assets. Where the Group has an option for renewal and it can be reasonably ascertained that such option will be exercised, the lease term shall also include the period covered by such option for renewal. Some of the Group's lease contracts carry an option for renewal for 15 years. When the Group assesses whether it can reasonably ascertain that the renewal option will be exercised, it will take into account all matters and conditions pertaining to the economic benefits arising from the exercise of the renewal option, including the anticipated changes in facts and conditions during the period from the commencement date of the lease period to the date on which the option is exercised. At the inception of the lease period, if the Group is of the view that, as the cost of terminating a lease is significant, and it is more likely that the conditions for the exercise of the option will be fulfilled, the Group can reasonably ascertain that the renewal option will be exercised. Hence, the lease period includes the period covered by the renewal option. After the inception date of the lease period, if material events or changes within the control of the Group occur and affect the Group's ability to reasonably determine whether to exercise the renewal option, the Group will reassess whether or not to the exercise of the renewal option and amend the lease period according the outcome of reassessment.
IV. TAXATION
1. Principal tax items and tax rates
Value-added tax ("VAT")
Output tax payable on income generated from domestic sales of products and equipment repair services at a tax rate of 13%; regarding service income, output tax is calculated at tax rates of 5%, 6% and 9% and VAT is payable on the difference after deduction of tax credit available for offsetting for the current period.
City maintenance and construction tax
In accordance with relevant PRC tax regulations and local regulations, city maintenance and construction tax was payable according to rates stipulated by the State based on individual situations of the branches and subsidiaries of the Group.
Education surcharge
In accordance with relevant PRC tax regulations and local regulations, education surcharge was payable according to rates stipulated by the State based on individual situations of the branches and subsidiaries of the Group.
Individual income tax
In accordance with relevant PRC tax regulations, the Group withheld income tax from its salary payments to employees based on progressive tax rates.
Overseas tax
Overseas taxes were payable in accordance with tax laws of various countries and regions.
Enterprise income tax
In accordance with the Law on Enterprise Income Tax promulgated on 1 January 2008, enterprise income tax was payable by the Group on its taxable income.
124
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
IV. TAXATION (CONTINUED)
2. Tax concession The Company is subject to an enterprise income tax rate of 15% for the years for 20202022 as a national-grade hi-tech enterprise incorporated in Shenzhen. Income tax rates for certain domestic subsidiaries of the Group are disclosed as follows: Shenzhen Zhongxing Software Company Limited is subject to an enterprise income tax rate of 15% for 20202022 as a national-grade hi-tech enterprise. Shanghai Zhongxing Software Company Limited is subject to an enterprise income tax rate of 15% for 20202022 as a national-grade hi-tech enterprise. Xi'an Zhongxing New Software Company Limited is subject to an enterprise income tax rate of 15% for 20202022 as a national-grade hi-tech enterprise. Zhongxing Smart Auto Company Limited is subject to an enterprise income tax rate of 15% for 20212023 as a national-grade hi-tech enterprise. Xi'an Cris Semiconductor Technology Company Limited is subject to an enterprise income tax rate of 15% for 2022 as a national-grade hi-tech enterprise. ZTE Microelectronics Technology Company Limited is subject to an enterprise income tax rate of 15% for 20202022 as a national-grade hi-tech enterprise. Chongqing Zhongxing Software Company Limited is subject to an enterprise income tax rate of 15% for 20202022 as a national-grade hi-tech enterprise. Guangdong ZTE Newstart Technology Co., Ltd. was subject to an enterprise income tax rate of 15% for 20202022 as a national-grade hi-tech enterprise.
125
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS
1. Cash and Bank Balance
30 June 2022
31 December 2021
Cash Bank Deposit Other cash
1,933 53,835,810
1,088,552
54,926,295
1,685 49,290,568
1,421,057
50,713,310
As at 30 June 2022, the Group's overseas currency deposits amounted to RMB3,207,874,000 (31 December 2021: RMB2,847,164,000). Funds placed overseas and subject to remittance restrictions amounted to RMB61,040,000 (31 December 2021: RMB41,776,000).
Current bank deposits earn interest income based on current deposit interest rate. Short-term time deposits have periods varying from seven days to three months subject to the Group's cash requirements and earn interest income based on corresponding time deposit interest rates of banks. Time deposit of over three months amounting to RMB9,756,578,000 (31 December 2021: RMB10,221,671,000) were not included in cash and cash equivalents.
2. Trading financial assets
30 June 2022
31 December 2021
Investment in equity instrument at fair value through current profit or loss
897,389 897,389
1,360,697 1,360,697
3. Derivative financial assets
30 June 2022
31 December 2021
Derivative financial assets at fair value through current profit or loss
251,162
209,352
Trading in derivative financial assets at fair value through current profit or loss mainly comprised transactions in forward exchange contracts with reputable banks in the PRC mainland and Hong Kong with credit ratings of A- or above. As such forward exchange contracts were not designated for hedging purpose, they were dealt with at fair value through current profit or loss. For the reporting period, gain arising from fair value changes of derivative financial instruments amounting to RMB54,603,000 (Six months ended 30 June 2021: gain of RMB265,985,000) was dealt with in current profit or loss.
126
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4A. Trade receivables
Trade receivables are recognised according to the payment periods stipulated in contracts. The credit period for trade receivables normally ranges from 0 to 90 days, and may be extended to a maximum of 1 year depending on the credit standing of the customer. Trade receivables are interest-free.
Aging analysis of trade receivables was as follows:
30 June 2022
31 December 2021
Within 1 year 1 to 2 years 2 to 3 years Over 3 years
Less: bad debt provision for trade receivables
17,956,213 1,719,108 826,350 5,022,928
25,524,599 7,587,611
17,936,988
17,787,091 1,433,721 928,053 4,813,325
24,962,190 7,453,131
17,509,059
30 June 2022
Book balance
Bad debt provision
Amount Percentage Amount Percentage
(%)
(%)
Book value
31 December 2021
Book balance
Bad debt provision
Amount Percentage Amount Percentage
(%)
(%)
Book value
Standalone bad debt provision For which provision for bad debt
is recognised by group with credit risk characteristics
1,928,509
23,596,090 25,524,599
8 1,928,509
92 5,659,102 100 7,587,611
100
-- 1,967,274
24 17,936,988 22,994,916 30 17,936,988 24,962,190
8 1,967,274
92 5,485,857 100 7,453,131
100
--
24 17,509,059 30 17,509,059
As at 30 June 2022, bad debt provisions for trade receivables which were individually made were as follows:
Book balance
Bad debt provision
Expected credit loss
rate
Overseas carriers 1* Overseas carriers 2* Overseas carriers 3* Overseas carriers 4* Overseas carriers 5* Others (Customer 6 to Customer 31)*
355,997 241,715 193,397 161,905
75,322 900,173
1,928,509
355,997 241,715 193,397 161,905
75,322 900,173
1,928,509
100% 100% 100% 100% 100% 100%
100%
*
The provision was made mainly in view of significant financial difficulty experienced by the debtors.
127
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4A. Trade receivables (continued)
As at 31 December 2021, bad debt provisions for trade receivables which were individually made were as follows:
Book balance
Bad debt provision
Expected credit loss
rate
Overseas carriers 1* Overseas carriers 2* Overseas carriers 3* Overseas carriers 4* Overseas carriers 5* Others (Customer 6 to Customer 31)*
390,460 241,715 199,284 158,079
90,141 887,595
1,967,274
390,460 241,715 199,284 158,079
90,141 887,595
1,967,274
100% 100% 100% 100% 100% 100%
100%
*
The provision was made in view of significant financial difficulty experienced by the debtors.
Trade receivables for which provision for bad debt is recognised by group with similar credit risk characteristics are set out as follows:
Carrying amount estimated to be in default
30 June 2022
Expected
credit loss
Expected
during
credit loss the entire
rate (%) subsistence
31 December 2021
Expected
Carrying
credit loss
amount
Expected
during
estimated to credit loss
the entire
be in default
rate (%) subsistence
06 months 612 months 12 years 23 years Over 3 years
15,896,639 1,378,107 1,699,684 709,533 3,912,127
23,596,090
2
385,063 15,940,858
15
201,585
1,185,963
32
542,587
1,363,706
87
617,740
802,566
100
3,912,127
3,701,823
5,659,102 22,994,916
3
489,273
17
197,560
29
394,634
88
702,567
100
3,701,823
5,485,857
128
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4A. Trade receivables (continued)
Movements in bad-debt provision for trade receivables are set out as follows:
Opening balance
Charge/ reversal for
the period
Write off during
the period
Effect of exchange
rate
Closing balance
30 June 2022 Bad debt provision Including: Trade receivables
Factored trade receivables
31 December 2021 Bad debt provision Including: Trade receivables
Factored trade receivables
7,454,388 7,453,131
1,257
9,555,334 9,554,429
905
118,144 118,080
64
(50,425) (50,425)
--
66,825 66,825
--
7,588,932 7,587,611
1,321
218,800 218,448
352
(2,024,178) (2,024,178)
--
(295,568) (295,568)
--
7,454,388 7,453,131
1,257
During the period, RMB72,905,000 (Six months ended 30 June 2021: RMB205,296,000) was reversed in respect of bad-debt provision for trade receivables which were individually significant and for which bad-debt provision had been made separately. There was no write-off of separately made bad-debt provision for trade receivables (Six months ended 30 June 2021: RMB91,839,000).
Top 5 accounts of trade receivables as at 30 June 2022 were as follows:
Customer
As a percentage of total trade Amount receivables
Closing balance of
bad debt provision
Customer 1 Customer 2 Customer 3 Customer 4 Customer 5
2,991,591 1,267,702 1,233,209 1,119,364
733,845
7,345,711
11.72% 4.97% 4.83% 4.39% 2.88%
28.79%
6,618 325,418
97,562 17,020 362,447
809,065
129
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4A. Trade receivables (continued)
Top 5 accounts of trade receivables as at 31 December 2021 were as follows:
Customer
As a percentage of
total trade Amount receivables
Closing balance of
bad debt provision
Customer 1 Customer 2 Customer 3 Customer 4 Customer 5
3,428,694 1,073,113 1,002,129
941,532 862,243
7,307,711
13.74% 4.30% 4.01% 3.77% 3.45%
29.27%
18,625 26,388 216,999 77,718 434,458
774,188
The Group factored trade receivables measured at amortised cost on a non-recourse basis to financial institutions. The carrying amount of trade receivables derecognized as at the end of the period was RMB7,015,273,000 (30 June 2021: RMB6,117,728,000) and loss of RMB108,165,000 (Six months ended 30 June 2021: Loss of RMB106,075,000) was recognised in investment income for the period.
Transfer of trade receivables that did not qualify for derecognition was separately classified as "Factored trade receivables" and "Bank advances on factored trade receivables". For details of the transfer of receivables, please refer to Note VIII.2.
4B. Receivable financing
30 June 2022
31 December 2021
Commercial acceptance bills Bank acceptance bills
3,749,098 3,868,369
7,617,467
3,508,193 1,688,265
5,196,458
If the endorsing or discounting of bills receivable and the disposal of trade receivables only take place occasionally or their value, whether individual or aggregated, is minimal, and the objective of their business model remains the collection of contract cash flow, they are measured at amortised cost; if the enterprise's business model for bills receivable and trade receivables is aimed at both the collection of contract cash flow and disposal, they are classified as financial assets at fair value through other comprehensive income and reported as receivable financing.
130
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4B. Receivable financing (continued)
Bills receivable which were discounted but not due as at the balance sheet date are as follows:
30 June 2022 Not
Derecognised derecognised
31 December 2021 Not
Derecognised derecognised
Commercial acceptance
bills
455,408
--
--
--
Bank acceptance bills
1,045,816
--
1,017,956
--
1,501,224
--
1,017,956
--
Movements in bad debt provision for receivable financing are set out as follows:
Charge-off
Opening Charge for
for the
balance the period
period
Closing balance
30 June 2022 31 December 2021
3,328 1,439
1,327 1,889
(11)
4,644
--
3,328
5. Prepayments
Aging analysis of prepayments was as follows:
30 June 2022
Book balance
Percentage
31 December 2021
Book balance
Percentage
Within 1 year
584,863
100%
606,781
100%
131
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Prepayments (continued)
Top 5 accounts of prepayments as at 30 June 2022 were as follows:
Supplier
As a percentage of total amounts Amount of prepayments
Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5
247,115 59,129 28,929 18,454 11,334
364,961
42.25% 10.11%
4.95% 3.16% 1.94%
62.41%
Top 5 accounts of prepayments as at 31 December 2021 were as follows:
Supplier
As a percentage of total amounts Amount of prepayments
Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5
300,000 59,146 32,289 18,419 10,771
420,625
49.44% 9.75% 5.32% 3.04% 1.78%
69.33%
132
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Other receivables
30 June 2022
31 December 2021
Interests receivables Other receivables
515,883 1,150,637
1,666,520
295,146 1,058,633
1,353,779
Interest receivables
30 June 2022
31 December 2021
Time deposits
515,883
295,146
Other receivables Aging analysis of other receivables was as follows:
30 June 2022
31 December 2021
Within 1 year 1 year to 2 years 2 years to 3 years Over 3 years
Bad debt provision
699,780 441,733
35,505 66,216
1,243,234 (92,597)
1,150,637
656,167 414,203
33,292 62,089
1,165,751 (107,118)
1,058,633
Other receivables analysed by nature were as follows:
30 June 2022
31 December 2021
Staff loans Transactions with third parties
34,013 1,116,624
1,150,637
87,075 971,558
1,058,633
133
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Other receivables (continued)
Top 5 accounts of other receivables as at 30 June 2022 were as follows:
Due from
Closing balance
As a percentage of the total
amount of other receivables
Bad debt
Expected
provision credit loss Nature
Third-party entity 1
125,000
10.05%
--
-- Transactions with
third parties
Third-party entity 2
99,834
8.03%
--
-- Transactions with
third parties
Third-party entity 3
43,786
3.52%
--
-- Transactions with
third parties
Third-party entity 4
40,209
3.23%
--
-- Transactions with
third parties
Third-party entity 5
32,203
2.59%
--
-- Transactions with
third parties
Total
341,032
27.42%
--
Top 5 accounts of other receivables as at 31 December 2021 were as follows:
Due from
Closing balance
As a percentage of the total
amount of other receivables
Bad debt
Expected
provision credit loss Nature
Third-party entity 1
125,000
10.72%
--
-- Transactions with
third parties
Third-party entity 2
89,100
7.64%
--
-- Transactions with
third parties
Third-party entity 3
44,652
3.83%
--
-- Transactions with
third parties
Third-party entity 4
35,114
3.01%
--
-- Transactions with
third parties
Third-party entity 5
17,373
1.49%
--
-- Transactions with
third parties
Total
311,239
26.69%
--
The above top five accounts of other receivables represent other amounts receivable from and loans and advances to third parties of the Group aged within 036 months.
134
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Other receivables (continued)
Financial assets included in other receivables was RMB1,209,221,000. For financial assets included in other receivables based on expected credit losses in the next 12 months and expected credit losses during the entire life, the change of provisions for bad debt was as follows:
Stage 2
Expected credit
losses during the
entire life
Financial assets
with credit
Stage 1
impairment
Expected credit
occurred
losses in the
(Standalone
next 12 months
assessment)
Stage 3 Financial assets
with credit impairment
occurred (During
the entire life)
Total
Opening balance Charge for the period Reversal for the period Charge-off for the period Effect of exchange rate
Balance at 30 June 2022
973 145
-- -- --
1,118
--
106,145
107,118
--
42,277
42,422
--
(41,295)
(41,295)
--
(14,151)
(14,151)
--
(1,497)
(1,497)
--
91,479
92,597
7. Inventories
Book balance
30 June 2022 Provision for
impairment
Carrying value
31 December 2021
Provision
Book
for Carrying
balance impairment
value
Raw materials and materials under subcontract processing
Work in progress Finished goods Dispatch of goods Contract costs
21,903,889 2,004,593 4,087,497
11,549,809 7,357,569
46,903,357
1,830,488 36,027
455,700 1,208,856 1,523,970
5,055,041
20,073,401 1,968,566 3,631,797
10,340,953 5,833,599
41,848,316
17,487,715 2,131,693 3,940,946
10,764,909 6,935,493
41,260,756
1,826,349 31,397
421,083 1,248,209 1,416,965
4,944,003
15,661,366 2,100,296 3,519,863 9,516,700 5,518,528
36,316,753
135
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Inventories (continued)
Movements in provision for inventory impairment are set out as follows:
Six months ended 30 June 2022
Opening balance
Charge/ (reversal)
for the period
Transfer to write-off
during the period
Others
Closing balance
Raw materials and materials under subcontract processing
Work in progress Finished goods Dispatch of goods and contract cost
1,826,349 31,397
421,083 2,665,174
4,944,003
5,047 4,625 26,910 130,851
167,433
(378) --
(3,550) (14,949)
(18,877)
(530) 5
11,257 (48,250)
(37,518)
1,830,488 36,027
455,700 2,732,826
5,055,041
31 December 2021
Opening balance
Charge/ (reversal)
for the year
Transfer to write-off
during the year
Others
Closing balance
Raw materials and materials under subcontract processing
Work in progress Finished goods Dispatch of goods and contract cost
789,230 22,218
548,437 2,935,793
4,295,678
1,081,968 20,865 (46,096)
(238,491)
818,246
(320) --
(28,820) (514)
(29,654)
(44,529) (11,686) (52,438) (31,614)
(140,267)
1,826,349 31,397
421,083 2,665,174
4,944,003
136
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Contract assets
Book balance
30 June 2022 Provision for
impairment
Carrying value
31 December 2021
Provision
Book
for Carrying
balance impairment
value
Contract assets
6,104,739 (366,197) 5,738,542 6,974,268 (388,961) 6,585,307
Contract assets refer to rights to receive consideration from customers for delivered goods. Contract assets arise when the performance of contract obligations is ahead of the payment schedule agreed under the contract.
The change of provision for impairment of contract assets was as follows:
Opening balance
Charge/ (reversal)
for the period
Charge-off for the period
Exchange rate
changes
Closing balance
Six months ended 30 June 2022
388,961
(22,449)
90
(405)
366,197
Contract assets for which impairment loss provision is made based on standalone bad debt provision and customer credit rating analysis were analysed as follows:
Carrying amount estimated to be in default
30 June 2022
Expected credit loss rate
Expected credit loss during the entire subsistence
Standalone bad debt provision For which provision for bad debt is
recognised by group with credit risk characteristics
166,259
5,938,480 6,104,739
100.00%
3.37% 6.00%
166,259
199,938 366,197
31 December 2021
Carrying
Expected credit
amount
loss during
estimated to be
Expected
the entire
in default credit loss rate
subsistence
Standalone bad debt provision For which provision for bad debt is
recognised by group with credit risk characteristics
165,931
6,808,337 6,974,268
100.00%
3.28% 5.58%
165,931
223,030 388,961
137
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Long-term receivables
30 June 2022
31 December 2021
Installment payments for the provision of telecommunication system construction projects
Less: Bad debt provision for long-term receivables
2,425,029 150,160
2,274,869
2,510,109 153,696
2,356,413
Movements in bad debt provision for long-term trade receivables are set out as follows:
Opening balance
Charge/ (reversal)
for the period
Write-off during the
period
Exchange rate effect
Closing balance
30 June 2022 Bad debt provision Including: long-term trade receivables
Factored long-term receivables
31 December 2021 Bad debt provision Including: long-term trade receivables
Factored long-term receivables
160,446 153,696
6,750
197,438 191,912
5,526
(3,686) (3,591)
(95)
(8,548) (9,772)
1,224
-- --
--
(25,477) (25,477)
--
55 55
--
(2,967) (2,967)
--
156,815 150,160
6,655
160,446 153,696
6,750
The discount rates adopted for long-term receivables ranged from 4.50%7.81%.
Long-term trade receivables was provided based on expected credit loss during the entire life. All long-term trade receivables had not expired during the year. The rate of expected credit loss was 6.19%.
Transfer of long-term trade receivables that did not qualify for derecognition was separately classified as "Factored long-term trade receivables" and "Bank advances on factored long-term trade receivables". For details of the transfer of long-term receivables, please refer to Note VIII.2.
138
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Long-term equity investments
30 June 2022
31 December 2021
Equity method Joint ventures Associates
Less: provision for impairment of long-term equity investments
(1)
500,760
498,020
(2)
1,194,413
1,273,662
75,557 1,619,616
86,773 1,684,909
30 June 2022
(1) Joint Ventures
Shareholding Opening book
percentage
balance
Decrease of investment and Increase of other outgoing investment transfers
Movement during the period
Investment
gains/losses
Other
under equity comprehensive
method
income
Other equity movement Cash dividend
Allowance for impairment provision
Impairment
provision as at
Closing book the end of the
balance
period
Puxing Mobile Tech Company Limited
33.85%
10,752
--
--
--
--
--
--
--
10,752
--
49%
28,527
--
--
(3,684)
--
--
--
--
24,843
--
10%
7,000
3,000
--
--
--
--
--
--
10,000
--
Shaanxi Crowd Investment Zhanlu
Phase I Equity Investment
Partnership Enterprise (Limited
Partnership)
40%
50,539
--
--
1,246
--
--
--
--
51,785
--
Zhuhai Hongtu Zhanlu Equity
Investment Partnership Enterprise
(Limited Partnership)
40%
401,202
--
--
2,178
--
--
--
--
403,380
--
498,020
3,000
--
(260)
--
--
--
--
500,760
--
139
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Long-term equity investments (continued)
30 June 2022 (continued)
(2) Associates
Shareholding Opening book
percentage
balance
Decrease of investment and Increase of other outgoing investment transfers
Movement during the period
Investment
gains/losses
Other
under equity comprehensive
method
income
Allowance for/
transfer out of
Other equity
impairment
movement Cash dividend provision
Telecom Innovations** Shenzhen Zhongxing Hetai Hotel
Investment and Management Company Limited * INTLIVE TECHNOLOGIES (PRIVATE) LIMITED New Idea Investment Pte. Ltd Hengyang ICT Real Estate Co., Ltd. Kron Telekomunikasyon Hizmetleri A.S.* Huanggang Education Valley Investment Holdings Co., Ltd Whale Cloud Technology Co., Ltd. Shijiazhuang Smart Industries Company Limited Zhongxing Feiliu Information Technology Company Limited ZTE (Wenzhou) Railway Communication Technology Limited
--
--
18% --
49% 20% 30% 39% 29% 20% 19% 21.26% 30% 9.31%
12.5%
-- 10%
25% 28.99%
12%
31.69% 15% 35%
23.26%
-- 430
-- 2,000
-- 4,687 2,792
-- -- 3,653 36,375 5,475
2,104
4,294 1,069
728 910,173
7,829
41,640 1,533 2,867 131,694
45.9%
27,546
1,186,889
--
(11,216)
--
--
--
--
--
--
--
(430)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
(365)
6
--
--
--
--
--
--
--
--
--
--
(1,654)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
(4,247)
--
(47)
--
--
--
--
--
--
(728)
--
--
--
(49,172)
(5,314)
--
--
(1,703)
--
--
--
(5,001)
--
--
--
8
--
--
--
(104)
--
--
--
304
--
--
--
2,112
--
--
(15,893)
(56,303)
(5,355)
--
--
11,216
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
(92)
--
--
--
--
--
--
--
--
(1,606)
--
--
(1,698)
11,216
Impairment
provision as at
Closing the end of the
balance
period
--
--
-- --
-- 2,000
-- 4,687 2,433
-- -- 1,999 36,375 5,475
2,104
-- 1,069
-- 855,687
6,126
36,639 1,449 2,763 131,998
-- --
(7,117) --
(570) -- --
(14,551) (37,248)
-- (16,071)
--
--
-- --
-- --
--
-- -- -- --
28,052 1,118,856
-- (75,557)
*
and Kron Telekomunikasyon Hizmetleri A.S. were no longer accounted for as associates
for the period owing to the loss of significant influence over them following the disposal of the entire equity
interests held in them.
**
Telecom Innovations was no longer accounted for as an associate for the period following the dilution of ZTE's
shareholdings in the company as a result of additional capital contribution made by its controlling shareholder.
2021
(1) Joint Ventures
Shareholding Opening book
percentage
balance
Increase of investment
Decrease of investment
Movement during the year
Investment
gains/losses
Other
under equity comprehensive
method
income
Other equity movement
Cash dividend
Allowance for impairment provision
Impairment
provision as at
Closing book the end of the
balance
year
Puxing Mobile Tech Company
Limited
33.85%
31,343
--
--
(20,591)
--
--
--
--
10,752
--
49%
26,768
--
--
1,759
--
--
--
--
28,527
--
10%
7,000
--
--
--
--
--
--
--
7,000
--
Shaanxi Crowd Investment Zhanlu
Phase I Equity Investment
Partnership Enterprise (Limited
Partnership)
40%
40,000
--
--
10,539
--
--
--
--
50,539
--
Zhuhai Hongtu Zhanlu Equity
Investment Partnership
Enterprise (Limited Partnership)
40%
99,911
300,000
--
1,291
--
--
--
--
401,202
--
205,022
300,000
--
(7,002)
--
--
--
--
498,020
--
140
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Long-term equity investments (continued)
2021 (continued)
(2) Associates
Shareholding Opening book
percentage
balance
Increase of investment
Decrease of investment
Movement during the year
Investment gains/losses under equity
method
Other comprehensive
income
Other equity movement
Cash dividend
Charge/transfer out of
impairment provision Closing balance
Impairment provision as at the end of the
year
KAZNURTEL Limited Liability
Company*
--
--
--
(2,477)
--
--
ZTE Energy Limited*
--
447,010
--
(486,199)
48,377
--
ZTE Software Technology
(Nanchang) Company Limited*
--
--
--
--
--
--
Telecom Innovations
34.04%
--
--
--
--
--
Shenzhen Zhongxing Hetai Hotel
Investment and Management
Company Limited
18%
--
--
--
--
--
*
--
--
--
(4,764)
--
--
*
--
--
--
--
--
--
23%
1,492
--
--
(1,062)
--
INTLIVE TECHNOLOGIES (PRIVATE)
LIMITED
49%
--
--
--
--
--
20%
2,000
--
--
--
--
30%
--
--
--
--
--
39%
4,687
--
--
--
--
29%
4,138
--
--
(1,342)
--
New Idea Investment Pte. Ltd
20%
--
--
--
--
--
19%
--
--
--
--
--
21.26%
3,812
--
--
(159)
--
Hengyang ICT Real Estate Co., Ltd.
30%
52,446
--
--
--
--
9.31%
5,118
--
--
357
--
12.5%
2,152
--
--
--
--
*
--
1,526
--
(1,526)
--
--
Kron Telekomunikasyon Hizmetleri
A.S.
10%
9,718
--
(711)
(4,494)
(224)
10%
1,069
--
--
--
--
ZTE 9 (Wuxi) Co., Ltd.*
--
--
--
(13,428)
--
--
Huanggang Education Valley
Investment Holdings Co., Ltd
25%
4,414
--
--
(3,686)
--
Whale Cloud Technology Co., Ltd.
28.99%
867,614
--
--
42,559
--
Shijiazhuang Smart Industries
Company Limited
12%
16,172
--
--
(8,343)
--
Zhongxing Feiliu Information
Technology Company Limited
31.69%
42,848
--
--
(1,208)
--
15%
1,571
--
--
(38)
--
35%
3,044
--
--
(177)
--
Xingyun Times Technology
Company Limited
23.26%
--
133,514
--
(1,820)
--
Shenzhen Zhongxin New Energy
Technology Company Limited*
--
37,950
--
(37,950)
--
--
ZTE (Wenzhou) Railway
Communication Technology
Limited
45.9%
--
23,795
--
3,751
--
1,508,781
157,309
(547,055)
72,715
(224)
--
--
2,477
--
(9,188)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
(11,216)
--
--
--
--
--
--
--
4,764
--
--
--
--
--
--
--
--
--
--
430
--
--
--
--
--
(7,117)
--
--
--
2,000
--
--
--
--
--
(570)
--
--
--
4,687
--
(4)
--
--
2,792
--
--
--
--
--
(14,551)
--
--
--
--
(37,248)
--
--
--
3,653
--
--
--
(16,071)
36,375
(16,071)
--
--
--
5,475
--
--
(48)
--
2,104
--
--
--
--
--
--
--
5
--
4,294
--
--
--
--
1,069
--
--
--
13,428
--
--
--
--
--
728
--
--
--
--
910,173
--
--
--
--
7,829
--
--
--
--
41,640
--
--
--
--
1,533
--
--
--
--
2,867
--
--
--
--
131,694
--
--
--
--
--
--
--
--
--
27,546
--
(4)
(9,231)
4,598 1,186,889
(86,773)
*
KAZNURTEL Limited Liability Company, ZTE Energy Company Limited (renamed Zonergy Corporation as from 2
November 2021), ZTE Software Technology (Nanchang) Company Limited, ,
, () , ZTE 9 (Wuxi) Co., Ltd and Shenzhen Zhongxin New Energy
Technology Company Limited were no longer accounted for as associates for the year owing to the loss of
significant influence following the full disposal of equity interests held in these companies.
141
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Long-term equity investments (continued)
Impairment provision for long-term equity investment
30 June 2022
Opening balance
Increase for the period
Decrease for the period
Closing balance
Telecom Innovations INTLIVE TECHNOLOGIES (PRIVATE) LIMITED New Idea Investment Pte. Ltd Hengyang ICT Real Estate Co., Ltd
11,216 7,117
14,551 37,248
570 16,071
86,773
--
(11,216)
--
--
--
7,117
--
--
14,551
--
--
37,248
--
--
570
--
--
16,071
--
(11,216)
75,557
31 December 2021
Opening balance
Increase during the
year
Decrease during the
year
Closing balance
KAZNURTEL Limited Liability Company Telecom Innovations INTLIVE TECHNOLOGIES (PRIVATE) LIMITED New Idea Investment Pte. Ltd ZTE 9 (Wuxi) Co., Ltd. () Hengyang ICT Real Estate Co., Ltd
2,477 11,216
4,764 7,117 14,551 37,248 13,428
570 --
91,371
-- -- -- -- -- -- -- -- 16,071
16,071
(2,477) --
(4,764) -- -- --
(13,428) -- --
(20,669)
-- 11,216
-- 7,117 14,551 37,248
-- 570 16,071
86,773
11. Other non-current financial assets
30 June 2022
31 December 2021
Financial assets at fair value through current profit and loss
1,152,720
1,175,249
142
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Investment properties 30 June 2022 Buildings
Opening balance Fair value change (Note V.46)
Closing balance
2,013,927 (1,484)
2,012,443
31 December 2021
Buildings
Opening balance Other outgoing transfers Fair value change
Closing balance
2,035,234 (18,738) (2,569)
2,013,927
During the period, the Group leased buildings of the investment properties to a related party and other non-related parties by way of operating lease.
As at 30 June 2022, investment properties with a carrying value of RMB1,302,500,000 (31 December 2021: RMB1,287,000,000) had yet to obtain title registration certificates.
13. Fixed Assets
30 June 2022
Buildings Freehold land
Electronic equipment
Machinery equipment
Vehicles
Other equipment
Total
Cost Opening balance Acquisitions Transfer from construction in progress Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Accumulated depreciation Opening balance Charge Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Provision for impairment Opening balance Charge Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Net book value As at the end of the period
As at the beginning of the period
9,136,885 11,450
-- (56,460) (107,489)
11,183 8,995,569
2,327,262 155,332 (37,555) (22,614)
8,359 2,430,784
21,270 -- -- --
-- 21,270
6,543,515
6,788,353
26,666 --
-- -- --
3,199 29,865
-- -- -- --
-- --
-- -- -- --
-- --
29,865
26,666
7,329,487 912,545
-- (281,149) (69,329)
(1,587) 7,889,967
3,902,487 556,968 (251,623) (56,358)
(2,298) 4,149,176
728 -- -- --
(192) 536
3,740,255
3,426,272
2,823,493 37,320
-- (53,287) (1,300)
9,908 2,816,134
1,799,251 89,044 (49,892) (1,241)
9,617 1,846,779
5,553 -- -- --
-- 5,553
963,802
1,018,689
264,707 4,030
-- (15,408) (6,421)
1,110 248,018
156,834 8,548
(13,680) (5,733)
979 146,948
-- -- -- --
-- --
101,070
107,873
342,346 18,639
-- (9,361) (5,300)
5,211 351,535
272,160 7,338 (6,697) (5,003)
4,576 272,374
1,028 -- -- --
(2) 1,026
19,923,584 983,984
-- (415,665) (189,839)
29,024 20,331,088
8,457,994 817,230 (359,447) (90,949)
21,233 8,846,061
28,579 -- -- --
(194) 28,385
78,135 69,158
11,456,642 11,437,011
143
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Fixed Assets (continued) 31 December 2021
Electronic
Machinery
Other
Buildings Freehold land
equipment
equipment
Vehicles
equipment
Total
Cost Opening balance Acquisitions Transfer from construction in progress Transfer from investment properties Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Accumulated depreciation Opening balance Charge Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Provision for impairment Opening balance Charge Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Net book value As at the end of the year
As at the beginning of the year
9,584,112 95,181
149,835
18,738 (542,667) (153,367)
(14,947) 9,136,885
2,150,165 293,800 (77,353) (29,334)
(10,016) 2,327,262
21,270 -- -- --
-- 21,270
6,788,353
7,412,677
29,289 --
--
-- -- --
(2,623) 26,666
-- -- -- --
-- --
-- -- -- --
-- --
26,666
29,289
6,367,292 1,601,529
40,138
-- (612,641) (47,056)
(19,775) 7,329,487
3,457,403 1,029,918 (538,607)
(28,668)
(17,559) 3,902,487
1,840 --
(426) --
(686) 728
3,426,272
2,908,049
3,135,370 157,646
1,406
-- (222,736) (239,124)
(9,069) 2,823,493
1,800,470 240,199 (192,411) (41,527)
(7,480) 1,799,251
5,521 57,074
(10) (57,032)
-- 5,553
1,018,689
1,329,379
275,430 22,118
--
-- (29,282) (2,261)
(1,298) 264,707
165,703 20,015 (26,382) (1,212)
(1,290) 156,834
-- -- -- --
-- --
107,873
109,727
396,183 58,636
36
-- (29,966) (67,554)
(14,989) 342,346
271,258 86,788 (25,330) (50,358)
(10,198) 272,160
104 953 (21)
--
(8) 1,028
69,158
124,821
19,787,676 1,935,110
191,415
18,738 (1,437,292)
(509,362)
(62,701) 19,923,584
7,844,999 1,670,720 (860,083) (151,099)
(46,543) 8,457,994
28,735 58,027
(457) (57,032)
(694) 28,579
11,437,011
11,913,942
As at 30 June 2022, the Group was in the process of applying for property ownership certificate for buildings in Shenzhen, Shanghai and Nanjing in China with a net book value of approximately RMB3,904,968,000 (31 December 2021: RMB4,023,835,000).
144
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Construction in progress
Changes in major construction in progress as at 30 June 2022 were as follows:
Nanjing Project Shanghai R&D Centre Phase III ZTE headquarters Xi'an Project Others
Budget
978,070 478,000 169,040 774,200
--
Opening balance
Increase during the
period
Transfer to fixed assets
during the period
567,225
108,715
--
258,506
33,139
--
121,847
17,407
--
265,665
44,494
--
159,626
101,240
--
1,372,869
304,995
--
Other Impairment reduction provision
--
--
--
--
--
--
--
--
11,696
--
11,696
--
Closing Source of balance funds
Construction contribution
as a percentage of
budget (%) Work progress
675,940 Internal funds 291,645 Internal funds 139,254 Internal funds 310,159 Internal funds 249,170 Internal funds
1,666,168
69.11% Under construction 61.01% Under construction 82.38% Under construction 40.06% Under construction
Under construction
Changes in major construction in progress as at 31 December 2021 were as follows:
Nanjing Project New energy commercial vehicle
production base Shanghai R&D Centre Phase III ZTE headquarters Xi'an Project Others
Budget
978,070
578,333 478,000 169,040 774,200
--
Opening balance
361,162
6,356 182,031 84,520 194,464 211,367 1,039,900
Increase during the
year
Transfer to fixed assets
during the year
206,063
12,786 76,474 37,327 71,201 152,321
556,172
--
-- -- -- -- 191,415
191,415
Other Impairment
reduction
provision
--
--
--
--
--
--
--
--
--
--
31,788
--
31,788
--
Closing Source of balance funds
Construction contribution
as a percentage of
budget (%) Work progress
567,225 Internal funds
19,142 Internal funds 258,505 Internal funds 121,847 Internal funds 265,665 Internal funds 140,485 Internal funds
1,372,869
57.99% Under construction
94.22% Under construction 54.08% Under construction 72.08% Under construction 34.31% Under construction
Under construction
As at 30 June 2022, there was no capitalised interest in the balance of the construction in progress (31 December 2021: Nil).
145
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. Rights-of-use assets
30 June 2022
Buildings and structures
Vehicles Other equipment
Total
Cost Opening balance Increase Decrease Disposal of subsidiaries Exchange rate adjustment
Closing balance
Cumulative depreciation Opening balance Charge Decrease Disposal of subsidiaries Exchange rate adjustment
Closing balance
Book value As at the end of the period
As at the beginning of the period
1,394,347 129,093 (260,063) (7,206) (3,725)
1,252,446
608,847 151,608 (179,855)
(2,480) (588)
577,532
674,914 785,500
58,474 --
(1,775) --
(168) 56,531
37,488 5,529 (1,775) -- (27)
41,215
15,316 20,986
75,840 --
(71,603) -- (13)
4,224
66,980 7,163
(71,603) -- (2)
2,538
1,686 8,860
1,528,661 129,093 (333,441) (7,206) (3,906)
1,313,201
713,315 164,300 (253,233)
(2,480) (617)
621,285
691,916 815,346
31 December 2021
Buildings and structures
Vehicles Other equipment
Total
Cost Opening balance Increase Disposal Exchange rate adjustment
Closing balance
Cumulative depreciation Opening balance Charge Disposal Exchange rate adjustment
Closing balance
Book value As at the end of the year
As at the beginning of the year
1,615,090 240,128 (421,032) (39,839)
1,394,347
628,047 355,961 (347,795) (27,366) 608,847
785,500 987,043
129,627 19,666 (89,113) (1,706) 58,474
99,259 28,549 (89,113) (1,207) 37,488
20,986 30,368
143,818 --
(67,575) (403)
75,840
114,019 20,814 (67,575) (278) 66,980
8,860 29,799
1,888,535 259,794 (577,720) (41,948)
1,528,661
841,325 405,324 (504,483) (28,851) 713,315
815,346 1,047,210
146
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. Intangible assets 30 June 2022
Software
Technology know-how
Land use right
Franchise
Deferred development
costs
Total
Cost Opening balance Acquisition In-house R&D Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Accumulated amortisation Opening balance Charge Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Provision for impairment Opening balance Charge Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Book value As at the end of the period
As at the beginning of the period
1,173,666 145,072 -- (25,965) (8,928) 15,436
1,299,281
525,154 109,416 (22,274)
(8,857) 9,949 613,388
92,613 -- -- --
3,046 95,659
590,234 555,899
490,422 57,383 -- --
(133,907) --
413,898
2,862,520 -- --
(9,532) (22,164)
--
2,830,824
2,089,697 27,584 -- -- -- (11,374)
2,105,907
15,617,778 --
898,791 (103,112)
-- --
16,413,457
22,234,083 230,039 898,791 (138,609) (164,999) 4,062
23,063,367
381,591 24,436 --
(133,481) --
272,546
420,046 35,250 (1,053) (3,065) --
451,178
1,275,398 111,803 -- -- 4,708
1,391,909
11,104,741 891,900 (42,318) -- --
11,954,323
13,706,930 1,172,805 (65,645) (145,403) 14,657
14,683,344
39,422 -- -- -- --
39,422
--
245,117
--
--
--
--
--
--
--
(1,638)
--
243,479
55,459 -- -- -- --
55,459
432,611 -- -- --
1,408
434,019
101,930 69,409
2,379,646 2,442,474
470,519 569,182
4,403,675 4,457,578
7,946,004 8,094,542
147
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. Intangible assets (continued) 31 December 2021
Software
Technology know-how
Land use right
Franchise
Deferred development
costs
Total
Cost Opening balance Acquisition In-house R&D Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Accumulated amortisation Opening balance Charge Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Provision for impairment Opening balance Charge Disposal or retirement Disposal of subsidiaries Exchange rate adjustments
Closing balance
Book value As at the end of the year
As at the beginning of the year
994,714 285,378
-- (69,118) (15,079) (22,229) 1,173,666
389,337 218,440 (57,267)
(8,050) (17,306) 525,154
14,615 83,487 (4,191)
-- (1,298) 92,613
555,899 590,762
464,259 38,376 -- (10,597) (1,616) --
490,422
3,075,120 30,433 --
(183,620) (59,413) --
2,862,520
2,061,615 70,191 -- -- (1,415) (40,694)
2,089,697
14,191,688 --
1,426,090 -- -- --
15,617,778
20,787,396 424,378
1,426,090 (263,335) (77,523) (62,923)
22,234,083
327,705 55,723 (1,142) (695) --
381,591
393,296 75,201 (45,381) (3,070) --
420,046
952,686 329,332
-- (436) (6,184)
1,275,398
9,271,610 1,833,131
-- -- --
11,104,741
11,334,634 2,511,827 (103,790) (12,251) (23,490)
13,706,930
12,205 27,217
-- -- --
39,422
--
58,660
--
192,318
--
--
--
--
--
(5,861)
--
245,117
-- 55,459
-- -- --
55,459
85,480 358,481
(4,191) --
(7,159)
432,611
69,409 124,349
2,442,474 2,681,824
569,182 1,050,269
4,457,578 4,920,078
8,094,542 9,367,282
As at 30 June 2022, the Group was in the process of obtaining the land use right certificate of land blocks located in Shenzhen and Nanjing in the PRC, with a carrying value of approximately RMB89,676,000 (31 December 2021: RMB90,443,000).
As at 30 June 2022, intangible assets formed through internal research and development accounted for 55% of the book value of intangible assets as at the end of the period (31 December 2021: 55%).
148
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. Deferred development costs
30 June 2022
Opening balance
Increase during
the period
Decrease during
the period
Closing balance
Handsets System products
5,354 2,447,921
2,453,275
30 839,995
840,025
(5,384) (893,407)
(898,791)
-- 2,394,509 2,394,509
31 December 2021
Opening balance
Increase during
the year
Decrease during
the year
Closing balance
Handsets System products
2,270 2,070,587
2,072,857
26,798 1,779,710
1,806,508
(23,714) (1,402,376)
(1,426,090)
5,354 2,447,921
2,453,275
The Group adopts the timing of the product development project listing as the starting point for capitalisation. All research and development projects were under normal implementation according to the research and development milestone schedules.
18. Goodwill
Movements in the original value of goodwill are as follows:
30 June 2022
Opening balance
Increase during
the period
Exchange rate change
Decrease during
the period
Disposal
Closing balance
Zhuhai Guangtong Bus Co., Ltd.
186,206
--
--
186,206
Suzhou Laxense Technology Co.,
Ltd.
33,500
--
--
33,500
NETAS TELEKOMUNIKASYON A.S.
89,763
--
--
89,763
309,469
--
--
309,469
149
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. Goodwill (continued) 31 December 2021
Opening balance
Increase during
the year
Business combination
not under common control
Decrease during
the year
Disposal
Closing balance
Zhuhai Guangtong Bus Co., Ltd.
186,206
--
Suzhou Laxense Technology Co.,
Ltd.
33,500
--
NETAS TELEKOMUNIKASYON A.S.
89,763
--
309,469
--
Change in goodwill impairment provision was as follows: 30 June 2022
Opening balance
Increase during
the period
Exchange rate
movement
-- -- -- --
Decrease during
the period
Disposal
186,206 33,500 89,763
309,469
Closing
Zhuhai Guangtong Bus Co., Ltd.
186,206
--
--
186,206
Suzhou Laxense Technology Co.,
Ltd.
33,500
--
--
33,500
NETAS TELEKOMUNIKASYON A.S.
89,763
--
--
89,763
Total
309,469
--
--
309,469
150
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. Goodwill (continued)
31 December 2021
Opening balance
Increase during
the year
Provision
Decrease during
the year
Disposal
Closing
Zhuhai Guangtong Bus Co., Ltd. Suzhou Laxense Technology Co.,
Ltd. NETAS TELEKOMUNIKASYON A.S.
Total
--
33,500 89,763 123,263
186,206
-- -- 186,206
--
186,206
--
33,500
--
89,763
--
309,469
As at 30 June 2022, full impairment provisions had been provided in respect of the Zhongxing Smart Auto Company Limited asset group (Zhuhai Guangtong Bus Co., Ltd.), Suzhou Laxense Technology Co., Ltd. asset group and NETAS TELEKOMUNIKASYON A.S. asset group.
19. Deferred tax assets/liabilities
Deferred tax assets and deferred tax liabilities, which are not offset:
30 June 2022
Deductible
temporary Deferred tax
differences
assets
31 December 2021
Deductible
temporary Deferred tax
differences
assets
Deferred tax assets Unrealised profits arising on consolidation Provision for impairment in inventory Foreseeable construction contract losses Amortisation of deferred development costs Provision for warranties and returned goods Provision for retirement benefits Deductible tax losses Accruals Share option scheme expenses Lease liabilities
3,167,444
2,945,923
2,116,096
3,464,317
148,622
144,571 6,447,870 2,622,593
1,188,524 770,785
23,016,745
546,752
593,960
335,474
567,149
34,170
31,817 1,102,230
412,206
178,278 122,042 3,924,078
3,192,500
2,467,474
1,986,503
3,464,832
147,941
147,539 5,715,990 3,107,299
996,419 921,179 22,147,676
531,200
545,017
319,771
567,272
34,014
33,935 906,061 499,853
149,463 134,111 3,720,697
151
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. Deferred tax assets/liabilities (continued)
30 June 2022
Deductible
temporary Deferred tax
differences
liabilities
31 December 2021
Deductible
temporary Deferred tax
differences
liabilities
Deferred tax liabilities Revaluation gain of investment properties Investment in equity instrument at fair value through profit or loss Adjustments to fair value of business combination not under common control Rights-of-use assets Others
1,086,845
1,224,882
596,769 691,916 732,380 4,332,792
163,027
176,631
89,515 103,787 109,857 642,817
1,088,329
1,615,632
656,635 815,346 528,905 4,704,847
163,249
212,922
98,495 122,302
79,336 676,304
The net amount of deferred tax assets and deferred tax liabilities after set-off:
30 June 2022
Amount of Amount after
set-off
set-off
31 December 2021
Amount of Amount after
set-off
set-off
Deferred tax assets Deferred tax liabilities
534,486 534,486
3,389,592 108,331
525,956 525,956
3,194,741 150,348
Deductible temporary differences and deductible tax losses of unrecognised deferred tax assets:
30 June 2022
31 December 2021
Deductible tax losses
5,747,009
5,619,342
Deductible tax losses of unrecognised deferred tax assets expiring in:
30 June 2022
31 December 2021
2022 2023 2024 2025 Beyond 2026
61,684 166,092 105,828 289,921 5,123,484
5,747,009
73,508 100,192 115,342 314,465 5,015,835
5,619,342
152
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. Other current assets/other non-current assets
Other current assets
30 June 2022
31 December 2021
Advanced payment of output tax and credit tax available for set off
Others
6,746,335 149,194
6,895,529
7,747,024 71,573
7,818,597
Other non-current assets
30 June 2022
31 December 2021
Prepayments for project, equipment and land Risk compensation fund Guarantee deposit Restricted cash (Note 1) Prepaid income tax Others
758,735 394,568 293,978 2,768,108 180,893 2,038,978
6,435,260
675,261 197,803 346,398 2,632,130 193,783 2,004,982
6,050,357
Note 1: Restricted funds represented deposits in an escrow account approved by the U.S. Department of Commerce which restriction will be lifted after a monitoring period of 10 years has lapsed. For details, please refer to Note XII.2.
21. Short-term loans
30 June 2022
Original
RMB
currency equivalent
31 December 2021
Original
RMB
currency equivalent
Credit loans
Bills discounting loans Letter of credit loans Pledged loans
Note 1
RMB USD EUR TRY KZT RMB RMB RMB
2,719,050 387,555 17,584 547,504 203,460 833,504
3,300,000 20,000
2,719,050 2,597,200
123,022 220,115
2,932 833,504 3,300,000
20,000
9,815,823
2,872,000 385,100 25,694 311,150 --
271,562 3,000,000
10,000
2,872,000 2,455,012
185,513 152,848
-- 271,562 3,000,000
10,000
8,946,935
As at 30 June 2022, the annual interest rate of the above loans ranged from 1.13%44.50% (except for TRY loans which were subject to an annual interest rate of 14.75%44.50%) (31 December 2021: 1.11%20.00%, including TRY loans which were subject to an annual interest rate of 17.75%20.00%).
Note 1: The guaranteed loan comprised mainly loans extended to ZTE ICT Company Limited secured by trade receivables with a book value of RMB40,253,000 of the "Wanzhou Smart Medicine Project".
153
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. Derivative financial liabilities
30 June 2022
31 December 2021
Financial liabilities at fair value through current profit and loss
14,739
27,729
Financial liabilities at fair value through profit or loss represent forward foreign exchange contract. For details please refer to Note V.3.
23A. Bills payable
30 June 2022
31 December 2021
Bank acceptance bills Commercial acceptance bills
4,873,428 6,823,024
11,696,452
5,281,279 6,276,097
11,557,376
23B. Trade payables Trade payables An aging analysis of the trade payables are as follows:
30 June 2022
31 December 2021
0 to 6 months 6 to 12 months 1 year to 2 years 2 years to 3 years Over 3 years
19,970,880 211,174 199,976 211,160 135,420
20,728,610
20,964,976 200,629 212,073 147,694 191,895
21,717,267
Trade payables are interest-free and repayable normally within 6 months.
154
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Contract liabilities
30 June 2022
31 December 2021
Contracted consideration received
20,166,471
16,101,652
Contract liabilities refer to the obligation to transfer goods to customers in consideration of payments received or receivable from customers. Contract liabilities are incurred when the payment schedule agreed under the contract is ahead of the performance of contract obligations.
25. Salary and welfare payables
Salaries payable
30 June 2022
Opening balance
Increase during the
period
Decrease during the
period
Closing balance
Short-term remuneration Retirement benefits (Defined
contribution scheme) Termination benefits
11,492,860
171,825 26,738
11,691,423
13,745,877
861,516 75,915
14,683,308
(15,220,172)
(856,234) (82,104)
(16,158,510)
10,018,565
177,107 20,549
10,216,221
31 December 2021
Opening balance
Increase
during the
Decrease
year during the year
Closing balance
Short-term remuneration Retirement benefits (Defined
contribution scheme) Termination benefits
10,383,922
126,395 35,178
10,545,495
24,156,470
1,612,573 209,995
25,979,038
(23,047,532)
(1,567,143) (218,435)
(24,833,110)
11,492,860
171,825 26,738
11,691,423
155
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. Salary and welfare payables (continued)
Short-term remuneration analysed as follows:
30 June 2022
Opening balance
Increase during the
period
Decrease during the
period
Closing balance
Salary, bonus and allowance Staff welfare Social Insurance
Including: Medical Work injuries Maternity
Housing funds Labour union fund and
employee education fund
9,303,305 13,165 38,414 35,598 674 2,142 2,499
2,135,477
11,492,860
12,276,570 18,958
648,485 612,742
14,122 21,621 409,281
392,583
13,745,877
(14,130,389) (16,768)
(634,040) (598,691)
(13,970) (21,379) (409,594)
(29,381)
(15,220,172)
7,449,486 15,355 52,859 49,649 826 2,384 2,186
2,498,679
10,018,565
31 December 2021
Opening balance
Increase during the
year
Decrease during the
year
Closing balance
Salary, bonus and allowance Staff welfare Social Insurance
Including: Medical Work injuries Maternity
Housing funds Labour union fund and
employee education fund
8,443,244 14,973 61,668 58,421 1,373 1,874 33,405
1,830,632
10,383,922
21,784,178 31,237
936,149 868,449
21,594 46,106 711,633
693,273
24,156,470
(20,924,117) (33,045)
(959,403) (891,272)
(22,293) (45,838) (742,539)
(388,428)
(23,047,532)
9,303,305 13,165 38,414 35,598 674 2,142 2,499
2,135,477
11,492,860
156
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. Salary and welfare payables (continued)
Defined contribution plans are analysed as follows:
30 June 2022
Opening balance
Increase during the
period
Decrease during the
period
Closing balance
Pension insurance Unemployment insurance
170,361 1,464
171,825
836,447 25,069
861,516
(831,427) (24,807)
(856,234)
175,381 1,726
177,107
31 December 2021
Opening balance
Increase during the
period
Decrease during the
period
Closing balance
Pension insurance Unemployment insurance
123,944 2,451
126,395
1,570,017 42,556
1,612,573
(1,523,600) (43,543)
(1,567,143)
170,361 1,464
171,825
26. Tax payable
30 June 2022
31 December 2021
Value-added tax Enterprise income tax
Including: PRC tax Overseas tax
Personal income tax City maintenance and construction tax Education surcharge Other taxes
550,629 649,767 399,987 249,780 207,650
35,725 31,983 11,944
1,487,698
433,126 361,341 307,359
53,982 276,507
73,038 54,718 17,604
1,216,334
157
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. Other payables
30 June 2022
31 December 2021
Interest payables Dividend payables Other payables
Dividend payables
64,536 1,261
3,360,051
3,425,848
55,379 11,797 3,438,243
3,505,419
30 June 2022
31 December 2021
Dividend on ordinary shares Dividend payables to minority shareholders
Other payables
Accruals Deferred income from staff housing due in 1 year Payables to external parties Deposits Others
225 1,036 1,261
225 11,572 11,797
30 June 2022
31 December 2021
1,225,627 43,985
1,726,174 150,648 213,617
3,360,051
1,059,029 44,162
2,130,813 144,780 59,459
3,438,243
158
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
28. Provisions
30 June 2022
Opening balance
Increase during the
period
Decrease during the
period
Closing balance
Expected contract loss (Note 1)
Outstanding litigation (Note 2)
Provision for warranties
2,349,337
244,258 147,941 2,741,536
588,833
152,234 28,959
770,026
(742,664)
(47,710) (28,278) (818,652)
2,195,506
348,782 148,622 2,692,910
31 December 2021
Opening balance
Increase during the
year
Decrease during the
year
Closing balance
Expected contract loss (Note 1)
Outstanding litigation (Note 2)
Provision for warranties
1,756,267
172,964 156,003 2,085,234
1,560,442
169,167 56,276
1,785,885
(967,372)
(97,873) (64,338) (1,129,583)
2,349,337
244,258 147,941 2,741,536
Note 1: Unavoidable cost for the performance of contract in excess of expected economic benefits of the contract.
Note 2: Provisions in respect of likely compensation amounts for cases as assessed based on the advice from appointed legal counsel and the progress of such cases.
29. Non-current liabilities due within one year
30 June 2022
31 December 2021
Long-term loans due within one year Lease liabilities
3,983,764 311,896
4,295,660
588,140 389,196
977,336
159
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30. Long-term loans
30 June 2022
Original
RMB
currency equivalent
31 December 2021
Original
RMB
currency equivalent
Credit loans
Guaranteed loans Secured loans
Note 1 Note 2
RMB USD EUR TRY USD RMB
27,752,750 279,373 -- --
150,000 72,824
27,752,750 1,872,215 -- -- 1,005,225 72,824
30,703,014
23,118,200 555,000 363 5,816 499,000 65,515
23,118,200 3,538,125 2,619 2,857 3,181,125 65,515
29,908,441
As at 30 June 2022, the annual interest rate of the above loans ranged from 1.87%5.64% (31 December 2021: 0.75%9.00%, including TRY loans which were subject to an annual interest rate of 9.00%).
Note 1: The loan comprised mainly bank loans extended to ZTE (H.K.) Limited and guaranteed by ZTE Corporation (31 December 2021: RMB3,181,125,000).
Note 2:
The secured loans comprised mainly an RMB72,824,000 (31 December 2021: RMB62,265,000) loan extended to Zhongxing Smart Auto Company Limited secured by land use rights with a book value of RMB218,133,000 and fixed assets with a book value of RMB486,909,000. The secured loans has been returned by Anhui Wantong Posts and Telecommunication Company Limited (31 December 2021: RMB3,250,000).
# Aging profile of bank loans
30 June 2022
31 December 2021
Listed as: Bank loan repayable: Within one year Within the second year Within the third to fifth years, inclusive After five years
Total bank loans
13,799,587 6,721,049
23,981,965 --
44,502,601
9,535,075 13,467,751 16,384,650
56,040
39,443,516
160
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31. Lease liabilities
30 June 2022
31 December 2021
Lease liabilities 32. Other non-current liabilities
465,825
531,983
30 June 2022
31 December 2021
Deferred income relating to staff housing Long-term payable Amounts payable to third parties Financial liabilities at fair value through current profit or loss
219,392 3,665,694
58,743 24,854
3,968,683
222,835 3,644,581
61,812 --
3,929,228
33. Share capital
30 June 2022
Restricted shares State-owned legal person shares Other domestic shareholdings Shares held by Directors, Supervisors and senior management subject to lock-up
Total number of restricted shares
Unrestricted shares RMB Ordinary shares Overseas listed foreign shares
Total number of unrestricted shares
Total number of shares
Opening balance share in
'000
39,379 45,942
588 85,909 3,889,385 755,502 4,644,887 4,730,796
Increase/decrease during the period
Issue of Transfer from
new share
reserves
Others
Sub-total
-- --
255 255 4,778
-- 4,778 5,033
--
--
--
--
--
--
--
(111)
144
--
(111)
144
--
111
4,889
--
--
--
--
111
4,889
--
--
5,033
Closing balance share in
'000
39,379 45,942
732 86,053 3,894,274 755,502 4,649,776 4,735,829
161
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
33. Share capital (continued)
31 December 2021
Opening balance share in
'000
Increase/decrease during the year
Issue of Transfer from
new share
reserves
Others
Sub-total
Closing balance share in
'000
Restricted shares State-owned legal person shares Other domestic shareholdings Shares held by Directors, Supervisors and senior management subject to lock-up
Total number of restricted shares
Unrestricted shares RMB ordinary shares Overseas listed foreign shares
Total number of unrestricted shares
Total number of shares
43,032 338,067
580 381,679 3,476,254 755,502 4,231,756 4,613,435
39,379 45,942
22 85,343 32,018
-- 32,018 117,361
--
(43,032)
(3,653)
--
(338,067)
(292,125)
39,379 45,942
--
(14)
8
588
--
(381,113)
(295,770)
85,909
--
381,113
413,131
3,889,385
--
--
--
755,502
--
381,113
413,131
4,644,887
--
--
117,361
4,730,796
162
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
34. Capital reserves
30 June 2022
Opening balance
Increase during the
period
Decrease during the
period
Closing balance
Share premium (Note 1) Share-based payment
(Note 2) Other capital investment
31 December 2021
24,283,545 996,419 80,000
25,359,964
Opening balance
134,797
247,549 --
382,346
Increase during the
year
(2,068)
(55,444) --
(57,512)
24,416,274
1,188,524 80,000
25,684,798
Decrease during the
year
Closing balance
Share premium Share-based payment Other capital investment
22,716,657 479,153 80,000
23,275,810
1,681,654 871,497 --
2,553,151
(114,766) (354,231)
--
(468,997)
24,283,545 996,419 80,000
25,359,964
Note 1:
During the period, the shareholders' premium of the capital reserve was increased by RMB134,797,000 following the exercise of the Company's share option incentives, and the shareholders' premium of the capital reserve was decreased by RMB2,068,000 following the Company's acquisition of non-controlling interests.
Note 2:
The Company issued share option incentives in November 2020 to be implemented in three exercise periods and recognized option expenses for the period of RMB223,305,000 during the year in respect of share option incentives under the three periods. The Company issued the Management Stock Ownership Scheme in December 2020 to be implemented in two exercise periods and recognized expenses for the period of RMB12,197,000 in respect of the Management Stock Ownership Scheme. The Company issued reserved share option incentives under the 2020 Share Option Incentive Scheme in September 2021 to be implemented in two exercise periods and recognised share option expenses of RMB12,047,000 during the year in respect of the share option incentives. For details please refer to Note XI.
163
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
35. Other comprehensive income
Accumulated balance of other comprehensive income on the balance sheet attributable to the parent company:
1 January 2021
Increase/ 31 December
decrease
2021
Increase/ decrease
30 June 2022
Changes in net liabilities arising from the re-measurement of defined benefit plans
Share of investee results in other comprehensive income under equity method which will not be reclassified to profit and loss
Effective portion of hedging instruments Differences arising from foreign currency
translation Fair value at date of reclassification of owned
properties reclassified as investment properties at fair value in excess of book value
(72,927)
44,350 (67,982) (2,966,832)
792,769 (2,270,622)
(3,439)
(76,366)
-- --
(12,960)
44,350 (67,982)
(2,979,792)
-- (16,399)
792,769 (2,287,021)
--
(76,366)
-- --
(2,646)
44,350 (67,982)
(2,982,438)
-- (2,646)
792,769 (2,289,667)
Other comprehensive income on the income statement incurred during the current period:
Six months ended 30 June 2022
Amount before taxation
Less: amount recognised in
other comprehensive income for the previous period and profit and
loss for the current period Less: income tax
Attributable to the parent company
Attributable to non-controlling
interests
Differences arising from foreign
currency translation
(4,457)
--
--
(2,646)
(1,811)
Six months ended 30 June 2021
Amount before taxation
Less: amount recognised in
other comprehensive income for the previous period and profit and
loss for the current period
Less: income tax
Attributable to the parent company
Attributable to non-controlling
interests
Differences arising from foreign
currency translation
12,448
--
--
17,325
(4,877)
164
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
36. Surplus reserves
30 June 2022
Opening balance
Opening adjustment
Increase during the
period
Decrease during the
period
Closing balance
Statutory surplus reserves
3,027,154
--
--
--
3,027,154
31 December 2021
Statutory surplus reserves
Opening balance
2,968,473
Opening adjustment
--
Increase during the
year
58,681
Decrease during the
year
--
Closing balance
3,027,154
In accordance with the Company Law of the PRC and the articles of associations, the Company is required to allocate 10% of their profit after tax to the statutory surplus reserve, until the accumulated statutory surplus reserve has reached 50% of the registered capitals of the Company.
The Company may further allocate to the discretionary surplus reserve after the statutory surplus reserves allocation. The discretionary surplus reserve can be applied towards making up losses of the previous years, or capitalised as the Company's share capital.
37. Retained profits
30 June 2022
31 December 2021
Retained profits at the beginning of the period Net profit attributable to shareholders of the parent Surplus reserve Distribution to shareholders
Retained profits at the end of the period
20,651,196 4,565,826 -- (1,420,213)
23,796,809
14,824,478 6,812,941 (58,681) (927,542)
20,651,196
Pursuant to the resolution passed at the general meeting held on 21 April 2022, the Company shall pay a cash dividend of RMB0.3 (2021: RMB0.2) per share to all shareholders. Based on the total share capital in issue of 4,734,044,778 shares (2021: 4,637,709,675 shares) as at the shareholding record date, the total amount of profit distribution shall be RMB1,420,213,433.40 (2021: RMB927,541,935). The A share dividend payment date was 10 May 2022. The H share dividend payment date was 20 May 2022.
165
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
38. Operating revenue and costs
Six months ended
30 June 2022
Revenue
Cost
Six months ended
30 June 2021
Revenue
Cost
Principal business Other business
58,238,358 1,579,942
59,818,300
36,402,809 1,260,085
37,662,894
51,434,237 1,636,733
53,070,970
32,871,077 1,021,705
33,892,782
Operating revenue is analysed as follows:
Six months ended
30 June 2022
Six months ended
30 June 2021
Revenue from customer contract Rental income -- operating leases
59,750,685 67,615
59,818,300
53,010,999 59,971
53,070,970
Breakdown of revenue from customer contracts:
Six months ended
30 June 2022
Six months ended
30 June 2021
Major operating area PRC Asia (excluding PRC) Africa Europe, America and Oceania
Types of key products Sale of products Rendering of services Network construction
Timing of revenue recognition Recognition of revenue at a point in time Recognition of revenue over a period of time
40,534,755 7,899,366 2,510,729 8,805,835
59,750,685
20,430,782 4,296,317
35,023,586 59,750,685
55,454,368 4,296,317
59,750,685
35,894,853 7,140,276 2,351,270 7,624,600
53,010,999
17,754,461 3,767,790
31,488,748 53,010,999
49,243,209 3,767,790
53,010,999
166
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
38. Operating revenue and costs (continued)
Revenue included in the opening book value of contract liabilities and recognized for the period is as follows:
Six months ended
30 June 2022
Six months ended
30 June 2021
Revenue included in the opening book value of contract liabilities and recognized for the period
6,741,166
6,173,073
39. Taxes and surcharges
Six months ended
30 June 2022
Six months ended
30 June 2021
City maintenance and construction tax Education surcharge Property tax Stamp duty Others
117,089 90,744 38,266 90,746 50,562
387,407
139,950 110,571
40,239 35,973 58,938
385,671
40. Selling and distribution costs
Six months ended
30 June 2022
Six months ended
30 June 2021
Wages, welfare and bonuses Services charges Travelling expenses Service fees Office expense Advertising and promotion expenses Others
2,664,354 226,404 328,810 115,119 118,022 620,815 350,024
4,423,548
2,468,358 280,796 259,253 95,010 108,630 488,612 469,145
4,169,804
167
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
41. Administrative expenses
Six months ended
30 June 2022
Six months ended
30 June 2021
Wages, welfare and bonuses Office expenses Amortisation and depreciation charges Lease expenses Travelling expenses Audit fees# Others
1,194,995 80,749
220,917 5,017
29,578 8,055
993,385
2,532,696
1,160,306 85,489
308,698 32,095 27,736 8,429
920,785
2,543,538
42. Research and development costs
Six months ended
30 June 2022
Six months ended
30 June 2021
Wages, welfare and bonuses Direct material costs Amortisation and depreciation charges Office expenses Technical cooperation fee Others
7,448,841 346,748
1,372,889 189,194 444,177 349,651
10,151,500
5,996,212 241,769
1,344,819 157,372 794,836 326,398
8,861,406
168
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
43. Finance costs
Six months ended
30 June 2022
Six months ended
30 June 2021
Interest expenses Including: Interest expenses on lease liabilities Interest expense on long-term payables Interest expense on SCPs
Less: Interest income Loss on foreign currency exchange Bank charges
949,580 26,597 29,957
101,033 1,141,487
405,233 90,419
303,745
665,129 34,490 28,781 9,172
661,600 406,610
70,563
480,702
Details of interest income are as follows:
Six months ended
30 June 2022
Six months ended
30 June 2021
Interest income from cash Interest income from finance contract Interest income from finance lease
1,037,475 69,041 34,971
1,141,487
517,400 110,626
33,574
661,600
44. Other income
Six months ended
30 June 2022
Six months ended Relating to asset/
30 June 2021 income
Refund of VAT on software products (Note 1)
Refund of handling charges for personal tax
Others
714,735
23,028 163,823 901,586
801,562 Relating to income
21,893 Relating to income 444,251 Relating to income 1,267,706
Note 1:
Refund of VAT on software products represents the refund upon payment of VAT according to the portion of any effective AT rate in excess of 3% in respect of software product sales by some subsidiaries of the Company, pursuant to the principles of the State Council document entitled "Certain Policies to Further Encourage the Development of Software Enterprise and the IC Industry" and the approval reply of the state taxation authorities.
169
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
45. Investment income
Six months ended
30 June 2022
Six months ended
30 June 2021
Investment loss from long-term equity investment under equity method
Investment income earned from financial assets at fair value through current profit or loss during the period of holding
Investment (loss)/income arising from the disposal of derivative financial assets
Investment income from disposal of financial assets at fair value through current profit or loss
Investment income from the disposal of long-term equity interests
Loss upon derecognition of financial assets at amortised cost and financial assets at fair value through other comprehensive income
(56,564) 7,973
328,675 529,190
7,445
(145,496) 671,223
(70,777) 6,254
(71,317) 82,358 862,666
(106,075) 703,109
46. Gain/loss from changes in fair values
Six months ended
30 June 2022
Six months ended
30 June 2021
Financial assets at fair value through current profit or loss Derivative financial instruments Investment properties at fair value
(445,353) 54,603 (1,484)
(392,234)
607,798 265,985
878
874,661
47. Credit impairment losses
Six months ended
30 June 2022
Six months ended
30 June 2021
Impairment loss of trade receivables Impairment losses on receivable financing Impairment loss of other receivables Reversal of impairment of long-term receivables Loss of impairment of factored trade receivables (Reversal)/loss of impairment of long-term factored receivables
118,080 1,327 1,127 (3,591) 64 (95)
116,912
55,706 3,025
74,101 (7,831)
155 93
125,249
170
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
48. Asset impairment losses
Six months ended
30 June 2022
Six months ended
30 June 2021
Loss/(reversal) on inventories provisions Long-term equity investment impairment loss (Reversal)/loss on impairment of contract assets Impairment loss on prepayment Impairment loss of intangible assets Impairment loss of fixed assets Impairment loss on other non-current assets
167,433 --
(22,449) 9,850 -- -- 5,937
160,771
(161,051) 16,070 29,855 -- 16,214 57,984 --
(40,928)
49. Gain on asset disposal
Six months ended
30 June 2022
Six months ended
30 June 2021
Gain on disposal of right-of-use assets Gain on disposal of intangible assets Gain on disposal of fixed assets
5,911 1,691
--
7,602
-- -- 47,494
47,494
171
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
50. Non-operating income/non-operating expenses
Non-operating income
Six months ended
30 June 2022
Six months ended
30 June 2021
Amount of extraordinary
gain/loss recognised for the six months ended 30 June
2022
Income from contract penalty and reward Others
11,292 88,021
99,313
15,581 127,593
143,174
11,292 88,021
99,313
Non-operating expenses
Six months ended
30 June 2022
Six months ended
30 June 2021
Amount of extraordinary
gain/loss recognised for the six months ended 30 June
2022
Compensation and indemnity Others
102,152 52,456
154,608
83,036 78,878
161,914
102,152 52,456
154,608
51. Expenses by nature
Supplementary information of the Group's operating costs, Selling and distribution costs, Research and development costs and administration expenses by nature were as follows:
Six months ended
30 June 2022
Six months ended
30 June 2021
Cost of goods and services Staff remuneration (including share-based payment) Depreciation and amortisation Others
34,646,743 14,050,926
2,136,928 3,936,041
54,770,638
32,436,327 10,766,759
2,215,862 4,048,582
49,467,530
172
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52. Income tax
Six months ended
30 June 2022
Six months ended
30 June 2021
Current income tax Deferred income tax
901,925 (236,868)
665,057
540,084 436,266
976,350
Reconciliation between income tax and total profit was as follows:
Six months ended
30 June 2022
Six months ended
30 June 2021
Total profit Tax at statutory tax rate (Note 1) Effect of different tax rates applicable to certain subsidiaries Adjustment to current tax in previous periods Profits and losses attributable to jointly-controlled entities and
associates Income not subject to tax Additional deduction for R&D expenses and non-deductible
tax expenses Utilisation of tax losses from previous years Unrecognised tax losses and temporary difference available
for setoff
Tax charge at the Group's effective rate
5,211,709 1,302,927
(555,199) (20,878)
10,472 (36,257)
(289,100) (13,824)
266,916 665,057
5,526,976 1,381,744
(516,163) (14,795)
10,617 (14,030)
(121,434) (11,601)
262,012 976,350
Note 1:
The Group's income tax has been provided at the rate on the estimated taxable profits and applicable tax rates arising in the PRC. Taxes on taxable profits elsewhere have been calculated at the applicable tax rates prevailing in the countries/jurisdictions in which the Group operates in accordance with their existing legislation and interpretations and practices in respect thereof.
53. Earnings per share
Basic earnings per share is computed by dividing the net profit attributable to holder of ordinary shares of the Company for the period by the weighted average number of ordinary shares in issue.
In the calculation of diluted earnings per share, net profit attributable to ordinary equity holders of the Company for the period, as the numerator, is adjusted for the following: (1) interests on potentially dilutive ordinary shares recognised as expenses for the period; (2) income or expenses arising from the conversion of potentially dilutive ordinary shares; and (3) income tax effect on the above adjustments.
In the calculation of diluted earnings per share, the denominator shall be the sum of: (1) weighted average number of ordinary shares of the parent company in issue adopted in the calculation of basic earnings per share; and (2) weighted average number of ordinary shares created assuming conversion of potentially dilutive ordinary shares into ordinary shares.
173
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
53. Earnings per share (continued)
In calculating the weighted average number of ordinary shares created upon conversion of potentially dilutive ordinary shares into ordinary share, potentially dilutive ordinary shares issued in previous periods are assumed to have been converted at the beginning of the current period, whereas potentially dilutive ordinary shares issued in the current period are assumed to have been converted on the date of issue.
Calculations of basic and diluted earnings per shares were as follows:
Six months ended
30 June 2022
Six months ended
30 June 2021
Earnings Net profit attributable to ordinary shareholders of the Company for the period
Shares Weighted average number of ordinary shares of the Company in issue ('000 shares) Diluting effect -- weighted average number of ordinary shares ('000 shares) (Note 1) Stock option
Adjusted weighted average number of ordinary shares of the Company in issue ('000 shares)
4,565,826 4,736,367
108 4,736,475
4,078,613 4,613,435
17,177 4,630,612
Note 1:
The calculation of the diluted earnings/(losses) per share amount is based on the profit/(loss) for the period attributable to ordinary equity holders of the parent. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the period, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at nil consideration on the deemed exercise or conversion of all dilutive potential ordinary shares.
54. Notes to major items in cash flow statement
Six months ended
30 June 2022
Six months ended
30 June 2021
Cash received in connection with other operating activities: Interest income
Cash paid in connection with other investing activities: Net cash outflow in connection with disposal of subsidiaries
Cash paid in connection with other financing activities: Refund of investment by non-controlling interests Principal and interest payment for lease liabilities
716,586
72,098 8,011
195,790
658,774
-- -- 220,584
174
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
55. Supplemental information on cash flow statement
(1) Supplemental information on cash flow statement
Reconciliation of net profit to cash flows from operating activities:
Six months ended
30 June 2022
Six months ended
30 June 2021
Net profit Add: Credit impairment losses
Asset impairment losses/(reversal) Depreciation of fixed assets Depreciation of rights-of-use assets Amortisation of intangible assets Gain on disposal of fixed assets, intangible assets
and other long-term assets Loss/(gain) from changes in fair value Finance costs Investment income (Increase)/decrease in deferred tax assets Decrease in deferred tax liabilities Increase in inventories Increase in operating receivables Increase in operating payables Cost of share-based payment Increase in cash not immediately available for
payments
Net cash flow from operating activities
4,546,652 116,912 160,771 817,230 164,300
1,172,805
(7,602) 392,234 991,525 (671,223) (194,851) (42,017) (5,698,996) (1,257,070) 2,761,653 247,549
(238)
3,499,634
4,550,626 125,249 (40,928) 776,020 250,010
1,189,832
(25,344) (874,661) 490,987 (703,109) 441,153
(4,887) (599,382) (827,668) 2,048,804 468,770
(237,037)
7,028,435
Change in cash and cash equivalents:
Six months ended
30 June 2022
Six months ended
30 June 2021
Balance of cash at the end of the period Less: balance of cash at the beginning of the period Add: Balance of cash equivalents at the end
of the period Less: balance of cash equivalents at the beginning
of the period
Net increase in cash and cash equivalents
1,933 1,685
44,079,232
39,068,898 5,010,582
1,586 1,655
40,382,524
31,401,401 8,981,054
175
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
55. Supplemental information on cash flow statement (continued)
(2) Information on subsidiaries and other business units acquired or disposed of:
Information on subsidiaries and other business units disposed of:
Six months ended
30 June 2022
Six months ended
30 June 2021
Price at which subsidiaries and other business units were disposed of
Cash and cash equivalents received on disposal of subsidiaries and other business units
Cash and cash equivalents held by subsidiaries and other business units disposed of
Net cash received on disposal of subsidiaries and other business units
297,000 89,100 -- 89,100
1,111,422 1,111,422
(67,770) 1,043,652
(3) Cash and cash equivalents
Six months ended
30 June 2022
Six months ended
30 June 2021
Cash Including: Cash on hand
Bank deposit readily available for payment
Balance of cash and cash equivalents at end of period
1,933 44,079,232
44,081,165
1,586 40,382,524
40,384,110
176
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
56. Assets under restrictions on ownership or right of use
30 June 2022
31 December 2021
Cash Trade receivables and contract assets Fixed assets Work in progress Intangible assets Other non-current assets -- restricted cash
1,088,552 40,253
486,910 --
218,133 3,456,654
5,290,502
1,421,057 Note 1 68,638 Note 2
495,234 Note 3 --
234,974 Note 4 3,176,331 Note 5
5,396,234
Note 1:
As at 30 June 2022, the Group's cash subject to ownership restriction amounted to RMB1,088,552,000 (31 December 2021: RMB1,421,057,000), including acceptance bill deposits of RMB129,608,000 (31 December 2021: RMB212,344,000), letter of credit deposits of RMB561,618,000 (31 December 2021: RMB604,519,000), deposit for guarantee letter of RMB52,273,000 (31 December 2021: RMB63,247,000)), dues from the People's Bank of China of RMB138,682,000 (31 December 2021: RMB177,497,000), technology grants of RMB206,371,000 (31 December 2021: RMB363,450,000).
Note 2: As at 30 June 2022, trade receivables with a carrying value of RMB40,253,000 (31 December 2021: RMB68,638,000) were pledged to secure bank borrowing.
Note 3:
As at 30 June 2022, fixed assets with a carrying value of RMB486,910,000 (31 December 2021: RMB495,234,000) were pledged to secure bank borrowing; no fixed assets were pledged in connection with asset acquisitions (31 December 2021: Nil).
Note 4:
As at 30 June 2022, intangible assets with a carrying value of RMB218,133,000 (31 December 2021: RMB234,974,000) were pledged to secure bank borrowings. No intangible assets were pledged as security for asset acquisition (31 December 2021: Nil).
Note 5:
As at 30 June 2022, restricted funds represented a RMB2,768,108,000 (31 December 2021: RMB2,632,130,000) deposit in an escrow account approved by the U.S. Department of Commerce which restriction will be lifted after a monitoring period of 10 years has lapsed, the details of which are set out in Note XII; a RMB293,978,000 performance bond with a term of over 1 year provided for ZTE in favour of a project partner (31 December 2021: RMB346,398,000); and risk compensation fund to be released after one year amounting to RMB394,568,000 (31 December 2021: RMB197,803,000).
Under the factored trade receivables agreements between the Group and certain domestic banks, provisions are being made for a risk compensation fund at a mutually determined percentage based on the risk profile of the facilities concerned. The risk compensation fund shall be released on a pro-rata basis in respect of the facilities if there is no overdue principal or interest payment at the agreed final payment date, or when the principal and interest of the banking facilities have been fully settled. As at 30 June 2022, the risk compensation fund under the arrangements for loans and factored trade receivables amounted to RMB394,568,000 (31 December 2021: RMB197,803,000), representing risk compensation fund to be released after one year which was accounted for as other non-current assets.
177
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
57. Monetary items in foreign currencies
The Group's major monetary items in foreign currencies:
30 June 2022
Original Exchange
currency
rate
RMB equivalent
31 December 2021
Original
Exchange
currency
rate
RMB equivalent
Cash Bank deposit
Other cash Trade receivables Other receivables Trade payables Other payables Short-term loans Long-term loans
USD DZD USD EUR JPN PKR MYR ETB NPR DZD GBP RUB IDR HKD CAD BRL THB EGP COP CLP USD USD EUR INR THB BRL USD EUR INR RUB PKR USD IDR EUR MXN PHP USD EUR JPN SAR USD EUR TRY KZT USD TRY EUR
128 1,267 442,308 217,470 4,239,811 3,628,648 16,030 474,704 584,153 529,984 2,961 178,127 215,603,017 123,302 17,209 14,463 260,434 50,826 9,591,448 1,048,394 4,104 725,691 124,286 5,249,458 907,175 42,195 35,382 259,967 4,635 1,278,930 231,519 897,611 2,177,496,037 75,898 910,824 1,278,547 111,310 14,768 71,101
8 387,555
17,584 547,504 203,460 429,373
-- --
6.7015 0.0458 6.7015 6.9961 0.0490 0.0326 1.5212 0.1289 0.0530 0.0458 8.1247 0.1310 0.0005 0.8535 5.2006 1.2795 0.1901 0.3564 0.0016 0.0073 6.7015 6.7015 6.9961 0.0849 0.1901 1.2795 6.7015 0.1310 6.9961 0.0162 0.0849 6.7015 0.0005 6.9961 0.3329 0.1219 6.7015 6.9961 0.0490 1.7871 6.7015 6.9961 0.4020 0.0144 6.7015 0.4020 6.9961
858 58
2,964,127 1,521,442
207,751 118,294
24,385 61,189 30,960 24,273 24,057 23,335 107,802 105,238 89,497 18,505 49,509 18,114 15,346
7,653 27,503 4,863,218 869,517 445,679 172,454 53,989 237,112 34,056 32,427 20,719 19,656 6,015,340 1,088,748 530,990 303,213 155,855 745,944 103,318
3,484 14
2,597,200 123,022 220,115 2,932
2,877,440 -- --
119 1,081 747,348 201,941 1,863,205 3,624,417 39,938 279,807 473,009 473,647 4,906 1,109,203 146,874,147 61,296 9,830 14,060 279,486 13,743 16,718,943 3,459,718 4,352 835,553 163,925 5,991,072 567,576 23,100 33,661 8,230 597,080 1,571,797 484,920 851,980 2,040,060,674 69,022 1,449,260 1,277,975 139,507 42,041 82,112 1,236 385,100 25,694 311,150
--
1,054,000 5,816 363
6.3750 0.0460 6.3750 7.2201 0.0554 0.0358 1.5306 0.1296 0.0535 0.0460 8.6100 0.0858 0.0004 0.8174 5.0284 1.1424 0.1910 0.4045 0.0016 0.0075 6.3750 6.3750 7.2201 0.0858 0.1910 1.1424 6.3750 7.2201 0.0535 0.0155 0.0358 6.3750 0.0004 7.2201 0.3115 0.1250 6.3750 7.2201 0.0554 1.7000 6.3750 7.2201 0.4912
--
6.3750 0.4912 7.2201
759 50
4,764,344 1,458,034
103,222 129,754
61,129 36,263 25,306 21,788 42,241 95,170 58,750 50,103 49,429 16,062 53,382
5,559 26,750 25,948 27,744 5,326,650 1,183,555 514,034 108,407 26,389 214,589 59,421 31,944 24,363 17,360 5,431,373 816,024 498,346 451,444 159,747 889,357 303,540
4,549 2,101 2,455,012 185,513 152,848
--
6,719,250 2,857 2,619
The Group's principal places of business overseas include the United States, Indonesia and India. Its operating entities in these countries adopt their respective principal currency for conducting business as their book currencies.
178
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VI. CHANGES TO THE SCOPE OF CONSOLIDATION
1. Disposal of subsidiaries
Place of registration
Shenzhen Jingcheng Communication Technology Company Limited
Shenzhen Wantong Posts and Telecommunication Company Limited
Shenzhen Yilian Digital Communication Technology Company Limited
Shenzhen Shenzhen Shenzhen
Business nature
The Group's total
shareholding percentage (%)
Percentage of the Group's total voting rights (%)
Reason for ceasing to be subsidiary
Communication engineering and technical services
Digital communication products and government and corporate access equipment
Indoor coverage products and related services
100%
100%/100% Note
100%
100%/100% Note
100%
100%/100% Note
Note:
The Group disposed 100% equity interest in Shenzhen Jingcheng Communication Technology Company Limited, Shenzhen Wantong Posts and Telecommunication Company Limited and Shenzhen Yilian Digital Communication Technology Company Limited in June 2022. Accordingly, as from June 2022, the Group has ceased to include the aforesaid three companies in its consolidated statements.
179
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VI. CHANGES TO THE SCOPE OF CONSOLIDATION (CONTINUED)
2. Changes to the scope of consolidation for other reasons Tier-one subsidiaries established during the year included Shenzhen Wantong Posts and Telecommunication Company Limited, Shenzhen Jingcheng Communication Technology Company Limited and Shenzhen Yilian Digital Communication Technology Company Limited. Foshan Zhongxing ICT Company Limited, a tier-two subsidiary of the Company, completed deregistration with industrial and commercial administration authorities on 14 January 2022 and has been excluded from the Group's consolidated statements as from 14 January 2022. ZTE Integration Telecom Limited, a tier-one subsidiary of the Company, completed deregistration with industrial and commercial administration authorities and deregistration of bank accounts on 10 March 2022 and has been excluded from the Group's consolidated statements as from 10 March 2022. ZTE (Paraguay) Company Limited, a tier-three subsidiary of the Company, completed deregistration with industrial and commercial administration authorities and deregistration of bank accounts on 20 April 2022 and has been excluded from the Group's consolidated statements as from 20 April 2022. Wuhan ZTE Smart City Research Institute Co., Ltd., a tier-one subsidiary of the Company, completed deregistration with industrial and commercial administration authorities and deregistration of bank accounts on 22 April 2022 and has been excluded from the Group's consolidated statements as from 22 April 2022. ZTE (Sweden) AB, a tier-three subsidiary of the Company, completed deregistration with industrial and commercial administration authorities and deregistration of bank accounts on 26 April 2022 and has been excluded from the Group's consolidated statements as from 26 April 2022. Nanjing Xingtong Zhiyuan Property Management Company Limited, a tier-two subsidiary of the Company, completed deregistration with industrial and commercial administration authorities on 10 May 2022 and has been excluded from the Group's consolidated statements as from 10 May 2022. ZTE Tajikistan Corporation, a tier-two subsidiary of the Company, commenced bankruptcy procedures on 11 February 2022 and taken over by court, and has been excluded from the Group's consolidated statements as from 11 February 2022.
180
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VII. INTERESTS IN OTHER ENTITIES
1. Interests in subsidiaries Particulars of the major subsidiaries of the Group are as below:
Type of subsidiary
Place of registration/ principal places of business
Business nature
Registered capital
Percentage of shareholding %
Direct Indirect
Subsidiaries acquired by way of
incorporation or investment
Shenzhen ZTE Kangxun Telecom Company
Limited
Shenzhen
ZTE (H.K.) Limited
Hong Kong
Shenzhen Zhongxing Software Company
Limited
Shenzhen
Xi'an ZTE Terminal Technology Company
Limited
Xi'an
ZTE Microelectronics Technology Co., Ltd. Shenzhen
Xi'an Zhongxing New Software Company
Limited
Xi'an
Shenzhen Zhongxing Telecom Technology &
Service Company Limited
Shenzhen
Shenzhen ZTE Capital Management Company
Limited
Shenzhen
Manufacturing Information technology
Services
Manufacturing Manufacturing
Services Telecommunications
services
Investment fund
RMB1,755 million 100%
--
HKD995 million 100%
--
RMB51.08 million 100%
--
RMB300 million 100%
--
RMB131,578,947 87.22% 12.78%
RMB340 million 100%
--
RMB200 million
90%
10%
RMB30 million
55%
--
2. Equity investments in joint ventures and associates
Place of registration/ principal place of business
Nature of business
Percentage of Shareholding %
Accounting Registered capital Direct Indirect method
Joint Ventures
Puxing Mobile Tech Company Limited
PRC
PRC
*
PRC
Shaanxi Crowd Investment Zhanlu Phase I PRC
Equity Investment Partnership Enterprise
(Limited Partnership)
Zhuhai Hongtu Zhanlu Equity Investment PRC Partnership Enterprise (Limited Partnership)
R&D, production and sales of communications equipment
Software development, information technology consultant and information systems integration
Real estate Venture investment, equity
investment, investment management and investment consultation Equity investment, investment management and asset management
RMB128,500,000 RMB60,000,000
RMB220,000,000 RMB100,000,000
RMB1,000,000,000
33.85% 49%
10% 39%
40%
-- Equity method -- Equity method
-- Equity method 1% Equity method
-- Equity method
*
The Group had 10% shareholdings in , which was accounted for as associate mainly owing to
the fact that the articles of association of this company stipulates that its board of director shall comprise 5 members, 2
of which shall be nominated by Chongqing Zhongxing ICT Company Limited and 3 of which shall be nominated by
, and that board resolutions can only be passed with the approval of over two-thirds of the directors. Hence the
Group and exercised joint control over its production and operational decisions or its finances.
181
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VII. INTERESTS IN OTHER ENTITIES (CONTINUED)
2. Equity investments in joint ventures and associates (continued)
Place of registration/ principal place of business Nature of business
Percentage of Shareholding %
Accounting Registered capital Direct Indirect method
Associates Shenzhen Zhongxing Hetai Hotel
Investment and Management Company Limited* INTLIVE TECHNOLOGIES (PRIVATE) LIMITED ()
PRC
Zimbabwe
PRC PRC
PRC PRC PRC
New Idea Investment Pte. Ltd Xingchen Smart Tech Industry Company
Limited* Hengyang ICT Real Estate Co., Ltd *
*
Singapore PRC
PRC PRC
PRC
*
PRC
Huanggang Education Valley Investment PRC
Holdings Co., Ltd
Shijiazhuang Smart Industry Company
PRC
Limited*
Whale Cloud Technology Co., Ltd.
PRC
*
PRC
PRC
Zhongxing Feiliu Information Technology PRC Company Limited
Xingyun Times Technology Company
PRC
Limited
ZTE (Wenzhou) Railway Communication PRC
Technology Limited
Hotel management service
RMB30,000,000 18%
Colour ring and other telecommunications VAS
Real estate Technology promotion and application
services Software and IT services Professional technical services Manufacturing of computers,
communication and other electronic equipment Investment company Manufacturing of computers and related equipment Real estate Technology and innovative IOT inter-network services High-end equipment and smart manufacturing, product research, consultation service and technology development Real estate Education
USD500 RMB10,000,000 RMB20,000,000 RMB30,000,000 RMB18,940,902 RMB25,487,370
USD10,200,000 + SGD1 RMB200,000,000 RMB20,000,000 RMB61,224,500 RMB16,000,000
RMB10,000,000 RMB50,000,000
49% 20% 30% 39% 29% 21.26%
20% 19% 30% 9.31% 12.5%
10% 25%
Smart City construction and operation
RMB400,000,000 12%
Scientific research and technical service Smart city operation Intelligent technology, automobile and
Information technology Development of computer software and
hardware, development of big data technology Internet and related services
RMB754,108,771 28.99% RMB100,000,000 15% RMB20,000,000 35% RMB118,153,846 31.69%
RMB290,000,000 23.26%
Software and information technology services
RMB50,000,000 45.9%
-- Equity method
-- Equity method -- Equity method -- Equity method -- Equity method -- Equity method -- Equity method
-- Equity method -- Equity method -- Equity method -- Equity method -- Equity method
-- Equity method -- Equity method -- Equity method -- Equity method -- Equity method -- Equity method -- Equity method
-- Equity method -- Equity method
*
Companies in which the Group had a shareholding percentage less than 20% were listed as associates, mainly in view of
the Group's right to participate in the decision-making of the financial and operational policies of the investees.
During the reporting period, the Group had no subsidiaries that were subject to material minority interest, nor key joint ventures or associates which had a significant impact on the Group.
182
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VII. INTERESTS IN OTHER ENTITIES (CONTINUED)
2. Equity investments in joint ventures and associates (continued)
The following table sets out the combined financial information of joint ventures and associates which are insignificant to the Group:
30 June 2022
31 December 2021
Joint ventures Aggregate carrying value of investments
500,760
498,020
Six months ended
30 June 2022
Six months ended
30 June 2021
Aggregate amounts of the following attributable to shareholdings: Net loss Other comprehensive income
Total comprehensive income
(260) --
(260)
(31,198) --
(31,198)
30 June 2022
31 December 2021
Associates Aggregate carrying value of investments
1,118,856
1,186,889
Six months ended
30 June 2022
Six months ended
30 June 2021
Aggregate amounts of the following attributable to shareholdings: Net loss Other comprehensive income
Total comprehensive income
(56,303) (5,355)
(61,658)
(39,579) (749)
(40,328)
As at 30 June 2022, there were no contingent liabilities associated with the investments in joint ventures and associates (31 December 2021: Nil).
183
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
1. Classification of financial instruments The book values of various financial instruments at the balance sheet date were as follows: 30 June 2022 Financial assets
Financial assets at fair value through current profit
and loss
At amortised cost
Measured at fair value
through other comprehensive
income
Total
Cash Derivative financial assets Trading financial assets Trade receivables Long-term trade receivables Factored trade receivables and
factored long-term receivables Financial assets in other receivables Receivable financing Financial assets in other non-current
assets Other non-current financial assets
-- 251,162 897,389
-- --
-- -- --
-- 1,152,720 2,301,271
54,926,295 -- --
17,936,988 2,274,869
321,952 1,209,221
--
3,456,654 --
80,125,979
-- -- -- -- --
-- -- 7,617,467
-- -- 7,617,467
54,926,295 251,162 897,389
17,936,988 2,274,869
321,952 1,209,221 7,617,467
3,456,654 1,152,720 90,044,717
184
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)
1. Classification of financial instruments (continued)
Financial liabilities
Financial liabilities at fair value through current profit and loss
At amortised cost
Total
Derivative financial liabilities Bank loans Lease liabilities Bills payable Trade payables Bank advances on factored trade
receivables and long-term trade receivables Other payables (excluding accruals and staff housing fund contributions) Other non-current liabilities
14,739 -- -- -- --
--
-- 24,854 39,593
-- 44,502,601
777,721 11,696,452 20,728,610
329,929
2,154,975 3,724,437 83,914,725
14,739 44,502,601
777,721 11,696,452 20,728,610
329,929
2,154,975 3,749,291 83,954,318
31 December 2021 Financial assets
Financial assets at fair value through current profit
and loss
At amortised cost
Measured at fair value
through other comprehensive
income
Total
Cash Derivative financial assets Trading financial assets Trade receivables Long-term trade receivables Factored trade receivables and factored
long-term receivables Financial assets in other receivables Receivable financing Financial assets in other non-current
assets Other non-current financial assets
-- 209,352 1,360,697
-- --
-- -- --
-- 1,175,249 2,745,298
50,713,310 -- --
17,509,059 2,356,413
444,693 1,078,676
--
3,176,331 --
75,278,482
-- -- -- -- --
-- -- 5,196,458
-- --
5,196,458
50,713,310 209,352
1,360,697 17,509,059
2,356,413
444,693 1,078,676 5,196,458
3,176,331 1,175,249 83,220,238
185
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)
1. Classification of financial instruments (continued)
Financial liabilities
Financial liabilities at fair value through current profit and loss
At amortised cost
Total
Derivative financial liabilities Bank loans Lease liabilities Bills payable Trade payables Bank advances on factored trade
receivables and long-term trade receivables Other payables (excluding accruals and staff housing fund contributions) Other non-current liabilities
27,729 -- -- -- --
--
-- -- 27,729
-- 39,443,516
921,179 11,557,376 21,717,267
452,701
2,390,431 3,703,324 80,185,794
27,729 39,443,516
921,179 11,557,376 21,717,267
452,701
2,390,431 3,703,324 80,213,523
2. Transfers of financial assets
Transferred financial assets that are not derecognised in their entirety
During the period, the Group was engaged in certain discounting business with a number of PRC domestic banks. The Group is of the view that there was nil bills receivable (31 December 2021: Nil) which retained substantially all risks and rewards upon discounting and hence did not qualify for derecognition of financial assets.
186
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)
2. Transfers of financial assets (continued)
Transferred financial assets that are not derecognised in their entirety (continued)
As part of its normal business, the Group entered into some trade receivables factoring agreements with a number of banks and transferred certain trade receivables to banks ("Factored Trade Receivables"). According to some trade receivables factoring agreements, the Group is exposed default risks of certain trade debtors after the transfer. If the debtor's default extends beyond a certain period, the Group may be required to pay interests to the banks in respect of certain delayed repayments. Since the Group has neither transferred nor retained substantially all risks and rewards relating to the trade receivables, the assets and liabilities concerned are recognised to the extent of trade receivables transferred under continuous involvement. As at 30 June 2022 the carrying value of trade receivables that have been transferred but not settled by the debtors amounted to RMB20,494,881,000 (31 December 2021: RMB19,257,274,000). The amount of assets and liabilities under continuous involvement relating to debtor's default and delayed repayments are set out as follows:
Financial assets (at amortised cost) Trade receivables/ long-term receivables
30 June 2022
31 December 2021
Carrying value of assets under continuous involvement Carrying value of liabilities under continuous involvement
321,952 329,929
444,693 452,701
Factored trade receivables that did not qualify for derecognition and factored trade receivables under continuous involvement were classified as "Factored trade receivables" or "Long-term factored trade receivables." As at 30 June 2022, the amount of factored trade receivables was RMB321,952,000 (31 December 2021: RMB444,693,000). Relevant liabilities were classified as "Bank advances on factored trade receivables" or "Bank advances on long-term trade receivables." As at 30 June 2022, the amount of bank advances on factored trade receivables was RMB329,929,000 (31 December 2021: RMB452,701,000).
Transferred financial assets derecognised in entirety but subject to continuing involvement
The Group was engaged in certain discounting businesses with a number of domestic PRC banks during the period. The Group was of the view that substantially all risks and rewards relating to bills receivable with a book value of RMB1,501,224,000 (31 December 2021: RMB1,017,956,000) were transferred upon discounting and therefore the bills receivable qualified for the derecognition of financial assets. Hence, the relevant bills receivable were derecognised in full at their book value as at the discounting date. The maximum exposure from the Group's continuing involvement in such derecognised bills receivable and the undiscounted cash flow for the repurchase of such bills equal to the carrying amounts of the bills receivable. The Group is of the view that the fair value of continuous involvement in the derecognised bills receivable is not significant. For the relevant period, the Group recognised at the date of transfer discounted interests of RMB15,076,000 (31 December 2021: RMB5,159,000) in respect of the derecognised bills receivable which were discounted but not due as at the balance sheet date.
187
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)
3. Risks of financial instruments
The Group's daily activities expose it to the risk of a variety of financial instruments, mainly including credit risk, liquidity risk and market risk (including currency risk and interest rate risk). The Group's major financial instruments included cash and bank balances, equity investments, borrowings, notes receivable and trade receivables, notes payable and trade payables, etc. The risks related to these financial instruments and the risk management strategy adopted by the Group to reduce these risks are described as follows.
The Company management is responsible for planning and establishing the risk management framework of the Group, formulating risk management policies and related guidelines of the Group and supervising the implementation of risk management measures. The Group has already developed risk management policies to identify and analyse the risks faced by the Group, which have clearly identified specific risks, covering numerous aspects such as market risk, credit risk and liquidity risk management. The Group regularly assesses the market environment and changes in the Group's business activities to determine whether or not to update its risk management policies and systems. The risk management of the Group is conducted by the operations and management department according to the policy approved by the Company management. The operations and management department identifies, evaluates and avoids related risks through close cooperation with other business units of the Group. The internal audit department of the Group conducts regular audits on risk management control and procedures and reports to the Audit Committee of the Group.
The Group spreads the risks of financial instruments by means of the appropriate diversification of its investment and business portfolios, and reduces the risks of concentration on any single industry, particular region or specific trading counterparty by formulating corresponding risk management policies.
Credit risk
The Group only trades with recognised and creditworthy third parties. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis to ensure that the Group is not exposed to significant bad debts. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without the special approval of the credit control department of the Group.
Since cash and bank balances, bank acceptance bills receivable and derivative financial instruments are placed with the well-established banks with high credit ratings, the credit risk of these financial instruments is relatively low.
The Group's other financial assets comprise commercial acceptance bills, trade receivables, equity investments, other receivables and certain derivatives. The credit risk associated with such financial assets and contract assets arises from default of the counterparty, with a maximum exposure equivalent to the carrying amounts of these instruments.
188
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)
3. Risks of financial instruments (continued)
Credit risk (continued)
Criteria for judging significant increases in credit risk
The Company assesses whether or not the credit risk of the relevant financial instruments has increased significantly since the initial recognition at each balance sheet date. While determining whether the credit risk has significantly increased since initial recognition or not, the Company takes into account the reasonable and substantiated information that is accessible without exerting undue extra cost or effort, including qualitative and quantitative analysis based on the historical data of the Company, external credit risk rating, and forward-looking information. Based on the single financial instrument or the combination of financial instruments with similar characteristics of credit risk, the Company compares the risk of default of financial instruments on the balance sheet date with that on the initial recognition date in order to determine changes in the risk of default during the expected lifetime of financial instruments.
The Company considers a financial instrument to have experienced a significant increase in credit risk when one or more of the following quantitative and qualitative criteria have been met:
· Quantitative criteria are primarily represented by the increase in the probability of default for the remaining lifetime at the reporting date being considered significant comparing with the one at initial recognition.
· Qualitative criteria are primarily represented by the significant adverse change in the debtor's operational or financial status and the watch list for potential default, among others.
· The cap is represented by the contract payment (including principal and interest) by the debtor being overdue for more than 30 days.
Definition of credit-impaired financial assets
The standard adopted by the Group to determine whether a credit impairment occurs is consistent with the internal credit risk management objectives of the relevant financial instrument, taking into account quantitative and qualitative criteria. When the Group assesses whether the credit impairment of debtor occurred,
the principal factors considered are as follows:
· Significant financial difficulty of the issuer or debtor;
· Debtors' breach of contract, such as defaulting or becoming overdue on interest or principal payments;
· The creditor of the debtor, for economic or contractual reasons relating to the debtor's financial difficulty, having granted to the debtor a concession that the creditor would not otherwise consider;
· It is becoming probable that the debtor will enter bankruptcy or other financial restructuring;
· The disappearance of an active market for that financial asset because of financial difficulties of the issuer or debtor;
· The purchase or origination of a financial asset at a deep discount that reflects the incurrence of credit losses;
The credit impairment on a financial asset may be caused by the combined effect of multiple events and may not be necessarily due to an individually identifiable event.
189
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)
3. Risks of financial instruments (continued) Credit risk (continued) Forward-looking information
For trade receivables and contract assets for which impairment provision for expected credit loss for the entire period has been made, a risk matric model may be provided in lieu of credit risk rating. The risk matrix may follow the example shown in Note V.4A and V.8.
Liquidity risk
The Group monitors its risk to the shortage of funds using a recurring liquidity planning tool. This tool considers the maturity profile of both its financial instruments and financial assets (e.g. trade receivables and bank loans) and projected cash flows from operations.
The Group's objective is to maintain balance between the continuity and flexibility of financing through the use of bank loans and other interest-bearing loans.
The maturity profile of financial liabilities based on undiscounted contractual cash flow is summarised as follows:
30 June 2022
Within 1 year
12 years
23 years Over 3 years
Total
Bank loans Lease liabilities Derivative financial liabilities Bills payable Trade payables Bank advances on factored trade receivables and
factored long-term trade receivable Other payables (excluding accruals and staff housing
fund contributions) Other non-current liabilities
13,966,091 311,896 14,739
11,696,452 20,728,610
121,317
2,154,975 7,416
49,001,496
7,010,065 176,300 -- -- --
39,571
-- 1,478,930 8,704,866
17,416,882 102,686 -- -- --
13,657
-- 1,561 17,534,786
8,965,052 231,615 -- -- --
155,384
-- 2,434,277 11,786,328
47,358,090 822,497 14,739
11,696,452 20,728,610
329,929
2,154,975 3,922,184 87,027,476
31 December 2021
Within 1 year
Bank loans Lease liabilities Derivative financial liabilities Bills payable Trade payables Bank advances on factored trade receivables and
factored long-term trade receivable Other payables (excluding accruals and staff housing
fund contributions) Other non-current liabilities
9,648,849 389,196 27,729
11,557,376 21,717,267
202,249
2,390,431 13,871
45,946,968
12 years
23 years Over 3 years
Total
4,952,372 334,597 -- -- --
23,497,988 174,043 -- -- --
91,809
10,829
-- 1,428,379
6,807,157
-- 12,674
23,695,534
3,468,016 299,284 -- -- --
147,814
-- 2,303,710 6,218,824
41,567,225 1,197,120 27,729
11,557,376 21,717,267
452,701
2,390,431 3,758,634 82,668,483
190
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)
3. Risks of financial instruments (continued)
Market risk
Interest rate risk
The Group's exposure to risk of changes in market interest rates relates primarily to the Group's long-term liabilities with floating interest rates.
As at 30 June 2022, the bank loans of the Group and the Company including fixed rate debts and floating debts based on LIBOR and Euribor. The Group and the Company had no significant concentration of interest rate risk.
The Group's interest risk policy is to manage interest rate risk by maintaining an appropriate mix of fixed and variable rate instruments. The Group's policy is to maintain the fixed interest rate between 1.75% to 34.50%. Approximately 16.71% (31 December 2021: 18.97%) of the Group's interest bearing borrowings were subject to interests at fixed rates. In addition, the Group borrowed an approximately USD1,069 million loan at floating interest rates.
Interest-bearing borrowings with floating interest rate were mainly denominated in USD and EUR. The sensitivity analysis of interest rate risks is set out in the following table, reflecting the impact of reasonable and probable change in interest rates on net profit or loss (through the impact on floating rate loans) and other comprehensive income (net of tax) assuming that other variables remain constant.
Increase/ (decrease) in basis points
Increase/ (decrease) in net profit or
loss
Increase/ (decrease) in
other comprehensive income net of
tax
Increase/ (decrease) in
total shareholders'
equity
Six months ended 30 June 2022 Six months ended 30 June 2021
25
(78,765)
(25)
78,765
25
(74,681)
(25)
74,681
--
(78,765)
--
78,765
--
(74,681)
--
74,681
Foreign currency risk
The Group is exposed to trading exchange rate risks. Such exposures arise from sales or purchases by operating units in currencies other than the units' functional currency, where the revenue is denominated in USD and RMB and certain portion of the bank loans is denominated in USD. The Group tends to avoid foreign currency exchange risk or provide for revenue allocation terms when arriving at purchase and sales contracts to minimise its transactional currency exposures. The Group takes rolling forecast on foreign currency revenue and expenses and matches the currency and amount incurred, so as to alleviate the impact to business due to exchange rate fluctuation.
The following table demonstrates the sensitivity of a reasonably possible change in exchange rates may lead to the changes in the Group's net profit or loss, with all other variables held constant, as at the balance sheet date.
191
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)
3. Risks of financial instruments (continued)
Market risk (continued)
Foreign currency risk (continued)
Increase/ (decrease) in USD exchange
rate
Increase/ (decrease) in net profit or
loss
Increase/ (decrease) in
other comprehensive income net of
tax
Increase/ (decrease) in
total shareholders'
equity
Six months ended 30 June 2022 Weaker RMB against USD Stronger RMB against USD
Six months ended 30 June 2021 Weaker RMB against USD Stronger RMB against USD
5%
(80,155)
(5%)
80,155
5%
(18,545)
(5%)
18,545
--
(80,155)
--
80,155
--
(18,545)
--
18,545
Increase/ (decrease) in EUR exchange
rate
Increase/ (decrease) in net profit or
loss
Increase/ (decrease) in
other comprehensive income net of
tax
Increase/ (decrease) in
total shareholders'
equity
Six months ended 30 June 2022 Weaker RMB against EUR Stronger RMB against EUR
Six months ended 30 June 2021 Weaker RMB against EUR Stronger RMB against EUR
5%
143,024
(5%)
(143,024)
5%
84,541
(5%)
(84,541)
--
143,024
--
(143,024)
--
84,541
--
(84,541)
4. Capital management
The primary objective of the Group's capital management is to safeguard the Group's ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders' value.
The Group makes adjustments in the light of changes in economic conditions and in the risk profiles of relevant assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the current period ended 30 June 2022.
192
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)
4. Capital management (continued)
The Group manages capital using the financial gearing ratio, which is the ratio of interest-bearing liabilities to the sum of owners' equity and interest-bearing liabilities. The financial gearing ratio of the Group as at the balance sheet dates was as follows:
30 June 2022
31 December 2021
Interest-bearing bank borrowings Lease liabilities Bank advances on factored receivables and long-term trade
receivables Total interest-bearing liabilities Owners' equity Total equity and interest-bearing liabilities Gearing ratio
IX. DISCLOSURE OF FAIR VALUES
44,502,601 777,721
329,929 45,610,251 56,712,550 102,322,801
44.6%
39,443,516 921,179
452,701 40,817,396 53,287,660 94,105,056
43.4%
1. Assets and liabilities measured at fair value 30 June 2022
Input applied in the measurement of fair value
Quoted prices in active markets
Significant Significant
Observable unobservable
inputs
inputs
Level 1
Level 2
Level 3
Total
Continuous measurement of fair value Derivative financial assets Trading financial assets Other non-current financial assets Receivable financing Investment properties Leased buildings
Derivative financial liabilities Other non-current liabilities
-- 857,157
-- --
-- 857,157
-- -- 857,157
251,162 --
-- 7,617,467
-- 7,868,629
(14,739) --
7,853,890
-- 40,232
1,152,720 --
2,012,443 3,205,395
-- (24,854) 3,180,541
251,162 897,389
1,152,720 7,617,467
2,012,443 11,931,181
(14,739) (24,854) 11,891,588
193
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
IX. DISCLOSURE OF FAIR VALUES (CONTINUED)
1. Assets and liabilities measured at fair value (continued) 31 December 2021
Input applied in the measurement of fair value
Quoted prices in active markets Level 1
Significant Observable
inputs Level 2
Significant unobservable
inputs Level 3
Total
Continuous measurement of fair value Derivative financial assets Trading financial assets Other non-current financial assets Receivable financing Investment properties Leased buildings
Derivative financial liabilities
-- 220,126
-- --
-- 220,126
-- 220,126
209,352 --
-- 5,196,458
-- 5,405,810
(27,729) 5,378,081
-- 1,140,571
1,175,249 --
2,013,927 4,329,747
-- 4,329,747
209,352 1,360,697
1,175,249 5,196,458
2,013,927 9,955,683
(27,729) 9,927,954
2. Estimation of fair value
Fair value of financial assets
The management has conducted evaluations of our cash, bills receivable, trade receivables, bills payable and trade payables. The fair values approximate the book values as the remaining terms are not long.
Fair value of financial assets and financial liabilities refers to the amount at which assets are exchanged and debts settled between two informed and willing parties in an arm's length transaction. Methods and assumptions adopted in the estimation of fair values are explained as follows.
The fair values of long-term receivables and long/short-term loans are determined on the basis of discounted future cash flow. The discount rate adopted is the rate of market yield for other financial instruments with substantially identical contract terms and characteristics, risk profiles and outstanding term. As at 30 June 2022, the non-performance risk in respect of long/short-term loans was assessed to be insignificant.
194
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
IX. DISCLOSURE OF FAIR VALUES (CONTINUED)
2. Estimation of fair value (continued)
Fair value of financial assets (continued)
The fair values of listed equity instruments are determined on the basis of market prices. The fair values of equity investments in listed companies during the lock-up period is arrived at based on quotations in an active market discounted at a percentage reflecting the lack of liquidity during lock-up.
Fair value of non-listed equity investment at fair value through profit or loss is estimated using the market-based method. The assumptions on which it is based are unobservable input. The estimation requires the management to determine comparable public companies (peers) based on industry, scale, gearing and strategy and compute appropriate price multiples in respect of each identified comparable company, such as enterprise value to EBIT ("EV/EBIT"), enterprise value to revenue ("EV/Revenue") or price to earnings ("P/E"), etc. Such multiples are measured and arrived at based on the relevant data of the comparable companies and discounted by a percentage for the lack of liquidity. The discounted multiple shall be used for the measurement of the profit or asset of the non-listed equity investment to arrive at its fair value. The management believes that the estimated fair value (as recorded in the balance sheet) and changes in fair value (as recorded in profit or loss and other comprehensive income) arrived at using the aforesaid valuation method were reasonable and represented the most appropriate value as the end of the reporting period.
The Group has entered into derivative financial instruments with a number of counterparties (who are mainly financial institutions with sound credit rating). Derivative financial instruments include interest rate swaps and forward exchange contracts. The fair value of interest rate swaps is measured using the short-term interest rate pricing model after taking into consideration the terms of the relevant reciprocal agreement. Principal inputs of the model include the expected volatility rate of short-term interest rates and the interest rate curve of forward LIBOR rates. The data of these two parameters may be directly observed or implied in market prices. Forward exchange contracts are measured using valuation techniques similar to those adopted for forward pricing. The valuation model covers a number of inputs observable in the market, such as the credit quality of the counterparty, spot and forward exchange rates and interest rate curves. The carrying value of an interest rate swap and a forward exchange contract is identical with its fair value. As at 30 June 2022, the fair value of derivative financial assets represented the net value after offsetting credit valuation adjustments attributable to the risk of counterparty default.
For financial products at fair value through profit or loss, the Group estimates the fair value based on the discounted cash flow model using market interest rates of instruments with similar terms and risks.
Fair value of investment properties
In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources, including: (a) current prices in an active market for properties of a different nature, condition or location, adjusted to reflect those differences; (b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and (c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. The carrying amount of investment properties at 30 June 2022 was RMB2,012,443,000 (31 December 2021: RMB2,013,927,000).
195
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
IX. DISCLOSURE OF FAIR VALUES (CONTINUED)
3. Unobservable inputs
Below is a summary of the significant unobservable inputs to the fair value measurement of Level 3:
30 June 2022
Fair value at end of period
Valuation techniques
Unobservable inputs
Range (weighted
average)
Commercial properties
RMB2,012,443,000
Equity instrument RMB1,192,952,000 investment
Other non-current RMB24,854,000 Liabilities
Discounted cash Estimated rental
RMB43-
flow method value (per sq. m.
RMB500
and per month)
Rent growth (p.a.)
3%6%
Discount rate
7.25%8%
Market method Liquidity discount
4%30%
rate
P/E
1367
EV/Revenue
26
EV/EBIT
1114
Binomial Model Risk free rate
2.41%-2.7%
Volatility rate
43.24%-45.26%
Dividend Yield
--
Ratio
Exercise probability
5%-15%
31 December 2021
Fair value at end of year
Valuation techniques
Unobservable inputs
Range (weighted
average)
Commercial properties
RMB2,013,927,000
Equity instrument RMB2,315,820,000 investment
Discounted cash flow method
Market method
Estimated rental RMB43RMB500
value (per sq. m.
and per month)
Rent growth (p.a.)
3%6%
Discount rate
7.25%8%
Liquidity discount
20%30%
rate
P/E
753
P/B
0.8
EV/Revenue
28
EV/EBIT
1113
196
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
IX. DISCLOSURE OF FAIR VALUES (CONTINUED)
4. Fair value measurement adjustment
Reconciliation of continuous fair value measurements categorised within Level 3 of the fair value hierarchy:
30 June 2022
Opening Transfer into Transfer out Through
balance
Level 3 of Level 3 profit or loss
Investment properties Trading financial assets Other non-current financial assets Other non-current liabilities
2,013,927 1,139,092 1,175,249
--
--
22,011 -- --
--
(1,139,092) (22,011) --
(1,484) 18,221 12,988
--
Addition
-- -- -- 24,854
Disposal
Closing balance
Change in unrealised profit or loss for the period of assets held at end of period included in profit and loss
-- --
(13,506) --
2,012,443 40,232
1,152,720 24,854
(1,484) 18,221 11,689
--
31 December 2021
Opening Transfer into Transfer out
Through
balance
Level 3 of Level 3 profit or loss
Investment properties Trading financial assets Other non-current financial assets
2,035,234 194,896
1,536,741
-- 166,060
895
(18,738) (186,266) (166,060)
(2,569) 964,402 62,399
Addition
-- -- --
Disposal
Closing balance
Change in unrealised profit or loss for the period of assets held at end
of year included in profit and loss
-- -- (258,726)
2,013,927 1,139,092 1,175,249
(2,569) 964,402 (35,195)
In the continuous fair value measurement at Level 3, profit and loss included in current profit and loss relating to non-financial assets is analyzed as follows:
Six months ended
30 June 2022 Relating to
non-financial assets
Six months ended
30 June 2021 Relating to
non-financial assets
Total profit or loss for the period included in profit and loss
(1,484)
878
Change in unrealised profit or loss for the period of assets held
at the end of the period
(1,484)
878
5. Transfers between levels of fair value measurement During the period, there were no transfers of fair value measurements between Level 1 and Level 2.
197
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES
1. Controlling shareholder
Name of controlling shareholder
Place of registration
Nature of business
Registered capital
Percentage of
shareholding
Percentage of voting rights
Zhongxingxin Telecom Company Limited
Shenzhen, Guangdong
Manufacturing
RMB100 million
21.28%
21.28%
According to Shenzhen Stock Exchange Listing Rules, the Company's controlling shareholder is Zhongxingxin Telecom Company Limited. 2. Subsidiaries Details of the subsidiaries are set out in Note VI and Note VII.1. 3. Joint ventures and associates Details of the joint ventures and associates are set out in Note VII.2.
198
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
4. Other related parties Relationship
Sindi Technologies Co., Ltd. Shenzhen Zhongxingxin Cloud Service
Company Limited Pylon Technologies Co., Ltd. Shenzhen Xingkai Communication
Equipment Limited Shenzhen Xinyu Tengyue Electronics Co.,
Ltd Shenzhen New Video Smart Technology
Company Limited Zhongxing Development Company Limited
Huatong Technology Co., Ltd.
Huatong Software Technology (Nanjing) Company Limited
ZTE Software Technology (Nanchang) Company Limited
ZTE Software Technology (Shenyang) Company Limited
Chongqing Zhongxing Development Company Limited
Subsidiary of the Company's controlling shareholder Subsidiary of the Company's controlling shareholder
Subsidiary of the Company's controlling shareholder Subsidiary of the Company's controlling shareholder Subsidiary of the Company's controlling shareholder Subsidiary of the Company's controlling shareholder
Subsidiary of the Company's controlling shareholder
Subsidiary of the Company's controlling shareholder
Company for which a connected natural person of the Company acted as director and executive vice president
Subsidiary of a company for which a connected natural person of the Company acted as director and executive vice president
Subsidiary of a company for which a connected natural person of the Company acted as director and executive vice president
Subsidiary of a company for which a connected natural person of the Company acted as director and executive vice president
Subsidiary of a company for which a connected natural person of the Company acted as director and executive vice president
Subsidiary of a company for which a connected natural person of the Company acted as director and executive vice president
Subsidiary of a company for which a connected natural person of the Company acted as director and executive vice president
Subsidiary of a company for which a connected natural person of the Company acted as director and executive vice president
199
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
4. Other related parties (continued) Relationship
Shenzhen Zhongxing International
Investment Company Limited Tianjin Zhongxing International Investment
Company Limited Shenzhen Zhongxing WXT Equipment
Company Limited
Shenzhen Zhongxing Information Company Limited
Xi'an Microelectronics Technology Research Institute
CASIC Shenzhen (Group) Limited
Shenzhen Aerospace Property Management Co., Ltd
Subsidiary of a company for which a connected natural person of the Company acted as director and executive vice president
Subsidiary of a company for which a connected natural person of the Company acted as director and executive vice president
Subsidiary of an associate of the Company Subsidiary of an associate of the Company Subsidiary of an associate of the Company Company for which a connected natural person of the
Company acted as chairman Subsidiary of a company for which a connected natural
person of the Company acted as chairman Company for which a connected natural person of the
Company acted as director Subsidiary of a company for which a connected natural
person of the Company acted as director Company for which a connected natural person of the
Company acted as director Subsidiary of a company for which a connected natural
person of the Company served as senior management Subsidiary of a company for which a connected natural
person of the Company served as senior management Entity at which a connected natural person of the
Company acted as head Company for which a connected natural person of the
Company acted as chairman Subsidiary of a company for which a connected natural
person of the Company acted as chairman Company for which a connected natural person of the
Company acted as vice chairman Company for which a connected natural person of the
Company served as director and senior management Company for which a connected natural person of the
Company acted as director
200
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
5. Major transactions between the Group and related parties
(1) Transaction of goods with related parties
Sales of goods to related parties
Six months ended
30 June 2022
Six months ended
30 June 2021
Zhongxingxin Telecom Company Limited Puxing Mobile Tech Company Limited Sindi Technologies Co., Ltd Shenzhen Zhongxing Information Company Limited Shenzhen Zhongxing Hetai Hotel Investment and
Management Company Limited Zhongxing Development Company Limited Shenzhen Zhongxin New Energy Technology Company
Limited Shenzhen Xingkai Communication Equipment Limited Whale Cloud Technology Co., Ltd. Huanggang Education Valley Investment Holdings Co.,
Ltd. Shenzhen Zhongxing WXT Equipment Company Limited
-- 811
-- 401,604
2,366
25 883 786
-- 657
-- -- 598 6
-- 174
2 407,912
6 811
22 357,680
15,859
27 24 1,368 93 225
5 29,635
829 191
13 -- --
406,788
201
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
5. Major transactions between the Group and related parties (continued)
(1) Transaction of goods with related parties (continued)
Purchases of goods and services from related parties
Six months ended
30 June 2022
Six months ended
30 June 2021
Sindi Technologies Co., Ltd# Shenzhen Xinyu Tengyue Electronics Co., Ltd# ZTE Software Technology (Nanchang) Company Limited # Huatong Technology Company Limited Shenzhen Zhongxing Hetai Hotel Investment and
Management Company Limited Pylon Technologies Co., Ltd # ZTE Software Technology (Shenyang) Company Limited Whale Cloud Technology Co., Ltd. # CASIC Shenzhen (Group) Limited Huanggang Education Valley Investment Holdings
Co., Ltd. Shenzhen New Video Smart Technology Company
Limited#
73,837 13,986 17,831 72,405 19,940
3,497 4,535 5,826 2,818 14,177 2,135 3,066 107,340
374 1,644
22 -- 1,001
2
3,824
348,260
57,831 11,690 15,671 56,059 22,940
6,720 3,396 2,153 2,926 18,452 2,349 12,191 97,506
761 2,828 2,077
24 --
--
--
315,574
#
Continuing connected transactions required to be reported on an annual basis under the Hong Kong Listing Rules.
Note: For the period, the Group conducted commodity trade with connected parties based on market prices.
202
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
5. Major transactions between the Group and related parties (continued) (2) Leasing with related parties As lessor
Property asset leased
Six months ended
30 June 2022 Lease income
Six months ended
30 June 2021 Lease income
Huatong Software Technology
(Nanjing) Company Limited Shenzhen Zhongxingxin Cloud
Service Company Limited Zhongxing Feiliu Information
Technology Company Limited Shenzhen Zhongxing Hetai Hotel
Investment and Management Company Limited
Shenzhen Zhongxing International
Investment Company Limited Huatong Technology Co., Ltd
Office Office Office
Office
Office
Property and equipment and facilities
Property and equipment and facilities
Property and equipment and facilities
Property and equipment and facilities
Office Properties
Office
-- 202
92 1,860
351 6,442
3,427
8,181
9,320
84 73 10 30,042
170 213 193 1,688 369 7,069
3,789
8,596
479
88 66 -- 22,720
203
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
5. Major transactions between the Group and related parties (continued) (2) Leasing with related parties (continued) As lessee Six months ended 30 June 2022
Asset type
Rental expenses for simplified short-term lease and
lease of low-value
assets
Rental paid
Lease liability interest expense assumed
Right-of-use assets added
Zhongxingxin Telecom Company Limited Chongqing Zhongxing Development Company
Limited Tianjin Zhongxing International Investment
Company Limited
Office Office
Office Office Office
113 318
1,657 114 820
3,022
5,489 3,857
-- 4,966 1,286
15,598
251 319
-- 322 165
1,057
13,192 --
-- 2,377
--
15,569
Six months ended 30 June 2021
Asset type
Rental expenses for simplified short-term lease and
lease of low-value
assets
Rental paid
Zhongxingxin Telecom Company Limited Zhongxing Development Company Limited Chongqing Zhongxing Development Company
Limited Tianjin Zhongxing International Investment
Company Limited
Office Office Office
Office Office Office
1,830 --
700
1,629 1,165 1,107
6,431
2,556 979
3,658
-- 6,392 1,294
14,879
Lease liability interest expense assumed
Right-of-use assets added
9
--
23
--
495
22,267
--
--
580
--
134
9,212
1,241
31,479
Note: The Group recognised lease income of RMB30,042,000 (Six months ended 30 June 2021: RMB22,720,000) for the period according to the lease contracts for the lease of office and equipment to the aforesaid connected parties.
The Group recognised lease expenses of RMB18,620,000 (Six months ended 30 June 2021: RMB21,310,000) for the period according to the lease contracts for the lease of office from the aforesaid connected parties.
204
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
5. Major transactions between the Group and related parties (continued)
(3) Other major related transactions
Remuneration of key management staff
Six months ended
30 June 2022
Six months ended
30 June 2021
Short-term staff remuneration Retirement benefit
5,554 153
5,707
5,120 132
5,252
Note:
Share option expenses or share-based payment expenses recognized in the first six months of 2022 in respect of grants to key management personnel of the Company under the 2017 Share Option Incentive Scheme, 2020 Share Option Incentive Scheme and 2020 Management Stock Ownership scheme amounted to RMB12,234,000 (the first six months of 2021: RMB13,598,000). For details, please refer to Note XI. 2 and 3.
6. Commitments with related parties
(1) As the purchaser, the Group's purchase information with related parties from January to June 2022 is as followsj
Supplier
Purchase target
Signing date
Agreement period
Estimated purchase amount
2022 ('000)
2023 ('000)
Zhongxingxin Telecom Company Limited and its subsidiaries
Shenzhen Zhongxing Hetai Hotel Investment and Management Company Limited and its subsidiaries
Huatong Software Technology Company Limited
ZTE Software Technology (Nanchang) Company Limited
raw materials hotel services
software outsource services software outsource services
December 2021 1-year December 2021 2-year
January 2020 January 2020
3-year 3-year
550,000 46,000
-- 48,000
98,380
--
66,000
--
Note: For the purchases that have occurred in this year, please refer to Note X.5(1).
205
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
6. Commitments with related parties (continued)
(2) As the seller, the Group's sales information with related parties from January to June 2022 is as followsj
Sales customer
Sales target
Signing date
Agreement period
Estimated sales amount
2022 ('000)
2023 ('000)
the full range of government December 2021 1-year and corporate products
1,200,000
--
Note: For the sales that have occurred in this year, please refer to Note X. 5(1).
(3) As the lessor, the Group's lease information with related parties from January to June 2022 is as followsj
Lessee
Signing date
Lease period
Estimated rental income
2022 ('000)
2023 ('000)
Shenzhen Zhongxingxin Cloud Service Company Limited Shenzhen Zhongxingxin Cloud Service Company Limited Shenzhen Zhongxingxin Cloud Service Company Limited Shenzhen Zhongxingxin Cloud Service Company Limited Shenzhen Zhongxingxin Cloud Service Company Limited Shenzhen Zhongxingxin Cloud Service Company Limited Zhongxing Feiliu Information Technology Company Limited Shenzhen Zhongxing Hetai Hotel Investment and Management
Company Limited or its subsidiaries Shenzhen Zhongxing International Investment Company Limited Huatong Software Technology Company Limited
July 2020 July 2021 July 2020 November 2020 June 2022 June 2022 August 2020 January 2021 December 2021
2-year 2-year 26-month 27-month 2-year 2-year 2-year 2-year 2-year
January 2022 November 2020 March 2022
1-year 7-year 3-year
202 99 627 974 1,096 474 116 703 57,540
168 146 24
-- 48 -- -- 1096 474 -- -- 57,540
-- 146 34
Note: For the rental income that have occurred in this year, please refer to Note X. 5(2).
(4) As the lessee, the Group's lease information with related parties from January to June 2022 is as followsj
Lessor
Signing date
Lease Period
Estimated rental fee
2022 ('000)
2023 ('000)
Zhongxingxin Telecom Company Limited Tianjin Zhongxing International Investment Company Limited Tianjin Zhongxing International Investment Company Limited Tianjin Zhongxing International Investment Company Limited Tianjin Zhongxing International Investment Company Limited Chongqing Zhongxing Development Company Limited
April 2021 April 2021 April 2021 April 2022 May 2022 December 2021 June 2019 March 2020 March 2020 December 2020 January 2021
2-year 3-year 3-year 1-year 1-year 30-month 5-year 3-year 3-year 3-year 3-year
10,455 2,669 1,288
403 314 573 800 9,409 1,869 1,661 7,787
3,107 2,699 1,288
101 94 573 834 1,588 311 1,532 7,787
Note: For the rental fee that have occurred in this year, please refer to Note X. 5(2).
206
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
7. Balances of amounts due from/to related parties
Item
Name of related parties
30 June 2022
Amount
31 December 2021
Amount
Receivable financing
Shenzhen Zhongxing Information Company
Limited
Trade receivable
Puxing Mobile Tech Company Limited Xi'an Microelectronics Technology Research
Institute ZTE Software Technology (Nanchang)
Company Limited Shenzhen Zhongxing Hetai Hotel Investment
and Management Company Limited Whale Cloud Technology Co., Ltd. () Shenzhen Xingkai Communication Equipment
Limited Telecom Innovations
Prepayments
Other receivables Shenzhen Zhongxing Information Company Limited
235,455
-- 235,455
14,213
9 3,622
--
31,450 3,555
56,553 2,677 7,424
16,647
22,060 --
185 158,395
731 731
-- 20,591 20,591
88,689
10,586 99,275 14,213
9 4,179
225
26,231 2
52,295 3,359 7,560 5,584
22,060 404 --
136,121 -- --
14 20,591 20,605
207
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
7. Balances of amounts due from/to related parties (continued)
Item
Name of related parties
30 June 2022
Amount
31 December 2021
Amount
Bills payable
Shenzhen Xinyu Tengyue Electronics Co., Ltd
Sindi Technologies Co., Ltd. Pylon Technologies Co., Ltd. Zhongxing Feiliu Information Technology
Company Limited
Trade payables
Shenzhen Xinyu Tengyue Electronics Co., Ltd
Sindi Technologies Co., Ltd. Shenzhen Zhongxing WXT Equipment
Company Limited Shenzhen Zhongxing Information Company
Limited Puxing Mobile Tech Company Limited Whale Cloud Technology Co., Ltd. Pylon Technologies Co., Ltd. Huanggang Education Valley Investment
Holdings Co., Ltd.
Contract liabilities
ZTE Software Technology (Nanchang) Company Limited
Puxing Mobile Tech Company Limited Xi'an Microelectronics Technology Research
Institute ZTE Software Technology (Shenyang)
Company Limited Whale Cloud Technology Co., Ltd.
11,942 66,958 69,026
3,224 17,277
1,450 169,877
3,737 30,287
483
13,120 217
25,893 181
238,910 1,108 --
1 313,937
5,327 250
1,628 155
15,022
3 4,827 10,610 37,822
11,592 69,835 61,123 12,863 90,904
-- 246,317
8,489 32,132
483
13,120 217
29,772 3,224
257,751 37,287 1,065
-- 383,540
5,327 739
1,628 155
79,774
3 4,014 11,407 103,047
208
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
7. Balances of amounts due from/to related parties (continued)
Item
Name of related parties
30 June 2022
Amount
31 December 2021
Amount
Other payables
Shenzhen Zhongxing WXT Equipment Company Limited
Zhongxingxin Telecom Company Limited INTLIVE TECHNOLOGIES (PRIVATE) LIMITED Huanggang Education Valley Investment
Holdings Co., Ltd. Hengyang ICT Real Estate Co., Ltd Shenzhen Zhongxingxin Cloud Service
Company Limited Huatong Technology Co., Ltd Shenzhen Aerospace Property Management
Co., Ltd Whale Cloud Technology Co., Ltd. Shenzhen Zhongxing International Investment
Company Limited
12 10 -- 5,084 2,000
181 198 272
45 3,000
6
30 -- 29
26 10,893
12 318
4 4,878 2,000
178 198 272
45 -- --
-- 2,354
29
26 10,314
Other amounts due from/to related parties were interest-free, unsecured and had no fixed term of repayment. Amounts receivable from related parties were interest-free and unsecured with an usual credit term of 090 days, which may be extended to up to 1 year.
209
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XI. SHARE-BASED PAYMENT
1. Overview Equity-settled share-based payments are as follows:
30 June 2022
30 June 2021
Accumulated balance of equity-settled share-based payments credited to capital reserves
Transfer of equity-settled share-based payment cost to capital reserve share capital premium on exercise of share options
Total costs of equity-settled share-based payments in the year
1,188,524
(55,444) 247,549
947,924 --
468,770
2. Share option incentive scheme
(1 2017 Share Option Incentive Scheme
Pursuant to the "Resolution on Matters pertaining to the grant of shares options under the 2017 Share Option Incentive Scheme" considered and passed at the Twentieth Meeting of the Seventh Session of the Board of Directors and Seventeenth Meeting of the Seventh Session of the Supervisory Committee on 6 July 2017, the date of grant was set for 6 July 2017 and 149,601,200 share options were granted to 1,996 scheme participants. The scheme participants of the Share Incentive Scheme were the directors and senior management of the Company and key staff of the Company who have a direct impact or outstanding contributions to the Company's business results and ongoing development as a whole, excluding independent non-executive directors and supervisors, substantial shareholders holding 5% or more of the Company's shares, separately or in aggregate, or the actual controller of the Company and their spouses, parents or children.
The share options shall be valid for a period of 5 years from the date of grant subject to a 2-year vesting period. Thereafter, one-third of the options shall become exercisable in each of the three exercise periods, namely, the first, second and third exercise periods, subject to the fulfilment of conditions relating to business performance. The initial exercise price shall be RMB17.06 per share. The share options not exercisable due to failure to fulfil the business performance conditions or those currently not exercised after the end of the exercise period shall become null and void and be repurchased without consideration and cancelled by the Company.
The performance indicators for the exercise of the share options include:
(1) Rate of Return on Common Stockholders' Equity ("ROE");
(2) The growth rate of net profit attributable to the shareholders of the listed company (The growth rate of net profit).
For the purpose of calculating the aforesaid performance indicators under the Scheme, "net profit" shall refer to the net profit attributable to holders of ordinary shares of the listed company and "net assets" shall refer to the net assets attributable to holders of ordinary shares of the listed company.
210
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XI. SHARE-BASED PAYMENT (CONTINUED)
2. Share option incentive scheme (continued)
(1) 2017 Share Option Incentive Scheme (continued)
The detailed conditions for the exercise of the share options:
The conditions for the exercise of the granted share options of each exercise period:
Exercise period
Percentage of options
exercisable Duration
Conditions for exercise
First exercise period ("First Period")
Second exercise period ("Second Period")
Third exercise period ("Third Period")
1/3 2019.7.62020.7.5 1/3 2020.7.62021.7.5 1/3 2021.7.62022.7.5
ROE for 2017 shall be no less than 10% and Net Profit Growth for 2017 shall be no less than 10% on a base amount of RMB3,825 million
ROE for 2018 shall be no less than 10% and Net Profit Growth for 2018 shall be no less than 20% on a base amount of RMB3,825 million
ROE for 2019 shall be no less than 10% and Net Profit Growth for 2019 shall be no less than 30% on a base amount of RMB3,825 million
The fair value of the share options granted amounted to RMB1,477,496,000. Due to the expiry of the first exercise period share options in July 2020, non-fulfilment of exercise conditions for the second exercise period and the expiry of the third exercise period share options in July 2021, no recognition of related share option expenses for 2022 was required.
Share options issued and outstanding under the Scheme are as follows:
30 June 2022
Weighted
average Number of
exercise
share
price*
options
RMB/share
In '000
31 December 2021
Weighted
average
Number of
exercise
share
price*
options
RMB/share
In '000
At the beginning of the period
Exercised during the period Lapsed
At the end of the period
16.66 16.36
5,256 (4,972)
--
284
16.86 16.66
39,726 (32,033)
(2,437)
5,256
Note:
The grant under the Company's 2017 Share Option Incentive Scheme was completed in July 2017. The initial exercise price of the share options was RMB17.06 per A share. The exercise price of the 2017 Share Option Incentive Scheme was adjusted to RMB16.86 per A share after the implementation of 2019 profit distribution plan in August 2020, to RMB16.66 per A share after the implementation of 2020 profit distribution plan in August 2021, and to RMB16.36 per A share after the implementation of 2021 profit distribution plan in May 2022.
211
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XI. SHARE-BASED PAYMENT (CONTINUED)
2. Share option incentive scheme (continued)
(1) 2017 Share Option Incentive Scheme (continued)
As at the balance sheet date, the exercise price and valid exercise period of share options issued and outstanding are as follows:
30 June 2022
Number of share options
In '000
Exercise price Valid exercise period RMB/share
284
16.36 6 July 2021 to 5 July 2022
284
31 December 2021
Number of share options
In '000
Exercise price Valid exercise period RMB/share
5,256 5,256
16.66 6 July 2021 to 5 July 2022
The fair value of the equity-settled share options granted on the date of grant is estimated using the binomial tree model with the terms and conditions for the share options taken into account. The input variables under the applied model are as follows:
Exercise period
First
Second
Third
Estimated dividend payment (RMB) Volatility (%) Risk-free interest rate (%)
0.18 43.35 3.498
0.18 42.2 3.506
0.18 42.9 3.517
Volatility is an assumption based on the trend reflected by historical volatility, and hence may not be the actual result. In respect of the fair value, other features of the granted share options were not considered.
212
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XI. SHARE-BASED PAYMENT (CONTINUED)
2. Share option incentive scheme (continued)
(2) 2020 Share Option Incentive Scheme -- Initial Grant
Pursuant to the "Resolution on Matters pertaining to the grant of shares options under the 2020 Share Option Incentive Scheme" considered and passed at the Twenty-seventh Meeting of the Eighth Session of the Board of Directors and the Twentieth Meeting of the Eighth Session of the Supervisory Committee held on 6 November, it was confirmed that 158,472,000 would be granted to 6,123 participants under the initial grant. In accordance with ASBE 11 -- Share-based Payment, the date of grant should be the date of approval of the share-based payment agreement. Hence, the date of grant for the initial grant of the share option incentive scheme was set for 6 November 2020. The scheme participants of the Share Incentive Scheme were the directors and senior management of the Company and key staff of the Company who have a direct impact or outstanding contributions to the Company's business results and ongoing development as a whole, excluding independent non-executive directors and supervisors, substantial shareholders holding 5% or more of the Company's shares, separately or in aggregate, or the actual controller of the Company and their spouses, parents or children.
The share options under the initial grant shall be valid for a period of 4 years from the date of grant, subject to a 1-year vesting period. Thereafter, one-third of the options shall become exercisable in each of the three exercise periods, namely, the first, second and third exercise periods, subject to the fulfilment of conditions relating to business performance. The share options not exercisable due to failure to fulfil the business performance conditions or those currently not exercised after the end of the exercise period shall become null and void and be repurchased without consideration and cancelled by the Company.
Business performance indicator for the exercise of the share options: net profit attributable to holders of ordinary shares of the listed company.
The detailed conditions for the exercise of the share options:
The conditions for the exercise of the granted share options of each exercise period:
Exercise period
Percentage of options
exercisable Duration
Conditions for exercise
First exercise period ("First Period")
Second exercise period ("Second Period")
Third exercise period ("Third Period")
1/3 2021.11.62022.11.5 Net Profit for 2020 shall be no less than RMB3 billion
1/3 2022.11.62023.11.5 Cumulative net Profit for 2020 and 2021 shall be no less than RMB6.47 billion
1/3 2023.11.62024.11.5 Cumulative net Profit for 2020, 2021 and 2022 shall be no less than RMB10.23 billion
The fair value of the share options under the initial grant was RMB1,444,549,000. The Group recognised share option expenses of RMB223,305,000 for the first six months of 2022 based on the best estimates of expected number of exercisable options at the end of the period.
213
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XI. SHARE-BASED PAYMENT (CONTINUED)
2. Share option incentive scheme (continued)
(2) 2020 Share Option Incentive Scheme -- Initial Grant (continued)
As at the balance sheet date, the exercise price and valid exercise period of share options issued and outstanding are as follows:
30 June 2022
Number of share options
In '000
Exercise price Valid exercise period RMB/share
51,376 51,616 51,616
154,608
34.47 34.47 34.47
6 November 2021 to 5 November 2022 6 November 2022 to 5 November 2023 6 November 2023 to 5 November 2024
31 December 2021
Number of share options
In '000
Exercise price Valid exercise period RMB/share
51,436 51,616 51,616
154,668
34.47 34.47 34.47
6 November 2021 to 5 November 2022 6 November 2022 to 5 November 2023 6 November 2023 to 5 November 2024
Share options issued and outstanding under the Scheme are as follows:
30 June 2022
Weighted
average Number of
exercise
share
price*
options
RMB/share
In '000
31 December 2021
Weighted
average
Number of
exercise
share
price*
options
RMB/share
In '000
At the beginning of the period
Exercised during the period Lapsed
At the end of the period
34.47 34.47
154,668 (60) --
154,608
34.47 34.47
158,472 (7)
(3,797)
154,668
214
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XI. SHARE-BASED PAYMENT (CONTINUED)
2. Share option incentive scheme (continued)
(2) 2020 Share Option Incentive Scheme -- Initial Grant (continued)
The fair value of the equity-settled share options granted on the date of grant is estimated using the binomial tree model with the terms and conditions for the share options taken into account. The input variables under the applied model are as follows:
Exercise period
First
Second
Third
Estimated dividend payment (RMB) Volatility (%) Risk-free interest rate (%)
0.20 34.40 2.775
0.20 33.57 2.846
0.20 30.33 2.909
Volatility is an assumption based on the trend reflected by historical volatility, and hence may not be the actual result. In respect of the fair value, other features of the granted share options were not considered.
(3) 2020 Share Option Incentive Scheme -- Reserved Options
Pursuant to the "Resolution on Matters pertaining to the Grant of Reserved Share Options under the 2020 Share Option Incentive Scheme" considered and passed at the Fortieth Meeting of the Eighth Session of the Board of Directors of the Company and the Thirty-first Meeting of the Eighth Session of the Supervisory Committee held on 23 September 2021, 5,000,000 reserved share options shall be granted to 410 participants. In accordance with ASBE No. 11 -- Share-based payment, the date of grant shall be the date on which the agreement governing the share-based payment is approved. Therefore, the date of grant for the reserved share options under the share option incentive scheme shall be 23 September 2021. Participants of the reserved share options shall be key business personnel who have a direct impact or make outstanding contributions to the overall results and sustainable development of the Company.
The reserved share options shall be valid for a period of 3 years subject to a 1-year vesting period from the date of grant. Thereafter, one half of the options shall become exercisable in each of the two exercise periods, namely, the first and the second exercise periods, subject to the fulfilment of conditions relating to business performance. The share options not exercisable due to failure to fulfil the business performance conditions or those currently not exercised after the end of the exercise period shall become null and void and be repurchased without consideration and cancelled by the Company.
Business performance indicator for the exercise of the share options: net profit attributable to holders of ordinary shares of the listed company.
215
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XI. SHARE-BASED PAYMENT (CONTINUED)
2. Share option incentive scheme (continued)
(3) 2020 Share Option Incentive Scheme -- Reserved Options
The conditions for the exercise of share options:
Exercise period
Percentage of options
exercisable Duration
Conditions for exercise
First exercise period ("First Period")
Second exercise period ("Second Period")
1/2 2022.9.232023.9.22 Cumulative net profit for 2020 and 2021 shall be no less than 20% RMB6.47 billion
1/2 2023.9.232024.9.22 Cumulative net profit for 2020, 2021 and 2022 shall be no less than RMB10.23 billion
The fair value of the reserved share options was RMB39,913,000. The Company recognised share option expenses of RMB12,047,000 for the first six months of 2022 based on the best estimates of the expected number of exercisable options at the end of the period.
As at the balance sheet date, the exercise price and valid exercise period of share options issued and outstanding are as follows:
30 June 2022
Number of share options
In '000
Exercise price Valid exercise period RMB/share
2,500 2,500
5,000
34.92 23 September 2022 to 22 September 2023 34.92 23 September 2023 to 22 September 2024
The fair value of the equity-settled share options granted on the date of grant is estimated using the binomial tree model with the terms and conditions for the share options taken into account. The input variables under the applied model are as follows:
Exercise period
First
Second
Estimated dividend payment (RMB) Volatility (%) Risk-free interest rate (%)
0.20 29.53 2.393
0.20 31.46 2.499
Volatility is an assumption based on the trend reflected by historical volatility, and hence may not be the actual result. In respect of the fair value, other features of the granted share options were not considered.
216
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XI. SHARE-BASED PAYMENT (CONTINUED)
3. MANAGEMENT STOCK OWNERSHIP SCHEME OF THE COMPANY 2020
The Management Stock Ownership Scheme of the Company has been approved by the Remuneration and Evaluation Committee, Twenty-fifth Meeting of the Eighth Session of the Board of Directors, Eighteenth Meeting of the Eighth Session of the Supervisory Committee and Second Extraordinary General Meeting of 2020 of the Company. The source of funds shall be the Management Stock Ownership Scheme Special Fund amounting to RMB114,765,557.00 set aside by the Company. The source of shares under the Management Stock Ownership Scheme shall be 2,973,900 repurchased A shares of the Company, accounting for 0.06% of the total share capital of the Company. There were 27 participants, including Directors, Supervisors, senior management and other core management personnel.
The total amount of funds paid for the Management Stock Ownership Scheme was RMB114,765,557.00, divided into 114,766,000 units at RMB1.00 each, The Directors, Supervisors and senior management of the Company subscribed for a total of 62,606,000 units, while other participants subscribed for a total of 52,160,000 units.
The Management Stock Ownership Scheme shall be valid for 3 years from the date of approval of the Management Stock Ownership Scheme at the general meeting. The scheme will terminate automatically upon maturity, or it may be extended upon approval by the Board at the request of the management committee.
The performance indicator for the Management Stock Ownership Scheme is a net profit attributable to ordinary shareholders of the listed company for 2020 of not less than RMB3.0 billion. The number of share options to be granted is based on the operating results of the business segment which the management personnel is in charge of and his/her personal appraisal, and the confirmed number of options will be vested in the holder in 2 periods separated by an interval of 12 months, with 50% vested in each period.
The lock-up period for Company shares transferred to the Management Stock Ownership Scheme was from 18 December 2020 to 17 December 2021. On 18 December. On 18 December 2021, the lock-up period for shares under the Management Stock Ownership Scheme expired. Pursuant to the "ZTE Corporation Management Stock Ownership Scheme (Draft)", 50% of the units under the Management Stock Ownership Scheme were vested during the reporting period.
The Group recognised share option expense of RMB12,197,000 for the first six months of 2022 based on the best estimates of expected number of exercisable shares at the end of the period and the fair value per share on the date of grant.
217
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XII. COMMITMENTS AND CONTINGENT EVENTS
1. Material commitments
30 June 2022
31 December 2021
Contracted but not provided of Capital commitments Investment commitments
2,446,852 138,500
2,585,352
2,534,033 26,500
2,560,533
2. Contingent events
2.1. In November 2012, ZTE Brazil filed an application with the Civil Court of Brasilia to freeze the assets of a Brazilian company on the grounds that the said Brazilian company had failed to honour purchase payments of approximately BRL31,353,700 (equivalent to approximately RMB44,293,400). On 7 February 2013, the Civil Court of Brasilia ruled to suspend the freezing of the assets of such Brazilian company on the grounds that such company was not currently involved in any significant debt dispute with any other companies and that there was no indication that it would be subject to bankruptcy. In July 2013, ZTE Brazil filed a litigation with the Civil Court of Brasilia to demand immediate compensation from the said Brazilian company in the amount of BRL31,224,300 (equivalent to approximately RMB44,110,600), together with accruable interests and legal costs (the "Primary Case"). In January 2016, the Civil Court of Brasilia handed down the first trial judgement, ruling that the Brazilian company should pay a compensation amount of BRL31,224,300 (equivalent to approximately RMB44,110,600) together with accrued interest and an adjustment amount for inflation. In April 2016, the Civil Court of Brasilia notified ZTE Brazil that the said Brazilian company had filed an application for appeal in respect of the aforesaid first trial judgement. On 29 August 2016, ZTE Brazil was notified that the federal district court had handed down a second trial judgement rejecting the appeal of the said Brazilian company. In November 2016, the federal district court ruled to activate provisional execution procedures to require the said Brazilian company to pay to ZTE Brazil BRL31,224,300 (equivalent to approximately RMB44,110,600) together with accrued interests and an adjustment amount for inflation. In February 2017, the federal district court ruled to reject the request of the said Brazilian company filed in October 2016 for clarification of the aforesaid second trial judgement. The court trial proceedings of the aforesaid case have ended.
On 30 November 2012, Civil Court No. 15 of Sao Paulo City, Brazil notified ZTE Brazil that the said Brazilian company had filed a lawsuit (the "Sued Case") with the said court alleging that ZTE Brazil had committed fraud and negligence in the course of cooperation and demanding compensation for direct and indirect losses in the aggregate amount of approximately BRL82,974,500 (equivalent to approximately RMB117 million). The Company has appointed legal counsel to conduct active defence in respect of the said case.
218
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XII. COMMITMENTS AND CONTINGENT EVENTS (CONTINUED)
2. Contingent events (continued)
2.1. (continued)
On 18 March 2022, the presiding judge of the Primary Case ruled that the valid period for the execution of the credit rights ruled in favour of ZTE Brazil expired on 13 June 2022. On 1 April 2022, ZTE Brazil filed an appeal against such ruling. Pursuant to Brazilian law, the valid period for an execution will not be suspended because of an appeal. Therefore, on 8 June 2022, ZTE Brazil applied to the Court of Brasilia, the court for the Primary Case, to request deliberation between the Court of Brasilia and Civil Court No. 15 of Sao Paulo City, Brazil, the court for the Sued Case, in support of the Brazilian subsidiary's application for the set-off of the credit rights ruled in favour in the Primary Case against any liabilities that may materialise in the event of an unfavourable ruling under the Sued Case. On 18 June 2022, the Court of Brasilia ruled in favour of the aforesaid application for set-off, confirming that, in the event of an unfavourable ruling against ZTE Brazil under the Sued Case, ZTE Brazil will be allowed to set off a compensation amount of BRL176,997,100 (equivalent to approximately RMB250 million as at the date of ruling, subject to inflationary adjustments as at the date of actual setoff).
Based on the legal opinion furnished by legal counsels engaged by the Company and the progress of the case, the Company is currently not able to make reliable estimates on outcome of the litigation.
Note: The exchange rates are based on the book exchange rates of the Company as at 30 June 2022 where BRL amounts are translated at the exchange rate of BRL1: RMB1.4127.
2.2. In August 2020, China MCC20 Group Corporation ("MCC20") filed a litigation with the People's Court of Jinwan District, Zhuhai, Guangdong Province demanding progress payment together with outstanding interests in the amount of RMB12,307,000 in aggregate from ZTE Smart Auto Company Limited ("ZTE Smart Auto"). The People's Court of Jinwan District, Zhuhai, Guangdong Province ruled to freeze ZTE Smart Auto's cash at bank amounting to RMB12,307,000. ZTE Smart Auto has appointed an attorney for active response to the case.
In September 2020, ZTE Smart Auto filed a counter-claim for a total amount of RMB17,958,000 and application for preservation with the court on the grounds that the work project involved in the case had been grossly overdue, the construction process had been subject to numerous penalties and a number of work items had required repair because of quality issues.
In October 2020, MCC20 applied for change of its litigation claim, demanding ZTE Smart Auto to settle project work payment and related outstanding interests amounting in aggregate to RMB188 million, and the case was referred to Zhuhai Intermediate People's Court ("Zhuhai Intermediate Court").
219
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XII. COMMITMENTS AND CONTINGENT EVENTS (CONTINUED)
2. Contingent events (continued)
2.2. (continued)
In December 2020, Zhuhai Intermediate Court ruled to freeze funds in ZTE Smart Auto's account with an amount of RMB15,865,000 and seize the land use rights of two sites under the name of ZTE Smart Auto. ZTE Smart Auto has filed an objection to the court ruling.
In January 2021, ZTE Smart Auto filed an application to increase the amount of counter-claim to RMB72,548,000 on the grounds that MCC20 had not applied for relevant certificates in a timely manner and the project work under the case had not passed the delivery inspection in one instance. Application was also made to the court for property preservation in relation to the additional amount of counter-claim.
In November 2021, Zhuhai Intermediate Court ruled to approve the replacement of the aforesaid frozen and seized account funds and land use rights of two sites with RMB80 million and production equipment by ZTE Smart Auto.
Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress of the cases, the Company is currently not able to make reliable estimates on outcome of the litigation.
2.3. On 2 August 2021, Xi'an Zhongxing New Software Company Limited ("Xi'an Zhongxing Software") filed litigation at Xi'an Intermediary People's Court against China Construction No. 8 Engineering Bureau Company Limited ("China Construction No. 8 Bureau") on the grounds that China Construction No. 8 Bureau had not completed and delivered project work within the agreed timeframe, demanding payment of delay penalty, rental loss and construction penalty with an aggregate amount of approximately RMB257 million to Xian Zhongxing Software by China Construction No. 8 Bureau.
On 8 November 2021, China Construction No. 8 Bureau filed a counter-claim against Xian Zhongxing Software on the grounds that Xian Zhongxing Software had repeatedly made variations to its requirements, failed to honour payments in a timely manner and caused delay in work schedules owing to force majeure resulting in substantial loss for China Construction No. 8 Bureau, and demanded payment of project work amounts and work suspension and stalling loss with an aggregate amount of approximately RMB400 million by Xian Zhongxing Software to China Construction No. 8 Bureau.
On 30 November 2021, Xi'an Intermediary People's Court held the first session of the first trial, at which the two parties exchanged evidence.
Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress of the cases, the Company is currently not able to make reliable estimates on outcome of the litigation.
220
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XII. COMMITMENTS AND CONTINGENT EVENTS (CONTINUED)
2. Contingent events (continued)
2.4. On 21 February 2022, (" ") filed an litigation with Jining City Rencheng District People's Court ("Rencheng Court") against Shenzhen Zhongxing ICT Company Limited ("Shenzhen ICT") and Shandong Zhongxing ICT Company Limited ("Shandong ICT") on the grounds that the latter two had not fulfilled contractual agreements, demanding: (1) compensation for loss caused by default with a provisional amount of RMB90,499,085.06 to be paid by Shenzhen ICT and Shandong ICT in accordance with the law; (2) the assumption by Shenzhen ICT and Shandong ICT of agency fees, litigation fees and preservation fees incurred by in connection with the case.
On 29 April 2022, Shandong ICT received the civil case verdict for property preservation from Rencheng Court and civil litigation petition of . Rencheng Court ruled to freeze RMB95 million bank deposits or seal properties with the corresponding value of Shenzhen ICT and Shandong ICT.
On 26 May 2022, Shandong ICT received a writ of summons from Rencheng Court and an application for modification of litigation petition from , who had modified the litigation claim amount from RMB90,499,085.06 to RMB94,148,627.01.
On 18 July 2022, the first trial commenced at Rencheng Court.
Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress of the cases, the Company is currently not able to make reliable estimates on outcome of the litigation.
2.5. On 15 April 2018, the U.S. Department of Commerce's Bureau of Industry and Security ("BIS") signed an order activating a previously suspended 7-year denial order (commencing on 15 April 2018 and ending on 13 March 2025) (the "15 April 2018 Denial Order"). The 15 April 2018 Denial Order restricted and prohibited the Company and ZTE Kangxun (its wholly-owned subsidiary) ("ZTE") from participating in any way, whether directly or indirectly, in any transaction involving any commodity, software, or technology exported or to be exported from the United States that is subject to the U.S. Export Administration Regulations ("EAR"), or any other activities subject to control under EAR. The full text of the 15 April 2018 Denial Order was published in the United States Federal Register (Federal Register Vol. 83, p. 17644) on 23 April 2018.
In June 2018, ZTE and BIS entered into a superseding settlement agreement ("2018 Superseding Settlement Agreement") to supersede the settlement agreement signed between ZTE and BIS in March 2017 ("2017 Settlement Agreement"). The 2018 Superseding Settlement Agreement came into effect via a superseding order relating to ZTE on 8 June 2018 (the "8 June 2018 Order"). In accordance with the 2018 Superseding Settlement Agreement, the Company had paid civil monetary penalties totalling USD1.4 billion, including a lump sum payment of USD1 billion and an additional penalty of USD0.4 billion placed in an escrow account with a U.S. bank suspended during the period of ten years from the issuance of the 8 June 2018 Order(the "Probationary Period") (The USD0.4 billion penalty will be waived after the end of Probationary Period if ZTE complies with the probationary conditions set forth in the Agreement and the 8 June 2018 Order during the Probationary Period). ZTE was required to comply with all applicable terms and conditions of the 2018 Superseding Settlement Agreement, including but not limited to: a new denial order (the "New Denial Order") for a period of ten years from the issuance of the 8 June 2018 Order that would, among other things, restrict and prohibit ZTE from applying for, obtaining, or using any license, license exception, or export control document, and participating in any way in any transaction involving any commodity, software, or technology that is subject to EAR, provided that such New Denial Order shall be suspended during the Probationary Period and thereafter be waived subject to ZTE's compliance with the 2018 Superseding Settlement Agreement and the 8 June 2018 Order. For details of other terms and conditions, please refer to the "INSIDE INFORMATION ANNOUNCEMENT AND RESUMPTION OF TRADING" published by the Company on 12 June 2018.
To fulfill the obligations under the 2018 Superseding Settlement Agreement and 2017 Settlement Agreement, the Company is required to provide and implement a comprehensive and updated export control compliance programme that covers all levels of ZTE.
221
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XII. COMMITMENTS AND CONTINGENT EVENTS (CONTINUED)
2. Contingent events (continued)
2.5. (continued)
In the event of the Company's violation of obligations under the 2018 Superseding Settlement Agreement or 2017 Settlement Agreement, (i) the suspended New Denial Order might be activated, which would, among other things, restrict and prohibit ZTE from applying for, obtaining, or using any license, license exception, or export control document, and participating in any transaction involving any commodity, software, or technology that is subject to the EAR; (ii) the USD0.4 billion placed in an escrow account with a U.S. bank shall become payable immediately and shall be paid in full or in part.
The Company has established the Export Compliance Committee of the Board of Directors, which includes the Company's executive directors, non-executive directors and independent non-executive directors; built a team composed of Chief Export Control Compliance Officer, Regional Export Control Compliance Directors and export control compliance team members with global coverage and engaged a number of counsels and consultants; established and enhanced the Company's export control compliance management structure, system and procedure; introduced and implemented SAP Global Trade System to automate key aspects of export compliance management; carried out ECCN Publication Project, which makes available to its customers and business partners the applicable Export Control Classification Number ("ECCN") and other export control information for products subject to the EAR via a public website; continued to provide online and offline export compliance training for senior management, subsidiaries, compliance liaisons, account managers and new employees; cooperated with the independent compliance monitor and special compliance coordinator to conduct various monitoring and compliance audits; and made continuous investment on the work on export control compliance.
In the First Half Year of 2022, the Company has complied with all local rules and regulations, as applicable, including restrictions under economic sanctions and export control laws and regulations, of the countries in which it operates its businesses. Complying with ZTE's Export Compliance Program and the regulations on which it is based is an essential requirement for ZTE's employees, contract employees, and businesses.
Compliance not only protects value, but it also creates value. The Company attaches significant importance to the work on export control compliance, regarding compliance as a foundation for the Company's strategy and condition and bottom-line for the Company's operations. The Company will continually build its value for its customers, shareholders, and employees, and build a compliant and healthy business environment with customers and partners through the dedication and vigilance to export compliance of every employee.
During the period from 1 January 2022 to the date of publication of this report, to the best of the Company's knowledge, the aforesaid contingent events will not have any material adverse impact on the current financial conditions and operating results of the Group.
2.6. As at 30 June 2022, an amount of RMB11,618,550,000 (31 December 2021: RMB12,974,135,000) was outstanding under the bank guarantee letters issued by the Group.
222
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIII.OTHER SIGNIFICANT MATTERS
1. Leases As lessee
Six months ended
30 June 2022
Six months ended
30 June 2021
Interest expense on lease liabilities Short-term leases through current profit or loss using simplified
approach Total cash outflow relating to leases
26,597
63,388 195,790
34,490
144,575 220,584
Lease assets rented by the Group included houses and buildings, transportation equipment and other equipment required in the course of business. Houses and buildings are typically leased for terms of 1 year to 10 years, transportation equipment and other equipment are typically leased for terms of 1 to 5 years, and other equipment are typically leased for terms of 1 to 2 years. Some lease contracts provide for options of renewal and termination.
As lessor
Finance leasing:
Profit or loss relating to finance leases is set out as follows:
Six months ended
30 June 2022
Six months ended
30 June 2021
Interest income from finance leases
34,971
33,574
As at 30 June 2022, the balance of unrealised finance income amounting to RMB107,823,000 was amortised over the respective periods in the lease period using the effective interest rate method. According to the lease contract signed with the lessees, minimum lease payments under noncancellable operating leases falling due are as follows:
30 June 2022 30 June 2021
1 to 2 years (including 2 years) 2 to 3 years (including 3 years) Less: unrealised finance income
Lease investment, net
1,824,100 --
107,823
1,716,277
-- 1,824,100
176,369
1,647,731
223
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIII.OTHER SIGNIFICANT MATTERS (CONTINUED)
1. Leases (continued)
As lessor (continued)
Operating lease:
Profit or loss relating to operating leases is set out as follows:
Six months ended
30 June 2022
Six months ended
30 June 2021
Lease income
67,615
59,971
According to the lease contract signed with lessee, minimum lease payments under non-cancellable operating leases falling due are as follows:
30 June 2022 30 June 2021
Within 1 year (including 1 year) 1 to 2 years (including 2 years) 2 to 3 years (including 3 years) 3 to 4 years (including 4 years) 4 to 5 years (including 5 years) More than 5 years
166,776 86,627 58,925 59,079 57,568
100,112
529,087
87,145 54,695 50,227 52,302 52,738 137,866
434,973
The Group entered into operating property leasing contracts with terms ranging from 1 year to 15 years with certain lessees. The leased properties were accounted for as investment properties. Please refer to Note V.12.
224
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIII.OTHER SIGNIFICANT MATTERS (CONTINUED)
2. Segment reporting Operating segment For management purposes, the Group is organised into business units based on its products and services and has 3 reportable operating segments as follows: (1) The Carriers' Networks Business is focused on meeting carries' requirements in network evolution with the provision of wireless access, wireline access, bearer systems, core networks, telecommunication software systems and services and other innovative technologies and product solutions; (2) The Consumer Business is focused on bringing experience in smart devices to customers while also catering to the requirements of industry clients through the development, production and sale of products such as smart phones, mobile data terminals, family terminals, innovative fusion terminals, as well as the provision of related software application and value-added services; (3) The Government and Corporate Business is focused on meeting requirements of government and corporate clients, providing informatisation solutions for the government and corporations through the application of products such as "communications networks, IOT, Big Data and cloud computing". Management monitors the results of the Group's operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit, which is a measure of adjusted total profit from continuing operations, which is consistent with the Group's total profit from continuing operations, except for the exclusion of finance costs, research and development costs, impairment losses, fair value gains from financial instruments, investment income as well as head office and corporate expenses. Segment assets exclude derivative financial instruments, deferred tax assets, cash and cash equivalents, long-term equity investments, other receivables, other unallocated head office and corporate assets as these assets are managed on a group basis. Segment liabilities exclude derivative financial instruments, borrowings, other payables, short-term bonds payable, tax payable, deferred tax liabilities, and other unallocated head office and corporate liabilities as these liabilities are managed on a group basis.
225
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIII.OTHER SIGNIFICANT MATTERS (CONTINUED)
2. Segment reporting (continued)
Operating segment (continued)
Carriers' networks
Consumer business
Government and
corporate business
Total
Segment revenue Six months ended 30 June 2022 Revenue from external
transactions Rental income
Sub-total
Segment results
Unallocated revenue Unallocated cost Finance costs Losses from changes in fair
values Investment losses from associates
and joint ventures
Total profit
Total assets 30 June 2022 Segment assets Unallocated assets
Sub-total
Total liabilities Segment liabilities Unallocated liabilities
Sub-total
Supplemental information Six months ended 30 June 2022 Depreciation and amortisation
expenses Capital expenditure Asset impairment losses Credit impairment losses
38,720,841 --
38,720,841 14,430,955
14,392,182 --
14,392,182 1,618,070
49,602,348
17,546,162
13,891,320
4,199,524
1,383,250 1,610,590
(104,068) (75,678)
514,141 598,641 (38,681) (28,129)
6,637,662 67,615
6,705,277 1,295,426
59,750,685 67,615
59,818,300 17,344,451
1,000,899 (12,381,098)
(303,745)
(392,234)
(56,564) 5,211,709
8,589,624
75,738,134 103,986,628
179,724,762
2,405,556
20,496,400 102,515,812
123,012,212
239,537 278,905 (18,022) (13,105)
2,136,928 2,488,136
(160,771) (116,912)
226
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIII.OTHER SIGNIFICANT MATTERS (CONTINUED)
2. Segment reporting (continued) Operating segment (continued)
Carriers' networks
Consumer business
Government and
corporate business
Total
Segment revenue Six months ended 30 June 2021 Revenue from external transactions Rental income
Sub-total
Segment results
Unallocated revenue Unallocated cost Finance costs Gain from changes in fair values Investment losses from associates
and joint ventures
Total profit
Total assets 30 June 2021 Segment assets Unallocated assets
Sub-total
Total liabilities Segment liabilities Unallocated liabilities
Sub-total
Supplemental information Six months ended 30 June 2021 Depreciation and amortisation
expenses Capital expenditure Asset impairment losses Credit impairment losses
35,051,703 --
35,051,703 12,004,790
44,496,643
12,895,204
1,463,506 1,762,295
27,032 (82,723)
12,352,332 --
12,352,332 1,512,075
14,581,238
3,553,002
515,745 621,038
9,526 (29,152)
5,606,964 59,971
5,666,935
1,105,848
53,010,999 59,971
53,070,970 14,622,713
1,410,880 (10,829,799)
(480,702) 874,661
(70,777) 5,526,976
7,193,932
66,271,813 99,630,304
165,902,117
2,084,815
18,533,021 97,202,879
115,735,900
236,611 284,916
4,370 (13,374)
2,215,862 2,668,249
40,928 (125,249)
227
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIII.OTHER SIGNIFICANT MATTERS (CONTINUED)
2. Segment reporting (continued) Group Information Geographic information Revenue from external customers
Six months ended
30 June 2022
Six months ended
30 June 2021
PRC Asia (excluding PRC) Africa Europe, America and Oceania
40,602,370 7,899,366 2,510,729 8,805,835
59,818,300
35,954,824 7,140,276 2,351,270 7,624,600
53,070,970
Revenue from external customers is analysed by geographic locations where the customers are located.
Total non-current assets
30 June 2022
31 December 2021
PRC Asia (excluding PRC) Africa Europe, America and Oceania
23,169,973 1,467,844 434,018 403,931
25,475,766
22,993,371 1,477,536 454,790 445,927
25,371,624
Non-current assets, excluding long-term receivables, factored long-term receivables, long-term equity investments, other non-current financial assets, deferred tax assets, goodwill and other noncurrent assets, are analysed by geographic locations where the assets are located.
Information of major customers
Operating revenue of RMB17,991,810,000 was derived from carriers' networks and consumer business revenue from one major customer (first half of 2021: RMB16,602,146,000 from one major customer).
228
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIII.OTHER SIGNIFICANT MATTERS (CONTINUED)
3. # Net current assets/(liabilities)
30 June 2022
Group
31 December 2021
Group
Current assets Less: current liabilities
Net current assets/ (liabilities)
138,483,067 84,661,749
53,821,318
4. # Total assets less current liabilities
30 June 2022
Group
127,871,085 78,685,256
49,185,829
31 December 2021
Group
Total assets Less: current liabilities
Total assets less current liabilities
179,724,762 84,661,749
95,063,013
168,763,425 78,685,256
90,078,169
30 June 2022
Company
31 December 2021
Company
118,597,397 86,005,468
107,161,255 80,474,462
32,591,929
26,686,793
30 June 2022
Company
31 December 2021
Company
159,597,796 86,005,468
148,700,059 80,474,462
73,592,328
68,225,597
229
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS
1. Trade receivables The aging analysis of trade receivables is set out as follows:
30 June 2022
31 December 2021
Within 1 year 12 years 23 years Over 3 years
Less: bad debt provision for trade receivables
16,660,688 1,591,530 1,014,879 9,024,858
28,291,955 6,353,330
21,938,625
15,015,331 2,110,408 1,104,192 8,906,033
27,135,964 6,165,477
20,970,487
30 June 2022
Book balance Amount Percentage (%)
Expected credit loss for the entire
subsisting period Amount Percentage (%)
31 December 2021
Book balance Amount Percentage (%)
Expected credit loss for the entire
subsisting period Amount Percentage (%)
Individually significant and for which bad debt provision has been separately made
For which bad debt provision has been collectively made 06 months 612 months 1218 months 1824 months 23 years Over 3 years
1,875,175
13,182,269 2,798,174
711,685 862,105 899,237 7,963,310
7
1,875,175
100
1,905,415
47
233,070
9
65,415
3
102,658
3
100,949
3
180,553
28
3,795,510
2 12,585,587
2
1,774,953
14
1,344,145
12
702,067
20
979,226
48
7,844,571
7
1,905,415
100
46
154,720
1
6
53,205
3
5
93,285
7
3
27,757
4
4
266,225
27
29
3,664,870
47
26,416,780
93
4,478,155
17 25,230,549
93
4,260,062
17
28,291,955
100
6,353,330
22 27,135,964
100
6,165,477
23
230
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
1. Trade receivables (continued)
Movements in bad-debt provisions for trade receivables:
Opening balance
Provision/ reversal for Write off for
the period the period
Effect of exchange
rate movement
Closing balance
30 June 2022 31 December 2021
6,165,477 8,192,867
116,839 24,190
(49,008) (1,914,186)
120,022 (137,394)
6,353,330 6,165,477
As at 30 June 2022, RMB70,725,000 (2021: RMB176,984,000) was reversed in respect of bad-debt provision for trade receivables which were individually significant and for which bad-debt provision had been made separately. There was no write-off of bad-debt provision for trade receivables which were individually significant and for which bad-debt provision had been made separately for the period (31 December 2021: RMB1,593,497,000).
Transfer of trade receivables that did not qualify for derecognition was separately classified as "Factored trade receivables" and "Bank advances on factored trade receivables".
2. Other receivables
30 June 2022
31 December 2021
Interest receivable Dividend receivable Other receivables
444,804 1,056,303 30,710,233
32,211,340
266,150 1,056,533 27,449,570
28,772,253
Other receivables The aging analysis of other receivables:
30 June 2022
31 December 2021
Within 1 year 12 years 23 years Over 3 years
Bad debt provision Total
24,021,880 3,465,387 2,099,057 1,165,064
30,751,388 (41,155)
30,710,233
21,449,993 2,201,432 2,767,257 1,040,327
27,459,009 (9,439)
27,449,570
231
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
2. Other receivables (continued)
Other receivables (continued)
Other receivables are analysed as follows:
30 June 2022
31 December 2021
Staff loans Current amounts
Total
34,045 30,676,188
30,710,233
50,680 27,398,890
27,449,570
3. Long-term trade receivables
30 June 2022
31 December 2021
Loans granted to subsidiaries (Note 1) Installment payments for the provision of telecommunication
system construction projects Less: Bad debt provision for long-term receivables
4,235,131
2,114,049 18,479
6,330,701
4,045,099
2,176,930 21,846
6,200,183
Note 1: Loans granted to subsidiaries set out above were interest-free, unsecured and planned for recovery in the foreseeable future. The Directors are of the view that the advances effectively constituted net investments in overseas business operations.
Movements in bad debt provision for long-term receivables during the period are as follows:
Opening balance
Provision for the period Closing balance
30 June 2022 31 December 2021
21,846 27,841
(3,367) (5,995)
18,479 21,846
The interest rate of long-term trade receivables ranged from 4.50%6.16%.
Transfer of long-term trade receivables that did not qualify for derecognition was separately classified as "Factored long-term trade receivables" and "Bank advances on factored long-term trade receivables".
232
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
4. Long-term equity investments
30 June 2022
31 December 2021
Equity method
Joint Ventures
(1)
Associates
(2)
Less: Provision for impairment in long-term equity
Investments
Cost method
Subsidiaries
(3)
Less: Provision for impairment in long-term equity
investments
(4)
438,975 836,080
-- 1,275,055
15,026,062
381,166 14,644,896 15,919,951
440,481 895,369
-- 1,335,850
16,007,470
385,757 15,621,713 16,957,563
30 June 2022
(1) Joint Ventures
Puxing Mobile Tech Company Limited Zhuhai Hongtu Zhanlu Equity Investment Partnership
Enterprise (Limited Partnership)
Opening book balance
Increase of investment
Decrease of investment
Movements during the period
Investment
gains/losses
Other
undue equity comprehensive
method
income
Allowance for
Other equity Cash dividend Impairment
movements
declared
provision
Impairment
provision at the
Closing book end of the
balance
period
10,752
--
--
--
--
--
--
--
10,752
--
28,527
--
--
(3,684)
--
--
--
--
24,843
--
401,202
--
--
2,178
--
--
--
--
403,380
--
440,481
--
--
(1,506)
--
--
--
--
438,975
--
(2) Associates
Opening book balance
Increase of investment
Decrease of investment
Movements during the period
Investment
gains/losses
Other
under equity comprehensive
method
income
Allowance for
Other equity Cash dividend impairment
movements
declared
provision
* Whale Cloud Technology Co., Ltd. Shijiazhuang Smart Industries Company
Limited Zhongxing Feiliu Information Technology
Company Limited Xingyun Times Technology Company
Limited ZTE (Wenzhou) Railway Communication
Technology Limited
430 4,687 2,791 3,652 702,183
7,829
16,855
131,694
25,248 895,369
--
(430)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
(365)
6
--
--
--
--
--
(1,654)
--
--
--
--
--
--
(45,639)
(5,313)
--
--
--
--
--
(1,703)
--
--
--
--
--
--
(5,001)
--
--
--
--
--
--
304
--
--
--
--
--
--
2,112
--
--
(1,606)
--
--
(430)
(51,946)
(5,307)
--
(1,606)
--
Impairment
provision at the
Closing book end of the
Other
balance
period
--
--
--
--
4,687
--
--
2,432
--
--
1,998
--
--
651,231
--
--
6,126
--
--
11,854
--
--
131,998
--
--
25,754
--
--
836,080
--
*
were no longer accounted for as associates for the year owing to the loss of significant
influence following the full disposal of equity interests held in these companies.
233
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
4. Long-term equity investments (continued) 30 June 2022 (continued) (3) Subsidiaries
Investment cost
Opening balance
Increase/ decrease during the
period
Closing Percentage of Percentage of balance shareholding voting rights
Cash dividend for
the period
Shenzhen Zhongxing Software Company Limited Shanghai ZXELINK Co., Ltd. ZTE Kangxun Telecom Company Limited ZTE Microelectronics Technology Company Limited Anhui Wantong Posts and Telecommunication Company Limited ZTE Integration Telecom Limited Shenzhen Zhongxing Telecom Equipment Technology & Service
Company Limited Xi'an Zhongxing Jing Cheng Communication Company Limited Guangdong ZTE Newstart Technology Co., Ltd. Xi'an Zhongxing New Software Company Limited Shenzhen Zhongxing ICT Company Limited () ZTE Wistron Telecom AB (European research institute) ZTE Holdings (Thailand) Co., Ltd***** ZTE (Thailand) Co., Ltd.****** ZTE (USA) Inc. ZTE Do Brasil LTDA ZTE Telecom India Private Ltd. ZTE-Communication Technologies, Ltd. (Russia) Zhongxing Telecom Pakistan (Private) Ltd. ZTE (H.K.) Limited Shenzhen ZTE Capital Management Company Limited ZTE (Heyuan) Company Limited Shenzhen Zhonghe Chunsheng No. 1 Equity Investment Fund
Partnership Enterprise (Limited Partnership) ZTE Group Finance Co., Ltd Shenzhen Zhongxing Cloud Service Company Limited Zhongxing New Energy Technology Automobile Company Limited Xi'an ZTE Terminal Technology Company Limited Zhongxing Health Technology Company Limited Shenzhen Zhongxing Smart Valley Technology Company Limited Jiaxing Xinghe Equity Investment Partnership (Limited Partnership) Xinjiang ZTE Silk Road Network Technology Company Limited
263,293 --
580,000 2,702,784
-- --
263,293 37,382 580,000 2,702,784 179,767 41,250
45,000 --
13,110 5,000 340,000 157,019 22,160 2,137
10 5,253 190,133 18,573 335,759 6,582 5,279 853,800 16,500 500,000
45,000 40,500 13,110 5,000 600,000 157,019 22,160 2,137
10 5,253 190,133 18,573 335,759 6,582 5,279 853,800 16,500 500,000
-- 1,000,000
16,000 289,341 50,000 47,500 232,360 300,000 15,000 15,000
-- 51,530 19,500
-- 1,000,000
16,000 289,341 50,000 47,500 232,360 300,000 15,000 15,000 45,000 51,530 19,500
-- (37,382)
-- -- (179,767) (41,250)
263,293 --
580,000 2,702,784
-- --
-- (40,500)
-- -- (260,000) -- -- -- -- -- -- -- -- -- -- -- -- --
45,000 --
13,110 5,000 340,000 157,019 22,160 2,137
10 5,253 190,133 18,573 335,759 6,582 5,279 853,800 16,500 500,000
-- -- -- -- -- -- -- -- -- -- (45,000) -- --
-- 1,000,000
16,000 289,341 50,000 47,500 232,360 300,000 15,000 15,000
-- 51,530 19,500
100% ***
100.0% 87.2%
*** ****
100.0% ***
90.0% 100.0% 100.0% 90.0% 76.0% 100.0% 49.0% 49.0% 100.0% 100.0% 100.0% 100.0% 93.0% 100.0% 55.0% 100.0%
-- 100.0% 100.0% 100.0% 100.0% 95.0% 100.0% 100.0% 50.0% 100.0%
-- 100.0% 65.0%
100% --
100.0% 87.2%
-- --
100.0% --
90.0% 100.0% 100.0% 90.0% 76.0% 100.0% 95.05% 49.0% 100.0% 100.0% 100.0% 100.0% 93.0% 100.0% 55.0% 100.0%
** 100.0% 100.0% 100.0% 100.0% 95.0% 100.0% 100.0% 50.0% 100.0%
** 100.0% 65.0%
-- -- -- -- 8,100 --
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 35,200 --
-- -- -- -- -- -- -- -- -- -- -- -- --
234
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
4. Long-term equity investments (continued)
30 June 2022 (continued)
(3) Subsidiaries (continued)
Changsha Zhongxing Smart Technologies Company Limited Shenzhen Zhongxing Videocom Technologies Company Limited Zhongxing (Shenyang) Financial Technology Company Limited Shenzhen ZTE Jinkong Commercial Factoring Company Limited Shenzhen Zhiheng Technology Company Limited ZTE Smart Auto Company Limited Zhongxing Opto-electronic Technology Company Limited Suzhou Zhonghe Chunsheng III Investment Centre (Limited Partnership) ZTE Kela Technology (Suzhou) Co., Ltd. Xi'an ZTE IOT Terminal Co., Ltd. ZTE (Xi'an) Co., Ltd. ZTE Wangkun Information Technology (Shanghai) Co., Ltd. Xi'an Zhongxing Electronic Technology Company Limited Wuhan ZTE Smart City Research Institute Co., Ltd. ZTE Zhongchuang Kongjian (Xi'an) Investment Management Co., Ltd. ZTE (Nanjing) Co., Ltd. Nanjing Yingbo Super Computer Technology Company Limited Nubia Technology Limited Shenzhen Renxing Technology Company Limited Zhongxing Terminal Co., Ltd. Zhongxing Intelligent Technology (Nanjing) Company Limited Nanjing Zhongxing Zhiyuan Technology Company Limited Nanjing Chunjun Innovative Technology Company Limited Jinzhuan Xinke Company Limited ZTE (Congo) Company Limited Zhongxing (Chengdu) Intelligent Technology Company Limited Sanhe Zhongxing Software Company Limited ZTE (Guinea) Company Limited ZTE (Côte d'Ivoire) Company Limited
Investment cost
Opening balance
Increase/ decrease during the
period
Closing Percentage of Percentage of Cash dividend balance shareholding voting rights for the period
350,000 31,400 45,000 50,000 2,000 790,500 1,000,000
-- 48,661 49,000
-- 52,270 45,000
-- 20,000 1,000,000 23,600 1,124,402 720,000 100,000 1,000,000 100,000 111,000 154,038
393 100,000 10,000
69 106
350,000 31,400 45,000 50,000 2,000 790,500 1,000,000 21,000 48,661 49,000 500,000 52,270 45,000 3,000 10,000 1,000,000 23,600 1,124,402 720,000 100,000 1,000,000 100,000 55,000 83,759
356 100,000
-- -- --
16,007,470
-- -- -- -- -- -- -- (21,000) -- -- (500,000) -- -- (3,000) 10,000 -- -- -- -- -- -- -- 56,000 70,279 37 -- 10,000 69 106
(981,408)
350,000 31,400 45,000 50,000 2,000 790,500 1,000,000
-- 48,661 49,000
-- 52,270 45,000
-- 20,000 1,000,000 23,600 1,124,402 720,000 100,000 1,000,000 100,000 111,000 154,038
393 100,000 10,000
69 106
15,026,062
100.0% 44.0% 100.0% 100.0% 100.0% 86.4% 100.0%
-- 90.0% 100.0% 100.0% 100.0% 100.0%
**** 100.0% 100.0% 50.1% 78.3% 100.0% 100.0% 100.0% 100.0% 100.0% 92.7% 100.0% 100.0% 100.0% 100.0% 100.0%
100.0% *
100.0% 100.0% 100.0% 86.4% 100.0%
** 90.0% 100.0% 100.0% 100.0% 100.0%
-- 100.0% 100.0% 50.1% 78.3% 100.0% 100.0% 100.0% 100.0% 100.0% 92.7% 100.0% 100.0% 100.0% 100.0% 100.0%
-- -- -- -- -- -- -- -- -- -- 2,925 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
46,225
*
This subsidiary is a company with limited liability in which the Company had a shareholding of less than 50%. It is
accounted for as a subsidiary mainly for the reason that the articles of association of this company stipulate that
its board of directors should comprise 5 members, all of which shall be appointed by the Company. As board
resolutions are approved by a majority vote of the directors, the Company is in a position to control the
company.
**
This subsidiary is a limited partnership in which the Company had a shareholding of less than 50%. However, the
limited partnership was managed and controlled by a general partner which was in turn a company controlled by
the Company, therefore the Group as in a position to exercise control over this subsidiary.
*** The company was disposed of prior to 30 June 2022 and the Company has ceased to be in control of the company.
**** The company was deregistered prior to 30 June 2022 and the Company has ceased to be in control of the company.
***** The articles of association of ZTE Holdings (Thailand) Co., Ltd provide that ZTE Corporation's shareholding percentage is different from its percentage of voting rights in the company.
****** The Company had a shareholding of less than 50%. However, ZTE Holdings (Thailand) Co., Ltd. also held 51% equity interests in ZTE (Thailand) Co., Ltd., henced the Company was in a position to exercise control over this subsidiary.
235
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
4. Long-term equity investments (continued) 30 June 2022 (continued) (4) Provision for long-term equity investments
Opening balance
Increase/ decrease during the
period
Closing balance
ZTE (USA) Inc. ZTE DoBrasil LT DA ZTE Integration Telecom Limited Wistron Telecom AB (European research
institute) Zhongxing Telecom Pakistan (Private) Ltd. Shenzhen Zhongxing Telecom Equipment
Technology & Service Company Limited ZTE Holdings (Thailand) Co., Ltd ZTE (Thailand) Co., Ltd. ZTE Telecom India Private Ltd. ZTE-Communication Technologies Ltd.
(Russia)
5,381 18,572
4,591
2,030 2,971
9,656 10
205 335,759
6,582 385,757
-- -- (4,591)
-- --
-- -- -- --
-- (4,591)
5,381 18,572
--
2,030 2,971
9,656 10
205 335,759
6,582 381,166
236
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
4. Long-term equity investments (continued) 31 December 2021 (1) Joint Ventures
Opening book balance
Increase of investment
Decrease of investment
Movements during the year
Investment
gains/losses
Other
under equity Comprehensive
method
income
Other equity Cash Dividend
movements
declared
Allowance for impairment provision
Impairment Closing book provision at the
balance end of the year
Puxing Mobile Tech Company Limited Zhuhai Hongtu Zhanlu Equity Investment Partnership
Enterprise (Limited Partnership)
31,343
--
--
(20,591)
--
--
--
--
10,752
--
26,768
--
--
1,759
--
--
--
--
28,527
--
99,911
300,000
--
1,291
--
--
--
--
401,202
--
158,022
300,000
--
(17,541)
--
--
--
--
440,481
--
(2) Associates
Opening book balance
Increase of investment
Decrease of investment
Movements during the year
Investment
gains/losses
Other
under equity Comprehensive
method
income
Other equity Cash Dividend
movements
declared
Allowance for impairment provision
Impairment
Closing book provision at the
Other
balance end of the year
KAZNURTEL Limited Liability Company*
--
--
(2,477)
--
--
--
--
2,477
--
--
--
ZTE Energy Limited*
447,009
--
(486,198)
48,377
--
--
(9,188)
--
--
--
--
ZTE Software Technology (Nanchang)
Company Limited*
--
--
--
--
--
--
--
--
--
--
--
*
--
--
(4,764)
--
--
--
--
4,764
--
--
--
*
--
--
--
--
--
--
--
--
--
--
--
1,492
--
--
(1,062)
--
--
--
--
--
430
--
4,687
--
--
--
--
--
--
--
--
4,687
--
4,137
--
--
(1,342)
--
(4)
--
--
--
2,791
--
3,811
--
--
(159)
--
--
--
--
--
3,652
--
Whale Cloud Technology Co., Ltd.
652,476
--
--
49,707
--
--
--
--
--
702,183
--
Shijiazhuang Smart Industries Company
Limited
16,172
--
--
(8,343)
--
--
--
--
--
7,829
--
Zhongxing Feiliu Information Technology
Company Limited
18,063
--
--
(1,208)
--
--
--
--
--
16,855
--
Xingyun Times Technology Company
Limited
--
133,514
--
(1,820)
--
--
--
--
--
131,694
--
ZTE (Wenzhou) Railway Communication
Technology Limited
--
21,047
--
4,201
--
--
--
--
--
25,248
--
1,147,847
154,561
(493,439)
88,351
--
(4)
(9,188)
7,241
--
895,369
--
*
KAZNURTEL Limited Liability Company, ZTE Energy Company Limited (renamed Zonergy Corporation as from 2
November 2021), ZTE Software Technology (Nanchang) Company Limited, and
were no longer accounted for as associates for the year owing to the loss of significant
influence following the full disposal of equity interests held in these companies.
237
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
4. Long-term equity investments (continued) 31 December 2021 (continued) (3) Subsidiaries
Investment cost
Opening balance
Increase/ decrease
during the year
Closing Percentage of Percentage of Cash dividend balance shareholding voting rights for the year
Shenzhen Zhongxing Software Company Limited Shanghai ZXELINK Co., Ltd. ZTE Kangxun Telecom Company Limited ZTE Microelectronics Technology Company Limited Anhui Wantong Posts and Telecommunication Company Limited ZTE Integration Telecom Limited Shenzhen Zhongxing Telecom Equipment Technology & Service Company Limited Xi'an Zhongxing Jing Cheng Communication Company Limited Guangdong ZTE Newstart Technology Co., Ltd. Xi'an Zhongxing New Software Company Limited Shenzhen Zhongxing ICT Company Limited () PT. ZTE Indonesia ZTE Wistron Telecom AB (European research institute) ZTE Holdings (Thailand) Co., Ltd**** ZTE (Thailand) Co., Ltd.***** ZTE (USA) Inc. ZTE Do Brasil LTDA ZTE Romania S.R.L ZTE Telecom India Private Ltd. ZTE-Communication Technologies, Ltd. (Russia) Zhongxing Telecom Pakistan (Private) Ltd. ZTE (H.K.) Limited Shenzhen ZTE Capital Management Company Limited ZTE (Heyuan) Company Limited Shenzhen Zhonghe Chunsheng No. 1 Equity Investment Fund Partnership Enterprise
(Limited Partnership) ZTE Group Finance Co., Ltd Caltta Technologies Co., Ltd. Shenzhen Zhongxing Cloud Service Company Limited Shenzhen Zhongxing SI Technology Company Limited Zhongxing New Energy Technology Automobile Company Limited Xi'an ZTE Terminal Technology Company Limited Zhongxing Health Technology Company Limited Shenzhen Zhongxing Smart Valley Technology Company Limited Jiaxing Xinghe Equity Investment Partnership (Limited Partnership) Xinjiang ZTE Silk Road Network Technology Company Limited
263,293 37,382 580,000 2,702,784 179,767 41,250 45,000 40,500 13,110 5,000 600,000 157,019 22,160
-- 2,137
10 5,253 190,133 18,573
-- 335,759
6,582 5,279 853,800 16,500 500,000
263,293 37,382 580,000 91,957 179,767 41,250 45,000 40,500 13,110 5,000 600,000 157,019 22,160 15,275 2,137
10 5,253 190,133 18,573
827 335,759
6,582 5,279 853,800 16,500 500,000
-- -- -- 2,610,827 -- -- -- -- -- -- -- -- -- (15,275) -- -- -- -- -- (827) -- -- -- -- -- --
263,293 37,382 580,000 2,702,784 179,767 41,250 45,000 40,500 13,110 5,000 600,000 157,019 22,160
-- 2,137
10 5,253 190,133 18,573
-- 335,759
6,582 5,279 853,800 16,500 500,000
-- 1,000,000
16,000 289,341
-- 50,000
-- 47,500 232,360 300,000 15,000 15,000 45,000 51,530
-- 19,500
-- 1,000,000
16,000 289,341 42,750 50,000 27,000 47,500 232,360 300,000 15,000 15,000 45,000 51,530
9,393 19,500
-- -- -- -- (42,750) -- (27,000) -- -- -- -- -- -- -- (9,393) --
-- 1,000,000
16,000 289,341
-- 50,000
-- 47,500 232,360 300,000 15,000 15,000 45,000 51,530
-- 19,500
100.0% 90.0% 100.0% 87.22% 90.0% 75.0% 100.0% 83.0% 90.0% 100.0% 100.0% 90.0% 100.0%
*** 100.0% 49.0% 49.0% 100.0% 100.0%
*** 100.0% 100.0% 93.0% 100.0% 55.0% 100.0%
-- 100.0% 100.0% 100.0%
*** 100.0%
*** 95.0% 100.0% 100.0% 50.0% 100.0% 28.9% 100.0%
*** 65.0%
100.0% 90.0% 100.0% 87.22% 90.0% 75.0% 100.0% 83.0% 90.0% 100.0% 100.0% 90.0% 100.0%
-- 100.0% 95.05% 49.0% 100.0% 100.0%
-- 100.0% 100.0% 93.0% 100.0% 55.0% 100.0%
1,410,000 -- -- --
7,200 -- --
4,565 --
46,000 650,000
-- -- -- -- -- -- -- -- -- -- -- -- -- 23,100 --
** 100.0% 100.0% 100.0%
-- 100.0%
-- 95.0% 100.0% 100.0% 50.0% 100.0%
** 100.0%
-- 65.0%
10,800 750,000
-- -- -- -- -- -- -- -- -- -- 6,400 -- -- --
238
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
4. Long-term equity investments (continued)
31 December 2021 (continued)
(3) Subsidiaries (continued)
Changsha Zhongxing Smart Technologies Company Limited Shenzhen Zhongxing Videocom Technologies Company Limited ZTE (Wenzhou) Railway Communication Technology Limited Zhongxing (Shenyang) Financial Technology Company Limited Shenzhen ZTE Jinkong Commercial Factoring Company Limited Shenzhen Zhiheng Technology Company Limited ZTE Gaoneng Technology Company Limited ZTE Smart Auto Company Limited Zhongxing Opto-electronic Technology Company Limited Suzhou Zhonghe Chunsheng III Investment Centre (Limited Partnership) ZTE Kela Technology (Suzhou) Co., Ltd. Xi'an ZTE IOT Terminal Co., Ltd. ZTE (Xi'an) Co., Ltd. ZTE Wangkun Information Technology (Shanghai) Co., Ltd. Xi'an Zhongxing Electronic Technology Company Limited Wuhan ZTE Smart City Research Institute Co., Ltd. ZTE Zhongchuang Kongjian (Xi'an) Investment Management Co., Ltd. ZTE (Nanjing) Co., Ltd. Nanjing Yingbo Super Computer Technology Company Limited Nubia Technology Limited Shenzhen Renxing Technology Company Limited Zhongxing Terminal Co., Ltd. Zhongxing Intelligent Technology (Nanjing) Company Limited Nanjing Zhongxing Zhiyuan Technology Company Limited Nanjing Chunjun Innovative Technology Company Limited Jinzhuan Xinke Company Limited ZTE (Congo) Company Limited Zhongxing (Chengdu) Intelligent Technology Company Limited
Investment cost
Opening balance
Increase/ decrease
during the year
Closing Percentage of Percentage of Cash dividend balance shareholding voting rights for the year
350,000 31,400
-- 45,000 50,000 2,000
-- 790,500 1,000,000 21,000 48,661 49,000 500,000 52,270 45,000
3,000 10,000 1,000,000 23,600 1,124,402 720,000 100,000 1,000,000 100,000 55,000 83,759
356 100,000
350,000 31,400 25,500 45,000 50,000 2,000 400,000 790,500 1,000,000 21,000 41,650 49,000 500,000 52,270 45,000 3,000 10,000 1,000,000 23,600 1,124,402 720,000 100,000
-- -- -- -- -- --
12,571,262
-- -- (25,500) -- -- -- (400,000) -- -- -- 7,011 -- -- -- -- -- -- -- -- -- -- -- 1,000,000 100,000 55,000 83,759 356 100,000
3,436,208
350,000 31,400
-- 45,000 50,000 2,000
-- 790,500 1,000,000 21,000 48,661 49,000 500,000 52,270 45,000
3,000 10,000 1,000,000 23,600 1,124,402 720,000 100,000 1,000,000 100,000 55,000 83,759
356 100,000
16,007,470
100.0% 44.0%
*** 100.0% 100.0% 100.0%
*** 86.4% 100.0% 25.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 50.1% 78.33% 100.0% 100.0% 100.0% 100.0% 100.0% 70.66% 100.0% 100.0%
100.0% * --
100.0% 100.0% 100.0%
-- 86.4% 100.0%
** 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 50.1% 78.33% 100.0% 100.0% 100.0% 100.0% 100.0% 70.66% 100.0% 100.0%
-- -- -- -- -- -- -- -- -- 78,000 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
2,986,065
*
This subsidiary is a company with limited liability in which the Company had a shareholding of less than 50%. It
was accounted for as a subsidiary mainly owing to the fact that the board of directors of such subsidiary
comprises 5 members in accordance with its articles of association and all of them were nominated by the
Company. As board resolutions are passed by a majority vote of the directors, the Company was in a position to
exercise control over this subsidiary.
**
This subsidiary is a limited partnership in which the Company had a shareholding of less than 50%. However, the
limited partnership was managed and controlled by a general partner which was in turn a company controlled by
the Company, therefore the Group was in a position to exercise control over this subsidiary.
*** The company was disposed of prior to 31 December 2021 and the Company has ceased to be in control of the company.
**** The articles of association of ZTE Holdings (Thailand) Co., Ltd provide that ZTE Corporation's shareholding percentage is different from its percentage of voting rights in the company.
***** The Company had a shareholding of less than 50%. However, ZTE Holdings (Thailand) Co., Ltd. also held 51% equity interests in ZTE (Thailand) Co., Ltd., henced the Company was in a position to exercise control over this subsidiary.
239
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
4. Long-term equity investments (continued) 31 December 2021 (continued) (4) Provision for long-term equity investments
Opening balance
Increase/ decrease during the
year
Closing balance
ZTE (USA) Inc. ZTE DoBrasil LT DA ZTE Integration Telecom Limited Wistron Telecom AB (European research
institute) Zhongxing Telecom Pakistan (Private) Ltd. Shenzhen Zhongxing Telecom Equipment
Technology & Service Company Limited ZTE Holdings (Thailand) Co., Ltd ZTE (Thailand) Co., Ltd. ZTE Telecom India Private Ltd. ZTE Romania S.R.L PT ZTE Indonesia ZTE-Communication Technologies Ltd.
(Russia)
5,381 18,572
4,591
2,030 2,971
9,656 10
205 335,759
827 15,275
6,582 401,859
-- -- --
-- --
-- -- -- -- (827) (15,275)
-- (16,102)
5,381 18,572
4,591
2,030 2,971
9,656 10
205 335,759
-- --
6,582 385,757
240
ZTE CORPORATION INTERIM REPORT 2022
Notes to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
XIV.EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (CONTINUED)
5. Operating revenue and costs
Six months ended
30 June 2022
Revenue
Cost
Six months ended
30 June 2021
Revenue
Cost
Principal operations Other businesses
50,035,643 5,870,655
55,906,298
47,574,881 100,470
47,675,351
44,147,330 6,743,304
50,890,634
42,492,324 212,791
42,705,115
6. Investment income
Six months ended
30 June 2022
Six months ended
30 June 2021
Investment loss from long-term equity investment under equity method
Investment income from long-term equity investment under cost method
Investment income from the disposal of derivative investment Investment income earned from financial assets at fair value
through current profit or loss during the period of holding Investment income/(loss) from the disposal of long-term equity
investment Loss upon derecognition of financial assets at amortised cost
and financial assets at fair value through other comprehensive income
(53,452) 46,225 326,033
4,163 (147,715)
(90,129) 85,125
(67,079) 52,065 (65,597)
1,634 1,019,491
(46,752) 893,762
7. Gain from asset disposal
Six months ended
30 June 2022
Six months ended
30 June 2021
Gain from disposal of right-of-use assets Gain from disposal of fixed assets
4,521 --
4,521
-- 47,494 47,494
241
ZTE CORPORATION INTERIM REPORT 2022
Supplementary Information to the Financial Statements
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
1. BREAKDOWN OF EXTRAORDINARY GAINS/LOSSES
Six months ended
30 June 2022
Gain from the disposal of non-current assets Investment gain from the disposal of long-term equity investment Gain/loss from fair-value change of derivative financial assets and derivative financial
liabilities held and investment gain from disposal of derivative financial assets and derivative financial liabilities, excluding the effective value protection hedge business relating to the Company's ordinary business Note 2 Write-back of provision for individually tested receivable impairment Gain/loss from fair-value change of investment properties Other gains other than income from software VAT rebate and income from handling charge for withholding personal tax Net of other non-operating income and expenditure other than the above Other gains/losses falling under the definition of extraordinary gain/loss
Effect of income tax
Effect of non-controlling interests (net of tax)
7,602 7,445
55,259 72,905 (1,484)
163,823 (55,295) 739,772 990,027 (148,504)
(1,056) 840,467
Note 1:
The Group recognises extraordinary items in accordance with "Explanatory Announcement for Information Disclosure by Issuers of Public Securities No. 1 Extraordinary Items" (CSRC Announcement [2008] No. 43). The extraordinary gain/(loss) items within the definition of extraordinary gain/(loss), and the extraordinary gain/(loss) items defined as ordinary gain/(loss) items are as follows:
Six months ended 30 June 2022
Reason
Income from VAT rebate for software products
Income from handling charge for withholding personal tax
Investment gain and gain/loss from fair-value change of ZTE Capital
714,735 23,028 91,371
In line with national policies and received on an ongoing basis
In line with national policies and received on an ongoing basis
Business with the scope of operation of ZTE Capital
Note 2:
The Company has entered into a series of forward exchange contracts. Subject to compliance with conditions for hedge accounting, the Company has elected not to apply hedge accounting. The gain/loss of hedging instruments was included in recurring gain/loss to the extent of the exchange gain/loss of the hedged items. The effective value protection hedge relating to the Company's ordinary business operations included in recurring gain/loss for the reporting period amounted to
RMB328,019,000.
242
ZTE CORPORATION INTERIM REPORT 2022
Supplementary Information to the Financial Statements (continued)
(Prepared in accordance with PRC ASBEs) (English translation for reference only)
(All amounts in RMB'000 unless otherwise stated)
2. RETURN RATIO ON NET ASSETS AND EARNINGS PER SHARE (CONTINUED)
30 June 2022
Weighted average return on net assets
(%)
Earnings per share
Basic
Diluted
Net profit attributable to ordinary shareholders of the Company
Net profit after extraordinary items attributable to ordinary shareholders of the Company
8.56% 6.98%
0.96 0.79
0.96 0.79
30 June 2021
Weighted average return on net assets
(%)
Earnings per share
Basic
Diluted
Net profit attributable to ordinary shareholders of the Company
Net profit after extraordinary items attributable to ordinary shareholders of the Company
9.04% 4.98%
0.88 0.49
0.88 0.49
243
ZTE CORPORATION INTERIM REPORT 2022
XII. Documents Available for Inspection
(I) Text of the 2022 interim report signed by the Chairman of the Board of Directors; (II) Original copies of the Group's unaudited financial reports and consolidated financial statements for the six
months ended 30 June 2022 duly signed by the Company's legal representative, Chief Financial Officer and Head of Finance Division; (III) Original copies of all of the Company's documents and announcements published in China Securities Journal, Securities Times, Shanghai Securities News, posted on http://www.cninfo.com.cn and http:// www.hkexnews.hk during the reporting period; and (IV) Articles of Association.
By order of the Board Li Zixue Chairman
27 August 2022
244
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