Hikvision 2015 Annual Report
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2015 Annual Report HANGZHOU HIKVISION DIGITAL TECHNOLOGY CO., LTD. 2015 Annual Report SECURITIES ABBREVIATION: HIKVISION SECURITIES CODE:002415.SZ April 2016 1 2015 Annual Report To Shareholders In 2015, the global security industry was still rapidly upgrading products, involving new technology and product development. The market shares of Chinese security enterprises are further increasing in the global market. Under the circumstances of global macroeconomic volatility and domestic economy downturn, the Company achieved a rapid growth of 46.6% increase in revenue and 25.8% increase in net profits, compared with previous year’s operating results. Since the establishment of the Company, we have maintained a growth over 20% annually in revenue and net profits over the past 13 consecutive years, and a quarter-over-quarter increase in both revenue and net profits. It is known to us that the development of the Company is our long term objective, which means that we need to consider both short-term profits and long-term development and keep a good balance among revenue, profits and operation capabilities. We are firmly committed to the client-centered business philosophy, to create value for clients, and to bring long-term investment returns to our shareholders. We have complete confidence in the Company’s future development. Our confidence is based on our customers’ demands and trust, our commitment to the Company’s original management principle and concept, as well as all the supports received from our shareholders. It is a milestone in the development of the Company that Management Measures for Core Staff’s Investment in Innovative Business(《核心员工跟投创新业务管理办法》)has been approved by the shareholders’ meeting. This innovative business mechanism is meant to transform the Company’s long-term development to a “relay race” among our employees, and integrate the professional aspirations of the employees with the innovative business of the Company, with the ultimate goal to utilize our employees’ passion for innovation in the direction the industry is going. Thus, we can build upon a long-term effective and guaranteed mechanism to maintain a sustainable healthy development of the Company. Video surveillance is becoming more digital, network oriented and intelligence focused. We believe that the video surveillance intelligence would open up new market opportunities for the security industry. Hikvision has gained a significant achievement in cloud storage technology, cloud computing and Big Data for the video surveillance market, with the ability to lead further development of video surveillance industry. Based on the internet-oriented "EZVIZ" cloud platform 2 2015 Annual Report and products, the Company has explored the consumer market to stay abreast of the market development trend. Based on the surveillance technology, the Company is expanding to the new areas of machine vision and robotics. Video surveillance technology can be applied to many potential fields, and we are committed to making the best business decisions accordingly. Hikvision is in the progress of becoming a medium-scale enterprise. During the past few years, the Company has learned from the comparable enterprises and adopted the outstanding management instruments to establish and improve the operation flow and management processes, in order to drive the management system revolution. We will take deliberate steps to persistently promote the continuous improvement in management processes to ensure a steady and healthy development of the Company to bring long-term investment returns to our shareholders. In 2016, the global macro economy is still under turmoil, and the domestic economy remains uncertain. However, we are still looking forward to the growth of our business and have strong confidence in the Company’s future development. We are grateful for the consistent supports and trust in the Company’s management team from all of the shareholders. Hangzhou Hikvision Digital Technology Co., Ltd. Board of Directors April 2016 3 2015 Annual Report Section I Important Notes, Contents and Definitions The Board of Directors, Board of Supervisors, directors, supervisors and senior management of Hangzhou Hikvision Digital Technology Co., Ltd. (hereinafter referred to as the “Company”) hereby guarantee that the information presented in this report shall be together be wholly liable for the truthfulness, accuracy and completeness of its contents and free of any false records, misleading statements or material omissions. Chen ZongNian, the Company's Chairman, Jin Yan, the head of accounting (Accounting Officer) hereby declare and warrant that the financial statements in the Report are authentic, accurate and complete. All directors of the Company attended the Board meeting to review this Annual Report. The profit distribution proposal passed upon deliberation at the meeting of the Board of Directors is set out as follows: Based on the total share capital of 4,068,772,253 shares of the Company, all shareholders will receive a cash dividend of RMB 7 (tax included) per each 10 shares. The Company proposed bonus issue of 3 shares for each 10 ordinary shares to the existing shareholders by way of debiting retained profit and share distribution of 2 shares for each 10 ordinary shares to the existing shareholders through the way of capitalization of premium shares. 4 2015 Annual Report Please read the annual report and pay particular attention to the following risk factors: Risk of technology upgrade: With the development of cloud computing, big data, artificial intelligence, augmented reality/virtual reality and other technologies, the demand and business models of the industry will change accordingly. If the Company cannot follow the changes in the cutting-edge technologies to realize the business innovation rapidly, the risks of future development uncertainties will increase. Risk of foreign exchange: The overseas sales ratio increased continuously as a result of the rapid development abroad. Exporting transactions mostly settled in United States Dollars ("USD"). Meanwhile, the Company has to carry out operations in different countries with various currencies, as the Company has many wholly-owned or controlled subsidiaries. Therefore, the fluctuation of the foreign exchange rate has a potential to affect the profits of the Company. Risk of product information security: Although the Company has dedicated resources to prevent the cybersecurity risk for our products, there is still a possibility of deliberate third-party (including viruses, malicious software, hacker and similar disruptions) attempts to damage our systems or products, causing the security issues for storage and information transmission. Although there was no material adverse effect incurred from attacks or accidents on our products or systems in the past, there is no guarantee that there is no risk in the future. Risk of uncertain profitability of new business: Our Internet-based video business, machine vision and other emerging businesses, which are in the exploration process, are still in the early development stage. This will deliver substantial uncertainties as we explore technology development paths, business models and market development options. 5 2015 Annual Report Contents Section I Important Notes and Definitions ...................................................................................... 4 Section II Corporate Profile and Substantial Financial Indicators .............................................. 8 Section III Corporate Business Summary ..................................................................................... 12 Section IV Management Discussion and Analysis ......................................................................... 17 Section V Significant Events ........................................................................................................... 37 Section VI Changes in Shares and Information about Shareholders .......................................... 49 Section VII Information on Preferred Shares ............................................................................... 58 Section VIII Information on Directors, Supervisors, Senior Management and Employees ..... 59 Section IX Corporate Governance ................................................................................................. 74 Section X Financial Report ............................................................................................................. 85 Section XI Documents Available for Reference ........................................................................... 175 6 2015 Annual Report Definitions Term Definition Hikvision, our Company, Company Hangzhou Hikvision Digital Technology Co., Ltd The actual controller, CETC China Electronics Technology Group Corporation Controlling Shareholders, CETHIK CETHIK Group Co., Ltd. 52nd Institute The 52nd Research Institute at China Electronics Technology Group Corporation CSRC The China Securities Regulatory Commission The State-owned Assets Supervision and Administration SASAC Commission of the State Council Shenzhen Stock Exchange The Shenzhen Stock Exchange Company Law The Company Law of the PRC Securities Acts The Securities Acts of the PRC Articles of Association of the Company Articles of Association of Hangzhou Hikvision Digital Technology Co., Ltd 7 2015 Annual Report Section II Corporate Profile and Substantial Financial Indicators I. Corporate Information Stock abbreviation HIKVISION Stock code 002415 Stock exchange