2018 Annual Report CONTENTS Chairman’s Statement 2 Corporate Information 4 Financial Highlights 7 Management Discussion and Analysis 8 Report of the Directors 25 Report of Supervisory Committee 49 Significant Events 52 Changes in Share Capital and Information of Shareholders 55 Corporate Governance Report 62 Directors, Supervisors, Senior Management and Employees 88 Independent Auditor’s Report 100 Consolidated Statement of Profit or Loss and Other Comprehensive Income 105 Consolidated Statement of Financial Position 107 Consolidated Statement of Changes in Equity 109 Consolidated Statement of Cash Flows 112 Notes to Financial Statements 115 Five-year Financial Summary 249 Definitions and Glossary of Technical Terms 250 Annual Report 2018 1 CHAIRMAN’S STATEMENT Dear Shareholders: First of all, I would like to express my sincere gratitude on behalf of the Board of CRSC towards all Shareholders and the society for their continuous care and support for the Company. The Year 2018 was a crucial year of transition not only for our country in carrying on the 13th Five-Year Plan, but also for CRSC in speeding up the implementation of the development strategy of “one core business with diversification into related businesses (一業為主、相關多元)” to strive to achieve quality development. Under the staunch leadership of the SASAC, all cadres and staff of CRSC adhered to the new development philosophy in concerted efforts to work practically and proactively, achieving new records, opening new chapters and embarking on new journeys in various works on corporate reform development and construction of the Communist Party. The Company’s operating results continued to grow steadily. During the year, the Company achieved the total value of RMB68.29 billion for newly signed contracts, representing a year-on-year increase of 12.4%; operating revenue of approximately RMB39.84 billion, representing a year-on-year increase of 15.7%; and net profit of approximately RMB3.80 billion, representing a year-on-year increase of 8.0%. Adhering to the principle of market-orientation, we have taken multiple measures to strengthen the foundation for development. The total value for newly signed contracts of the Group maintained rapid and healthy growth throughout the year. Firstly, we have continued to maintain the leading edge of railway communication and signal system integration. The Group successfully won the bid for 10 key high-speed railway “Four Electric(四電)” integration projects, including the projects of Guangzhou-Qingyuan, Zhengzhou-Wanzhou, Qianjiang-Zhangjiajie- Changde, Xuzhou-Huaian-Yancheng, Lunan, Datong-Zhangjiakou, Lhasa-Linzhi, Fuzhou-Pingtan, Anqing-Jiujiang. The value for newly signed contracts increased by more than 40% over the same period of last year. Secondly, the bids for self-developed CBTC system for the projects of Beijing Metro Line 12, Hefei Metro Line 3, Hohhot Metro Line 2 and Hangzhou-Haining Intercity Railway were won successively, making historic breakthrough. Thirdly, we achieved positive progress in relevant diversified expansion. We pushed forward the construction of Tianshui Tram steadily, newly signed the master contract for Taixing Smart City Project, signed the contract of the first high-speed rail project in Europe “Serbia Section of Hungary-Serbia Railway”, and steadily pushed forward Jakarta-Bandung High-Speed Railway Project in Indonesia. Adhering to the value of independent innovation, we applied core technologies to boost rapid development. Firstly, our critical core technologies of intelligent railway passed the test review. The self-developed automatic train operation system (C3+ATO) for high-speed railway with a speed of 350 kilometers per hour will have its loaded trial run with passengers at Beijing-Shenyang High-Speed Railway, strongly supporting the construction of intelligent Beijing-Zhangjiakou Railway. Secondly, the branding recognition of the technological innovation results on rail transportation control technology, represented by high-speed railway C3, intercity railway C2+ATO, metro CBTC, medium and low speed magnetic levitations MATC, synthetic automation of marshaling yard CIPS, is increasingly prominent, and becomes a vital weapon in assisting the construction of a strong nation in transportation and technology. Thirdly, we safely and efficiently carried out the project on the renovation of train control system technology at Beijing-Tianjin Intercity Railway, and the system has completely replaced imported devices. Fourthly, we assisted Hong Kong high-speed railway to access to the national high-speed railway network, realizing the interconnecting of high-speed railways between Hong Kong and over 40 inland cities. Fifthly, we led the establishment of the Communication and Signal Branch of the China Railway Society (中國鐵道學會通信信號分 會) and Communication and Signal Standardization Committee (通信信號標準化委員會), which further enhanced our influence in the industry. 2 China Railway Signal & Communication Corporation Limited CHAIRMAN’S STATEMENT Adhering to the principle of safety first, we are constantly enhancing the bottom line and “red line” awareness. We have firmly established the concept of “Quality is life, safety is greater than everything”. Firstly, we stressed the fulfillment of responsibility and assessment, attached great importance to the responsibility of quality and safety at each level, signed the quality and safety responsibility letter, safety and quality responsibility statement, safety production agreement and quality assurance agreement. As a result, safety and quality responsibility was fulfilled by all staff, and we reached safety and quality goal during the year. Secondly, we constantly enhanced quality and safety control ability. We prepared and revised safety and quality management systems, manuals, procedure documents and work instructions; meanwhile, we increased the investment in the safety of production. Thirdly, we have kept global leading position in the industry in the accumulation of case base. The total number of whole system test case bases has already exceeded 40,000, and all cases have been incorporated in the case base and applied to practices, indicating that our ability to solve the problems in rail transportation reached global leading level. From the perspective of industry development trend, China Railway Corporation will continue to keep its investment intensity and scale in the railway industry. In 2019, it is expected that 6,800 km new routes will be put into production, of which 3,200 km are high-speed railways, and the delivery of train control system shows rapid growth momentum; the construction of intercity railway in Beijing-Tianjin-Hebei, Shandong, Yangtze River Delta and Pearl River Delta will be promoted rapidly; with respect to the market of high-speed railway renovation, after completing Beijing-Tianjin Intercity Railway Signal System Renovation Project in 2018, it is expected that new high-speed railway lines will gradually commence the system renovation projects. In the field of urban transit, the metro construction remains operation at high levels, and the completion mileage will further increase in 2019 as compared with 2018. The opening for operation of metro in cities will enter a peak period in the next two years, which will bring more demand for the delivery of control system; the development of multi-form urban transit has shown thriving vitality. Recently, many cities intensified the planning of light rail and modern trams, and more projects are expected to emerge in the future. In addition, Smart City and overseas markets also have bright prospects, while laying a solid foundation for technology, exploring market opportunities and cultivating customer base are key elements as always. In general, in the next three to five years, the investment and construction in rail transportation still have sufficient market space and growth potential, providing important opportunities for the Company to further its transformation and upgrading, and realizing the sustainable development. Adhering to the overall strategy of “Focusing on safety, adjusting structure, grasping reform, strengthening management and control, and facilitating transformation”, and embracing the overall concepts of being strong, remarkable, innovative and powerful, the Company will continually consolidate the long-term mechanism of safety and quality, accelerate the pace of technological innovations, speed up transformation and upgrading progress, firmly deepen the reform, focus on innovating mechanism, improve modern enterprise system and capitalize on the advantages of integrating the industrial chain, so as to unremittingly strive to develop CRSC into a world-class enterprise with global competitiveness, serving our society, generating returns for Shareholders and rewarding our staff with sustainable and sound operating results. Chairman ZHOU Zhiliang 27 March 2019 Annual Report 2018 3 CORPORATE INFORMATION The basic information of the Company is set out as below: LEGAL NAME OF THE COMPANY AUTHORIZED REPRESENTATIVES 中國鐵路通信信號股份有限公司 Mr. ZHOU Zhiliang Ms. NG Wing Shan (FCIS, FCS) OFFICIAL ENGLISH NAME OF THE COMPANY BOARD COMMITTEES China Railway Signal & Communication Corporation Limited* Strategy and Investment Committee DIRECTORS Mr. ZHOU Zhiliang (Chairman) Executive Directors Mr. YIN Gang Note 1 Mr. YANG Yongsheng Note 1 Mr. ZHOU Zhiliang (Chairman) Mr. CHEN Jin’en Mr. YIN Gang (President) Mr. YAO Guiqing Note 1 Mr. YANG Yongsheng (Deputy secretary of the Party Mr. WANG Jiajie Note